SECOND AMENDED AND
                            RESTATED CREDIT AGREEMENT

                                 by and between


                          PILGRIM AMERICA GROUP, INC.,

                       PILGRIM AMERICA CAPITAL CORPORATION

                                       and


                         FIRST BANK NATIONAL ASSOCIATION




                            dated as of July 31, 1997
<PAGE>
                                TABLE OF CONTENTS


 ARTICLE I - DEFINITIONS AND ACCOUNTING TERMS..................................1
         Section 1.1    Defined Terms..........................................1
         Section 1.2    Accounting Terms and Calculations ....................12
         Section 1.3    Computation of Time Periods ..........................12
         Section 1.4    Other Definitional Terms..............................12

ARTICLE II - TERMS OF THE CREDIT FACILITIES...................................13
         Section 2.1    Lending Commitments...................................13
         Section 2.2    Procedure for Loans...................................13
         Section 2.3    Notes.................................................14
         Section 2.4    Conversions and Continuations ........................14
         Section 2.5    Interest Rates, Default Interest and Payments ........15
         Section 2.6    Repayment.............................................15
         Section 2.7    Optional Prepayments..................................16
         Section 2.8    Letters of Credit.....................................16
         Section 2.9    Procedures for Letters of Credit......................16
         Section 2.10   Terms of Letters of Credit............................17
         Section 2.11   Agreement to Repay Letter of Credit Drawings..........17
         Section 2.12   Obligations Absolute..................................17
         Section 2.13   Increased Cost for Letters of Credit..................18
         Section 2.14   Optional Reduction of Commitment Amount or 
                         Termination of Commitment............................19
         Section 2.15   Loans to Cover Unpaid Drawings........................19
         Section 2.16   Fees..................................................19
         Section 2.17   Computation...........................................20
         Section 2.18   Payments..............................................20
         Section 2.19   Use of Loan Proceeds..................................20
         Section 2.20   Interest Rate Not Ascertainable, Etc..................20
         Section 2.21   Increased Cost........................................21
         Section 2.22   Illegality............................................22
         Section 2.23   Increased Capital Requirements .......................22


ARTICLE III - CONDITIONS PRECEDENT............................................23
         Section 3.1    Conditions Precedent to the Initial Revolving
                          Loan................................................23
         Section 3.2    Conditions Precedent to all Loans and Letters
                          of Credit ..........................................25

ARTICLE IV - REPRESENTATIONS AND WARRANTIES...................................25
         Section 4.1    Organization, Standing, Etc...........................25
         Section 4.2    Authorization and Validity ...........................26
         Section 4.3    No Conflict; No Default...............................26
         Section 4.4    Government Consent....................................27
         Section 4.5    Financial Statements and Condition....................27
         Section 4.6    Litigation............................................27
         Section 4.7    ERISA.................................................28
         Section 4.8    Federal Reserve Regulations ..........................28
         Section 4.9    Title to Property; Leases; Liens; Subordination ......28
         Section 4.10   Taxes.................................................28
         Section 4.11   Trademarks, Patents...................................29
         Section 4.12   Burdensome Restrictions...............................29
         Section 4.13   Force Majeure.........................................29
<PAGE>
         Section 4.14   Investment Company Act................................29
         Section 4.15   Public Utility Holding Company Act ...................29
         Section 4.16   Retirement Benefits...................................29
         Section 4.17   Subsidiaries..........................................29
         Section 4.18   Fund Agreements.......................................30
         Section 4.19   Full Disclosure.......................................30

ARTICLE V - AFFIRMATIVE COVENANTS.............................................30
         Section 5.1    Financial Statements and Reports .....................30
         Section 5.2    Corporate Existence...................................32
         Section 5.3    Insurance.............................................32
         Section 5.4    Payment of Taxes and Claims ..........................32
         Section 5.5    Inspection............................................33
         Section 5.6    Maintenance of Properties.............................33
         Section 5.7    Books and Records.....................................33
         Section 5.8    Compliance............................................33
         Section 5.9    Notice of Litigation..................................34
         Section 5.10   ERISA.................................................34
         Section 5.11   Fund Agreements.......................................34
         Section 5.12   Advisory Subsidiaries.................................34
         Section 5.13   Further Assurances....................................36

ARTICLE VI - NEGATIVE COVENANTS...............................................37
         Section 6.1    Merger................................................37
         Section 6.2    Disposition of Assets.................................37
         Section 6.3    Plans.................................................38
         Section 6.4    Change in Nature of Business .........................38
         Section 6.5    Subsidiaries..........................................38
         Section 6.6    Negative Pledges; Subsidiary Restrictions ............38
         Section 6.7    Restricted Payments...................................38
         Section 6.8    Transactions with Affiliates .........................39
         Section 6.9    Accounting Changes....................................39
         Section 6.10   Investments...........................................39
         Section 6.11   Indebtedness..........................................40
         Section 6.12   Liens.................................................40
         Section 6.13   Contingent Obligations................................41
         Section 6.14   Funded Debt Leverage Ratio............................41
         Section 6.15   Fixed Charge Coverage Ratio...........................42
         Section 6.16   Minimum Fund Balances.................................42
         Section 6.17   EBITDA ...............................................42
         Section 6.18   Loan Proceeds.........................................42

ARTICLE VII - EVENTS OF DEFAULT AND REMEDIES..................................42
         Section 7.1    Events of Default.....................................42
         Section 7.2    Remedies..............................................45
         Section 7.3    Offset................................................45

ARTICLE VIII - MISCELLANEOUS..................................................46
         Section 8.1    Modifications.........................................46
         Section 8.2    Expenses; Amendment or Waiver Fee ....................46
         Section 8.3    Waivers, etc..........................................46
<PAGE>
         Section 8.4    Notices...............................................46
         Section 8.5    Taxes.................................................47
         Section 8.6    Successors and Assigns; Disposition of Loans;
                          Transferees ........................................47
         Section 8.7    Confidentiality of Information .......................48
         Section 8.8    Governing Law and Construction .......................48
         Section 8.9    Consent to Jurisdiction...............................48
         Section 8.10   Waiver of Jury Trial..................................49
         Section 8.11   Survival of Agreement.................................49
         Section 8.12   Indemnification.......................................49
         Section 8.13   Captions..............................................50
         Section 8.14   Entire Agreement......................................50
         Section 8.15   Counterparts..........................................50
         Section 8.16   Borrower Acknowledgements.............................51
         Section 8.17   Joint and Several Obligations ........................51
<PAGE>
EXHIBIT 10.1
                           SECOND AMENDED AND RESTATED
                                CREDIT AGREEMENT


                  THIS AMENDED AND RESTATED CREDIT AGREEMENT (the  "Agreement"),
dated as of July 31, 1997 is by and  between  PILGRIM  AMERICA  GROUP,  INC.,  a
Delaware  corporation ("PAG"),  PILGRIM AMERICA CAPITAL CORPORATION,  a Delaware
corporation  ("PACC"),  (together,  the "Borrowers" and each a "Borrower"),  and
FIRST BANK NATIONAL ASSOCIATION, a national banking association (the "Bank").

                  WHEREAS,  PAG and the Bank  are the  parties  to that  certain
Amended and Restated  Credit  Agreement dated as of July 31, 1996 (the "Existing
Credit Agreement"); and

                  WHEREAS,  PACC,  the owner of all the issued  and  outstanding
capital stock of PAG, has guarantied the Obligations of PAG to the Bank pursuant
to a certain  Guaranty,  and granted a security  interest in the stock of PAG to
secure such  Obligations  and Guaranty  pursuant to a certain Pledge  Agreement,
both dated April 28, 1995; and

                  WHEREAS,  PACC  desires to become a Borrower  under the credit
facilities to be provided to PAG by the Bank; and

                  WHEREAS,  the  PAG,  PACC  and the Bank  desire  to amend  and
restate the Existing Credit Agreement in its entirety.

                  NOW,  THEREFORE,  in  consideration of the foregoing and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:


                                    ARTICLE I
                                    ---------

                        DEFINITIONS AND ACCOUNTING TERMS

                  Section  1.1  Defined  Terms.  As used in this  Agreement  the
following terms shall have the following  respective meanings (and such meanings
shall be equally  applicable  to both the  singular and plural form of the terms
defined, as the context may require):

                  "Adjusted Eurodollar Rate": On any date of determination,  the
rate (rounded upward,  if necessary,  to the next  one-hundredth of one percent)
determined  by  dividing  the  Eurodollar  Rate on such  date by 1.00  minus the
Eurodollar Reserve Percentage.

                  "Advance":  Any portion of the  outstanding  Loans as to which
the Borrowers  have elected one of the  available  interest rate options and, if
applicable, an Interest Period. An Advance may be a Eurodollar Rate Advance or a
Reference Rate Advance.

                  "Advisory  Contracts":  Contracts of the type  described in 15
U.S.C. SS 80a-15(a).
                                      -1-
<PAGE>
                  "Advisory  Fund":  Any Fund for which an  Advisory  Subsidiary
acts as investment  adviser and is entitled to receive fees out of the assets of
such Fund, pursuant to an Advisory Contract.

                  "Advisory  Subsidiary":  PAII and any other  Subsidiary of the
PAG that acts as investment adviser for any Advisory Fund and, as such, is party
to Advisory Contracts.

                  "Affiliate":  When used with reference to any Person, (a) each
Person that,  directly or  indirectly,  controls,  is  controlled by or is under
common control with, the Person referred to, (b) each Person which  beneficially
owns or holds, directly or indirectly,  twenty-five percent or more of any class
of voting stock of the Person referred to (or if the Person referred to is not a
corporation,  twenty-five  percent  or more of the  equity  interest),  (c) each
Person,  twenty-five  percent of more of the voting  stock (or if such Person is
not a corporation,  twenty-five percent or more of the equity interest) of which
is beneficially  owned or held,  directly or indirectly,  by the Person referred
to, and (d) each of such  Person's  officers,  directors,  joint  venturers  and
partners.  The term  control  (including  the terms  "controlled  by" and "under
common control with") means the possession,  directly, of the power to direct or
cause the direction of the management and policies of the Person in question.

                  "Applicable Margin":  With respect to:

                           (a)      Reference Rate Advances, 0%; and

                           (b)      Eurodollar Advances, 0.95%.

                  "Board":  The Board of Governors of the Federal Reserve System
or any successor thereto.

                  "Business  Day":  Any day (other  than a  Saturday,  Sunday or
legal holiday in the State of Minnesota) on which  national  banks are permitted
to be open in Minneapolis, Minnesota.

                  "Capital Expenditures": For any period, the sum of all amounts
that would, in accordance with GAAP, be included as additions to property, plant
and equipment on a consolidated  statement of cash flow for the Borrowers during
such period.

                  "Capitalized  Lease": A lease of (or other agreement conveying
the right to use) real or  personal  property  with  respect to which at least a
portion  of the rent or  other  amounts  thereon  constitute  Capitalized  Lease
Obligations.

                  "Capitalized  Lease  Obligations":   As  to  any  Person,  the
obligations  of such  Person to pay rent or other  amounts  under a lease of (or
other  agreement  conveying  the right to use) real or personal  property  which
obligations  are required to be classified  and accounted for as a capital lease
on a balance sheet of such Person under GAAP  (including  Statement of Financial
Accounting  Standards No. 13 of the Financial  Accounting Standards Board), and,
for  purposes of this  Agreement,  the amount of such  obligations  shall be the
capitalized  amount thereof,  determined in accordance with GAAP (including such
Statement No. 13).

                  "Cash  Balances":  As  of  any  date  of  determination,  on a
consolidated basis, cash balances as reflected on the books of the Borrowers and
their Subsidiaries, giving effect to any checks drawn on any accounts.
                                      -2-
<PAGE>
                  "Cash  Equivalents":  Investments of the Borrowers of the type
described in Sections 6.11(c), (d), (e) and (f).

                  "Change of Control":  The occurrence,  after the Closing Date,
of any of  the  following  circumstances:  (a)  PACC  not  owning,  directly  or
indirectly,  all equity  securities  of PAG; or (b) PAG not owning,  directly or
indirectly,  all equity  securities  of any  Subsidiary  that has  executed  and
delivered a Security Agreement;  or (c) any Person or two or more Persons acting
in concert acquiring  beneficial  ownership (within the meaning of Rule 13d-3 of
the Securities  and Exchange  Commission  under the  Securities  Exchange Act of
1934),  directly  or  indirectly,  of  securities  of PACC (or other  securities
convertible into such securities)  representing  twenty-five  percent or more of
the combined  voting  power of all  securities  of PACC  entitled to vote in the
election  of  directors;  or (d) during  any period of up to twelve  consecutive
months,  whether commencing before or after the Closing Date, individuals who at
the beginning of such twelve-month period were directors of PACC ceasing for any
reason to constitute a majority of the Board of Directors of PACC (other than by
reason of death, disability or scheduled retirement).

                  "Closing  Date":  The Business Day on which all the conditions
precedent to the obligation of the Bank to make the initial  Revolving  Loan, as
set forth in Article III, have been satisfied.

                  "Closing Fee":  As defined in Section 2.16(a).

                  "Code":  The Internal Revenue Code of 1986, as amended.

                  "Commitment":  The  obligation  of the Bank to make  Revolving
Loans to the Borrower in an aggregate  principal amount  outstanding at any time
not to exceed the Commitment Amount,  and on the Transformation  Date to convert
the  outstanding  principal  balance  thereof to a Term Loan, upon the terms and
subject to the conditions and limitations of this Agreement.

                  "Commitment Amount":  $20,000,000,  as the same may be reduced
pursuant to Section 2.14.

                  "Commitment Fees":  As defined in Section 2.16(b).

                  "Contingent  Obligation":  With  respect  to any Person at the
time of any determination,  without duplication,  any obligation,  contingent or
otherwise,  of such  Person  guaranteeing  or  having  the  economic  effect  of
guaranteeing any Indebtedness of any other Person (the "primary obligor") in any
manner,  whether  directly or  otherwise;  provided,  that the term  "Contingent
Obligation"  shall not include  endorsements for collection or deposit,  in each
case in the ordinary course of business.

                  "Default": Any event which, with the giving of notice (whether
such notice is required under Section 7.1, or under some other provision of this
Agreement, or otherwise) or lapse of time, or both, would constitute an Event of
Default.

                  "Domestic Reserve Percentage":  As of any day, that percentage
(expressed  as a decimal)  which is in effect on such day, as  prescribed by the
Board  for  determining  the  maximum  reserve  requirement  (including  without
limitation any basic,  supplemental or 
                                      -3-
<PAGE>
emergency  reserves)  for a member  bank of the  Federal  Reserve  System,  with
deposits  comparable  in amount to those  held by the Bank,  in  respect  of new
non-personal  time  deposits  in  dollars  having a maturity  comparable  to the
related  Interest  Period  and in an amount  of  $100,000  or more.  The rate of
interest  applicable  to any  outstanding  CD Rate  Advance  shall  be  adjusted
automatically  on and as of the  effective  date of any  change in the  Domestic
Reserve Percentage.

                  "EBITDA":  For any period of  determination,  the consolidated
net  income  of PAG  before  deductions  for  income  taxes,  interest  expense,
depreciation and amortization, all as determined in accordance with GAAP.

                  "EBITDA  Margin":   For  any  Measurement  Period,  the  ratio
(expressed as a percentage) (a) EBITDA bears to (b) the total revenue of PAG and
its Subsidiaries on a consolidated basis.

                  "ERISA":  The Employee Retirement Income Security Act of 1974,
as amended.

                  "ERISA  Affiliate":  Any  trade or  business  (whether  or not
incorporated)  that is a member of a group of which the  Borrowers  are a member
and which is treated as a single employer under Section 414 of the Code.

                  "Eurodollar  Business Day": A Business Day which is also a day
for  trading  by and  between  banks in United  States  dollar  deposits  in the
interbank  Eurodollar  market and a day on which banks are open for  business in
New York City.

                  "Eurodollar  Rate":  With  respect  to  each  Eurodollar  Rate
Advance on any date of  determination,  the average offered rate for deposits in
United States dollars (rounded upward, if necessary,  to the nearest 1/16 of 1%)
for delivery of such  deposits on such date,  for 30 days,  which appears on the
Reuters Screen LIBO page as of 11:00 a.m., London time (or such other time as of
which such rate appears) two Eurodollar Business Days prior to such date, or the
rate for such  deposits  determined by the Bank at such time based on such other
published  service of general  application  as shall be selected by the Bank for
such purpose;  provided,  that in lieu of determining  the rate in the foregoing
manner,  the Bank may  determine  the rate based on rates at which United States
dollar  deposits are offered to the Bank in the interbank  Eurodollar  market at
such time for delivery in Immediately  Available Funds on such date in an amount
approximately  equal to the Advance by the Bank to which such Interest Period is
to apply (rounded  upward,  if necessary,  to the nearest 1/16 of 1%).  "Reuters
Screen  LIBO page" means the  display  designated  as page "LIBO" on the Reuters
Monitor  Money Rate  Screen (or such other page as may  replace the LIBO page on
such service for the purpose of  displaying  London  interbank  offered rates of
major banks for United States dollar deposits).

                  "Eurodollar  Rate  Advance":  An Advance with respect to which
the interest rate is determined by reference to the Adjusted Eurodollar Rate.

                  "Eurodollar   Reserve   Percentage":   As  of  any  day,  that
percentage  (expressed  as a  decimal)  which  is in  effect  on  such  day,  as
prescribed  by  the  Board  for  determining  the  maximum  reserve  requirement
(including any basic,  supplemental or emergency  reserves) for a member bank of
the Federal Reserve System,  with deposits comparable in amount to those held by
the Bank, in respect of  "Eurocurrency  Liabilities"  as such term is defined in
Regulation D of the Board.  The rate of interest  applicable to any  outstanding
Eurodollar  Rate  Advances  
                                      -4-
<PAGE>
shall be adjusted automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.

                  "Event of Default":  Any event described in Section 7.1.

                  "Exchange  Act":  The  Securities  Exchange  Act of  1934,  as
amended.

                  "Fixed Charge Coverage Ratio": For any Measurement Period, the
ratio that (a) EBITDA for such  Measurement  Period  bears to (b) the sum of the
Borrowers'  consolidated  interest  expense  for such  Measurement  Period  plus
one-fifth (1/5) of the outstanding  principal balance of the Indebtedness of the
Borrowers and their Subsidiaries as of the last day of such Measurement  Period,
determined on a consolidated basis for the Borrowers and their Subsidiaries.

                  "Fund":   Each  open-end  or  close-end   investment   company
registered under the Investment Company Act, or separate series of shares of any
such company representing interests in a separate pool of Investments.

                  "Fund  Agreements":   All  investment   advisory   agreements,
distribution  agreements and other  agreements  under which the Borrowers or any
Subsidiary  is  entitled  to  compensation   (including,   without   limitation,
contingent deferred sales charges) for services rendered to any Fund.

                  "Funded Debt":  At the time of any  determination,  the sum of
(a) that portion of Total  Indebtedness  with a final  maturity in excess of one
year after such time of determination  (including any current portion  thereof),
plus  (b) any  Indebtedness  of the  Borrowers  or any  Subsidiary  excluded  in
calculating Total Indebtedness and having a final maturity in excess of one year
after such time of determination (including the current portion thereof).

                  "GAAP":  Generally accepted accounting principles set forth in
the  opinions  and  pronouncements  of the  Accounting  Principles  Board of the
American   Institute  of  Certified   Public   Accountants  and  statements  and
pronouncements  of the  Financial  Accounting  Standards  Board or in such other
statements by such other entity as may be approved by a  significant  segment of
the accounting  profession,  which are applicable to the circumstances as of any
date of determination.

                  "Guaranty":  The guaranty of PAII, dated April28, 1995 (as the
same may be amended, modified, supplemented or restated) and any acknowledgments
or affirmations thereof, or a guaranty of any Advisory Subsidiary in the form of
Exhibit B.

                  "Holding  Account":  A deposit  account  belonging to the Bank
into which the  Borrowers  may be  required  to make  deposits  pursuant  to the
provisions  of this  Agreement,  such account to be under the sole  dominion and
control of the Bank and not subject to  withdrawal  by the  Borrowers,  with any
amounts  therein to be held for  application  toward payment of any  outstanding
Letters of Credit when drawn upon.

                  "Immediately  Available  Funds":  Funds with good value on the
day and in the city in which payment is received.

                  "Indebtedness":  With respect to any Person at the time of any
determination, without duplication, all obligations, contingent or otherwise, of
such Person which in 
                                      -5-
<PAGE>
accordance  with GAAP should be classified upon the balance sheet of such Person
as liabilities,  but in any event including:  (a) all obligations of such Person
for  borrowed  money,  (b) all  obligations  of such Person  evidenced by bonds,
debentures,  notes or other similar  instruments,  (c) all  obligations  of such
Person upon which  interest  charges are  customarily  paid or accrued,  (d) all
obligations  of such Person  under  conditional  sale or other  title  retention
agreements relating to property purchased by such Person, (e) all obligations of
such  Person  issued or assumed as the  deferred  purchase  price of property or
services, (f) all obligations of others secured by any Lien on property owned or
acquired by such Person,  whether or not the  obligations  secured  thereby have
been assumed,  (g) all  Capitalized  Lease  Obligations of such Person,  (h) all
obligations  of such Person in respect of interest rate  protection  agreements,
(i) all obligations of such Person, actual or contingent, as an account party in
respect of letters of credit or bankers' acceptances, (j) all obligations of any
partnership or joint venture as to which such Person is or may become personally
liable, and (k) all Contingent Obligations of such Person.

                  "Investment": The acquisition,  purchase, making or holding of
any  stock or other  security,  any  loan,  advance,  contribution  to  capital,
extension  of credit  (except for trade and  customer  accounts  receivable  for
inventory  sold or services  rendered  in the  ordinary  course of business  and
payable in accordance with customary trade terms),  any  acquisitions of real or
personal  property  (other  than  real and  personal  property  acquired  in the
ordinary  course  of  business)  and any  purchase  or  commitment  or option to
purchase stock or other debt or equity  securities of or any interest in another
Person or any  integral  part of any  business  or the  assets  comprising  such
business or part  thereof.  The amount of any  Investment  shall be the original
cost of such  Investment  plus the cost of all  additions  thereto,  without any
adjustments  for increases or decreases in value,  or write-ups,  write-downs or
write-offs with respect to such Investment.

                  "Investment  Advisers  Act":  The  Investment  Advisers Act of
1940, as amended.

                  "Investment  Company Act": The Investment Company Act of 1940,
as amended.

                  "Letter of Credit":  An irrevocable letter of credit issued by
the Bank pursuant to this Agreement for the account of the Borrowers.

                  "Letter of Credit Fee":  As defined in Section 2.16(c).

                  "Letter of Credit  Usage":  As of any date,  the sum of (a)the
amount of all Unpaid Drawings plus (b)the amount available to be drawn under all
outstanding Letters of Credit.

                  "Lien":  With respect to any Person,  any  security  interest,
mortgage,  pledge,  lien,  charge,  encumbrance,  title  retention  agreement or
analogous  instrument or device (including the interest of each lessor under any
Capitalized  Lease),  in, of or on any assets or properties of such Person,  now
owned or hereafter acquired, whether arising by agreement or operation of law.

                  "Loan":  A Revolving Loan or the Term Loan.

                  "Loan  Documents":  This  Agreement,  the Note,  the  Security
Documents and the Guaranty.
                                      -6-
<PAGE>
                  "Maturity  Date":  The  earlier  of (a) the  eighth  Quarterly
Payment Date occurring after the  Transformation  Date and (b) the date on which
the Obligations become due and payable pursuant to Section 7.2 hereof.

                  "Measurement  Period":  The twelve  consecutive months or four
consecutive fiscal quarters, as applicable,  ending on the last day of any month
or fiscal quarter.

                  "Multiemployer  Plan": A  multiemployer  plan, as such term is
defined in Section 4001 (a) (3) of ERISA,  which is  maintained  (on the Closing
Date, within the five years preceding the Closing Date, or at any time after the
Closing Date) for employees of the Borrower or any ERISA Affiliate.

                  "NASD": The National Association of Securities Dealers,  Inc.,
and any successor thereto or to the functions thereof.

                  "Net Asset Value": With respect to any Fund, as of the date of
any  determination,  the net asset value of such Fund computed in the manner net
asset value was computed for purposes of its reports to the shareholders of such
Funds.

                  "Note":  A  promissory  note of the  Borrowers  in the form of
Exhibit A.

                  "Obligations":  The  Borrowers'  obligations in respect of the
due and punctual  payment of principal and interest on the Note when and as due,
whether by acceleration or otherwise and all fees (including  Commitment  Fees),
expenses,  indemnities,  reimbursements  and other  obligations  of the Borrower
under  this  Agreement  or any other Loan  Document,  in all cases  whether  now
existing or hereafter arising or incurred.

                  "PAII":   Pilgrim  America   Investments,   Inc.,  a  Delaware
corporation.

                  "PASI":   Pilgrim   America   Securities,   Inc.,  a  Delaware
corporation.

                  "PBGC": The Pension Benefit Guaranty Corporation,  established
pursuant to Subtitle A of Title IV of ERISA, and any successor thereto or to the
functions thereof.

                  "Person":  Any  natural  person,   corporation,   partnership,
limited   partnership,   limited  liability   company,   joint  venture,   firm,
association,  trust,  unincorporated  organization,  government or  governmental
agency or  political  subdivision  or any  other  entity,  whether  acting in an
individual, fiduciary or other capacity.

                  "Plan":  Each  employee  benefit plan (whether in existence on
the Closing Date or thereafter instituted), as such term is defined in Section 3
of ERISA, maintained for the benefit of employees,  officers or directors of the
Borrowers or of any ERISA Affiliate.

                  "Pledge  Agreements":  The  Pledge  Agreement  of PACC and the
Pledge Agreement of the PAG, both dated as of April 28, 1995, as the same may be
supplemented, amended or otherwise modified and in effect from time to time.

                  "Prohibited Transaction":  The respective meanings assigned to
such term in Section 4975 of the Code and Section 406 of ERISA.
                                      -7-
<PAGE>
                  "Prospectus":  With respect to any Fund,  the  prospectus  and
related  statement  of  additional  information  filed  with the SEC  under  the
Securities Act in respect of the shares of such Fund, as the same may be amended
or supplemented from time to time.

                  "Quarterly  Payment  Date":  The last  Business Day of each of
March, June, September and December.

                  "Reference  Rate":  The  rate of  interest  from  time to time
publicly announced by the Bank as its "reference rate." The Bank may lend to its
customers at rates that are at, above or below the Reference  Rate. For purposes
of  determining  any interest  rate  hereunder or under any other Loan  Document
which is based on the  Reference  Rate,  such  interest rate shall change as and
when the Reference Rate shall change.

                  "Reference Rate Advance": An Advance with respect to which the
interest rate is determined by reference to the Reference Rate.

                  "Regulatory  Change":  Any change  after the  Closing  Date in
federal,  state or foreign laws or  regulations  or the adoption or making after
such date of any interpretations,  directives or requests applying to a class of
banks including the Bank under any federal, state or foreign laws or regulations
(whether  or not  having  the  force  of law) by any  court or  governmental  or
monetary authority charged with the interpretation or administration thereof.

                  "Reportable  Event":  A reportable event as defined in Section
4043 of ERISA and the regulations  issued under such Section,  with respect to a
Plan,  excluding,  however,  such events as to which the PBGC by regulation  has
waived the requirement of Section 4043(a) of ERISA that it be notified within 30
days of the  occurrence  of such  event,  provided  that a  failure  to meet the
minimum funding  standard of Section 412 of the Code and of Section 302 of ERISA
shall  be a  Reportable  Event  regardless  of the  issuance  of any  waiver  in
accordance with Section 412(d) of the Code.

                  "Restricted   Payments":   With  respect  to  the   Borrowers,
collectively,  all  dividends  or  other  distributions  of  any  nature  (cash,
securities  other than common stock of the Borrower,  assets or otherwise),  and
all payments on any class of equity securities  (including warrants,  options or
rights therefor) issued by the Borrowers, whether such securities are authorized
or outstanding on the Closing Date or at any time  thereafter and any redemption
or purchase of, or  distribution  in respect of, any of the  foregoing,  whether
directly or indirectly.

                  "Revolving Loan":  As defined in Section 2.1(a).

                  "Revolving Loan Date": The date of the making of any Revolving
Loans hereunder.

                  "Revolving  Loan  Period" The period from the Closing  Date to
and  including the day preceding  the  Transformation  Date,  and if there is no
Transformation  Date,  from the Closing Date to and  including the date on which
the Note is paid in full and the Commitment has expired or been terminated.

                  "Rules of Fair  Practice":  The Rules of Fair  Practice of the
NASD, as amended, and the rules,  regulations and interpretations of the NASD in
respect thereto.
                                      -8-
<PAGE>
                  "SEC":  The  Securities  and  Exchange  Commission,   and  any
successor thereto or to the functions thereof.

                  "Securities Act":  The Securities Act of 1933, as amended.

                  "Security  Agreements":  The Security  Agreements of PAG, PAII
and PASI, all dated as of April 28, 1995; any Security  Agreement of an Advisory
Subsidiary  in the form of Exhibit C; and any  Security  Agreement  of any other
Subsidiary in the form of Exhibit D entered into thereafter, in each case as the
same may be supplemented,  amended or otherwise modified and in effect from time
to time.

                  "Security  Documents":  The  Security  Agreements,  the Pledge
Agreements,  the Trademark  Assignment and all other  agreements,  documents and
instruments  delivered hereto or thereto or in connection  herewith or therewith
creating,  perfecting  or  otherwise  providing  for  any  Lien  to  secure  the
Obligations,  in each  case as  amended,  supplemented,  restated  or  otherwise
modified and in effect from time to time.

                  "Selling  Agent":  Each Person which acts as any  Subsidiary's
direct or indirect  distributor,  underwriter,  broker,  dealer or agent for the
shares of any Fund.

                  "SIPA":  The  Securities  Investor  Protection Act of 1970, as
amended.

                  "SIPC":  The  Securities  Investor   Corporation   established
pursuant to SIPA, or any successor thereto or to the functions thereof.

                  "Subsidiary":  With respect to any Person,  any corporation or
other entity of which  securities or other ownership  interests  having ordinary
voting  power for the  election of a majority of the board of directors or other
Persons performing similar functions are owned by such Person either directly or
through one or more Subsidiaries.

                  "Term Loan":  As defined in Section 2.1.

                  "Term Loan Period": The period from the Transformation Date to
and including the Maturity Date.

                  "Termination  Date":  The  earliest of (a) the  Transformation
Date, (b) the date on which the Commitment is terminated pursuant to Section 7.2
or (c) the date on which the Commitment is terminated pursuant to Section 2.14.

                  "Total  Indebtedness":  At the time of any determination,  the
amount,   on  a  consolidated   basis,  of  all  obligations,   liabilities  and
indebtedness  of the Borrower and its  Subsidiaries  as determined in accordance
with GAAP.

                  "Total Outstandings": As of any date of determination, the sum
of (a) the aggregate unpaid principal balance of Loans outstanding on such date,
(b) the Letter of Credit Usage on such date.

                  "Trademark   Assignment":   The   Collateral   Assignment   of
Trademarks of PAG dated as of April 28, 1995,  as the same may be  supplemented,
amended, or otherwise modified and in effect from time to time.
                                      -9-
<PAGE>
                  "Transformation Date":  July 30, 1998.

                  "Unpaid Drawing":  As defined in Section 2.11.

                  "Unused  Commitment":  As of any  date of  determination,  the
amount by which the  Commitment  Amount exceeds the Total  Outstandings  on such
date.

                  Section 1.2 Accounting Terms and  Calculations.  Except as may
be expressly  provided to the contrary herein,  all accounting terms used herein
shall be interpreted and all accounting  determinations  hereunder shall be made
in  accordance  with  GAAP.  To the  extent  any  change  in  GAAP  affects  any
computation  or  determination  required to be made pursuant to this  Agreement,
such  computation or  determination  shall be made as if such change in GAAP had
not occurred unless the Borrowers and the Bank agree in writing on an adjustment
to such computation or determination to account for such change in GAAP.

                  Section 1.3 Computation of Time Periods. In this Agreement, in
the  computation of a period of time from a specified date to a later  specified
date, unless otherwise stated the word "from" means "from and including" and the
word "to" or "until" each means "to but excluding".

                  Section  1.4 Other  Definitional  Terms.  The words  "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular  provision of
this Agreement.  References to Sections, Exhibits, Schedules and like references
are to this Agreement unless otherwise expressly provided.  The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or".

                                   ARTICLE II
                                   ----------

                         TERMS OF THE CREDIT FACILITIES

                           Part A -- Terms of Lending
                           --------------------------

                  Section 2.1  Lending Commitments.

                           2.1(a)  Revolving  Credit.  On the Closing Date, each
         "Revolving Loan"  outstanding under the Existing Credit Agreement shall
         become a Revolving Loan hereunder, and each "Advance" outstanding under
         the Existing  Credit  Agreement  shall become a Eurodollar Rate Advance
         hereunder.  On the terms and subject to the conditions hereof, the Bank
         agrees to make a revolving credit facility  available as loans (each, a
         "Revolving  Loan"  and,  collectively,  the  "Revolving  Loans") to the
         Borrowers  on a revolving  basis at any time and from time to time from
         the Closing  Date to the  Termination  Date,  during  which  period the
         Borrower  may  borrow,  repay  and  reborrow  in  accordance  with  the
         provisions hereof, provided, that no Revolving Loan will be made in any
         amount  which,  after  giving  effect  thereto,  would  cause the Total
         Outstandings  to exceed the Commitment  Amount.  Revolving Loans may be
         obtained and  maintained,  at the election of the Borrowers but subject
         to the limitations hereof, as Reference Rate Advances,  Eurodollar Rate
         Advances.
                                      -10-
<PAGE>
                           2.1(b) Conversion to Term Loan. On the Transformation
         Date,  provided that no Default or Event of Default has occurred and is
         continuing, the aggregate outstanding principal balance on such date of
         the  Revolving  Loans  shall be  converted  into a term loan (the "Term
         Loan") on the terms and subject to the conditions set forth herein. The
         Term Loan or portions thereof may be maintained, at the election of the
         Borrowers  but subject to the  limitations  hereof,  as Reference  Rate
         Advances or Eurodollar Rate Advances.

                  Section 2.2  Procedure for Loans.

                           2.2(a)  Procedure for Revolving Loans. Any request by
         the Borrowers for Revolving  Loans  hereunder shall be made by PACC, on
         behalf of the  Borrowers,  in writing or by telephone and must be given
         so as to be received by the Bank not later than 12:00 noon (Minneapolis
         time) on the requested  Revolving Loan Date. Each request for Revolving
         Loans   hereunder   shall  be   irrevocable   and  shall  be  deemed  a
         representation  by the Borrower  that on the requested  Revolving  Loan
         Date and after giving  effect to the  requested  Revolving  Loans,  the
         applicable  conditions  specified  in Article III have been and will be
         satisfied. Each request for Revolving Loans hereunder shall specify (i)
         the  requested  Revolving  Loan  Date,  (ii) the  aggregate  amount  of
         Revolving  Loans to be made on such date,  which  shall be in a minimum
         amount of $100,000 or, if more, an integral multiple thereof, and (iii)
         whether  such  Revolving  Loans  are to be  funded  as  Reference  Rate
         Advances  or  Eurodollar  Rate  Advances.  The  Bank  may  rely  on any
         telephone  request for Revolving  Loans  hereunder which it believes in
         good faith to be genuine,  and the Borrowers  hereby waive the right to
         dispute  the  Bank's  record  of the terms of such  telephone  request.
         Unless the Bank determines that any applicable  condition  specified in
         Article III has not been satisfied, the Bank will make available to the
         Borrower at the Bank's  principal  office in Minneapolis,  Minnesota in
         Immediately Available Funds not later than 3:00 p.m. (Minneapolis time)
         on the  requested  Revolving  Loan  Date the  amount  of the  requested
         Revolving Loans.

                           2.2(b)  Procedure for  Conversion  to Term Loan.  Not
         later than 12:00 noon (Minneapolis  time) one Business Day prior to the
         Transformation  Date, the Borrowers shall deliver to the Bank a written
         notice  electing  whether  the Term Loan is to be funded as  Eurodollar
         Rate Advances or Reference Rate Advances.

                  Section 2.3 Notes.  The Loans shall be  evidenced  by a single
Note  payable  to the  order  of the  Bank in a  principal  amount  equal to the
Commitment Amount originally in effect.  The Bank shall enter in its ledgers and
records  the  amount of each Loan,  the  various  Advances  made,  converted  or
continued  and the payments  made  thereon,  and the Bank is  authorized  by the
Borrowers  to enter on a schedule  attached  to its Note a record of such Loans,
Advances and  payments;  provided,  however that the failure by the Bank to make
any such entry or any error in making  such entry  shall not limit or  otherwise
affect the  obligation of the Borrowers  hereunder and on the Note,  and, in all
events,  the  principal  amounts  owing by the  Borrowers in respect of the Note
shall be the aggregate amount of all Loans made by the Bank less all payments of
principal thereof made by the Borrowers.

                  Section 2.4  Conversions and  Continuations.  On the terms and
subject to the  limitations  hereof,  the Borrowers shall have the option at any
time and from time to time to convert  all or any portion of the  Advances  into
Reference Rate Advances or Eurodollar Rate Advances;  provided,  however that no
Advance may be  converted  to or  continued  as a  
                                      -11-
<PAGE>
Eurodollar  Rate  Advance if a Default or Event of Default has  occurred  and is
continuing on the proposed date of  continuation  or  conversion.  The Borrowers
shall give the Bank written  notice of any  continuation  or  conversion  of any
Advances  and such  notice  must be given so as to be  received  by the Bank not
later than 12:00 noon (Minneapolis time) on the date of the requested conversion
to Reference Rate Advances or Eurodollar  Rate Advances.  Each such notice shall
specify (a) the amount to be  continued or  converted,  and (b) the date for the
continuation  or conversion  (which must be a Business Day). Any notice given by
the Borrower under this Section shall be irrevocable.
               
                  Section 2.5 Interest  Rates,  Default  Interest and  Payments.
Interest shall accrue and be payable on the Advances as follows:

                           (a) Each  Eurodollar Rate Advance shall bear interest
         on the unpaid  principal  amount  thereof at a floating  rate per annum
         equal  to the sum of (A) the  Adjusted  Eurodollar  Rate,  plus (B) the
         Applicable Margin.

                           (b) Each  Reference  Rate Advance shall bear interest
         on the unpaid  principal  amount  thereof at a floating  rate per annum
         equal to the sum of (A) the  Reference  Rate,  plus (B) the  Applicable
         Margin.

                           (c) Any  Advance  not paid when due,  whether  at the
         date  scheduled  therefor  or  earlier  upon  acceleration,  shall bear
         interest until paid in full at a rate per annum equal to the sum of (1)
         the Reference Rate,  plus (2) the Applicable  Margin for Reference Rate
         Advances, plus (3) 2.0%.

                           (d)  Interest  shall be  payable  in  arrears  on the
         Quarterly  Payment Date and, with respect to any Loan, on the date such
         Loan  becomes due and payable in full;  provided  that  interest  under
         Section 2.5 (c) shall be payable on demand.

                           (g)  Interest   accrued  under  the  Existing  Credit
         Agreement  through  the  Closing  Date  shall  be  payable  on the date
         provided for herein.

                  Section 2.6  Repayment.  The unpaid  principal  balance of the
Note,  together with all accrued and unpaid interest  thereon,  shall be due and
payable  on the  Maturity  Date.  In  addition,  the Total  Outstandings  on the
Transformation Date shall be reduced in eight quarterly installments, each in an
amount equal to one-eighth of the Total  Outstandings  as of the  Transformation
Date, on each Quarterly  Payment Date beginning with the first Quarterly Payment
Date after the Transformation  Date. The Borrowers shall prepay the Term Loan on
each Quarterly Payment date in an amount equal to the required  reduction.  If a
Letter of Credit is  outstanding  on the Maturity Date, or if a Letter of Credit
is  outstanding  after  the  Transformation  Date in an  amount in excess of the
amount of Total  Outstandings  permitted to remain  outstanding,  the  Borrowers
shall deposit into the Holding Account an amount  sufficient to cause the amount
deposited  in the  Holding  Account  to equal the  undrawn  face  amount of such
outstanding  Letter of Credit or such excess,  as applicable.  At any time after
such deposit is made and all  outstanding  Obligations,  other than  Obligations
with respect to  outstanding  Letters of Credit,  have been paid in full,  if an
outstanding  Letter of Credit  expires or is  reduced  without  the full  amount
thereof having been drawn,  the Bank shall withdraw from the Holding Account and
deliver to the  Borrowers  an amount  equal to the amount by which the amount on
deposit in the Holding  Account  exceeds the  aggregate  undrawn  face amount of
outstanding  Letters  of  Credit  (after  giving  effect to such  expiration  or
reduction).
                                      -12-
<PAGE>
                  Section 2.7 Optional  Prepayments.  The  Borrowers  may prepay
Loans, in whole or in part, at any time,  without  premium or penalty.  Any such
prepayment  must be  accompanied  by accrued  and unpaid  interest on the amount
prepaid.  Each partial  prepayment  shall be in an aggregate  amount for all the
Banks  of  $100,000  or an  integral  multiple  thereof.  Amounts  paid  (unless
following an  acceleration  or upon  termination  of the  Commitment) or prepaid
under this Section 2.7 during the Revolving  Period may be  reborrowed  upon the
terms and subject to the conditions and limitations of this  Agreement.  Amounts
paid or prepaid on the Term Loan under this  Section 2.7 shall be applied to the
installments due on the Term Loan in the inverse order of their maturities.

                Part B -- Terms of the Letter of Credit Facility
                ------------------------------------------------

                  Section 2.8  Letters of Credit.  Upon the terms and subject to
the conditions of this Agreement, the Bank agrees to (a) issue Letters of Credit
for the account of the  Borrowers  from time to time during the  Revolving  Loan
Period in such amounts as the Borrowers  shall  request,  and (b) renew existing
Letters  of Credit  during the Term Loan  Period,  in each case in an amount not
exceeding  the lesser of (i) the amount of the Letter of Credit  being  renewed,
and (ii) the amount of the Total Outstandings permitted to remain outstanding on
the date of such  renewal;  provided  that no Letter of Credit will be issued in
any amount which,  after giving effect to such  issuance,  would cause (A) Total
Outstandings  to exceed the Commitment  Amount during the Revolving Loan Period,
or the  amount  of Total  Outstandings  permitted  to remain  outstanding  under
Section 2.6 during the Term Loan  Period,  or (B) the Letter of Credit  Usage to
exceed $5,000,000.

                  Section 2.9 Procedures for Letters of Credit. Each request for
a Letter  of  Credit  shall be made by PACC,  on  behalf  of the  Borrowers,  in
writing, by telex,  facsimile  transmission or electronic conveyance received by
the Bank by 2:00 p.m.,  Minneapolis  time,  on a Business  Day which is not less
than one Business Day preceding the requested date of issuance (which shall also
be a  Business  Day).  Each  request  for a Letter of  Credit  shall be deemed a
representation  by the Borrowers  that on the date of issuance of such Letter of
Credit and after giving effect  thereto the applicable  conditions  specified in
Article  III have been and will be  satisfied.  The Bank may  require  that such
request be made on such letter of credit application and reimbursement agreement
form as the Bank may from time to time specify, along with satisfactory evidence
of the  authority and  incumbency of the officials of the Borrowers  making such
request.

                  Section  2.10 Terms of  Letters  of Credit.  Letters of Credit
shall  be  issued  in  support  of  obligations  of the  Borrowers,  other  than
obligations  relating to borrowing money or obtaining other financing,  incurred
in the ordinary  course of business.  No Letter of Credit may have a term longer
than 12 months.

                  Section 2.11 Agreement to Repay Letter of Credit Drawings.  If
the Bank has received documents purporting to draw under a Letter of Credit that
the Bank believes conform to the requirements of the Letter of Credit, or if the
Bank has decided that it will comply with the Borrowers' written or oral request
or authorization to pay a drawing on any Letter of Credit that the Bank does not
believe conforms to the requirements of the Letter of Credit, it will notify the
Borrowers of that fact.  The  Borrowers  shall  reimburse  the Bank by 9:30 a.m.
(Minneapolis time) on the day on which such drawing is to be paid in Immediately
Available Funds in an amount equal to the amount of such drawing.  Any amount by
which the  Borrowers  have failed to  reimburse  the Bank for the full amount of
such drawing by 10:00 a.m. on the date on which the Bank in its notice indicated
that it would pay such  drawing,  until  
                                      -13-
<PAGE>
reimbursed  from the proceeds of Loans  pursuant to Section 2.15 or out of funds
available in the Holding Account, is an "Unpaid Drawing."

                  Section  2.12  Obligations  Absolute.  The  obligation  of the
Borrowers  under  Section  2.11 to repay  the Bank for any  amount  drawn on any
Letter of Credit and to repay the Bank for any Advances  made under Section 2.15
to cover Unpaid Drawings shall be absolute, unconditional and irrevocable, shall
continue for so long as any Letter of Credit is outstanding  notwithstanding any
termination of this Agreement, and shall be paid strictly in accordance with the
terms of this Agreement,  under all circumstances whatsoever,  including without
limitation the following circumstances:

                  (a) Any lack of  validity or  enforceability  of any Letter of
         Credit;

                  (b) The existence of any claim, setoff, defense or other right
         which  the  Borrowers  may  have  or  claim  at any  time  against  any
         beneficiary,  transferee  or  holder of any  Letter  of Credit  (or any
         Person  for whom any such  beneficiary,  transferee  or  holder  may be
         acting),  the Bank or any other Person,  whether in  connection  with a
         Letter of Credit, this Agreement, the transactions contemplated hereby,
         or any unrelated transaction; or

                  (c) Any statement or any other  document  presented  under any
         Letter  of  Credit  proving  to  be  forged,  fraudulent,   invalid  or
         insufficient  in any respect or any  statement  therein being untrue or
         inaccurate in any respect whatsoever.

Neither the Bank nor its  officers,  directors or  employees  shall be liable or
responsible  for, and the  obligations of the Borrowers to the Bank shall not be
impaired by:

                  (i)      The use which may be made of any  Letter of Credit or
                           for  any  acts  or  omissions  of  any   beneficiary,
                           transferee or holder thereof in connection therewith;

                  (ii)     The   validity,   sufficiency   or   genuineness   of
                           documents,  or of any endorsements  thereon,  even if
                           such documents or endorsements should, in fact, prove
                           to be in any or all respects  invalid,  insufficient,
                           fraudulent or forged;

                  (iii)    The  acceptance by the Bank of documents  that appear
                           on their face to be in order, without  responsibility
                           for further  investigation,  regardless of any notice
                           or information to the contrary; or

                  (iv)     Any other  action of the Bank in making or failing to
                           make  payment  under any  Letter of Credit if in good
                           faith and in  conformity  with U.S. or foreign  laws,
                           regulations or customs applicable thereto.

Notwithstanding  the  foregoing,  the  Borrowers  shall have a claim against the
Bank, and the Bank shall be liable to the Borrowers,  to the extent, but only to
the extent, of any direct, as opposed to consequential,  damages suffered by the
Borrowers which the Borrowers prove were caused by the Bank's willful misconduct
or gross negligence in determining  whether documents presented under any Letter
of Credit comply with the terms thereof.
                                      -14-
<PAGE>
                  Section  2.13  Increased  Cost for  Letters of Credit.  If any
Regulatory  Change  shall  either  (a)  impose,  modify or make  applicable  any
reserve,  deposit,  capital adequacy or similar  requirement  against Letters of
Credit issued by the Bank, or (b) shall impose on the Bank any other  conditions
affecting this  Agreement or any Letter of Credit;  and the result of any of the
foregoing  is to  increase  the cost to the Bank of issuing or  maintaining  any
Letter of Credit,  or reduce the amount of any sum received or receivable by the
Bank  hereunder,  then,  upon demand  (which  demand  shall be given by the Bank
promptly after it determines  such  increased cost or reduction),  the Borrowers
shall pay to the Bank the  additional  amount or amounts as will  compensate the
Bank for such  increased  cost or  reduction.  A  certificate  submitted  to the
Borrowers  by the Bank  setting  forth the basis for the  determination  of such
additional amount or amounts necessary to compensate the Bank as aforesaid shall
be conclusive and binding on the Borrowers absent error.

                                Part C -- General
                                -----------------

                  Section  2.14  Optional  Reduction  of  Commitment  Amount  or
Termination  of Commitment.  The Borrowers may, at any time,  upon not less than
thirty days prior written notice to the Bank, reduce the Commitment Amount, with
any such  reduction  in a minimum  amount  of  $1,000,000,  or,  if more,  in an
integral multiple of $250,000;  provided, however, that the Borrowers may not at
any time  reduce  the  Commitment  Amount  below  the  Total  Outstandings.  The
Borrowers may, at any time when there are no Letters of Credit outstanding, upon
not less than  thirty  days  prior  written  notice to the Bank,  terminate  the
Commitment in its entirety.

                  Section  2.15 Loans to Cover  Unpaid  Drawings.  Whenever  any
Unpaid Drawing exists for which there are not then funds in the Holding  Account
to  cover  the  same,  the Bank is  authorized  (and  the  Borrowers  do here so
authorize  the  Bank)  to,  and  shall,  make a  Revolving  Loan or,  after  the
Transformation  Date, increase the Term Loan to the Borrowers in an amount equal
to the amount of the Unpaid  Drawing.  The Bank shall apply the proceeds of such
Revolving Loan or increase directly to reimburse itself for such Unpaid Drawing.
If at the time the Bank makes a Loan pursuant to the provisions of this Section,
the applicable conditions precedent specified in Article III shall not have been
satisfied, the Borrowers shall pay to the Bank interest on the funds so advanced
at a floating  rate per annum  equal to the sum of the  Reference  Rate plus the
Applicable Margin plus two percent (2.00%).

                  Section 2.16 Fees.

                           2.16(a)  Closing Fees. The Borrowers shall pay to the
         Bank on the date of this Agreement a closing fee (the "Closing Fee") in
         an amount equal to $7,500.

                           2.16(b)  Commitment  Fee. The Borrowers  shall pay to
         the Bank  fees (the  "Commitment  Fees")  in an  amount  determined  by
         applying a rate of eighteen  onehundredths  of one  percent  (.18%) per
         annum to the average  daily Unused  Commitment  for the period from the
         Closing Date to the Termination  Date. Such Commitment Fees are payable
         in arrears on each Quarterly Payment Date and on the Termination Date.

                           2.16(c)  Letter of Credit  Fees.  For each  Letter of
         Credit issued,  the Borrowers shall pay to the Bank, in advance payable
         on the date of issuance,  a fee (a "Letter of Credit Fee") in an amount
         determined by applying a per annum rate equal to the Applicable  Margin
         for Eurodollar Rate Advances then in effect to the original face

<PAGE>
         amount of the Letter of Credit for the period from the date of issuance
         to the scheduled  expiration date of such Letter of Credit. In addition
         to the Letter of Credit Fee, the  Borrowers  shall pay to the Bank,  on
         demand,  all  issuance,  amendment,  drawing  and other fees  regularly
         charged  by  the  Bank  to its  letter  of  credit  customers  and  all
         out-of-pocket  expenses  incurred  by the Bank in  connection  with the
         issuance, amendment, administration or payment of any Letter of Credit.

                  Section 2.17  Computation.  Commitment Fees,  Letter of Credit
Fees and  interest  on the Loans  shall be  computed on the basis of actual days
elapsed and a year of 360 days.

                  Section 2.18 Payments.  Payments and  prepayments of principal
of, and interest on, the Note and all fees, expenses and other obligations under
this Agreement  payable to the Bank shall be made without setoff or counterclaim
in Immediately  Available Funds not later than 3:00 p.m.  (Minneapolis  time) on
the dates  called for under  this  Agreement  to the Bank at its main  office in
Minneapolis,  Minnesota.  Funds received after such time shall be deemed to have
been  received  on the  next  Business  Day.  Whenever  any  payment  to be made
hereunder  or on the Note  shall  be  stated  to be due on a day  which is not a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time, in the case of a payment of principal, shall be included
in the computation of any interest on such principal payment.

                  Section  2.19  Use  of  Loan  Proceeds.  The  proceeds  of the
Revolving  Loans shall be used by the Borrowers and the  Subsidiaries  for their
general business purposes in a manner not in conflict with any of the Borrowers'
covenants in this Agreement.

                  Section 2.20 Interest Rate Not  Ascertainable,  Etc. If, on or
prior  to any  date  for  determining  the  Adjusted  Eurodollar  Rate  for  any
Eurodollar  Rate Advance,  the Bank  determines  (which  determination  shall be
conclusive and binding, absent error) that:

                           (a)  deposits in dollars (in the  applicable  amount)
         are not being made  available  to the Bank in the  relevant  market for
         such Interest Period, or

                           (b) the Adjusted  Eurodollar Rate will not adequately
         and  fairly  reflect  the cost to the Bank of  funding  or  maintaining
         Eurodollar Rate Advances,

the Bank shall  forthwith  give notice to the  Borrowers of such  determination,
whereupon  the  obligation  of the Bank to make or  continue,  or to convert any
Advances to, Eurodollar Rate Advances shall be suspended until the Bank notifies
the Borrower  that the  circumstances  giving rise to such  suspension no longer
exist. While any such suspension continues,  all Advances shall be maintained as
Reference Rate Advances.

                  Section 2.21 Increased Cost. If any Regulatory Change:

                           (a) shall  subject the Bank to any tax, duty or other
         charge with respect to its Eurodollar  Rate Advances,  the Note, or its
         obligation to make  Eurodollar  Rate Advances or shall change the basis
         of taxation of payment to the Bank of the  principal  of or interest on
         Eurodollar  Rate Advances or any other amounts due under this Agreement
         in  respect of  Eurodollar  Rate  Advances  or its  obligation  to make
         Eurodollar Rate Advances  (except for changes in the rate of tax on the
         overall net income of the Bank imposed by the jurisdiction in which the
         Bank's principal office is located); or
                                      -16-
<PAGE>
                           (b)  shall  impose,  modify  or deem  applicable  any
         reserve,  special deposit,  capital  requirement or similar requirement
         (including,  without  limitation,  any such requirement  imposed by the
         Board,  but excluding with respect to any  Eurodollar  Rate Advance any
         such  requirement to the extent  included in calculating the applicable
         Adjusted  Eurodollar  Rate) against assets of, deposits with or for the
         account of, or credit extended by, the Bank's applicable lending office
         or shall impose on the Bank (or its  applicable  lending  office) or on
         the  interbank  Eurodollar  market any other  condition  affecting  its
         Eurodollar Rate Advances, the Note or its obligation to make Eurodollar
         Rate Advances;

and the result of any of the  foregoing  is to increase  the cost to the Bank of
making or maintaining  any Eurodollar  Rate Advance,  or to reduce the amount of
any sum  received or  receivable  by the Bank under this  Agreement or under the
Note, then,  within 30 days after demand by the Bank, the Borrowers shall pay to
the Bank such additional  amount or amounts as will compensate the Bank for such
increased cost or reduction; provided, that the Borrowers shall not be obligated
to pay any such additional  amount (i) unless the Bank shall first have notified
the Borrowers in writing that it intends to seek such  compensation  pursuant to
this Section,  or (ii) to the extent such  additional  amount is attributable to
the  period  ending 91 days  prior to the date of the  first  such  notice  with
respect to such Regulatory Change (the "Excluded Period"),  except to the extent
any amount is attributable to the Excluded Period as a result of the retroactive
application  of the  applicable  Regulatory  Change.  A certificate  of the Bank
claiming compensation under this Section, setting forth the additional amount or
amounts to be paid to it hereunder  and stating in  reasonable  detail the basis
for the charge and the method of computation, shall be conclusive in the absence
of error. In determining such amount, the Bank may use any reasonable  averaging
and attribution methods.  Failure on the part of the Bank to demand compensation
for any  increased  costs or reduction in amounts  received or  receivable  with
respect  to any period  shall not  constitute  a waiver of the Bank's  rights to
demand  compensation for any increased costs or reduction in amounts received or
receivable in any subsequent period.

                  Section 2.22 Illegality.  If any Regulatory  Change shall make
it unlawful or impossible for the Bank to make,  maintain or fund any Eurodollar
Rate Advances, the Bank shall notify the Borrowers,  whereupon the obligation of
the Bank to make or continue,  or to convert any Advances  to,  Eurodollar  Rate
Advances  shall be  suspended  until the Bank  notifies the  Borrowers  that the
circumstances giving rise to such suspension no longer exist, and all Eurodollar
Rate Advances shall be automatically  converted to Reference Rate Advances as of
the date of the Bank's notice.

                  Section  2.23  Increased  Capital  Requirements.  In the event
that,  as a result of any  Regulatory  Change,  compliance  by the Bank with any
applicable law or governmental rule, requirement, regulation, guideline or order
(whether  or not having the force of law)  regarding  capital  adequacy  has the
effect of reducing the rate of return on the Bank's  capital as a consequence of
the Commitment or amounts outstanding under the Note to a level below that which
the Bank would have achieved but for such compliance  (taking into consideration
the Bank's  policies with respect to capital  adequacy),  then from time to time
the Borrowers shall pay to the Bank,  within thirty days after written demand by
the Bank, such additional amount or amounts as will compensate the Bank for such
reduction;  provided that the  Borrowers  shall not be obligated to pay any such
additional amount (i) unless the Bank shall first have notified the Borrowers in
writing that it intends to seek such compensation  pursuant to this Section,  or
(ii) to the extent such  additional  amount is attributable to the period ending
91 days  prior  to 
                                      -17-
<PAGE>
the date of the first such notice with  respect to such  Regulatory  Change (the
"Excluded  Period"),  except to the  extent any  amount is  attributable  to the
Excluded  Period as a result of the  retroactive  application  of the applicable
Regulatory Change. A certificate,  which shall be conclusive except for manifest
error,  as to the  amount  of any  such  reduction  (including  calculations  in
reasonable  detail  showing how the Bank computed such reduction and a statement
that the Bank has not allocated to the Commitment or amounts  outstanding  under
the Note a proportionately greater amount of such reduction than is attributable
to each of its other  commitments  to lend or to each of its  other  outstanding
credit  extensions  that are affected  similarly by such compliance by the Bank,
whether or not the Bank  allocates  any portion of such  reduction to such other
commitments or credit extensions, shall be furnished promptly by the Bank to the
Borrowers.

                                   ARTICLE III
                                   -----------

                              CONDITIONS PRECEDENT

                  Section 3.1  Conditions  Precedent  to the  Initial  Revolving
Loan.  The making of the initial  Revolving Loan and the issuance of the initial
Letter of Credit shall be subject to the prior or  simultaneous  fulfillment  of
the following conditions:

                           3.1(a)  Documents.  The Bank shall have  received the
         following:

                           (i) The Note, executed by the Borrowers and dated the
         date of this Agreement.

                           (ii)  Reaffirmations  of Security  Agreement,  in the
         form  of  Exhibits  E,  F,  G and  executed  by  PAG,  PAII  and  PASI,
         respectively.

                           (iii) Reaffirmations of Pledge Agreement, in the form
         of Exhibits H and I, executed by the Borrowers.

                           (iv) A  Reaffirmation  of  Guaranty,  in the  form of
         Exhibit J, executed by PAII.

                           (v) Copies of the corporate resolutions of PAG, PAII,
         PASI and PACC  authorizing  the execution,  delivery and performance of
         the Loan Documents or reaffirmations thereof to which each of them is a
         party,  certified as of the Closing Date by the respective Secretary or
         an Assistant Secretary of PAG, PAII, PASI and PACC.

                           (vi)  Incumbency  certificates  showing the names and
         titles and bearing the  signatures of the officers of PAG,  PAII,  PASI
         and PACC  authorized  to execute the Loan  Documents or  reaffirmations
         thereof  to  which  each of them is a party  and,  in the  case of each
         Borrower,  to  request  Loans  and  conversions  and  continuations  of
         Advances hereunder,  certified as of the Closing Date by the respective
         Secretary or an Assistant Secretary of PAG, PAII, PASI and PACC.

                           (vii) A  certificate  of the  Secretary  or Assistant
         Secretary of each of PAG,  PACC,  PAII and PASI  certifying  that their
         respective  Certificates  of  Incorporation  and  Bylaws  have not been
         repealed,  rescinded, amended or otherwise modified since copies of the
         same were delivered to the Bank on April 28, 1995.
                                      -18-
<PAGE>
                           (viii)  Long-form  certificates  of good standing for
         PAG,  PAII,  PASI and  PACC in the  respective  jurisdictions  of their
         incorporation,  and  for the  Borrowers,  PAII  and  PASI in all of the
         jurisdictions  in which the character of the properties owned or leased
         by  it  or  the  business  conducted  by it  makes  such  qualification
         necessary,  certified by the appropriate governmental officials as of a
         date not more than ten (10) days prior to the Closing Date.

                           (ix) A  certificate  dated  the  Closing  Date of the
         chief  executive  officer or chief  financial  officer of the Borrowers
         certifying that:

                                    (A) All  representations  and warranties set
                  forth in  Article IV are true and  correct  as of the  Closing
                  Date, and

                                    (B) On the Closing Date, after giving effect
                  to the  making  of the  initial  Revolving  Loan,  no Event of
                  Default or Default shall have occurred or will exist.

                           (x)  Evidence  of   compliance   with  the  insurance
         requirements of Section 5.3.

                           (xi) A written opinion of Bryan Cave LLP,  counsel to
         the  Borrowers,  PAII and  PASI,  addressed  to the Bank and  dated the
         Closing Date, covering the matters set forth in Exhibit K hereto.

                           3.1(b)   Additional    Conditions.    The   following
         conditions shall exist:

                           (i) The Borrowers  shall have  performed and complied
         with all agreements,  terms and conditions  contained in this Agreement
         required to be performed or complied with by the Borrowers  prior to or
         simultaneously with the Closing Date.

                           (ii) The Bank shall have received (A) the Closing Fee
         and (B) all fees and other  amounts due and payable by the Borrowers on
         or  prior  to the  Closing  Date,  including  the  reasonable  fees and
         expenses of counsel to the Bank payable pursuant to Section 8.2.

                           (iii)  The  Bank  shall   have   received  a  written
         notification  from Express  America TC, Inc.  ("EATC")  terminating the
         Bank's commitment to extent further credit to EATC, and a request for a
         Revolving  Loan  from  PACC,  the  owner  of  all  of  the  issued  and
         outstanding  capital  stock  of EATC,  in an  amount  equal  to  EATC's
         outstanding  obligations to the Bank,  directing the Bank to apply such
         Revolving Loan to repay such outstanding obligations.

                           3.1(c) Security Documents. All Security Documents (or
financing  statements with respect thereto) shall have been appropriately  filed
or recorded to the  satisfaction of the Bank; any pledged  collateral shall have
been duly  delivered to the Bank;  and the priority and  perfection of the Liens
created  by  the  Security   Documents  shall  have  been   established  to  the
satisfaction of the Bank and its counsel.
                                      -19-
<PAGE>
                  Section 3.2  Conditions  Precedent to all Loans and Letters of
Credit.  The  obligation  of the Bank to make any Loans or issue any  Letters of
Credit   hereunder  shall  be  subject  to  the  fulfillment  of  the  following
conditions:

                           3.2(a)    Representations    and   Warranties.    The
representations and warranties contained in Article IV shall be true and correct
on and as of each Revolving Loan Date, with the same force and effect as if made
on such date.

                           3.2(b) No  Default.  No  Default  or Event of Default
shall have occurred and be continuing on any Revolving  Loan Date, or will exist
after giving effect to the Loans made on such date.

                           3.2(c)  Notices  and  Requests.  The Bank  shall have
received  the  Borrowers'  request for such  Revolving  Loan as  required  under
Section 2.2, or the Borrowers' request for the issuance of such Letter of Credit
as required under Section 2.9.

                                   ARTICLE IV
                                   ----------

                         REPRESENTATIONS AND WARRANTIES

                  To induce  the Bank to enter into this  Agreement  and to make
Loans hereunder, the Borrowers represent and warrant to the Bank:

                  Section 4.1 Organization,  Standing, Etc. PAG is a corporation
duly  incorporated  and validly  existing and in good standing under the laws of
the jurisdiction of its incorporation and has all requisite  corporate power and
authority  to carry on its  business  as now  conducted,  to enter into the Loan
Documents  or  reaffirmations  thereof to which it is a party and to perform its
obligations  under  the  Loan  Documents  to  which  it is a  party.  PACC  is a
corporation duly  incorporated,  validly existing and in good standing under the
laws of the jurisdiction of its  incorporation  and has all requisite  corporate
power and authority to carry on its business as now conducted, to enter into the
Loan Documents or reaffirmations  thereof to which it is a party, and to perform
its obligations under the Loan Documents to which it is a party. Each Subsidiary
is a corporation  duly  incorporated  and validly  existing and in good standing
under the laws of the  jurisdiction of its  incorporation  and has all requisite
corporate  power and  authority  to carry on its business as now  conducted,  to
enter into the Loan Documents or reaffirmations  thereof to which it is a party,
and to perform its obligations  under the Loan Documents to which it is a party.
Each of the Borrowers and each of their  Subsidiaries (a) holds all certificates
of  authority,  licenses  and permits  necessary to carry on the business as now
conducted in each jurisdiction in which it is carrying on such business,  except
where the failure to hold such certificates,  licenses or permits would not have
a material  adverse  effect on the  business,  operations,  property,  assets or
condition,  financial or otherwise,  of the Borrowers and the Subsidiaries taken
as a  whole,  and  (b) is  duly  qualified  and in good  standing  as a  foreign
corporation in each jurisdiction in which the character of the properties owned,
leased or operated by the  Borrowers or the business  conducted by the Borrowers
make  such  qualification   necessary  and  the  failure  so  to  qualify  would
permanently  preclude the Borrowers or such Subsidiary from enforcing its rights
with  respect to any assets or expose the  Borrowers or such  Subsidiary  to any
liability,  which in either  case would be  material  to the  Borrowers  and the
Subsidiaries  taken  as a  whole.  PASI is  duly  registered  with  the SEC as a
broker-dealer,  is a member in good standing of the NASD,  and is not in arrears
with respect to any assessment made on it by the SIPC. Each Advisory  Subsidiary
is  duly  registered  with  the SEC as an  investment  adviser.  PASI  maintains
procedures and internal controls  reasonably  
                                      -20-
<PAGE>
adapted  to  insure  that it does not  extend or  maintain  credit to or for its
customers  other than in accordance  with the  provisions of Regulation T of the
Board,  and  officers  of  PASI  regularly  supervise  its  activities  and  the
activities of employees of PASI to  reasonably  ensure that PASI does not extend
or  maintain  credit  to or for  customers  other  than in  accordance  with the
provisions of Regulation T of the Board.

                  Section  4.2  Authorization   and  Validity.   The  execution,
delivery and  performance  by each of the Borrowers  and each  Subsidiary of the
Loan Documents to which it is a party or  reaffirmations  thereof have been duly
authorized by all necessary  corporate action,  and Loan Documents when executed
will  constitute the legal,  valid and binding  obligations of the Borrowers and
each  Subsidiary,  enforceable  against  each of them in  accordance  with their
respective terms, subject to limitations as to enforceability which might result
from  bankruptcy,  insolvency,  moratorium  and  other  similar  laws  affecting
creditors' rights generally and general principles of equity.

                  Section 4.3 No Conflict;  No Default. The execution,  delivery
and  performance  by the Borrowers and each  Subsidiary of the Loan Documents to
which each of them is a party or reaffirmations thereof will not (a) violate any
provision of any law, statute,  rule or regulation or any order, writ, judgment,
injunction,  decree, determination or award of any court, governmental agency or
arbitrator  presently in effect having  applicability  to the Borrowers and such
Subsidiary,  (b) violate or  contravene  any  provision  of the  Certificate  of
Incorporation or bylaws of the Borrowers and such Subsidiary, or (c) result in a
breach of or  constitute a default under any  agreement,  lease or instrument to
which the  Borrowers  or such  Subsidiary  is a party or by which they or any of
their  properties may be bound or result in the creation of any Lien thereunder.
None of the  Borrowers or any  Subsidiary is in default under or in violation of
any such law, statute,  rule or regulation,  order, writ, judgment,  injunction,
decree,  determination or award or any such indenture,  loan or credit agreement
or other agreement, lease or instrument in any case in which the consequences of
such default or violation could have a material  adverse effect on the business,
operations,  properties,  assets or condition  (financial  or  otherwise) of the
Borrowers  and  their  Subsidiaries  taken  as a  whole.  Without  limiting  the
foregoing,  the  Borrowers  and  each  Subsidiary  are in  compliance  with  all
applicable capital  requirements of all governmental  authorities  applicable to
them, including,  without limitation, Rule 15c3-1 under the Exchange Act, as the
same is  modified  with  respect  to PASI in  accordance  with  the  undertaking
outlined in  paragraph 2 of the letter dated March 2, 1995 from PASI to the NASD
District  Committee for District No. 2, and as the same may be further  modified
from time to time by the NASD.

                  Section 4.4 Government Consent. No order,  consent,  approval,
license,  authorization  or validation of, or filing,  recording or registration
with, or exemption by, any  governmental or public body or authority is required
on the part of the Borrowers or any  Subsidiary to authorize,  or is required in
connection  with the execution,  delivery and  performance  of, or the legality,
validity,  binding effect or enforceability  of, the Loan Documents,  except for
any necessary  filing or  recordation  of or with respect to any of the Security
Documents.

                  Section 4.5 Financial  Statements and  Condition.  The audited
consolidated financial statements of each of the Borrowers,  as at September 30,
1996,  and the  unaudited  financial  statements  of each of the Borrowers as at
March 31,  1997,  as  heretofore  furnished to the Bank,  have been  prepared in
accordance with GAAP on a consistent  basis (except for the absence of footnotes
and subject to year-end  audit  adjustments  as to the interim  statements)  and
fairly present the financial  condition of each Borrower and its Subsidiaries as
at such  dates 
                                      -21-
<PAGE>
and the results of their  operations  and changes in financial  position for the
respective  periods then ended.  As of the dates of such  financial  statements,
neither  Borrower nor any  Subsidiary  had any material  obligation,  contingent
liability,  liability  for  taxes or  long-term  lease  obligation  which is not
reflected in such financial statements or in the notes thereto.  Since September
30, 1996, there has been no material adverse change in the business, operations,
property,  assets or condition,  financial or otherwise,  of either Borrower and
its Subsidiaries taken as a whole.

                  Section 4.6  Litigation.  Except as described on Schedule 4.6,
there are no actions,  suits or proceedings  pending or, to the knowledge of the
Borrowers,  threatened against or affecting the Borrowers or any Subsidiary,  or
any of their  properties  before any court or  arbitrator,  or any  governmental
department,   board,  agency  or  other  instrumentality  which,  if  determined
adversely to the  Borrowers  or any  Subsidiary,  would have a material  adverse
effect  on  the  business,  operations,  property  or  condition  (financial  or
otherwise)  of the  Borrowers  and the  Subsidiaries  taken as a whole or on the
ability of the Borrowers or any Subsidiary to perform its obligations  under the
Loan Documents.

                  Section 4.7 ERISA. Each Plan is in substantial compliance with
all  applicable  requirements  of ERISA  and the  Code  and  with  all  material
applicable  rulings and regulations issued under the provisions of ERISA and the
Code setting forth those  requirements.  No Reportable Event has occurred and is
continuing  with  respect  to any Plan.  All of the  minimum  funding  standards
applicable  to such  Plans  have been  satisfied  and  there  exists no event or
condition  which would  reasonably be expected to result in the  institution  of
proceedings  to terminate any Plan under Section 4042 of ERISA.  With respect to
each Plan subject to Title IV of ERISA, as of the most recent valuation date for
such Plan, the present value (determined on the basis of reasonable  assumptions
employed by the  independent  actuary for such Plan and previously  furnished in
writing to the Bank) of such Plan's projected benefit obligations did not exceed
the fair market value of such Plan's assets.

                  Section  4.8  Federal  Reserve  Regulations.  Neither  of  the
Borrowers nor any  Subsidiary is engaged  principally or as one of its important
activities in the business of extending  credit for the purpose of purchasing or
carrying  margin stock (as defined in  Regulation U of the Board).  The value of
all margin stock owned by either of the Borrowers does not constitute  more than
25% of the value of the assets of that Borrower.

                  Section 4.9 Title to Property;  Leases; Liens;  Subordination.
Each of the Borrowers and each of their Subsidiaries has (a) good and marketable
title to its real  properties  and (b) good and  sufficient  title to, or valid,
subsisting and enforceable leasehold interest in, its other material properties,
including all real properties (other than property disposed of since the date of
such  financial  statements in the ordinary  course of  business).  None of such
properties is subject to a Lien,  except as allowed under Section 6.13.  Neither
of the Borrowers and none of their  Subsidiaries  have subordinated any of their
rights under any obligation owing to them to the rights of any other person.

                  Section 4.10 Taxes. The Borrowers and their  Subsidiaries have
filed all federal, state and local tax returns required to be filed and has paid
or made provision for the payment of all taxes due and payable  pursuant to such
returns and pursuant to any  assessments  made against it or any of its property
and all other taxes, fees and other charges imposed on it or any of its property
by any governmental  authority (other than taxes,  fees or charges the amount or
validity of which is  currently  being  contested  in good faith by  appropriate
proceedings and with respect to which reserves in accordance with GAAP have been
provided on the books of the Borrowers).  The charges,  accruals and reserves on
the 
                                      -22-
<PAGE>
books of the  Borrowers in respect of taxes and other  governmental  charges are
adequate and the Borrowers know of no proposed  material tax assessment  against
the Borrowers, any Subsidiary or any of their assets or of any basis therefor.

                  Section 4.11  Trademarks,  Patents.  The  Borrowers  and their
Subsidiaries  possesses or has the right to use all of the patents,  trademarks,
trade names, service marks and copyrights,  and applications  therefor,  and all
technology,  know-how,  processes,  methods and designs used in or necessary for
the conduct of its business, without known conflict with the rights of others.

                  Section 4.12 Burdensome Restrictions. Neither of the Borrowers
and  none  of  their  Subsidiaries  is a  party  to or  otherwise  bound  by any
indenture,  loan  or  credit  agreement  or any  lease  or  other  agreement  or
instrument or subject to any charter, corporate or partnership restriction which
would  foreseeably have a material  adverse effect on the business,  properties,
assets,  operations  or condition  (financial or otherwise) of the Borrowers and
the  Subsidiaries  taken as a whole or on the ability of the  Borrowers  and the
Subsidiaries to carry out their obligations under any Loan Document.

                  Section 4.13 Force Majeure.  Since the date of the most recent
financial  statement  referred to in Section 4.5, the business,  properties  and
other assets of the Borrowers and the Subsidiaries  have not been materially and
adversely  affected  in any way as the  result  of any fire or  other  casualty,
strike,  lockout,  or other  labor  trouble,  embargo,  sabotage,  confiscation,
condemnation, riot, civil disturbance, activity of armed forces or act of God.

                  Section 4.14 Investment  Company Act. Neither of the Borrowers
and  none  of  their  Subsidiaries  is  an  "investment  company"  or a  company
"controlled"  by an  investment  company  within the  meaning of the  Investment
Company Act of 1940, as amended.

                  Section 4.15 Public Utility  Holding  Company Act.  Neither of
the  Borrowers  and none of  their  Subsidiaries  is a  "holding  company"  or a
"subsidiary company" of a holding company or an "affiliate" of a holding company
or of a subsidiary company of a holding company within the meaning of the Public
Utility Holding Company Act of 1935, as amended.

                  Section 4.16  Retirement  Benefits.  Except as required  under
Section 4980B of the Code, Section 601 of ERISA or applicable state law, neither
of the  Borrowers  and  none of  their  Subsidiaries  is  obligated  to  provide
post-retirement  medical or  insurance  benefits  with  respect to  employees or
former employees.

                  Section 4.17 Subsidiaries.  Schedule 4.17 sets forth as of the
date of this Agreement a list of all  Subsidiaries and the number and percentage
of the shares of each class of capital stock owned  beneficially or of record by
the Borrowers or any Subsidiary  therein,  and the jurisdiction of incorporation
of each Subsidiary.

                  Section 4.18 Fund  Agreements.  Schedule 4.18 sets forth as of
the  date  of this  agreement,  a list  of all  Funds  for  which  PAII  acts as
investment  adviser  or PASI acts as  principal  distributor,  and a list of all
related Fund Agreements. All Fund Agreements are in full force and effect.

                  Section  4.19  Full  Disclosure.   Subject  to  the  following
sentence,  neither the financial  statements  referred to in Section 4.5 nor any
other  certificate,  written  statement,  exhibit or report  furnished  by or on
behalf  of the  Borrowers  in  connection  with or  pursuant  to
                                      -23-
<PAGE>
this  Agreement  contains any untrue  statement  of a material  fact or omits to
state any  material  fact  necessary in order to make the  statements  contained
therein not misleading.  Certificates or statements furnished by or on behalf of
the  Borrowers  to the Bank  consisting  of  projections  or forecasts of future
results  or events  have been  prepared  in good  faith and based on good  faith
estimates and assumptions of the management of the Borrowers,  and the Borrowers
have no reason to believe that such projections or forecasts are not reasonable.

                                    ARTICLE V
                                    ---------

                              AFFIRMATIVE COVENANTS

                  Until  any  obligation  of the  Bank  hereunder  to  make  the
Revolving  Loans and the Term Loan or to issue  Letters  of  Credit  shall  have
expired or been terminated, no Letter of Credit remains outstanding and the Note
and all of the other  Obligations have been paid in full,  unless the Bank shall
otherwise consent in writing:

                  Section 5.1 Financial  Statements  and Reports.  The Borrowers
will furnish to the Bank:

                           5.1(a) As soon as  available  and in any event within
ninety days after the end of each fiscal year of the Borrowers, the consolidated
financial  statements of each of the Borrowers and its  respective  Subsidiaries
consisting  of  at  least  statements  of  income,  cash  flow  and  changes  in
stockholders'  equity,  and a  consolidated  balance sheet as at the end of such
year, setting forth in each case in comparative form corresponding  figures from
the previous annual audit,  certified without qualification by KPMG Peat Marwick
or  other  independent  certified  public  accountants  of  recognized  national
standing selected by the Borrowers and acceptable to the Bank, together with (a)
any  management  letters,  management  reports  or other  supplementary  written
comments or reports to the  Borrowers or their boards of directors  furnished by
such  accountants and (b) a letter from such  accountants  addressed to the Bank
acknowledging  that the Bank is extending  credit in reliance on such  financial
statements and authorizing such reliance.

                           5.1(b) Together with the audited financial statements
required under Section  5.1(a),  a statement by the accounting  firm  performing
such audit to the effect that it has  reviewed  this  Agreement  and that in the
course of performing its  examination  nothing came to its attention that caused
it to believe that any Default or Event of Default  exists,  or, if such Default
or Event of Default exists, describing its nature.

                           5.1(c) As soon as  available  and in any event within
forty-five days after the end of each March, June,  September and December,  and
thirty days after the end of each other month, unaudited consolidated statements
of  income,  cash  flow and  changes  in  stockholders'  equity  for each of the
Borrowers and its respective Subsidiaries for such month and for the period from
the beginning of such fiscal year to the end of such month,  and a  consolidated
balance  sheet of each of the  Borrowers  as at the end of such  month,  setting
forth in comparative form figures for the corresponding period for the preceding
fiscal year, accompanied by a certificate signed by the chief financial officers
of each of the Borrowers stating that such financial  statements  present fairly
the financial  condition of the Borrowers and the Subsidiaries and that the same
have been prepared in accordance with GAAP.

                           5.1(d)   Together   with  the   unaudited   financial
statements required under Section 5.1(c), (i) a compliance certificate signed by
the  chief  financial  officers  of  each  of  the  
                                      -24-
<PAGE>
Borrowers  demonstrating in reasonable detail compliance (or  noncompliance,  as
the case may be) with  Sections  6.10(h) and 6.13  through 6.17 as at the end of
such month and stating  that as at the end of such month there did not exist any
Default or Event of  Default  or, if such  Default or Event of Default  existed,
specifying  the nature  and  period of  existence  thereof  and what  action the
Borrower  proposes to take with  respect  thereto,  and (ii) a report on the Net
Asset Value of all Advisory Funds in form acceptable to the Bank,  signed by the
chief financial officers of each of the Borrowers.

                           5.1(e) As soon as practicable  and in any event prior
to the beginning of each fiscal year of the Borrowers,  statements of forecasted
income and cash flow for the  Borrowers and the  Subsidiaries  for each month in
such fiscal year and a forecasted  consolidated  balance  sheet of the Borrowers
and the  Subsidiaries,  together with supporting  assumptions,  as at the end of
each month, all in reasonable detail and reasonably satisfactory in scope to the
Bank.

                           5.1(f)  Immediately upon any officer of the Borrowers
becoming  aware of any  Default or Event of  Default,  a notice  describing  the
nature  thereof  and what  action the  Borrower  proposes  to take with  respect
thereto.

                           5.1(g)  Immediately upon any officer of the Borrowers
becoming  aware of the  occurrence,  with respect to any Plan, of any Reportable
Event or any Prohibited Transaction,  a notice specifying the nature thereof and
what  action the  Borrower  proposes to take with  respect  thereto,  and,  when
received,  copies of any notice from PBGC of  intention  to  terminate or have a
trustee appointed for any Plan.

                           5.1(h)  Promptly upon the mailing or filing  thereof,
copies of all financial  statements,  reports and proxy statements mailed to the
shareholders  of PACC or any Fund,  and copies of all  registration  statements,
periodic  reports and other  documents  filed with the  Securities  and Exchange
Commission (or any successor thereto) or any national securities exchange.

                           5.1(i)  Immediately upon any officer of the Borrowers
becoming  aware of any action by the  Borrowers,  any  Subsidiary or any Fund to
make any  modification  to,  waive any  provision  of, or fail to renew any Fund
Agreement, to the extent such modification,  waiver or non-renewal would have an
adverse  effect on the amount of  compensation  payable to the  Borrowers or any
Subsidiary by any Fund in an amount exceeding $100,000,  a notice describing the
same and what action the Borrowers propose to take with respect thereto.

                           5.1(j)  From  time to time,  such  other  information
regarding the business,  operation and financial condition of the Borrowers, the
Subsidiaries and the Funds as the Bank may reasonably request.

                  Section 5.2 Corporate Existence.  The Borrowers will maintain,
and cause their  Subsidiaries  to maintain,  their  corporate  existence in good
standing under the laws of their respective  jurisdictions of incorporation  and
their  qualification to transact business in each jurisdiction  where failure so
to qualify would  permanently  preclude  either  Borrower or any such Subsidiary
from  enforcing  its rights with respect to any  material  asset or would expose
either  Borrower or any such  Subsidiary  to any material  liability;  provided,
however,  that nothing  herein shall  prohibit the merger or  liquidation of any
Subsidiary allowed under Section 6.1.
                                      -25-
<PAGE>
                  Section 5.3 Insurance. The Borrowers shall maintain, and shall
cause their  Subsidiaries  to maintain,  with  financially  sound and  reputable
insurance  companies  such  insurance  as may be  required by law and such other
insurance  in such  amounts and against such hazards as is customary in the case
of  reputable  firms  engaged  in the same or  similar  business  and  similarly
situated.

                  Section 5.4 Payment of Taxes and Claims.  The Borrowers  shall
file,  and cause their  Subsidiaries  to file, all tax returns and reports which
are  required  by law to be  filed  by  them  and  will  pay,  and  cause  their
Subsidiaries  to pay, before they become  delinquent all taxes,  assessments and
governmental  charges and levies  imposed upon it or its property and all claims
or  demands  of any kind  (including  but not  limited  to  those of  suppliers,
mechanics,  carriers,  warehouses,  landlords and other like Persons)  which, if
unpaid, might result in the creation of a Lien upon its property;  provided that
the foregoing  items need not be paid if they are being  contested in good faith
by appropriate proceedings, and as long as the Borrowers' or Subsidiaries' title
to its property is not materially adversely affected, their use of such property
in the ordinary  course of its business is not  materially  interfered  with and
adequate  reserves with respect thereto have been set aside on the Borrowers' or
such Subsidiary's books in accordance with GAAP.

                  Section 5.5 Inspection.  The Borrowers shall permit any Person
designated  by the Bank to visit and  inspect any of the  properties,  corporate
books and financial  records of the Borrowers and the  Subsidiaries,  to examine
and to make copies of the books of accounts and other  financial  records of the
Borrowers  and the  Subsidiaries,  and to  discuss  the  affairs,  finances  and
accounts of the Borrowers and the Subsidiaries with, and to be advised as to the
same by, its  officers at such  reasonable  times and  intervals as the Bank may
designate.  So long as no Event of Default exists,  the expenses of the Bank for
such visits,  inspections and examinations  shall be at the expense of the Bank,
but any such  visits,  inspections  and  examinations  made  while  any Event of
Default is continuing shall be at the expense of the Borrowers.

                  Section 5.6  Maintenance  of  Properties.  The Borrowers  will
maintain,  and cause their  Subsidiaries to maintain,  their  properties used or
useful in the  conduct of its  business  in good  condition,  repair and working
order,  and  supplied  with all  necessary  equipment,  and  make all  necessary
repairs,  renewals,  replacements,  betterments and improvements thereto, all as
may be necessary so that the business carried on in connection  therewith may be
properly and advantageously conducted at all times.

                  Section 5.7 Books and Records.  The Borrowers  will keep,  and
will cause their Subsidiaries to keep,  adequate and proper records and books of
account  in  which  full and  correct  entries  will be made of their  dealings,
business and affairs.

                  Section 5.8  Compliance.  The Borrowers will comply,  and will
cause their  Subsidiaries  to comply,  in all material  respects  with all laws,
rules, regulations, orders, writs, judgments,  injunctions, decrees or awards to
which they may be subject;  provided,  however,  that failure so to comply shall
not be a breach  of this  covenant  if such  failure  does not  have,  or is not
reasonably  expected to have, a  materially  adverse  effect on the  properties,
business,  prospects or condition  (financial  or otherwise) of the Borrowers or
the  Subsidiaries and the Borrowers or the Subsidiaries are acting in good faith
and with reasonable dispatch to cure such noncompliance.
                                      -26-
<PAGE>
                  Section  5.9 Notice of  Litigation.  The  Borrowers  will give
prompt written  notice to the Bank of the  commencement  of any action,  suit or
proceeding before any court or arbitrator or any governmental department, board,
agency or other instrumentality affecting the Borrowers or their Subsidiaries or
any property of the Borrowers or their  Subsidiaries or to which either Borrower
or any Subsidiary is a party in which an adverse  determination  or result could
have  a  material  adverse  effect  on the  business,  operations,  property  or
condition  (financial or otherwise) of the Borrowers and the Subsidiaries  taken
as a whole or on the ability the  Borrowers to perform their  obligations  under
the Loan  Documents,  stating  the  nature and  status of such  action,  suit or
proceeding.

                  Section 5.10 ERISA.  The Borrowers  will  maintain,  and cause
their  Subsidiaries  to  maintain,  each Plan in  compliance  with all  material
applicable requirements of ERISA and of the Code and with all applicable rulings
and  regulations  issued under the  provisions of ERISA and of the Code and will
not and not permit any of the ERISA  Affiliates to (a) engage in any transaction
in connection with which the Borrowers or any of the ERISA  Affiliates  would be
subject to either a civil penalty  assessed  pursuant to Section 502(i) of ERISA
or a tax  imposed  by  Section  4975 of the Code,  in  either  case in an amount
exceeding $50,000,  (b) fail to make full payment when due of all amounts which,
under the  provisions  of any Plan,  the  Borrowers  or any ERISA  Affiliate  is
required to pay as  contributions  thereto,  or permit to exist any  accumulated
funding  deficiency (as such term is defined in Section 302 of ERISA and Section
412 of the  Code),  whether  or not  waived,  with  respect  to any  Plan  in an
aggregate  amount  exceeding  $50,000  or (c)  fail to make any  payments  in an
aggregate amount exceeding $50,000 to any Multiemployer  Plan that the Borrowers
or any of the ERISA  Affiliates  may be  required  to make  under any  agreement
relating to such Multiemployer Plan or any law pertaining thereto.

                  Section  5.11  Fund  Agreements.   Subject  to  its  fiduciary
obligations  and except as may otherwise be required by law, the Borrowers  will
use  their  best  efforts  to cause  each Fund for  which a  Subsidiary  acts as
investment advisor or principal  distributor to continue such Subsidiary in such
capacity and not to reduce the  compensation  payable to such Subsidiary for its
services to such Fund in any material respect.

                  Section 5.12 Advisory  Subsidiaries.  The Borrowers will cause
PAII,  on and at all times after the Closing Date,  and any Advisory  Subsidiary
acquired hereafter as a result of an Investment permitted under Section 6.11(h),
on and at all times after the Business Day following such acquisition, to comply
with the following requirements:

                           (a) not have any (i) business other than the business
         of serving  as  investment  adviser  for  Advisory  Funds  pursuant  to
         Advisory Contracts and receiving payments thereunder, (ii) assets other
         than Advisory Contracts and assets necessary to the performance by such
         Advisory  Subsidiary of its obligations under such Advisory  Contracts,
         or (iii) liabilities other than liabilities under Advisory Contracts or
         other agreements permitted pursuant to Section 5.12(b);

                           (b)  not   enter   into  any   agreements   or  other
         arrangements with any Affiliate or any unaffiliated  Person, other than
         (y)  Advisory  Contracts  and (z)  other  agreements  necessary  to the
         performance  by  such  Advisory  Subsidiary  of its  obligations  under
         Advisory  Contracts;  provided that such  Advisory  Contracts and other
         agreements  are  entered  into upon fair and  reasonable  terms no less
         favorable to such Advisory Subsidiary than would obtain in a comparable
         arm's-length available to a Person unaffiliated with the Borrower;
                                      -27-
<PAGE>
                           (c)  distribute (by dividend or otherwise) all of its
         revenue,  less actual  expenses  incurred in performing its obligations
         under Advisory  Contracts,  and subject to any restrictions  applicable
         under  the  Delaware  General   Corporation  Act  or  other  applicable
         corporate  statute,  or the  Investment  Advisers  Act or any state law
         applicable to investment advisers, to PAG by means of a deposit into an
         account of PAG with the Bank;

                           (d)  be  incorporated   under  the  Delaware  General
         Corporation   Act  and  provide  in  its  Certificate  or  Articles  of
         Incorporation  that,  until the Obligations  have been paid in full and
         the Commitment has been terminated, no action of the types described in
         Sections  7.1(e),  (f) or (g) may be taken  without  the prior  written
         consent of the Bank;

                           (e)  conduct  its  business  solely  in its own  name
         through  its duly  authorized  officers  or agents so as not to mislead
         others as to the  identity of the Person  with which  those  others are
         concerned,  and use  its  best  efforts  to  avoid  the  appearance  of
         conducting  business on behalf of the Borrowers or any other Subsidiary
         or  Affiliate  of the  Borrowers,  or that the assets of such  Advisory
         Subsidiary  are  available to pay the creditors of the Borrowers or any
         Subsidiary  or  Affiliate  of  the  Borrowers   (without  limiting  the
         generality  of the  foregoing,  all  oral and  written  communications,
         including,  without  limitation,  letters,  invoices,  purchase orders,
         contracts  and  statements  will be  made  solely  in the  name of such
         Advisory Subsidiary);

                           (f) maintain  corporate  records and books of account
         separate from those of the Borrowers and any Subsidiary or Affiliate of
         the Borrowers;

                           (g)  obtain  proper  authorization  from its board of
         directors of all corporate  action  requiring such  authorization,  and
         hold  meetings of its board of directors  and hold not less  frequently
         than four times per annum;

                           (h) obtain proper  authorization from its shareholder
         of all corporate action requiring shareholder approval;

                           (i) pay its operating  expenses and liabilities  from
         its own funds;

                           (j)  disclose  in its  annual and  interim  financial
         statements the effects of such Advisory  Subsidiary's  transactions  in
         accordance with generally accepted accounting principles; and

                           (k)  keep  its  assets  and  its  liabilities  wholly
         separate from those of all other  Persons,  including,  but not limited
         to, the  Borrowers  and any other  Subsidiaries  or  Affiliates  of the
         Borrowers.

                  Section 5.13 Further Assurances.  The Borrowers will, and will
cause their  Subsidiaries  to, promptly  correct any defect or error that may be
discovered  in  any  Loan  Document  or  in  the  execution,  acknowledgment  or
recordation thereof. Promptly upon request by the Bank, the Borrowers also will,
and will cause their Subsidiaries to, do, execute, acknowledge, deliver, record,
re-record,  file,  re-file,  register and re-register,  any and all assignments,
estoppel certificates,  financing statements and continuations thereof,  notices
of assignment, transfers, certificates,  assurances and other instruments as the
Bank may  
                                      -28-
<PAGE>
reasonable require from time to time in order: (a) to carry out more effectively
the purposes of the Loan  Documents;  (b) to perfect and maintain the  validity,
effectiveness  and  priority  of any Liens  intended  to be  created by the Loan
Documents; and (c) to better assure, convey, grant, assign, transfer,  preserve,
protect and confirm unto the Bank the rights  granted now or hereafter  intended
to be granted to the Bank under any Loan Document or under any other  instrument
executed in  connection  with any Loan  Document or that the  Borrowers or their
Subsidiaries may be or become bound to convey, mortgage or assign to the Bank in
order to carry out the intention or facilitate the performance of the provisions
of  any  Loan  Document.  The  Borrowers  will  furnish  to  the  Bank  evidence
satisfactory to the Bank of every such recording, filing or registration.

                                   ARTICLE VI
                                   ----------

                               NEGATIVE COVENANTS

                  Until  any  obligation  of the  Bank  hereunder  to  make  the
Revolving  Loans and the Term Loan or to issue any  Letter of Credit  shall have
expired or been terminated, no Letter of Credit remains outstanding and the Note
and all of the other  Obligations have been paid in full,  unless the Bank shall
otherwise consent in writing:

                  Section  6.1  Merger.   The   Borrowers   will  not  merge  or
consolidate or enter into any analogous  reorganization  or transaction with any
Person or liquidate,  wind up or dissolve  itself (or suffer any  liquidation or
dissolution)  or permit any  Subsidiary  to do any of the  foregoing;  provided,
however, any Subsidiary of PAG, other than an Advisory Subsidiary, may be merged
with or  liquidated  into any  wholly-owned  Subsidiary  (if  such  wholly-owned
Subsidiary is the surviving corporation) of PAG, and any Subsidiary of PACC that
is not PAG or a  Subsidiary  of PAG may be merged  with or  liquidated  into any
other wholly-owned Subsidiary of PACC that is not PAG or a Subsidiary of PAG (if
such wholly-owned Subsidiary is the surviving corporation).

                  Section 6.2 Disposition of Assets. The Borrowers will not, and
will not permit any of their  Subsidiaries  to,  directly or  indirectly,  sell,
assign,  lease,  convey,  transfer  or  otherwise  dispose  of  (whether  in one
transaction or a series of transactions)  any property  (including  accounts and
notes  receivable,  with or without  recourse) or enter into any agreement to do
any of the foregoing, except:

                           6.2(a) sales of Fund shares (i)  underwritten  by any
Subsidiary  of the  Borrower or (ii) in which the  Borrowers  or any  Subsidiary
makes an Investment  permitted under Section 6.11(i),  in the ordinary course of
business;

                           6.2(b)   sales  of  rights  to   receive   investment
distribution  fees as  provided  in rule  12b-1 of the SEC under the  Investment
Company Act,  provided  that,  both before and after giving effect  thereto,  no
Default or Event of Default would have occurred and be continuing;

                           6.2(c) the sale of  equipment  to the extent that (i)
such equipment is no longer useful in such Borrower's or Subsidiary's  business,
(ii) is exchanged for credit against the purchase  price of similar  replacement
equipment,  or (iii) the  proceeds  of such  sale are  applied  with  reasonable
promptness to the purchase price of similar replacement equipment; and
                                      -29-
<PAGE>
                           6.2(d)  the  resale  of   mortgage   related   assets
reacquired  by the  Borrowers  or their  Subsidiaries  pursuant  to the terms of
agreements  relating to the sale of such mortgage related assets existing on the
date hereof.

                  Section 6.3 Plans. The Borrowers will not permit, and will not
allow their  Subsidiaries  to permit,  any event to occur or  condition to exist
which would permit any Plan to  terminate  under any  circumstances  which would
cause the Lien  provided for in Section 4068 of ERISA to attach to any assets of
the Borrowers or any  Subsidiary;  and the Borrower  will not permit,  as of the
most  recent  valuation  date for any Plan  subject  to Title IV of  ERISA,  the
present value (determined on the basis of reasonable assumptions employed by the
independent  actuary for such Plan and  previously  furnished  in writing to the
Bank) of such Plan's  projected  benefit  obligations  to exceed the fair market
value of such Plan's assets.

                  Section 6.4 Change in Nature of Business.  The Borrowers  will
not (a) own any assets other than the stock of their Subsidiaries, Cash Balances
and Cash  Equivalents  held through the Bank or its  Affiliates,  the trademarks
subject to the Trademark Assignment,  and fixed assets or personal property used
in the business of the Borrowers and their Subsidiaries, (b) will not permit any
Advisory  Subsidiaries  to take any action that would cause,  or authorize,  any
violation of Section  5.12,  and (c) will not permit any  Subsidiary to make any
material  change in the nature of the business of such  Subsidiary as carried on
at the date hereof or, if later, the date such Subsidiary is acquired.

                  Section 6.5  Subsidiaries.  After the date of this  Agreement,
the  Borrowers  will not,  and will not permit  their  Subsidiaries  to, form or
acquire any  corporation  which would thereby  become a  Subsidiary,  except for
Subsidiaries  acquired as a result of Investments  permitted pursuant to Section
6.11(h).

                  Section 6.6 Negative  Pledges;  Subsidiary  Restrictions.  The
Borrowers  will not, and will not permit their  Subsidiaries  to, enter into any
agreement,  bond, note or other instrument with or for the benefit of any Person
other than the Bank which would (i)  prohibit the  Borrowers  or any  Subsidiary
from granting, or otherwise limit the ability of the Borrowers or any Subsidiary
to grant,  to the Bank any Lien on any assets or  properties of the Borrowers or
any Subsidiary,  or (ii) require the Borrowers or any Subsidiary to grant a Lien
to any other Person if the  Borrowers or any  Subsidiary  grants any Lien to the
Bank.  The  Borrowers  will not  permit  any  Subsidiary  to place or allow  any
restriction,  directly or indirectly,  on the ability of such  Subsidiary to (a)
pay  dividends  or any  distributions  on or with  respect to such  Subsidiary's
capital stock or (b) make loans or other cash payments to the Borrowers.

                  Section  6.7  Restricted  Payments.  PACC  will  not  make any
Restricted  Payments,  and PAG will not make any Restricted  Payments if, either
before or after giving effect thereto,  an Event of Default or Default will have
occurred and be continuing.

                  Section 6.8 Transactions  with Affiliates.  The Borrowers will
not, and will not permit their  Subsidiaries to, enter into any transaction with
any Affiliate of the Borrowers,  except upon fair and  reasonable  terms no less
favorable  to  the  Borrowers  or  such  Subsidiaries  than  would  obtain  in a
comparable arm's-length transaction with a Person not an Affiliate.

                  Section 6.9  Accounting  Changes.  The Borrowers will not, and
will not permit their Subsidiaries to, make any significant change in accounting
treatment or reporting  practices,  except as required by GAAP,  or change their
fiscal year.
                                      -30-
<PAGE>
                  Section 6.10 Investments. The Borrowers will not, and will not
permit  their  Subsidiaries  to,  acquire  for  value,  make,  have or hold  any
Investments, except:

                           6.10(a)  Investments  existing  on the  date  of this
Agreement.

                           6.10(b) Travel and relocation  advances to management
personnel and employees in the ordinary course of business.

                           6.10(c)  Investments  by  the  Borrowers  in  readily
marketable  obligations  issued or guaranteed by the United States or any agency
thereof and supported by the full faith and credit of the United States.

                           6.10(d)  Investments by the Borrowers in certificates
of deposit or bankers'  acceptances  issued by the Bank or any other  commercial
bank  organized  under the laws of the United  States or any State thereof which
has (i) combined capital and surplus of at least $100,000,000, and (ii) a credit
rating with respect to its unsecured  indebtedness from a nationally  recognized
rating service that is satisfactory to the Bank.

                           6.10(e)  Investments  by the  Borrowers in commercial
paper given the highest rating by a nationally recognized rating service.

                           6.10(f)  Investments  by the  Borrowers in repurchase
agreements  relating to  securities  issued or  guaranteed  as to principal  and
interest by the United States of America.

                           6.10(g) Investments by the Borrowers in other readily
marketable Investments in debt securities which are reasonably acceptable to the
Bank.

                           6.10(h) Other  Investments  by PAG  consisting of the
acquisition of all or  substantially  all of the capital stock of, or assets of,
Persons  engaged  in the  business  of  serving  as  investment  advisors  to or
principal  distributors for Funds, provided (i) the aggregate Net Asset Value of
all Funds with respect to which any Subsidiary  becomes the investment  advisor,
or the  investment  advisor  becomes  a  Subsidiary,  as a  result  of all  such
Investments does not exceed $500,000,000,  (ii) the aggregate consideration paid
for any such Investment does not exceed five percent (5%) of the Net Asset Value
of all  Funds  with  respect  to which any  Subsidiary  becomes  the  investment
advisor,  or the investment  advisor  becomes a Subsidiary,  as a result of such
Investments,  and  (iii)  in  the  case  of  any  Investment  resulting  in  the
acquisition  of new  Subsidiary,  such  Subsidiary is or becomes a  wholly-owned
Subsidiary  and executes and delivers to the Bank a Security  Agreement  and, if
such Subsidiary is an Advisory Subsidiary,  a Guaranty  simultaneously with such
Investment.

                           6.10(i) Investments in Advisory Funds, or any similar
investment  in a  management  investment  pool  that is not a Fund  but  that is
managed by an Advisory Subsidiary.

Any Investments  under clauses (c), (d), (e) or (f) above must mature within one
year of the acquisition thereof by the Borrowers.

                  Section 6.11  Indebtedness.  The Borrowers  will not, and will
not permit their  Subsidiaries  to, incur,  create,  issue,  assume or suffer to
exist any Indebtedness, except:

                           6.11(a) The Obligations.
                                      -31-
<PAGE>
                           6.11(b) Current liabilities,  other than for borrowed
money, incurred in the ordinary course of business.

                           6.11(c) Indebtedness secured by Liens permitted under
Section 6.13(h) hereof in an amount not to exceed $1,000,000.

                  Section  6.12  Liens.  The  Borrowers  will not,  and will not
permit their Subsidiaries to, create, incur, assume or suffer to exist any Lien,
or enter into, or make any  commitment to enter into,  any  arrangement  for the
acquisition of any property through  conditional  sale,  lease-purchase or other
title retention agreements,  with respect to any property now owned or hereafter
acquired by either Borrower or a Subsidiary, except:

                           6.12(a) Liens granted to the Bank.

                           6.12(b)  Deposits  or  pledges  to secure  payment of
workers' compensation,  unemployment insurance, old age pensions or other social
security obligations, in the ordinary course of business of either Borrower or a
Subsidiary.

                           6.12(c)  Liens  for  taxes,  fees,   assessments  and
governmental charges not delinquent or to the extent that payment therefor shall
not at the time be  required to be made in  accordance  with the  provisions  of
Section 5.4.

                           6.12(d)  Liens of carriers,  warehousemen,  mechanics
and  materialmen,  and  other  like  Liens  arising  in the  ordinary  course of
business,  for sums not due or to the extent that payment  therefor shall not at
the time be required to be made in  accordance  with the  provisions  of Section
5.4.

                           6.12(e) Liens incurred or deposits or pledges made or
given in connection  with, or to secure  payment of,  indemnity,  performance or
other similar bonds.

                           6.12(f)  Liens  arising   solely  by  virtue  of  any
statutory or common law provision relating to banker's liens,  rights of set-off
or similar rights and remedies as to deposit  accounts or other funds maintained
with a creditor depository  institution;  provided that (i) such deposit account
is not a dedicated  cash  collateral  account and is not subject to  restriction
against  access by the Borrowers or a Subsidiary in excess of those set forth by
regulations  promulgated  by the  Board,  and (ii) such  deposit  account is not
intended  by the  Borrowers  or any  Subsidiary  to  provide  collateral  to the
depository institution.

                           6.12(g)   Encumbrances   in  the   nature  of  zoning
restrictions,  easements and rights or restrictions of record on the use of real
property and landlord's Liens under leases on the premises rented,  which do not
materially  detract from the value of such property or impair the use thereof in
the business of the Borrowers or a Subsidiary.

                           6.12(h)  The   interest  of  any  lessor   under  any
Capitalized Lease entered into after the Closing Date or purchase money Liens on
equipment acquired after the Closing Date; provided,  that, (i) the Indebtedness
secured thereby is otherwise permitted by this Agreement and (ii) such Liens are
limited to the equipment acquired and do not secure  Indebtedness other than the
related Capitalized Lease Obligations or the purchase price of such equipment.
                                      -32-
<PAGE>
                           6.12(i)  A  Lien  in  favor  of  the  PAG's  landlord
covering  tenant  improvements  located in PAG's office in Phoenix,  Arizona and
financed by such landlord,  to secure all of PAG's  obligations  under the lease
for such office premises as in effect on May31, 1995.

                  Section 6.13 Contingent  Obligations.  The Borrowers will not,
and will not permit their Subsidiaries to, be or become liable on any Contingent
Obligations.

                  Section 6.14 Funded Debt Leverage  Ratio.  The Borrowers  will
not permit the ratio of (i) Funded Debt as of the last day of any fiscal quarter
of the  Borrowers,  to (ii) EBITDA,  for the  Measurement  Period ending on that
date, to be more than 4.0 to 1.0.

                  Section 6.15 Fixed Charge Coverage  Ratio.  The Borrowers will
not permit the Fixed Charge Coverage Ratio, as of the last day of any month, for
the Measurement Period ending on that date, to be less than 1.50 to 1.00.

                  Section 6.16 Minimum Fund  Balances.  The  Borrowers  will not
permit the sum of the Net Asset Values of all  Advisory  Funds at any time to be
less than the greater of (a)  $1,350,000,000 or (b) ninety percent of the sum of
such Net Asset Values at the end of the most recently  completed  fiscal quarter
(or,  in the  case  of a  measurement  at the  end of any  fiscal  quarter,  the
preceding fiscal quarter).

                  Section 6.17 EBITDA.  The Borrower  will not permit the EBITDA
Margin, as the last day of any month, for the Measurement  Period ending on that
date, to be less than 25.0%.

                  Section 6.18 Loan  Proceeds.  The  Borrowers  will not use any
part  of  the  proceeds  of  the  Loans  directly  or  indirectly,  and  whether
immediately,  incidentally or ultimately,  (a) to purchase or carry margin stock
(as defined in Regulation U of the Board), other than to the extent used to make
Restricted  Payments to PACC to fund the repurchase of its  outstanding  capital
stock,  or to extend  credit to others for the purpose of purchasing or carrying
margin stock or to refund  Indebtedness  originally incurred for such purpose or
(b) for any purpose which entails a violation of, or which is inconsistent with,
the provisions of Regulations G, U or X of the Board.

                                   ARTICLE VII
                                   -----------

                         EVENTS OF DEFAULT AND REMEDIES

                  Section 7.1 Events of Default.  The  occurrence  of any one or
more of the following events shall constitute an Event of Default:

                           7.1(a)  The  Borrowers  shall  fail to make when due,
whether by acceleration or otherwise, any payment of principal of or interest on
either Note or any other Obligation  required to be made to the Bank pursuant to
this Agreement.

                           7.1(b) Any  representation  or warranty made by or on
behalf of either  Borrower or any Subsidiary in this Agreement or any other Loan
Document  or by or on  behalf  of  either  Borrower  or  any  Subsidiary  in any
certificate,  statement,  report or document herewith or hereafter  furnished to
the Bank pursuant to this  Agreement or any other Loan  Document  shall prove to
have been false or  misleading  in any material  respect on the date as of which
the facts set forth are stated or certified.
                                      -33-
<PAGE>
                           7.1(c)  The  Borrowers  shall  fail  to  comply  with
Sections 5.2, 5.3, 5.12 or 5.13,  any Section of Article VI, or the Borrowers or
any  Subsidiary  shall  fail to comply  with  Section  4, 6, 8 or 13,  the first
sentence  of Section 7 or the  second  sentence  of  Section 14 of the  Security
Agreements to which it is a party.

                           7.1(d) The Borrowers or any Subsidiary  shall fail to
comply  with  any  other  agreement,  covenant,  condition,  provision  or  term
contained  in this  Agreement  or any other  Loan  Document  (other  than  those
hereinabove  set forth in this  Section  7.1) and such  failure to comply  shall
continue for thirty  calendar days after whichever of the following dates is the
earliest:  (i) the date the  Borrowers  give notice of such failure to the Bank,
(ii) the date the  Borrowers  should  have given  notice of such  failure to the
Banks  pursuant to Section  5.1, or (iii) the date the Bank gives notice of such
failure to the Borrowers.

                           7.1(e) Either Borrower or any Subsidiary shall become
insolvent  or shall  generally  not pay its debts as they  mature or shall apply
for,  shall consent to, or shall  acquiesce in the  appointment  of a custodian,
trustee or receiver of such Borrower or Subsidiary or for a substantial  part of
the  property  thereof  or,  in the  absence  of such  application,  consent  or
acquiescence,  a custodian,  trustee or receiver  shall be appointed  for either
Borrower or a Subsidiary or for a substantial  part of the property  thereof and
shall not be  discharged  within 45 days, or either  Borrower or any  Subsidiary
shall make an assignment for the benefit of creditors.

                           7.1(f)   Any   bankruptcy,    reorganization,    debt
arrangement or other proceedings under any bankruptcy or insolvency law shall be
instituted by or against either Borrower or any  Subsidiary,  and, if instituted
against  either  Borrower or any  Subsidiary,  shall have been  consented  to or
acquiesced in by such Borrower or Subsidiary, or shall remain undismissed for 60
days,  or an order for relief shall have been entered  against such  Borrower or
Subsidiary.

                           7.1(g) Any dissolution or liquidation  proceeding not
permitted by Section 6.1 shall be  instituted by or against  either  Borrower or
any Subsidiary  and, if instituted  against either  Borrower or any  Subsidiary,
shall be consented to or  acquiesced  in by such Borrower or Subsidiary or shall
remain for 45 days undismissed.

                           7.1(h) A judgment  or  judgments  for the  payment of
money in  excess  of the sum of  $100,000  in the  aggregate  shall be  rendered
against either  Borrower or any Subsidiary and either (i) the judgment  creditor
executes on such judgment or (ii) such judgment  remains unpaid or  undischarged
for more  than 60 days  from the date of entry  thereof  or such  longer  period
during which  execution of such  judgment  shall be stayed during an appeal from
such judgment.

                           7.1(i) The maturity of any material  Indebtedness  of
either Borrower (other than Indebtedness under this Agreement) or any Subsidiary
shall be accelerated, or either Borrower or any Subsidiary shall fail to pay any
such material  Indebtedness  when due (after the lapse of any  applicable  grace
period) or, in the case of such  Indebtedness  payable on demand,  when demanded
(after the lapse of any applicable  grace  period),  or any event shall occur or
condition  shall exist and shall continue for more than the period of grace,  if
any,  applicable thereto and shall have the effect of causing, or permitting the
holder of any such  Indebtedness or any trustee or other Person acting on behalf
of such holder to cause,  such material  Indebtedness to become due prior to its
stated  maturity or to realize upon any 
                                      -34-
<PAGE>
collateral   given  as  security   therefor.   For  purposes  of  this  Section,
Indebtedness of either Borrower or any Subsidiary shall be deemed  "material" if
it exceeds  $100,000 as to any item of  Indebtedness or in the aggregate for all
items of Indebtedness  with respect to which any of the events described in this
Section 7.1(i) has occurred.

                           7.1(j) Any  execution or  attachment  shall be issued
whereby  any  substantial  part  of  the  property  of  either  Borrower  or any
Subsidiary  or any of the stock of either  Borrower or any  Subsidiary  shall be
taken or  attempted  to be taken and the same  shall not have  been  vacated  or
stayed within 30 days after the issuance thereof.

                           7.1(k) Any  Advisory  Subsidiary  shall  repudiate or
purport to revoke its  Guaranty or any Guaranty for any reason shall cease to be
in full force and effect as to any Advisory  Subsidiary,  or shall be judicially
declared null and void.

                           7.1(l)  Any  Security  Document  shall,  at any time,
cease to be in full force and effect or shall be  judicially  declared  null and
void,  or the validity or  enforceability  thereof  shall be contested by either
Borrower  or any  Subsidiary,  or the  Bank  shall  cease  to have a  valid  and
perfected security interest having the priority  contemplated  thereunder in all
of the  collateral  described  therein,  other than by action or inaction of the
Bank  if (i)  the  aggregate  value  of the  collateral  affected  by any of the
foregoing  exceeds $25,000 and (ii) any of the foregoing shall remain unremedied
for ten days or more after receipt of notice  thereof by the Borrowers  from the
Bank.

                           7.1(m)  The SEC  shall  have  revoked,  or taken  any
action to revoke,  the broker/dealer or investment  adviser  registration of any
Subsidiary.

                           7.1(n) PAG or any  Subsidiary  shall  have  failed to
meet the  minimum  capital  requirements  prescribed  from  time to time by Rule
15c3-1 under the Exchange Act and applicable to it.

                           7.1(o) The SEC, the NASD or any other authority shall
have modified or terminated, or proposed to modify or terminate Rule 12b-1 under
the  Investment  Company  Act or the Rules of Fair  Practice  in a manner  which
could, in the sole judgment of the Bank,  result in a material adverse effect on
the  business,  operations,   properties,  assets  or  condition  (financial  or
otherwise) of the Borrowers and the Subsidiaries taken as a whole.

                           7.1(p)  PASI  or  any  other  Subsidiary  that  is  a
broker/dealer shall cease to be a member in good standing of the NASD.

                           7.1(q)  The SIPC  shall  have  applied  or shall have
announced its intention to apply for a decree adjudicating that customers of PAG
or any Subsidiary are in need of protection under SIPA.

                           7.1(r) Any Change of Control shall occur.

                  Section 7.2 Remedies. If (a) any Event of Default described in
Sections  7.1(e),  (f), (g) or (q) shall occur with respect to either  Borrower,
the  Commitment  shall  automatically  terminate  and the  Note  and  all  other
Obligations shall  automatically  become immediately due and payable; or (b) any
other  Event of Default  shall  occur and be  continuing,  then the Bank may (i)
declare the Commitment terminated,  whereupon the Commitment shall terminate and
(ii) declare the outstanding  unpaid principal  balance of the Note, the accrued
and unpaid  
                                      -35-
<PAGE>
interest  thereon and all other  Obligations  to be  forthwith  due and payable,
whereupon  the Note,  all  accrued  and  unpaid  interest  thereon  and all such
Obligations  shall  immediately  become due and  payable,  in each case  without
presentment,  demand,  protest  or other  notice of any  kind,  all of which are
hereby  expressly  waived,  anything  in this  Agreement  or in the  Note to the
contrary notwithstanding.  Upon the occurrence of any of the events described in
clauses (a) or (b) of the  preceding  sentence  the Bank may exercise all rights
and  remedies  under any of the Loan  Documents,  and  enforce  all  rights  and
remedies under any applicable law.

                  Section 7.3 Offset.  In addition to the  remedies set forth in
Section 7.2, upon the  occurrence of any Event of Default and  thereafter  while
the same be continuing,  the Borrowers hereby irrevocably authorizes the Bank to
set off any Obligations  against all deposits and credits of the Borrowers with,
and any and all claims of the  Borrowers or any  Subsidiary  against,  the Bank.
Such  right  shall  exist  whether  or not the Bank  shall  have made any demand
hereunder or under any other Loan Document,  whether or not the Obligations,  or
any part thereof,  or deposits and credits held for the account of the Borrowers
or any of their  Subsidiaries is or are matured or unmatured,  and regardless of
the  existence or adequacy of any  collateral,  guaranty or any other  security,
right or remedy  available to the Bank.  The Bank agrees that, as promptly as is
reasonably possible after the exercise of any such setoff right, it shall notify
the Borrowers of its exercise of such setoff right; provided,  however, that the
failure of the Bank to provide  such notice shall not affect the validity of the
exercise  of such setoff  rights.  Nothing in this  Agreement  shall be deemed a
waiver or  prohibition  of or  restriction on the Bank to all rights of banker's
Lien, setoff and counterclaim available pursuant to law.

                                  ARTICLE VIII
                                  ------------

                                  MISCELLANEOUS

                  Section 8.1 Modifications.  Notwithstanding  any provisions to
the contrary herein,  any term of this Agreement may be amended with the written
consent of the Borrowers; provided that no amendment,  modification or waiver of
any  provision of this  Agreement or consent to any  departure by the  Borrowers
therefrom  shall in any event be  effective  unless the same shall be in writing
and signed by the Bank, and then such amendment, modification, waiver or consent
shall be effective  only in the specific  instance and for the purpose for which
given.

                  Section 8.2 Expenses;  Amendment or Waiver Fee. Whether or not
the transactions  contemplated  hereby are  consummated,  the Borrowers agree to
reimburse the Bank upon demand for all reasonable out-of-pocket expenses paid or
incurred by the Bank (including filing and recording costs and fees and expenses
of  Dorsey  &  Whitney  LLP,  counsel  to  the  Bank)  in  connection  with  the
negotiation, preparation, approval, review, execution, delivery, administration,
amendment,  modification and interpretation of this Agreement and the other Loan
Documents and any commitment letters relating thereto.  The Borrowers shall also
reimburse  the  Bank  upon  demand  for all  reasonable  out-of-pocket  expenses
(including expenses of legal counsel) paid or incurred by the Bank in connection
with the  collection  and  enforcement  of this  Agreement  and any  other  Loan
Document.  The obligations of the Borrowers under this Section shall survive any
termination  of  this  Agreement.  In  addition,  the  PACC  shall  pay a fee of
$1,500.00 to the Bank on the effective date of any amendment to, modification of
or waiver of any provision of this Agreement if the Bank determines, in its sole
discretion,  that its  policies  or  practices  required  the Bank to obtain the
approval of any credit 
                                      -36-
<PAGE>
committee or similar  approval  authority for the  execution of such  amendment,
modification or waiver.

                  Section 8.3  Waivers,  etc. No failure on the part of the Bank
or the  holder of a Note to  exercise  and no delay in  exercising  any power or
right  hereunder  or under any other  Loan  Document  shall  operate as a waiver
thereof; nor shall any single or partial exercise of any power or right preclude
any other or further  exercise  thereof or the  exercise  of any other  power or
right.  The  remedies  herein  and in the  other  Loan  Documents  provided  are
cumulative and not exclusive of any remedies provided by law.

                  Section  8.4  Notices.   Except  when  telephonic   notice  is
expressly authorized by this Agreement, any notice or other communication to any
party in connection with this Agreement shall be in writing and shall be sent by
manual delivery,  telegram, telex, facsimile transmission,  overnight courier or
United  States mail  (postage  prepaid)  addressed  to such party at the address
specified on the signature  page hereof,  or at such other address as such party
shall have specified to the other party hereto in writing. All periods of notice
shall be measured from the date of delivery thereof if manually delivered,  from
the  date  of  sending   thereof  if  sent  by  telegram,   telex  or  facsimile
transmission,  from the first  Business Day after the date of sending if sent by
overnight  courier,  or from four  days  after the date of  mailing  if  mailed;
provided,  however, that any notice to the Bank under Article II hereof shall be
deemed to have been given only when received by the Bank.

                  Section 8.5 Taxes.  The  Borrowers  agree to pay, and save the
Bank  harmless  from all  liability  for,  any stamp or other taxes which may be
payable  with  respect to the  execution  or delivery of this  Agreement  or the
issuance  of the Note,  which  obligation  of the  Borrowers  shall  survive the
termination of this Agreement.

                  Section 8.6  Successors  and  Assigns;  Disposition  of Loans;
Transferees.  This  Agreement  shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns,  except that the
Borrowers may not assign their rights or delegate their obligations hereunder or
under any other Loan Document without the prior written consent of the Bank. The
Bank may at any  time  sell,  assign,  transfer,  grant  participations  in,  or
otherwise  dispose of any portion of the  Commitment,  the Loans and/or Advances
(each such interest so disposed of being herein called a "Transferred Interest")
to banks or other financial  institutions  ("Transferees").  The Borrowers agree
that each Transferee  shall be entitled to the benefits of Sections 2.21,  2.22,
2.23, 2.24, 8.2 and 8.12 with respect to its Transferred  Interest and that each
Transferee  may  exercise  any and all  rights  of  banker's  Lien,  setoff  and
counterclaim as if such Transferee were a direct lender to the Borrowers. If the
Bank makes any  assignment  to a  Transferee,  then upon notice to the Borrowers
such Transferee,  to the extent of such assignment  (unless  otherwise  provided
therein),  shall  become a "Bank"  hereunder  and shall  have all the rights and
obligations of the Bank hereunder and the Bank shall be released from its duties
and  obligations  under  this  Agreement  to  the  extent  of  such  assignment.
Notwithstanding  the sale by the  Bank of any  participation  hereunder,  (a) no
participant shall be deemed to be or have the rights and obligations of the Bank
hereunder except that any participant shall have a right of setoff under Section
7.3 as if it were  the Bank  and the  amount  of its  participation  were  owing
directly  to such  participant  by the  Borrowers  and (b) the Bank shall not in
connection  with selling any such  participation  condition the Bank's rights in
connection  with  consenting to amendments or granting  waivers  concerning  any
matter under any Loan  Document upon  obtaining the consent of such  participant
other  than on  matters  relating  to (i) any  reduction  in the  amount  of any
principal  of, or the amount of or rate of  interest  on, the Note or Advance in
which such  
                                      -37-
<PAGE>
participation  is sold, (ii) any  postponement of the date fixed for any payment
of principal  of or interest on the Note or Advance in which such  participation
is sold,  (iii) the  release or  subordination  of any  material  portion of any
collateral other than pursuant to the terms of any Security Document or (iv) the
release of any Guaranty.

                  Section 8.7 Confidentiality of Information. The Bank shall use
reasonable  efforts to assure that  information  about the  Borrowers  and their
operations,  affairs and financial  condition,  not  generally  disclosed to the
public or to trade and other creditors,  which is furnished to the Bank pursuant
to the provisions hereof is used only for the purposes of this Agreement and any
other relationship  between the Bank and the Borrowers and shall not be divulged
to any Person other than the Bank, its Affiliates and their respective officers,
directors, employees and agents, except: (a) to their attorneys and accountants,
(b) in connection  with the  enforcement of the rights of the Bank hereunder and
under the Note,  the  Guaranties  and the  Security  Documents  or  otherwise in
connection with applicable  litigation,  (c) in connection with  assignments and
participations  and the  solicitation of prospective  assignees and participants
referred to in the immediately  preceding  Section,  and (d) as may otherwise be
required or requested by any regulatory  authority having  jurisdiction over the
Bank or by any applicable law, rule, regulation or judicial process, the opinion
of the Bank's counsel  concerning the making of such disclosure to be binding on
the parties  hereto.  The Bank shall not incur any liability to the Borrowers by
reason of any disclosure permitted by this Section 8.7.

                  Section 8.8  Governing  Law and  Construction.  THE  VALIDITY,
CONSTRUCTION  AND  ENFORCEABILITY  OF THIS  AGREEMENT  AND THE  NOTES  SHALL  BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA,  WITHOUT  GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision of
this Agreement and the other Loan Documents and any other statement,  instrument
or  transaction  contemplated  hereby or thereby or  relating  hereto or thereto
shall be  interpreted  in such  manner as to be  effective  and valid under such
applicable  law,  but,  if any  provision  of this  Agreement,  the  other  Loan
Documents or any other statement,  instrument or transaction contemplated hereby
or  thereby or  relating  hereto or thereto  shall be held to be  prohibited  or
invalid under such applicable  law, such provision shall be ineffective  only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement,  the other Loan
Documents or any other statement,  instrument or transaction contemplated hereby
or thereby or relating hereto or thereto.

                  Section  8.9  Consent  to  Jurisdiction.  AT THE OPTION OF THE
BANK, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL
COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN  COUNTY,  MINNESOTA;  AND THE
BORROWERS  CONSENT TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVE ANY
ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWERS
COMMENCE ANY ACTION IN ANOTHER  JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY  ARISING  DIRECTLY OR INDIRECTLY  FROM THE  RELATIONSHIP  CREATED BY THIS
AGREEMENT, THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE  JURISDICTIONS  AND VENUES  ABOVE-DESCRIBED,  OR IF SUCH  TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.

                  Section 8.10 Waiver of Jury Trial.  EACH OF THE  BORROWERS AND
THE BANK  IRREVOCABLY  WAIVES  ANY AND ALL  RIGHT TO TRIAL BY JURY IN ANY  LEGAL
PROCEEDING  
                                      -38-
<PAGE>
ARISING OUT OF OR RELATING TO THIS  AGREEMENT OR ANY OTHER LOAN  DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

                  Section  8.11  Survival  of  Agreement.  All  representations,
warranties,  covenants and agreement made by the Borrower herein or in the other
Loan  Documents  and  in the  certificates  or  other  instruments  prepared  or
delivered  in  connection  with or pursuant to this  Agreement or any other Loan
Document  shall be deemed to have been relied upon by the Bank and shall survive
the making of the Loans by the Bank and the  execution  and delivery to the Bank
by the  Borrowers of the Note,  regardless  of any  investigation  made by or on
behalf of the Bank,  and shall  continue in full force and effect as long as any
Obligation is outstanding and unpaid and so long as the Commitment have not been
terminated;  provided,  however,  that the  obligations  of the Borrowers  under
Sections 8.2, 8.5 and 8.12 shall survive  payment in full of the Obligations and
the termination of the Commitment.

                  Section 8.12  Indemnification.  The Borrowers  hereby agree to
defend, protect, indemnify and hold harmless the Bank and its Affiliates and the
directors,  officers,  employees,  attorneys  and  agents  of the  Bank  and its
Affiliates (each of the foregoing being an "Indemnitee" and all of the foregoing
being  collectively  the  "Indemnitees")  from and  against  any and all claims,
actions,  damages,  liabilities,  judgments,  costs and expenses  (including all
reasonable  fees and  disbursements  of  counsel  which may be  incurred  in the
investigation  or defense of any matter)  imposed upon,  incurred by or asserted
against any Indemnitee,  whether direct,  indirect or consequential  and whether
based on any federal,  state,  local or foreign laws or  regulations  (including
securities laws,  environmental  laws,  commercial laws and regulations),  under
common law or on equitable cause, or on contract or otherwise:

                           (a) by reason of,  relating to or in connection  with
         the  execution,  delivery,  performance  or  enforcement  of  any  Loan
         Document,   any  commitments   relating  thereto,  or  any  transaction
         contemplated by any Loan Document; or

                           (b) by reason of,  relating to or in connection  with
         any credit extended or used under the Loan Documents or any act done or
         omitted  by any  Person,  or the  exercise  of any  rights or  remedies
         thereunder,  including the acquisition of any collateral by the Bank by
         way of foreclosure of the Lien thereon, deed or bill of sale in lieu of
         such foreclosure or otherwise;

provided,  however, that the Borrowers shall not be liable to any Indemnitee for
any portion of such claims,  damages,  liabilities  and expenses  resulting from
such  Indemnitee's  gross  negligence or willful  misconduct.  In the event this
indemnity  is  unenforceable  as a matter  of law as to a  particular  matter or
consequence  referred  to herein,  it shall be  enforceable  to the full  extent
permitted by law.

                  This indemnification applies, without limitation,  to any act,
omission,  event or circumstance  existing or occurring on or prior to the later
of the  Termination  Date or the  date of  payment  in full of the  Obligations,
including specifically Obligations arising under clause (b) of this Section. The
indemnification provisions set forth above shall be in addition to any liability
the Borrowers may otherwise have. Without prejudice to the survival of any other
obligation of the Borrowers  hereunder the  indemnities  and  obligations of the
Borrowers  contained  in this Section  shall  survive the payment in full of the
other Obligations.
                                      -39-
<PAGE>
                  Section 8.13 Captions. The captions or headings herein and any
table of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.

                  Section 8.14 Entire  Agreement.  This  Agreement and the other
Loan  Documents  embody the  entire  agreement  and  understanding  between  the
Borrowers  and the Bank with respect to the subject  matter  hereof and thereof.
This Agreement  supersedes all prior agreements and  understandings  relating to
the subject matter hereof.  Nothing  contained in this Agreement or in any other
Loan  Document,  expressed  or  implied,  is intended to confer upon any Persons
other than the parties hereto any rights,  remedies,  obligations or liabilities
hereunder or thereunder.

                  Section 8.15  Counterparts.  This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument, and any of the parties hereto may execute this Agreement by
signing any such counterpart.

                  Section 8.16 Borrower  Acknowledgements.  The Borrowers hereby
acknowledge  that (a) they have been  advised  by  counsel  in the  negotiation,
execution and delivery of this Agreement and the other Loan  Documents,  (b) the
Bank has no fiduciary  relationship  to the Borrowers,  the  relationship  being
solely that of debtor and  creditor,  (c) no joint  venture  exists  between the
Borrowers and the Bank,  and (d) the Bank  undertakes no  responsibility  to the
Borrowers to review or inform the Borrowers of any matter in connection with any
phase of the business or operations  of the  Borrowers  and the Borrowers  shall
rely  entirely  upon their own judgment  with respect to its  business,  and any
review,  inspection or supervision of, or information supplied to, the Borrowers
by the Bank is for the  protection  of the Bank and neither of the Borrowers nor
any third party is entitled to rely thereon.

                  Section  8.17 Joint and  Several  Obligations.  Each  Borrower
shall be jointly and severally liable for the Obligations  arising in connection
with Loans  made to it and  Letters of Credit  issued for its  account,  and the
Obligations  arising in  connection  with Loans made to the other  Borrower  and
Letters  of Credit  issued  for the  account  of the other  Borrower;  provided,
however,  that if it is at any time determined that either Borrower is liable as
a  guarantor  (and not as a  co-obligor  or  co-borrower)  with  respect to such
Obligations  arising in  connection  with Loans made to the other  Borrower  and
Letters of Credit issued for the account of the other Borrower (the  "Guaranteed
Obligations"),  each Borrower  hereby agrees to the terms set forth on Exhibit L
hereto with respect to the Guaranteed Obligations.



            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
                                      -40-
<PAGE>
                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be executed as of the date first above written.

                                        PILGRIM AMERICA
                                        CAPITAL CORPORATION

                                        By    /s/James R. Reis
                                              ----------------
                                        Title  Vice Chairman
                                               -------------

                                        Address for Borrower:
                                        Two Renaissance Square, Ste. 1200
                                        40 North Central Avenue
                                        Phoenix, AZ  85004-4424
                                        Attention:  James R. Reis
                                        Telecopier:  (602) 417-8301

                                        PILGRIM AMERICA GROUP, INC.

                                        By    /s/James R. Reis
                                              ----------------
                                        Title   Vice Chairman
                                                -------------

                                        Address for Borrower:
                                        Two Renaissance Square, Ste. 1200
                                        40 North Central Avenue
                                        Phoenix, AZ  85004-4424
                                        Attention:  James R. Reis
                                        Telecopier:  (602) 417-8301

                                        FIRST BANK NATIONAL ASSOCIATION


                                        By     /s/Mark A. Bagley
                                               -----------------
                                        Title  Vice President
                                               --------------

                                        Address:
                                        First Bank Place - MPFP0702
                                        601 Second Avenue South
                                        Minneapolis, MN 55402-4302
                                        Attention:  Mark A. Bagley
                                        Telecopier:  (612) 973-0665

                        [SIGNATURE PAGE TO SECOND AMENDED
                         AND RESTATED CREDIT AGREEMENT]
                                      S-41
<PAGE>
EXHIBITS
--------

A        -        Revolving Note

B        -        Advisory Subsidiary Guaranty

C        -        Advisory Subsidiary Security Agreement

D        -        Other Subsidiary Security Agreement

E        -        Reaffirmation of PAG Security Agreement

F        -        Reaffirmation of PAII Security Agreement

G        -        Reaffirmation of PASI Security Agreement

H        -        Reaffirmation of PAG Pledge Agreement

I        -        Reaffirmation of the PACC Pledge Agreement

J        -        Reaffirmation of the PAII Guaranty

K        -        Matters to be Covered by Opinion of Counsel to the Borrowers

L        -        Terms With Respect to Guaranteed Obligations

SCHEDULES
---------

4.6      -        Litigation

4.17     -        Subsidiaries

4.18     -        Funds
<PAGE>
                                                                    EXHIBIT A TO
                                                                CREDIT AGREEMENT

                                 REVOLVING NOTE
$20,000,000 July 31, 1997
                                                          Minneapolis, Minnesota

                  FOR VALUE RECEIVED,  PILGRIM  AMERICA GROUP,  INC., a Delaware
corporation,  and PILGRIM AMERICA CAPITAL CORPORATION,  a Delaware  corporation,
hereby jointly and severally  promise to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Bank") at its main office in Minneapolis, Minnesota, in lawful
money of the United States of America in  Immediately  Available  Funds (as such
term and each  other  capitalized  term used  herein  are  defined in the Credit
Agreement  hereinafter  referred  to) at  the  times  set  forth  in the  Credit
Agreement  the   principal   amount  of  TWENTY   MILLION  AND  NO/100   DOLLARS
($20,000,000)  or, if less, the aggregate  unpaid  principal amount of all Loans
made by the Bank under the Credit  Agreement,  and to pay interest  (computed on
the basis of actual  days  elapsed  and a year of 364 days) in like funds on the
unpaid  principal  amount hereof from time to time  outstanding at the rates and
times set forth in the Credit Agreement.

                  This note is the Note  referred  to in the Second  Amended and
Restated  Credit  Agreement dated as of July 31, 1997 (as the same may hereafter
be from time to time  amended,  restated  or  otherwise  modified,  the  "Credit
Agreement")  between the undersigned  and the Bank. This note is secured,  it is
subject to certain  permissive  and  mandatory  prepayments  and its maturity is
subject to  acceleration,  in each case upon the terms  provided  in said Credit
Agreement.

                  In the event of default  hereunder,  the undersigned agrees to
pay all costs and expenses of collection,  including reasonable attorneys' fees.
The  undersigned  waives demand,  presentment,  notice of  nonpayment,  protest,
notice of protest and notice of dishonor.

                  THE VALIDITY,  CONSTRUCTION  AND  ENFORCEABILITY  OF THIS NOTE
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA  WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAWS
<PAGE>
PRINCIPLES  THEREOF,  BUT  GIVING  EFFECT TO FEDERAL  LAWS OF THE UNITED  STATES
APPLICABLE TO NATIONAL BANKS.

                                        PILGRIM AMERICA GROUP, INC.

                                        By 
                                           ------------------------
                                        Title 
                                              -----------------------

                                              PILGRIM AMERICA
                                        CAPITAL CORPORATION

                                        By 
                                           ------------------------
                                        Title 
                                              -----------------------
<PAGE>
                  EXHIBIT E TO
                                                                CREDIT AGREEMENT


                       REAFFIRMATION OF SECURITY AGREEMENT


                  The  undersigned,  Pilgrim America Group,  Inc. ("PAG") hereby
reaffirms  that (i) the  Security  Agreement  by and  between PAG and First Bank
National  Association  (the "Bank")  dated as of April 28, 1995, as the same may
have been amended from time to time (the "Security Agreement"),  remains in full
force and  effect,  and (ii) the  security  interests  granted  pursuant  to the
Security  Agreement  secure,  among other  things,  the  obligations  of PAG and
Pilgrim America Capital Corporation  (collectively,  the "Borrowers") and duties
under that certain Second Amended and Restated  Credit  Agreement by and between
the Borrowers and the Bank dated of even date herewith.

Date:    July 31, 1997.

                                        PILGRIM AMERICA GROUP, INC.



                                        By
                                           Its
<PAGE>
                                                                    EXHIBIT F TO
                                                                CREDIT AGREEMENT


                       REAFFIRMATION OF SECURITY AGREEMENT


                  Reference  is made to that  certain  Security  Agreement  (the
"Security  Agreement")  dated  as of  April  28,  1995,  made  and  given by the
undersigned to secure the Obligations (as defined in the Security  Agreement) of
Pilgrim  America Group,  Inc.  ("PAG") to First Bank National  Association  (the
"Bank").

                  The  undersigned  hereby  (a)  consents  to the  terms of that
certain Second Amended and Restated  Credit  Agreement dated as of July 31, 1997
by and between PAG and Pilgrim America Capital  Corporation  (collectively,  the
"Borrowers")  and the Bank (the "Credit  Agreement")  and to the  execution  and
delivery  of the  Credit  Agreement  by  the  Borrowers;  (b)  agrees  that  the
obligations of the Borrowers to the Bank under the Credit  Agreement  constitute
"Obligations" within the meaning of the above-referenced Security Agreement; and
(c) agrees and reaffirms  that the security  interests  granted  pursuant to the
Security Agreement secure,  among other things,  the Borrowers'  obligations and
duties under the Credit  Agreement and the obligations of the undersigned  under
the Security Agreement. The undersigned further reaffirms that all of the terms,
covenants  and  conditions  of the Security  Agreement  remain in full force and
effect.

Date:    July 31, 1997.

                                        PILGRIM AMERICA INVESTMENTS, INC.



                                        By
                                           Its

<PAGE>
                                                                    EXHIBIT G TO
                                                                CREDIT AGREEMENT


                       REAFFIRMATION OF SECURITY AGREEMENT


                  Reference  is made to that  certain  Security  Agreement  (the
"Security  Agreement")  dated  as of  April  28,  1995,  made  and  given by the
undersigned to secure the Obligations (as defined in the Security  Agreement) of
Pilgrim  America Group,  Inc.  ("PAG") to First Bank National  Association  (the
"Bank").

                  The  undersigned  hereby  (a)  consents  to the  terms of that
certain Second Amended and Restated  Credit  Agreement dated as of July 31, 1997
by and between PAG and Pilgrim America Capital  Corporation  (collectively,  the
"Borrowers")  and the Bank (the "Credit  Agreement")  and to the  execution  and
delivery  of the  Credit  Agreement  by  the  Borrowers;  (b)  agrees  that  the
obligations of the Borrowers to the Bank under the Credit  Agreement  constitute
"Obligations" within the meaning of the above-referenced Security Agreement; and
(c) agrees and reaffirms  that the security  interests  granted  pursuant to the
Security Agreement secure,  among other things,  the Borrowers'  obligations and
duties under the Credit  Agreement and the obligations of the undersigned  under
the Security Agreement. The undersigned further reaffirms that all of the terms,
covenants  and  conditions  of the Security  Agreement  remain in full force and
effect.

Date:    July 31, 1997.

                                        PILGRIM AMERICA SECURITIES, INC.



                                        By
                                           Its
<PAGE>
                                                                    EXHIBIT H TO
                                                                CREDIT AGREEMENT


                        REAFFIRMATION OF PLEDGE AGREEMENT


                  The  undersigned,  Pilgrim America Group,  Inc. ("PAG") hereby
reaffirms  that (i) the  Pledge  Agreement  by and  between  PAG and First  Bank
National  Association  (the "Bank")  dated as of April 28, 1995, as the same may
have been amended from time to time (the  "Pledge  Agreement"),  remains in full
force and effect, and (ii) the security interests granted pursuant to the Pledge
Agreement  secure,  among other things,  the  obligations  and duties of PAG and
Pilgrim America Capital Corporation  (collectively,  the "Borrowers") under that
certain  Second  Amended  and  Restated  Credit  Agreement  by and  between  the
Borrowers and the Bank dated of even date herewith.


Date:    July 31, 1997
                                        PILGRIM AMERICA GROUP, INC.



                                        By
                                           Its
<PAGE>
                                                                    EXHIBIT I TO
                                                                CREDIT AGREEMENT


                        REAFFIRMATION OF PLEDGE AGREEMENT


                  Reference  is made  to  that  certain  Pledge  Agreement  (the
"Pledge"),  dated as of April 28,  1995,  made and given by the  undersigned  to
secure the Obligations (as defined in the Pledge) of Pilgrim America Group, Inc.
("PAG") to First Bank National Association (the "Bank").

                  The  undersigned  hereby  (a)  consents  to the  terms of that
certain Second Amended and Restated  Credit  Agreement dated as of July 31, 1997
by and  between  the  undersigned  and  PAG,  as  borrowers  (collectively,  the
"Borrowers")  and the Bank (the "Credit  Agreement")  and to the  execution  and
delivery of the Credit  Agreement by PAG; (b) agrees that the obligations of the
Borrowers to the Bank under the Credit Agreement constitute "Obligations" within
the meaning of the  above-referenced  Pledge;  and (c) agrees and reaffirms that
the security  interests granted pursuant to the Pledge Agreement  secure,  among
other things, the Borrowers'  obligations and duties under the Credit Agreement.
The  undersigned  further  reaffirms  that  all  of  the  terms,  covenants  and
conditions of the Pledge remain in full force and effect.

Date:    July 31, 1997

                                        PILGRIM AMERICA
                                        CAPITAL CORPORATION



                                        By
                                           Its

<PAGE>
                                                                    EXHIBIT J TO
                                                                CREDIT AGREEMENT


                            REAFFIRMATION OF GUARANTY


                  Reference is made to that certain  Guaranty  (the  "Guaranty")
dated as of April 28,  1995,  made and given by the  undersigned  to secure  the
Obligations (as defined in the Guaranty) of Pilgrim America Group,  Inc. ("PAG")
to First Bank National Association (the "Bank").

                  The  undersigned  hereby  (a)  consents  to the  terms of that
certain Amended and Restated  Credit  Agreement dated as of July 31, 1997 by and
between  PAG  and  Pilgrim  America  Capital  Corporation   (collectively,   the
"Borrowers")  and the Bank (the "Credit  Agreement")  and to the  execution  and
delivery  of the Credit  Agreement  by the  Borrowers;  and (b) agrees  that the
obligations of the Borrowers to the Bank under the Credit  Agreement  constitute
"Obligations"  within  the  meaning  of  the  above-referenced   Guaranty.   The
undersigned further agrees and reaffirms that such Obligations are guaranteed by
the undersigned in accordance with the terms and conditions of the Guaranty, and
that all of the terms,  covenants and conditions of the Guaranty  remain in full
force and effect.

Date:    July 31, 1997
                                        PILGRIM AMERICA INVESTMENTS, INC.



                                        By
                                           Its
<PAGE>
                                                                    Schedule 4.6

                                   LITIGATION
                                   ----------
<PAGE>
                                                                   Schedule 4.17

                                PAG Subsidiaries
                                ----------------





                                PACC Subsidiaries
                                -----------------



                         [TO BE COMPLETED BY BORROWERS]
<PAGE>
                                                                    EXHIBIT B TO
                                                                CREDIT AGREEMENT

                                    GUARANTY


                  THIS   GUARANTY,   dated  as  of  ,  is  made  and   given  by
___________________________,  a Delaware corporation (the "Guarantor"), in favor
of FIRST BANK NATIONAL ASSOCIATION, a national banking association (the "Bank").

                                    RECITALS

                  A. Pilgrim America Group, Inc. ("PAG"), a Delaware corporation
and  Pilgrim  America  Capital  Corporation  ("PACC"),  a  Delaware  corporation
(collectively, the "Borrowers"), and the Bank have entered into a Second Amended
and  Restated  Credit  Agreement  dated  as of July  31,  1997  (as the same may
hereafter be amended,  restated,  or otherwise  modified from time to time,  the
"Credit  Agreement")  pursuant  to which the Bank has  agreed to extend  certain
credit accommodations to the Borrowers.

                  B. It is a condition  precedent to the  obligation of the Bank
to continue  extending credit to the Borrowers  pursuant to the Credit Agreement
that this Guaranty be executed and delivered by the Guarantor.

                  C. The Guarantor is a wholly owned  subsidiary of PAG, and the
Borrowers  will use part of the loans made to them by the Bank  pursuant  to the
terms of the Credit Agreement to finance the business of the Guarantor.

                  D. The Guarantor  expects to derive benefits from the loans to
the Borrowers by the Bank and finds it  advantageous,  desirable and in its best
interests to execute and deliver this Guaranty to the Bank.

                  NOW,  THEREFORE,  in consideration of the loans to be extended
to the  Borrowers and for other good and valuable  consideration,  the Guarantor
hereby covenants and agrees with the Bank as follows:

                  Section 1.  Defined  Terms.  As used in this  Guaranty,  terms
capitalized and used without being defined shall have the meanings given them in
the Credit Agreement.

                  Section 2. The Guaranty.  The Guarantor hereby  absolutely and
unconditionally guarantees to the Bank the payment when due (whether at a stated
maturity or earlier by reason of  acceleration  or otherwise) and performance of
the Obligations.

                  Section 3. Continuing Guaranty.  This Guaranty is an absolute,
unconditional,  complete and continuing  guaranty of payment and  performance of
the  Obligations,  and the  obligations of the Guarantor  hereunder shall not be
released,  in whole or in part, by any action or thing which might, but for this
provision of this Guaranty, be deemed a legal or equitable discharge of a surety
or guarantor,  other than  irrevocable  payment and  performance  in full of the
Obligations.  No notice of the  Obligations to which this Guaranty may apply, or
of any renewal or extension  thereof need be given to the  Guarantor and none of
the foregoing  acts shall release the Guarantor from  liability  hereunder.  The
Guarantor hereby expressly waives (a) demand of payment,  presentment,  protest,
notice of dishonor,  nonpayment  or  
                                       1
<PAGE>
nonperformance on any and all forms of the Obligations; (b) notice of acceptance
of this  Guaranty  and notice of any  liability  to which it may apply;  (c) all
other  notices  and  demands  of  any  kind  and  description  relating  to  the
Obligations now or hereafter provided for by any agreement,  statute,  law, rule
or regulation;  and (d) any and all defenses of the Borrowers  pertaining to the
Obligations except for the defense of discharge by payment.  The Guarantor shall
not be  exonerated  with  respect  to the  Guarantor's  liabilities  under  this
Guaranty by any act or thing except  irrevocable  payment and performance of the
Obligations,  it  being  the  purpose  and  intent  of this  Guaranty  that  the
Obligations  constitute the direct and primary  obligations of the Guarantor and
that the covenants, agreements and all obligations of the Guarantor hereunder be
absolute,  unconditional  and  irrevocable.  The  Guarantor  shall be and remain
liable for any deficiency  remaining after foreclosure of any mortgage,  deed of
trust or security agreement securing all or any part of the Obligations, whether
or not the  liability  of either of the  Borrowers  or any other Person for such
deficiency is discharged  pursuant to statute,  judicial  decision or otherwise.
The acceptance of this Guaranty by the Bank is not intended and does not release
any liability previously existing of any guarantor or surety of any indebtedness
of the Borrowers to the Bank.

                  Section  4.  Other   Transactions.   The  Bank  is   expressly
authorized (a) to exchange,  surrender or release with or without  consideration
any or all  collateral  and security  which may at any time be placed with it by
either of the Borrowers or by any other Person,  or to forward or deliver any or
all such  collateral  and  security  directly  to  either of the  Borrowers  for
collection  and  remittance  or for credit,  or to collect the same in any other
manner  without  notice to the Guarantor;  and (b) to amend,  modify,  extend or
supplement the Credit  Agreement or any other Loan  Document,  any note or other
instrument  evidencing  the  Obligations  or any  part  thereof  and  any  other
agreement  with respect to the  Obligations,  waive  compliance by either of the
Borrowers or any other Person with the  respective  terms  thereof and settle or
compromise any of the Obligations without notice to the Guarantor and without in
any manner  affecting the absolute  liabilities of the Guarantor  hereunder.  No
invalidity,  irregularity  or  unenforceability  of  all  or  any  part  of  the
Obligations or of any security  therefor or other recourse with respect  thereto
shall affect,  impair or be a defense to this Guaranty.  The  liabilities of the
Guarantor  hereunder  shall not be affected or impaired by any  failure,  delay,
neglect  or  omission  on the  part  of the  Bank  to  realize  upon  any of the
Obligations of the Borrowers to the Bank, or upon any collateral or security for
any or all of the Obligations,  nor by the taking by the Bank of (or the failure
to take) any other guaranty or guaranties to secure the Obligations,  nor by the
taking by the Bank of (or the  failure to take or the  failure  to  perfect  its
security  interest in or other lien on)  collateral  or security of any kind. No
act or omission of the Bank, whether or not such action or failure to act varies
or  increases  the risk of, or affects the rights or remedies of the  Guarantor,
shall affect or impair the obligations of the Guarantor hereunder. The Guarantor
acknowledges  that this Guaranty is in effect and binding  without  reference to
whether this Guaranty is signed by any other Person or Persons,  that possession
of this Guaranty by the Bank shall be conclusive evidence of due delivery hereof
by the Guarantor and that this Guaranty shall continue in full force and effect,
both  as  to  the   Obligations   then  existing  and/or   thereafter   created,
notwithstanding  the release of or extension  of time to any other  guarantor of
the Obligations or any part thereof.

                  Section 5. Actions Not Required.  The Guarantor  hereby waives
any and all  right  to  cause a  marshalling  of the  assets  of  either  of the
Borrowers  or any  other  action by any  court or other  governmental  body with
respect  thereto or to cause the Bank to proceed  against any  security  for the
Obligations or any other  recourse which the Bank may have with respect  thereto
and further waives any and all  requirements  that the Bank institute any action
or proceeding at law or in equity, or obtain any judgment, against either of the
Borrowers or any 
                                       2
<PAGE>
other Person, or with respect to any collateral security for the Obligations, as
a condition  precedent  to making  demand on or bringing an action or  obtaining
and/or  enforcing a judgment  against,  the Guarantor  upon this  Guaranty.  The
Guarantor  further  acknowledges that time is of the essence with respect to the
Guarantor's  obligations under this Guaranty. Any remedy or right hereby granted
which  shall  be  found  to be  unenforceable  as to any  Person  or  under  any
circumstance,  for any reason,  shall in no way limit or prevent the enforcement
of such remedy or right as to any other Person or  circumstance,  nor shall such
unenforceability  limit or  prevent  enforcement  of any  other  remedy or right
hereby granted.

                  Section  6. No  Subrogation.  Notwithstanding  any  payment or
payments made by the Guarantor  hereunder or any setoff or  application of funds
of the  Guarantor  by the  Bank,  the  Guarantor  shall  not be  entitled  to be
subrogated  to any of the rights of the Bank against the  Borrowers or any other
guarantor or any collateral  security or guaranty or right of offset held by the
Bank for the  payment of the  Obligations,  nor shall the  Guarantor  seek or be
entitled to seek any contribution or reimbursement  from either of the Borrowers
or any other  guarantor in respect of payments made by the Guarantor  hereunder,
until  all  amounts  owing  to the  Bank  by the  Borrowers  on  account  of the
Obligations  are  irrevocably  paid in full.  If any amount shall be paid to the
Guarantor  on  account  of such  subrogation  rights at any time when all of the
Obligations  shall not have been  irrevocably paid in full, such amount shall be
held by the Guarantor in trust for the Bank,  segregated from other funds of the
Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned over to
the Bank in the exact form  received  by the  Guarantor  (duly  indorsed  by the
Guarantor to the Bank,  if  required),  to be applied  against the  Obligations,
whether matured or unmatured, in such order as the Bank may determine.

                  Section 7. Application of Payments.  Any and all payments upon
the  Obligations  made by the  Guarantor  or by any  other  Person,  and/or  the
proceeds of any or all collateral or security for any of the Obligations, may be
applied by the Bank on such items of the Obligations as the Bank may elect.

                  Section 8. Recovery of Payment. If any payment received by the
Bank and  applied to the  Obligations  is  subsequently  set  aside,  recovered,
rescinded  or  required  to be  returned  for  any  reason  (including,  without
limitation,  the  bankruptcy,  insolvency  or  reorganization  of  either of the
Borrowers  or any other  obligor),  the  Obligations  to which such  payment was
applied shall for the purposes of this  Guaranty be deemed to have  continued in
existence,   notwithstanding  such  application,  and  this  Guaranty  shall  be
enforceable  as to such  Obligations as fully as if such  application  had never
been made.  References  in this  Guaranty  to amounts  "irrevocably  paid" or to
"irrevocable  payment"  refer to payments  that cannot be set aside,  recovered,
rescinded or required to be returned for any reason.

                  Section 9. Borrowers'  Financial  Condition.  The Guarantor is
familiar with the financial  condition of the  Borrowers,  and the Guarantor has
executed and delivered this Guaranty based on the  Guarantor's  own judgment and
not in reliance upon any statement or representation of the Bank. The Bank shall
have no  obligation to provide the  Guarantor  with any advice  whatsoever or to
inform  the  Guarantor  at  any  time  of the  Bank's  actions,  evaluations  or
conclusions on the financial  condition or any other matter concerning either of
the Borrowers.

                  Section 10.  Remedies.  All  remedies  afforded to the Bank by
reason of this  Guaranty are separate and  cumulative  remedies and it is agreed
that no one of such  remedies,  whether or not  exercised by the Bank,  shall be
deemed to be in exclusion of any of the other 
                                       3
<PAGE>
remedies  available  to the  Bank and no one of such  remedies  shall in any way
limit or prejudice  any other legal or equitable  remedy which the Bank may have
hereunder  and with  respect  to the  Obligations.  Mere delay or failure to act
shall not  preclude  the  exercise  or  enforcement  of any rights and  remedies
available to the Bank.

                  Section  11.  Bankruptcy  of  the  Borrowers.   The  Guarantor
expressly  agrees that the  liabilities  and  obligations of the Guarantor under
this  Guaranty  shall not in any way be  impaired or  otherwise  affected by the
institution  by or against  either of the  Borrowers  or any other Person of any
bankruptcy, reorganization,  arrangement, insolvency or liquidation proceedings,
or any other similar  proceedings for relief under any bankruptcy law or similar
law for the relief of debtors and that any  discharge of any of the  Obligations
pursuant to any such  bankruptcy or similar law or other law shall not diminish,
discharge or otherwise  affect in any way the obligations of the Guarantor under
this Guaranty,  and that upon the institution of any of the above actions,  such
obligations shall be enforceable against the Guarantor.

                  Section 12.  Costs and  Expenses.  The  Guarantor  will pay or
reimburse the Bank on demand for all out-of-pocket  expenses  (including in each
case all reasonable  fees and expenses of counsel)  incurred by the Bank arising
out of or in  connection  with the  enforcement  of this  Guaranty  against  the
Guarantor or arising out of or in  connection  with any failure of the Guarantor
to fully and timely perform the obligations of the Guarantor hereunder.

                  Section  13.  Waivers and  Amendments.  This  Guaranty  can be
waived, modified, amended, terminated or discharged only explicitly in a writing
signed by the Bank. A waiver so signed  shall be effective  only in the specific
instance and for the specific purpose given.

                  Section 14. Notices.  Any notice or other communication to any
party in connection  with this Guaranty shall be in writing and shall be sent by
manual delivery,  telegram, telex, facsimile transmission,  overnight courier or
United  States mail  (postage  prepaid)  addressed  to such party at the address
specified on the signature  page hereof,  or at such other address as such party
shall have specified to the other party hereto in writing. All periods of notice
shall be measured from the date of delivery thereof if manually delivered,  from
the  date  of  sending   thereof  if  sent  by  telegram,   telex  or  facsimile
transmission,  from the first  business day after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed.

                  Section 15. Guarantor  Acknowledgements.  The Guarantor hereby
acknowledges  that (a) counsel has advised  the  Guarantor  in the  negotiation,
execution  and  delivery  of  this  Guaranty,  (b)  the  Bank  has no  fiduciary
relationship to the Guarantor,  the relationship being solely that of debtor and
creditor, and (c) no joint venture exists between the Guarantor and the Bank.

                  Section 16.  Representations  and  Warranties.  The  Guarantor
hereby represents and warrants to the Bank that:

                           16(a) It is a  corporation  duly  organized,  validly
         existing  and in good  standing  under the laws of Delaware and has the
         power  and  authority  and  the  legal  right  to own and  operate  its
         properties  and to  conduct  the  business  in  which  it is  currently
         engaged.
                                       4
<PAGE>
                           16(b) It has the  power and  authority  and the legal
         right to execute and  deliver,  and to perform its  obligations  under,
         this Guaranty and has taken all necessary corporate action to authorize
         such execution, delivery and performance.

                           16(c) This Guaranty  constitutes its legal, valid and
         binding obligation  enforceable in accordance with its terms, except as
         enforceability  may be limited by  applicable  bankruptcy,  insolvency,
         reorganization, moratorium or similar laws affecting the enforcement of
         creditors'  rights  generally  and  by  general  equitable   principles
         (whether enforcement is sought by proceedings in equity or at law).

                           16(d) The execution, delivery and performance of this
         Guaranty will not (i) violate any provision of any law,  statute,  rule
         or  regulation  or  any  order,  writ,  judgment,  injunction,  decree,
         determination or award of any court,  governmental agency or arbitrator
         presently  in  effect  having  applicability  to it,  (ii)  violate  or
         contravene  any  provision of its  organizational  documents,  or (iii)
         result in a breach of or constitute a default under any indenture, loan
         or credit  agreement or any other  agreement,  lease or  instrument  to
         which  it is a party or by  which  it or any of its  properties  may be
         bound or result in the  creation of any lien  thereunder.  It is not in
         default  under  or in  violation  of any  such  law,  statute,  rule or
         regulation, order, writ, judgment, injunction, decree, determination or
         award  or any  such  indenture,  loan  or  credit  agreement  or  other
         agreement, lease or instrument in any case in which the consequences of
         such default or violation  could have a material  adverse effect on its
         business,  operations,  properties,  assets or condition  (financial or
         otherwise).

                           16(e)   No   order,   consent,   approval,   license,
         authorization  or validation of, or filing,  recording or  registration
         with, or exemption by, any  governmental or public body or authority is
         required on its part to authorize,  or is required in  connection  with
         the execution,  delivery and performance of, or the legality, validity,
         binding effect or enforceability of, this Guaranty.

                           16(f)  There  are no  actions,  suits or  proceedings
         pending or, to its knowledge, threatened against or affecting it or any
         of its properties  before any court or arbitrator,  or any governmental
         department, board, agency or other instrumentality which, if determined
         adversely to it, would have a material  adverse effect on its business,
         operations,  property or condition  (financial  or otherwise) or on its
         ability to perform its obligations hereunder.

                           16(g)  It  expects  to  derive   benefits   from  the
         transactions resulting in the creation of the Obligations. The Bank may
         rely  conclusively  on the continuing  warranty,  hereby made, that the
         Guarantor  continues to be benefitted by the Bank's extension of credit
         accommodations  to the  Borrowers  and the Bank  shall  have no duty to
         inquire  into or confirm  the  receipt of any such  benefits,  and this
         Guaranty shall be effective and  enforceable by the Bank without regard
         to the receipt, nature or value of any such benefits.

                  Section 17.  Continuing  Guaranty;  Assignments  under  Credit
Agreement.  This  Guaranty  shall (a)  remain in full  force  and  effect  until
irrevocable  payment  in  full of the  Obligations  and  the  expiration  of the
obligations,  if  any,  of the  Bank  to  extend  credit  accommodations  to the
Borrowers, (b) be binding upon the Guarantor, its successors and assigns and (c)
inure to the benefit  of, and be  enforceable  by, the Bank and its  successors,
transferees,  and assigns.  Without  limiting the  generality  of the  foregoing
clause (c), the Bank 
                                       5
<PAGE>
may  assign  or  otherwise  transfer  all  or any  portion  of  its  rights  and
obligations under the Credit Agreement to any other Persons to the extent and in
the manner  provided in the Credit  Agreement and may similarly  transfer all or
any portion of its rights under this Guaranty to such Persons.

                  Section 18.  Governing  Law and  Construction.  THE  VALIDITY,
CONSTRUCTION AND  ENFORCEABILITY  OF THIS GUARANTY SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA,  WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF,  BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED  STATES  APPLICABLE TO
NATIONAL BANKS. Whenever possible, each provision of this Guaranty and any other
statement,  instrument or  transaction  contemplated  hereby or relating  hereto
shall be  interpreted  in such  manner as to be  effective  and valid under such
applicable  law, but, if any provision of this Guaranty or any other  statement,
instrument or transaction  contemplated  hereby or relating hereto shall be held
to be prohibited or invalid under such  applicable  law, such provision shall be
ineffective  only to the  extent  of such  prohibition  or  invalidity,  without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty or any other statement,  instrument or transaction  contemplated hereby
or relating hereto.

                  Section  19.  Consent  to  Jurisdiction.  AT THE OPTION OF THE
BANK,  THIS  GUARANTY MAY BE ENFORCED IN ANY FEDERAL  COURT OR  MINNESOTA  STATE
COURT  SITTING IN  HENNEPIN  COUNTY,  MINNESOTA,  MINNESOTA;  AND THE  GUARANTOR
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT  VENUE  IN SUCH  FORUMS  IS NOT  CONVENIENT.  IN THE  EVENT  THE  GUARANTOR
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY  ARISING  DIRECTLY OR INDIRECTLY  FROM THE  RELATIONSHIP  CREATED BY THIS
GUARANTY,  THE BANK AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED
TO ONE OF THE  JURISDICTIONS  AND VENUES ABOVE-  DESCRIBED,  OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.

                  Section 20. Waiver of Jury Trial.  EACH OF THE  GUARANTOR,  BY
ITS  EXECUTION AND DELIVERY  HEREOF,  AND THE BANK,  BY ITS  ACCEPTANCE  HEREOF,
IRREVOCABLY  WAIVES  ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL  PROCEEDING
ARISING OUT OF OR RELATING TO THIS  AGREEMENT OR THE  TRANSACTIONS  CONTEMPLATED
HEREBY.

                  Section 21. Counterparts. This Guaranty may be executed in any
number of  counterparts,  each of which when so executed and delivered  shall be
deemed an original,  but all such counterparts together shall constitute but one
and the same instrument.

                  Section  22.  General.   All  representations  and  warranties
contained in this Guaranty or in any other  agreement  between the Guarantor and
the Bank shall survive the execution,  delivery and performance of this Guaranty
and the creation and payment of the  Obligations.  Captions in this Guaranty are
for reference and convenience  only and shall not affect the  interpretation  or
meaning of any provision of this Guaranty.
                                       6
<PAGE>
                  IN WITNESS  WHEREOF,  the Guarantor has executed this Guaranty
as of the date first above written.

                                        GUARANTOR:

                                        ----------------------------


                                        By  
                                            ------------------------
                                        Title 
                                              ----------------------

                                        Address:
                                        Two Renaissance Square, Ste. 1200
                                        40 North Central Avenue
                                        Phoenix, AZ  85004-4424
                                        Attention:  James R. Reis
                                        Telecopier:  (602) 661-3572

 Address for the Bank:

 First Bank National Association
 First Bank Place - MPFP0702
 601 Second Avenue South
 Minneapolis, MN 55402-4302
 Attention:  Jose A. Peris
 Telecopier:  (612) 973-0825
                                       7
<PAGE>
                                                                    EXHIBIT C TO
                                                                CREDIT AGREEMENT

                               SECURITY AGREEMENT


                  THIS  SECURITY  AGREEMENT,  dated as of , is made and given by
_____________,  a Delaware  corporation (the "Grantor"),  to FIRST BANK NATIONAL
ASSOCIATION, a national banking association (the "Secured Party").

                                    RECITALS
                                    --------

                  A. Pilgrim America Group, Inc. ("PAG"), a Delaware corporation
and  Pilgrim  America  Capital  Corporation  ("PACC"),  a  Delaware  corporation
(collectively  as the  "Borrowers"),  and the Secured  Party have entered into a
Second Amended and Restated  Credit  Agreement dated as of July 31, 1997 (as the
same may  hereafter be amended,  restated,  or otherwise  modified  from time to
time, the "Credit Agreement")  pursuant to which the Secured Party has agreed to
extend to the Borrowers certain credit accommodations.

                  B.  It is a  condition  precedent  to  the  obligation  of the
Secured  Party to continue  extending  credit to the  Borrowers  pursuant to the
terms of the Credit  Agreement  that this Agreement be executed and delivered by
the Grantor.

                  C. The Grantor is a wholly  owned  subsidiary  of PAG, and the
Borrowers  will use part of the loans made to them by the Secured Party pursuant
to the terms of the Credit Agreement to finance the business of the Grantor.

                  D. The Grantor  expects to derive  benefits from the extension
of credit  accommodations  to the  Borrowers  by the Secured  Party and finds it
advantageous,  desirable  and in its best  interests to execute and deliver this
Security Agreement to the Secured Party.

                  NOW, THEREFORE,  in consideration of the premises and in order
to induce the Secured Party to enter into the Credit  Agreement and extend loans
to the Borrowers  thereunder,  the Grantor  hereby agrees with the Secured Party
for the Secured Party's benefit as follows:

                  Section 1.  Defined Terms.

                  1(a) As used in this  Agreement,  terms  capitalized  and used
herein  without  being  defined will have the meanings  given them in the Credit
Agreement and the following terms shall have the meanings indicated:

                  "Account"  shall mean the rights of the Grantor to payment for
         goods  sold or leased or for  services  rendered,  whether  or not such
         right is evidenced by an instrument or chattel paper and whether or not
         such right has been earned by performance,  all guaranties and security
         therefor,   and  all  interests  related  thereto,   including  without
         limitation,  all rights to receive  "sales  charges" (as defined in the
         Rules of Fair  Practice)  (including,  without  limitation,  Contingent
         Deferred  Sales  Charge),  fees  payable  out of the assets of any Fund
         pursuant to Rule 12b-1 of the SEC under the Investment Company Act, and
         fees payable under Advisory Contracts.
                                       1
<PAGE>
                  "Account  Debtor"  shall mean a Person who is  obligated on or
         under any Account, Contract or General Intangible.

                  "Collateral"  shall mean all  property  and rights in property
         now owned or hereafter  at any time  acquired by the Grantor in or upon
         which a  Security  Interest  is  granted  to the  Secured  Party by the
         Grantor under this Agreement.

                  "Collateral  Account" shall mean the Grantor's  account number
         ________  with the Secured  Party,  or any other account of the Grantor
         with the Secured Party subsequently substituted therefor.

                  "Contracts"  shall  mean any and all  agreements  to which the
         Grantor is a party, now existing or hereafter entered into, as the same
         may from time to time be amended,  supplemented  or otherwise  modified
         (including  (a) all rights of the Grantor to receive  moneys due and to
         become due to it thereunder or in connection therewith,  (b) all rights
         of the Grantor to damages  arising out of, or for, breach or default in
         respect  thereof  and (c) all rights of the  Grantor to perform  and to
         exercise all remedies  thereunder),  including all Fund  Agreements and
         all agreements with Selling Agents.

                  "Equipment"  shall mean all machinery,  equipment,  furniture,
         furnishings  and fixtures,  including all  accessions,  accessories and
         attachments  thereto, and any guaranties,  warranties,  indemnities and
         other agreements of  manufacturers,  vendors and others with respect to
         such Equipment.

                  "Financing  Statement"  shall have the  meaning  given to such
         term in Section 4 hereof.

                  "General  Intangibles" shall mean any personal property (other
         than goods, Accounts,  Contracts and money) including choses in action,
         causes  of  action,  contract  rights,  corporate  and  other  business
         records,  inventions,  designs,  patents, patent applications,  service
         marks,  trademarks,  tradenames,  trade secrets,  engineering drawings,
         good will, registrations,  copyrights,  licenses, franchises,  customer
         lists,  tax refund  claims,  royalties,  licensing and product  rights,
         rights to the retrieval from third parties of electronically  processed
         and recorded data and all rights to payment  resulting from an order of
         any court.

                  "Inventory"  shall mean any and all goods or securities  owned
         or held by or for the account of the Grantor for sale or lease,  or for
         furnishing under a contract of service,  in each case wherever the same
         shall be located.

                  "Obligations" shall mean (a) all indebtedness, liabilities and
         obligations of the Borrowers to the Secured Party of every kind, nature
         or  description  under the  Credit  Agreement  and the Loan  Documents,
         including the  Borrowers'  obligation on any  promissory  note or notes
         under the Credit  Agreement and any note or notes  hereafter  issued in
         substitution or replacement  thereof, (b) any and all other liabilities
         and  obligations  of the  Borrowers to the Secured Party of every kind,
         nature  and  description,  whether  direct  or  indirect  or  hereafter
         acquired by the Secured Party from any Person,  absolute or contingent,
         regardless  of how  such  liabilities  arise  or by what  agreement  or
         instrument  they  may be  evidenced,  and  (c) all  liabilities  of the
         Grantor under this Agreement, and in all of the foregoing cases whether
         due or to become due, and whether now existing or hereafter  arising or
         incurred.
                                       2
<PAGE>
                  "Security  Interest" shall have the meaning given such term in
         Section 2 hereof.

                  1(b) All  other  terms  used in this  Agreement  which are not
specifically defined herein shall have the meaning assigned to such terms in the
Uniform  Commercial  Code in effect in the State of  Minnesota as of the date of
this Agreement to the extent such other terms are defined therein.

                  1(c) Unless the context of this  Agreement  otherwise  clearly
requires,  references  to the plural  include the singular,  the  singular,  the
plural and "or" has the inclusive  meaning  represented by the phrase  "and/or."
The words "include",  "includes" and "including"  shall be deemed to be followed
by the phrase "without  limitation." The words "hereof," "herein,"  "hereunder,"
and similar terms in this  Agreement  refer to this Agreement as a whole and not
to any  particular  provision  of this  Agreement.  References  to Sections  are
references to Sections in this Security Agreement unless otherwise provided.

                  Section 2. Grant of Security  Interest.  As  security  for the
payment and performance of all of the Obligations,  the Grantor hereby grants to
the Secured Party a security  interest (the  "Security  Interest") in all of the
Grantor's  right,  title,  and interest in and to the following,  whether now or
hereafter owned, existing, arising or acquired and wherever located:

                  2(a)  All Accounts.

                  2(b)   All Contracts other than Advisory Contracts.

                  2(c)  All Equipment.

                  2(d)  All General Intangibles.

                  2(e)  All Inventory.

                  2(f) To the extent not  otherwise  included in the  foregoing,
         (i) all other rights to the payment of money, including rents and other
         sums payable to the Grantor under leases or rental agreements and other
         Chattel Paper and insurance proceeds;  (ii) all books,  correspondence,
         credit files, records,  invoices,  bills of lading,  warehouse receipts
         and  other  documents  relating  to any of  the  foregoing,  including,
         without  limitation,   all  tapes,  cards,  disks,  computer  software,
         computer  runs,  and other papers and  documents in the  possession  or
         control of the Grantor or any computer  bureau from time to time acting
         for the  Grantor;  (iii) all  rights  in,  to and  under  all  policies
         insuring the life of any officer, director,  stockholder or employee of
         the Grantor, the proceeds of which are payable to the Grantor; and (iv)
         all   accessions  and  additions  to,  parts  and   appurtenances   of,
         substitutions for and replacements of any of the foregoing.

                  2(g) To the extent not  otherwise  included,  all proceeds and
         products of any and all of the foregoing.

                  Section 3.  Grantor  Remains  Liable.  Anything  herein to the
contrary  notwithstanding,  (a)  the  Grantor  shall  remain  liable  under  the
Contracts  and other items  included in the  Collateral  to the extent set forth
therein to perform  all of its duties  and  obligations  thereunder  to the same
extent as if this  Agreement  had not been  executed,  (b) the  exercise  by the
Secured Party of any of the rights  hereunder shall not release the Grantor from
                                       3
<PAGE>
any of its duties or obligations under the Contracts and other items included in
the Collateral,  and (c) the Secured Party shall have no obligation or liability
under the Contracts and other items included in the Collateral by reason of this
Agreement,  nor shall the  Secured  Party be  obligated  to  perform  any of the
obligations or duties of the Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.

                  Section 4. Title to Collateral.  The Grantor has (or will have
at the time it acquires rights in Collateral  hereafter acquired or arising) and
will maintain so long as the Security Interest may remain outstanding,  title to
each item of Collateral (including the proceeds and products thereof),  free and
clear of all Liens  except the Security  Interest and except Liens  permitted by
the Credit Agreement.  The Grantor will defend the Collateral against all claims
or demands of all Persons (other than the Secured Party) claiming the Collateral
or any interest therein. As of the date of execution of this Security Agreement,
no effective  financing  statement or other similar document used to perfect and
preserve a security  interest under the laws of any  jurisdiction  (a "Financing
Statement")  covering  all or any  part  of the  Collateral  is on  file  in any
recording  office,  except  such as may have been filed in favor of the  Secured
Party relating to this Agreement.

                  Section 5.  Disposition  of  Collateral.  The Grantor will not
sell,  lease or  otherwise  dispose  of, or  discount  or factor with or without
recourse, any Collateral,  except as permitted by the Credit Agreement. The Bank
shall,  at the  request of the  Grantor,  release its  security  interest in any
Collateral sold by the Grantor in a transaction  permitted by Section 6.2 of the
Credit  Agreement,  effective  upon  the  sale  thereof,  provided  that (i) the
purchaser of such  Collateral  agrees to pay the entire  purchase price for such
Collateral  to the Grantor by means of  deposits  into an account of the Grantor
with the Bank,  (ii) the Grantor  obtains a security  interest in the  agreement
pursuant to which such  Collateral was sold and any right,  title or interest in
the  Collateral  sold  thereunder  retained  by  the  Grantor,   and  (iii)  the
purchaser(s)  under any such agreement consent to the Bank's security  interests
described in clause (ii) above.

                  Section  6.  Names,  Offices,   Locations.  The  Grantor  does
business  solely under its own name and the trade names and styles,  if any, set
forth on Schedule  II hereto.  Except as noted on said  Schedule,  no such trade
names or styles and no  trademarks  or other  similar marks owned by the Grantor
are registered with any governmental unit. The chief place of business and chief
executive office and the office where it keeps its books and records  concerning
the Collateral is located at its address set forth on the signature page hereof.
All items of  Collateral  existing on the date of this  Agreement are located at
the places specified on Schedule I hereto.  The Grantor will immediately  notify
the Secured  Party of any  additional  state in which any item of  Collateral is
hereafter  located.  The  Grantor  will from time to time at the  request of the
Secured  Party  provide the Secured Party with current lists as to the locations
of the  Collateral.  The Grantor will not permit any  Collateral  or any records
pertaining  to  collateral  to be located in any state or area in which,  in the
event of such location,  a financing statement covering such Collateral would be
required to be, but has not in fact been, filed in order to perfect the Security
Interest.  The  Grantor  will not change its name or the  location  of its chief
place of business and chief  executive  office unless the Secured Party has been
given at least 30 days prior written notice thereof and the Grantor has executed
and  delivered  to  the  Secured  Party  such  Financing  Statements  and  other
instruments  required or  appropriate to continue the perfection of the Security
Interest.

                  Section  7.  Rights  to  Payment.  Except as the  Grantor  may
otherwise  advise the  Secured  Party in writing,  each  Account,  Contract  and
General  Intangible  constituting  a right to 
                                       4
<PAGE>
payment is (or, in the case of all future  Collateral,  will be when  arising or
issued) the valid,  genuine and legally  enforceable  obligation  of the Account
Debtor or other obligor named  therein or in the  Grantor's  records  pertaining
thereto  as being  obligated  to pay or perform  such  obligation.  Without  the
Secured  Party's  prior  written  consent,  the  Grantor  will not  agree to any
modifications, amendments, subordinations,  cancellations or terminations of the
obligations of any such Account Debtors or other obligors except in the ordinary
course of business and in amounts not exceeding $250,000 in the aggregate in any
calendar year. The Grantor will perform and comply in all material respects with
all its obligations under its Contracts and exercise promptly and diligently its
rights  thereunder.  The Grantor shall,  at its own expense,  take all necessary
action to collect,  as and when due,  all  amounts  due with  respect to amounts
payable  under  or  with  respect  to  the   Accounts,   Contracts  and  General
Intangibles,  including  the taking of such action with respect to collection as
the Grantor may deem  advisable.  The Grantor shall cause all amounts payable to
it under any Fund  Agreement to be paid by the Account  Debtor or other  obligor
therein  directly into the Collateral  Account.  Except after the occurrence and
during the continuance of a Default or an Event of Default, the Grantor shall be
entitled to cause the Secured Party to withdraw amounts so deposited and deposit
the same into an operating  account of the Grantor with the Secured Party.  From
and after the occurrence and during the  continuance of a Default or an Event of
Default,  the  Secured  Party may hold all such  amounts as  collateral  for the
Obligations or apply the same to the Obligations as provided in Section 17.

                  Section 8.   Further Assurances.

                           8(a) The Grantor  agrees  that from time to time,  at
         its  expense,   it  will  promptly  execute  and  deliver  all  further
         instruments  and documents,  and take all further  action,  that may be
         necessary or that the Secured Party may reasonably request, in order to
         perfect and protect the  Security  Interest  granted or purported to be
         granted  hereby or to enable the Secured  Party to exercise and enforce
         its rights and remedies  hereunder with respect to any Collateral  (but
         any failure to request or assure  that the Grantor  execute and deliver
         such instrument or documents or to take such action shall not affect or
         impair the validity,  sufficiency or  enforceability  of this Agreement
         and the Security  Interest,  regardless of whether any such item was or
         was not executed and delivered or action taken in a similar  context or
         on a prior occasion). Without limiting the generality of the foregoing,
         the Grantor  will  promptly and from time to time at the request of the
         Secured  Party:  (i)  mark,  or  permit  the  Secured  Party  to  mark,
         conspicuously its books,  records, and accounts showing or dealing with
         the Collateral,  with a legend,  in form and substance  satisfactory to
         the Secured  Party,  indicating  that each such item of  Collateral  is
         subject to the  Security  Interest  granted  hereby;  (ii)  deliver and
         pledge  to  the  Secured  Party,  all  instruments,  duly  indorsed  or
         accompanied  by duly executed  instruments  of transfer or  assignment,
         with  full  recourse  to  the  Grantor,   all  in  form  and  substance
         satisfactory  to  the  Secured  Party;  (iii)  execute  and  file  such
         Financing Statements or continuation  statements in respect thereof, or
         amendments  thereto,  and such other instruments or notices  (including
         fixture filings with any necessary  legal  descriptions as to any goods
         included in the Collateral  which the Secured Party determines might be
         deemed to be  fixtures,  and  instruments  and notices  with respect to
         vehicle  titles),  as may be necessary or desirable,  or as the Secured
         Party may  request,  in order to  perfect,  preserve,  and  enhance the
         Security  Interest granted or purported to be granted hereby;  and (iv)
         obtain  consents,  in form  satisfactory  to the Secured Party,  of any
         other party to any Contract  consenting to the Secured Party's interest
         therein.
                                       5
<PAGE>
                           8(b) The Grantor hereby  authorizes the Secured Party
         to file one or more Financing Statements or continuation  statements in
         respect thereof, and amendments thereto, relating to all or any part of
         the Collateral  without the signature of the Grantor where permitted by
         law.  A  photocopy  or  other  reproduction  of this  Agreement  or any
         Financing  Statement  covering the Collateral or any part thereof shall
         be sufficient as a Financing Statement where permitted by law.

                           8(c) The Grantor  will  furnish to the Secured  Party
         from time to time  statements  and schedules  further  identifying  and
         describing the Collateral and such other reports in connection with the
         Collateral  as  the  Secured  Party  may  reasonably  request,  all  in
         reasonable detail and in form and substance reasonably  satisfactory to
         the Secured Party.

                  Section 9. Taxes and Claims. The Grantor will promptly pay all
taxes and other  governmental  charges  levied or  assessed  upon or against any
Collateral or upon or against the creation,  perfection  or  continuance  of the
Security Interest, as well as all other claims of any kind (including claims for
labor, material and supplies) against or with respect to the Collateral,  except
to the extent (a) such  taxes,  charges  or claims are being  contested  in good
faith by  appropriate  proceedings,  (b) such  proceedings  do not  involve  any
material danger of the sale,  forfeiture or loss of any of the Collateral or any
interest therein and (c) such taxes,  charges or claims are adequately  reserved
against on the Grantor's books in accordance with generally accepted  accounting
principles.

                  Section  10.  Books and  Records.  The  Grantor  will keep and
maintain at its own cost and expense  satisfactory  and complete  records of the
Collateral, including a record of all payments received and credits granted with
respect to all Accounts, Contracts and General Intangibles.

                  Section 11. Inspection,  Reports,  Verifications.  The Grantor
will at all reasonable times permit the Secured Party or its  representatives to
examine or inspect any Collateral,  any evidence of Collateral and the Grantor's
books and records concerning the Collateral,  wherever located. The Grantor will
from time to time when  requested  by the Secured  Party  furnish to the Secured
Party a report on its  Accounts,  Contracts and General  Intangibles  naming the
Account Debtor or other obligors thereon,  the amount due and the aging thereof.
The Secured Party or its designee is authorized  to contact  Account  Debtor and
other Persons  obligated on any such  Collateral from time to time to verify the
existence, amount and/or terms of such Collateral.

                  Section 12. Notice of Loss.  The Grantor will promptly  notify
the Secured  Party of any loss of or  material  damage to any  material  item of
Collateral  or of any  substantial  adverse  change,  known to  Grantor,  in any
material item of Collateral or the prospect of payment or performance thereof.

                  Section 13. Action by the Secured Party. If the Grantor at any
time fails to perform or observe any of the  foregoing  agreements,  the Secured
Party shall have (and the Grantor hereby grants to the Secured Party) the right,
power and authority  (but not the duty) to perform or observe such  agreement on
behalf  and in the name,  place and stead of the  Grantor  (or,  at the  Secured
Party's  option,  in the  Secured  Party's  name)  and to take any and all other
actions which the Secured Party may reasonably deem necessary to cure or correct
such  failure  (including,   without  limitation,  the  payment  of  taxes,  the
satisfaction  of Liens,  the  procurement  and  maintenance  of  insurance,  the
execution of assignments,  security agreements 
                                       6
<PAGE>
and Financing Statements,  and the indorsement of instruments);  and the Grantor
shall  thereupon  pay to the  Secured  Party on demand  the amount of all monies
expended and all costs and expenses  (including  reasonable  attorneys' fees and
legal expenses)  incurred by the Secured Party in connection with or as a result
of the performance or observance of such agreements or the taking of such action
by the Secured Party,  together with interest  thereon from the date expended or
incurred at the highest lawful rate then  applicable to any of the  Obligations,
and all such monies  expended,  costs and expenses and interest thereon shall be
part of the Obligations secured by the Security Interest.

                  Section 14. The Secured Party's Duties.  The powers  conferred
on the  Secured  Party  hereunder  are solely to  protect  its  interest  in the
Collateral  and shall not impose any duty upon it to exercise  any such  powers.
The  Secured  Party  shall be deemed to have  exercised  reasonable  care in the
custody and  preservation of any of the Collateral in its possession if it takes
such action for that purpose as Grantor requests in writing,  but failure of the
Secured  Party to comply  with any such  request  shall  not  itself be deemed a
failure to exercise  reasonable  care,  and no failure of the  Secured  Party to
preserve or protect any rights with respect to such  Collateral not so requested
by the  Grantor  shall be deemed a failure to  exercise  reasonable  care in the
custody or  preservation  of such  Collateral.  The Secured  Party shall also be
deemed to have exercised  reasonable care in the custody and preservation of any
Collateral  in  its  possession  if  such   Collateral  is  accorded   treatment
substantially  equal to the safekeeping  which the Secured Party accords its own
property  of  like  kind.  The  Secured  Party  shall  have no  duty,  as to any
Collateral,  as  to  ascertaining  or  taking  action  with  respect  to  calls,
conversions,  exchanges,  maturities,  tenders or other matters  relative to any
Collateral,  whether or not the Secured Party has or is deemed to have knowledge
of such matters,  or as to the taking of any necessary  steps to preserve rights
against  any  Persons or any other  rights  pertaining  to any  Collateral.  The
Secured  Party  will  take  action  in the  nature  of  exchanges,  conversions,
redemptions,  tenders  and the like  requested  in writing by the  Grantor  with
respect to the Collateral in the Secured Party's possession if the Secured Party
in its  reasonable  judgment  determines  that such  action  will not impair the
Security  Interest or the value of the Collateral,  but a failure of the Secured
Party to comply with any such request shall not of itself be deemed a failure to
exercise reasonable care.

                  Section 15.  Remedies on Default.  Upon the  occurrence  of an
Event of Default and at any time thereafter:

                           15(a) The Secured  Party may exercise and enforce any
         and all rights and remedies  available  upon default to a secured party
         under the Uniform Commercial Code.

                           15(b) The Secured Party shall have the right to enter
         upon and into and take  possession  of all or such part or parts of the
         properties  of the Grantor as may be  necessary or  appropriate  in the
         judgment of the Secured  Party to permit or enable the Secured Party to
         exercise  its rights  with  respect to the  Collateral,  as the Secured
         Party  may  elect,  and to use and  operate  said  properties  for said
         purposes  and for such  length  of time as the  Secured  Party may deem
         necessary or appropriate  for said purposes  without the payment of any
         compensation  to Grantor  therefor.  The Secured  Party may require the
         Grantor to, and the Grantor  hereby agrees that it will, at its expense
         and upon request of the Secured Party  forthwith,  assemble all or part
         of the  Collateral  as  directed  by the  Secured  Party  and  make  it
         available to the Secured Party at a place or places to be designated by
         the Secured Party.
                                       7
<PAGE>
                           15(c)  Any sale of  Collateral  may be in one or more
         parcels  at public  or  private  sale,  at any of the  Secured  Party's
         offices or elsewhere,  for cash, on credit, or for future delivery, and
         upon such other terms as the Secured Party may believe are commercially
         reasonable.  The Secured  Party shall not be obligated to make any sale
         of Collateral  regardless of notice of sale having been given,  and the
         Secured  Party may adjourn any public or private sale from time to time
         by  announcement  made at the time and place fixed  therefor,  and such
         sale  may,  without  further  notice,  be made at the time and place to
         which it was so adjourned.

                           15(d) The Secured  Party is hereby  granted a license
         or other right to use, without charge,  all of the Grantor's  property,
         including, without limitation, all of the Grantor's labels, trademarks,
         copyrights,  patents  and  advertising  matter,  or any  property  of a
         similar  nature,  as it pertains to the  Collateral,  in exercising its
         rights with respect to the Collateral,  and the Grantor's  rights under
         all licenses and all  franchise  agreements  shall inure to the Secured
         Party's benefit until the Obligations are paid in full.

                           15(e)  If  notice  to the  Grantor  of  any  intended
         disposition of Collateral or any other  intended  action is required by
         law in a particular instance,  such notice shall be deemed commercially
         reasonable if given in the manner specified for the giving of notice in
         Section  21  hereof  at least ten  calendar  days  prior to the date of
         intended  disposition  or  other  action,  and the  Secured  Party  may
         exercise or enforce any and all other  rights or remedies  available by
         law or  agreement  against  the  Collateral,  against the  Grantor,  or
         against any other Person or property.

                           15(f)  The  Secured  Party is  hereby  granted,  upon
         written notice to the Grantor and any other Person  entitled to receive
         such notice under any Contract,  the right to assume,  become bound by,
         and agree to perform and observe the covenants, agreements, obligations
         and  conditions to be performed and observed under such Contract and to
         exercise  all of the  rights,  powers  and  privileges  of the  Grantor
         thereunder.

                           15(g) The Grantor  appoints the Secured  Party as the
         Grantor's attorney-in-fact, with full power of substitution, to perform
         any act which the  Grantor  has agreed to perform  but has failed to do
         so, which appointment is coupled with an interest and irrevocable.

                  Section 16.  Remedies as to  Contracts  and Rights to Payment.
Upon the  occurrence  of an  Event of  Default  and at any time  thereafter  the
Secured  Party may notify any Account  Debtor or other  Person  obligated on any
Collateral  that the same have been assigned or transferred to the Secured Party
and that the same should be performed as requested  by, or paid directly to, the
Secured Party, as the case may be. The Grantor shall join in giving such notice,
if the Secured Party so requests.  The Secured Party may, in the Secured Party's
name or in the Grantor's name,  demand, sue for, collect or receive any money or
property at any time payable or receivable on account of, or securing,  any such
Collateral or grant any extension to, make any compromise or settlement  with or
otherwise  agree to waive,  modify,  amend or change the  obligation of any such
Account Debtor or other Person. The Secured Party is hereby granted the right to
take any  action  which the  Secured  Party may  reasonably  deem  necessary  or
desirable in order to realize on the Collateral, including, the power to endorse
in the name of the Grantor,  with recourse to the Grantor,  any checks,  drafts,
notes or other instruments or documents  received in payment of or on account of
the  Collateral.  If any 
                                       8
<PAGE>
payments on any Collateral are received by the Grantor after an Event of Default
has  occurred,  such  payments  shall  be held in trust  by the  Grantor  as the
property  of the  Secured  Party and shall not be  commingled  with any funds or
property of the Grantor and shall be forthwith remitted to the Secured Party for
application on the Obligations.

                  Section  17.  Application  of  Proceeds.   All  cash  proceeds
received by the Secured  Party in respect of any sale of,  collection  from,  or
other  realization upon all or any part of the Collateral may, in the discretion
of the Secured Party, be held by the Secured Party as collateral for, or then or
at any time  thereafter  be  applied  in whole or in part by the  Secured  Party
against, all or any part of the Obligations (including,  without limitation, any
expenses of the Secured Party payable pursuant to Section 18 hereof).

                  Section 18. Costs and  Expenses;  Indemnity.  The Grantor will
pay or  reimburse  the Secured  Party on demand for all  out-of-pocket  expenses
(including  in each  case  all  filing  and  recording  fees and  taxes  and all
reasonable fees and expenses of counsel and of any experts and agents)  incurred
by the Secured Party in connection  with the creation,  perfection,  protection,
satisfaction,  foreclosure  or  enforcement  of the  Security  Interest  and the
preparation,  administration,  continuance,  amendment  or  enforcement  of this
Agreement,  and all such  costs and  expenses  shall be part of the  Obligations
secured by the  Security  Interest.  The Grantor  shall  indemnify  and hold the
Secured  Party  harmless  from  and  against  any and  all  claims,  losses  and
liabilities  (including  reasonable attorneys' fees) growing out of or resulting
from  this  Agreement  and  the  Security  Interest  hereby  created  (including
enforcement of this Agreement) or the Secured Party's actions  pursuant  hereto,
except claims,  losses or liabilities  resulting from the Secured  Party's gross
negligence or willful misconduct as determined by a final judgment of a court of
competent  jurisdiction.  Any liability of the Grantor to indemnify and hold the
Secured Party harmless  pursuant to the preceding  sentence shall be part of the
Obligations  secured by the Security  Interest.  The  obligations of the Grantor
under this Section shall survive any termination of this Agreement.

                  Section 19. Waivers; Remedies; Marshalling. This Agreement can
be  waived,  modified,  amended,  terminated  or  discharged,  and the  Security
Interest can be released,  only  explicitly  in a writing  signed by the Secured
Party. A waiver so signed shall be effective  only in the specific  instance and
for the specific purpose given.  Mere delay or failure to act shall not preclude
the exercise or enforcement of any rights and remedies  available to the Secured
Party.  All rights and remedies of the Secured Party shall be cumulative and may
be exercised singly in any order or sequence,  or  concurrently,  at the Secured
Party's  option,  and the  exercise or  enforcement  of any such right or remedy
shall  neither be a  condition  to nor bar the  exercise or  enforcement  of any
other.  The Grantor hereby waives all  requirements of law, if any,  relating to
the  marshalling  of assets which would be  applicable  in  connection  with the
enforcement by the Secured Party of its remedies hereunder, absent this waiver.

                  Section 20. Waiver of Defenses. The Grantor waives the benefit
of any and  all  defenses  and  discharges  available  to a  guarantor,  surety,
indorser or  accommodation  party,  dependent on its character as such.  Without
limiting the generality of the foregoing,  the Grantor (in such capacity) waives
presentment, demand for payment, and notice of nonpayment or protest of any note
or any other  instrument  evidencing  any of the  Obligations;  and the  Grantor
agrees that its liability  hereunder and the Security  Interest  hereby  created
shall not be affected or  impaired in any way by any of the  following  acts and
things (which the Secured  Party may do from time to time without  notice to the
Grantor): (a) by any sale, pledge, surrender,  compromise,  settlement, release,
renewal, extension, indulgence, alteration,  substitution,  exchange, change in,
modification,  or other  disposition  of any of the  Obligations
                                       9
<PAGE>
or any evidence  thereof or any  collateral  therefor,  (b) by any acceptance or
release of collateral  for or guarantors of any of the  Obligations,  (c) by any
failure,  neglect or omission to realize upon or protect any of the Obligations,
or to obtain,  perfect,  enforce or realize upon any collateral therefor,  or to
exercise  any Lien upon or right of  appropriation  of any  moneys,  credits  or
property  toward  the  liquidation  of  any of  the  Obligations,  or (d) by any
application  of payments  or credits  upon any of the  Obligations.  The Secured
Party shall not be required,  before exercising its rights under this Agreement,
to first resort for payment of any of the  Obligations  to the  Borrowers or any
other Persons, its or their properties or estates, or any collateral,  property,
Liens or other rights or remedies whatsoever. The Grantor agrees not to exercise
any right of contribution,  recourse,  subrogation or reimbursement available to
the Grantor  against  either of the  Borrowers  or any other Person or property,
unless  and  until  all  Obligations  and  all  other  debts,   liabilities  and
obligations owed by the Borrowers and the Grantor to the Secured Party have been
paid  and   discharged.   The  Grantor  expects  to  derive  benefits  from  the
transactions resulting in the creation of the Obligations. The Secured Party may
rely  conclusively  on the continuing  warranty,  hereby made,  that the Grantor
continues  to  be  benefitted  by  the  Secured  Party's   extension  of  credit
accommodations  to the  Borrowers  and the  Secured  Party shall have no duty to
inquire  into or confirm the receipt of any such  benefits,  and this  Agreement
shall be effective and  enforceable  by the Secured Party without  regard to the
receipt, nature or value of any such benefits.

                  Section 21. Notices.  Any notice or other communication to any
party in connection with this Agreement shall be in writing and shall be sent by
manual delivery,  telegram, telex, facsimile transmission,  overnight courier or
United  States mail  (postage  prepaid)  addressed  to such party at the address
specified on the signature  page hereof,  or at such other address as such party
shall have specified to the other party hereto in writing. All periods of notice
shall be measured from the date of delivery thereof if manually delivered,  from
the  date  of  sending   thereof  if  sent  by  telegram,   telex  or  facsimile
transmission,  from the first  business day after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed.

                  Section  22.  Grantor  Acknowledgements.  The  Grantor  hereby
acknowledges  that  (a) it has  been  advised  by  counsel  in the  negotiation,
execution and delivery of this Agreement, (b) the Secured Party has no fiduciary
relationship to the Grantor,  the  relationship  being solely that of debtor and
creditor,  and (c) no joint venture  exists  between the Grantor and the Secured
Party.

                  Section 23. Representations and Warranties. The Grantor hereby
represents and warrants to the Secured Party that:

                           23(a) The Grantor is a corporation duly incorporated,
         validly   existing  and  in  good  standing   under  the  laws  of  the
         jurisdiction  of its  incorporation  and has the  corporate  power  and
         authority and the legal right to own and operate its  properties and to
         conduct the business in which it is currently engaged.

                           23(b)  The  Grantor  has  the  corporate   power  and
         authority  and the legal right to execute and  deliver,  and to perform
         its  obligations  under,  this  Agreement  and has taken all  necessary
         corporate action to authorize such execution, delivery and performance.

                           23(c) This Agreement  constitutes a legal,  valid and
         binding  obligation of the Grantor  enforceable in accordance  with its
         terms,   except  as   enforceability   may  be
                                       10
<PAGE>
         limited   by   applicable   bankruptcy,   insolvency,   reorganization,
         moratorium  or similar laws  affecting  the  enforcement  of creditors'
         rights  generally  and  by  general   equitable   principles   (whether
         enforcement is sought by proceedings in equity or at law).

                           23(d) The execution, delivery and performance of this
         Agreement will not (i) violate any provision of any law, statute,  rule
         or  regulation  or  any  order,  writ,  judgment,  injunction,  decree,
         determination or award of any court,  governmental agency or arbitrator
         presently in effect having  applicability to the Grantor,  (ii) violate
         or contravene any provision of the Articles of  Incorporation or bylaws
         of the Grantor,  or (iii) result in a breach of or constitute a default
         under any indenture,  loan or credit  agreement or any other agreement,
         lease or  instrument  to which the Grantor is a party or by which it or
         any of its  properties  may be bound or result in the  creation  of any
         Lien thereunder. The Grantor is not in default under or in violation of
         any such law,  statute,  rule or  regulation,  order,  writ,  judgment,
         injunction,  decree, determination or award or any such indenture, loan
         or credit agreement or other agreement, lease or instrument in any case
         in which the  consequences  of such default or  violation  could have a
         material adverse effect on the business, operations, properties, assets
         or condition (financial or otherwise) of the Grantor.

                           23(e)    Except   for   filings,    recordings    and
         registrations  to perfect the  Security  Interest,  no order,  consent,
         approval, license, authorization or validation of, or filing, recording
         or registration  with, or exemption by, any governmental or public body
         or authority is required on the part of the Grantor to authorize, or is
         required in connection with the execution, delivery and performance of,
         or the legality,  validity,  binding effect or enforceability  of, this
         Agreement.

                           23(f)  There  are no  actions,  suits or  proceedings
         pending or, to the  knowledge  of the  Grantor,  threatened  against or
         affecting  the  Grantor  or any of its  properties  before any court or
         arbitrator,  or any  governmental  department,  board,  agency or other
         instrumentality  which, if determined  adversely to the Grantor,  would
         have a material adverse effect on the business, operations, property or
         condition  (financial or otherwise) of the Grantor or on the ability of
         the Grantor to perform its obligations hereunder.

                  Section 24. Continuing  Security  Interest;  Assignments under
Credit Agreement. This Agreement shall (a) create a continuing security interest
in the  Collateral  and shall remain in full force and effect  until  payment in
full of the  Obligations and the expiration of the  obligations,  if any, of the
Secured Party to extend credit  accommodations to the Borrowers,  (b) be binding
upon the Grantor,  its successors and assigns,  and (c) inure to the benefit of,
and be enforceable  by, the Secured Party and its successors,  transferees,  and
assigns.  Without  limiting  the  generality  of the  foregoing  clause (c), the
Secured Party may assign or otherwise  transfer all or any portion of its rights
and  obligations  under the Credit  Agreement to any other Persons to the extent
and in the manner  provided in the Credit  Agreement and may similarly  transfer
all or any portion of its rights under this Security Agreement to such Persons.

                  Section 25. Termination of Security Interest.  Upon payment in
full of the  Obligations  and the  expiration  of any  obligation of the Secured
Party to make loans to the Borrowers, the Security Interest granted hereby shall
terminate.  Upon any such  termination,  the  Secured  Party will  return to the
Grantor such of the  Collateral  then in the  possession of the Secured Party as
shall not have been sold or otherwise  applied  pursuant to the terms hereof and
execute  and  deliver  to  the  Grantor  such  documents  as the  Grantor  shall
reasonably  request 
                                       11
<PAGE>
to  evidence  such  termination.  Any  reversion  or return of  Collateral  upon
termination  of this  Agreement and any  instruments  of transfer or termination
shall be at the  expense of the  Grantor  and shall be without  warranty  by, or
recourse on, the Secured Party. As used in this Section,  "Grantor" includes any
assigns of Grantor, any Person holding a subordinate security interest in any of
the  Collateral  or whoever  else may be  lawfully  entitled  to any part of the
Collateral.

                  Section 26.  Governing  Law and  Construction.  THE  VALIDITY,
CONSTRUCTION AND  ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA,  WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF,  EXCEPT TO THE EXTENT THAT THE VALIDITY OR  PERFECTION  OF THE SECURITY
INTEREST  HEREUNDER,  OR  REMEDIES  HEREUNDER,  IN  RESPECT  OF  ANY  PARTICULAR
COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF MINNESOTA.  Whenever possible, each provision of this Agreement and any
other  statement,  instrument  or  transaction  contemplated  hereby or relating
hereto shall be  interpreted  in such manner as to be effective  and valid under
such  applicable  law,  but, if any  provision  of this  Agreement  or any other
statement,  instrument or  transaction  contemplated  hereby or relating  hereto
shall be held to be  prohibited  or invalid  under  such  applicable  law,  such
provision  shall  be  ineffective  only to the  extent  of such  prohibition  or
invalidity,  without  invalidating  the  remainder  of  such  provision  or  the
remaining  provisions of this  Agreement or any other  statement,  instrument or
transaction contemplated hereby or relating hereto.

                  Section  27.  Consent  to  Jurisdiction.  AT THE OPTION OF THE
SECURED PARTY,  THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA
STATE COURT SITTING IN HENNEPIN COUNTY,  MINNESOTA;  AND THE GRANTOR CONSENTS TO
THE  JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE
IN SUCH FORUMS IS NOT CONVENIENT.  IN THE EVENT THE GRANTOR COMMENCES ANY ACTION
IN ANOTHER  JURISDICTION  OR VENUE  UNDER ANY TORT OR  CONTRACT  THEORY  ARISING
DIRECTLY OR INDIRECTLY  FROM THE  RELATIONSHIP  CREATED BY THIS  AGREEMENT,  THE
SECURED  PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE  TRANSFERRED  TO
ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED,  OR IF SUCH TRANSFER CANNOT
BE  ACCOMPLISHED  UNDER  APPLICABLE  LAW,  TO HAVE SUCH CASE  DISMISSED  WITHOUT
PREJUDICE.

                  Section 28. Waiver of Notice and Hearing.  THE GRANTOR  HEREBY
WAIVES ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
SECURED  PARTY OF ITS RIGHTS TO POSSESSION OF THE  COLLATERAL  WITHOUT  JUDICIAL
PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT
PRIOR NOTICE OR HEARING.  THE GRANTOR  ACKNOWLEDGES  THAT IT HAS BEEN ADVISED BY
COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.

                  Section 29. Waiver of Trial by Jury.  EACH OF THE GRANTOR,  BY
ITS  EXECUTION AND DELIVERY  HEREOF,  AND THE BANK,  BY ITS  ACCEPTANCE  HEREOF,
IRREVOCABLY  WAIVES  ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL  PROCEEDING
ARISING OUT OF OR RELATING TO THIS  AGREEMENT OR THE  TRANSACTIONS  CONTEMPLATED
HEREBY.
                                       12
<PAGE>
                  Section 30.  Counterparts.  This  Agreement may be executed in
any number of  counterparts,  each of which when so executed and delivered shall
be deemed an original,  but all such counterparts  together shall constitute but
one and the same instrument.

                  Section  31.  General.   All  representations  and  warranties
contained in this  Agreement or in any other  agreement  between the Grantor and
the Secured Party shall survive the execution,  delivery and performance of this
Agreement and the creation and payment of the  Obligations.  The Grantor  waives
notice of the  acceptance of this  Agreement by the Secured  Party.  Captions in
this Agreement are for reference and  convenience  only and shall not affect the
interpretation or meaning of any provision of this Agreement.
                                       13
<PAGE>
                  IN WITNESS  WHEREOF,  the  Grantor  has caused  this  Security
Agreement  to be duly  executed  and  delivered  by its officer  thereunto  duly
authorized as of the date first above written.

                                        -----------------------------



                                        By 
                                           --------------------------
                                        Title 
                                              -----------------------

                                        Address for Grantor:

                                        Two Renaissance Square, Ste. 1200
                                        40 North Central Avenue
                                        Phoenix, AZ  85004-4424
                                        Attention:  James R. Reis
                                        Telecopier:  (602) 661-3572

                                        Grantor's Tax ID # [          ]

Address for the Secured Party:

First Bank National Association
First Bank Place - MPFP0702
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention:  Jose A. Peris
Telecopier:  (612) 973-0825
                                       14
<PAGE>
                                   SCHEDULE I
                                       to
                               Security Agreement


Locations of Collateral


Two Renaissance Square, Ste. 1200
40 North Central Avenue
Phoenix, AZ  85004-4424
<PAGE>
                                   SCHEDULE II
                                       to
                               Security Agreement


Trade Names and Trade Styles



[To be provided.]
<PAGE>
                                                                    EXHIBIT D TO
                                                                CREDIT AGREEMENT

                               SECURITY AGREEMENT


                  THIS  SECURITY  AGREEMENT,  dated as of is made  and  given by
_____________,  a Delaware  corporation (the "Grantor"),  to FIRST BANK NATIONAL
ASSOCIATION, a national banking association (the "Secured Party").

                                    RECITALS
                                    --------

                  A. Pilgrim America Group, Inc. ("PAG"), a Delaware corporation
and  Pilgrim  America  Capital  Corporation  ("PACC"),  a  Delaware  corporation
(collectively  as the  "Borrowers"),  and the Secured  Party have entered into a
Second Amended and Restated  Credit  Agreement dated as of July 31, 1997 (as the
same may  hereafter be amended,  restated,  or otherwise  modified  from time to
time, the "Credit Agreement")  pursuant to which the Secured Party has agreed to
extend to the Borrowers certain credit accommodations.

                  B.  It is a  condition  precedent  to  the  obligation  of the
Secured  Party to continue  extending  credit to the  Borrowers  pursuant to the
terms of the Credit  Agreement  that this Agreement be executed and delivered by
the Grantor.

                  C. The Grantor is a wholly  owned  subsidiary  of PAG, and the
Borrowers  will use part of the loans made to them by the Secured Party pursuant
to the terms of the Credit Agreement to finance the business of the Grantor.

                  D. The Grantor  expects to derive  benefits from the extension
of credit  accommodations  to the  Borrowers  by the Secured  Party and finds it
advantageous,  desirable  and in its best  interests to execute and deliver this
Security Agreement to the Secured Party.

                  NOW, THEREFORE,  in consideration of the premises and in order
to induce the Secured Party to enter into the Credit  Agreement and extend loans
to the Borrowers  thereunder,  the Grantor  hereby agrees with the Secured Party
for the Secured Party's benefit as follows:

                  Section 1.  Defined Terms.

                  1(a) As used in this  Agreement,  terms  capitalized  and used
herein  without  being  defined will have the meanings  given them in the Credit
Agreement and the following terms shall have the meanings indicated:

                  "Account"  shall mean the rights of the Grantor to payment for
         goods  sold or leased or for  services  rendered,  whether  or not such
         right is evidenced by an instrument or chattel paper and whether or not
         such right has been earned by performance,  all guaranties and security
         therefor,   and  all  interests  related  thereto,   including  without
         limitation,  all rights to receive  "sales  charges" (as defined in the
         Rules of Fair  Practice)  (including,  without  limitation,  Contingent
         Deferred  Sales  Charge),  fees  payable  out of the assets of any Fund
         pursuant to Rule 12b-1 of the SEC under the Investment Company Act, and
         fees payable under Advisory Contracts.
                                       1
<PAGE>
                  "Account  Debtor"  shall mean a Person who is  obligated on or
         under any Account, Contract or General Intangible.

                  "Collateral"  shall mean all  property  and rights in property
         now owned or hereafter  at any time  acquired by the Grantor in or upon
         which a  Security  Interest  is  granted  to the  Secured  Party by the
         Grantor under this Agreement.

                  "Contracts"  shall  mean any and all  agreements  to which the
         Grantor is a party, now existing or hereafter entered into, as the same
         may from time to time be amended,  supplemented  or otherwise  modified
         (including  (a) all rights of the Grantor to receive  moneys due and to
         become due to it thereunder or in connection therewith,  (b) all rights
         of the Grantor to damages  arising out of, or for, breach or default in
         respect  thereof  and (c) all rights of the  Grantor to perform  and to
         exercise all remedies  thereunder),  including all Fund  Agreements and
         all agreements with Selling Agents.

                  "Equipment"  shall mean all machinery,  equipment,  furniture,
         furnishings  and fixtures,  including all  accessions,  accessories and
         attachments  thereto, and any guaranties,  warranties,  indemnities and
         other agreements of  manufacturers,  vendors and others with respect to
         such Equipment.

                  "Financing  Statement"  shall have the  meaning  given to such
         term in Section 4 hereof.

                  "General  Intangibles" shall mean any personal property (other
         than goods, Accounts,  Contracts and money) including choses in action,
         causes  of  action,  contract  rights,  corporate  and  other  business
         records,  inventions,  designs,  patents, patent applications,  service
         marks,  trademarks,  tradenames,  trade secrets,  engineering drawings,
         good will, registrations,  copyrights,  licenses, franchises,  customer
         lists,  tax refund  claims,  royalties,  licensing and product  rights,
         rights to the retrieval from third parties of electronically  processed
         and recorded data and all rights to payment  resulting from an order of
         any court.

                  "Inventory"  shall mean any and all goods or securities  owned
         or held by or for the account of the Grantor for sale or lease,  or for
         furnishing under a contract of service,  in each case wherever the same
         shall be located.

                  "Obligations" shall mean (a) all indebtedness, liabilities and
         obligations of the Borrowers to the Secured Party of every kind, nature
         or  description  under the  Credit  Agreement  and the Loan  Documents,
         including the  Borrowers'  obligation on any  promissory  note or notes
         under the Credit  Agreement and any note or notes  hereafter  issued in
         substitution or replacement  thereof, (b) any and all other liabilities
         and  obligations  of the  Borrowers to the Secured Party of every kind,
         nature  and  description,  whether  direct  or  indirect  or  hereafter
         acquired by the Secured Party from any Person,  absolute or contingent,
         regardless  of how  such  liabilities  arise  or by what  agreement  or
         instrument  they  may be  evidenced,  and  (c) all  liabilities  of the
         Grantor under this Agreement, and in all of the foregoing cases whether
         due or to become due, and whether now existing or hereafter  arising or
         incurred.

                  "Security  Interest" shall have the meaning given such term in
         Section 2 hereof.
                                       2
<PAGE>
                  1(b) All  other  terms  used in this  Agreement  which are not
specifically defined herein shall have the meaning assigned to such terms in the
Uniform  Commercial  Code in effect in the State of  Minnesota as of the date of
this Agreement to the extent such other terms are defined therein.

                  1(c) Unless the context of this  Agreement  otherwise  clearly
requires,  references  to the plural  include the singular,  the  singular,  the
plural and "or" has the inclusive  meaning  represented by the phrase  "and/or."
The words "include",  "includes" and "including"  shall be deemed to be followed
by the phrase "without  limitation." The words "hereof," "herein,"  "hereunder,"
and similar terms in this  Agreement  refer to this Agreement as a whole and not
to any  particular  provision  of this  Agreement.  References  to Sections  are
references to Sections in this Security Agreement unless otherwise provided.

                  Section 2. Grant of Security  Interest.  As  security  for the
payment and performance of all of the Obligations,  the Grantor hereby grants to
the Secured Party a security  interest (the  "Security  Interest") in all of the
Grantor's  right,  title,  and interest in and to the following,  whether now or
hereafter owned, existing, arising or acquired and wherever located:

                  2(a)  All Accounts.

                  2(b)   All Contracts.
                  2(c)  All Equipment.

                  2(d)  All General Intangibles.

                  2(e)  All Inventory.

                  2(f) To the extent not  otherwise  included in the  foregoing,
         (i) all other rights to the payment of money, including rents and other
         sums payable to the Grantor under leases or rental agreements and other
         Chattel Paper and insurance proceeds;  (ii) all books,  correspondence,
         credit files, records,  invoices,  bills of lading,  warehouse receipts
         and  other  documents  relating  to any of  the  foregoing,  including,
         without  limitation,   all  tapes,  cards,  disks,  computer  software,
         computer  runs,  and other papers and  documents in the  possession  or
         control of the Grantor or any computer  bureau from time to time acting
         for the  Grantor;  (iii) all  rights  in,  to and  under  all  policies
         insuring the life of any officer, director,  stockholder or employee of
         the Grantor, the proceeds of which are payable to the Grantor; and (iv)
         all   accessions  and  additions  to,  parts  and   appurtenances   of,
         substitutions for and replacements of any of the foregoing.

                  2(g) To the extent not  otherwise  included,  all proceeds and
         products of any and all of the foregoing.

                  Section 3.  Grantor  Remains  Liable.  Anything  herein to the
contrary  notwithstanding,  (a)  the  Grantor  shall  remain  liable  under  the
Contracts  and other items  included in the  Collateral  to the extent set forth
therein to perform  all of its duties  and  obligations  thereunder  to the same
extent as if this  Agreement  had not been  executed,  (b) the  exercise  by the
Secured Party of any of the rights  hereunder shall not release the Grantor from
any of its duties or obligations under the Contracts and other items included in
the Collateral,  and (c) the Secured Party shall have no obligation or liability
under the Contracts and other items included in the Collateral by reason of this
Agreement,  nor shall the  Secured  Party be  
                                       3
<PAGE>
obligated to perform any of the obligations or duties of the Grantor  thereunder
or to take any  action to  collect or  enforce  any claim for  payment  assigned
hereunder.

                  Section 4. Title to Collateral.  The Grantor has (or will have
at the time it acquires rights in Collateral  hereafter acquired or arising) and
will maintain so long as the Security Interest may remain outstanding,  title to
each item of Collateral (including the proceeds and products thereof),  free and
clear of all Liens  except the Security  Interest and except Liens  permitted by
the Credit Agreement.  The Grantor will defend the Collateral against all claims
or demands of all Persons (other than the Secured Party) claiming the Collateral
or any interest therein. As of the date of execution of this Security Agreement,
no effective  financing  statement or other similar document used to perfect and
preserve a security  interest under the laws of any  jurisdiction  (a "Financing
Statement")  covering  all or any  part  of the  Collateral  is on  file  in any
recording  office,  except  such as may have been filed in favor of the  Secured
Party relating to this Agreement.

                  Section 5.  Disposition  of  Collateral.  The Grantor will not
sell,  lease or  otherwise  dispose  of, or  discount  or factor with or without
recourse, any Collateral,  except as permitted by the Credit Agreement. The Bank
shall,  at the  request of the  Grantor,  release its  security  interest in any
Collateral sold by the Grantor in a transaction  permitted by Section 6.2 of the
Credit  Agreement,  effective  upon  the  sale  thereof,  provided  that (i) the
purchaser of such  Collateral  agrees to pay the entire  purchase price for such
Collateral  to the Grantor by means of  deposits  into an account of the Grantor
with the Bank,  (ii) the Grantor  obtains a security  interest in the  agreement
pursuant to which such  Collateral was sold and any right,  title or interest in
the  Collateral  sold  thereunder  retained  by  the  Grantor,   and  (iii)  the
purchaser(s)  under any such agreement consent to the Bank's security  interests
described in clause (ii) above.

                  Section  6.  Names,  Offices,   Locations.  The  Grantor  does
business  solely under its own name and the trade names and styles,  if any, set
forth on Schedule  II hereto.  Except as noted on said  Schedule,  no such trade
names or styles and no  trademarks  or other  similar marks owned by the Grantor
are registered with any governmental unit. The chief place of business and chief
executive office and the office where it keeps its books and records  concerning
the Collateral is located at its address set forth on the signature page hereof.
All items of  Collateral  existing on the date of this  Agreement are located at
the places specified on Schedule I hereto.  The Grantor will immediately  notify
the Secured  Party of any  additional  state in which any item of  Collateral is
hereafter  located.  The  Grantor  will from time to time at the  request of the
Secured  Party  provide the Secured Party with current lists as to the locations
of the  Collateral.  The Grantor will not permit any  Collateral  or any records
pertaining  to  collateral  to be located in any state or area in which,  in the
event of such location,  a financing statement covering such Collateral would be
required to be, but has not in fact been, filed in order to perfect the Security
Interest.  The  Grantor  will not change its name or the  location  of its chief
place of business and chief  executive  office unless the Secured Party has been
given at least 30 days prior written notice thereof and the Grantor has executed
and  delivered  to  the  Secured  Party  such  Financing  Statements  and  other
instruments  required or  appropriate to continue the perfection of the Security
Interest.

                  Section  7.  Rights  to  Payment.  Except as the  Grantor  may
otherwise  advise the  Secured  Party in writing,  each  Account,  Contract  and
General  Intangible  constituting  a right to payment is (or, in the case of all
future  Collateral,  will be when  arising or issued)  the  valid,  genuine  and
legally  enforceable  obligation  of the Account  Debtor or other  obligor named
therein or in the Grantor's records pertaining thereto as being obligated to pay
or perform 
                                       4
<PAGE>
such obligation.  Without the Secured Party's prior written consent, the Grantor
will not agree to any modifications,  amendments, subordinations,  cancellations
or terminations of the obligations of any such Account Debtors or other obligors
except in the ordinary course of business and in amounts not exceeding  $250,000
in the  aggregate in any calendar  year.  The Grantor will perform and comply in
all material  respects with all its obligations under its Contracts and exercise
promptly and diligently  its rights  thereunder.  The Grantor shall,  at its own
expense,  take all necessary action to collect, as and when due, all amounts due
with respect to amounts payable under or with respect to the Accounts, Contracts
and General  Intangibles,  including  the taking of such action with  respect to
collection  as the  Grantor  may deem  advisable.  The  Grantor  shall cause all
amounts payable to it under any Fund Agreements to be paid by the Account Debtor
or other obligor thereon directly into the Collateral Account.  Except after the
occurrence and during the  continuance of a Default or an Event of Default,  the
Grantor  shall be  entitled to cause the  Secured  Party to withdraw  amounts so
deposited and deposit the same into an operating account of the Grantor with the
Secured Party.  From and after the  occurrence  and during the  continuance of a
Default or an Event of Default,  the Secured  Party may hold all such amounts as
collateral for the  Obligations or apply the same to the Obligations as provided
in Section 17.

                  Section 8.   Further Assurances.

                           8(a) The Grantor  agrees  that from time to time,  at
         its  expense,   it  will  promptly  execute  and  deliver  all  further
         instruments  and documents,  and take all further  action,  that may be
         necessary or that the Secured Party may reasonably request, in order to
         perfect and protect the  Security  Interest  granted or purported to be
         granted  hereby or to enable the Secured  Party to exercise and enforce
         its rights and remedies  hereunder with respect to any Collateral  (but
         any failure to request or assure  that the Grantor  execute and deliver
         such instrument or documents or to take such action shall not affect or
         impair the validity,  sufficiency or  enforceability  of this Agreement
         and the Security  Interest,  regardless of whether any such item was or
         was not executed and delivered or action taken in a similar  context or
         on a prior occasion). Without limiting the generality of the foregoing,
         the Grantor  will  promptly and from time to time at the request of the
         Secured  Party:  (i)  mark,  or  permit  the  Secured  Party  to  mark,
         conspicuously its books,  records, and accounts showing or dealing with
         the Collateral,  with a legend,  in form and substance  satisfactory to
         the Secured  Party,  indicating  that each such item of  Collateral  is
         subject to the  Security  Interest  granted  hereby;  (ii)  deliver and
         pledge  to  the  Secured  Party,  all  instruments,  duly  indorsed  or
         accompanied  by duly executed  instruments  of transfer or  assignment,
         with  full  recourse  to  the  Grantor,   all  in  form  and  substance
         satisfactory  to  the  Secured  Party;  (iii)  execute  and  file  such
         Financing Statements or continuation  statements in respect thereof, or
         amendments  thereto,  and such other instruments or notices  (including
         fixture filings with any necessary  legal  descriptions as to any goods
         included in the Collateral  which the Secured Party determines might be
         deemed to be  fixtures,  and  instruments  and notices  with respect to
         vehicle  titles),  as may be necessary or desirable,  or as the Secured
         Party may  request,  in order to  perfect,  preserve,  and  enhance the
         Security  Interest granted or purported to be granted hereby;  and (iv)
         obtain  consents,  in form  satisfactory  to the Secured Party,  of any
         other party to any Contract  consenting to the Secured Party's interest
         therein.

                           8(b) The Grantor hereby  authorizes the Secured Party
         to file one or more Financing Statements or continuation  statements in
         respect thereof, and amendments thereto, relating to all or any part of
         the Collateral  without the signature 
                                       5
<PAGE>
         of  the  Grantor   where   permitted  by  law.  A  photocopy  or  other
         reproduction of this Agreement or any Financing  Statement covering the
         Collateral  or any part  thereof  shall be  sufficient  as a  Financing
         Statement where permitted by law.

                           8(c) The Grantor  will  furnish to the Secured  Party
         from time to time  statements  and schedules  further  identifying  and
         describing the Collateral and such other reports in connection with the
         Collateral  as  the  Secured  Party  may  reasonably  request,  all  in
         reasonable detail and in form and substance reasonably  satisfactory to
         the Secured Party.

                  Section 9. Taxes and Claims. The Grantor will promptly pay all
taxes and other  governmental  charges  levied or  assessed  upon or against any
Collateral or upon or against the creation,  perfection  or  continuance  of the
Security Interest, as well as all other claims of any kind (including claims for
labor, material and supplies) against or with respect to the Collateral,  except
to the extent (a) such  taxes,  charges  or claims are being  contested  in good
faith by  appropriate  proceedings,  (b) such  proceedings  do not  involve  any
material danger of the sale,  forfeiture or loss of any of the Collateral or any
interest therein and (c) such taxes,  charges or claims are adequately  reserved
against on the Grantor's books in accordance with generally accepted  accounting
principles.

                  Section  10.  Books and  Records.  The  Grantor  will keep and
maintain at its own cost and expense  satisfactory  and complete  records of the
Collateral, including a record of all payments received and credits granted with
respect to all Accounts, Contracts and General Intangibles.

                  Section 11. Inspection,  Reports,  Verifications.  The Grantor
will at all reasonable times permit the Secured Party or its  representatives to
examine or inspect any Collateral,  any evidence of Collateral and the Grantor's
books and records concerning the Collateral,  wherever located. The Grantor will
from time to time when  requested  by the Secured  Party  furnish to the Secured
Party a report on its  Accounts,  Contracts and General  Intangibles  naming the
Account Debtor or other obligors thereon,  the amount due and the aging thereof.
The Secured Party or its designee is authorized  to contact  Account  Debtor and
other Persons  obligated on any such  Collateral from time to time to verify the
existence, amount and/or terms of such Collateral.

                  Section 12. Notice of Loss.  The Grantor will promptly  notify
the Secured  Party of any loss of or  material  damage to any  material  item of
Collateral  or of any  substantial  adverse  change,  known to  Grantor,  in any
material item of Collateral or the prospect of payment or performance thereof.

                  Section 13. Action by the Secured Party. If the Grantor at any
time fails to perform or observe any of the  foregoing  agreements,  the Secured
Party shall have (and the Grantor hereby grants to the Secured Party) the right,
power and authority  (but not the duty) to perform or observe such  agreement on
behalf  and in the name,  place and stead of the  Grantor  (or,  at the  Secured
Party's  option,  in the  Secured  Party's  name)  and to take any and all other
actions which the Secured Party may reasonably deem necessary to cure or correct
such  failure  (including,   without  limitation,  the  payment  of  taxes,  the
satisfaction  of Liens,  the  procurement  and  maintenance  of  insurance,  the
execution of assignments,  security agreements and Financing Statements, and the
indorsement of instruments);  and the Grantor shall thereupon pay to the Secured
Party on demand  the amount of all monies  expended  and all costs and  expenses
(including  reasonable  attorneys'  fees and  legal  expenses)  incurred  by the
                                       6
<PAGE>
Secured Party in connection with or as a result of the performance or observance
of such  agreements or the taking of such action by the Secured Party,  together
with interest  thereon from the date expended or incurred at the highest  lawful
rate then applicable to any of the  Obligations,  and all such monies  expended,
costs and expenses and interest thereon shall be part of the Obligations secured
by the Security Interest.

                  Section 14. The Secured Party's Duties.  The powers  conferred
on the  Secured  Party  hereunder  are solely to  protect  its  interest  in the
Collateral  and shall not impose any duty upon it to exercise  any such  powers.
The  Secured  Party  shall be deemed to have  exercised  reasonable  care in the
custody and  preservation of any of the Collateral in its possession if it takes
such action for that purpose as Grantor requests in writing,  but failure of the
Secured  Party to comply  with any such  request  shall  not  itself be deemed a
failure to exercise  reasonable  care,  and no failure of the  Secured  Party to
preserve or protect any rights with respect to such  Collateral not so requested
by the  Grantor  shall be deemed a failure to  exercise  reasonable  care in the
custody or  preservation  of such  Collateral.  The Secured  Party shall also be
deemed to have exercised  reasonable care in the custody and preservation of any
Collateral  in  its  possession  if  such   Collateral  is  accorded   treatment
substantially  equal to the safekeeping  which the Secured Party accords its own
property  of  like  kind.  The  Secured  Party  shall  have no  duty,  as to any
Collateral,  as  to  ascertaining  or  taking  action  with  respect  to  calls,
conversions,  exchanges,  maturities,  tenders or other matters  relative to any
Collateral,  whether or not the Secured Party has or is deemed to have knowledge
of such matters,  or as to the taking of any necessary  steps to preserve rights
against  any  Persons or any other  rights  pertaining  to any  Collateral.  The
Secured  Party  will  take  action  in the  nature  of  exchanges,  conversions,
redemptions,  tenders  and the like  requested  in writing by the  Grantor  with
respect to the Collateral in the Secured Party's possession if the Secured Party
in its  reasonable  judgment  determines  that such  action  will not impair the
Security  Interest or the value of the Collateral,  but a failure of the Secured
Party to comply with any such request shall not of itself be deemed a failure to
exercise reasonable care.

                  Section 15.  Remedies on Default.  Upon the  occurrence  of an
Event of Default and at any time thereafter:

                           15(a) The Secured  Party may exercise and enforce any
         and all rights and remedies  available  upon default to a secured party
         under the Uniform Commercial Code.

                           15(b) The Secured Party shall have the right to enter
         upon and into and take  possession  of all or such part or parts of the
         properties  of the Grantor as may be  necessary or  appropriate  in the
         judgment of the Secured  Party to permit or enable the Secured Party to
         exercise  its rights  with  respect to the  Collateral,  as the Secured
         Party  may  elect,  and to use and  operate  said  properties  for said
         purposes  and for such  length  of time as the  Secured  Party may deem
         necessary or appropriate  for said purposes  without the payment of any
         compensation  to Grantor  therefor.  The Secured  Party may require the
         Grantor to, and the Grantor  hereby agrees that it will, at its expense
         and upon request of the Secured Party  forthwith,  assemble all or part
         of the  Collateral  as  directed  by the  Secured  Party  and  make  it
         available to the Secured Party at a place or places to be designated by
         the Secured Party.

                           15(c)  Any sale of  Collateral  may be in one or more
         parcels  at public  or  private  sale,  at any of the  Secured  Party's
         offices or elsewhere,  for cash, on credit, or for future delivery, and
         upon such other terms as the Secured Party may believe are
                                       7
<PAGE>
         commercially  reasonable.  The Secured  Party shall not be obligated to
         make any sale of  Collateral  regardless  of notice of sale having been
         given,  and the Secured  Party may  adjourn any public or private  sale
         from  time to time by  announcement  made at the time and  place  fixed
         therefor,  and such sale may,  without further  notice,  be made at the
         time and place to which it was so adjourned.

                           15(d) The Secured  Party is hereby  granted a license
         or other right to use, without charge,  all of the Grantor's  property,
         including, without limitation, all of the Grantor's labels, trademarks,
         copyrights,  patents  and  advertising  matter,  or any  property  of a
         similar  nature,  as it pertains to the  Collateral,  in exercising its
         rights with respect to the Collateral,  and the Grantor's  rights under
         all licenses and all  franchise  agreements  shall inure to the Secured
         Party's benefit until the Obligations are paid in full.

                           15(e)  If  notice  to the  Grantor  of  any  intended
         disposition of Collateral or any other  intended  action is required by
         law in a particular instance,  such notice shall be deemed commercially
         reasonable if given in the manner specified for the giving of notice in
         Section  21  hereof  at least ten  calendar  days  prior to the date of
         intended  disposition  or  other  action,  and the  Secured  Party  may
         exercise or enforce any and all other  rights or remedies  available by
         law or  agreement  against  the  Collateral,  against the  Grantor,  or
         against any other Person or property.

                           15(f)  The  Secured  Party is  hereby  granted,  upon
         written notice to the Grantor and any other Person  entitled to receive
         such notice under any Contract,  the right to assume,  become bound by,
         and agree to perform and observe the covenants, agreements, obligations
         and  conditions to be performed and observed under such Contract and to
         exercise  all of the  rights,  powers  and  privileges  of the  Grantor
         thereunder.

                           15(g) The Grantor  appoints the Secured  Party as the
         Grantor's attorney-in-fact, with full power of substitution, to perform
         any act which the  Grantor  has agreed to perform  but has failed to do
         so, which appointment is coupled with an interest and irrevocable.

                  Section 16.  Remedies as to  Contracts  and Rights to Payment.
Upon the  occurrence  of an  Event of  Default  and at any time  thereafter  the
Secured  Party may notify any Account  Debtor or other  Person  obligated on any
Collateral  that the same have been assigned or transferred to the Secured Party
and that the same should be performed as requested  by, or paid directly to, the
Secured Party, as the case may be. The Grantor shall join in giving such notice,
if the Secured Party so requests.  The Secured Party may, in the Secured Party's
name or in the Grantor's name,  demand, sue for, collect or receive any money or
property at any time payable or receivable on account of, or securing,  any such
Collateral or grant any extension to, make any compromise or settlement  with or
otherwise  agree to waive,  modify,  amend or change the  obligation of any such
Account Debtor or other Person. The Secured Party is hereby granted the right to
take any  action  which the  Secured  Party may  reasonably  deem  necessary  or
desirable in order to realize on the Collateral, including, the power to endorse
in the name of the Grantor,  with recourse to the Grantor,  any checks,  drafts,
notes or other instruments or documents  received in payment of or on account of
the  Collateral.  If any payments on any  Collateral are received by the Grantor
after an Event of Default has occurred,  such payments shall be held in trust by
the Grantor as the  property of the  Secured  Party and
                                       8
<PAGE>
shall not be  commingled  with any funds or property of the Grantor and shall be
forthwith remitted to the Secured Party for application on the Obligations.

                  Section  17.  Application  of  Proceeds.   All  cash  proceeds
received by the Secured  Party in respect of any sale of,  collection  from,  or
other  realization upon all or any part of the Collateral may, in the discretion
of the Secured Party, be held by the Secured Party as collateral for, or then or
at any time  thereafter  be  applied  in whole or in part by the  Secured  Party
against, all or any part of the Obligations (including,  without limitation, any
expenses of the Secured Party payable pursuant to Section 18 hereof).

                  Section 18. Costs and  Expenses;  Indemnity.  The Grantor will
pay or  reimburse  the Secured  Party on demand for all  out-of-pocket  expenses
(including  in each  case  all  filing  and  recording  fees and  taxes  and all
reasonable fees and expenses of counsel and of any experts and agents)  incurred
by the Secured Party in connection  with the creation,  perfection,  protection,
satisfaction,  foreclosure  or  enforcement  of the  Security  Interest  and the
preparation,  administration,  continuance,  amendment  or  enforcement  of this
Agreement,  and all such  costs and  expenses  shall be part of the  Obligations
secured by the  Security  Interest.  The Grantor  shall  indemnify  and hold the
Secured  Party  harmless  from  and  against  any and  all  claims,  losses  and
liabilities  (including  reasonable attorneys' fees) growing out of or resulting
from  this  Agreement  and  the  Security  Interest  hereby  created  (including
enforcement of this Agreement) or the Secured Party's actions  pursuant  hereto,
except claims,  losses or liabilities  resulting from the Secured  Party's gross
negligence or willful misconduct as determined by a final judgment of a court of
competent  jurisdiction.  Any liability of the Grantor to indemnify and hold the
Secured Party harmless  pursuant to the preceding  sentence shall be part of the
Obligations  secured by the Security  Interest.  The  obligations of the Grantor
under this Section shall survive any termination of this Agreement.

                  Section 19. Waivers; Remedies; Marshalling. This Agreement can
be  waived,  modified,  amended,  terminated  or  discharged,  and the  Security
Interest can be released,  only  explicitly  in a writing  signed by the Secured
Party. A waiver so signed shall be effective  only in the specific  instance and
for the specific purpose given.  Mere delay or failure to act shall not preclude
the exercise or enforcement of any rights and remedies  available to the Secured
Party.  All rights and remedies of the Secured Party shall be cumulative and may
be exercised singly in any order or sequence,  or  concurrently,  at the Secured
Party's  option,  and the  exercise or  enforcement  of any such right or remedy
shall  neither be a  condition  to nor bar the  exercise or  enforcement  of any
other.  The Grantor hereby waives all  requirements of law, if any,  relating to
the  marshalling  of assets which would be  applicable  in  connection  with the
enforcement by the Secured Party of its remedies hereunder, absent this waiver.

                  Section 20. Waiver of Defenses. The Grantor waives the benefit
of any and  all  defenses  and  discharges  available  to a  guarantor,  surety,
indorser or  accommodation  party,  dependent on its character as such.  Without
limiting the generality of the foregoing,  the Grantor (in such capacity) waives
presentment, demand for payment, and notice of nonpayment or protest of any note
or any other  instrument  evidencing  any of the  Obligations;  and the  Grantor
agrees that its liability  hereunder and the Security  Interest  hereby  created
shall not be affected or  impaired in any way by any of the  following  acts and
things (which the Secured  Party may do from time to time without  notice to the
Grantor): (a) by any sale, pledge, surrender,  compromise,  settlement, release,
renewal, extension, indulgence, alteration,  substitution,  exchange, change in,
modification,  or other  disposition  of any of the  Obligations or any evidence
thereof  or any  collateral  therefor,  (b)  by any  acceptance  or  release  of
collateral  for or  guarantors  of any of the  Obligations,  (c) by any failure,
neglect or omission to realize  upon or protect  any of the  Obligations,  or to
obtain, perfect, enforce or realize upon any
                                       9
<PAGE>
collateral  therefor,  or to exercise any Lien upon or right of appropriation of
any  moneys,   credits  or  property  toward  the  liquidation  of  any  of  the
Obligations,  or (d) by any  application  of payments or credits upon any of the
Obligations.  The Secured  Party shall not be required,  before  exercising  its
rights  under  this  Agreement,  to  first  resort  for  payment  of  any of the
Obligations  to the Borrowers or any other Persons,  its or their  properties or
estates,  or any  collateral,  property,  Liens  or  other  rights  or  remedies
whatsoever.  The  Grantor  agrees  not to  exercise  any right of  contribution,
recourse,  subrogation or reimbursement  available to the Grantor against either
of the  Borrowers  or any  other  Person  or  property,  unless  and  until  all
Obligations  and  all  other  debts,  liabilities  and  obligations  owed by the
Borrowers  and the Grantor to the Secured  Party have been paid and  discharged.
The Grantor  expects to derive benefits from the  transactions  resulting in the
creation of the  Obligations.  The Secured  Party may rely  conclusively  on the
continuing warranty, hereby made, that the Grantor continues to be benefitted by
the Secured Party's extension of credit  accommodations to the Borrowers and the
Secured  Party shall have no duty to inquire  into or confirm the receipt of any
such  benefits,  and this  Agreement  shall be effective and  enforceable by the
Secured  Party  without  regard  to the  receipt,  nature  or  value of any such
benefits.

                  Section 21. Notices.  Any notice or other communication to any
party in connection with this Agreement shall be in writing and shall be sent by
manual delivery,  telegram, telex, facsimile transmission,  overnight courier or
United  States mail  (postage  prepaid)  addressed  to such party at the address
specified on the signature  page hereof,  or at such other address as such party
shall have specified to the other party hereto in writing. All periods of notice
shall be measured from the date of delivery thereof if manually delivered,  from
the  date  of  sending   thereof  if  sent  by  telegram,   telex  or  facsimile
transmission,  from the first  business day after the date of sending if sent by
overnight courier, or from four days after the date of mailing if mailed.

                  Section  22.  Grantor  Acknowledgements.  The  Grantor  hereby
acknowledges  that  (a) it has  been  advised  by  counsel  in the  negotiation,
execution and delivery of this Agreement, (b) the Secured Party has no fiduciary
relationship to the Grantor,  the  relationship  being solely that of debtor and
creditor,  and (c) no joint venture  exists  between the Grantor and the Secured
Party.

                  Section 23. Representations and Warranties. The Grantor hereby
represents and warrants to the Secured Party that:

                           23(a) The Grantor is a corporation duly incorporated,
         validly   existing  and  in  good  standing   under  the  laws  of  the
         jurisdiction  of its  incorporation  and has the  corporate  power  and
         authority and the legal right to own and operate its  properties and to
         conduct the business in which it is currently engaged.

                           23(b)  The  Grantor  has  the  corporate   power  and
         authority  and the legal right to execute and  deliver,  and to perform
         its  obligations  under,  this  Agreement  and has taken all  necessary
         corporate action to authorize such execution, delivery and performance.

                           23(c) This Agreement  constitutes a legal,  valid and
         binding  obligation of the Grantor  enforceable in accordance  with its
         terms,   except  as   enforceability   may  be  limited  by  applicable
         bankruptcy,  insolvency,  reorganization,  moratorium  or similar  laws
         affecting the enforcement of creditors' rights generally and by general
         equitable  principles (whether  enforcement is sought by proceedings in
         equity or at law).
                                       10
<PAGE>
                           23(d) The execution, delivery and performance of this
         Agreement will not (i) violate any provision of any law, statute,  rule
         or  regulation  or  any  order,  writ,  judgment,  injunction,  decree,
         determination or award of any court,  governmental agency or arbitrator
         presently in effect having  applicability to the Grantor,  (ii) violate
         or contravene any provision of the Articles of  Incorporation or bylaws
         of the Grantor,  or (iii) result in a breach of or constitute a default
         under any indenture,  loan or credit  agreement or any other agreement,
         lease or  instrument  to which the Grantor is a party or by which it or
         any of its  properties  may be bound or result in the  creation  of any
         Lien thereunder. The Grantor is not in default under or in violation of
         any such law,  statute,  rule or  regulation,  order,  writ,  judgment,
         injunction,  decree, determination or award or any such indenture, loan
         or credit agreement or other agreement, lease or instrument in any case
         in which the  consequences  of such default or  violation  could have a
         material adverse effect on the business, operations, properties, assets
         or condition (financial or otherwise) of the Grantor.

                           23(e)    Except   for   filings,    recordings    and
         registrations  to perfect the  Security  Interest,  no order,  consent,
         approval, license, authorization or validation of, or filing, recording
         or registration  with, or exemption by, any governmental or public body
         or authority is required on the part of the Grantor to authorize, or is
         required in connection with the execution, delivery and performance of,
         or the legality,  validity,  binding effect or enforceability  of, this
         Agreement.

                           23(f)  There  are no  actions,  suits or  proceedings
         pending or, to the  knowledge  of the  Grantor,  threatened  against or
         affecting  the  Grantor  or any of its  properties  before any court or
         arbitrator,  or any  governmental  department,  board,  agency or other
         instrumentality  which, if determined  adversely to the Grantor,  would
         have a material adverse effect on the business, operations, property or
         condition  (financial or otherwise) of the Grantor or on the ability of
         the Grantor to perform its obligations hereunder.

                  Section 24. Continuing  Security  Interest;  Assignments under
Credit Agreement. This Agreement shall (a) create a continuing security interest
in the  Collateral  and shall remain in full force and effect  until  payment in
full of the  Obligations and the expiration of the  obligations,  if any, of the
Secured Party to extend credit  accommodations to the Borrowers,  (b) be binding
upon the Grantor,  its successors and assigns,  and (c) inure to the benefit of,
and be enforceable  by, the Secured Party and its successors,  transferees,  and
assigns.  Without  limiting  the  generality  of the  foregoing  clause (c), the
Secured Party may assign or otherwise  transfer all or any portion of its rights
and  obligations  under the Credit  Agreement to any other Persons to the extent
and in the manner  provided in the Credit  Agreement and may similarly  transfer
all or any portion of its rights under this Security Agreement to such Persons.

                  Section 25. Termination of Security Interest.  Upon payment in
full of the  Obligations  and the  expiration  of any  obligation of the Secured
Party to make loans to the Borrowers, the Security Interest granted hereby shall
terminate.  Upon any such  termination,  the  Secured  Party will  return to the
Grantor such of the  Collateral  then in the  possession of the Secured Party as
shall not have been sold or otherwise  applied  pursuant to the terms hereof and
execute  and  deliver  to  the  Grantor  such  documents  as the  Grantor  shall
reasonably  request to evidence  such  termination.  Any  reversion or return of
Collateral upon termination of this Agreement and any instruments of transfer or
termination shall be at the expense of the Grantor and shall be without warranty
by, or  recourse  on, the  Secured  Party.  As used in this
                                       11
<PAGE>
Section,  "Grantor"  includes  any  assigns of  Grantor,  any  Person  holding a
subordinate  security  interest in any of the  Collateral or whoever else may be
lawfully entitled to any part of the Collateral.

                  Section 26.  Governing  Law and  Construction.  THE  VALIDITY,
CONSTRUCTION AND  ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF MINNESOTA,  WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF,  EXCEPT TO THE EXTENT THAT THE VALIDITY OR  PERFECTION  OF THE SECURITY
INTEREST  HEREUNDER,  OR  REMEDIES  HEREUNDER,  IN  RESPECT  OF  ANY  PARTICULAR
COLLATERAL ARE MANDATORILY GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF MINNESOTA.  Whenever possible, each provision of this Agreement and any
other  statement,  instrument  or  transaction  contemplated  hereby or relating
hereto shall be  interpreted  in such manner as to be effective  and valid under
such  applicable  law,  but, if any  provision  of this  Agreement  or any other
statement,  instrument or  transaction  contemplated  hereby or relating  hereto
shall be held to be  prohibited  or invalid  under  such  applicable  law,  such
provision  shall  be  ineffective  only to the  extent  of such  prohibition  or
invalidity,  without  invalidating  the  remainder  of  such  provision  or  the
remaining  provisions of this  Agreement or any other  statement,  instrument or
transaction contemplated hereby or relating hereto.

                  Section  27.  Consent  to  Jurisdiction.  AT THE OPTION OF THE
SECURED PARTY,  THIS AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA
STATE COURT SITTING IN HENNEPIN COUNTY,  MINNESOTA;  AND THE GRANTOR CONSENTS TO
THE  JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE
IN SUCH FORUMS IS NOT CONVENIENT.  IN THE EVENT THE GRANTOR COMMENCES ANY ACTION
IN ANOTHER  JURISDICTION  OR VENUE  UNDER ANY TORT OR  CONTRACT  THEORY  ARISING
DIRECTLY OR INDIRECTLY  FROM THE  RELATIONSHIP  CREATED BY THIS  AGREEMENT,  THE
SECURED  PARTY AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE  TRANSFERRED  TO
ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED,  OR IF SUCH TRANSFER CANNOT
BE  ACCOMPLISHED  UNDER  APPLICABLE  LAW,  TO HAVE SUCH CASE  DISMISSED  WITHOUT
PREJUDICE.

                  Section 28. Waiver of Notice and Hearing.  THE GRANTOR  HEREBY
WAIVES ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
SECURED  PARTY OF ITS RIGHTS TO POSSESSION OF THE  COLLATERAL  WITHOUT  JUDICIAL
PROCESS OR OF ITS RIGHTS TO REPLEVY, ATTACH, OR LEVY UPON THE COLLATERAL WITHOUT
PRIOR NOTICE OR HEARING.  THE GRANTOR  ACKNOWLEDGES  THAT IT HAS BEEN ADVISED BY
COUNSEL OF ITS CHOICE WITH RESPECT TO THIS PROVISION AND THIS AGREEMENT.

                  Section 29. Waiver of Trial by Jury.  EACH OF THE GRANTOR,  BY
ITS  EXECUTION AND DELIVERY  HEREOF,  AND THE BANK,  BY ITS  ACCEPTANCE  HEREOF,
IRREVOCABLY  WAIVES  ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL  PROCEEDING
ARISING OUT OF OR RELATING TO THIS  AGREEMENT OR THE  TRANSACTIONS  CONTEMPLATED
HEREBY.

                  Section 30.  Counterparts.  This  Agreement may be executed in
any number of  counterparts,  each of which when so executed and delivered shall
be deemed an original,  but all such counterparts  together shall constitute but
one and the same instrument.
                                       12
<PAGE>
                  Section  31.  General.   All  representations  and  warranties
contained in this  Agreement or in any other  agreement  between the Grantor and
the Secured Party shall survive the execution,  delivery and performance of this
Agreement and the creation and payment of the  Obligations.  The Grantor  waives
notice of the  acceptance of this  Agreement by the Secured  Party.  Captions in
this Agreement are for reference and  convenience  only and shall not affect the
interpretation or meaning of any provision of this Agreement.
                                       13
<PAGE>
                  IN WITNESS  WHEREOF,  the  Grantor  has caused  this  Security
Agreement  to be duly  executed  and  delivered  by its officer  thereunto  duly
authorized as of the date first above written.

                                        -----------------------------



                                        By 
                                           --------------------------
                                        Title 
                                              -----------------------

                                        Address for Grantor:

                                        Two Renaissance Square, Ste. 1200
                                        40 North Central Avenue
                                        Phoenix, AZ  85004-4424
                                        Attention:  James R. Reis
                                        Telecopier:  (602) 661-3572

                                        Grantor's Tax ID # [          ]

Address for the Secured Party:

First Bank National Association
First Bank Place - MPFP0702
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention:  Jose A. Peris
Telecopier:  (612) 973-0825
                                       14
<PAGE>
                                   SCHEDULE I
                                       to
                               Security Agreement


Locations of Collateral


Two Renaissance Square, Ste. 1200
40 North Central Avenue
Phoenix, AZ  85004-4424
<PAGE>
                                   SCHEDULE II
                                       to
                               Security Agreement


Trade Names and Trade Styles



[To be provided.]
<PAGE>
                                                                    EXHIBIT K TO
                                                                CREDIT AGREEMENT


                            MATTERS TO BE COVERED BY
                               OPINION OF COUNSEL
                                TO THE BORROWERS

                  The  opinion of counsel to the  Pilgrim  America  Group,  Inc.
("PAG") and Pilgrim America Capital Corporation (collectively,  the "Borrowers")
which is called for by Section  3.1(a)(xi)  of the Second  Amended and  Restated
Credit  Agreement  shall be addressed to the Bank and dated the Closing Date. It
shall be  satisfactory  in form and  substance  to the Bank and shall  cover the
matters  set  forth  below,   subject  to  such   assumptions,   exceptions  and
qualifications  as may be acceptable  to the Bank and counsel to the Bank.  With
respect to opinions on the validity and  enforceability  of those loan documents
which  provide  that  they  are to be  governed  by the  laws  of the  State  of
Minnesota,  counsel  may opine that such  documents  would be valid and  binding
under the laws of the State of Arizona.  Capitalized  terms used herein have the
respective meanings given such terms in the Credit Agreement.

                  1. Each Borrower is a corporation duly  incorporated,  validly
existing  and in good  standing  under the laws of the State of Delaware and has
all  requisite  corporate  power and  authority  to carry on its business as now
conducted,  to  enter  into  the Loan  Documents  to which it is a party  and to
perform  all of its  obligations  under  each  and  all of the  foregoing.  Each
Borrower is duly qualified and in good standing as a foreign  corporation in all
of the jurisdictions in which the character of the properties owned or leased by
it or the business  conducted by it makes such  qualification  necessary and the
failure to so qualify would  permanently  preclude such Borrower from  enforcing
its rights with  respect to any  material  asset or expose such  Borrower to any
material liability.

                  2. The execution, delivery and performance by each Borrower of
the Loan  Documents  to which it is a party  have  been duly  authorized  by all
necessary corporate action by such Borrower.

                  3.  The  Loan  Documents  to which  each  Borrower  is a party
constitute  the  legal,   valid  and  binding   obligations  of  such  Borrower,
enforceable against such Borrower in accordance with their respective terms.

                  4. The execution, delivery and performance by each Borrower of
the Loan  Documents to which it is a party will not (i) violate any provision of
any law, statute,  rule or regulation or, to the best knowledge of such counsel,
any order, writ,  judgment,  injunction,  decree,  determination or award of any
court,   governmental   agency  or   arbitrator   presently  in  effect   having
applicability  to either  Borrower,  (ii) violate or contravene any provision of
the Certificate of Incorporation  or bylaws of either Borrower,  or (iii) result
in a breach of or  constitute  a default  under  any  indenture,  loan or credit
agreement or any other  agreement,  lease or instrument known to such counsel to
which either  Borrower is a party or by which it or any of its properties may be
bound or result in the creation of any Lien thereunder.

                  5. No order,  consent,  approval,  license,  authorization  or
validation of, or filing,  recording or registration  with, or exemption by, any
governmental  or public  body or  authority  is  required  on the part of either
Borrower to authorize, or is required in connection
                                       1
<PAGE>
with the  execution,  delivery and  performance  of, or the legality,  validity,
binding effect or enforceability of, the Loan Documents.

                  6.  To the  best  knowledge  of  such  counsel,  there  are no
actions,  suits or proceedings pending or threatened against or affecting either
Borrower,  any  Subsidiary  of  either  Borrower  or  any  of  their  respective
properties  before  any court or  arbitrator,  or any  governmental  department,
board,  agency  or other  instrumentality  which  (i)  challenge  the  legality,
validity  or  enforceability  of the  Loan  Documents,  or  (ii)  if  determined
adversely  to  such  Borrower,  would  have a  material  adverse  effect  on the
business,  operations,  property or condition  (financial  or  otherwise) of the
Borrowers and the Subsidiaries as a consolidated enterprise or on the ability of
the Borrowers to perform their obligations under the Loan Documents.

                  7. Neither  Borrower is an  "investment  company" or a company
"controlled"  by an  "investment  company"  within the meaning of the Investment
Company Act of 1940, as amended.

                  8. The Borrower is not a "holding company," a "subsidiary of a
holding  company" or an affiliate of a "holding  company"  within the meaning of
the Public Utility Holding Company Act of 1935, as amended.

                  9.  The  making  of  the  Loans  contemplated  by  the  Credit
Agreement, and the application of the proceeds thereof as provided in the Credit
Agreement, will not violate Regulations G, U or X of the Board.

                  10. Each of PAII and PASI is a corporation  duly  incorporated
and  validly  existing  and in good  standing  under  the  laws of the  State of
Delaware and has all  requisite  corporate  power and  authority to carry on its
business as now  conducted,  to enter into the Loan  Documents  to which it is a
party and to perform all of its obligations under each and all of the foregoing.
Each of PAII  and  PASI is duly  qualified  and in good  standing  as a  foreign
corporation in all of the jurisdictions in which the character of the properties
owned or leased by it or the business  conducted by it makes such  qualification
necessary  and the  failure to so qualify  would  permanently  preclude  it from
enforcing  its rights  with  respect to any  material  asset or expose it to any
material liability.

                  11. The  execution,  delivery and  performance by each of PAII
and  PASI of the  reaffirmations  of the Loan  Documents  to which it is a party
required under the Credit  Agreement have been duly  authorized by all necessary
corporate action by it.

                  12.  The Loan  Documents  to which  each of PAII and PASI is a
party,  as reaffirmed  and  modified,  constitute  the legal,  valid and binding
obligations of each of PAII and PASI,  enforceable against it in accordance with
their respective terms.

                  13. The execution,  delivery and  performance by PAII and PSII
of the  reaffirmations of the Loan Documents to which it is a party will not (i)
violate any provision of any law,  statute,  rule or regulation  or, to the best
knowledge  of such  counsel,  any order,  writ,  judgment,  injunction,  decree,
determination or award of any court, governmental agency or arbitrator presently
in effect having  applicability  to PAII or PSII, (ii) violate or contravene any
provision of the Articles of  Incorporation  or bylaws of PAII or PSII, or (iii)
result  in a breach of or  constitute  a default  under any  indenture,  loan or
credit  agreement  or any other  agreement,
                                       2
<PAGE>
lease or instrument known to such counsel to which PAII or PSII is a party or by
which it or any of its  properties may be bound or result in the creation of any
Lien thereunder.

                  14. No order,  consent,  approval,  license,  authorization or
validation of, or filing,  recording or registration  with, or exemption by, any
governmental or public body or authority is required on the part of PAII or PSII
to authorize,  or is required in  connection  with the  execution,  delivery and
performance of, or the legality,  validity, binding effect or enforceability of,
the reaffirmations of the Loan Documents.

                  15.  Neither  PAII nor PASI is an  "investment  company"  or a
company  "controlled"  by an  "investment  company"  within  the  meaning of the
Investment Company Act of 1940, as amended.

                  16.   Neither  PAII  nor  PASI  is  a  "holding   company,"  a
"subsidiary of a holding company" or an affiliate of a "holding  company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.

                  17. After giving effect to the amendment  and  restatement  of
the  Existing  Credit  Agreement  pursuant  to  the  Credit  Agreement  and  the
reaffirmations of the Security  Agreements and Pledge Agreements  required under
the Credit Agreement,  the Liens created pursuant to the Security Agreements and
the Pledge  Agreements  will  remain in full force and  effect,  will secure the
Obligations,  and  will  have  the  same  priority  as they  had  prior  to such
amendment, restatement and reaffirmations.
                                       3
<PAGE>
                                                                    EXHIBIT L TO
                                                                CREDIT AGREEMENT


                  TERMS WITH RESPECT TO GUARANTEED OBLIGATIONS
                  --------------------------------------------


                  1.  Obligations  Absolute.  No  act or  thing  need  occur  to
establish the liability of each Borrower for its Guaranteed Obligations,  and no
act  or  thing,  except  full  payment  and  discharge  of all  such  Guaranteed
Obligations, shall in any way exonerate either Borrower or modify, reduce, limit
or release the liability of either Borrower for its Guaranteed Obligations.  The
obligations of each Borrower for its Guaranteed  Obligations  shall be absolute,
unconditional,  and irrevocable, and shall not be subject to any right of setoff
or counterclaim by such Borrower.

                  2. Continuing Guaranty.  Each Borrower shall be liable for its
Guaranteed  Obligations,  plus accrued interest thereon and all attorneys' fees,
collection  costs  and  enforcement   expenses  referable  thereto.   Guaranteed
Obligations  may be created and  continued  in any amount  without  affecting or
impairing  the  liability  of  either  Borrower  therefor.  No  notice  of  such
Guaranteed  Obligations already or hereafter contracted or acquired by the Bank,
or any renewal or extension of any thereof need be given to either  Borrower and
none  of the  foregoing  acts  shall  release  either  Borrower  from  liability
hereunder.  The agreement of each Borrower pursuant to the Credit Agreement with
respect  to  its  Guaranteed  Obligations  is  an  absolute,  unconditional  and
continuing guaranty of payment of such Guaranteed Obligations and shall continue
to be in  force  and  be  binding  upon  such  Borrower  until  such  Guaranteed
Obligations  are paid in full and the Credit  Agreement is  terminated,  and the
Bank may continue,  at any time and without notice to either Borrower, to extend
credit or other financial  accommodations  and loan monies to or for the benefit
of the other Borrower on the faith thereof.  Each Borrower hereby waives, to the
fullest  extent  permitted  by law, any right it may have to revoke or terminate
its guaranty of the Guaranteed Obligations before the Guaranteed Obligations are
paid in full  and the  Credit  Agreement  is  terminated.  In the  event  either
Borrower  shall have any right under  applicable  law to otherwise  terminate or
revoke its guaranty of the Guaranteed  Obligations which cannot be waived,  such
termination  or revocation  shall not be effective  until written notice of such
termination or revocation,  signed by such Borrower, is actually received by the
Bank's  officer  responsible  for such  matters.  Any notice of  termination  or
revocation  described  above  shall not affect such  Borrower's  guaranty of the
Guaranteed Obligations in relation to (i) any of the Guaranteed Obligations that
arose prior to receipt thereof or (ii) any of the Guaranteed Obligations created
after receipt  thereof,  if such  Guaranteed  Obligations  were incurred  either
through  loans by the Bank or Letters of Credit  issued by the Bank  pursuant to
its existing financing arrangements with the other Borrower,  including, without
limitation,   advances,   readvances  or  letters  of  credit  in  an  aggregate
outstanding  amount not to exceed the aggregate  amount of the  Commitment as of
the time such notice of termination  or revocation was received,  and/or for the
purpose  of  protecting  any  collateral,  including,  but not  limited,  to all
protective  advances,  costs,  expenses,  and attorneys' and  paralegals'  fees,
whensoever  made,  advanced  or  incurred  by the  Bank in  connection  with the
Guaranteed  Obligations.  If, in reliance on either  Borrower's  guaranty of its
Guaranteed  Obligations,  the Bank makes  loans or other  advances to or for the
benefit of the other Borrower or takes other action under this  Agreement  after
such  aforesaid  termination or revocation by the  undersigned  but prior to the
receipt by the Bank of said written notice as set forth above, the rights of the
Bank shall be the same as if such termination or revocation had not occurred.
<PAGE>
                  3.   Other   Transactions.   Whether   or  not  any   existing
relationship  between the Borrowers has been changed or ended, the Bank may, but
shall not be obligated to, enter into transactions  resulting in the creation or
continuance of other obligations of either Borrower to the Bank, without consent
or approval by the other Borrower and without notice to the other Borrower,  and
all such obligations shall be guaranteed by virtue of the Credit Agreement.  The
liability  of the  Borrowers  under the  Credit  Agreement  with  respect to the
Guaranteed Obligations shall not be affected or impaired by any of the following
acts or things  (which the Bank is  expressly  authorized  to do, omit or suffer
from time to time,  without  notice to or  approval by the  Borrowers):  (i) any
acceptance of collateral security,  other guarantors,  accommodation  parties or
sureties for any or all Guaranteed Obligations;  (ii) any one or more extensions
or  renewals  of  Guaranteed  Obligations  (whether  or not for longer  than the
original period) or any modification of the interest rates,  maturities or other
contractual terms applicable to any Guaranteed Obligations;  (iii) any waiver or
indulgence granted to the other Borrower,  any delay or lack of diligence in the
enforcement of Guaranteed Obligations,  or any failure to institute proceedings,
file a claim,  give any  required  notices or otherwise  protect any  Guaranteed
Obligations;  (iv) any full or partial release of, settlement with, or agreement
not to sue, the other Borrower or any other  guarantor or other person liable in
respect of any  Guaranteed  Obligations;  (v) any  discharge  of any evidence of
Guaranteed Obligations or the acceptance of any instrument in renewal thereof or
substitution  therefor;  (vi) any  failure  to obtain  collateral  security  for
Guaranteed  Obligations,  or to see to the  proper or  sufficient  creation  and
perfection thereof, or to establish the priority thereof, or to protect, ensure,
or  enforce  any  collateral  security,   or  any  modification,   substitution,
discharge,  impairment or loss of any collateral security; (vii) any foreclosure
or enforcement of any collateral security; (viii) any transfer of any Guaranteed
Obligations  or any  evidence  thereof;  (ix) any  order of  application  of any
payments  or  credits  upon  Guaranteed  Obligations;  (x)  any  release  of any
collateral  security  for  Guaranteed  Obligations;  (xi)  any  amendment  to or
modification of, any agreement  between the Bank and the other Borrower,  or any
waiver of compliance by the other Borrower with the terms thereof; and (xii) any
election by the Bank under Section 1111(b) of the United States Bankruptcy Code.

                  4. Waivers of Defenses and Rights.  Each  Borrower  waives any
and all  defenses,  claims and  discharges of the other  Borrower,  or any other
obligor,  pertaining  to the  Guaranteed  Obligations,  except  the  defense  of
discharge by payment in full.  Without limiting the generality of the foregoing,
neither  Borrower will assert,  plead or enforce against the Bank any defense of
waiver, release, discharge in bankruptcy,  statute of limitations, res judicata,
statute  of  frauds,   anti-deficiency  statute,  fraud,  usury,  illegality  or
unenforceability  which  may be  available  to the other  Borrower  or any other
person liable in respect of any Guaranteed Obligations,  or any setoff available
against the Bank to the other Borrower or any such other person,  whether or not
on account of a related  transaction.  Each Borrower  expressly agrees that such
Borrower  shall  be  and  remain  liable  for  any  deficiency  remaining  after
foreclosure   of  any  mortgage  or  security   interest   securing   Guaranteed
Obligations,  whether  or not the  liability  of or any other  obligor  for such
deficiency is  discharged  pursuant to statute,  judicial  decision or contract.
Each  Borrower  waives  presentment,  demand for payment,  notice of dishonor or
nonpayment,  and protest of any instrument  evidencing  Guaranteed  Obligations.
Each  Borrower  agrees that its  liability  under the Credit  Agreement  for the
Guaranteed  Obligations shall be primary and direct, and that the Bank shall not
be required  first to resort for payment of the  Guaranteed  Obligations  to the
other  Borrower  or other  persons  or their  properties,  or first to  enforce,
realize upon or exhaust any collateral security for the Guaranteed  Obligations,
or to commence any action or obtain any judgment  against the other  Borrower or
against any such collateral  security or to pursue any other right or remedy the
Bank may have against the 
<PAGE>
other  Borrower  before  enforcing  the  liability  of  such  Borrower  for  the
Guaranteed Obligations under the Credit Agreement.

                  5.   Approval   of  Credit.   Each  of  the   Borrowers   has,
independently  and without  reliance upon the Bank or its  directors,  officers,
agents or employees,  and instead in reliance upon information  furnished by the
other  Borrower  and  upon  such  other  information  as  such  Borrower  deemed
appropriate,  made its own independent  credit analysis and decision to guaranty
the obligations of the other Borrower pursuant to the Credit Agreement.

                  6. Waiver of Subrogation.  Each Borrower  expressly waives any
and  all  rights  of   subrogation,   reimbursement,   indemnity,   exoneration,
contribution  or any other claim which it may now or hereafter  have against the
other  Borrower,  any endorser or any other  guarantor of all or any part of the
Guaranteed Obligations,  and each Borrower hereby waives any benefit of, and any
right to participate in, any security or collateral  given to the Bank to secure
payment  of the  Guaranteed  Obligations  or any  other  liability  of the other
Borrower to the Bank.  Each Borrower  further  agrees that any and all claims it
may have against the other Borrower,  any endorser or any other guarantor of all
or any part of the  Guaranteed  Obligations  or against any of their  respective
properties,  whether  arising by reason of any  payment by such  Borrower to the
Bank  pursuant to the  provisions  hereof or  otherwise,  is hereby  waived.  In
furtherance,  and not in  limitation  of the  preceding  waivers,  each Borrower
hereby  agrees that any  payment to the Bank by such  Borrower on account of the
Guaranteed  Obligations  and any loan made to or  obligation  incurred  from the
other Borrower shall be deemed to be a contribution  to the capital of the other
Borrower, and after giving effect to such payment, loan or other obligation such
Borrower shall not a creditor of the other Borrower. 
<PAGE>
<TABLE>
<CAPTION>
                                                 PILGRIM AMERICA CAPITAL CORPORATION

                                                         ORGANIZATION CHART

                                                 PILGRIM AMERICA CAPITAL CORPORATION
                                           (Formerly Express America Holdings Corporation)
                                                  State of Incorporation: Delaware
                                               Publically traded - NASDAQ Symbol PACC
                             Authorized to do business as a foreign corporation in the following states:
                                                               Arizona
<S>                                              <C>                                         <C>    
                                                                 |
                                                                 |              Discontinued Mortgage Operations
                    -------------------------------------------------------------------------------------------- 
                    |                                                |                                          |
       PILGRIM AMERICA GROUP, INC.                     EXPRESS AMERICA T.C. CORP.                     EAMC LIQUIDATION CORP.        
(Formerly Newco Holdings Management Corp.)                                                                                          
                                                    State of Incorporation: Delaware             State of Incorporation: Michigan   
     State of Incorporation: Delaware            uthorized as a foreign corporation in:      Authorized as a foreign corporation in:
 Authorized as a foreign corporation in:                        Arizona                                      Arizona                
                 Arizona                                                                                                            
                                                            Share Ownership:                             Share Ownership:           
             Share Ownership:                      Pilgrim America Capital Corp. 100%           Pilgrim America Capital Corp. 100%  
    Pilgrim America Capital Corp. 100%                                                                             |
                    |                                                                                              |
                 -----------------------------------------------------|                                            |
                 |                                                    |                                            |
    PILGRIM AMERICA INVESTMENTS, INC.                 PILGRIM AMERICA SECURITIES, INC.                             |
  (Formerly Newco Advisory Corporation)          (Formerly Newco Distributors Corporation)                         |
                                                                                                                   |
     State of Incorporation: Delaware                 State of Incorporation: Delaware                             |
 Authorized as a foreign corporation in:          Authorized as a foreign corporation in:                          |
                 Arizona                                          Alabama                                          |
                                                                  Arizona                                          |
             Share Ownership:                                                                                      |
     Pilgrim America Group, Inc. 100%             Company is registered as a broker-dealer                         |
                                                        in various states, refer to                                |
                                                        NASD Form BD Status Report.                                |
                                                                                                                   |
                                                              Share Ownership:                                     |
                                                      Pilgrim America Group, Inc. 100%                             |
                                                                                                                   |
                                                                      ---------------------------------------------|
                                                                      |                                            |
                                                          WESAV INVESTMENTS CORP.                     WESAV INVESTMENTS INC. 2

                                                      State of Incorporation: Delaware           State of Incorporation: Delaware
                                                  Authorized as a foreign corporation in:    Authorized as a foreign corporation in:
                                                                  Arizona                                     Arizona

                                                              Share Ownership:                            Share Ownership:
                                                        EAMC Liquidation Corp. 100%                 EAMC Liquidation Corp. 100%
</TABLE>
                                 SCHEDULE 4.17
<PAGE>
                              Pilgrim America Funds
<TABLE>
<CAPTION>
                                                                                         Management
              Fund Name                              Net Assets*                       Agreement Date
--------------------------------------         ------------------------             ---------------------
<S>                                                  <C>                                  <C>
Pilgrim America MagnaCap Fund                        $     363,958,526                    04/07/95

Pilgrim America High Yield Fund                      $      92,165,137                    04/07/95

Pilgrim Govt. Securities Income Fund                 $      31,579,183                    04/07/95

Pilgrim America Masters Series:
          Asia-Pacific Equity Fund                   $      73,928,398                    06/08/95
          Midcap Value Fund                          $      53,256,769                    06/08/95
          Largecap Value Fund                        $      29,061,602                    06/08/95

Pilgrim America Bank and Thrift Fund                 $     315,032,313                    04/07/95
                                                                        (Net Assets +
Pilgrim America Prime Rate Trust                     $   1,354,239,699  Borrowings)       04/07/95
                                               ------------------------

                                Total                $2,313,221,627.00
</TABLE>
*As of July 24, 1997

                                 SCHEDULE 4.18
<PAGE>
                                  SCHEDULE 4.6

                                   LITIGATION



Information held at bank.