Exhibit 10.1
                           THIRD AMENDED AND RESTATED
                                CREDIT AGREEMENT


                  THIS  THIRD  AMENDED  AND  RESTATED   CREDIT   AGREEMENT  (the
"Agreement"), dated as of July 31, 1998 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"), the banks which are signatories hereto (individually, a "Bank" and,
together  with any Persons that become a party  hereto  pursuant to Section 9.6,
the "Banks") and U.S. BANK NATIONAL ASSOCIATION, a national banking association,
one of the Banks, as agent for the Banks (in such capacity, the "Agent").

                  WHEREAS,  PAG,  PACC and the U.S. Bank are the parties to that
certain Second Amended and Restated Credit  Agreement dated as of July 31, 1997,
as amended (the "Existing Credit Agreement"); and

                  WHEREAS,  PAG,  PACC and U.S. Bank desire to amend and restate
the Existing  Credit  Agreement in its  entirety,  and to add the other Banks as
lenders.

                  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):

                  "12B-1  FEES":  With  respect  to any Fund,  rights to receive
investment distribution fees from such Fund as provided in rule 12b-1 of the SEC
under the Investment  Company Act in accordance with the Prospectus  relating to
such Fund.

                  "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.
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                  "ADVANCE":  Any portion of the outstanding  Loans by the Banks
as to which the  Borrowers  have  elected  one of the  available  interest  rate
options.  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. (0) 80a-15(a).

                  "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 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  Persons  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.

                  "AGENT":  As defined in the opening paragraph hereof.

                  "AGENT FEES":  As defined in Section 2.16(a).

                  "AGGREGATE COMMITMENT AMOUNTS": As of any date, the sum of the
Commitment Amounts of all the Banks.

                  "APPLICABLE  LENDING OFFICE":  For each Bank and for each type
of Advance,  the office of such Bank listed on the signature page hereof or such
other  domestic or foreign office of such Bank (or of an Affiliate of such Bank)
as such Bank may specify from time to time to the Agent and the Borrowers as the
office by which its Advances of such type are to be made and maintained.

                  "APPLICABLE  MARGIN":  Subject  to the last  sentence  of this
definition,  with respect to the period  beginning on the tenth day of the first
month  after  the  month  in  which  the  financial  statements  and  compliance
certificate required by Sections 5.1(c) and (d) with respect to a fiscal quarter
are  delivered and ending on the ninth day of the first month after the month in
which the financial  statements and compliance  certificate required by Sections

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5.1(c) and 5.1(d) with respect to the  subsequent  fiscal quarter are delivered,
the percentage  specified as applicable to Reference Rate Advances or Eurodollar
Rate Advances, as appropriate,  based on the Cash Flow Leverage Ratio calculated
as of the end of the fiscal  quarter  for which such  financial  statements  and
compliance certificate have been delivered:

        Cash Flow                Eurodollar              Reference
     Leverage Ratio             Rate Advances          Rate Advances
     --------------             -------------          -------------
     Less than or equal to
     2.25:1                         0.85%                     0%

     Greater than 2.25:1            0.95%                     0%

During the period  beginning  on the Closing  Date and ending on August 9, 1998,
the  Applicable  Margin for  Eurodollar  Rate Advances  shall be 0.85%.  For any
subsequent  period beginning on the tenth day of the first month after the month
in which  the  financial  statements  and  compliance  certificate  required  by
Sections 5.1(c) and (d) with respect to a quarter are required to be but are not
delivered  and ending on the ninth day of first  month  after the month in which
such  financial  statements  and  compliance  certificate  are  delivered,   the
Applicable Margin for Eurodollar Rate Advances shall be 0.95%.

                  "ASSIGNEE":  As defined in Section 9.6.

                  "BANK":  As defined in the opening paragraph hereof.

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

                  "BORROWER":  As defined in the opening paragraph hereof.

                  "BORROWER LOAN DOCUMENTS":  This Agreement, the Notes, and any
of the Security Documents to be executed by the Borrowers.

                  "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.
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                  "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.

                  "CASH  EQUIVALENTS":  Investments of the Borrowers of the type
described in Sections 6.10(c), (d), (e) and (f).

                  "CASH FLOW LEVERAGE RATIO": On any date of determination,  the
ratio of (a)  Interest-bearing  Indebtedness  on such date to (b) EBITDA for the
Measurement Period ending on such date.

                  "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": July 31, 1998, provided that on or before such
date all the  conditions  precedent to the  obligation  of the Banks to make the
initial Revolving Loan, as set forth in Article III, have been satisfied.

                  "CLO  INVESTMENTS":  Investments by an Advisory  Subsidiary in
subordinated,   interest-only  or  residual  interests  in  Collateralized  Loan
Obligations or the pool of commercial loans, high-yield bonds or emerging market
obligations securing or otherwise backing Collateralized Loan Obligations.

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

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                  "COLLATERALIZED  LOAN  OBLIGATION":   A  security  secured  or
otherwise  backed by a pool of commercial  loans,  high-yield  bonds or emerging
market obligations managed by an Advisory Subsidiary.

                  "COMMITMENT":  With respect to any Bank, the agreement of such
Bank to make Revolving Loans to, and purchase risk  participations in Letters of
Credit  issued by the Agent for the account of, the  Borrowers  in an  aggregate
principal  amount  outstanding at any time not to exceed such Bank's  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":  With respect to any Bank, initially the
amount set  opposite  such  bank's  name on  Schedule  1.1(a) as its  Commitment
Amount, but as the same may be reduced pursuant to Section 2.15.

                  "COMMITMENT FEES":  As defined in Section 2.16(b).

                  "COMMITMENT  PERCENTAGE":   With  respect  to  any  Bank,  the
percentage  equivalent of a fraction,  the numerator of which is the  Commitment
Amount of such Bank and the  denominator  of which is the  Aggregate  Commitment
Amounts.

                  "CONTINGENT DEFERRED SALES CHARGE":  With respect to any Fund,
the contingent deferred sales charges payable, either directly or by withholding
from  the  proceeds  of the  redemption  of the  shares  of  such  Fund,  by the
shareholders of such Fund on any redemption of shares of such Fund in accordance
with the Prospectus relating to such Fund and the Rules of Fair Practice.

                  "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.

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

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                  "EBITDA  MARGIN":   For  any  Measurement  Period,  the  ratio
(expressed  as a  percentage)  (a) EBITDA bears to (b) the total revenue of PACC
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 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) on such date,  or the rate for such  deposits  determined  by the
Agent at such time based on such other published service of general  application
as shall be selected by the Agent for such  purpose;  provided,  that in lieu of
determining the rate in the foregoing  manner,  the Agent may determine the rate
based on rates at which 30 day United States dollar  deposits are offered to the
Agent in the interbank  Eurodollar market for delivery in Immediately  Available
Funds on such date in an amount  approximately equal to the Advance by the Agent
to which the Eurodollar Rate is to apply (rounded upward,  if necessary,  to the
nearest 1/16 of 1%). oReuters Screen LIBO pageo means the display  designated as
page oLIBOo 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  oEurocurrency  Liabilitieso  as such term is defined in
Regulation D of the Board.  The rate of interest  applicable to any  outstanding
Eurodollar  Rate  Advances  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.

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                  "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  Interest-bearing
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  closed-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.

                  "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.

                  "GUARANTEED OBLIGATIONS":  As defined in Section 9.17.

                  "GUARANTY":  The guaranty of PAII,  of even date  herewith (as
the  same  may  be  amended,   modified,   supplemented  or  restated)  and  any
acknowledgments  or  affirmations  thereof,  or a guaranty of any other Advisory
Subsidiary,  in the form of  Exhibit A, (as the same may be  amended,  modified,
supplemented or restated, and any acknowledgements or affirmations thereof).

                  "HOLDING  ACCOUNT":  A deposit account  belonging to the Agent
for the  benefit of the Banks 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 Agent 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.

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                  "INDEBTEDNESS":  With respect to any Person at the time of any
determination, without duplication, all obligations, contingent or otherwise, of
such Person which in 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  bankersAE  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.

                  "INTEREST-BEARING   INDEBTEDNESS":   At   the   time   of  any
determination,  all Indebtedness of the Borrowers and their  Subsidiaries  other
than current  liabilities  incurred in the ordinary course of business which are
not indebtedness for borrowed money.

                  "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  stand-by letter of credit
issued by the Agent pursuant to this Agreement for the account of the Borrowers.

                  "LETTER OF CREDIT FEE":  As defined in Section 2.16(c).

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                  "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 Notes,  the Security
Documents and the Guaranties.

                  "MAJORITY  BANKS": At any time, Banks holding at least 66-2/3%
of the aggregate unpaid principal amount of the Notes or, if no Loans are at the
time outstanding  hereunder,  Banks whose Total  Percentages  aggregate at least
66-2/3%.

                  "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 Borrowers 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 B.

                  "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 Borrowers

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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.

                  "PERMITTED  ADVISORY  SUBSIDIARY  AGREEMENTS":  As  defined in
Section 5.12(b).

                  "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 PAG, of even date herewith, 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.

                  "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.

                  "RATE PROTECTION  AGREEMENTS":  Any interest rate swap, cap or
option  agreement,  or any other agreement  between the Borrower and any Bank or
another  counterparty  acceptable  to the Agent  pursuant to which the  Borrower
hedges  interest  rate  risk with  respect  to a  portion  of its  floating-rate
financing.

                  "REFERENCE  RATE":  The  rate of  interest  from  time to time
publicly  announced by the Agent as its "reference  rate." The Agent 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

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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  Banks  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 Borrowers,  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  Notes  are paid in  full,  all  Letters  of  Credit  have  expired  or been
terminated and the Commitments have 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.

                  "SEC":  The  Securities  and  Exchange  Commission,   and  any
successor thereto or to the functions thereof.

                                       11
<PAGE>
                  "SECURITIES ACT":  The Securities Act of 1933, as amended.

                  "SECURITY  AGREEMENTS":  The Security  Agreements of PAG, PAII
and  PASI,  of  even  date  herewith  in  the  form  of  Exhibits  C,  D and  E,
respectively,  any Security  Agreement of an Advisory  Subsidiary in the form of
Exhibit D; and any  Security  Agreement of any other  Subsidiary  in the form of
Exhibit E; in each case whereby the respective  grantors grant to the Agent, for
the benefit of the Banks, a security interest in the personal property described
therein to secure the Obligations, 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 any other  agreement or  instrument
pursuant to which the  Borrowers or any other Person  creates or perfects a Lien
on  property  in favor of the Agent 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(b).

                  "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 Commitments  are terminated  pursuant to Section
7.2 or (c) the date on which the  Commitments  are  reduced to zero  pursuant to
Section 2.15.

                  "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.

                  "TOTAL PERCENTAGE": With respect to any Bank, (a) prior to the
Termination Date, such Bank's Commitment Percentage,  and (b) from and after the

                                       12
<PAGE>
Termination  Date,  the  percentage  equivalent of a fraction,  the numerator of
which  is the  principal  balance  of  such  Bank's  Loans  outstanding  and the
denominator of which is the principal balance of all Loans outstanding.

                  "TRADEMARK ASSIGNMENT": The Collateral Assignment (Trademarks)
of PAG of even  date  herewith,  as the same may be  supplemented,  amended,  or
otherwise modified and in effect from time to time.

                  "TRANSFORMATION DATE":  July 30, 1999.

                  "U.S. BANK": U.S. Bank National  Association,  in its capacity
as one of the Banks hereunder.

                  "UNPAID DRAWING":  As defined in Section 2.11.

                  "UNUSED REVOLVING COMMITMENT":  With respect to any Bank as of
any date of  determination,  the amount by which such Bank's  Commitment  Amount
exceeds such Bank's Total Percentage of 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  Banks  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".

                                       13
<PAGE>
                                   ARTICLE II

                         TERMS OF THE CREDIT FACILITIES

                           PART A -- TERMS OF LENDING

                  Section 2.1  LENDING COMMITMENTS.

                           2.1(a) REVOLVING  CREDIT. On the terms and subject to
         the conditions  hereof,  each Bank severally 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 Borrowers 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  Aggregate
         Commitment  Amounts.  Revolving  Loans  hereunder  shall be made by the
         several Banks ratably in the proportion of their respective  Commitment
         Amounts.  Revolving  Loans  may  be  obtained  and  maintained,  at the
         election of the Borrowers  but subject to the  limitations  hereof,  as
         Reference Rate Advances or Eurodollar Rate Advances.

                           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
         each Bank's  Revolving  Loans shall be converted  into a term loan (the
         "Term Loan") from each Bank on the terms and subject to the  conditions
         set forth herein. The Term Loans 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. On the Closing
         Date,  each Bank shall make a  Revolving  Loan  hereunder  in an amount
         equal to its Commitment  Percentage of the amount of loans  outstanding
         under the Existing  Credit  Agreement.  Any  subsequent  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  Agent  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 $300,000 or, if more,  an integral  multiple  thereof,  (iii)
         whether  such  Revolving  Loans  are to be  funded  as  Reference  Rate
         Advances  or  Eurodollar  Rate  Advances.  The  Agent  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 Agent's record of the terms of such telephone request.  The

                                       14
<PAGE>

         Agent  shall  promptly  notify  each other Bank of the  receipt of such
         request,  the matters  specified  therein,  and of such Bank's  ratable
         share of the requested  Revolving  Loans.  On the date of the requested
         Revolving  Loans,  each Bank shall  provide its share of the  requested
         Revolving  Loans to the Agent in Immediately  Available Funds not later
         than 3:00 p.m.,  Minneapolis time. Unless the Agent determines that any
         applicable  condition  specified in Article III has not been satisfied,
         the Agent will make available to the Borrower at the Agent's  principal
         office in  Minneapolis,  Minnesota in Immediately  Available  Funds not
         later than 4:00 p.m. (Minneapolis time) on the requested Revolving Loan
         Date the amount of the requested Revolving Loans. If the Agent has made
         a  Revolving  Loan to the  Borrower  on  behalf  of a Bank  but has not
         received the amount of such  Revolving  Loan from such Bank by the time
         herein  required,  such  Bank  shall pay  interest  to the Agent on the
         amount so advanced at the overnight Federal Funds rate from the date of
         such  Revolving  Loan to the date funds are  received by the Agent from
         such Bank,  such interest to be payable with such  remittance from such
         Bank of the principal amount of such Revolving Loan (provided, however,
         that the Agent shall not make any Revolving Loan on behalf of a Bank if
         the Agent has  received  prior  notice  from such Bank that it will not
         make such Revolving  Loan).  If the Agent does not receive payment from
         such Bank by the next  Business  Day  after  the date of any  Revolving
         Loan, the Agent shall be entitled to recover such Revolving  Loan, with
         interest  thereon at the rate (or rates)  then  applicable  to the such
         Revolving Loan, on demand, from the Borrower,  without prejudice to the
         Agent's and the Borrower's  rights against such Bank. If such Bank pays
         the Agent the amount  herein  required  with  interest at the overnight
         Federal  Funds rate before the Agent has  recovered  from the Borrower,
         such Bank shall be entitled  to the  interest  payable by the  Borrower
         with respect to the Revolving  Loan in question  accruing from the date
         the Agent made such Revolving Loan.

                           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 Agent a written
         notice  electing  whether the Term Loans are to be funded as Eurodollar
         Rate Advances or Reference Rate Advances.

                  Section 2.3 NOTES.  The Loans of each Bank shall be  evidenced
by a single Note  payable to the order of such Bank in a principal  amount equal
to such Bank's  Commitment  Amount  originally  in effect.  Upon receipt of each
Bank's  Notes from the  Borrowers,  the Agent shall mail such Notes to such Bank
via  overnight  delivery.  Each 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 such 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 any 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

                                       15
<PAGE>
amount of all Loans made by such Bank less all  payments  of  principal  thereof
made by the Borrowers.

                  Section  2.4  CONVERSIONS.  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  into a  Eurodollar  Rate Advance if a Default or Event of Default has
occurred and is continuing on the proposed date of  continuation  or conversion.
Advances may be converted to Eurodollar  Rate Advances only in minimum  amounts,
as to the  aggregate  amount  of the  Advances  of all  Banks so  converted,  of
$300,000 or if more, an integral multiple thereof.  The Borrowers shall give the
Agent written  notice of any  conversion of any Advances and such notice must be
given so as to be received  by the Agent not later than 12:00 noon  (Minneapolis
time) on the date of the  requested  conversion.  Each such notice shall specify
(a) the amount to be converted,  and (b) the date for the conversion (which must
be a Business Day). Any notice given by the Borrower under this Section shall be
irrevocable.  All  conversions  of Advances  must be made  uniformly and ratably
among the Banks.

                  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) Upon the  occurrence of any Event of Default each
         Advance shall, at the option of the Majority Banks, bear interest until
         paid in full at the  "Default  Rate,"  which  shall be 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.

                           (e)  Interest   accrued  under  the  Existing  Credit
         Agreement  through  the  Closing  Date  shall be  payable  on the first
         Quarterly Payment Date after the Closing Date.

                                       16
<PAGE>
                  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
Letters of Credit are  outstanding on the Maturity Date, or if Letters of Credit
are  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  Letters 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 Agent 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).

                  Section 2.7  PREPAYMENTS.

                           2.7(a)  PROCEEDS OF ASSET SALES.  Within one Business
         Day  following  the  receipt  of the  proceeds  of any  sale of any CLO
         Investments,  Advisory Contracts, 12b-1 Fees and the related Contingent
         Deferred Sales Charges, or interests therein (including but not limited
         to stock in  Advisory  Subsidiaries  or other  Subsidiaries)  by either
         Borrower or any  Subsidiary  occurring  after the Closing  Date, to the
         extent the sum of the  proceeds  of all such sales  received  after the
         Closing  Date,  net of the  actual  cash  expenses  and  taxes  paid or
         incurred by any Borrower or any Subsidiary  thereof in connection  with
         such sales, exceeds Three Million Dollars  ($3,000,000),  the Borrowers
         shall prepay the Loans and the  Aggregate  Commitment  Amounts shall be
         reduced  by an  amount  equal to fifty  percent  (50%) of such  excess;
         PROVIDED,  HOWEVER  that  this  Section  2.7(a)  shall not be deemed to
         authorize any sale or other transfer that would otherwise be prohibited
         by Section 6.2.

                           2.7(b) OPTIONAL PREPAYMENTS. The Borrowers may prepay
         Loans,  in whole or in part, at any time,  without  premium or penalty.
         Each partial  prepayment  shall be in an  aggregate  amount for all the
         Banks of $300,000 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.

                           2.7(c) APPLICATION OF PREPAYMENTS. Amounts prepaid on
         the Loans under this  Section 2.7 shall be for the account of each Bank
         in proportion to its share of outstanding Loans, and amounts prepaid on

                                       17
<PAGE>

         the  Term  Loans  under  this  Section  2.7  shall  be  applied  to the
         installments  due on the  Term  Loans  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 Agent,  for the  benefit of the Banks,
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 or renewed in any amount  which,  after  giving
effect to such issuance or renewal, 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 Agent 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 Agent may  require  that such
request be made on such letter of credit application and reimbursement agreement
form as the  Agent  may  from  time to time  specify,  along  with  satisfactory
evidence of the  authority  and  incumbency  of the  officials of the  Borrowers
making  such  request.  The Agent shall  promptly  notify the other Banks of the
receipt of the request and the matters  specified  therein.  On the date of each
issuance of a Letter of Credit the Agent shall send notice to the other Banks of
such issuance.

                  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,  except as otherwise  agreed by the  Borrowers  and the Majority
Banks.

                  Section 2.11 AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS.  If
the Agent has  received  documents  purporting  to draw under a Letter of Credit
that the Agent believes conform to the requirements of the Letter of Credit,  or
if the Agent 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 Agent
does not believe conforms to the  requirements of the Letter of Credit,  it will

                                       18
<PAGE>

notify the Borrowers of that fact.  The Borrowers  shall  reimburse the Agent 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 Agent for the
full amount of such  drawing by 10:00 a.m. on the date on which the Agent in its
notice  indicated  that it would pay such  drawing,  until  reimbursed  from the
proceeds of Loans  pursuant  to Section  2.14 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 Agent for any  amount  drawn on any
Letter of Credit and to repay the Agent for any Advances made under Section 2.14
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  Agent,  any  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 Agent nor any Bank nor  officers,  directors  or  employees  of any
thereof shall be liable or responsible for, and the obligations of the Borrowers
to the Agent and the Banks 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;

                                       19
<PAGE>
                  (iii)    The  acceptance by the Agent 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 Agent 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
Agent, and the Agent 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  agent's  willful
misconduct or gross negligence in determining  whether documents presented under
any Letter of Credit comply with the terms thereof.

                  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 Agent or any  Bank's  obligation  to make  Loans to cover
Unpaid Drawings,  or (b) shall impose on any 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 Agent or any Bank of issuing or  maintaining  any
Letter of Credit,  or reduce the amount of any sum received or receivable by the
Agent or any Bank  hereunder,  then, upon demand (which demand shall be given by
the  Agent  or  Bank  promptly  after  it  determines  such  increased  cost  or
reduction),  the  Borrowers  shall pay to the Agent or such Bank the  additional
amount or amounts as will  compensate  the Agent or such Bank for such increased
cost or reduction.  A  certificate  submitted to the Borrowers by the Agent or a
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.  Failure on the part of the Agent or a
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 Agent's or that Bank's  rights to demand  compensation  for any increased
costs or reduction in amounts received or receivable in any subsequent period.

                                PART C -- GENERAL

                  Section  2.14 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 Agent shall give the other Banks  notice to that effect,
specifying the amount  thereof,  in which event each Bank is authorized (and the
Borrowers  hereby so authorize  each 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 such Bank's  Revolving  Percentage  of the amount of the Unpaid
Drawing.  The Agent shall notify each Bank by 11:00 a.m.  (Minneapolis  time) on
the date such Unpaid Drawing occurs of the amount of the Loan to be made by such
Bank.  Notices received after such time shall be deemed to have been received on

                                       20
<PAGE>
the next  Business  Day.  Each Bank  shall  then make such Loan  (regardless  of
noncompliance with the applicable  conditions precedent specified in Article III
hereof and  regardless of whether an Event of Default then exists) and each Bank
shall provide the Agent with the proceeds of such  Revolving Loan in Immediately
Available  Funds,  at  the  office  of the  Agent,  not  later  than  2:00  p.m.
(Minneapolis time) on the day on which such Bank received such notice. The Agent
shall apply the  proceeds of such Loan  directly  to  reimburse  itself for such
Unpaid  Drawing.  If any portion of any such amount paid to the Agent  should be
recovered  by or on behalf of the  Borrower  from the  Agent in  bankruptcy,  by
assignment for the benefit of creditors or otherwise,  the loss of the amount so
recovered  shall be  ratably  shared  between  and among the Banks in the manner
contemplated  by  Section  8.11  hereof.  If at the time the Banks  makes  Loans
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 Agent for the account of the Banks 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%). If for any reason any Bank is unable
to make a Loan to the  Borrower to  reimburse  the Agent for an Unpaid  Drawing,
then such Bank shall immediately purchase from the Agent a risk participation in
such  Unpaid  Drawing,  at par,  in an amount  equal to such  Bank's  Commitment
Percentage of the Unpaid Drawing (before  deducting the amount of any Commitment
Loans made by other Banks to reimburse  the Agent for such Unpaid  Drawing).  In
consideration  of  and  in  furtherance  of  the  foregoing,  each  Bank  hereby
unconditionally  and absolutely  agrees to pay to the Agent, for the Agent's own
account,  such  Bank's  Commitment  Percentage  of each Unpaid  Drawing  (before
deducting the amount of any Loans made by other Banks to reimburse the Agent for
such Unpaid  Drawing).  The Agent shall promptly notify each Bank that is unable
to make a Loan to  reimburse  the  Agent for an Unpaid  Drawing  of that  Bank's
Commitment  Percentage of such Unpaid Drawing. Each Bank shall pay to the Agent,
not later than 2:00 p.m. (Minneapolis time) on the date it receives such notice,
such Bank's Commitment Percentage of such Unpaid Drawing.

                  Section  2.15  OPTIONAL  REDUCTION  OF  AGGREGATE   COMMITMENT
AMOUNTS OR TERMINATION OF COMMITMENT.  The Borrowers may, at any time,  upon not
less than thirty days prior  written  notice to the Agent,  reduce the Aggregate
Commitment Amounts ratably,  with any such reduction in a minimum amount for all
the Banks of  $5,000,000,  or, if more, in an integral  multiple of  $1,000,000;
PROVIDED,  HOWEVER,  that the Borrowers may not at any time reduce the Aggregate
Commitment Amounts 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 Agent, terminate the Commitments in their entirety.

                  Section 2.16  FEES.

                           2.16(a) AGENT FEES.  The  Borrowers  shall pay to the
         Agent fees (the "Agent  Fees") in  accordance  with a letter  agreement
         between the Borrowers and the Agent.

                                       21
<PAGE>
                           2.16(b)  COMMITMENT  FEE. The Borrowers  shall pay to
         the Agent, for the account of each Bank, fees (the  "Commitment  Fees")
         in an amount determined by applying a rate of thirteen and one-half one
         hundredths of one percent (.135%) per annum to the average daily Unused
         Revolving  Commitment of such Bank 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. The Borrower shall pay
         to the Agent for the account of the Banks, quarterly in arrears on each
         Quarterly  Payment Date and on the  Maturity  Date, a fee (a "Letter of
         Credit Fee") in an amount  determined by applying the Applicable Margin
         for  Eurodollar  Rate  Advances to the average daily  outstanding  face
         amount of each  Letter  of Credit  during  the  period of three  months
         ending  on such  Quarterly  Payment  Date or the  period  ending on the
         Maturity  Date.  In addition to the Letter of Credit Fee,  the Borrower
         shall pay to the Agent, for its own account,  for each Letter of Credit
         (a)  on  demand,  all  issuance,  amendment,  drawing  and  other  fees
         regularly charged by the Agent to its letter of credit  customers,  (b)
         on each Quarterly Payment Date and on the Maturity Date, a fronting fee
         determined  by  applying a per annum rate of  one-tenth  of one percent
         (0.10%) to the average daily  outstanding face amount of such Letter of
         Credit  during  the  period of three  months  ending on such  Quarterly
         Payment  Date or the period  ending on the  Maturity  Date,  and (c) on
         demand, all out-of-pocket  expenses incurred by the Agent 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 Agent or the Banks 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 Agent at
its main office in Minneapolis,  Minnesota. Funds received after such time shall
be  deemed  to have been  received  on the next  Business  Day.  The Agent  will
promptly  distribute  in like funds to each Bank its ratable  share of each such
payment of principal, interest, Commitment Fees and Letter of Credit Fees by the
Agent for the account of the Banks. Whenever any payment to be made hereunder or
on the Notes  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.

                                       22
<PAGE>
                  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 the  date  for  determining  the  Adjusted  Eurodollar  Rate  for  any
Eurodollar Rate Advance,  any Bank determines in good faith (which determination
shall be conclusive and binding, absent error) that:

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

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

such Bank  shall  promptly  give  notice to the  Borrower  and the Agent of such
determination,  whereupon the obligation of such Bank to make or continue, or to
convert any Advances to,  Eurodollar Rate Advances shall be suspended until such
Bank notifies the Borrower and the Agent that the  circumstances  giving rise to
such  suspension  no longer  exist.  While any such  suspension  continues,  all
further Advances by such Bank shall be made as Reference Rate Advances.  No such
suspension shall affect the interest rate then in effect for any Eurodollar Rate
Advance outstanding at the time such suspension is imposed.

                  Section 2.21  INCREASED COST.  If any Regulatory Change:

                           (a) shall subject any Bank (or its Applicable Lending
         Office) to any tax, duty or other charge with respect to its Eurodollar
         Rate  Advances,  its Notes or its  obligation to make  Eurodollar  Rate
         Advances  or shall  change the basis of taxation of payment to any Bank
         (or its Applicable  Lending  Office) of the principal of or interest on
         its  Eurodollar  Rate  Advances  or any other  amounts  due under  this
         Agreement in respect of its 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 such Bank or its Applicable Lending Office
         imposed by the  jurisdiction in which such Bank's  principal  office or
         Applicable Lending Office is located); or

                           (b)  shall  impose,  modify  or deem  applicable  any
         reserve,  special deposit 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, any bank's  Applicable  Lending  Office or shall impose on
         any Bank (or its Applicable Lending Office) or the interbank Eurodollar
         market any other condition affecting its Eurodollar Rate Advances,  its
         Notes or its obligation to make Eurodollar Rate Advances;

                                       23
<PAGE>
and the result of any of the  foregoing is to increase the cost to such Bank (or
its  Applicable  Lending  Office) of making or maintaining  any Eurodollar  Rate
Advance,  or to reduce the amount of any sum received or receivable by such Bank
(or its  Applicable  Lending  Office)  under this  Agreement or under its Notes,
then,  within 30 days after demand by such Bank (with a copy to the Agent),  the
Borrower  shall pay to such  Bank such  additional  amount  or  amounts  as will
compensate  such  Bank for such  increased  cost or  reduction.  Each  Bank will
promptly  notify  the  Borrower  and the  Agent  of any  event  of  which it has
knowledge,  occurring  after the date  hereof,  which will  entitle such Bank to
compensation  pursuant to this Section and will designate a different Applicable
Lending Office if such designation will avoid the need for, or reduce the amount
of, such  compensation  and will not, in the judgment of such Bank, be otherwise
disadvantageous  to such Bank. A certificate  of any 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,   each  Bank  shall  use  reasonable   averaging  and
attribution methods.  Failure on the part of any Bank to demand compensation for
any increased costs or reduction in amounts  received or receivable with respect
to any  Eurodollar  Rate  Advance  shall not  constitute a waiver of such bank's
rights to demand  compensation  for any increased  costs or reduction in amounts
received or receivable in any  subsequent  period.  No Bank shall be entitled to
compensation  otherwise payable under this Section 2.21 for any period more than
six months  prior to the date on which the Bank first  notifies  the Borrower of
the change resulting in the increased cost.

                  Section 2.22 ILLEGALITY.  If any Regulatory  Change shall make
it unlawful or impossible for any Bank to make,  maintain or fund any Eurodollar
Rate Advances,  such Bank shall notify the Borrower and the Agent, whereupon the
obligation  of such Bank to make or  continue,  or to convert any  Advances  to,
Eurodollar  Rate  Advances  shall be  suspended  until  such Bank  notifies  the
Borrower and the Agent that the circumstances  giving rise to such suspension no
longer  exist.  Before  giving  any such  notice,  such Bank shall  designate  a
different  Applicable Lending Office if such designation will avoid the need for
giving  such notice and will not, in the  judgment  of such Bank,  be  otherwise
disadvantageous  to such Bank. If such Bank  determines that it may not lawfully
continue to maintain any Eurodollar Rate Advances,  all of the affected Advances
shall be  automatically  converted to Reference  Rate Advances as of the date of
such bank's notice,  and upon such  conversion the Borrower shall indemnify such
Bank in accordance with Section 9.12.

                  Section  2.23  CAPITAL   ADEQUACY.   In  the  event  that  any
Regulatory  Change  reduces  or shall have the  effect of  reducing  the rate of
return on any bank's  capital or the  capital of its parent  corporation  (by an
amount such Bank deems material) as a consequence of its Commitments  and/or its
Loans to a level below that which such Bank or its parent corporation could have
achieved  but for such  Regulatory  Change  (taking  into  account  such  bank's
policies and the policies of its parent corporation with respect to implementing
capital adequacy  requirements),  then the Borrower shall,  within 30 days after

                                       24
<PAGE>

written notice and demand from such Bank (with a copy to the Agent), pay to such
Bank  additional  amounts  sufficient  to  compensate  such  Bank or its  parent
corporation  for such  reduction.  Any  determination  by such Bank  under  this
Section  and any  certificate  as to the amount of such  reduction  given to the
Borrower by such Bank shall be final,  conclusive  and binding for all purposes,
absent error. No Bank shall be entitled to compensation  otherwise payable under
this Section 2.23 for any period more than six months prior to the date on which
the Bank first notifies the Borrower of the change resulting in the reduced rate
of return.

                  Section 2.24   WITHHOLDING TAXES.

                  (a)  BANKS  TO  SUBMIT  FORMS.  Each  Bank  represents  to the
Borrowers  and the Agent that, as of the date it becomes a Bank and at all times
thereafter,  it is  either  (i) a  corporation  organized  under the laws of the
United States or any State thereof or (ii) entitled to complete  exemption  from
United  States  withholding  tax  imposed on or with  respect  to any  payments,
including  fees, to be made  pursuant to this  Agreement (x) under an applicable
provision  of a tax  convention  to which  the  United  States is a party or (y)
because it is acting through a branch, agency or office in the United States and
any payment to be received by it hereunder is effectively connected with a trade
or business in the United  States.  Each Bank that is not a United States person
(as such term is defined in Section 7701(a)(30) of the Code) shall submit to the
Borrowers  and the Agent,  on or before the later of the Closing Date or the day
on which such Bank becomes a Bank,  duly  completed  and signed copies of either
Form 1001  (relating to such Bank and entitling it to a complete  exemption from
withholding on all payments to be received by such Bank  hereunder) or Form 4224
(relating to all payments to be received by such Bank  hereunder)  of the United
States  Internal  Revenue  Service.  Thereafter and from time to time, each such
Bank shall submit to the Borrowers and the Agent such  additional duly completed
and signed copies of one or the other of such Forms (or such successor  Forms as
shall  be  adopted  from  time to  time by the  relevant  United  States  taxing
authorities)  as may be (i)  reasonably  requested by the Borrowers or the Agent
and  (ii)  required  and  permitted  under  then-current  United  States  law or
regulations to avoid United States  withholding  taxes on payments in respect of
all  payments  to be received  by such Bank  hereunder.  Upon the request of the
Borrowers or the Agent,  each Bank that is a United  States person (as such term
is defined in Section 7701(a)(30) of the Code) shall submit to the Borrowers and
the  Agent a  certificate  in such  form as is  reasonably  satisfactory  to the
Borrowers and the Agent to the effect that it is such a United States person.

                  (b)  INABILITY  OF A BANK.  If any  Bank  that is not a United
States  person  (as such term is defined  in  Section  7701(a)(30)  of the Code)
determines  that,  as a result  of any  Regulatory  Change,  the  Borrowers  are
required  by law or  regulation  to make any  deduction,  withholding  or backup
withholding of any taxes, levies, imposts,  duties, fees, liabilities or similar
charges of the United  States of America,  any  possession  or  territory of the
United States of America (including the Commonwealth of Puerto Rico) or any area
subject to the jurisdiction of the United States of America ("U.S.  TAXES") from
any  payments  to a Bank  pursuant  to  any  Loan  Document  in  respect  of the

                                       25
<PAGE>
Obligations  payable  to such Bank then or  thereafter  outstanding,  the amount
payable  will be  increased  to the  amount  which,  after  deduction  from such
increased  amount  of  all  U.S.  Taxes  required  to be  withheld  or  deducted
therefrom,  will yield the amount  required  under any Loan  Document to be paid
with respect thereto;  PROVIDED, that the Borrowers shall not be required to pay
any additional  amount  pursuant to this Section 2.24(b) to any Bank (i) that is
not,  either on the date this  Agreement is executed by such Bank or on the date
such Bank becomes such under Section 9.6(c),  either (x) entitled to submit Form
1001  (relating  to such Bank and  entitling  it to a  complete  exemption  from
withholding on all payments to be received by such Bank  hereunder) or Form 4224
(relating to all payments to be received by such Bank hereunder) or (y) a United
States person (as such term is defined in Section  7701(a)(30) of the Code),  or
(ii) that has failed to submit any form or  certificate  that it was required to
file pursuant to  subsection  (a) and entitled to file under  applicable  law or
(iii)  arising  from  such  bank's  failure  to comply  with any  certification,
identification or other similar  requirement under United States income tax laws
or  regulations  (including  backup  withholding)  to establish  entitlement  to
exemption  from such U.S.  Taxes;  and PROVIDED,  FURTHER,  that if a Bank, as a
result of any amount paid by the Borrowers to such Bank pursuant to this Section
2.24, shall realize a tax credit or refund, which tax credit or refund would not
have been realized but for the borrowers payment of such amount, such Bank shall
pay to the Borrowers an amount equal to such tax credit or refund. Each Bank may
determine the portion,  if any, of any tax credit or refund  attributable to the
Borrowers'  payments using such attribution and accounting  methods as such Bank
reasonably  selects,  and such  bank's  determination  of the portion of any tax
credit or refund  attributable to the borrower's payments shall be conclusive in
the  absence of manifest  error.  The  obligation  of the  Borrowers  under this
Section  2.24(b)  shall survive the payment in full of the  Obligations  and the
termination of the Commitments of such Bank.

                  (c)  SUBSTITUTION  OF BANK.  In the event  either  Borrower is
required pursuant to this Section 2.24 to pay any additional amount to any Bank,
such Bank shall, if no Event of Default has occurred and is continuing, upon the
request of such Borrower to such Bank and the Agent, assign,  pursuant to and in
accordance with the provisions of Section 9.6, all of its rights and obligations
under this Agreement and under the Notes to another Bank or an Assignee selected
by the Borrower and reasonably  satisfactory to the Agent, in consideration  for
(i) the payment by such assignee to the assigning  Bank of the principal of, and
interest accrued and unpaid to the date of such assignment on, the Note or Notes
of such Bank, (ii) the payment by such Borrower to the assigning Bank of any and
all other  amounts  owing to such Bank  under any  provision  of this  Agreement
accrued  and unpaid to the date of such  assignment  and (iii)  such  borrower's
release of the assigning  Bank from any further  obligation  or liability  under
this  Agreement.  Notwithstanding  anything  to the  contrary  in  this  Section
2.24(c),  in no event shall the  replacement of any Bank result in a decrease in
the aggregate Commitments without the written consent of the Majority Banks.

                  Section 2.25 EXTENSION OF  TRANSFORMATION  DATE. The Borrowers
may,  in an  amendment  in  writing  signed by the  Majority  Banks,  extend the
Transformation  Date;  provided,  however,  that if one or more  Banks  does not
approve the extension of the Transformation  Date, the Borrowers may at any time

                                       26
<PAGE>
thereafter prior to the  Transformation  Date previously in effect,  in its sole
discretion,  require the assignment of such bank's rights and delegation of such
bank's  obligations  under the Loan  Documents,  pursuant  to Section 9.6 to any
other Bank or another  assignee  selected by the Borrowers and acceptable to the
Agent that is willing to agree to such extension,  in consideration  for (i) the
payment by such assignee to the assigning Bank of the principal of, and interest
accrued  and  unpaid to the date of such  assignment  on, the Note of such Bank,
(ii) the  payment by the  Borrowers  to the  assigning  Bank of any and all fees
owing to such Bank under any provision of this  Agreement  accrued and unpaid to
the date of such  assignment and (iii) the  Borrowers'  release of the assigning
Bank  from any  further  obligation  or  liability  under  its  Commitment.  The
Transformation  Date  shall be  extended  with  respect  to all Banks  that have
approved the extension and all such assignees.  The Transformation Date shall be
deemed to have  occurred  with  respect  to any Bank that has not  approved  the
extension  and whose Loans and  Commitment  have not been  assigned as described
above, and the outstanding principal balance of the Loans made by each such Bank
that has not approved the extension or assigned its Loans and  Commitment  shall
be payable  as  provided  in  Section  2.6 for Term  Loans.  On such  date,  the
Aggregate  Commitment Amounts listed on Schedule 1.1 shall be reduced to reflect
the termination of such Banks' Commitments.

                                   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 Agent shall have received the
         following in  sufficient  counterparts  (except for the Notes) for each
         Bank:

                           (i) A Note,  drawn  to the  order of each  Bank,  and
         executed by the Borrowers and dated the date of this Agreement.

                           (ii)  Security  Agreements  executed by PAG, PAII and
         PASI, respectively.

                           (iii)  Pledge  Agreements,  in the form of Exhibits F
         and G, executed by the Borrowers.

                           (iv) A Guaranty executed by PAII.

                           (v) A Trademark Assignment, in the form of Exhibit H,
         executed by PAG.

                                       27
<PAGE>
                           (vi)  Copies  of the  corporate  resolutions  of PAG,
         PAII, PASI and PACC authorizing the execution, delivery and performance
         of the Loan Documents 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.

                           (vii) 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 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.

                           (viii) A  certificate  of the  Secretary or Assistant
         Secretary  of  each  of PAG,  PACC,  PAII  and  PASI  certifying  their
         respective Certificates of Incorporation and Bylaws.

                           (ix) Long-form certificates of good standing for PAG,
         PAII,  PASI  and  PACC  in  the  respective   jurisdictions   of  their
         incorporation and 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  thirty  (30) days
         prior to the Closing Date.

                           (x) 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.

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

                           (xii) A copy  of a  letter  (in  form  and  substance
         acceptable  to the  Agent)  from  the  Borrower  to KPMG  Peat  Marwick
         concerning the agent's and the banks  reliance on financial  statements
         audited by such  accountants  and appraising  KPMG Peat Marwick of such
         reliance.

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

                                       28
<PAGE>
                          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 Agent shall have  received for itself,  and,
         as applicable,  for the account of the Banks, (A) the Agent 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 Agent payable pursuant to Section 8.2.

                           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 Agent; any
         pledged collateral (together with stock powers and other instruments of
         assignment, as applicable) shall have been duly delivered to the Agent;
         and the priority and  perfection  of the Liens  created by the Security
         Documents shall have been  established to the satisfaction of the Agent
         and its counsel.

                  Section 3.2  CONDITIONS  PRECEDENT TO ALL LOANS AND LETTERS OF
CREDIT.  The  obligation of the Banks to make any Loans or of the Agent to 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 Agent 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.

                                       29
<PAGE>
                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

                  To induce the Banks to enter into this  Agreement  and to make
Loans  hereunder,  and to induce the Agent to issue and the Banks to participate
in Letters of Credit, the Borrowers represent and warrant to the Banks:

                  Section 4.1  ORGANIZATION,  STANDING,  ETC. Each Borrower 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  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  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 it or the business conducted by it make such qualification
necessary and the failure so to qualify would permanently preclude such Borrower
or  Subsidiary  from  enforcing  its rights with respect to any assets or expose
such  Borrower or  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 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 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

                                       30
<PAGE>
which each of them is a party 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 or any such  Subsidiary,  or (c) result in a breach of or constitute a
default under any  agreement,  lease or instrument to which the Borrowers or any
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,
1997,  and the  unaudited  financial  statements  of each of the Borrowers as at
March 31, 1998,  as  heretofore  furnished to the Banks,  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 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, 1997, 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

                                       31
<PAGE>
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 either  Borrower 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  Banks) 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 and no 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 6.12.  Neither
of the Borrowers and no Subsidiary  has  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 books of the  Borrowers in respect of taxes and other  governmental  charges

                                       32
<PAGE>
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  possess or have 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 their business, without known conflict with the rights of others.

                  Section 4.12 BURDENSOME RESTRICTIONS. Neither of the Borrowers
and no Subsidiary  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 no Subsidiary 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 no Subsidiary 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 no  Subsidiary  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.
                                       33
<PAGE>
                  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,  a list of all related
Fund Agreements,  and a list of all issuers of  Collateralized  Loan Obligations
for which PAII manages, services and advises the issuer with respect to the pool
of commercial loans,  high-yield bonds and emerging market obligations  securing
or otherwise backing such Collateralized  Loan Obligations.  All Fund Agreements
are in full force and effect.

                  Section  4.19  MILLENNIUM   COMPLIANCE.   The  Borrowers  have
reviewed and  assessed  their  business  operations  and  computer  systems with
respect to the "year 2000  problem"  (that is, that  computer  applications  and
equipment used by the Borrowers,  directly or indirectly  through third parties,
may not be able to properly perform date-sensitive  functions before, during and
after January 1, 2000) and, based on that review and  assessment,  the Borrowers
have no reason to believe  that the year 2000  problem will result in a material
adverse change on the business,  condition (financial or otherwise),  operations
or prospects of the Borrowers and their Subsidiaries taken as a whole, or on the
Borrowers' ability to repay the Banks.

                  Section  4.20  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 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
Banks  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 Banks  hereunder to make Loans or
of the Agent  hereunder  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  Majority  Banks  shall
otherwise consent in writing:

                  Section 5.1 FINANCIAL  STATEMENTS  AND REPORTS.  The Borrowers
will furnish to the Banks:

                           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

                                       34
<PAGE>
         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  Agent,
         together  with any  management  letters,  management  reports  or other
         supplementary  written  comments or reports to the  Borrowers  or their
         boards of directors furnished by such accountants.

                           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  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,  (ii) a report on the Net Asset Value of all  Advisory  Funds,
         and (iii) a report on all Collateralized Loan Obligations  outstanding,
         in form acceptable to the Agent, 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 Agent.

                                       35
<PAGE>
                           5.1(f)  Immediately upon any officer of either of the
         Borrowers  becoming aware of any Default or Event of Default,  a notice
         describing the nature thereof and what action such 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 (a) 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,  or (b) any action by the Borrowers,  any
         Subsidiary or any issuer, trustee or holders of any Collateralized Loan
         Obligations  to make any  modification  to, waive any  provision of, or
         fail to renew  any CLO  Investment  or  Permitted  Advisory  Subsidiary
         Agreement  relating to such  Collateralized  Loan  Obligations,  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  or the  issuer  of  any  Collateralized  Loan
         Obligations,  or on the  value  of any  CLO  Investment,  in an  amount
         exceeding  $250,000,  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,  the Funds and the  Collateralized  Loan
         Obligations as any 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.

                                       36
<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 Agent or any 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 Agent or
such Bank may designate.  So long as no Event of Default exists, the expenses of
the Agent or any Bank for such visits,  inspections and examinations shall be at
the  expense  of the Agent or 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

                                       37
<PAGE>

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.

                  Section  5.9 NOTICE OF  LITIGATION.  The  Borrowers  will give
prompt written notice to the Agent 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 of the  Borrowers and the  Subsidiaries  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 (a) cause  each Fund for which a  Subsidiary  acts as
investment advisor or principal  distributor to continue such Subsidiary in such
capacity and (b) except in the ordinary  course of business and consistent  with
past practices,  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 6.10(h),
on and at all times after the Business Day following such acquisition, to comply
with the following requirements:

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<PAGE>
                           (a) not  have  any (i)  business  other  than (A) the
         business of serving as investment  adviser for Advisory  Funds pursuant
         to Advisory  Contracts and receiving payments  thereunder,  and (B) the
         business of performing  collateral  management,  servicing and advisory
         duties for the issuers of Collateralized Loan Obligations and receiving
         payments therefor,  (ii) assets other than Advisory  Contracts,  assets
         necessary  to  the  performance  by  such  Advisory  Subsidiary  of its
         obligations under such Advisory  Contracts,  CLO Investments and assets
         necessary  to  the  performance  by  such  Advisory  Subsidiary  of its
         obligations  as  manager,  servicer  and  advisor  to  the  issuers  of
         Collateralized  Loan  Obligations,  or  (iii)  liabilities  other  than
         liabilities under 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
         (x)  Advisory   Contracts,   (y)  agreements  relating  to  management,
         servicing  and  advisory  duties  to  issuers  of  Collateralized  Loan
         Obligations,  and (z) other agreements  necessary to the performance by
         such Advisory Subsidiary of its obligations under agreements  described
         in clauses (x) and (y) above  (collectively,  the  "Permitted  Advisory
         Subsidiary Agreements"); provided that such 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 Borrowers;

                           (c)  distribute (by dividend or otherwise) all of its
         revenue,  less actual  expenses  incurred in performing its obligations
         under  Permitted  Advisory  Subsidiary  Agreements,  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 Agent;

                           (d)  be  incorporated  under the  Delaware  General 
         Corporation Act;

                           (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);
                                       39
<PAGE>
                           (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;

                           (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 Agent or the Majority Banks,
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 Agent or the  Majority
Banks may 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 Agent or the Banks the rights granted now
or  hereafter  intended  to be granted to the Agent or the Banks  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 Agent or the Banks in order to carry out the
intention or facilitate the  performance of the provisions of any Loan Document.
The Borrowers  will furnish to the Agent evidence  satisfactory  to the Agent of
every such recording, filing or registration.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

                  Until any  obligation of the Banks  hereunder to make Loans or
of the Agent  hereunder  to issue  Letters of Credit  shall have expired or been
terminated,  no Letter of Credit remains outstanding and the Note and all of the

                                       40
<PAGE>

other  Obligations  have been paid in full,  unless  the  Majority  Banks  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 and  Collateralized  Loan
         Obligations (i)  underwritten by any Subsidiary of the Borrower or (ii)
         in  which  the  Borrowers  or any  Subsidiary  of a  Borrower  makes an
         Investment  permitted under Section 6.10(i) or Section 6.10(j),  in the
         ordinary course of business;

                           6.2(b) sales of rights to receive  12b-1 Fees and the
         related Contingent  Deferred Sales Charges,  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;

                           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;

                           6.2(e)  the sale of CLO Investments; and

                           6.2(f)  the  sale of  Advisory  Contracts  or  rights
         related thereto.

                  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

                                       41
<PAGE>
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
Agent) 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 Agent 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
6.10(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 Banks 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 Banks 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
Agent.  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.  Neither  PACC nor PAG will
make any  Restricted  Payments  unless,  both  before  and after  giving  effect
thereto, no 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.

                                       42
<PAGE>

                  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.

                  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 Agent 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 Agent.

                           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 Agent.

                           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  Agent a

                                       43
<PAGE>
         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.

                           6.10(j)  Investments by Advisory  Subsidiaries in CLO
         Investments    (including,    without   limitation,    Investments   in
         Collateralized Loan Obligations).

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.

                           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 6.12(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 Banks.

                           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.
                                       44
<PAGE>
                           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.

                           6.12(i)  Liens in favor of any landlord  covering any
         leasehold improvements at the leased premises.

                  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 CASH FLOW LEVERAGE RATIO.  The Borrowers will not
permit the Cash Flow Leverage  Ratio as of the last day of any fiscal quarter of
the Borrowers to be more than 3.0 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)  $2,500,000,000 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).
                                       45
<PAGE>
                  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), 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 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 Agent of any 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  Agent  or any 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.

                           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 Banks,  (ii) the date the Borrowers  should have

                                       46
<PAGE>
         given notice of such  failure to the Banks  pursuant to Section 5.1, or
         (iii) the date the Agent or any 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  $500,000  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
         collateral  given as security  therefor.  For purposes of this Section,
         Indebtedness  of  either  Borrower  or any  Subsidiary  shall be deemed
         "material" if it exceeds  $500,000 as to any item of Indebtedness or in

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<PAGE>
         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 Agent 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 Agent or the Banks 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 Agent.

                           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 judgment of the Majority Banks,  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.

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<PAGE>
                  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  Notes  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 Agent,  at the
direction of the Majority  Banks,  may (i) declare the  Commitments  terminated,
whereupon  the  Commitments  shall  terminate  and (ii) declare the  outstanding
unpaid  principal  balance of the Notes, the accrued and unpaid interest thereon
and all other Obligations to be forthwith due and payable,  whereupon the Notes,
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 Notes to the contrary notwithstanding. Upon
the  occurrence  of any of the events  described  in  clauses  (a) or (b) of the
preceding  sentence the Agent 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 each 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,  such Bank.
Such  right  shall  exist  whether  or not such 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. Each Bank agrees that, as promptly as is
reasonably possible after the exercise of any such setoff right, it shall notify
the  Borrowers  and the Agent of its  exercise of such setoff  right;  provided,
however,  that the failure of any 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 any Bank to all
rights of banker's Lien, setoff and counterclaim available pursuant to law.

                                  ARTICLE VIII

                                    THE AGENT

                  The following  provisions shall govern the relationship of the
Agent with the Banks.

                  Section 8.1 APPOINTMENT AND AUTHORIZATION.  Each Bank appoints
and  authorizes  the Agent to take such  action  as agent on its  behalf  and to
exercise such respective powers under the Loan Documents as are delegated to the
Agent  by the  terms  thereof,  together  with  such  powers  as are  reasonably
incidental  thereto.  Neither  the Agent nor any of its  directors,  officers or
employees  shall be liable  for any  action  taken or  omitted to be taken by it

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<PAGE>
under or in  connection  with  the  Loan  Documents,  except  for its own  gross
negligence  or  willful  misconduct.  The  Agent  shall  act  as an  independent
contractor in performing its  obligations as Agent  hereunder and nothing herein
contained shall be deemed to create any fiduciary  relationship among or between
the Agent, the Borrowers or the Banks.

                  Section 8.2 NOTE HOLDERS. The Agent may treat the payee of any
Note as the holder  thereof  until  written  notice of transfer  shall have been
filed with it, signed by such payee and in form satisfactory to the Agent.

                  Section 8.3 CONSULTATION  WITH COUNSEL.  The Agent may consult
with legal  counsel  selected by it and shall not be liable for any action taken
or suffered in good faith by it in accordance with the advice of such counsel.

                  Section  8.4 LOAN  DOCUMENTS.  The Agent  shall not be under a
duty to examine or pass upon the validity,  effectiveness,  genuineness or value
of any of the Loan  Documents  or any other  instrument  or  document  furnished
pursuant  thereto,  and the Agent  shall be entitled to assume that the same are
valid, effective and genuine and what they purport to be.

                  Section  8.5 U.S.  BANK AND  AFFILIATES.  With  respect to its
Commitment  and the Loans made by it,  U.S.  Bank shall have the same rights and
powers  under the Loan  Documents as any other Bank and may exercise the same as
though it were not the Agent  consistent  with the terms thereof,  and U.S. Bank
and its Affiliates may accept deposits from, lend money to and generally  engage
in any kind of business with the Borrower as if it were not the Agent.

                  Section  8.6  ACTION BY  AGENT.  Except  as may  otherwise  be
expressly  stated in this  Agreement,  the Agent  shall be  entitled  to use its
discretion  with respect to exercising or refraining  from exercising any rights
which  may be  vested in it by, or with  respect  to taking or  refraining  from
taking any  action or  actions  which it may be able to take under or in respect
of, the Loan  Documents.  The Agent shall be required to act or to refrain  from
acting (and shall be fully  protected  in so acting or  refraining  from acting)
upon the  instructions of the Majority  Banks,  and such  instructions  shall be
binding upon all holders of Notes;  provided,  however, that the Agent shall not
be required to take any action which exposes the Agent to personal  liability or
which is contrary to the Loan Documents or applicable law. The Agent shall incur
no liability under or in respect of any of the Loan Documents by acting upon any
notice, consent, certificate,  warranty or other paper or instrument believed by
it to be genuine or authentic or to be signed by the proper party or parties and
to be consistent with the terms of this Agreement.

                  Section  8.7 CREDIT  ANALYSIS.  Each Bank has made,  and shall
continue  to  make,  its own  independent  investigation  or  evaluation  of the
operations,  business,  property and condition,  financial and otherwise, of the
Borrowers in connection  with entering into this  Agreement and has made its own
appraisal  of  the  creditworthiness  of the  Borrowers.  Except  as  explicitly

                                       50
<PAGE>
provided herein, the Agent has no duty or responsibility, either initially or on
a  continuing  basis,  to provide any Bank with any credit or other  information
with   respect   to  such   operations,   business,   property,   condition   or
creditworthiness,  whether  such  information  comes into its  possession  on or
before the first Event of Default or at any time thereafter.

                  Section  8.8  NOTICES OF EVENT OF  DEFAULT,  ETC. In the event
that the Agent shall have acquired  actual  knowledge of any Event of Default or
Default, the Agent shall promptly give notice thereof to the Banks.

                  Section 8.9 INDEMNIFICATION. Each Bank agrees to indemnify the
Agent,  as  Agent  (to the  extent  not  reimbursed  by the  Borrower),  ratably
according  to such bank's  Commitment  Percentage,  from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or disbursements of any kind or nature  whatsoever which may be
imposed on or incurred by the Agent in any way relating to or arising out of the
Loan  Documents  or any  action  taken or  omitted  by the Agent  under the Loan
Documents,  provided  that no Bank  shall  be  liable  for any  portion  of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements  resulting from the agent's gross negligence or
willful misconduct.  No payment by any Bank under this Section shall relieve the
Borrower of any of its obligations under this Agreement.

                  Section 8.10 PAYMENTS AND  COLLECTIONS.  All funds received by
the  Agent in  respect  of any  payments  made by the  Borrowers  on the  Notes,
Commitment  Fees or Letter of Credit Fees shall be distributed  forthwith by the
Agent ratably among the Banks, in like currency and funds as received. All funds
received by the Agent in respect of any  payments  made by the  Borrowers on any
Term Notes shall be distributed  forthwith by the Agent ratably among the Banks,
in like currency and funds as received. After any Event of Default has occurred,
all funds  received by the Agent,  whether as payments  by the  Borrowers  or as
realization on collateral, shall (except as may otherwise be required by law) be
distributed by the Agent in the following  order:  (a) first to the Agent or any
Bank who has  incurred  unreimbursed  costs of  collection  with  respect to any
Obligations hereunder, ratably to the Agent and each Bank in the proportion that
the costs incurred by the Agent or such Bank bear to the total of all such costs
incurred  by the Agent and all Banks;  (b) next to the Agent for the  account of
the  Banks  (in  accordance  with  their  respective   Total   Percentages)  for
application on the Notes and the Unpaid Drawings;  (c) next to the Agent for the
account  of  the  Banks  (in  accordance   with  their   respective   Commitment
Percentages)  for any unpaid  Commitment  Fees or Letter of Credit Fees owing by
the  Borrower  hereunder;  and (d) last to the  Agent to be held in the  Holding
Account to cover the Borrower's reimbursement and other obligations with respect
to any outstanding Letters of Credit.

                  Section 8.11 SHARING OF  PAYMENTS.  If any Bank shall  receive
and retain any payment, voluntary or involuntary, whether by setoff, application
of deposit balance or security,  or otherwise,  in respect of Indebtedness under
this Agreement or the Notes in excess of such bank's share thereof as determined

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<PAGE>
under this  Agreement,  then such Bank shall  purchase  from the other Banks for
cash and at face value and without  recourse,  such  participation  in the Notes
held by such other Banks as shall be necessary  to cause such excess  payment to
be shared  ratably as aforesaid  with such other Banks;  provided,  that if such
excess  payment or part thereof is  thereafter  recovered  from such  purchasing
Bank, the related  purchases from the other Banks shall be rescinded ratably and
the  purchase  price  restored  as to the  portion  of such  excess  payment  so
recovered,   but  without  interest.   Subject  to  the  participation  purchase
obligation above, and to the next sentence, each Bank agrees to exercise any and
all rights of setoff,  counterclaim  or banker's  lien first  fully  against any
Notes  and  participations  therein  held  by  such  Bank,  next  to  any  other
Indebtedness  of the  Borrower  to such Bank  arising  under or pursuant to this
Agreement and to any  participations  held by such Bank in  Indebtedness  of the
Borrower arising under or pursuant to this Agreement, and only then to any other
Indebtedness of the Borrower to such Bank.

                  Section 8.12 ADVICE TO BANKS.  The Agent shall  forward to the
Banks copies of all notices, financial reports and other communications received
hereunder from the Borrower by it as Agent, excluding, however, notices, reports
and  communications  which  by  the  terms  hereof  are to be  furnished  by the
Borrowers directly to each Bank.

                  Section 8.13 RESIGNATION.  If at any time U.S. Bank shall deem
it advisable, in its sole discretion, it may submit to each of the Banks and the
Borrowers  a  written  notification  of its  resignation  as  Agent  under  this
Agreement,  such resignation to be effective upon the appointment of a successor
Agent,  but in no event  later than 30 days from the date of such  notice.  Upon
submission  of such  notice of  resignation,  the  Majority  Banks may appoint a
successor  Agent,  with the  prior  written  approval  of the  Borrowers  (which
approval will not be unreasonably withheld).

                                   ARTICLE IX

                                  MISCELLANEOUS

                  Section 9.1 MODIFICATIONS.  Notwithstanding  any provisions to
the contrary herein,  any term of this Agreement may be amended with the written
consent of the Borrower;  provided that no amendment,  modification or waiver of
any  provision of this  Agreement  or any other Loan  Document or consent to any
departure therefrom by the Borrower or other party thereto shall in any event be
effective  unless the same shall be in writing and signed by the Majority Banks,
and then such amendment, modification, waiver or consent shall be effective only
in the specific  instance  and for the purpose for which  given.  (The Agent may
enter into  amendments or  modifications  of, and grant  consents and waivers to
departure  from the  provisions  of, those Loan Documents to which the Banks are
not signatories without the Banks joining therein,  PROVIDED the Agent has first
obtained the separate  prior written  consent to such  amendment,  modification,
consent or waiver from the Majority Banks.)  Notwithstanding  the foregoing,  no
such amendment, modification, waiver or consent shall:

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<PAGE>
                           9.1(a)  Reduce the rate or extend the time of payment
         of any  principal  of or  interest  on the Notes,  or modify any of the
         provisions  of any  Note  with  respect  to the  payment  or  repayment
         thereof, without the consent of the holder of each Note so affected; or

                           9.1(b)  Increase the amount or extend the time of the
         Commitment of any Bank, without the consent of such Bank; or

                           9.1(c)  Reduce the rate or extend the time of payment
         of any fee payable to a Bank, without the consent of the Bank affected;
         or

                           9.1(d) Except as may otherwise be expressly  provided
         in any of the other Loan  Documents,  release any  material  portion of
         collateral  securing,  or any  guaranties  for,  all or any part of the
         Obligations without the consent of all the Banks; or

                           9.1(e)  Amend the  definition  of  Majority  Banks or
         otherwise  reduce the  percentage  of the Banks  required to approve or
         effectuate  any  such  amendment,  modification,  waiver,  or  consent,
         without the consent of all the Banks; or

                           9.1(f)  Amend any of the  foregoing  Sections 9.1 (a)
         through  (e) or this  Section  9.1 (f)  without  the consent of all the
         Banks; or

                           9.1(g) Amend any provision of this Agreement relating
         to the Agent in its capacity as Agent without the consent of the Agent;
         or

                           9.1(h) Amend any provision of this Agreement relating
         to the issuance of Letters of Credit without the consent of the Agent.

                  Section 9.2 EXPENSES;  AMENDMENT OR WAIVER FEE. Whether or not
the transactions  contemplated  hereby are  consummated,  the Borrowers agree to
reimburse the Agent 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 Agent) 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 Agent and each Bank upon demand for all  reasonable  out-of-pocket
expenses  (including expenses of legal counsel) paid or incurred by the Agent or
any 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 (or such greater  amount as may be specified by the Banks) to
each Bank on the effective date of any amendment to,  modification  of or waiver
of  any  provision  of  this  Agreement  if any  Bank  determines,  in its  sole

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<PAGE>

discretion,  that its  policies or  practices  required  such Bank to obtain the
approval of any credit committee or similar approval authority for the execution
of such amendment, modification or waiver.

                  Section 9.3 WAIVERS,  ETC. No failure on the part of the Agent
or any 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  9.4  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 Agent under Article II hereof shall be
deemed to have been given only when received by the Agent.

                  Section 9.5 TAXES.  The  Borrowers  agree to pay, and save the
Agent and any 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 9.6  SUCCESSORS  AND  ASSIGNS;  DISPOSITION  OF LOANS;
TRANSFEREES.

                           9.6(a) This Agreement shall be binding upon and inure
         to the  benefit  of the  Borrower,  the Banks,  the  Agent,  all future
         holders of the Notes,  and their  respective  successors  and  assigns,
         except that the  Borrower  may not assign or transfer any of its rights
         or obligations  under this Agreement  without the prior written consent
         of each Bank.

                           9.6(b) Any Bank may,  in the  ordinary  course of its
         commercial  banking  business and in accordance with applicable law, at
         any time sell to one or more banks or other  entities  ("PARTICIPANTS")
         participating  interests  in any  Revolving  Loan,  Term  Loan or other
         Obligation  owing to such Bank, any Revolving Note or Term Note held by
         such Bank, and any Revolving Commitment or Term Loan Commitment of such
         Bank, or any other interest of such Bank hereunder. In the event of any
         such sale by a Bank of  participating  interests to a Participant,  (i)
         such bank's  obligations  under this  Agreement to the other parties to
         this  Agreement  shall  remain  unchanged,  (ii) such Bank shall remain

                                       54
<PAGE>
         solely responsible for the performance  thereof,  (iii) such Bank shall
         remain  the  holder  of any such  Revolving  Note or Term  Note for all
         purposes  under this  Agreement,  (iv) the Borrower and the Agent shall
         continue to deal solely and directly with such Bank in connection  with
         such bank's  rights and  obligations  under this  Agreement and (v) the
         agreement pursuant to which such Participant acquires its participating
         interest  herein  shall  provide  that such Bank shall  retain the sole
         right and responsibility to enforce the Obligations, including, without
         limitation   the  right  to   consent   or  agree  to  any   amendment,
         modification,  consent or waiver with respect to this  Agreement or any
         other Loan Document, PROVIDED that such agreement may provide that such
         Bank will not  consent  or agree to any such  amendment,  modification,
         consent or waiver  with  respect to the  matters  set forth in Sections
         9.1(a) - (d),  or to any  release  of all or  substantially  all of the
         collateral, without the prior consent of such Participant. The Borrower
         agrees that if amounts outstanding under this Agreement,  the Revolving
         Notes,  the Term Notes and the Loan  Documents  are due and unpaid,  or
         shall have been  declared or shall have become due and payable upon the
         occurrence of an Event of Default,  each Participant shall be deemed to
         have, to the extent permitted by applicable law, the right of setoff in
         respect  of its  participating  interest  in amounts  owing  under this
         Agreement and any Revolving  Note,  Term Note or other Loan Document to
         the same  extent as if the amount of its  participating  interest  were
         owing  directly to it as a Bank under this  Agreement or any  Revolving
         Note,  Term Note or other Loan Document;  PROVIDED,  that such right of
         setoff shall be subject to the obligation of such  Participant to share
         with the Banks, and the Banks agree to share with such Participant,  as
         provided  in  subsection  8.11.  The  Borrower  also  agrees  that each
         Participant  shall be entitled to the  benefits  of  subsections  2.20,
         2.21, 2.22, 2.23, 2.24 and 9.2 with respect to its participation in the
         Commitments,   Revolving  Loans  and  Term  Loans;  PROVIDED,  that  no
         Participant shall be entitled to receive any greater amount pursuant to
         such  subsections  than the transferor Bank would have been entitled to
         receive in respect of the amount of the  participation  transferred  by
         such transferor Bank to such Participant had no such transfer occurred.

                           9.6(c)  Each  Bank may,  from time to time,  with the
         consent of the Agent and,  except during the  occurrence and during the
         continuance of an Event of Default, the Borrowers (which consents shall
         not be unreasonably  withheld),  assign to other lenders  ("ASSIGNEES")
         part of its Revolving  Commitment  Amount (but not less than $5,000,000
         to any Bank),  together with  equivalent  proportions  of the Revolving
         Loans, obligation to purchase risk participations in Letters of Credit,
         and Term Loans then held by that Bank.  Each such  assignment  shall be
         pursuant to an agreement in substantially  the form of Exhibit J, which
         agreement shall specify in each instance the portion of the Obligations
         evidenced by the Revolving Notes and Term Notes which is to be assigned
         to each Assignee and the portion of the Revolving  Commitment Amount of
         the assigning Bank to be assumed by each Assignee (each, an "Assignment
         Agreement");  PROVIDED,  HOWEVER,  that unless the assignment is to the
         affiliate  of a Bank  the  assigning  Bank  must  pay to  the  Agent  a
         processing and recordation fee of $3,500;  PROVIDED,  FURTHER, that the

                                       55
<PAGE>
         aggregate  amount  of  the  Commitment  which  is  the  subject  of the
         assignment shall be $5,000,000 or an integral multiple of $1,000,000 in
         excess thereof,  except (I) in the case of an assignment by one Bank to
         another  Bank,  in which case the  aggregate  amount of the  Commitment
         which  is the  subject  of the  assignment  shall be  $1,000,000  or an
         integral multiple of $1,000,000 in excess thereof, and (II) in the case
         of the  assignment by any Bank of its  Commitment and Loan in full, and
         PROVIDED,  that following any such assignment,  the  transferring  Bank
         shall (i) continue to hold a Revolving  Commitment  Amount in an amount
         not less than  $5,000,000,  unless it has  assigned its  Commitment  in
         full. Any Assignee,  to the extent of such assignment (unless otherwise
         provided therein),  shall have all the rights and obligations of a Bank
         hereunder and the assigning  Bank shall be released from its duties and
         obligations under this Agreement to the extent of such assignment. Upon
         the execution of each  Assignment  Agreement by the assigning Bank, the
         relevant Assignee, the Borrower and the Agent, payment to the assigning
         Bank by such  Assignee  of the  purchase  price for the  portion of the
         Obligations  being acquired by it, payment by the assigning bank to the
         Agent of the  processing  and recording fee and receipt by the Borrower
         of a copy of the  relevant  Assignment  Agreement,  (x)  such  Assignee
         lender  shall  thereupon  become  a  "Bank"  for all  purposes  of this
         Agreement  with  a  Commitment,   Commitment  Percentage  and  a  Total
         Percentage  in the amount set forth in such  Assignment  Agreement  and
         with all the rights,  powers and obligations afforded a Bank under this
         Agreement,  (y) such assigning Bank shall have no further liability for
         funding the portion of its Commitment  assumed by such Assignee and (z)
         the address for notices to such  Assignee  shall be as specified in the
         Assignment  Agreement  executed by it.  Concurrently with the execution
         and delivery of each  Assignment  Agreement,  the assigning  Bank shall
         surrender  to the Agent the Note a portion of which is being  assigned,
         and the  Borrower  shall  execute and deliver a Note to the Assignee in
         the amount of its Commitment or the outstanding principal amount of its
         Loans,  as  applicable,  and a new  Note to the  assigning  Bank in the
         amount of its  Commitment or the  outstanding  principal  amount of its
         Loans, as applicable,  after giving effect to the reduction  occasioned
         by such  assignment,  all such  Notes  to  constitute  "Notes"  for all
         purposes of this Agreement and of the other Loan Documents.

                           9.6(d) The Borrower shall not be liable for any costs
         incurred by the Banks in effecting any participation or assignment.

                           9.6(e)  Each Bank may  disclose  to any  Assignee  or
         Participant and to any prospective  Assignee or Participant any and all
         financial information in such bank's possession concerning the Borrower
         or any of its Subsidiaries  which has been delivered to such Bank by or
         on behalf of the Borrower or any of its  Subsidiaries  pursuant to this
         Agreement  or which has been  delivered to such Bank by or on behalf of
         the Borrower or any of its  Subsidiaries in connection with such bank's
         credit  evaluation of the Borrower or any of its Subsidiaries  prior to
         entering into this  Agreement,  PROVIDED that prior to disclosing  such

                                       56
<PAGE>
         information,  such  Bank  shall  first  obtain  the  agreement  of such
         prospective  Assignee or  Participant  to comply with the provisions of
         Section 9.7.

                  Section 9.7 CONFIDENTIALITY OF INFORMATION. The Agent and each
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 Agent
and any Bank pursuant to the provisions  hereof is used only for the purposes of
this Agreement and any other relationship  between the Agent, the Banks, and the
Borrowers  and shall not be  divulged  to any Person  other than the Agent,  the
Banks,  the  Borrowers  and their  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 Agent or any 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  any  Bank or by any  applicable  law,  rule,  regulation  or
judicial  process,  the opinion of such bank's counsel  concerning the making of
such  disclosure  to be binding on the parties  hereto.  No Bank shall incur any
liability to the Borrowers by reason of any disclosure permitted by this Section
9.7.

                  Section 9.8  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  9.9  CONSENT  TO  JURISDICTION.  AT THE OPTION OF THE
AGENT,  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

                                       57
<PAGE>

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 9.10 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS,  THE
BANKS,  AND THE AGENT  IRREVOCABLY  WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL  PROCEEDING  ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

                  Section  9.11  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 Agent and shall survive
the making of the Loans by the Banks and the execution and delivery to the Agent
by the  Borrowers of the Note,  regardless  of any  investigation  made by or on
behalf of the Agent,  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 9.2, 9.5 and 9.12 shall survive  payment in full of the Obligations and
the termination of the Commitment.

                  Section 9.12  INDEMNIFICATION.  The Borrower  hereby agrees to
defend,  protect,  indemnify and hold harmless the Agent and the Banks and their
respective  Affiliates and the  directors,  officers,  employees,  attorneys and
agents of the Agent and the Banks and their  respective  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 but  excluding  costs  incurred  by the Agent and the Banks in the
ordinary course of their business, such as costs of funds, employee salaries and
overhead,  except to the extent the Borrower is liable  thereunder under another
provision of the Loan Documents)  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, the creation of a Lien in
         favor  of the  Agent  or the  Banks  under  any  Loan  Document  or any
         transaction contemplated by any Loan Document; or

                                       58
<PAGE>
                           (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 Banks 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 (i) resulting from
such  Indemnitee's  gross negligence or willful  misconduct,  or (ii) arising in
connection  with a dispute between the Borrower and such Indemnitee in which the
Borrowers is  determined,  in a final  judgment  entered by a court of competent
jurisdiction,  to have no liability to or a definitive  right to recover damages
from such  Indemnitee.  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 Borrower  hereunder the  indemnities  and  obligations  of the
Borrower  contained  in this  Section  shall  survive the payment in full of the
other Obligations.

                  Section 9.13 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 9.14 ENTIRE  AGREEMENT.  This  Agreement and the other
Loan  Documents  embody the  entire  agreement  and  understanding  between  the
Borrowers  and the Banks 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 9.15  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 9.16 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) no
Bank has a fiduciary  relationship  to the  Borrowers,  the  relationship  being

                                       59
<PAGE>

solely that of debtor and  creditor,  (c) no joint  venture  exists  between the
Borrowers and any Bank,  and (d) no Bank  undertakes any  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 Agent or any Bank is for the  protection  of the Banks and neither of the
Borrowers nor any third party is entitled to rely thereon.

                  Section  9.17 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 K
hereto with respect to the Guaranteed Obligations.



            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]



                                       60
<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
                                   ---------------------------
                                 Title
                                      ------------------------

                                 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
                                   ---------------------------
                                 Title
                                      ------------------------

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


                                 U.S. BANK NATIONAL ASSOCIATION

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

                                 Address:
                                 U.S. Bank Place - MPFP0702
                                 601 Second Avenue South
                                 Minneapolis, MN 55402-4302
                                 Attention:  Mark A. Bagley
                                 Telecopier:  (612) 973-0832


                        [SIGNATURE PAGE TO THIRD AMENDED
                         AND RESTATED CREDIT AGREEMENT]

                                      S-1
<PAGE>


                                    BANK ONE ARIZONA, NA

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

                                    Address:
                                    201 North Central Avenue
                                    21st Floor AZ1-1178
                                    Phoenix, AZ   85004
                                    Attention:  Michelle Schechner

                                    STATE STREET BANK AND
                                    TRUST COMPANY

                                    By
                                      ---------------------------
                                    Its
                                       --------------------------

                                    Address:
                                    1776 Heritage Drive
                                    JAB4SW
                                    North Quincy, MA   02171
                                    Attention:  Edward A. Siegel





                        [SIGNATURE PAGE TO THIRD AMENDED
                         AND RESTATED CREDIT AGREEMENT]


                                      S-1
<PAGE>


EXHIBITS

A   -   Guaranty

B   -   Revolving Note

C   -   PAG Security Agreement

D   -   PASI Security Agreement

E   -   PAII Security Agreement

F   -   PAG Pledge Agreement

G   -   PACC Pledge Agreement

H   -   Collateral Assignment (Trademarks)

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

J   -   Form of Assignment Agreement

K   -   Terms With Respect to Guaranteed Obligations

SCHEDULES

4.6    -    Litigation

4.17   -    Subsidiaries

4.18   -    Funds






                        [SIGNATURE PAGE TO THIRD AMENDED
                         AND RESTATED CREDIT AGREEMENT]


                                      S-1

<PAGE>
                                                                       EXHIBIT A
                                    GUARANTY

                  THIS GUARANTY, dated as of July 31, 1998, is made and given by
Pilgrim America Investments, Inc., a Delaware corporation (the "Guarantor").

                                    RECITALS

                  A. Pilgrim America Group,  Inc., a Delaware  corporation,  and
Pilgrim America  Capital  Corporation,  a Delaware  corporation  (together,  the
"Borrowers"),  the  financial  institutions  from time to time party  thereto as
lenders and U.S. Bank National Association,  as agent, have entered into a Third
Amended and Restated Credit Agreement dated as of July 31, 1998 (as the same may
hereafter be amended,  restated,  or otherwise  modified from time to time,  the
"Credit Agreement").

                  B. It is a condition  precedent to the obligation of the Banks
to extend  credit  accommodations  pursuant  to the Credit  Agreement  that this
Guaranty be executed and delivered by the Guarantor.

                  C. The Guarantor expects to derive benefits from the extension
of  credit   accommodations   to  the  Borrowers  by  the  Banks  and  finds  it
advantageous,  desirable  and in its best  interests to execute and deliver this
Guaranty to the Banks.

                  NOW, THEREFORE,  In consideration of the credit accommodations
to be extended to the Borrowers  and for other good and valuable  consideration,
the Guarantor hereby covenants and agrees with the Banks as follows:

                  Section  1.  DEFINED  TERMS.  Capitalized  terms  used in this
Guaranty  without  definition  shall  have  the  meaning  given  in  the  Credit
Agreement. In addition, as used in this Guaranty, the following terms shall have
the meaning indicated:

                  "OBLIGATIONS"  shall mean all  indebtedness,  liabilities  and
obligations of the Borrowers to the Banks and the Agent of every kind, nature or
description  under  the  Credit  Agreement,  including  without  limitation  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
and any letter of credit  reimbursement  obligations and fees, and in all of the
foregoing  cases  whether  due or to become due,  and  whether  now  existing or
hereafter arising or incurred.

                  Section  2. THE  GUARANTY.  Subject  always  to the  following
Section,  the Guarantor hereby absolutely and unconditionally  guarantees to the
Banks  and the Agent the  payment  when due  (whether  at a stated  maturity  or
earlier  by  reason  of  acceleration  or  otherwise)  and  performance  of  the
Obligations.
                                       1
<PAGE>
                  Section 3. LIMITATION;  INSOLVENCY LAWS.  Notwithstanding  any
other  provision  hereof,  the  obligation  of the Guarantor on this Guaranty is
limited to the amount which can be guaranteed by the Guarantor under  applicable
federal  and state laws  relating  to the  insolvency  of debtors  without  this
Guaranty being held to be avoidable or unenforceable. The Guarantor acknowledges
and agrees that Obligations may be created and continued in any amount,  without
affecting or impairing the liability of the Guarantor  hereunder,  and the Banks
may pay (or allow for the payment of) Obligations out of any sums received by or
available to the Banks on account of Obligations from the Borrowers or any other
Person  (except the  Guarantor),  from the  properties  of the Borrowers or such
other  Persons,  out of  collateral  security or from any other  source and such
payment (or allowance)  shall not reduce,  affect or impair the liability of the
Guarantor  hereunder.  The  liability  of the  Guarantor  shall be a  continuing
liability and shall not be affected by (nor shall anything  herein  contained be
deemed a  limitation  upon) the amount of credit  which may be  extended  to the
Borrowers,  the number of  transactions  with the  Borrowers,  repayments by the
Borrowers,  or the  allocation by the Banks of repayments by the  Borrowers,  it
being the  understanding  of the Guarantor that the Guarantor's  liability shall
continue  hereunder so long as there are any  Obligations  outstanding and until
the  expiration  of the  obligations,  if  any,  of the  Bank to  extend  credit
accommodations  to the  Borrowers.  Any payment made by the Guarantor  hereunder
shall be effective to reduce or discharge  such liability only if accompanied by
a written transmittal  document,  received by the Agent, advising the Banks that
such payment is made under this  Guaranty for such  purpose.  To the extent that
any  payment  to, or  realization  by, the Banks on the  guaranteed  Obligations
exceeds the  limitations  of this Section and is otherwise  subject to avoidance
and recovery in any such  proceeding,  the amount subject to avoidance  shall in
all events be limited to the amount by which such actual  payment or realization
exceeds such limitation, and this Guaranty as limited shall in all events remain
in full force and effect and be fully  enforceable  against the Guarantor.  This
Section is intended solely to preserve the rights of the Banks hereunder against
the Guarantor and neither the Guarantor,  the Borrowers,  any other guarantor of
the  Obligations  nor any other  Person  shall have any right,  claim or defense
under this  Section  that would not  otherwise  be  available  under  applicable
insolvency laws.

                  Section 4.  CONTINUING  GUARANTY.  This Guaranty is a complete
and  continuing  guaranty of payment and  performance of the  Obligations.  This
Guaranty  being a  guarantee  of  payment  and not of  collectibility  and being
absolute and unconditional, 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,

                                       2
<PAGE>
notice of dishonor,  nonpayment  or  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
either  Borrower  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 Borrower or any other Person for such  deficiency is discharged  pursuant
to statute,  judicial decision or otherwise.  The acceptance of this Guaranty by
the Banks and the  Agent is not  intended  and does not  release  any  liability
previously  existing  of any  guarantor  or  surety of any  indebtedness  of the
Borrowers to any Bank.

                  Section 5. OTHER TRANSACTIONS. Each of the Banks and the Agent
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 the Borrowers or by any other Person, or to forward or deliver any or
all such collateral and security  directly to the Borrowers or such other Person
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,  any note or other  instrument  evidencing the
Obligations  or any part  thereof and any other  agreement  with  respect to the
Obligations,  waive  compliance  by 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 any Bank or the Agent to realize upon any of the Obligations of the Borrowers
to the Banks or the Agent,  or upon any collateral or security for any or all of
the  Obligations,  nor by the taking by any Bank or the Agent of (or the failure
to take) any other guaranty or guaranties to secure the Obligations,  nor by the
taking by any Bank or the Agent 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 any Bank or the Agent, 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 any Bank or the Agent

                                       3
<PAGE>
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 6. ACTIONS NOT REQUIRED.  The Guarantor  hereby waives
any and all right to cause a  marshalling  of the assets of the Borrowers or any
other action by any court or other  governmental body with respect thereto or to
cause the Banks or the Agent to proceed against any security for the Obligations
or any other recourse which the Banks or the Agent may have with respect thereto
and  further  waives  any and all  requirements  that  the  Banks  or the  Agent
institute any action or proceeding at law or in equity,  or obtain any judgment,
against either  Borrower or any 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  7. NO  SUBROGATION.  Notwithstanding  any  payment or
payments made by the Guarantor  hereunder or any setoff or  application of funds
of the Guarantor by the Banks or the Agent,  the Guarantor shall not be entitled
to be  subrogated  to any of the  rights  of any Bank or the Agent  against  the
Borrowers or any other guarantor or any collateral security or guaranty or right
of offset held by any Bank or the Agent for the payment of the Obligations,  nor
shall  the  Guarantor  seek  or  be  entitled  to  seek  any   contribution   or
reimbursement  from the Borrowers or any other  guarantor in respect of payments
made by the Guarantor hereunder.

                  Section 8. 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,  shall
be applied by the Banks and the Agent as provided in the Credit Agreement.

                  Section 9. RECOVERY OF PAYMENT. If any payment received by any
Bank or the Agent 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  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

                                       4
<PAGE>

"irrevocable  payment"  refer to payments  that cannot be set aside,  recovered,
rescinded or required to be returned for any reason.

                  Section 10. 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 any Bank or the Agent.
Neither  the  Banks nor the Agent  shall  have any  obligation  to  provide  the
Guarantor  with any advice  whatsoever or to inform the Guarantor at any time of
the Banks' or the Agent's  actions,  evaluations or conclusions on the financial
condition or any other matter concerning the Borrowers.

                  Section 11.  REMEDIES.  All remedies  afforded to the Banks or
the Agent 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 any Bank or
the  Agent,  shall be deemed  to be in  exclusion  of any of the other  remedies
available to any Bank or the Agent and no one such remedy shall in any way limit
or prejudice any other legal or equitable remedy which any Bank or the Agent 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 any Bank or the Agent.

                  Section  12.  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 Borrower 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 13.  COSTS AND  EXPENSES.  The  Guarantor  will pay or
reimburse  each  Bank and the  Agent on demand  for all  out-of-pocket  expenses
(including in each case all reasonable fees and expenses of counsel) incurred by
that Bank or the Agent 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  14.  WAIVERS AND  AMENDMENTS.  This  Guaranty  can be
waived, modified, amended, terminated or discharged only explicitly in a writing
signed by all of the Banks and the Agent.  A waiver so signed shall be effective
only in the specific instance and for the specific purpose given.

                                       5
<PAGE>

                  Section  15.  NOTICES.   Except  when  telephonic   notice  is
expressly authorized by this Guaranty,  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 16. GUARANTOR  ACKNOWLEDGEMENTS.  The Guarantor hereby
acknowledges  that (a) counsel has advised  the  Guarantor  in the  negotiation,
execution  and  delivery of this  Guaranty,  (b) the Banks and the Agent have no
fiduciary  relationship to the Guarantor,  the relationship being solely that of
debtor and creditors, and (c) no joint venture exists between the Guarantor, the
Banks and the Agent.

                  Section 17.  REPRESENTATIONS  AND  WARRANTIES.  The  Guarantor
hereby represents and warrants to the Banks and the Agent that:

                           17(a)   The   Guarantor   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.

                           17(b)  The  Guarantor  has the  corporate  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.

                           17(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).

                           17(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 the Guarantor, (ii) violate
         or contravene any provision of its Articles of Incorporation or bylaws,
         or (iii)  result  in a breach  of or  constitute  a  default  under any

                                       6
<PAGE>
         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.  The  Guarantor 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).

                           17(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 the part of the Guarantor 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.

                           17(f)  There  are no  actions,  suits or  proceedings
         pending or, to the knowledge of the  Guarantor,  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 the Guarantor,  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.

                           17(g) The Guarantor  expects to derive  benefits from
         the  transactions  resulting  in the creation of the  Obligations.  The
         Banks and the Agent may rely  conclusively on the continuing  warranty,
         hereby  made,  that the  Guarantor  continues to be  benefitted  by the
         Banks'  extension of credit  accommodations  to the  Borrowers  and the
         Banks and the Agent  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 Banks and the Agent without  regard to the receipt,
         nature or value of any such benefits.

                           17(h) All representations  and warranties  pertaining
         to the Guarantor made by the Borrowers in the Credit Agreement are true
         and correct.

                  Section 18.  COVENANTS.  The  Guarantor  hereby  covenants and
agrees that for so long as this Guaranty  remains in full force and effect,  (a)
the Guarantor  shall perform and comply with all covenants made by the Borrowers
pertaining to the Guarantor in the Credit Agreement; and (b) the Guarantor shall
perform or comply with all  covenants  made by the  Borrowers  pertaining to the
Guarantor in the Pledge Agreements,  including but not limited to the provisions
of Section 7(b) of the Pledge  Agreement which prohibit the issuance of stock or

                                       7
<PAGE>

other  securities in addition to or in substitution of the "Pledged  Shares" (as
defined in the Pledge Agreement), except to the Borrowers.

                  Section 19.  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  Banks  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, each Bank, the Agent and their
respective successors, transferees, and assigns. Without limiting the generality
of the  foregoing  clause  (c),  any Bank or the Agent 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 20.  REAFFIRMATION.  The Guarantor agrees that when so
requested  by any Bank or the Agent from time to time it will  promptly  execute
and deliver to such Bank or the Agent a written  reaffirmation  of this Guaranty
in such form as such Bank or the Agent may require.

                  Section 21.  REVOCATION.  Notwithstanding  any other provision
hereof,  the  Guarantor  may revoke  this  Guaranty  prospectively  as to future
transactions by written notice to that effect actually received by the Agent. No
such  revocation  shall  release,  impair or affect in any manner any  liability
hereunder with respect to Obligations created,  contracted,  assumed or incurred
prior to receipt by the Agent of written  notice of  revocation,  or Obligations
created,  contracted,  assumed or incurred after receipt of such notice pursuant
to any contract  entered into by the Banks or the Agent prior to receipt of such
notice, or any renewals or extensions  thereof,  theretofore or thereafter made,
or any  interest  accrued or accruing on such  Obligations,  or all other costs,
expenses and attorneys' fees arising from such Obligations.

                  Section 22.  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

                                       8
<PAGE>

Guaranty or any other statement,  instrument or transaction  contemplated hereby
or relating hereto.

                  Section  23.  CONSENT  TO  JURISDICTION.  AT THE OPTION OF THE
BANKS OR THE AGENT,  THIS  GUARANTY  MAY BE  ENFORCED  IN ANY  FEDERAL  COURT OR
MINNESOTA  STATE COURT SITTING IN HENNEPIN  COUNTY OR RAMSEY COUNTY,  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 BANKS OR THE AGENT 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 24. WAIVER OF JURY TRIAL. EACH OF THE GUARANTOR,  EACH
BANK AND THE AGENT,  BY THEIR  EXECUTION  AND  DELIVERY  OR  ACCEPTANCE  OF THIS
GUARANTY,  IRREVOCABLY  WAIVES  ANY AND ALL  RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING  ARISING  OUT OF OR RELATING  TO THIS  GUARANTY  OR THE  TRANSACTIONS
CONTEMPLATED HEREBY.

                  Section 25. 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  26.  GENERAL.   All  representations  and  warranties
contained in this Guaranty or in any other  agreement  between the Guarantor and
the Banks or the Agent 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.

                                       9
<PAGE>

                  IN WITNESS  WHEREOF,  the Guarantor has executed this Guaranty
as of the date first above written.

                                      PILGRIM AMERICA INVESTMENTS,
                                      INC.

                                      By
                                         ----------------------------
                                             James R. Reis
                                             Vice Chairman


Address for the Guarantor:

Two Renaissance Square, Ste. 1200
40 North Central Avenue
Phoenix, AZ  85004-4424

Address for the Agent:

U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Mark A. Bagley
Fax (612) 973-0832


                                       10
<PAGE>
                                                                    EXHIBIT B TO
                                                                CREDIT AGREEMENT

                                      NOTE


$__,000,000       July 31, 1998
                                                          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 [BANK] (the "Bank")
at  the  main  office  of  U.S.  BANK  NATIONAL  ASSOCIATION  (the  "Agent")  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 _________ MILLION AND
NO/100 DOLLARS  ($__,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 360 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 one of the Notes referred to in the Third Amended
and  Restated  Credit  Agreement  dated  as of July  31,  1998  (as the same may
hereafter  be from time to time  amended,  restated or otherwise  modified,  the
"Credit  Agreement")  among the undersigned,  the Bank and the other banks named
therein,  and the  Agent.  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.
<PAGE>


                  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 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 C TO
                                                                CREDIT AGREEMENT

                               SECURITY AGREEMENT


                  THIS  SECURITY  AGREEMENT,  dated as of July 31, 1998, is made
and  given  by  PILGRIM  AMERICA  GROUP,  INC.,  a  Delaware   corporation  (the
"Grantor"),  to U.S. BANK NATIONAL ASSOCIATION,  a national banking association,
as "Agent"  under,  and for the  benefit of the  "Banks"  party to, the  "Credit
Agreement" (as those terms are defined below).

                                    RECITALS

                  A. The Grantor,  Pilgrim America Capital Corporation  ("PACC")
(together the  "Borrowers"),  the lenders party thereto,  (the "Banks") and U.S.
Bank  National  Association,  as agent for the Banks (the  "Agent") have entered
into a Third Amended and Restated Credit Agreement dated as of July 31, 1998 (as
the  same  may  hereafter  be  amended,  supplemented,  extended,  restated,  or
otherwise modified from time to time, the "Credit Agreement")  pursuant to which
the Banks have agreed to extend to the Borrowers certain credit accommodations.

                  B. It is a condition  precedent to the obligation of the Banks
to extend credit  accommodations  pursuant to the terms of the Credit  Agreement
that this Agreement be executed and delivered by the Grantor.

                  C. The Grantor  finds it  advantageous,  desirable  and in its
best interests to comply with the  requirement  that it execute and deliver this
Security Agreement to the Agent.

                  NOW, THEREFORE,  in consideration of the premises and in order
to induce  the Banks to enter  into the Credit  Agreement  and to extend  credit
accommodations to the Borrowers  thereunder,  the Grantor hereby agrees with the
Agent, for the benefit of the Banks and the Agent, as follows:

         Section 1.  DEFINED TERMS.

                  1(a) As used in this  Agreement,  terms  capitalized  and used
herein  without being  defined shall 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

                                       1
<PAGE>
         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.

                  "ACCOUNT  DEBTOR"  shall mean a Person who is  obligated on or
         under any Account, Chattel Paper, Instrument 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 Agent 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.

                  "EVENT OF DEFAULt"  shall have the meaning  given to such term
         in Section 15 hereof.

                  "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.
                                       2
<PAGE>
                  "INSTRUMENT"  shall  mean  a  draft,  check,   certificate  of
         deposit,  note,  bill of exchange,  security or any other writing which
         evidences  a right to the payment of money and is not itself a security
         agreement  or  lease  and  is of a type  which  is  transferred  in the
         ordinary course of business by delivery with any necessary  endorsement
         or assignment.

                  "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.

                  "LIEN" shall mean any  security  interest,  mortgage,  pledge,
         lien,  charge,  encumbrance,  title  retention  agreement  or analogous
         instrument  or device  (including  the  interest of the  lessors  under
         capitalized  leases),  in,  of or on any  assets or  properties  of the
         Person referred to.

                  "OBLIGATIONS" shall mean (a) all indebtedness, liabilities and
         obligations  of the  Borrowers  to the Banks  and Agent of every  kind,
         nature or description  under the Credit  Agreement,  including  without
         limitation  the Grantor's  obligation on any  promissory  note or notes
         under the Credit  Agreement and any note or notes  hereafter  issued in
         substitution   or   replacement   thereof  and  any  letter  of  credit
         reimbursement  obligations and fees, (b) all liabilities of the Grantor
         under this Agreement, (c) any and all obligations of either Borrower to
         any Bank under Rate  Protection  Agreements,  and (d) any and all other
         liabilities and obligations of the Borrowers to the Banks and the Agent
         of every kind,  nature and  description,  whether direct or indirect or
         hereafter  acquired by the Banks or the Agent from any Person,  whether
         absolute or contingent,  regardless of how such liabilities arise or by
         what agreement or instrument  they may be evidenced,  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.

                  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

                                       3
<PAGE>
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 Agent,  for the benefit of the Banks,  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,  rental  agreements and other
         Chattel Paper and insurance proceeds;  (ii) all books,  correspondence,
         credit files, records,  invoices,  bills of lading, 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
Accounts,  General  Intangibles,  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 Agent 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 Banks and the Agent
shall have no obligation or liability  under  Accounts,  Chattel Paper,  General

                                       4
<PAGE>

Intangibles  and  other  items  included  in the  Collateral  by  reason of this
Agreement,  nor shall the Banks or the Agent 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 Agent)  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 those to be released in connection with the execution
and  delivery  hereof and those as may have been filed (a) in favor of the Agent
relating to this  Agreement,  or (b) to perfect  Liens  permitted  by the Credit
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 Agent
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 Agent,  (ii) the Agent  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 Agent'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 of the  Grantor  and the  office  where it keeps its books and
records  concerning  the  Collateral are located at its address set forth on the
signature  page hereof.  All items of Collateral  and Inventory  existing on the
date of this Agreement are located at the places specified on Schedule I hereto.
The Grantor will  immediately  notify the Agent 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 Agent  provide  the Agent 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

                                       5
<PAGE>

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 Agent has been
given at least 30 days prior written notice thereof and the Grantor has executed
and  delivered  to the Agent 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 Agent in  writing,  each  Account,  Contract  and  General
Intangible  constituting or evidencing 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 such  obligation.  Without the Agent'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 per Account Debtor or other obligor in any calendar year. The
Grantor  will  perform  and  comply  in  all  material  respects  with  all  its
obligations  under the 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.

                  Section 8.   FURTHER ASSURANCES; ATTORNEY-IN-FACT.

                           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 Agent may reasonably request, in order to perfect
         and protect the  Security  Interest  granted or purported to be granted
         hereby or to enable the Agent 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
         Agent: (i) mark, or permit the Agent to mark,  conspicuously its books,
         records,  and accounts  showing or dealing with the Collateral,  with a
         legend,  in form and substance  satisfactory  to the Agent,  indicating
         that each such item of Collateral  is subject to the Security  Interest
         granted hereby;  (ii) deliver and pledge to the Agent all  instruments,
         duly indorsed or accompanied  by duly executed  instruments of transfer
         or  assignment,  with full  recourse  to the  Grantor,  all in form and

                                       6
<PAGE>
         substance  satisfactory  to the  Agent;  (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 Agent  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 Agent may request,
         in order to  perfect,  preserve,  and  enhance  the  Security  Interest
         granted or purported to be granted hereby; and (iv) obtain waivers,  in
         form  satisfactory  to the Agent,  of any other  party to any  Contract
         consenting to the Agent's interest therein.

                           8(b) The Grantor hereby  authorizes the Agent 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 Agent from time
         to time statements and schedules further identifying and describing the
         Collateral and such other reports in connection  with the Collateral as
         the Agent may reasonably request,  all in reasonable detail and in form
         and substance reasonably satisfactory to the Agent.

                  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 Agent,  any Bank 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 Agent or any Bank furnish

                                       7
<PAGE>
to the Agent a report on its Accounts, Contracts and General Intangibles, naming
the  Account  Debtors or other  obligors  thereon,  the amount due and the aging
thereof.  The Agent or its designee is authorized to contact Account Debtors 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 Agent 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 AGENT.  If the Grantor at any time
fails to perform or observe  any of the  foregoing  agreements,  the Agent shall
have (and the Grantor hereby grants to the Agent) 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 Agent's option,  in the Agent's
name) and to take any and all other actions which the Agent 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 Agent on demand the amount of all monies  expended  and all costs and
expenses (including  reasonable  attorneys' fees and legal expenses) incurred by
the Agent in connection  with or as a result of the performance or observance of
such  agreements  or the  taking of such  action  by the  Agent,  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 AGENT'S  DUTIES.  The powers  conferred on the
Agent  hereunder are solely to protect its interest in the  Collateral and shall
not impose any duty upon it to  exercise  any such  powers.  The Agent  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 Agent to comply with any such
request shall not itself be deemed a failure to exercise reasonable care, and no
failure of the Agent 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 Agent
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 Agent accords its own
property of like kind. The Agent 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  Agent  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

                                       8
<PAGE>
other rights  pertaining  to any  Collateral.  The Agent 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 Agent's  possession
if the Agent 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  Agent to  comply  with any such  request  shall  not of  itself be deemed a
failure to exercise reasonable care.

                  Section 15. DEFAULT.  Each of the following  occurrences shall
constitute an Event of Default under this Agreement:  (a) the Grantor shall fail
to observe or perform any covenant or agreement  applicable to the Grantor under
this  Agreement;  or (b) any  representation  or warranty made by the Grantor in
this Agreement or any schedule,  exhibit,  supplement or attachment hereto or in
any financial statements,  or reports or certificates  heretofore or at any time
hereafter  submitted  by or on behalf of the Grantor to the Agent shall prove to
have been false or materially  misleading when made; or (c) any Event of Default
shall occur under the Credit Agreement.

                  Section 16.  REMEDIES ON DEFAULT.  Upon the  occurrence  of an
Event of Default and at any time thereafter:

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

                           16(b) The Agent  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,   including  lands,  plants,   buildings,
         Equipment,  Inventory  and  other  property  as  may  be  necessary  or
         appropriate  in the judgment of the Agent to permit or enable the Agent
         to exercise the remedies with respect to the  Collateral,  as the Agent
         may elect, and to use and operate said properties for said purposes and
         for such length of time as the Agent may deem  necessary or appropriate
         for said purposes  without the payment of any  compensation  to Grantor
         therefor.  The Agent may require the Grantor to, and the Grantor hereby
         agrees  that it will,  at its  expense  and upon  request  of the Agent
         forthwith,  assemble all or part of the  Collateral  as directed by the
         Agent  and make it  available  to the  Agent at a place or places to be
         designated by the Agent.

                           16(c)  Any sale of  Collateral  may be in one or more
         parcels at public or private  sale,  at any of the  Agent's  offices or
         elsewhere,  for cash, on credit, or for future delivery,  and upon such
         other  terms as the  Agent  may  reasonably  believe  are  commercially
         reasonable.  The  Agent  shall  not be  obligated  to make  any sale of
         Collateral  regardless  of notice of sale having  been  given,  and the
         Agent  may  adjourn  any  public or  private  sale from time to time by
         announcement  made at the time and place fixed therefor,  and such sale

                                       9
<PAGE>
         may, without further notice,  be made at the time and place to which it
         was so adjourned.

                           16(d) The Agent 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, exercise its remedies
         with  respect to the  Collateral,  and the  Grantor's  rights under all
         licenses  and all  franchise  agreements  shall  inure  to the  Agent's
         benefit until the Obligations are paid in full.

                           16(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 Agent 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.

                           16(f)  The  Agent 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.

                           16(g) The Grantor appoints the Agent 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 17. REMEDIES AS TO CERTAIN RIGHTS TO PAYMENT. Upon the
occurrence  of an Event of  Default  and at any time  thereafter  the  Agent may
notify any Account  Debtor or other  Person  obligated  on any Accounts or other
Collateral that the same have been assigned or transferred to the Agent and that
the same should be performed as requested by, or paid directly to, the Agent, as
the case may be. The Grantor  shall join in giving such notice,  if the Agent so
requests.  The Agent may, in the Agent'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 Agent is hereby granted the right to take any action which the
Agent may  reasonably  deem  necessary  or  desirable in order to realize on the

                                       10
<PAGE>
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 such  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 Agent and shall not be commingled  with any funds or property of
the Grantor and shall be forthwith  remitted to the Agent for application on the
Obligations.

                  Section  18.  APPLICATION  OF  PROCEEDS.   All  cash  proceeds
received  by the Agent 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
Agent, be held by the Agent as collateral for, or then or at any time thereafter
be  applied  in whole  or in part  against,  all or any part of the  Obligations
(including,  without  limitation,  any expenses of the Agent payable pursuant to
Section  19  hereof).  If the  Agent  shall  apply  such  cash  proceeds  to the
Obligations, they shall be applied as follows:

                          FIRST,  to  the  payment of all  reasonable  costs and
         expenses incurred by the Agent in connection with such collection, sale
         or disposition or otherwise in connection with this Security Agreement,
         including all court costs and the  reasonable  fees and expenses of its
         agents and legal  counsel,  the  repayment of all advances  made by the
         Agent  hereunder  on  behalf  of the  Grantor  and any  other  costs or
         expenses  incurred  in  connection  with the  exercise  of any right or
         remedy hereunder;

                          SECOND,  to the payment of the Obligations  consisting
         of principal of, interest on and fees with respect to the Loans and the
         Commitments, until such Obligations have been paid in full;

                          THIRD, to the payment in full of the other Obligations
         until all of the Obligations have been paid in full;

                           FOURTH, to the Company,  its successors or assigns or
         as a court of competent jurisdiction may otherwise direct.

                  Section 19. COSTS AND  EXPENSES;  INDEMNITY.  The Grantor will
pay or reimburse the Agent 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 Agent 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 Agent and the  Banks  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

                                       11
<PAGE>

Security  Interest hereby created  (including  enforcement of this Agreement) or
the actions of the Agent or any Bank pursuant hereto,  except claims,  losses or
liabilities  resulting  from the gross  negligence or willful  misconduct of the
party seeking  indemnification  as determined by a final  judgment of a court of
competent  jurisdiction.  Any liability of the Grantor to indemnify and hold the
Agent and the Banks 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 20. 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 Agent. 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 Agent.  All
rights and remedies of the Agent shall be cumulative and may be exercised singly
in any order or  sequence,  or  concurrently,  at the  Agent'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 Agent of its
remedies hereunder, absent this waiver.

                  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 Agent and the Banks have no
fiduciary  relationship to the Grantor,  the  relationship  being solely that of
debtor and creditor,  and (c) no joint venture exists  between the Grantor,  the
Agent and the Banks.

                  Section 23. 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
Banks to extend credit  accommodations  to the Grantor,  (b) be binding upon the
Grantor,  its successors and assigns,  and (c) inure to the benefit of the Banks

                                       12
<PAGE>

and the Agent, and be enforceable by the Agent, and their respective successors,
transferees,  and assigns.  Without  limiting the  generality  of the  foregoing
clause (c), the Banks or the Agent 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 24. TERMINATION OF SECURITY INTEREST.  Upon payment in
full of the  Obligations,  the  expiration  of all  obligations  of the Banks to
extend  credit  accommodations  to the  Grantor  and  termination  of  all  Rate
Protection  Agreements,  the Security  Interest  granted hereby shall terminate.
Upon any such  termination,  the Agent will  return to the  Grantor  such of the
Collateral  then in the  possession  of the Agent 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 Agent.  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 25.  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  26.  CONSENT  TO  JURISDICTION.  AT THE OPTION OF THE
AGENT,  THIS  AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA  STATE
COURT SITTING IN HENNEPIN  COUNTY;  AND THE GRANTOR CONSENTS TO THE JURISDICTION
AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS

                                       13
<PAGE>

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 AGENT 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 27. WAIVER OF NOTICE AND HEARING.  THE GRANTOR  HEREBY
WAIVES ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
AGENT 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 28.  WAIVER OF JURY TRIAL.  EACH OF THE  GRANTOR,  THE
BANKS AND THE  AGENT,  BY ITS  EXECUTION  AND  DELIVERY  OR  ACCEPTANCE  OF THIS
AGREEMENT,  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 29.  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  30.  GENERAL.   All  representations  and  warranties
contained in this  Agreement or in any other  agreement  between the Grantor and
the  Agent  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  Agent.  Captions  in this
Agreement  are for  reference  and  convenience  only and shall not  affect  the
interpretation or meaning of any provision of this Agreement.

                                       14
<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.

                                               PILGRIM AMERICA GROUP, INC.

                                               By
                                                 ----------------------------
                                                         James R. Reis
                                                         Vice Chairman


Address for Grantor:

Two Renaissance Square, Ste. 1200
40 North Central Avenue
Phoenix, AZ  85004-4424

Grantor's Tax ID:  95-4516050

Address for the Agent:

U.S. Bank National Association
601 Second Avenue South
Minneapolis, MN 55402-4302
Fax (612)



                                       15
<PAGE>





                                   SCHEDULE I
                                       to
                               Security Agreement


Locations of Equipment and Inventory
as of Date of Security Agreement


[Locations  to be provided,  including  county.  Locations  not owned by Grantor
should be specified with name of landlord or warehouse.]







<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 July 31, 1998, is made and
given  by  PILGRIM  AMERICA  SECURITIES,   INC.,  a  Delaware  corporation  (the
"Grantor"),  to U.S. BANK NATIONAL ASSOCIATION,  a national banking association,
as "Agent"  under,  and for the  benefit of the  "Banks"  party to, the  "Credit
Agreement" (as those terms are defined below).

                                    RECITALS

                A. Pilgrim America Group, Inc. ("PAG"),  Pilgrim America Capital
Corporation ("PACC") (together the "Borrowers"), the lenders party thereto, (the
"Banks")  and U.S.  Bank  National  Association,  as agent  for the  Banks  (the
"Agent") have entered into a Third Amended and Restated  Credit  Agreement dated
as of July  31,  1998  (as the  same may  hereafter  be  amended,  supplemented,
extended,  restated,  or  otherwise  modified  from  time to time,  the  "Credit
Agreement")  pursuant to which the Banks have agreed to extend to the  Borrowers
certain credit accommodations.

                B. It is a condition precedent to the obligation of the Banks to
extend credit accommodations  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 a Borrower,  and
the Borrower will use part of the loans made to it 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  Borrower  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  Banks to enter  into the  Credit  Agreement  and to  extend  credit
accommodations to the Borrowers  thereunder,  the Grantor hereby agrees with the
Agent, for the benefit of the Banks and the Agent, as follows:

                                       1
<PAGE>
        Section 1.  DEFINED TERMS.

                1(a) As  used in this  Agreement,  terms  capitalized  and  used
herein  without being  defined shall 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.

                "ACCOUNT  DEBTOR"  shall  mean a Person who is  obligated  on or
        under any Account, Contract or General Intangible.

                "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.

                "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 Agent 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.

                "EVENT OF DEFAULt"  shall have the meaning given to such term in
        Section 15 hereof.
                                       2
<PAGE>
                "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 Banks  and  Agent of every  kind,
        nature or  description  under the Credit  Agreement,  including  without
        limitation  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   and  any  letter  of  credit
        reimbursement  obligations  and fees, (b) all liabilities of the Grantor
        under this Agreement,  (c) any and all obligations of either Borrower to
        any Bank under  Rate  Protection  Agreements,  and (d) any and all other
        liabilities  and  obligations  of the Borrowers or the Grantor the Banks
        and the Agent of every kind,  nature and description,  whether direct or
        indirect  or  hereafter  acquired  by the  Banks or the  Agent  from any
        Person,   whether  absolute  or  contingent,   regardless  of  how  such
        liabilities  arise  or by  what  agreement  or  instrument  they  may be
        evidenced,  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.

                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

                                       3
<PAGE>
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,  subject to the limitations
set forth in Section 21 below,  the Grantor hereby grants to the Agent,  for the
benefit of the Banks, 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, rental agreements and other Chattel
        Paper and insurance  proceeds;  (ii) all books,  correspondence,  credit
        files, records,  invoices, bills of lading, 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
Accounts,  General  Intangibles,  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 Agent of any of the rights hereunder shall not
release the Grantor from any of its duties or  obligations  under the  Contracts

                                       4
<PAGE>
and other  items  included  in the  Collateral,  and (c) the Banks and the Agent
shall  have no  obligation  or  liability  under  Accounts,  Contracts,  General
Intangibles  and  other  items  included  in the  Collateral  by  reason of this
Agreement,  nor shall the Banks or the Agent 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 Agent)  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 those to be released in connection with the execution
and  delivery  hereof and those as may have been filed (a) in favor of the Agent
relating to this  Agreement,  or (b) to perfect  Liens  permitted  by the Credit
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 Agent 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 Agent,
(ii) the Agent 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 Agent'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 of the  Grantor  and the  office  where it keeps its books and
records  concerning  the  Collateral are located at its address set forth on the
signature  page hereof.  All items of Collateral  and Inventory  existing on the
date of this Agreement are located at the places specified on Schedule I hereto.
The Grantor will  immediately  notify the Agent 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 Agent  provide  the Agent 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

                                       5
<PAGE>
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 Agent has been
given at least 30 days prior written notice thereof and the Grantor has executed
and  delivered  to the Agent 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 Agent in  writing,  each  Account,  Contract  and  General
Intangible  constituting or evidencing 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 such  obligation.  Without the Agent'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 per Account Debtor or other obligor in any calendar year. The
Grantor  will  perform  and  comply  in  all  material  respects  with  all  its
obligations  under the 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 Agent to withdraw amounts so deposited and deposit the same into an
operating  account of the Grantor with the Agent.  From and after the occurrence
and during the  continuance  of a Default or an Event of Default,  the Agent may
hold all such amounts as Collateral,  for the benefit of the Banks, or apply the
same to the Obligations as provided in Section 17.

                Section 8.   FURTHER ASSURANCES; ATTORNEY-IN-FACT.

                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 Agent may reasonably
request,  in order to perfect  and  protect  the  Security  Interest  granted or
purported  to be granted  hereby or to enable the Agent 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

                                       6
<PAGE>
time to time at the request of the Agent: (i) mark, or permit the Agent to mark,
conspicuously  its books,  records,  and  accounts  showing or dealing  with the
Collateral,  with a legend,  in form and  substance  satisfactory  to the Agent,
indicating that each such item of Collateral is subject to the Security Interest
granted  hereby;  (ii)  deliver  and pledge to the Agent 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
Agent;  (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 Agent  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 Agent may request, in order
to perfect,  preserve, and enhance the Security Interest granted or purported to
be granted hereby;  and (iv) obtain waivers,  in form satisfactory to the Agent,
of any other party to any Contract consenting to the Agent's interest therein.

                8(b) The Grantor hereby authorizes the Agent 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 Agent from time to time
statements and schedules  further  identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request,  all  in  reasonable  detail  and  in  form  and  substance  reasonably
satisfactory to the Agent.

                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 Agent,  any Bank or its  representatives  to
examine or inspect any Collateral,  any evidence of Collateral and the Grantor's

                                       7
<PAGE>
books and records concerning the Collateral,  wherever located. The Grantor will
from time to time when requested by the Agent or any Bank furnish to the Agent a
report on its Accounts,  Contracts and General  Intangibles,  naming the Account
Debtors or other obligors  thereon,  the amount due and the aging  thereof.  The
Agent or its designee is authorized to contact Account Debtors 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
Agent 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  AGENT.  If the  Grantor at any time
fails to perform or observe  any of the  foregoing  agreements,  the Agent shall
have (and the Grantor hereby grants to the Agent) 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 Agent's option,  in the Agent's
name) and to take any and all other actions which the Agent 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 Agent on demand the amount of all monies  expended  and all costs and
expenses (including  reasonable  attorneys' fees and legal expenses) incurred by
the Agent in connection  with or as a result of the performance or observance of
such  agreements  or the  taking of such  action  by the  Agent,  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 AGENT'S  DUTIES.  The powers  conferred  on the
Agent  hereunder are solely to protect its interest in the  Collateral and shall
not impose any duty upon it to  exercise  any such  powers.  The Agent  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 Agent to comply with any such
request shall not itself be deemed a failure to exercise reasonable care, and no
failure of the Agent 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 Agent
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 Agent accords its own
property of like kind. The Agent 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

                                       8
<PAGE>
the  Agent  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 Agent 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 Agent's  possession
if the Agent 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  Agent to  comply  with any such  request  shall  not of  itself be deemed a
failure to exercise reasonable care.

                Section 15.  DEFAULT.  Each of the following  occurrences  shall
constitute an Event of Default under this Agreement:  (a) the Grantor shall fail
to observe or perform any covenant or agreement  applicable to the Grantor under
this  Agreement;  or (b) any  representation  or warranty made by the Grantor in
this Agreement or any schedule,  exhibit,  supplement or attachment hereto or in
any financial statements,  or reports or certificates  heretofore or at any time
hereafter  submitted  by or on behalf of the Grantor to the Agent shall prove to
have been false or materially  misleading when made; or (c) any Event of Default
shall occur under the Credit Agreement.

                Section 16.  REMEDIES ON DEFAULT.  Upon the  occurrence  of an
Event of Default and at any time thereafter:

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

                         16(b) The Agent  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
        Agent to permit  or  enable  the Agent to  exercise  the  remedies  with
        respect  to the  Collateral,  as the  Agent  may  elect,  and to use and
        operate said properties for said purposes and for such length of time as
        the Agent may deem  necessary or appropriate  for said purposes  without
        the  payment  of any  compensation  to Grantor  therefor.  The Agent may
        require the Grantor to, and the Grantor  hereby  agrees that it will, at
        its expense and upon  request of the Agent  forthwith,  assemble  all or
        part of the Collateral as directed by the Agent and make it available to
        the Agent at a place or places to be designated by the Agent.

                         16(c)  Any  sale  of  Collateral  may be in one or more
        parcels  at public or private  sale,  at any of the  Agent's  offices or
        elsewhere,  for cash, on credit,  or for future delivery,  and upon such
        other  terms  as the  Agent  may  reasonably  believe  are  commercially
        reasonable.  The  Agent  shall  not be  obligated  to make  any  sale of
        Collateral regardless of notice of sale having been given, and the Agent
        may adjourn any public or private sale from time to time by announcement

                                       9
<PAGE>
        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.

                         16(d) The Agent 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, exercise its remedies with respect to the
        Collateral,  and  the  Grantor's  rights  under  all  licenses  and  all
        franchise  agreements  shall  inure to the  Agent's  benefit  until  the
        Obligations are paid in full.

                         16(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  22  hereof  at least  ten  calendar  days  prior to the date of
        intended  disposition  or other  action,  and the Agent 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.

                         16(f) The Agent 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.

                         16(g) The Grantor  appoints the Agent 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 17.  REMEDIES AS TO CERTAIN RIGHTS TO PAYMENT.  Upon the
occurrence  of an Event of  Default  and at any time  thereafter  the  Agent may
notify any Account  Debtor or other  Person  obligated  on any Accounts or other
Collateral that the same have been assigned or transferred to the Agent and that
the same should be performed as requested by, or paid directly to, the Agent, as
the case may be. The Grantor  shall join in giving such notice,  if the Agent so
requests.  The Agent may, in the Agent'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 Agent is hereby granted the right to take any action which the
Agent 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

                                       10
<PAGE>
documents  received  in  payment  of or on  account  of the  Collateral.  If any
payments on any such  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 Agent and shall not be commingled  with any funds or property of
the Grantor and shall be forthwith  remitted to the Agent for application on the
Obligations.

                Section 18. APPLICATION OF PROCEEDS.  All cash proceeds received
by the Agent 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 Agent,  be
held by the  Agent  as  collateral  for,  or then or at any time  thereafter  be
applied  in  whole  or in  part  against,  all or any  part  of the  Obligations
(including,  without  limitation,  any expenses of the Agent payable pursuant to
Section  19  hereof).  If the  Agent  shall  apply  such  cash  proceeds  to the
Obligations, they shall be applied as follows:

                         FIRST,  to the  payment  of all  reasonable  costs  and
        expenses incurred by the Agent in connection with such collection,  sale
        or disposition or otherwise in connection with this Security  Agreement,
        including  all court costs and the  reasonable  fees and expenses of its
        agents and legal  counsel,  the  repayment of all  advances  made by the
        Agent hereunder on behalf of the Grantor and any other costs or expenses
        incurred  in  connection  with  the  exercise  of any  right  or  remedy
        hereunder;

                         SECOND, to the payment of the Obligations consisting of
        principal  of,  interest  on and fees with  respect to the Loans and the
        Commitments, until such Obligations have been paid in full;

                         THIRD, to the payment in full of the other Obligations 
        until all of the Obligations have been paid in full;

                         FOURTH, to the Company, its successors or assigns or as
        a court of competent jurisdiction may otherwise direct.

                Section 19. COSTS AND EXPENSES;  INDEMNITY. The Grantor will pay
or reimburse the Agent 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 Agent 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 Agent and the  Banks  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 actions of the Agent or any Bank pursuant hereto,  except claims,  losses or

                                       11
<PAGE>
liabilities  resulting  from the gross  negligence or willful  misconduct of the
party seeking  indemnification  as determined by a final  judgment of a court of
competent  jurisdiction.  Any liability of the Grantor to indemnify and hold the
Agent and the Banks 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 20. 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 Agent. 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 Agent.  All
rights and remedies of the Agent shall be cumulative and may be exercised singly
in any order or  sequence,  or  concurrently,  at the  Agent'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 Agent of its
remedies hereunder, absent this waiver.

                Section 21. 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.
Notwithstanding  any other  provision  hereof,  the  amount  of the  Obligations
secured  hereunder  is  limited  to the  amount  which may be so  secured  under
applicable  federal and state laws relating to the insolvency of debtors without
this  Agreement  or  the  Security  Interest  being  held  to  be  avoidable  or
unenforceable.  The  Grantor  acknowledges  and agrees that  Obligations  may be
created  and  continued  in any  amount,  without  affecting  or  impairing  the
liability of the Grantor  hereunder or the Security  Interest.  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 Agent and the Banks 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 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  Agent  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,  their
properties or estates,  or any  collateral,  property,  Liens or other rights or

                                       12
<PAGE>
remedies   whatsoever.   The  Grantor  agrees  not  to  exercise  any  right  of
contribution,  recourse,  subrogation or reimbursement  available to the Grantor
against the  Borrowers  or any other  Person or  property,  unless and until all
Obligations  and  all  other  debts,  liabilities  and  obligations  owed by the
Borrower 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 Agent and the Banks may rely  conclusively on
the  continuing  warranty,  hereby  made,  that  the  Grantor  continues  to  be
benefitted by the Bank's extension of credit  accommodations to the Borrower and
the  neither  the  Agent nor any Bank  shall  have any duty to  inquire  into or
confirm the receipt of any such benefits,  and this Agreement shall be effective
and  enforceable by the Agent without regard to the receipt,  nature or value of
any such benefits.

                Section 22. 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  23.  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 Agent and the Banks have no
fiduciary  relationship to the Grantor,  the  relationship  being solely that of
debtor and creditor,  and (c) no joint venture exists  between the Grantor,  the
Agent and the Banks.

                Section 24.  REPRESENTATIONS AND WARRANTIES.  The Grantor hereby
represents and warrants to the Agent and the Banks that:

                         24(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.

                         24(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.

                         24(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

                                       13
<PAGE>
        enforcement  of creditors'  rights  generally  and by general  equitable
        principles (whether enforcement is sought by proceedings in equity or at
        law).

                         24(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.

                         24(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.

                         24(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 25.  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
Banks to extend credit  accommodations  to the Grantor,  (b) be binding upon the
Grantor,  its successors and assigns,  and (c) inure to the benefit of the Banks
and the Agent, and be enforceable by the Agent, and their respective successors,
transferees,  and assigns.  Without  limiting the  generality  of the  foregoing
clause (c), the Banks or the Agent 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

                                       14
<PAGE>
similarly  transfer  all or  any  portion  of its  rights  under  this  Security
Agreement to such Persons.

                Section 26.  TERMINATION OF SECURITY  INTEREST.  Upon payment in
full of the  Obligations,  the  expiration  of all  obligations  of the Banks to
extend  credit  accommodations  to the  Grantor  and  termination  of  all  Rate
Protection  Agreements,  the Security  Interest  granted hereby shall terminate.
Upon any such  termination,  the Agent will  return to the  Grantor  such of the
Collateral  then in the  possession  of the Agent 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 Agent.  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  27.  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 28. CONSENT TO JURISDICTION. AT THE OPTION OF THE AGENT,
THIS  AGREEMENT  MAY BE ENFORCED IN ANY FEDERAL  COURT OR MINNESOTA  STATE COURT
SITTING IN HENNEPIN  COUNTY;  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 AGENT AT ITS
OPTION  SHALL  BE  ENTITLED  TO  HAVE  THE  CASE   TRANSFERRED  TO  ONE  OF  THE

                                       15
<PAGE>
JURISDICTIONS  AND  VENUES  ABOVE-DESCRIBED,  OR  IF  SUCH  TRANSFER  CANNOT  BE
ACCOMPLISHED   UNDER  APPLICABLE  LAW,  TO  HAVE  SUCH  CASE  DISMISSED  WITHOUT
PREJUDICE.

                SECTION 29.  WAIVER OF NOTICE AND  HEARING.  THE GRANTOR  HEREBY
WAIVES ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
AGENT 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 30. WAIVER OF JURY TRIAL. EACH OF THE GRANTOR, THE BANKS
AND THE AGENT,  BY ITS EXECUTION  AND DELIVERY OR ACCEPTANCE OF THIS  AGREEMENT,
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.


                                       16
<PAGE>

                  Section 31.  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  32.  GENERAL.   All  representations  and  warranties
contained in this  Agreement or in any other  agreement  between the Grantor and
the  Agent  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  Agent.  Captions  in this
Agreement  are for  reference  and  convenience  only and shall not  affect  the
interpretation or meaning of any provision of this Agreement.


                  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.

                                               PILGRIM AMERICA SECURITIES,
INC.

                                               By ________________________

                                               Title _______________________
Address for Grantor:

Two Renaissance Square, Ste. 1200
40 North Central Avenue
Phoenix, AZ  85004-4424

Grantor's Tax ID #

Address for the Agent:

U.S. Bank National Association
601 Second Avenue South
Minneapolis, MN 55402-4302
Fax (612)


                                       17
<PAGE>

                                   SCHEDULE I
                                       to
                               Security Agreement


Locations of Equipment and Inventory
as of Date of Security Agreement


[Locations  to be provided,  including  county.  Locations  not owned by Grantor
should be specified with name of landlord or warehouse.]


<PAGE>

                                   SCHEDULE II
                                       to
                               Security Agreement


Trade Names and Trade Styles



[To be provided.]

<PAGE>
                                                                    EXHIBIT E TO
                                                                CREDIT AGREEMENT

                               SECURITY AGREEMENT

                THIS SECURITY AGREEMENT,  dated as of July 31, 1998, is made and
given  by  PILGRIM  AMERICA  INVESTMENTS,  INC.,  a  Delaware  corporation  (the
"Grantor"),  to U.S. BANK NATIONAL ASSOCIATION,  a national banking association,
as "Agent"  under,  and for the  benefit of the  "Banks"  party to, the  "Credit
Agreement" (as those terms are defined below).

                                    RECITALS

                A. Pilgrim America Group, Inc. ("PAG"),  Pilgrim America Capital
Corporation ("PACC") (together the "Borrowers"), the lenders party thereto, (the
"Banks")  and U.S.  Bank  National  Association,  as agent  for the  Banks  (the
"Agent") have entered into a Third Amended and Restated  Credit  Agreement dated
as of July  31,  1998  (as the  same may  hereafter  be  amended,  supplemented,
extended,  restated,  or  otherwise  modified  from  time to time,  the  "Credit
Agreement")  pursuant to which the Banks have agreed to extend to the  Borrowers
certain credit accommodations.

                B. It is a condition precedent to the obligation of the Banks to
extend credit accommodations  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 a Borrower,  and
the Borrower will use part of the loans made to it 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  Borrower  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  Banks to enter  into the  Credit  Agreement  and to  extend  credit
accommodations to the Borrowers  thereunder,  the Grantor hereby agrees with the
Agent, for the benefit of the Banks and the Agent, as follows:

                                       1
<PAGE>

        Section 1.  DEFINED TERMS.

                1(a) As  used in this  Agreement,  terms  capitalized  and  used
herein  without being  defined shall 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.

                "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 Agent 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.

                "EVENT OF DEFAULt"  shall have the meaning given to such term in
        Section 15 hereof.

                                       2
<PAGE>
                "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 Banks  and  Agent of every  kind,
        nature or  description  under the Credit  Agreement,  including  without
        limitation  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   and  any  letter  of  credit
        reimbursement  obligations  and fees, (b) all liabilities of the Grantor
        under this Agreement,  (c) any and all obligations of either Borrower to
        any Bank under  Rate  Protection  Agreements,  and (d) any and all other
        liabilities and obligations of the Borrowers or the Grantor to the Banks
        and the Agent of every kind,  nature and description,  whether direct or
        indirect  or  hereafter  acquired  by the  Banks or the  Agent  from any
        Person,   whether  absolute  or  contingent,   regardless  of  how  such
        liabilities  arise  or by  what  agreement  or  instrument  they  may be
        evidenced,  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.

                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

                                       3
<PAGE>
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,  subject to the limitations
set forth in Section 21 below,  the Grantor hereby grants to the Agent,  for the
benefit of the Banks, 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, rental agreements and other Chattel
        Paper and insurance  proceeds;  (ii) all books,  correspondence,  credit
        files, records,  invoices, bills of lading, 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
Accounts,  General  Intangibles,  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 Agent 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 Banks and the Agent

                                       4
<PAGE>
shall  have no  obligation  or  liability  under  Accounts,  Contracts,  General
Intangibles  and  other  items  included  in the  Collateral  by  reason of this
Agreement,  nor shall the Banks or the Agent 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 Agent)  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 those to be released in connection with the execution
and  delivery  hereof and those as may have been filed (a) in favor of the Agent
relating to this  Agreement,  or (b) to perfect  Liens  permitted  by the Credit
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 Agent 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 Agent,
(ii) the Agent 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 Agent'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 of the  Grantor  and the  office  where it keeps its books and
records  concerning  the  Collateral are located at its address set forth on the
signature  page hereof.  All items of Collateral  and Inventory  existing on the
date of this Agreement are located at the places specified on Schedule I hereto.
The Grantor will  immediately  notify the Agent 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 Agent  provide  the Agent 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

                                       5
<PAGE>
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 Agent has been
given at least 30 days prior written notice thereof and the Grantor has executed
and  delivered  to the Agent 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 Agent in  writing,  each  Account,  Contract  and  General
Intangible  constituting or evidencing 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 such  obligation.  Without the Agent'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 per Account Debtor or other obligor in any calendar year. The
Grantor  will  perform  and  comply  in  all  material  respects  with  all  its
obligations  under the 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 Agent to withdraw amounts so deposited and deposit the same into an
operating  account of the Grantor with the Agent.  From and after the occurrence
and during the  continuance  of a Default or an Event of Default,  the Agent may
hold all such amounts as Collateral,  for the benefit of the Banks, or apply the
same to the Obligations as provided in Section 18.

                Section 8.   FURTHER ASSURANCES; ATTORNEY-IN-FACT.

                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 Agent may reasonably
request,  in order to perfect  and  protect  the  Security  Interest  granted or
purported  to be granted  hereby or to enable the Agent 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 Agent: (i) mark, or permit the Agent to mark,

                                       6
<PAGE>
conspicuously  its books,  records,  and  accounts  showing or dealing  with the
Collateral,  with a legend,  in form and  substance  satisfactory  to the Agent,
indicating that each such item of Collateral is subject to the Security Interest
granted  hereby;  (ii)  deliver  and pledge to the Agent 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
Agent;  (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 Agent  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 Agent may request, in order
to perfect,  preserve, and enhance the Security Interest granted or purported to
be granted hereby;  and (iv) obtain waivers,  in form satisfactory to the Agent,
of any other party to any Contract consenting to the Agent's interest therein.

                8(b) The Grantor hereby authorizes the Agent 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 Agent from time to time
statements and schedules  further  identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request,  all  in  reasonable  detail  and  in  form  and  substance  reasonably
satisfactory to the Agent.

                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 Agent,  any Bank 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

                                       7
<PAGE>
from time to time when requested by the Agent or any Bank furnish to the Agent a
report on its Accounts,  Contracts and General  Intangibles,  naming the Account
Debtors or other obligors  thereon,  the amount due and the aging  thereof.  The
Agent or its designee is authorized to contact Account Debtors 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
Agent 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  AGENT.  If the  Grantor at any time
fails to perform or observe  any of the  foregoing  agreements,  the Agent shall
have (and the Grantor hereby grants to the Agent) 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 Agent's option,  in the Agent's
name) and to take any and all other actions which the Agent 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 Agent on demand the amount of all monies  expended  and all costs and
expenses (including  reasonable  attorneys' fees and legal expenses) incurred by
the Agent in connection  with or as a result of the performance or observance of
such  agreements  or the  taking of such  action  by the  Agent,  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 AGENT'S  DUTIES.  The powers  conferred  on the
Agent  hereunder are solely to protect its interest in the  Collateral and shall
not impose any duty upon it to  exercise  any such  powers.  The Agent  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 Agent to comply with any such
request shall not itself be deemed a failure to exercise reasonable care, and no
failure of the Agent 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 Agent
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 Agent accords its own
property of like kind. The Agent 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  Agent  has or is deemed to have  knowledge  of such  matters,  or as to the

                                       8
<PAGE>
taking of any  necessary  steps to  preserve  rights  against any Persons or any
other rights  pertaining  to any  Collateral.  The Agent 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 Agent's  possession
if the Agent 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  Agent to  comply  with any such  request  shall  not of  itself be deemed a
failure to exercise reasonable care.

                Section 15.  DEFAULT.  Each of the following  occurrences  shall
constitute an Event of Default under this Agreement:  (a) the Grantor shall fail
to observe or perform any covenant or agreement  applicable to the Grantor under
this  Agreement;  or (b) any  representation  or warranty made by the Grantor in
this Agreement or any schedule,  exhibit,  supplement or attachment hereto or in
any financial statements,  or reports or certificates  heretofore or at any time
hereafter  submitted  by or on behalf of the Grantor to the Agent shall prove to
have been false or materially  misleading when made; or (c) any Event of Default
shall occur under the Credit Agreement.

                Section 16. REMEDIES ON DEFAULT. Upon the occurrence of an Event
of Default and at any time thereafter:

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

                         16(b) The Agent  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
        Agent to permit  or  enable  the Agent to  exercise  the  remedies  with
        respect  to the  Collateral,  as the  Agent  may  elect,  and to use and
        operate said properties for said purposes and for such length of time as
        the Agent may deem  necessary or appropriate  for said purposes  without
        the  payment  of any  compensation  to Grantor  therefor.  The Agent may
        require the Grantor to, and the Grantor  hereby  agrees that it will, at
        its expense and upon  request of the Agent  forthwith,  assemble  all or
        part of the Collateral as directed by the Agent and make it available to
        the Agent at a place or places to be designated by the Agent.

                         16(c)  Any  sale  of  Collateral  may be in one or more
        parcels  at public or private  sale,  at any of the  Agent's  offices or
        elsewhere,  for cash, on credit,  or for future delivery,  and upon such
        other  terms  as the  Agent  may  reasonably  believe  are  commercially
        reasonable.  The  Agent  shall  not be  obligated  to make  any  sale of
        Collateral regardless of notice of sale having been given, and the Agent
        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.

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<PAGE>
                         16(d) The Agent 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, exercise its remedies with respect to the
        Collateral,  and  the  Grantor's  rights  under  all  licenses  and  all
        franchise  agreements  shall  inure to the  Agent's  benefit  until  the
        Obligations are paid in full.

                         16(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  22  hereof  at least  ten  calendar  days  prior to the date of
        intended  disposition  or other  action,  and the Agent 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.

                         16(f) The Agent 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.

                         16(g) The Grantor  appoints the Agent 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 17.  REMEDIES AS TO CERTAIN RIGHTS TO PAYMENT.  Upon the
occurrence  of an Event of  Default  and at any time  thereafter  the  Agent may
notify any Account  Debtor or other  Person  obligated  on any Accounts or other
Collateral that the same have been assigned or transferred to the Agent and that
the same should be performed as requested by, or paid directly to, the Agent, as
the case may be. The Grantor  shall join in giving such notice,  if the Agent so
requests.  The Agent may, in the Agent'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 Agent is hereby granted the right to take any action which the
Agent 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 such  Collateral  are received by the Grantor  after an Event of

                                       10
<PAGE>
Default has occurred, such payments shall be held in trust by the Grantor as the
property of the Agent and shall not be commingled  with any funds or property of
the Grantor and shall be forthwith  remitted to the Agent for application on the
Obligations.

                Section 18. APPLICATION OF PROCEEDS.  All cash proceeds received
by the Agent 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 Agent,  be
held by the  Agent  as  collateral  for,  or then or at any time  thereafter  be
applied  in  whole  or in  part  against,  all or any  part  of the  Obligations
(including,  without  limitation,  any expenses of the Agent payable pursuant to
Section  19  hereof).  If the  Agent  shall  apply  such  cash  proceeds  to the
Obligations, they shall be applied as follows:

                         FIRST,  to the  payment  of all  reasonable  costs  and
        expenses incurred by the Agent in connection with such collection,  sale
        or disposition or otherwise in connection with this Security  Agreement,
        including  all court costs and the  reasonable  fees and expenses of its
        agents and legal  counsel,  the  repayment of all  advances  made by the
        Agent hereunder on behalf of the Grantor and any other costs or expenses
        incurred  in  connection  with  the  exercise  of any  right  or  remedy
        hereunder;

                         SECOND, to the payment of the Obligations consisting of
        principal  of,  interest  on and fees with  respect to the Loans and the
        Commitments, until such Obligations have been paid in full;

                         THIRD, to the payment in full of the other Obligations
        until all of the Obligations have been paid in full;

                         FOURTH, to the Grantor, its successors or assigns or as
        a court of competent jurisdiction may otherwise direct.

                Section 19. COSTS AND EXPENSES;  INDEMNITY. The Grantor will pay
or reimburse the Agent 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 Agent 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 Agent and the  Banks  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 actions of the Agent or any Bank pursuant hereto,  except claims,  losses or
liabilities  resulting  from the gross  negligence or willful  misconduct of the
party seeking  indemnification  as determined by a final  judgment of a court of
competent  jurisdiction.  Any liability of the Grantor to indemnify and hold the

                                       11
<PAGE>
Agent and the Banks 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 20. 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 Agent. 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 Agent.  All
rights and remedies of the Agent shall be cumulative and may be exercised singly
in any order or  sequence,  or  concurrently,  at the  Agent'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 Agent of its
remedies hereunder, absent this waiver.

                Section 21. 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.
Notwithstanding  any other  provision  hereof,  the  amount  of the  Obligations
secured  hereunder  is  limited  to the  amount  which may be so  secured  under
applicable  federal and state laws relating to the insolvency of debtors without
this  Agreement  or  the  Security  Interest  being  held  to  be  avoidable  or
unenforceable.  The  Grantor  acknowledges  and agrees that  Obligations  may be
created  and  continued  in any  amount,  without  affecting  or  impairing  the
liability of the Grantor  hereunder or the Security  Interest.  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 Agent and the Banks 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 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  Agent  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,  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

                                       12
<PAGE>
against the  Borrowers  or any other  Person or  property,  unless and until all
Obligations  and  all  other  debts,  liabilities  and  obligations  owed by the
Borrower 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 Agent and the Banks may rely  conclusively on
the  continuing  warranty,  hereby  made,  that  the  Grantor  continues  to  be
benefitted by the Bank's extension of credit  accommodations to the Borrower and
the  neither  the  Agent nor any Bank  shall  have any duty to  inquire  into or
confirm the receipt of any such benefits,  and this Agreement shall be effective
and  enforceable by the Agent without regard to the receipt,  nature or value of
any such benefits.

                Section 22. 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  23.  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 Agent and the Banks have no
fiduciary  relationship to the Grantor,  the  relationship  being solely that of
debtor and creditor,  and (c) no joint venture exists  between the Grantor,  the
Agent and the Banks.

                Section 24.  REPRESENTATIONS AND WARRANTIES.  The Grantor hereby
represents and warrants to the Agent and the Banks that:

                         24(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.

                         24(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.

                         24(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

                                       13
<PAGE>
        principles (whether enforcement is sought by proceedings in equity or at
        law).

                         24(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.

                         24(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.

                         24(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 25.  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
Banks to extend credit  accommodations  to the Grantor,  (b) be binding upon the
Grantor,  its successors and assigns,  and (c) inure to the benefit of the Banks
and the Agent, and be enforceable by the Agent, and their respective successors,
transferees,  and assigns.  Without  limiting the  generality  of the  foregoing
clause (c), the Banks or the Agent may assign or  otherwise  transfer all or any
portion of its rights and  obligations  under the Credit  Agreement to any other

                                       14
<PAGE>
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 26.  TERMINATION OF SECURITY  INTEREST.  Upon payment in
full of the  Obligations,  the  expiration  of all  obligations  of the Banks to
extend  credit  accommodations  to the  Grantor  and  termination  of  all  Rate
Protection  Agreements,  the Security  Interest  granted hereby shall terminate.
Upon any such  termination,  the Agent will  return to the  Grantor  such of the
Collateral  then in the  possession  of the Agent 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 Agent.  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  27.  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 28. CONSENT TO JURISDICTION. AT THE OPTION OF THE AGENT,
THIS  AGREEMENT  MAY BE ENFORCED IN ANY FEDERAL  COURT OR MINNESOTA  STATE COURT
SITTING IN HENNEPIN  COUNTY;  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 AGENT AT ITS
OPTION  SHALL  BE  ENTITLED  TO  HAVE  THE  CASE   TRANSFERRED  TO  ONE  OF  THE

                                       15
<PAGE>
JURISDICTIONS  AND  VENUES  ABOVE-DESCRIBED,  OR  IF  SUCH  TRANSFER  CANNOT  BE
ACCOMPLISHED   UNDER  APPLICABLE  LAW,  TO  HAVE  SUCH  CASE  DISMISSED  WITHOUT
PREJUDICE.

                SECTION 29.  WAIVER OF NOTICE AND  HEARING.  THE GRANTOR  HEREBY
WAIVES ALL RIGHTS TO A JUDICIAL HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE
AGENT 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 30. WAIVER OF JURY TRIAL. EACH OF THE GRANTOR, THE BANKS
AND THE AGENT,  BY ITS EXECUTION  AND DELIVERY OR ACCEPTANCE OF THIS  AGREEMENT,
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.


                                       16
<PAGE>
                  Section 31.  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  32.  GENERAL.   All  representations  and  warranties
contained in this  Agreement or in any other  agreement  between the Grantor and
the  Agent  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  Agent.  Captions  in this
Agreement  are for  reference  and  convenience  only and shall not  affect  the
interpretation or meaning of any provision of this Agreement.


                  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.

                                          PILGRIM AMERICA INVESTMENTS,
                                          INC.
                                          By
                                            -------------------------------
                                                    James R. Reis
                                                    Vice Chairman
Address for Grantor:

Two Renaissance Square, Ste. 1200
40 North Central Avenue
Phoenix, AZ  85004-4424

Grantor's Tax ID #:

Address for the Agent:

U.S. Bank National Association
601 Second Avenue South
Minneapolis, MN 55402-4302
Fax (612)


                                       17
<PAGE>

                                   SCHEDULE I
                                       to
                               Security Agreement


Locations of Equipment and Inventory
as of Date of Security Agreement


[Locations  to be provided,  including  county.  Locations  not owned by Grantor
should be specified with name of landlord or warehouse.]


<PAGE>


                                   SCHEDULE II
                                       to
                               Security Agreement


Trade Names and Trade Styles



[To be provided.]


<PAGE>
                                                                    EXHIBIT F TO
                                                                CREDIT AGREEMENT

                                PLEDGE AGREEMENT


                  THIS PLEDGE AGREEMENT,  dated as of July 31, 1998, is made and
given by  PILGRIM  AMERICA  CAPITAL  CORPORATION,  a Delaware  corporation  (the
"Pledgor"),  to U.S. BANK NATIONAL ASSOCIATION,  a national banking association,
as "Agent"  under,  and for the  benefit  of the  "Banks"  party to the  "Credit
Agreement" (as that term is defined below).

                                    RECITALS

                  A. The Pledgor, Pilgrim America Group, Inc. ("PAG") (together,
the "Borrowers"), the lenders party thereto (the "Banks") and U.S. Bank National
Association,  as agent for the Banks (the  "Agent"),  have  entered into a Third
Amended and Restated Credit Agreement dated as of July 31, 1998 (as the same may
hereafter be amended,  restated,  or otherwise  modified from time to time,  the
"Credit  Agreement")  pursuant  to which the Banks have  agreed to extend to the
Pledgor certain credit accommodations.

                  B. The  Pledgor  is the  owner  of the  shares  (the  "Pledged
Shares")  of  stock  described  in Part I of  Schedule  I hereto  issued  by the
corporation or corporations named therein.

                  C. It is a condition  precedent to the obligation of the Banks
to extend credit  accommodations  pursuant to the terms of the Credit  Agreement
that this Agreement be executed and delivered by the Pledgor.

                  D. The Pledgor  finds it  advantageous,  desirable  and in the
best interests of the Pledgor to comply with the requirement that this Agreement
be executed and delivered to the Agent.

                  NOW, THEREFORE,  in consideration of the premises and in order
to induce  the Banks to enter  into the Credit  Agreement  and to extend  credit
accommodations to the Borrowers  thereunder,  the Pledgor hereby agrees with the
Agent, for the benefit of the Banks and the Agent, as follows:

                  Section 1.  DEFINED TERMS.

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

                                       1
<PAGE>

                  "COLLATERAL" shall  have the  meaning  given  to such  term in
Section 2.

                  "EVENT OF DEFAULT"  shall have the meaning  given to such term
in Section 11.

                  "OBLIGATIONS" shall mean (a) all indebtedness, liabilities and
obligations  of the  Borrowers  to the Banks and Agent of every kind,  nature or
description  under  the  Credit  Agreement,  including  without  limitation  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
and any letter of credit reimbursement obligations and fees, (b) all liabilities
of the  Pledgor  under this  Agreement,  (c) any and all  obligations  of either
Borrower to any Bank under Rate Protection Agreements, and (d) any and all other
liabilities and obligations of the Borrowers to the Banks and the Agent of every
kind, nature and description,  whether direct or indirect or hereafter  acquired
by the Banks or the Agent  from any  Person,  whether  absolute  or  contingent,
regardless of how such liabilities arise or by what agreement or instrument they
may be  evidenced,  and in all of the  foregoing  cases whether due or to become
due, and whether now existing or hereafter arising or incurred.

                  "PLEDGED  SHARES" shall have the meaning given to such term in
Recital B above.

                  "SECURITY  INTEREST" shall have the meaning given to such term
in Section 2.

                  1(b) TERMS DEFINED IN UNIFORM COMMERCIAL CODE. All other terms
used  in  this  Agreement  that  are  not  specifically  defined  herein  or the
definitions  of which are not  incorporated  herein by reference  shall have the
meaning  assigned to such terms in the Uniform  Commercial Code in effect in the
State of Minnesota  as of the date first above  written to the extent such other
terms are defined therein.

                  1(c)   SINGULAR/PLURAL,   ETC.  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 Pledge
Agreement unless otherwise provided.

                  Section 2. PLEDGE. As security for the payment and performance
of all of the Obligations, the Pledgor hereby pledges to the Agent and grants to
the Agent a security  interest,  for the  benefit of the Banks,  (the  "Security
Interest"), in the following (the "Collateral"):

                                       2
<PAGE>
                           2(a)  The   Pledged   Shares  and  the   certificates
         representing the Pledged Shares, and all dividends,  cash,  instruments
         and other property from time to time received,  receivable or otherwise
         distributed  in respect of or in exchange for any or all of the Pledged
         Shares.

                           2(b) All additional  shares of stock of any issuer of
         the Pledged Shares or other direct  Subsidiary of the Pledgor from time
         to time  acquired by the Pledgor in any  manner,  and the  certificates
         representing  such  additional   shares,   and  all  dividends,   cash,
         instruments  and other property from time to time received,  receivable
         or otherwise distributed in respect of or in exchange for any or all of
         such shares.

                           2(c)  All  proceeds  of any and all of the  foregoing
         (including proceeds that constitute property of types described above).

                  Section  3.  DELIVERY  OF  COLLATERAL.  All  certificates  and
instruments  representing or evidencing the Pledged Shares shall be delivered to
the  Agent   contemporaneously  with  the  execution  of  this  Agreement.   All
certificates and instruments  representing or evidencing  Collateral received by
the Pledgor  after the  execution  of this  Agreement  shall be delivered to the
Agent promptly upon the Pledgor's  receipt  thereof.  All such  certificates and
instruments shall be held by or on behalf of the Agent pursuant hereto and shall
be in suitable form for transfer by delivery,  or shall be  accompanied  by duly
executed  instruments  of  transfer  or  assignment  in  blank,  all in form and
substance satisfactory to the Agent. The Agent shall have the right at any time,
whether  before  or  after  an Event  of  Default,  to  cause  any or all of the
Collateral to be transferred of record into the name of the Agent or its nominee
(but  subject  to the rights of the  Pledgor  under  Section 6) and to  exchange
certificates  representing or evidencing  Collateral for certificates of smaller
or  larger  denominations.  Notwithstanding  any  of  the  foregoing,  as to any
Collateral  consisting of book-entry or uncertificated  securities or securities
which  are held by a third  Person,  the  Pledgor  shall  deliver  to the  Agent
evidence  satisfactory  to the Agent that such Collateral has been registered in
the name of, or as pledged  to, the  Agent.  Such  evidence  shall  include  the
acknowledgment  of the issuer or Person holding such Collateral that such issuer
or Person holds such  Collateral as agent for the Agent and that such Collateral
is  identified  on the books of such issuer or third  Person as  belonging to or
pledged to the Agent.

                  Section 4. CERTAIN WARRANTIES AND COVENANTS. The Pledgor makes
the following warranties and covenants:

                           4(a) The Pledgor has title to the Pledged  Shares and
         will have title to each other item of  Collateral  hereafter  acquired,
         free of all Liens except the Security Interest.

                                       3
<PAGE>
                           4(b) The  Pledgor  has full  power and  authority  to
         execute this Pledge  Agreement,  to perform the  Pledgor's  obligations
         hereunder  and to  subject  the  Collateral  to the  Security  Interest
         created hereby.

                           4(c) No financing  statement covering all or any part
         of the  Collateral  is on file in any  public  office  (except  for any
         financing statements filed by the Agent.

                           4(d) The Pledged Shares have been duly authorized and
         validly   issued  by  the  issuer   thereof  and  are  fully  paid  and
         non-assessable.  The  certificates  representing the Pledged Shares are
         genuine.  The  Pledged  Shares are not subject to any offset or similar
         right or claim of the issuers thereof.

                           4(e) The Pledged Shares  constitute the percentage of
         the issued and  outstanding  shares of stock of the respective  issuers
         thereof  indicated  on  Schedule  I (or,  if no such  percentage  is so
         indicated, one hundred percent).

                  Section 5. FURTHER ASSURANCES.  The Pledgor agrees that at any
time and from time to time,  at the expense of the  Pledgor,  the  Pledgor  will
promptly execute and deliver all further instruments and documents, and take all
further action that may be necessary or that the Agent may  reasonably  request,
in order to perfect and protect the Security  Interest or to enable the Agent to
exercise  and  enforce its rights and  remedies  hereunder  with  respect to any
Collateral  (but any failure to request or assure  that the Pledgor  execute and
deliver such instruments 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).

                  Section 6.  VOTING RIGHTS; DIVIDENDS; ETC.

                           6(a) Subject to paragraph  (d) of this Section 6, the
         Pledgor  shall be entitled to exercise or refrain from  exercising  any
         and all voting and other  consensual  rights  pertaining to the Pledged
         Shares or any other stock that  becomes part of the  Collateral  or any
         part  thereof for any purpose not  inconsistent  with the terms of this
         Agreement or the Credit Agreement;  provided, however, that the Pledgor
         shall not  exercise or refrain from  exercising  any such right if such
         action could  reasonably be expected to have a material  adverse effect
         on the value of the Collateral or any material part thereof.

                           6(b) Subject to paragraph  (e) of this Section 6, the
         Pledgor shall be entitled to receive, retain, and use in any manner not
         prohibited  by the Credit  Agreement any and all interest and dividends
         paid in respect of the Collateral; PROVIDED, HOWEVER, that any and all

                                       4
<PAGE>
                  (i)  dividends  paid or payable  other than in cash in respect
                  of, and instruments and other property received, receivable or
                  otherwise  distributed  in respect of, or in exchange for, any
                  Collateral,

                  (ii) dividends and other distributions paid or payable in cash
                  in respect of any  Collateral in connection  with a partial or
                  total  liquidation  or  dissolution  or in  connection  with a
                  reduction of capital, capital surplus or paid-in-surplus, and

                  (iii) cash paid,  payable or otherwise  distributed in respect
                  of principal of, or in redemption  of, or in exchange for, any
                  Collateral,

         shall be,  and shall be  forthwith  delivered  to the Agent to hold as,
         Collateral and shall, if received by the Pledgor,  be received in trust
         for the benefit of the Agent,  be segregated from the other property or
         funds  of the  Pledgor,  and be  forthwith  delivered  to the  Agent as
         Collateral  in  the  same  form  as so  received  (with  any  necessary
         indorsement  or  assignment).  The Pledgor  shall,  upon request by the
         Agent,  promptly execute all such documents and do all such acts as may
         be  necessary or  desirable  to give effect to the  provisions  of this
         Section 6 (b).

                           6(c) The Agent shall execute and deliver (or cause to
         be executed  and  delivered)  to the Pledgor all such proxies and other
         instruments  as the Pledgor may  reasonably  request for the purpose of
         enabling the Pledgor to exercise the voting and other rights that it is
         entitled  to  exercise  pursuant to Section 6 (a) hereof and to receive
         the  dividends and interest that it is authorized to receive and retain
         pursuant to Section 6 (b) hereof.

                           6(d) Upon the occurrence  and during the  continuance
         of any Event of  Default,  the Agent  shall  have the right in its sole
         discretion,  and the Pledgor shall execute and deliver all such proxies
         and other instruments as may be necessary or appropriate to give effect
         to such right,  to  terminate  all rights of the Pledgor to exercise or
         refrain from exercising the voting and other consensual  rights that it
         would  otherwise  be  entitled  to  exercise  pursuant to Section 6 (a)
         hereof,  and all such rights shall thereupon become vested in the Agent
         who shall  thereupon  have the sole right to exercise  or refrain  from
         exercising such voting and other consensual rights; provided,  however,
         that the Agent shall not be deemed to possess or have  control over any
         voting rights with respect to any Collateral unless and until the Agent
         has given  written  notice to the Pledgor that any further  exercise of
         such  voting  rights by the  Pledgor is  prohibited  and that the Agent
         and/or its assigns will  henceforth  exercise such voting  rights;  and
         provided,  further,  that  neither  the  registration  of any  item  of
         Collateral  in the Agent's name nor the  exercise of any voting  rights

                                       5
<PAGE>
         with respect  thereto  shall be deemed to constitute a retention by the
         Agent of any such  Collateral in satisfaction of the Obligations or any
         part thereof.

                           6(e) Upon the occurrence  and during the  continuance
         of any Event of Default:

                  (i) all rights of the  Pledgor to receive  the  dividends  and
                  interest that it would  otherwise be authorized to receive and
                  retain  pursuant to Section 6(b) hereof  shall cease,  and all
                  such  rights  shall  thereupon  become  vested in the Bank who
                  shall  thereupon  have the sole right to receive and hold such
                  dividends as Collateral, and

                  (ii) all payments of interest and dividends  that are received
                  by the Pledgor  contrary to the provisions of paragraph (i) of
                  this  Section 6 (e) shall be received in trust for the benefit
                  of the Banks and the  Agent,  shall be  segregated  from other
                  funds of the Pledgor and shall be  forthwith  paid over to the
                  Agent as Collateral in the same form as so received  (with any
                  necessary indorsement).

                  Section 7.  TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES.

                           7(a)  Except  as  may  be  permitted  by  the  Credit
         Agreement,  the Pledgor  agrees  that it will not (i) sell,  assign (by
         operation of law or  otherwise)  or otherwise  dispose of, or grant any
         option with respect to, any of the Collateral, or (ii) create or permit
         to exist any Lien, upon or with respect to any of the Collateral.

                           7(b) The  Pledgor  agrees that it will (i) cause each
         issuer of the Pledged Shares that it controls not to issue any stock or
         other  securities  in  addition to or in  substitution  for the Pledged
         Shares  issued by such issuer,  except to the Pledgor,  and (ii) pledge
         hereunder,  immediately  upon its acquisition  (directly or indirectly)
         thereof,  any and all additional shares of stock or other securities of
         each issuer of the Pledged Shares.

                  Section  8.  AGENT  APPOINTED  ATTORNEY-IN-FACt.  The  Pledgor
hereby appoints the Agent the Pledgor's attorney-in-fact, with full authority in
the  place  and  stead  of such  Pledgor  and in the  name of  such  Pledgor  or
otherwise,  from time to time in the Agent's good-faith discretion,  to take any
action and to  execute  any  instrument  that the Agent may  reasonably  believe
necessary or advisable to accomplish the purposes of this Agreement  (subject to
the rights of the Pledgor under Section 6 hereof),  in a manner  consistent with
the terms hereof, including, without limitation, to receive, indorse and collect
all instruments  made payable to the Pledgor  representing any dividend or other
distribution  in respect of the  Collateral or any part thereof and to give full
discharge for the same.

                                       6
<PAGE>
                  Section 9. AGENT MAY PERFORM.  If the Pledgor fails to perform
any  agreement  contained  herein,  the  Agent  may  itself  perform,  or  cause
performance  of,  such  agreement,  and the  reasonable  expenses  of the  Agent
incurred in connection  therewith  shall be payable by the Pledgor under Section
14 hereof.

                  Section 10. THE AGENT'S  DUTIES.  The powers  conferred on the
Agent  hereunder are solely to protect its interest in the  Collateral and shall
not impose any duty upon it to  exercise  any such  powers.  The Agent  shall be
deemed to have exercised reasonable care in the safekeeping of any Collateral in
its possession if such Collateral is accorded treatment  substantially  equal to
the  safekeeping  which the Agent accords its own property of like kind.  Except
for the  safekeeping  of any Collateral in its possession and the accounting for
monies and for other  properties  actually  received by it hereunder,  the Agent
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 Agent 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 Agent will take action in the nature of exchanges,  conversions,
redemption,  tenders  and the like  requested  in  writing by the  Pledgor  with
respect to any of the  Collateral in the Agent's  possession if the Agent 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 Agent to comply
with any such  request  shall not of itself  be  deemed a  failure  to  exercise
reasonable care.

                  Section 11. DEFAULT.  Each of the following  occurrences shall
constitute an Event of Default under this Agreement:  (a) the Pledgor shall fail
to observe or perform any covenant or agreement  applicable to the Pledgor under
this  Agreement  within  fifteen (15) days after the earlier to occur of (i) the
date the Pledgor gives notice of such failure to the Agent, or (ii) the date the
Agent gives notice of such failure to the Pledgor;  or (b) any representation or
warranty made by the Pledgor in this  Agreement or in any financial  statements,
reports or certificates  heretofore or at any time hereafter  submitted by or on
behalf of the Pledgor to the Agent shall prove to have been false or  materially
misleading  when made;  or (c) any Event of Default shall occur under the Credit
Agreement (beyond the applicable cure period specified therein).

                  Section 12.  REMEDIES  UPON  DEFAULT.  If any Event of Default
shall have occurred and be continuing:

                           12(a)  The  Agent  may  exercise  in  respect  of the
         Collateral,  in  addition to other  rights and  remedies  provided  for
         herein or  otherwise  available to it, all the rights and remedies of a
         secured party on default under the Uniform Commercial Code of the State
         of Minnesota  (the  "Code") in effect at that time  (whether or not the
         Code then applies to the affected Collateral),  and may, without notice

                                       7
<PAGE>
         except as specified  below,  sell the Collateral or any part thereof in
         one or more  parcels  at  public  or  private  sale,  at any  exchange,
         broker's board or at any of the Agent's offices or elsewhere, for cash,
         on credit or for  future  delivery,  and upon such  other  terms as the
         Agent may reasonably believe are commercially  reasonable.  The Pledgor
         agrees that,  to the extent notice of sale shall be required by law, at
         least ten days prior notice to the Pledgor of the time and place of any
         public  sale or the time  after  which any  private  sale is to be made
         shall  constitute  reasonable  notification.  The  Agent  shall  not be
         obligated to make any sale of  Collateral  regardless of notice of sale
         having  been given.  The Agent may  adjourn any public or private  sale
         from time to time by announcement 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.  The  Pledgor  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
         Agent of its remedies hereunder, absent this waiver.

                           12(b) The Agent may notify any  Person  obligated  on
         any of the Collateral that the same has been assigned or transferred to
         the Agent and that the same should be  performed  as  requested  by, or
         paid directly to, the Agent, as the case may be. The Pledgor shall join
         in giving such notice, if the Agent so requests.  The Agent may, in the
         Agent's name or in the  Pledgor'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 Person.

                           12(c) Any cash held by the  Agent as  Collateral  and
         all cash  proceeds  received  by the Agent 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 Agent, be held by the Agent as
         collateral  for, or then or at any time  thereafter be applied in whole
         or in part by the  Agent  against,  all or any part of the  Obligations
         (including  any  expenses of the Agent  payable  pursuant to Section 15
         hereof).   If  the  Agent  shall  apply  such  cash   proceeds  to  the
         Obligations, they shall be applied as follows:

                           FIRST,  to the  payment of all  reasonable  costs and
         expenses incurred by the Agent in connection with such collection, sale
         or disposition or otherwise in connection  with this Pledge  Agreement,
         including all court costs and the  reasonable  fees and expenses of its
         agents and legal  counsel,  the  repayment of all advances  made by the
         Agent  hereunder  on  behalf  of the  Pledgor  and any  other  costs or
         expenses  incurred  in  connection  with the  exercise  of any right or
         remedy hereunder;

                                       8
<PAGE>
                          SECOND, to the payment of the Obligations  consisting
         of principal of, interest on and fees with respect to the Loans and the
         Commitments, until such Obligations have been paid in full;

                          THIRD, to the payment in full of the other Obligations
         until all of the Obligations have been paid in full;

                          FOURTH, to the Pledgor,  its successors or assigns or
         as a court of competent jurisdiction may otherwise direct.

                  Section 13. REGISTRATION  RIGHTS. If the Agent shall determine
to exercise its right to sell all or any of the  Collateral  pursuant to Section
12 hereof, the Pledgor agrees that, upon request of the Agent, the Pledgor will,
at its own expense:

                           13(a) execute and deliver, and cause the issuer(s) of
         the Pledged  Shares to execute and deliver,  all such  instruments  and
         documents,  and do or cause to be done all such other acts and  things,
         as may be  necessary  or, in the  opinion  of the Agent,  advisable  to
         register such  Collateral  under the provisions of the Securities  Act,
         and to cause the  registration  statement  relating  thereto  to become
         effective and to remain  effective for such period as prospectuses  are
         required  by law  to be  furnished,  and to  make  all  amendments  and
         supplements thereto and to the related prospectus which, in the opinion
         of the Agent,  are necessary or advisable,  all in conformity  with the
         requirements of the Securities Act and the rules and regulations of the
         SEC applicable thereto;

                           13(b) use its best efforts to qualify the  Collateral
         under any applicable  state securities or "Blue Sky" laws and to obtain
         all necessary governmental approvals for the sale of the Collateral, as
         requested by the Bank;

                           13(c) cause the  issuer(s)  of the Pledged  Shares to
         make  available to its security  holders,  as soon as  practicable,  an
         earnings statement that will satisfy the provisions of Section 11(a) of
         the Securities Act; and

                           13(d) do or cause to be done all such  other acts and
         things as may be necessary to make such sale of the  Collateral  or any
         part thereof valid and binding and in compliance with applicable law.

                  Section 14. WAIVER OF CERTAIN CLAIMS. The Pledgor acknowledges
that because of present or future circumstances,  a question may arise under the
Securities  Act of 1933,  as from time to time amended (the  "Securities  Act"),
with respect to any  disposition  of the  Collateral  permitted  hereunder.  The
Pledgor  understands  that  compliance with the Securities Act may very strictly
limit the course of conduct of the Agent if the Agent were to attempt to dispose
of all or any portion of the  Collateral  and may also limit the extent to which
or the  manner in which  any  subsequent  transferee  of the  Collateral  or any

                                       9
<PAGE>
portion thereof may dispose of the same.  There may be other legal  restrictions
or  limitations  affecting  the Agent in any  attempt  to  dispose of all or any
portion of the Collateral under the applicable Blue Sky or other securities laws
or similar laws  analogous  in purpose or effect.  The Agent may be compelled to
resort to one or more private sales to a restricted group of purchasers who will
be obliged to agree,  among other things,  to acquire such  Collateral for their
own account for investment  only and not to engage in a  distribution  or resale
thereof.  The Pledgor agrees that neither the Agent nor any Bank shall incur any
liability,  and any  liability  of the Pledgor for any  deficiency  shall not be
impaired,  as a result of the sale of the  Collateral or any portion  thereof at
any such  private  sale in a manner that in all other  respects is  commercially
reasonable  (within  the meaning of Section  9-504(3) of the Uniform  Commercial
Code).  The Pledgor hereby waives any claims against the Agent arising by reason
of the fact that the price at which  the  Collateral  may have been sold at such
sale was less than the price that might have been  obtained  at a public sale or
was less than the aggregate amount of the  Obligations,  even if the Agent shall
accept the first offer received and does not offer any portion of the Collateral
to more than one possible  purchaser.  The Pledgor further agrees that the Agent
has no  obligation  to  delay  sale of any  Collateral  for the  period  of time
necessary to permit the issuer of such  Collateral  to qualify or register  such
Collateral for public sale under the Securities  Act,  applicable  Blue Sky laws
and other  applicable  state and federal  securities  laws,  even if said issuer
would agree to do so.  Without  limiting the  generality of the  foregoing,  the
provisions of this Section would apply if, for example,  the Agent were to place
all or any portion of the  Collateral  for private  placement  by an  investment
banking firm, or if such investment banking firm purchased all or any portion of
the Collateral for its own account, or if the Agent placed all or any portion of
the Collateral privately with a purchaser or purchasers.

                  Section 15. COSTS AND  EXPENSES;  INDEMNITY.  The Pledgor will
pay or reimburse the Agent on demand for all reasonable  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  Agent  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 Pledgor shall indemnify and hold the Agent
and  the  Banks  harmless  from  and  against  any and all  claims,  losses  and
liabilities (including reasonable attorneys' fees) resulting from this Agreement
(including  enforcement  of this  Agreement)  or the actions of the Agent or any
Bank pursuant hereto,  except claims,  losses or liabilities  resulting from the
gross negligence or willful misconduct of the party seeking indemnification. Any
liability of the Pledgor to indemnify and hold the Agent and the Banks  harmless
pursuant to the preceding  sentence shall be part of the Obligations  secured by
the Security  Interest.  The obligations of the Pledgor under this Section shall
survive any termination of this Agreement.

                                       10
<PAGE>
                  Section 16. WAIVERS AND AMENDMENTS; REMEDIES.  Notwithstanding
any provisions to the contrary herein, any term of this Agreement may be amended
with  the  written   consent  of  the  Pledgor;   provided  that  no  amendment,
modification  or waiver of any  provision  of this  Agreement  or consent to any
departure  herefrom by the Pledgor or other party  thereto shall in any event be
effective  unless the same shall be in writing and signed by the Agent, and then
such amendment,  modification,  waiver or consent shall be effective only in the
specific instance and for the purpose for which given. The Security Interest can
be  released,  only  explicitly  in a writing  signed by the Agent.  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 Agent.  All rights and
remedies of the Agent shall be  cumulative  and may be  exercised  singly in any
order or sequence,  or concurrently,  at the Agent'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.

                  Section  17.  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 three days after the date of mailing if mailed.

                  Section  18.  PLEDGOR  ACKNOWLEDGEMENTS.  The  Pledgor  hereby
acknowledges   that  (a)  the  Pledgor  has  been  advised  by  counsel  in  the
negotiation,  execution  and delivery of this  Agreement,  (b) the Banks and the
Agent have no fiduciary  relationship  to the Pledgor,  the  relationship  being
solely that of debtor and creditor,  and (c) no joint venture exists between the
Pledgor, the Banks and the Agent.

                  Section 19. CONTINUING  SECURITY  INTEREST;  ASSIGNMENTS UNDER
CREDIT AGREEMENT.  This Agreement shall create a continuing security interest in
the  Collateral  and shall (a) remain in full force and effect until the payment
in full of the Obligations and the expiration of the obligation,  if any, of the
Banks to extend credit accommodations to the Borrowers,  (b) be binding upon the
Pledgor,  its successors and assigns,  and (c) inure to the benefit of the Banks
and the Agent, and be enforceable by the Agent, and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(c), the Banks or the Agent may assign or otherwise  transfer all or any portion
of its rights and obligations  under the Credit Agreement to any other Person to
the extent and in the manner provided in the Credit Agreement,  and may transfer

                                       11
<PAGE>
all or any portion of its rights under this Pledge  Agreement to such Persons in
connection therewith.

                  Section 20. TERMINATION OF SECURITY INTEREST.  Upon payment in
full of the Obligations  (except for contingent  indemnity and other  contingent
Obligations not yet due and payable) and the expiration of any obligation of the
Banks to extend credit  accommodations  to the Borrowers,  the security interest
granted hereby shall terminate and all rights to the Collateral  shall revert to
the  Pledgor.  Upon any such  termination,  the Agent will return to the Pledgor
such of the Collateral as shall not have been sold or otherwise applied pursuant
to the terms hereof and execute and deliver to the Pledgor such documents as the
Pledgor shall reasonably request to evidence such termination.  Any reversion or
return of the Collateral upon  termination of this Agreement and any instruments
of transfer or  termination  shall be at the expense of the Pledgor and shall be
without  warranty  by, or  recourse  on,  the  Agent.  As used in this  Section,
"Pledgor"  includes  any assigns of Pledgor,  any Person  holding a  subordinate
security  interest in any part of the Collateral or whoever else may be lawfully
entitled to any part of the Collateral.

                  SECTION 21.  GOVERNING  LAW AND  CONSTRUCTION.  THE  VALIDITY,
CONSTRUCTION AND  ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF  MINNESOTA,  BUT  GIVING  EFFECT TO  FEDERAL  LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS; PROVIDED,  HOWEVER, THAT NO EFFECT SHALL BE
GIVEN TO CONFLICT OF LAWS  PRINCIPLES OF THE STATE OF  MINNESOTA,  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  22.  CONSENT  TO  JURISDICTION.  AT THE OPTION OF THE
AGENT,  THIS  AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA  STATE
COURT SITTING IN HENNEPIN  COUNTY OR RAMSEY COUNTY,  MINNESOTA;  AND THE PLEDGOR
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 PLEDGOR COMMENCES

                                       12
<PAGE>
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 AGENT 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 23.  WAIVER OF JURY TRIAL.  EACH OF THE  PLEDGOR,  THE
AGENT AND EACH  BANK,  BY ITS  EXECUTION  AND  DELIVERY  OR  ACCEPTANCE  OF THIS
AGREEMENT,  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 24.  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  25.  GENERAL.   All  representations  and  warranties
contained in this  Agreement or in any other  agreement  between the Pledgor and
the  Agent  shall  survive  the  execution,  delivery  and  performance  of this
Agreement and the creation and payment of the  Obligations.  The Pledgor  waives
notice of the  acceptance  of this  Agreement  by the  Agent.  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  Pledgor  has  caused  this  Pledge
Agreement  to be duly  executed  and  delivered  by its officer  thereunto  duly
authorized as of the date first above written.

                                            PLEDGOR:

                                            PILGRIM AMERICA CAPITAL
                                            CORPORATION

                                            By
                                              ----------------------------
                                                  James R. Reis
                                                  Vice Chairman

Address for Pledgor:

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


Address for the Agent:

U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention:  Mark A. Bagley
Telecopier No.: (612) 973-0832


                                       14
<PAGE>

                                   SCHEDULE I


PLEDGED STOCK

Stock Issuer:

Percentage Ownership:

Class of Stock:

Certificate No(s).:

Par Value:

Number of Shares:




                                       15
<PAGE>
                                                                    EXHIBIT G TO
                                                                CREDIT AGREEMENT

                                PLEDGE AGREEMENT


                  THIS PLEDGE AGREEMENT,  dated as of July 31, 1998, is made and
given by PILGRIM AMERICA GROUP, INC., a Delaware corporation (the "Pledgor"), to
U.S. BANK  NATIONAL  ASSOCIATION,  a national  banking  association,  as "Agent"
under,  and for the benefit of the "Banks" party to the "Credit  Agreement"  (as
that term is defined below).

                                    RECITALS

                  A. The Pledgor,  Pilgrim America Capital Corporation  ("PACC")
(together,  the  "Borrowers"),  the lenders party thereto (the "Banks") and U.S.
Bank National  Association,  as agent for the Banks (the "Agent"),  have entered
into a Third Amended and Restated Credit Agreement dated as of July 31, 1998 (as
the same may hereafter be amended,  restated, or otherwise modified from time to
time, the "Credit Agreement")  pursuant to which the Banks have agreed to extend
to the Pledgor certain credit accommodations.

                  B. The  Pledgor  is the  owner  of the  shares  (the  "Pledged
Shares")  of  stock  described  in Part I of  Schedule  I hereto  issued  by the
corporation or corporations named therein.

                  C. It is a condition  precedent to the obligation of the Banks
to extend credit  accommodations  pursuant to the terms of the Credit  Agreement
that this Agreement be executed and delivered by the Pledgor.

                  D. The Pledgor  finds it  advantageous,  desirable  and in the
best interests of the Pledgor to comply with the requirement that this Agreement
be executed and delivered to the Agent.

                  NOW, THEREFORE,  in consideration of the premises and in order
to induce  the Banks to enter  into the Credit  Agreement  and to extend  credit
accommodations to the Borrowers  thereunder,  the Pledgor hereby agrees with the
Agent, for the benefit of the Banks and the Agent, as follows:

                  Section 1.  DEFINED TERMS.

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

                                       1
<PAGE>
                  "COLLATERAL"  shall  have the  meaning  given to such  term in
Section 2.

                  "EVENT OF DEFAULT"  shall have the meaning  given to such term
in Section 11.

                  "OBLIGATIONS" shall mean (a) all indebtedness, liabilities and
obligations  of the  Borrowers  to the Banks and Agent of every kind,  nature or
description  under  the  Credit  Agreement,  including  without  limitation  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
and any letter of credit reimbursement obligations and fees, (b) all liabilities
of the  Pledgor  under this  Agreement,  (c) any and all  obligations  of either
Borrower to any Bank under Rate Protection Agreements, and (d) any and all other
liabilities and obligations of the Borrowers to the Banks and the Agent of every
kind, nature and description,  whether direct or indirect or hereafter  acquired
by the Banks or the Agent  from any  Person,  whether  absolute  or  contingent,
regardless of how such liabilities arise or by what agreement or instrument they
may be  evidenced,  and in all of the  foregoing  cases whether due or to become
due, and whether now existing or hereafter arising or incurred.

                  "PLEDGED  SHARES" shall have the meaning given to such term in
Recital B above.

                  "SECURITY  INTEREST" shall have the meaning given to such term
in Section 2.

                  1(b) TERMS DEFINED IN UNIFORM COMMERCIAL CODE. All other terms
used  in  this  Agreement  that  are  not  specifically  defined  herein  or the
definitions  of which are not  incorporated  herein by reference  shall have the
meaning  assigned to such terms in the Uniform  Commercial Code in effect in the
State of Minnesota  as of the date first above  written to the extent such other
terms are defined therein.

                  1(c)   SINGULAR/PLURAL,   ETC.  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 Pledge
Agreement unless otherwise provided.

                  Section 2. PLEDGE. As security for the payment and performance
of all of the Obligations, the Pledgor hereby pledges to the Agent and grants to
the Agent a security  interest,  for the  benefit of the Banks,  (the  "Security
Interest"), in the following (the "Collateral"):

                                       2
<PAGE>
                           2(a)  The   Pledged   Shares  and  the   certificates
         representing the Pledged Shares, and all dividends,  cash,  instruments
         and other property from time to time received,  receivable or otherwise
         distributed  in respect of or in exchange for any or all of the Pledged
         Shares.

                           2(b) All additional  shares of stock of any issuer of
         the Pledged Shares or other direct  Subsidiary of the Pledgor from time
         to time  acquired by the Pledgor in any  manner,  and the  certificates
         representing  such  additional   shares,   and  all  dividends,   cash,
         instruments  and other property from time to time received,  receivable
         or otherwise distributed in respect of or in exchange for any or all of
         such shares.

                           2(c)  All  proceeds  of any and all of the  foregoing
         (including proceeds that constitute property of types described above).

                  Section  3.  DELIVERY  OF  COLLATERAL.  All  certificates  and
instruments  representing or evidencing the Pledged Shares shall be delivered to
the  Agent   contemporaneously  with  the  execution  of  this  Agreement.   All
certificates and instruments  representing or evidencing  Collateral received by
the Pledgor  after the  execution  of this  Agreement  shall be delivered to the
Agent promptly upon the Pledgor's  receipt  thereof.  All such  certificates and
instruments shall be held by or on behalf of the Agent pursuant hereto and shall
be in suitable form for transfer by delivery,  or shall be  accompanied  by duly
executed  instruments  of  transfer  or  assignment  in  blank,  all in form and
substance satisfactory to the Agent. The Agent shall have the right at any time,
whether  before  or  after  an Event  of  Default,  to  cause  any or all of the
Collateral to be transferred of record into the name of the Agent or its nominee
(but  subject  to the rights of the  Pledgor  under  Section 6) and to  exchange
certificates  representing or evidencing  Collateral for certificates of smaller
or  larger  denominations.  Notwithstanding  any  of  the  foregoing,  as to any
Collateral  consisting of book-entry or uncertificated  securities or securities
which  are held by a third  Person,  the  Pledgor  shall  deliver  to the  Agent
evidence  satisfactory  to the Agent that such Collateral has been registered in
the name of, or as pledged  to, the  Agent.  Such  evidence  shall  include  the
acknowledgment  of the issuer or Person holding such Collateral that such issuer
or Person holds such  Collateral as agent for the Agent and that such Collateral
is  identified  on the books of such issuer or third  Person as  belonging to or
pledged to the Agent.

                  Section 4. CERTAIN WARRANTIES AND COVENANTS. The Pledgor makes
the following warranties and covenants:

                           4(a) The Pledgor has title to the Pledged  Shares and
         will have title to each other item of  Collateral  hereafter  acquired,
         free of all Liens except the Security Interest.

                                       3
<PAGE>
                           4(b) The  Pledgor  has full  power and  authority  to
         execute this Pledge  Agreement,  to perform the  Pledgor's  obligations
         hereunder  and to  subject  the  Collateral  to the  Security  Interest
         created hereby.

                           4(c) No financing  statement covering all or any part
         of the  Collateral  is on file in any  public  office  (except  for any
         financing statements filed by the Agent.

                           4(d) The Pledged Shares have been duly authorized and
         validly   issued  by  the  issuer   thereof  and  are  fully  paid  and
         non-assessable.  The  certificates  representing the Pledged Shares are
         genuine.  The  Pledged  Shares are not subject to any offset or similar
         right or claim of the issuers thereof.

                           4(e) The Pledged Shares  constitute the percentage of
         the issued and  outstanding  shares of stock of the respective  issuers
         thereof  indicated  on  Schedule  I (or,  if no such  percentage  is so
         indicated, one hundred percent).

                  Section 5. FURTHER ASSURANCES.  The Pledgor agrees that at any
time and from time to time,  at the expense of the  Pledgor,  the  Pledgor  will
promptly execute and deliver all further instruments and documents, and take all
further action that may be necessary or that the Agent may  reasonably  request,
in order to perfect and protect the Security  Interest or to enable the Agent to
exercise  and  enforce its rights and  remedies  hereunder  with  respect to any
Collateral  (but any failure to request or assure  that the Pledgor  execute and
deliver such instruments 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).

                  Section 6.  VOTING RIGHTS; DIVIDENDS; ETC.

                           6(a) Subject to paragraph  (d) of this Section 6, the
         Pledgor  shall be entitled to exercise or refrain from  exercising  any
         and all voting and other  consensual  rights  pertaining to the Pledged
         Shares or any other stock that  becomes part of the  Collateral  or any
         part  thereof for any purpose not  inconsistent  with the terms of this
         Agreement or the Credit Agreement;  provided, however, that the Pledgor
         shall not  exercise or refrain from  exercising  any such right if such
         action could  reasonably be expected to have a material  adverse effect
         on the value of the Collateral or any material part thereof.

                           6(b) Subject to paragraph  (e) of this Section 6, the
         Pledgor shall be entitled to receive, retain, and use in any manner not
         prohibited  by the Credit  Agreement any and all interest and dividends
         paid in respect of the Collateral; PROVIDED, HOWEVER, that any and all

                                       4
<PAGE>
                  (i)  dividends  paid or payable  other than in cash in respect
                  of, and instruments and other property received, receivable or
                  otherwise  distributed  in respect of, or in exchange for, any
                  Collateral,

                  (ii) dividends and other distributions paid or payable in cash
                  in respect of any  Collateral in connection  with a partial or
                  total  liquidation  or  dissolution  or in  connection  with a
                  reduction of capital, capital surplus or paid-in-surplus, and

                  (iii) cash paid,  payable or otherwise  distributed in respect
                  of principal of, or in redemption  of, or in exchange for, any
                  Collateral,

         shall be,  and shall be  forthwith  delivered  to the Agent to hold as,
         Collateral and shall, if received by the Pledgor,  be received in trust
         for the benefit of the Agent,  be segregated from the other property or
         funds  of the  Pledgor,  and be  forthwith  delivered  to the  Agent as
         Collateral  in  the  same  form  as so  received  (with  any  necessary
         indorsement  or  assignment).  The Pledgor  shall,  upon request by the
         Agent,  promptly execute all such documents and do all such acts as may
         be  necessary or  desirable  to give effect to the  provisions  of this
         Section 6 (b).

                           6(c) The Agent shall execute and deliver (or cause to
         be executed  and  delivered)  to the Pledgor all such proxies and other
         instruments  as the Pledgor may  reasonably  request for the purpose of
         enabling the Pledgor to exercise the voting and other rights that it is
         entitled  to  exercise  pursuant to Section 6 (a) hereof and to receive
         the  dividends and interest that it is authorized to receive and retain
         pursuant to Section 6 (b) hereof.

                           6(d) Upon the occurrence  and during the  continuance
         of any Event of  Default,  the Agent  shall  have the right in its sole
         discretion,  and the Pledgor shall execute and deliver all such proxies
         and other instruments as may be necessary or appropriate to give effect
         to such right,  to  terminate  all rights of the Pledgor to exercise or
         refrain from exercising the voting and other consensual  rights that it
         would  otherwise  be  entitled  to  exercise  pursuant to Section 6 (a)
         hereof,  and all such rights shall thereupon become vested in the Agent
         who shall  thereupon  have the sole right to exercise  or refrain  from
         exercising such voting and other consensual rights; provided,  however,
         that the Agent shall not be deemed to possess or have  control over any
         voting rights with respect to any Collateral unless and until the Agent
         has given  written  notice to the Pledgor that any further  exercise of
         such  voting  rights by the  Pledgor is  prohibited  and that the Agent
         and/or its assigns will  henceforth  exercise such voting  rights;  and
         provided,  further,  that  neither  the  registration  of any  item  of
         Collateral  in the Agent's name nor the  exercise of any voting  rights

                                       5
<PAGE>
         with respect  thereto  shall be deemed to constitute a retention by the
         Agent of any such  Collateral in satisfaction of the Obligations or any
         part thereof.

                           6(e) Upon the occurrence  and during the  continuance
of any Event of Default:

                  (i) all rights of the  Pledgor to receive  the  dividends  and
                  interest that it would  otherwise be authorized to receive and
                  retain  pursuant to Section 6(b) hereof  shall cease,  and all
                  such  rights  shall  thereupon  become  vested in the Bank who
                  shall  thereupon  have the sole right to receive and hold such
                  dividends as Collateral, and

                  (ii) all payments of interest and dividends  that are received
                  by the Pledgor  contrary to the provisions of paragraph (i) of
                  this  Section 6 (e) shall be received in trust for the benefit
                  of the Banks and the  Agent,  shall be  segregated  from other
                  funds of the Pledgor and shall be  forthwith  paid over to the
                  Agent as Collateral in the same form as so received  (with any
                  necessary indorsement).

                  Section 7.  TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES.

                           7(a)  Except  as  may  be  permitted  by  the  Credit
         Agreement,  the Pledgor  agrees  that it will not (i) sell,  assign (by
         operation of law or  otherwise)  or otherwise  dispose of, or grant any
         option with respect to, any of the Collateral, or (ii) create or permit
         to exist any Lien, upon or with respect to any of the Collateral.

                           7(b) The  Pledgor  agrees that it will (i) cause each
         issuer of the Pledged Shares that it controls not to issue any stock or
         other  securities  in  addition to or in  substitution  for the Pledged
         Shares  issued by such issuer,  except to the Pledgor,  and (ii) pledge
         hereunder,  immediately  upon its acquisition  (directly or indirectly)
         thereof,  any and all additional shares of stock or other securities of
         each issuer of the Pledged Shares.

                  Section  8.  AGENT  APPOINTED  ATTORNEY-IN-FACt.  The  Pledgor
hereby appoints the Agent the Pledgor's attorney-in-fact, with full authority in
the  place  and  stead  of such  Pledgor  and in the  name of  such  Pledgor  or
otherwise,  from time to time in the Agent's good-faith discretion,  to take any
action and to  execute  any  instrument  that the Agent may  reasonably  believe
necessary or advisable to accomplish the purposes of this Agreement  (subject to
the rights of the Pledgor under Section 6 hereof),  in a manner  consistent with
the terms hereof, including, without limitation, to receive, indorse and collect
all instruments  made payable to the Pledgor  representing any dividend or other
distribution  in respect of the  Collateral or any part thereof and to give full
discharge for the same.

                                       6
<PAGE>
                  Section 9. AGENT MAY PERFORM.  If the Pledgor fails to perform
any  agreement  contained  herein,  the  Agent  may  itself  perform,  or  cause
performance  of,  such  agreement,  and the  reasonable  expenses  of the  Agent
incurred in connection  therewith  shall be payable by the Pledgor under Section
14 hereof.

                  Section 10. THE AGENT'S  DUTIES.  The powers  conferred on the
Agent  hereunder are solely to protect its interest in the  Collateral and shall
not impose any duty upon it to  exercise  any such  powers.  The Agent  shall be
deemed to have exercised reasonable care in the safekeeping of any Collateral in
its possession if such Collateral is accorded treatment  substantially  equal to
the  safekeeping  which the Agent accords its own property of like kind.  Except
for the  safekeeping  of any Collateral in its possession and the accounting for
monies and for other  properties  actually  received by it hereunder,  the Agent
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 Agent 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 Agent will take action in the nature of exchanges,  conversions,
redemption,  tenders  and the like  requested  in  writing by the  Pledgor  with
respect to any of the  Collateral in the Agent's  possession if the Agent 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 Agent to comply
with any such  request  shall not of itself  be  deemed a  failure  to  exercise
reasonable care.

                  Section 11. DEFAULT.  Each of the following  occurrences shall
constitute an Event of Default under this Agreement:  (a) the Pledgor shall fail
to observe or perform any covenant or agreement  applicable to the Pledgor under
this  Agreement  within  fifteen (15) days after the earlier to occur of (i) the
date the Pledgor gives notice of such failure to the Agent, or (ii) the date the
Agent gives notice of such failure to the Pledgor;  or (b) any representation or
warranty made by the Pledgor in this  Agreement or in any financial  statements,
reports or certificates  heretofore or at any time hereafter  submitted by or on
behalf of the Pledgor to the Agent shall prove to have been false or  materially
misleading  when made;  or (c) any Event of Default shall occur under the Credit
Agreement (beyond the applicable cure period specified therein).

                  Section 12.  REMEDIES  UPON  DEFAULT.  If any Event of Default
shall have occurred and be continuing:

                           12(a)  The  Agent  may  exercise  in  respect  of the
         Collateral,  in  addition to other  rights and  remedies  provided  for
         herein or  otherwise  available to it, all the rights and remedies of a
         secured party on default under the Uniform Commercial Code of the State
         of Minnesota  (the  "Code") in effect at that time  (whether or not the
         Code then applies to the affected Collateral),  and may, without notice

                                       7
<PAGE>
         except as specified  below,  sell the Collateral or any part thereof in
         one or more  parcels  at  public  or  private  sale,  at any  exchange,
         broker's board or at any of the Agent's offices or elsewhere, for cash,
         on credit or for  future  delivery,  and upon such  other  terms as the
         Agent may reasonably believe are commercially  reasonable.  The Pledgor
         agrees that,  to the extent notice of sale shall be required by law, at
         least ten days prior notice to the Pledgor of the time and place of any
         public  sale or the time  after  which any  private  sale is to be made
         shall  constitute  reasonable  notification.  The  Agent  shall  not be
         obligated to make any sale of  Collateral  regardless of notice of sale
         having  been given.  The Agent may  adjourn any public or private  sale
         from time to time by announcement 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.  The  Pledgor  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
         Agent of its remedies hereunder, absent this waiver.

                           12(b) The Agent may notify any  Person  obligated  on
         any of the Collateral that the same has been assigned or transferred to
         the Agent and that the same should be  performed  as  requested  by, or
         paid directly to, the Agent, as the case may be. The Pledgor shall join
         in giving such notice, if the Agent so requests.  The Agent may, in the
         Agent's name or in the  Pledgor'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 Person.

                           12(c) Any cash held by the  Agent as  Collateral  and
         all cash  proceeds  received  by the Agent 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 Agent, be held by the Agent as
         collateral  for, or then or at any time  thereafter be applied in whole
         or in part by the  Agent  against,  all or any part of the  Obligations
         (including  any  expenses of the Agent  payable  pursuant to Section 15
         hereof).   If  the  Agent  shall  apply  such  cash   proceeds  to  the
         Obligations, they shall be applied as follows:

                           FIRST,  to the  payment of all  reasonable  costs and
         expenses incurred by the Agent in connection with such collection, sale
         or disposition or otherwise in connection  with this Pledge  Agreement,
         including all court costs and the  reasonable  fees and expenses of its
         agents and legal  counsel,  the  repayment of all advances  made by the
         Agent  hereunder  on  behalf  of the  Pledgor  and any  other  costs or
         expenses  incurred  in  connection  with the  exercise  of any right or
         remedy hereunder;

                                       8
<PAGE>
                          SECOND, to the payment of the Obligations  consisting
         of principal of, interest on and fees with respect to the Loans and the
         Commitments, until such Obligations have been paid in full;

                          THIRD, to the payment in full of the other Obligations
         until all of the Obligations have been paid in full;

                          FOURTH, to the Pledgor,  its successors or assigns or
         as a court of competent jurisdiction may otherwise direct.

                  Section 13. REGISTRATION  RIGHTS. If the Agent shall determine
to exercise its right to sell all or any of the  Collateral  pursuant to Section
11 hereof, the Pledgor agrees that, upon request of the Agent, the Pledgor will,
at its own expense:

                           13(a) execute and deliver, and cause the issuer(s) of
         the Pledged  Shares to execute and deliver,  all such  instruments  and
         documents,  and do or cause to be done all such other acts and  things,
         as may be  necessary  or, in the  opinion  of the Agent,  advisable  to
         register such  Collateral  under the provisions of the Securities  Act,
         and to cause the  registration  statement  relating  thereto  to become
         effective and to remain  effective for such period as prospectuses  are
         required  by law  to be  furnished,  and to  make  all  amendments  and
         supplements thereto and to the related prospectus which, in the opinion
         of the Agent,  are necessary or advisable,  all in conformity  with the
         requirements of the Securities Act and the rules and regulations of the
         SEC applicable thereto;

                           13(b) use its best efforts to qualify the  Collateral
         under any applicable  state securities or "Blue Sky" laws and to obtain
         all necessary governmental approvals for the sale of the Collateral, as
         requested by the Bank;

                           13(c) cause the  issuer(s)  of the Pledged  Shares to
         make  available to its security  holders,  as soon as  practicable,  an
         earnings statement that will satisfy the provisions of Section 11(a) of
         the Securities Act; and

                           13(d) do or cause to be done all such  other acts and
         things as may be necessary to make such sale of the  Collateral  or any
         part thereof valid and binding and in compliance with applicable law.

                  Section 14. WAIVER OF CERTAIN CLAIMS. The Pledgor acknowledges
that because of present or future circumstances,  a question may arise under the
Securities  Act of 1933,  as from time to time amended (the  "Securities  Act"),
with respect to any  disposition  of the  Collateral  permitted  hereunder.  The
Pledgor  understands  that  compliance with the Securities Act may very strictly
limit the course of conduct of the Agent if the Agent were to attempt to dispose
of all or any portion of the  Collateral  and may also limit the extent to which
or the  manner in which  any  subsequent  transferee  of the  Collateral  or any

                                       9
<PAGE>
portion thereof may dispose of the same.  There may be other legal  restrictions
or  limitations  affecting  the Agent in any  attempt  to  dispose of all or any
portion of the Collateral under the applicable Blue Sky or other securities laws
or similar laws  analogous  in purpose or effect.  The Agent may be compelled to
resort to one or more private sales to a restricted group of purchasers who will
be obliged to agree,  among other things,  to acquire such  Collateral for their
own account for investment  only and not to engage in a  distribution  or resale
thereof.  The Pledgor agrees that neither the Agent nor any Bank shall incur any
liability,  and any  liability  of the Pledgor for any  deficiency  shall not be
impaired,  as a result of the sale of the  Collateral or any portion  thereof at
any such  private  sale in a manner that in all other  respects is  commercially
reasonable  (within  the meaning of Section  9-504(3) of the Uniform  Commercial
Code).  The Pledgor hereby waives any claims against the Agent arising by reason
of the fact that the price at which  the  Collateral  may have been sold at such
sale was less than the price that might have been  obtained  at a public sale or
was less than the aggregate amount of the  Obligations,  even if the Agent shall
accept the first offer received and does not offer any portion of the Collateral
to more than one possible  purchaser.  The Pledgor further agrees that the Agent
has no  obligation  to  delay  sale of any  Collateral  for the  period  of time
necessary to permit the issuer of such  Collateral  to qualify or register  such
Collateral for public sale under the Securities  Act,  applicable  Blue Sky laws
and other  applicable  state and federal  securities  laws,  even if said issuer
would agree to do so.  Without  limiting the  generality of the  foregoing,  the
provisions of this Section would apply if, for example,  the Agent were to place
all or any portion of the  Collateral  for private  placement  by an  investment
banking firm, or if such investment banking firm purchased all or any portion of
the Collateral for its own account, or if the Agent placed all or any portion of
the Collateral privately with a purchaser or purchasers.

                  Section 15. COSTS AND  EXPENSES;  INDEMNITY.  The Pledgor will
pay or reimburse the Agent on demand for all reasonable  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  Agent  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 Pledgor shall indemnify and hold the Agent
and  the  Banks  harmless  from  and  against  any and all  claims,  losses  and
liabilities (including reasonable attorneys' fees) resulting from this Agreement
(including  enforcement  of this  Agreement)  or the actions of the Agent or any
Bank pursuant hereto,  except claims,  losses or liabilities  resulting from the
gross negligence or willful misconduct of the party seeking indemnification. Any
liability of the Pledgor to indemnify and hold the Agent and the Banks  harmless
pursuant to the preceding  sentence shall be part of the Obligations  secured by
the Security  Interest.  The obligations of the Pledgor under this Section shall
survive any termination of this Agreement.

                                       10
<PAGE>
                  Section 16. WAIVERS AND AMENDMENTS; REMEDIES.  Notwithstanding
any provisions to the contrary herein, any term of this Agreement may be amended
with  the  written   consent  of  the  Pledgor;   provided  that  no  amendment,
modification  or waiver of any  provision  of this  Agreement  or consent to any
departure  herefrom by the Pledgor or other party  thereto shall in any event be
effective  unless the same shall be in writing and signed by the Agent, and then
such amendment,  modification,  waiver or consent shall be effective only in the
specific instance and for the purpose for which given. The Security Interest can
be  released,  only  explicitly  in a writing  signed by the Agent.  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 Agent.  All rights and
remedies of the Agent shall be  cumulative  and may be  exercised  singly in any
order or sequence,  or concurrently,  at the Agent'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.

                  Section  17.  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 three days after the date of mailing if mailed.

                  Section  18.  PLEDGOR  ACKNOWLEDGEMENTS.  The  Pledgor  hereby
acknowledges   that  (a)  the  Pledgor  has  been  advised  by  counsel  in  the
negotiation,  execution  and delivery of this  Agreement,  (b) the Banks and the
Agent have no fiduciary  relationship  to the Pledgor,  the  relationship  being
solely that of debtor and creditor,  and (c) no joint venture exists between the
Pledgor, the Banks and the Agent.

                  Section 19. CONTINUING  SECURITY  INTEREST;  ASSIGNMENTS UNDER
CREDIT AGREEMENT.  This Agreement shall create a continuing security interest in
the  Collateral  and shall (a) remain in full force and effect until the payment
in full of the Obligations and the expiration of the obligation,  if any, of the
Banks to extend credit accommodations to the Borrowers,  (b) be binding upon the
Pledgor,  its successors and assigns,  and (c) inure to the benefit of the Banks
and the Agent, and be enforceable by the Agent, and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(c), the Banks or the Agent may assign or otherwise  transfer all or any portion
of its rights and obligations  under the Credit Agreement to any other Person to
the extent and in the manner provided in the Credit Agreement,  and may transfer

                                       11
<PAGE>
all or any portion of its rights under this Pledge  Agreement to such Persons in
connection therewith.

                  Section 20. TERMINATION OF SECURITY INTEREST.  Upon payment in
full of the Obligations  (except for contingent  indemnity and other  contingent
Obligations not yet due and payable) and the expiration of any obligation of the
Banks to extend credit  accommodations  to the Borrowers,  the security interest
granted hereby shall terminate and all rights to the Collateral  shall revert to
the  Pledgor.  Upon any such  termination,  the Agent will return to the Pledgor
such of the Collateral as shall not have been sold or otherwise applied pursuant
to the terms hereof and execute and deliver to the Pledgor such documents as the
Pledgor shall reasonably request to evidence such termination.  Any reversion or
return of the Collateral upon  termination of this Agreement and any instruments
of transfer or  termination  shall be at the expense of the Pledgor and shall be
without  warranty  by, or  recourse  on,  the  Agent.  As used in this  Section,
"Pledgor"  includes  any assigns of Pledgor,  any Person  holding a  subordinate
security  interest in any part of the Collateral or whoever else may be lawfully
entitled to any part of the Collateral.

                  SECTION 21.  GOVERNING  LAW AND  CONSTRUCTION.  THE  VALIDITY,
CONSTRUCTION AND  ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF  MINNESOTA,  BUT  GIVING  EFFECT TO  FEDERAL  LAWS OF THE UNITED
STATES APPLICABLE TO NATIONAL BANKS; PROVIDED,  HOWEVER, THAT NO EFFECT SHALL BE
GIVEN TO CONFLICT OF LAWS  PRINCIPLES OF THE STATE OF  MINNESOTA,  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  22.  CONSENT  TO  JURISDICTION.  AT THE OPTION OF THE
AGENT,  THIS  AGREEMENT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA  STATE
COURT SITTING IN HENNEPIN  COUNTY OR RAMSEY COUNTY,  MINNESOTA;  AND THE PLEDGOR
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 PLEDGOR COMMENCES

                                       12
<PAGE>

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 AGENT 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 23.  WAIVER OF JURY TRIAL.  EACH OF THE  PLEDGOR,  THE
AGENT AND EACH  BANK,  BY ITS  EXECUTION  AND  DELIVERY  OR  ACCEPTANCE  OF THIS
AGREEMENT,  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 24.  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  25.  GENERAL.   All  representations  and  warranties
contained in this  Agreement or in any other  agreement  between the Pledgor and
the  Agent  shall  survive  the  execution,  delivery  and  performance  of this
Agreement and the creation and payment of the  Obligations.  The Pledgor  waives
notice of the  acceptance  of this  Agreement  by the  Agent.  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  Pledgor  has  caused  this  Pledge
Agreement  to be duly  executed  and  delivered  by its officer  thereunto  duly
authorized as of the date first above written.

                                           PLEDGOR:

                                           PILGRIM AMERICA GROUP, INC.

                                           By
                                             ---------------------------
                                                James R. Reis
                                                Vice Chairman

Address for Pledgor:

Two Renaissance Square, Ste. 1200
40 North Central Avenue
Phoenix, AZ  85004-4424
Attention:  James M. Hennessy
Telecopier:  (602) 417-8301


Address for the Agent:

U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention:  Mark A. Bagley
Telecopier No.:  (612) 973-0832


                                       14
<PAGE>
                                   SCHEDULE I


PLEDGED STOCK

Stock Issuer:

Percentage Ownership:

Class of Stock:

Certificate No(s).:

Par Value:

Number of Shares:



                                       15
<PAGE>
                                                                    EXHIBIT H TO
                                                                CREDIT AGREEMENT

                       COLLATERAL ASSIGNMENT (TRADEMARKS)


                  This COLLATERAL ASSIGNMENT (TRADEMARKS),  dated as of July 31,
1998, is made and given by PILGRIM AMERICA GROUP,  INC., a Delaware  corporation
(the  "Assignor")  to  U.S.  BANK  NATIONAL  ASSOCIATION,   a  national  banking
association,  as Agent (in such  capacity,  together  with any successor in such
capacity,  the  "Assignee")  for the Banks  (the  "Banks")  party to the  Credit
Agreement described below.

                                    RECITALS

                  A. The Assignor,  the Assignee and the Banks have entered into
a Third Amended and Restated Credit  Agreement dated as of July 31, 1998 (as the
same may hereafter be amended,  supplemented,  extended,  restated, or otherwise
modified from time to time, the "Credit Agreement")  pursuant to which the Banks
have agreed to extend to the Assignor certain credit accommodations.

                  B. The  Assignor  has pledged  and  granted to the  Assignee a
security interest in the property described in a Security Agreement of even date
herewith  (as the same  may be  amended,  supplemented,  extended,  restated  or
otherwise  modified from time to time, the "Security  Agreement") by and between
Assignor and Assignee,  which property includes general intangibles,  including,
without  limitation,  applications  for patents,  applications  for  trademarks,
trademarks, trade names, copyrights, patents, inventions and trade secrets.

                  C. In order to  induce  the  Banks  to enter  into the  Credit
Agreement and extend the credit  accommodations to the Assignor thereunder,  and
in order to secure  the  payment  and  performance  of (i) all  liabilities  and
obligations  of the  Assignor to the Assignee  and the Banks  arising  under the
Credit  Agreement,  whether now  existing  or  hereafter  arising;  and (ii) all
liabilities  and obligations of the Assignor to the Assignee and the Banks under
the Security  Agreement or any other "Loan  Documents" (as defined in the Credit
Agreement)  whether  now  existing  or  hereafter  at  any  time  arising;  (the
liabilities  and  obligations  set forth in the  preceding  clauses (i) and (ii)
being hereinafter referred to as the "Liabilities"),  the Assignor is willing to
enter into this Assignment.

                  NOW, THEREFORE, in consideration of the premises and to induce
the Banks to  extend  credit  accommodations  under the  Credit  Agreement,  the
parties hereto agree as follows:
                                       1
<PAGE>
                  1. The Assignor does hereby assign all of its right, title and
interest  in and to all of the  present  trademarks  and  trade  names  and  the
registrations   and   applications   therefor   owned  by  the   Assignor   (the
"Trademarks"), including but not limited to those set forth on Exhibit A hereto,
and including,  without limitation, all proceeds thereof together with the right
to recover for past, present and future infringements,  all rights corresponding
thereto throughout the world and all renewals and extensions  thereof,  together
with  the  goodwill  of the  business  associated  with  said  Trademarks,  said
Trademarks  to be held and enjoyed by the Assignee for the benefit of the Banks,
and for  their  legal  representatives,  successors  and  assigns,  as fully and
entirely as the same would have been held by the  Assignor  had this  Assignment
not been  made.  The  foregoing  assignment  shall be  effective  only  upon the
occurrence  of an Event of Default  under the Credit  Agreement and upon written
notice by the Assignee to the Assignor of the acceptance by the Assignee of this
Assignment,  which  written  notice  shall  constitute  conclusive  proof of the
matters set forth therein.

                  2. The Assignor hereby covenants and warrants that:

                  (a) to the best of the  Assignor's  knowledge,  the Trademarks
         are subsisting and have not been adjudged invalid or unenforceable, 
         in whole or in part;

                  (b) to the  best  of the  Assignor's  knowledge,  each  of the
         Trademarks  material to the conduct of the Assignor's business is valid
         and enforceable;

                  (c) no  claim  has  been  made  to  the  Assignor  or,  to the
         knowledge of the Assignor,  to any other person, that use of any of the
         Trademarks  does or may violate  the rights of any third  person and no
         claim has been made by the Assignor that any other person is infringing
         upon the rights of the Assignor under the Trademarks;

                  (d) the Assignor has the unqualified  right to enter into this
         Assignment and perform its terms;

                  (e) the  Assignor  will be, until the  Liabilities  shall have
         been  satisfied  in  full  and  the  Loan  Documents  shall  have  been
         terminated,  in compliance with statutory notice requirements  relating
         to its use of the Trademarks;

                  (f) to the best of the Assignor's  knowledge,  the Assignor is
         the sole and  exclusive  owner of the  entire and  unencumbered  right,
         title and interest in and to each of the Trademarks,  free and clear of
         any liens,  charges and  encumbrances,  including  without  limitation,
         licenses and covenants by the Assignor not to sue third persons;

                                       2
<PAGE>
                  (g) the  Trademarks are all of  the  Trademarks owned by the
         Assignor; and

                  (h) the Assignor  will, at any time upon request,  communicate
         to the Assignee,  its successors and assigns, any facts relating to the
         Trademarks  or the history  thereof as may be known to the  Assignor or
         its officers,  employees and agents, and cause such officers, employees
         and  agents  to  testify  as to the same in any  infringement  or other
         litigation at the request of the Assignee  without the Assignee's prior
         written consent.

                  3. The Assignor agrees that,  until the rights of the Assignee
in the Trademarks  are terminated  pursuant to Section 6, it will not enter into
any agreement that is inconsistent with its obligations under this Assignment.

                  4. If,  before the  Liabilities  shall have been  satisfied in
full,  the Assignor  shall obtain  rights to any new trademark or trade name, or
become  entitled  to the  benefit of any  trademark  application,  registration,
trademark  or  trade  name  or  any  renewal  or  extension  of  any   trademark
registration,  such shall be included in the definition of  "Trademarks" as used
in this Assignment.  Section 1 hereof shall  automatically apply thereto and the
Assignor  shall give to the  Assignee  prompt  notice  thereof in  writing.  The
Assignor authorizes the Assignee to modify this Assignment,  without the consent
of the Assignor, by amending Exhibit A hereto to include any future trademark or
trade name.

                  5. The  Assignor  agrees not to sell,  assign or encumber  its
interest in, or grant any license with respect to, any of the Trademarks, except
for the  licenses  listed on Exhibit B hereto or otherwise  with the  Assignee's
prior written consent.

                  6. The  Assignor  agrees that it will  authorize,  execute and
deliver to Assignee  all  documents  requested  by Assignee  to  facilitate  the
purposes of this Assignment,  including but not limited to documents required to
record Assignee's  interest in any appropriate office in any domestic or foreign
jurisdiction.  At such time as the Credit Agreement and the other Loan Documents
shall have been terminated in accordance with their terms, the Assignee shall on
demand of the  Assignor  execute and  deliver to the  Assignor  all  termination
statements and other instruments as may be necessary or proper to terminate this
Assignment  and  assign  to  the  Assignor  all  the  Assignee's  rights  in the
Trademarks,  subject to any disposition  thereof which may have been made by the
Assignee pursuant to this Assignment or the Loan Documents.

                  7.  The  Assignor  shall  have  the  duty,   through   counsel
reasonably  acceptable to the Assignee,  (i) to prosecute diligently any pending
Trademark  application as of the date of this Assignment or thereafter until the
Credit Agreement and the Loan Documents shall have been terminated in accordance
with their terms; PROVIDED,  that, subject to the final sentence of this Section

                                       3
<PAGE>
7, the  Assignor  may abandon any such  application  upon thirty  days'  written
notice  to the  Assignee,  (ii) to make  application  on  those  trademarks  and
tradenames  which are  unregistered  but capable of being registered and which a
prudent person would reasonably cause to be registered and (iii) to preserve and
maintain all rights in all Trademarks  which a prudent  person would  reasonably
preserve and maintain.  Any expenses  incurred in connection  with  applications
that constitute  Trademarks  shall be borne by the Assignor.  The Assignor shall
not abandon any  application  presently  pending  that  constitutes  a Trademark
without the written consent of the Assignee.

                  8. Upon the occurrence and during the  continuance of an Event
of Default,  the Assignee  shall have the right but shall in no way be obligated
to bring  suit in its own  name,  the name of the  Assignor,  or the name of the
Banks to enforce or to defend the Trademarks  and any license  thereunder if the
Assignor  has  failed  to bring  such suit in  circumstances  in which a prudent
person would have brought  such suit.  The Assignor  shall at the request of the
Assignee do any and all lawful  acts and  execute  any and all proper  documents
required  by the  Assignee  in aid of such  enforcement  or  defense  (including
without limitation  participation as a plaintiff or defendant in any proceeding)
and the Assignor  shall  promptly,  upon demand,  reimburse  and  indemnify  the
Assignee for all reasonable  costs and expenses  incurred by the Assignee in the
exercise of its rights under this Section.

                  9. This  Assignment  shall also serve to evidence the security
interest in the Trademarks  granted by the Assignor to the Assignee  pursuant to
the Security Agreement.

                  10. No course of dealing with the  Assignor and the  Assignee,
failure to exercise,  nor any delay in exercising,  on the part of the Assignee,
any right, power or privilege  hereunder shall operate as a waiver thereof;  nor
shall any single or partial exercise of any right, power or privilege  hereunder
preclude  any other or further  exercise  thereof or the  exercise  of any other
right, power or privilege.

                  11. All of the Assignee's  rights and remedies with respect to
the Trademarks,  whether  established  hereby, by any other agreements or by law
shall be cumulative and may be exercised singularly or concurrently.

                  12.  This  Assignment  is  subject to  modification  only by a
writing signed by the parties, except as provided in Section 4 hereof.

                  13.  This  Assignment  shall  inure to the  benefit  of and be
enforceable by the Assignee and its successors,  transferees and assigns, and be
binding upon the Assignor and its successors and assigns.

                  14.  This  Assignment  and the rights and  obligations  of the
parties hereunder shall be construed in accordance with and governed by the laws

                                       4
<PAGE>
(without  giving effect to the conflicts of law  principles  thereof) of (i) any
state as to rights or  interests  hereunder  which  arise under the laws of such
state,  (ii) the United States of America as to rights and  interests  hereunder
which are  registered or for the  registration  of which  application is pending
with the  United  States  Patent  and  Trademark  Office  and (iii) the State of
Minnesota  in all other  respects.  Whenever  possible,  each  provision of this
Assignment  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  applicable  law, but if any provision of this Assignment or any
other  statement,  instrument  or  transaction  contemplated  hereby or relating
hereto shall be held to be  prohibited  or invalid  under  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 Assignment or any other  statement,  instrument or
transaction contemplated hereby or relating hereto. In the event of any conflict
within,  between  or among the  provisions  of this  Assignment,  any other Loan
Document or any other statement,  instrument or transaction  contemplated hereby
or thereby or relating hereto or thereto,  those provisions  giving the Assignee
the greater right shall govern.

                 THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.



                                       5
<PAGE>

                  IN WITNESS WHEREOF,  the Assignor has executed this instrument
as of the date first above written.

                                             PILGRIM AMERICA GROUP, INC.

                                             By
                                                --------------------------
                                                       James R. Reis
                                                       Vice Chairman

Address for Assignor:

Two Renaissance Square, Ste. 1200
40 North Central Avenue
Phoenix, AZ  85004-4424
Attention:  James M. Hennessy
Telecopier:  (602) 417-8301


Address for Assignee:

U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention:  Mark A. Bagley
Fax (612) 973-0832


                                       6
<PAGE>


                                                                    EXHIBIT A TO
                                                           COLLATERAL ASSIGNMENT
                                                                    (TRADEMARKS)


                                   TRADEMARKS




                             TRADEMARK APPLICATIONS





<PAGE>
                                                                    EXHIBIT B TO
                                                           COLLATERAL ASSIGNMENT
                                                                    (TRADEMARKS)


                                    LICENSES


                                      None



<PAGE>
                                                                    EXHIBIT I TO
                                                                CREDIT AGREEMENT

                            MATTERS TO BE COVERED BY
                               OPINION OF COUNSEL
                                TO THE BORROWERS

                  The opinion of counsel to the Pilgrim America Group,  Inc. and
Pilgrim America Capital  Corporation  (collectively,  the "Borrowers")  which is
called for by Section  3.1(a)(xiii)  of the Third  Amended and  Restated  Credit
Agreement,  shall be addressed to the Banks and dated the Closing Date. It shall
be  satisfactory  in form and substance to the Agent and shall cover the matters
set forth below,  subject to such assumptions,  exceptions and qualifications as
may be  acceptable  to the Agent and  counsel  to the  Agent.  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

                                       1
<PAGE>

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 with the execution, delivery
and performance of, or the legality,  validity, binding effect or enforceability
of, the Loan Documents.

                  6. 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.

                  7. 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.

                  8.  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 T, U or X of the Board.

                  9. 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.

                  10. The  execution,  delivery and  performance by each of PAII
and PASI 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.

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

                                       2
<PAGE>
                  12. The execution,  delivery and  performance by PAII and PSII
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, 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.

                  13. 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.

                  14.  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.

                  15.   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.

                  16.  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.

                  17. The  financing  statements  to be filed under the Security
Agreements  are in  appropriate  form for  filing  with the  offices  identified
thereon.  Assuming that such financing statements have been duly filed with said
offices  and that PAG,  PAII and PASI have  rights in the  collateral  described
therein,  such financing statements shall perfect the security interests granted
to the Agent, for the benefit of the Banks,  pursuant to the Security Agreements
to the extent such  security  interests  may be  perfected  by filing  financing
statements  under the  Uniform  Commercial  Code of the  States of  Arizona  and
California.

                                       3
<PAGE>

                  18. There has been created under the Pledge Agreements a valid
security  interest  in the Pledged  Shares (as defined  therein) in favor of the
Agent,  for the benefit of the Banks.  Assuming  delivery to, and the  continued
possession by, the Agent of the  certificates  representing  the Pledged Shares,
said security interests shall be perfected.


                                       4
<PAGE>
                                                                       EXHIBIT J
                                                             TO CREDIT AGREEMENT

                              ASSIGNMENT AGREEMENT


         ASSIGNMENT  AGREEMENT,   dated  as  of  199,  among  ____________  (the
"TRANSFEROR  BANK"),  _____________  (the  "PURCHASING  BANK"),  Pilgrim America
Group,   Inc.,  a  Delaware   corporation   ("PAG"),   Pilgrim  America  Capital
Corporation,  a Delaware corporation  ("PACC"),  (together,  the "Borrowers" and
each a  "Borrower"),  and U.S. BANK  NATIONAL  ASSOCIATION,  a national  banking
association,  one of the Banks,  as agent for the Banks (in such  capacity,  the
"Agent")  under the Credit  Agreement  described  below (in such  capacity,  the
"AGENT").

                               W I T N E S S E T H

         WHEREAS,  this Assignment  Agreement is being executed and delivered in
accordance  with  subsection  9.6(c) of the Third  Amended and  Restated  Credit
Agreement  dated as of July 31, 1998,  among the Borrowers,  the Transferor Bank
and the other Banks party thereto,  and the Agent (as from time to time amended,
supplemented  or otherwise  modified in accordance  with the terms thereof,  the
"CREDIT AGREEMENT"; terms defined therein being used herein as therein defined);

         WHEREAS,  the Purchasing Bank (if it is not already a Bank party to the
Credit Agreement) wishes to become a Bank party to the Credit Agreement; and

         WHEREAS, the Transferor Bank is selling and assigning to the Purchasing
Bank rights, obligations and commitments under the Credit Agreement;

         NOW, THEREFORE, the parties hereto hereby agree as follows:

         1. Upon the execution and delivery of this Assignment  Agreement by the
Purchasing  Bank,  the  Transferor  Bank,  the  Agent,  and the  Borrowers,  the
Purchasing  Bank  [shall be] [shall  continue  to be] a Bank party to the Credit
Agreement for all purposes thereof.

         2.  Effective on  ______________  , 199_ (the  "Effective  Date"),  the
Transferor  Bank  hereby  sells and  assigns  to the  Purchasing  Bank,  without
recourse,   a   portion   of  its   Revolving   Commitment   Amount   equal   to
$_______________,  a  portion  of its Term  Loan  [Commitment  Amount]  equal to
$_______________  (collectively,  the "Assignment  Amounts"),  and corresponding
portions  of the  principal  amount  of and all  interest  accrued  on its Loans
outstanding under the Credit Agreement.  Together with the Assigned Amounts, the
Transferor  Bank hereby assigns to the  Purchasing  Bank a pro rata share of the
Transferor  Bank's  interest  as a Bank  in the  Loan  Documents  (the  Assigned

                                       1
<PAGE>
Amounts,  such Loans and such interest in the Loan Documents  being  hereinafter
referred to as the "Assigned Interest").  The Purchasing Bank hereby assumes the
Assigned Amounts and the Transferor  Bank's related  obligations  under the Loan
Documents.

         3.  On  the  Effective  Date,  the  Purchasing  Bank  shall  pay to the
Transferor Bank a purchase price (the "Purchase Price") equal to the outstanding
principal  amount of the Loans  included in the Assigned  Interest as of the day
preceding the Effective Date. The Transferor Bank acknowledges  receipt from the
Purchasing Bank of an amount equal to the Purchase Price.

         4. All interest and Revolving  Commitment  Fees accrued on the Assigned
Interest for the billing  period in which the Effective Date falls shall be paid
to the Agent as provided in the Credit  Agreement,  and distributed by the Agent
(a) with respect to amounts accrued before the Effective Date, to the Transferor
Bank and (b) with respect to amounts  accrued on or after the Effective Date, to
the  Purchasing  Bank.  The  Transferor  Bank  has  made  arrangements  with the
Purchasing  Bank  with  respect  to the  portion,  if  any,  to be  paid  by the
Transferor Bank to the Purchasing Bank of other fees heretofore  received by the
Transferor Bank pursuant to the Credit Agreement.

         5. Subject to the  provisions of paragraph 4 above,  from and after the
Effective Date, principal, interest, fees and other amounts that would otherwise
be payable to or for the account of the  Transferor  Bank pursuant to the Credit
Agreement  and the other Loan  Documents  in respect  of the  Assigned  Interest
shall,  instead,  be payable to or for the account of the Purchasing  Bank. Each
time the Banks are asked,  from and after the  Effective  Date, to make Loans or
otherwise  extend  credit under the Loan  Documents,  the Agent shall advise the
Purchasing Bank, as provided in the Credit  Agreement,  of the request,  and the
Purchasing  Bank  shall be solely  responsible  for  making a Loan or  otherwise
extending credit in accordance with its Assigned Interest.

         6.  Concurrently  with  the  execution  and  delivery  hereof,  (i) the
Borrowers,  the Transferor Bank and the Purchasing  Bank shall make  appropriate
arrangements so that a replacement Revolving Note and replacement Term Notes are
issued to the Transferor Bank (unless it has  transferred  its entire  Revolving
Commitment  and Term Loan  [Commitment]),  and a new Revolving Note and new Term
Notes are  issued to the  Purchasing  Bank,  in each case in  principal  amounts
reflecting, in accordance with the Credit Agreement, their Revolving Commitments
(as  adjusted  pursuant  to this  Assignment  Agreement)  and  [the  outstanding
principal  balance of their Term Loans] [their Term Loan  Commitments],  (ii) as
and to the extent provided in the Credit Agreement,  the Agent shall prepare and
distribute to the Borrowers and the Banks a revised schedule of the Commitments,
Loans and credit percentages of each Bank, after giving effect to the assignment
of the Assigned Interest, and (iii) the Transferor Bank shall pay to the Agent a
processing and recordation fee of [$3,500].

                                       2
<PAGE>
         7. The  Transferor  Bank (a)  represents and warrants to the Purchasing
Bank that it is the legal and beneficial owner of the interest being assigned by
it hereunder and that such interest is free and clear of any adverse claim;  (b)
represents  and  warrants  to the  Purchasing  Bank that the  copies of the Loan
Documents  and  the  related  agreements,   certificates,  opinion  and  letters
previously  delivered to the Purchasing  Bank are true and correct copies of the
Loan  Documents  and  related  agreements,  certificates,  opinion  and  letters
executed  by and/or  delivered  in  connection  with the  closing  of the credit
facility  contemplated by the Credit Agreement,  other than the letter agreement
described   in  Section   2.16(a)  of  the  Credit   Agreement;   (c)  makes  no
representation  or warranty  and assumes no  responsibility  with respect to any
statements, warranties or representations made in or in connection with the Loan
Documents or the execution,  legality,  validity,  enforceability,  genuineness,
sufficiency  or value of any of the Loan  Documents or any other  instrument  or
document furnished pursuant thereto; and (d) makes no representation or warranty
and assumes no  responsibility  with respect to the  financial  condition of the
Borrowers, or the performance or observance by the Borrowers or any other Person
of any of their  respective  obligations  under the Loan  Documents or any other
instrument or document furnished pursuant thereto.

         8. The  Purchasing  Bank (a)  confirms to the  Transferor  Bank and the
Agent that it has received a copy of the Loan Documents together with such other
documents and  information  as it has deemed  appropriate to make its own credit
analysis and decision to enter into this  Agreement;  (b)  acknowledges  that it
has,  independently  and without reliance upon the Transferor Bank, the Agent or
any Bank and  instead  in  reliance  upon its own review of such  documents  and
information  as the  Purchasing  Bank  deemed  appropriate,  made its own credit
analysis  and  decision  to enter into this  Agreement  and agrees that it will,
independently  and without  reliance upon the Transferor  Bank, the Agent or any
Bank, and based on such documents and  information as the Purchasing  Bank shall
deem appropriate at the time, continue to make its own credit decision in taking
or not taking  action  under the Loan  Documents;  and (c)  agrees  that it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by the  Purchasing  Bank as a
Bank under the Credit Agreement.

         9.  The  Transferor  Bank and the  Purchasing  Bank  each  individually
represents and warrants that (a) it is validly existing and in good standing and
has all  requisite  power to enter  into  this  Agreement  and to carry  out the
provisions  hereof and has duly  authorized  the  execution and delivery of this
Agreement;  (b) the execution and delivery of this Agreement and the performance
of the  obligations  hereunder  do not violate any  provision of law, any order,
rule or regulation of any court or governmental agency or its charter,  articles
of  incorporation or bylaws or constitute a default under any agreement or other
instrument  to which it is a party or by which it is  bound;  and (c)it has duly
executed and delivered this Agreement,  and this Agreement  constitutes a legal,
valid and  binding  obligation  enforceable  against it in  accordance  with its
terms.

                                       3
<PAGE>
         10. Each of the parties to this Assignment Agreement agrees that at any
time and from time to time upon the written  request of any other party, it will
execute and deliver such further  documents  and do such further acts and things
as such other party may  reasonably  request in order to effect the  purposes of
this Assignment Agreement.

         11.  The  address  for  notices  to the  Purchasing  Bank  as  well  as
administrative  information  with respect to the  Purchasing  Bank is as set out
below:

         12. THIS  ASSIGNMENT  AGREEMENT  SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MINNESOTA.



                                       4
<PAGE>

         IN WITNESS  WHEREOF,  the parties  hereto  have caused this  Assignment
Agreement to be executed by their respective duly authorized  officers as of the
date first set forth above.



                                         --------------------------------------,
                                         Transferor Bank

                                         By:
                                            -----------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------


                                         --------------------------------------,
                                         as Purchasing Bank

                                         By:
                                            -----------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------

                                         U.S. BANK NATIONAL ASSOCIATION,
                                         as Agent


                                         By:
                                            -----------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------


                                         CONSENTED AND ACKNOWLEDGED
                                         PILGRIM AMERICA GROUP, INC.

                                         By:
                                            -----------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------


                                         CONSENTED AND ACKNOWLEDGED
                                         PILGRIM AMERICA CAPITAL CORPORATION

                                         By:
                                            -----------------------------------
                                         Name:
                                              ---------------------------------
                                         Title:
                                               --------------------------------

                                       5
<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)(xii)  of the Third  Amended and  Restated
Credit  Agreement shall be addressed to the Agent and dated the Closing Date. It
shall be  satisfactory  in form and  substance  to the Agent and shall cover the
matters  set  forth  below,   subject  to  such   assumptions,   exceptions  and
qualifications  as may be acceptable to the Agent and counsel to the Agent. 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

                                       1
<PAGE>

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 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.

                                       2
<PAGE>
                  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,  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>
                                                                 SCHEDULE 4.6 TO
                                                                CREDIT AGREEMENT


                                   LITIGATION

Not Supplied
<PAGE>
                            PILGRIM AMERICA CAPITAL
                                  CORPORATION
                              ORGANIZATIONAL CHART

<TABLE>
<CAPTION>
                  Pilgrim America Capital Corporation ("PACC")
                                   (Delaware)
                                       |
                                       |
               ----------------------------------------------------------------------------------
               |                                    |                                           |
               |                                    |                                           |
<S>                                    <C>                                   <C>                                            
Pilgrim America Group, Inc. ("PAG")     EAMC Liquidation Company ("EALC)        Express America T.C. Corporation
          (Delaware)                            (Michigan)                                (Delaware)
100% owned by PACC (100 shares)         100% owned by PACC (100 shares)         100% owned by PACC (100 shares)
               |                                    |
               |                                    |
               |                                    |
Pilgrim America Investments, Inc.        Wesav Investments Corporation
          (Delaware)                            (Delaware)
 100% owned by PAG (100 shares)         100% owned by EALC (100 shares)
               |                                    |
               |                                    |                                   
Pilgrim America Securities, Inc.           Wesav Investments, Inc.2 
          (Delaware)                             (Delaware)             
 100% owned by PAG (100 shares)          100% owned by EALC (100 shares)
               |                           
               |
Pilgrim America Financial, Inc. 
          (Delaware)
100% owned by PAG (100 shares)
</TABLE>


                                 SCHEDULE 4.17
<PAGE>

                                                                SCHEDULE 4.18 TO
                                                                CREDIT AGREEMENT

                            FUNDS AND FUND AGREEMENTS



PILGRIM AMERICA INVESTMENTS, INC.
<TABLE>
<CAPTION>
                Fund Name                                     Fund Agreement
                ---------                                     --------------
<S>                                                        <C>
Pilgrim America Masters Series, Inc.                        Investment Management Agreement
   Pilgrim America Masters Asia-Pacific Equity Fund               (dated June 8, 1995)
   Pilgrim America Masters MidCap Value Fund
   Pilgrim America Masters LargeCap Value Fund

Pilgrim America Investment Funds, Inc.                      Investment Management Agreement
   Pilgrim America High Yield Fund                                (dated April 7, 1995)

Pilgrim Government Securities Income Fund, Inc.             Investment Management Agreement
   Pilgrim Government securities Income Fund                      (dated April 7, 1995)

Pilgrim Prime Rate Trust                                    Investment Management Agreement
                                                                   (dated April 7, 1995)

Pilgrim America Bank and Thrift Fund, Inc.                  Investment Management Agreement
                                                                    (dated April 7, 1995)

Pilgrim America Investment Funds, Inc.                      Investment Management Agreement
    Pilgrim America MagnaCap Fund                                   (dated April 7, 1995)
</TABLE>
<PAGE>
                                                                SCHEDULE 4.18 TO
                                                                CREDIT AGREEMENT
                                                                          page 2


ISSUERS OF COLLATERALIZED LOAN OBLIGATIONS

1.       ML CLO XII Pilgrim America (Cayman) Ltd.  (Issuer)
         ML CLO XII Pilgrim America (Delaware) Corp.   (Co-Issuer)

2.       ML CLO XV Pilgrim America (Cayman) Ltd.  (Issuer)
         ML CLO XV Pilgrim America (Delaware) Corp.   (Co-Issuer)

3.       Pilgrim America CBO I Ltd.   (Issuer)
         Pilgrim America CBO I Corporation   (Co-Issuer)