Collateral Management Agreement
                         -------------------------------


                  This Agreement, dated as of November 13, 1997, is entered into
by and between ML CLO XII Pilgrim America (Cayman) Ltd., a company  incorporated
under the laws of the Cayman Islands,  with its registered office located at the
offices of Messrs.  Maples and Calder,  P.O. Box 309, Ugland House, South Church
Street, George Town, Grand Cayman, Cayman Islands, British West Indies (together
with  successors and assigns  permitted  hereunder,  the "Issuer"),  and Pilgrim
America  Investments,  Inc.,  ("Pilgrim  America"  or,  in  such  capacity,  the
"Collateral  Manager"),  a  Delaware  corporation,  with its  principal  offices
located at Two Renaissance  Square,  40 North Central Ave., Suite 12, Phoenix AZ
85004-4424, as collateral manager.


                                   WITNESSETH:
                                   -----------


                  WHEREAS, the Issuer intends to issue its Class A Floating Rate
Senior  Secured  Notes due 2009 (the  "Class A  Notes"),  Class B Second  Senior
Secured Notes due 2009 (the "Class B  Notes"),(the  Class A Notes  together with
the Class B Notes, the "Senior Notes"),  and Class C Subordinated Notes due 2009
(the "Class C Notes" and,  together with the Senior Notes, the "Notes") pursuant
to an indenture (the "Indenture") to be dated as of November 13, 1997, among the
Issuer,  ML CLO XII Pilgrim America  (Delaware) Corp., as co-issuer of the Notes
(the "Co-Issuer"),  and State Street Bank & Trust Company,  as trustee (together
with any successor trustee permitted under the Indenture, the "Trustee");

                  WHEREAS,  the Issuer intends to pledge certain Collateral Debt
Securities,  Eligible Investments and Cash (all as defined in the Indenture) and
certain  other  assets (all as set forth in the  Indenture)  (collectively,  the
"Collateral") to the Trustee as security for the Notes;

                  WHEREAS,  the  Issuer  wishes to enter  into  this  Collateral
Management  Agreement,  pursuant  to which  the  Collateral  Manager  agrees  to
perform, on behalf of the Issuer,  certain duties with respect to the Collateral
securing the Notes in the manner and on the terms set forth herein; and

                  WHEREAS,  the  Collateral  Manager has the capacity to provide
the services  required  hereby and is prepared to perform such services upon the
terms and conditions set forth herein.

                  NOW,  THEREFORE,  in  consideration  of the mutual  agreements
herein set forth, the parties hereto agree as follows:

                  1.       Definitions.

                  Terms  used  herein  and not  defined  below  shall  have  the
meanings set forth in the Indenture.

                  "Agreement" shall mean this Collateral  Management  Agreement,
as amended from time to time.

                  "Board of  Directors"  shall mean the  directors of the Issuer
duly appointed  from time to time pursuant to the Memorandum of Association  and
Articles of Association in accordance with Cayman Islands law.
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                  "Change of Control"  shall mean the persons  currently  owning
and controlling voting securities of Pilgrim America failing to own and control,
directly or indirectly, in the aggregate, at least 50% of the outstanding voting
securities of Pilgrim America.

                  "Governing Instruments" shall mean the memorandum, articles or
certificate of incorporation or association and by-laws,  if applicable,  in the
case  of  a  corporation,  or  the  partnership  agreement,  in  the  case  of a
partnership.

                  2.       General Duties of the Collateral Manager.

                  The Collateral Manager shall provide services to the Issuer as
follows:

                           (a)  Subject to and in  accordance  with the terms of
the Indenture and this Agreement, the Collateral Manager agrees to supervise and
direct the investment and  reinvestment of the Collateral,  and shall perform on
behalf of the Issuer the duties  that have been  specifically  delegated  to the
Collateral  Manager in this  Agreement and in the Indenture  (and the Collateral
Manager  shall  have no  obligation  to  perform  any  other  duties  under  the
Indenture)  and, to the extent  necessary or appropriate to perform such duties,
the Collateral Manager shall have the power to execute and deliver all necessary
and  appropriate  documents and instruments on behalf of the Issuer with respect
thereto.  The Collateral  Manager shall,  subject to the terms and conditions of
the Indenture,  perform its  obligations  hereunder and under the Indenture with
reasonable  care,  using a degree of skill and attention no less than that which
the Collateral  Manager (i) exercises with respect to comparable  assets that it
manages for itself and (ii) exercises with respect to comparable  assets that it
manages for others,  and in a manner  consistent  with  practices and procedures
followed by institutional  managers of national  standing  relating to assets of
the  nature  and  character  of the  Collateral,  except as  expressly  provided
otherwise in this Agreement and/or the Indenture. To the extent not inconsistent
with the foregoing, the Collateral Manager shall follow its customary standards,
policies and  procedures in performing  its duties  hereunder  (including  those
duties of the Issuer under the Indenture which the Collateral Manager has agreed
to perform on the Issuer's  behalf pursuant to this  Agreement).  The Collateral
Manager  shall  comply  with  all the  terms  and  conditions  of the  Indenture
affecting the duties and functions that have been delegated to it thereunder and
hereunder.  The Collateral Manager shall not be bound to follow any amendment to
the Indenture,  however,  until it has received written notice thereof and until
it has  received  a copy  of the  amendment  from  the  Issuer  or the  Trustee;
provided,  however,  that  the  Collateral  Manager  shall  not be  bound by any
amendment to the Indenture that  materially  increases the duties or liabilities
of the Collateral  Manager  unless the  Collateral  Manager shall have consented
thereto.  The  Issuer  agrees  that it will  not  permit  any  amendment  to the
Indenture that materially  increases the duties or liabilities of the Collateral
Manager to become effective  unless the Collateral  Manager has been given prior
written notice of such amendment and consented thereto in writing;

                           (b)  the   Collateral   Manager   shall   select  any
Collateral  which shall be acquired by the Issuer  pursuant to the  Indenture in
accordance with the investment  criteria set forth therein,  and shall take into
consideration the payment  obligations of the Issuer under the Indenture on each
Distribution  Date  in  so  doing,  such  that  expected  distributions  on  the
Collateral  Debt  Securities   permit  a  timely   performance  of  the  payment
obligations by the Issuer;

                           (c)  the   Collateral   Manager   shall  monitor  the
Collateral on an ongoing basis and provide to the Issuer all opinions,  reports,
schedules  and other data which the Issuer is required  to  prepare,  deliver or
furnish under the Indenture, in the form and containing all information required
thereby and in sufficient  time for the Issuer to review such required  reports,
schedules and data and to deliver them to the parties entitled thereto under the
Indenture;  the  Collateral  Manager shall be  responsible  for obtaining to the
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extent practicable any information concerning whether a Collateral Debt Security
has become a Defaulted Security;

                           (d)  the  Collateral  Manager,   subject  to  and  in
accordance  with the  provisions of the Indenture  may, at any time,  direct the
Trustee (i) to dispose of a Collateral  Debt Security or an Eligible  Investment
or other securities received in respect thereof in the open market or otherwise,
or (ii) to acquire, as security for the Notes in substitution for or in addition
to any one or more Collateral Debt Securities or Eligible  Investments  included
in the Collateral, one or more Substitute Collateral Debt Securities or Eligible
Investments,  and  may,  in each  case  subject  to and in  accordance  with the
provisions of the Indenture, as agent of the Issuer, require the Trustee to take
the  following  actions with respect to a Collateral  Debt  Security or Eligible
Investment:

                                        (i) retain such Collateral Debt Security
         or Eligible Investment; or

                                        (ii)  dispose  of such  Collateral  Debt
         Security or Eligible Investment in the open market or otherwise; or

                                        (iii)   if   applicable,   tender   such
         Collateral Debt Security or Eligible  Investment  pursuant to an Offer;
         or

                                        (iv)  if  applicable,   consent  to  any
         proposed amendment, modification or waiver pursuant to an Offer; or

                                        (v) retain or dispose of any  securities
         or other property (if other than cash)  received  pursuant to an Offer;
         or

                                        (vi) waive any default  with  respect to
         any Defaulted Security; or

                                        (vii) vote to accelerate the maturity of
         any Defaulted Security; or

                                        (viii)  exercise  any  other  rights  or
         remedies  with  respect to such  Collateral  Debt  Security or Eligible
         Investment as provided in the related  Underlying  Instruments  or take
         any other action consistent with the terms of the Indenture which is in
         the best interests of the Noteholders.

                           (e) The Collateral  Manager  covenants and agrees, in
performing its duties  hereunder,  that it will seek to manage the Collateral in
such a way that there will be sufficient  funds  available on each  Distribution
Date in  accordance  with the  priorities  set forth in the Indenture (i) to pay
interest on the Senior Notes in a timely manner,  (ii) to repay the principal of
each  Class of Notes in full on or  prior to their  respective  stated  maturity
dates and (iii)  subject to (i) and (ii) above,  to maximize  the returns to the
Holders of the Class C Notes.

                           (f)  The  Collateral  Manager  hereby  agrees  to the
following:

                                        (i) The Collateral Manager agrees not to
         institute against, or join any other Person in instituting against, the
         Issuer or the Co-Issuer any  bankruptcy,  reorganization,  arrangement,
         insolvency,  moratorium or liquidation proceedings or other proceedings
         under  federal or state  bankruptcy  or similar laws until at least one
         year and one day (or, if longer, the applicable  preference period then
         in  effect)  after the  payment in full of all Notes  issued  under the
         Indenture.
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                                        (ii) The Collateral  Manager shall cause
         any sale of any  Collateral  Debt  Security to be conducted on an arm's
         length basis.

                           (g) In providing services  hereunder,  the Collateral
Manager may employ third  parties,  including its  Affiliates,  to render advice
(including  investment  advice)  and  assistance;  provided,  however,  that the
Collateral  Manager  shall  not be  relieved  of any  of  its  duties  hereunder
regardless of the performance of any services by third parties.

                  3.       Brokerage.

                  The  Collateral  Manager  shall seek to obtain the best prices
and execution for all orders placed with respect to the Collateral,  considering
all  circumstances.  Subject  to the  objective  of  obtaining  best  prices and
execution, the Collateral Manager may take into consideration research and other
brokerage  services  furnished to the  Collateral  Manager or its  Affiliates by
brokers and dealers which are not  Affiliates of the  Collateral  Manager.  Such
services may be used by the  Collateral  Manager or its Affiliates in connection
with its other  advisory  activities or investment  operations.  The  Collateral
Manager  may  aggregate  sales and  purchase  orders of  securities  placed with
respect to the  Collateral  with similar  orders being made  simultaneously  for
other accounts managed by Collateral  Manager or with accounts of the Affiliates
of the Collateral  Manager, if in the Collateral  Manager's  reasonable judgment
such aggregation  shall result in an overall economic benefit to the Collateral,
taking into consideration the advantageous selling or purchase price,  brokerage
commission  and other  expenses.  When any  aggregate  sales or purchase  orders
occur,  the  objective  of the  Collateral  Manager  (and any of its  Affiliates
involved in such  transactions)  shall be to allocate the  executions  among the
accounts in an equitable manner.

                  In addition to the  foregoing  and subject to the objective of
obtaining  best prices and execution  and to the extent  permitted by applicable
law, the Collateral Manager may, on behalf of the Issuer,  direct the Trustee to
acquire any and all of the Eligible  Investments  or other  Collateral  from, or
sell Collateral Debt Securities or other  Collateral to, Merrill Lynch,  Pierce,
Fenner & Smith Incorporated or its Affiliates or any other firm.

                  4.       Additional Activities of the Collateral Manager.

                  Nothing herein shall prevent the Collateral  Manager or any of
its Affiliates from engaging in other businesses,  or from rendering services of
any kind to the Issuer and its Affiliates,  the Trustee,  the Noteholders or any
other  Person or entity to the  extent  permitted  by  applicable  law.  Without
prejudice  to the  generality  of the  foregoing,  the  Collateral  Manager  and
directors,  officers,  employees  and  agents of the  Collateral  Manager or its
Affiliates may, among other things,  and subject to any limits  specified in the
Indenture:

                           (a)  serve  as  directors  (whether   supervisory  or
managing),  officers,  partners,  employees, agents, nominees or signatories for
the Issuer,  its  Affiliates  or any issuer of any  obligations  included in the
Collateral  or their  respective  Affiliates,  to the extent  permitted by their
Governing Instruments,  as from time to time amended, or by any resolutions duly
adopted by the Issuer, its Affiliates or any issuer of any obligations  included
in the Collateral or their respective  Affiliates,  pursuant to their respective
Governing  Instruments;  provided,  that  in  the  reasonable  judgment  of  the
Collateral Manager, such activity will not have a material adverse effect on any
item of the Collateral;

                           (b) receive fees for services of any nature  rendered
to the issuer of any obligations  included in the Collateral or their respective
Affiliates; provided, that in the reasonable judgment of the Collateral Manager,
such  activity  will  not  have a  material  adverse  effect  on any item of the
Collateral;  and  provided,
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further,  that if any portion of such  services  are related to any  obligations
included  in  the  Collateral,  the  portion  of  such  fees  relating  to  such
obligations shall be deposited into the Collection Account; and

                           (c) be a secured or unsecured creditor of, or hold an
equity  interest in, the Issuer,  its Affiliates or any issuer of any obligation
included in the Collateral.

                  It is understood  that the  Collateral  Manager and any of its
Affiliates  may engage in any other business and furnish  investment  management
and advisory  services to others,  including  Persons which may have  investment
policies similar to those followed by the Collateral Manager with respect to the
Collateral and which may own securities of the same class, or which are the same
type, as the Collateral  Debt  Securities or other  securities of the issuers of
Collateral  Debt  Securities.  The Collateral  Manager will be free, in its sole
discretion,  to make recommendations to others, or effect transactions on behalf
of  itself  or for  others,  which may be the same as or  different  from  those
effected with respect to the Collateral.

                  Unless the  Collateral  Manager  determines in its  reasonable
judgment that such purchase or sale is appropriate,  the Collateral  Manager may
refrain from  directing the purchase or sale  hereunder of securities  issued by
(i) Persons of which the  Collateral  Manager,  its  Affiliates or any of its or
their officers,  directors or employees are directors or officers,  (ii) Persons
for which the  Collateral  Manager or its Affiliate act as financial  adviser or
underwriter  or (iii) Persons about which the  Collateral  Manager or any of its
Affiliates have information which the Collateral  Manager deems  confidential or
non-public  or  otherwise  might  prohibit it from trading  such  securities  in
accordance with applicable law. The Collateral Manager shall not be obligated to
pursue any particular  investment  strategy or  opportunity  with respect to the
Collateral.
                  5.       Conflicts of Interest.

                  The Collateral Manager shall not direct the Trustee to acquire
an obligation to be included in the Collateral  from the  Collateral  Manager or
any of its  Affiliates as principal or to sell an  obligation to the  Collateral
Manager or any of its  Affiliates  as  principal  unless  the Issuer  shall have
received  from  the  Collateral  Manager  such  information   relating  to  such
acquisition  as  it  may  reasonably   require  and  shall  have  approved  such
acquisition. The Collateral Manager shall not direct the Trustee to purchase any
Collateral  Debt  Security for  inclusion in the  Collateral  directly  from any
account or  portfolio  for which the  Collateral  Manager  serves as  investment
advisor,  or direct the Trustee to sell directly any Collateral Debt Security to
any account or portfolio for which the  Collateral  Manager serves as investment
advisor except in compliance  with the 1940 Act, the Investment  Advisers Act of
1940 and the procedures set forth in Exhibit A.

                  6.       Records; Confidentiality.

                  The  Collateral  Manager shall maintain  appropriate  books of
account and records relating to services performed hereunder,  and such books of
account and records shall be accessible  for inspection by a  representative  of
the Issuer,  the  Trustee,  the  Noteholders,  and the  Independent  accountants
appointed  by the Issuer  pursuant to the  Indenture  at a mutually  agreed time
during normal  business  hours and upon not less than three Business Days' prior
notice.  At no time  will the  Collateral  Manager  make a  public  announcement
concerning the issuance of the Notes, the Collateral Manager's role hereunder or
any other aspect of the  transactions  contemplated  by this  Agreement  and the
Indenture.   The  Collateral   Manager  shall  keep  confidential  any  and  all
information  obtained in  connection  with the services  rendered  hereunder and
shall not disclose any such information to  non-affiliated  third parties except
(i) with the prior written consent of the Issuer,  (ii) such  information as any
Rating  Agency shall  reasonably  request in  connection  with its rating of any
Class of the Senior Notes, (iii) as required by law, regulation,  court order or
the rules or regulations of any self-regulating
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organization,  body or official having jurisdiction over the Collateral Manager,
(iv) to its  professional  advisers,  (v) such  information  as shall  have been
publicly  disclosed  other than in  violation  of this  Agreement,  or (vi) such
information   that  was  or  is  obtained  by  the   Collateral   Manager  on  a
non-confidential  basis,  provided that the Collateral  Manager does not know or
have  reason  to  know  of any  breach  by such  source  of any  confidentiality
obligations  with  respect  thereto.   For  purposes  of  this  Section  6,  the
Noteholders shall in no event be considered "non-affiliated third parties."

                  7.       Obligations of Collateral Manager.

                  Unless otherwise specifically required by any provision of the
Indenture or this Agreement or by applicable  law, the Collateral  Manager shall
use all  reasonable  efforts to ensure  that no action is taken by it, and shall
not  intentionally or with reckless  disregard take any action,  which would (a)
materially  adversely  affect the Issuer or the Co-Issuer for purposes of Cayman
Islands law (to the extent the Collateral Manager has knowledge thereof), United
States federal or state law or any other law known to the Collateral  Manager to
be applicable to the Issuer, (b) not be permitted under the Issuer's  Memorandum
of  Association  or  Articles  of  Association,  (c)  violate  any law,  rule or
regulation  of any  governmental  body or agency  having  jurisdiction  over the
Issuer or the Co-Issuer  including,  without limitation,  any Cayman Islands law
(to the extent the Collateral Manager has knowledge  thereof),  or United States
federal,  state or other applicable securities law the violation of which has or
could reasonably be expected to have an adverse effect on any Noteholder, on the
business,  operations,  assets  or  financial  condition  of the  Issuer  or the
Co-Issuer,  or  on  the  ability  of  the  Collateral  Manager  to  perform  its
obligations  hereunder,  (d) require registration of the Issuer or the Co-Issuer
or the pool of  Collateral  as an  "investment  company"  under  the  Investment
Company Act,  (e) cause the Issuer or the  Co-Issuer to violate the terms of the
Indenture, (f) adversely affect the interests of the Noteholders in any material
respect, or (g) subject the Issuer to U.S. federal or state income taxation. For
purposes of this  Section 7, the  Collateral  Manager will be entitled to assume
that as of the Closing  Date,  none of the actions  referred to in the preceding
sentence have been taken. The Collateral  Manager covenants that it shall comply
in all  material  respects  with all laws and  regulations  applicable  to it in
connection  with the  performance  of its duties  under this  Agreement  and the
Indenture.  Notwithstanding  anything in this Agreement,  the Collateral Manager
shall not take any  discretionary  action that would  reasonably  be expected to
cause an Event of Default under the Indenture.

                  8.       Compensation.

                           (a) The Issuer shall pay to the  Collateral  Manager,
for services  rendered and performance of its obligations  under this Agreement,
the  Collateral  Management  Fee,  which shall be payable in such amounts and at
such times as set forth in the Indenture.  If on any Distribution Date there are
insufficient  funds to pay such fee (and/or any other amounts due and payable to
the  Collateral  Manager) in full,  the amount not so paid shall be deferred and
shall be payable on such later  Distribution  Date on which funds are  available
therefor as provided in the Indenture.

                           (b) The Collateral  Manager shall be responsible  for
the ordinary  expenses incurred in the performance of its obligations under this
Agreement;  provided,  however, that any extraordinary  expenses incurred by the
Collateral  Manager in the performance of such obligations  (including,  but not
limited to, any reasonable  expenses incurred by it to employ outside lawyers or
consultants reasonably necessary in connection with the default or restructuring
of any  Collateral  Debt  Security  or  other  unusual  matters  arising  in the
performance  of its duties  under this  Agreement  and the  Indenture)  shall be
reimbursed  by  the  Issuer  to the  extent  funds  are  available  therefor  in
accordance with and subject to the limitations contained in the Indenture. It is
understood  that ordinary direct expenses of the purchase and sale of Collateral
Debt Securities (including, but
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not  limited  to,  reasonable  and  customary  brokerage  fees and  commissions,
transfer  fees,  Rating Agency fees and legal  expenses) will be expenses of the
Issuer and not of the Collateral Manager.

                           (c) If  this  Agreement  is  terminated  pursuant  to
Section 12, Section 14 or otherwise,  the fees payable to the Collateral Manager
shall be prorated  for any partial  periods  between  Distribution  Dates during
which this  Agreement  was in effect  and shall be due and  payable on the first
Distribution  Date  following  the  date of  such  termination,  subject  to the
provisions of the Indenture.

                  9.       Benefit of the Agreement.

                  The Collateral  Manager agrees that its obligations under this
Agreement  shall be enforceable at the instance of the Issuer,  the Trustee,  on
behalf  of the  Noteholders,  or the  requisite  percentage  of  Noteholders  as
provided in the Indenture.

                  10.      Limits of Collateral Manager Responsibility

                           (a) The Collateral  Manager assumes no responsibility
under this Agreement  other than to render the services called for hereunder and
under the terms of the Indenture made  applicable to it pursuant to the terms of
this Agreement in good faith and,  subject to the standard of conduct  described
in the next sentence,  shall not be responsible  for any action of the Issuer or
the Trustee in following or  declining to follow any advice,  recommendation  or
direction of the  Collateral  Manager.  The Collateral  Manager,  its directors,
officers,  stockholders,  partners, agents and employees, and its Affiliates and
their directors, officers,  stockholders,  partners, agents and employees, shall
not be liable to the Issuer,  the Trustee,  the  Noteholders or any other person
for  any  losses  (including,  but  not  limited  to,  losses  in  value  of the
Collateral), claims, damages, judgments, assessments, costs or other liabilities
(collectively,  "Liabilities")  incurred  by the  Issuer,  the  Trustee,  or the
Noteholders  that  arise out of or in  connection  with the  performance  by the
Collateral Manager of its duties under this Agreement and the Indenture,  except
(i) by reason of acts or omissions  constituting bad faith,  willful misconduct,
negligence  or  breach  of  fiduciary  duty  in  the  performance,  or  reckless
disregard,  of the obligations of the Collateral Manager hereunder and under the
terms of the Indenture  applicable to it or (ii) with respect to the information
concerning the Collateral  Manager provided in writing by the Collateral Manager
for  inclusion in the Offering  Memorandum  dated  November 11, 1997 relating to
Collateralized Loan Obligations issuable in series (the "Base Memorandum"),  and
the Supplements  dated November 11, 1997 to the Base Memorandum  relating to the
Senior Notes and the  Subordinated  Notes (the "Note  Supplements"  and together
with  the  Base  Memorandum,   the  "Offering  Memorandum"),   such  information
containing any untrue statement of material fact or omitting to state a material
fact  necessary  in order to make the  statements  therein,  in the light of the
circumstances under which they were made, not misleading.  The matters described
in (i) and (ii) in the  preceding  sentence  are  collectively  referred  to for
purposes of this paragraph 10 as "Collateral Manager Breaches".

                           (b) The Issuer shall indemnify and hold harmless (the
Issuer in such case,  the  "Indemnifying  Party") the  Collateral  Manager,  its
directors, officers, stockholders,  partners, agents and employees (such parties
collectively in such case, the  "Indemnified  Parties") from and against any and
all Liabilities,  and will reimburse each  Indemnified  Party for all reasonable
fees  and  expenses   (including   reasonable  fees  and  expenses  of  counsel)
(collectively,  the "Expenses") as such Expenses are incurred in  investigating,
preparing,  pursuing or defending any claim, action, proceeding or investigation
with  respect  to  any  pending  or  threatened  litigation  (collectively,  the
"Actions"),  caused by, or arising out of or in connection  with the issuance of
the  Notes,  the  transactions  contemplated  by the  Offering  Memorandum,  the
Indenture,  the loan purchase agreement among the Collateral Manager, the Issuer
and Merrill Lynch, Pierce,  Fenner & Smith Incorporated dated July 23, 1997, the
bond  purchase  agreement  between the  Collateral  Manager  and  Merrill  Lynch
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International  dated July 23, 1997, or this  Agreement,  and/or any action taken
by, or any failure to act by, such Indemnified Party; provided, however, that no
Indemnified Party shall be indemnified for any Liabilities or Expenses it incurs
as a result  of any acts or  omissions  by any  Indemnified  Party  constituting
Collateral  Manager Breaches.  Notwithstanding  anything contained herein to the
contrary,  the  obligations of the Issuer under this Section 10 shall be payable
solely out of the Collateral in accordance  with the priorities set forth in the
Indenture.

                           (c) With  respect  to any  claim  made or  threatened
against an Indemnified  Party, or compulsory  process or request or other notice
of any loss,  claim,  damage or liability served upon an Indemnified  Party, for
which such Indemnified Party is or may be entitled to indemnification under this
Section 10, such Indemnified Party shall (or with respect to Indemnified Parties
that  are  directors,  officers,  stockholders,   agents  or  employees  of  the
Collateral  Manager,  the Collateral  Manager shall cause such Indemnified Party
to):

                                        (i)   give   written   notice   to   the
         Indemnifying  Party of such claim within ten (10) days after such claim
         is made or threatened,  which notice shall specify in reasonable detail
         the nature of the claim and the amount (or an  estimate  of the amount)
         of the claim;  provided,  however,  that the failure of any Indemnified
         Party to  provide  such  notice  to the  Indemnifying  Party  shall not
         relieve the Indemnifying Party of its obligations under this Section 10
         unless the  Indemnifying  Party is  materially  prejudiced or otherwise
         forfeits rights or defenses by reason of such failure;

                                        (ii) provide the Indemnifying Party such
         information  and  cooperation   with  respect  to  such  claim  as  the
         Indemnifying Party may reasonably require,  including,  but not limited
         to, making appropriate personnel available to the Indemnifying Party at
         such reasonable times as the Indemnifying Party may request;

                                        (iii)  cooperate and take all such steps
         as the  Indemnifying  Party may  reasonably  request  to  preserve  and
         protect any defense to such claim;

                                        (iv) in the event suit is  brought  with
         respect to such claim,  upon  reasonable  prior  notice,  afford to the
         Indemnifying Party the right, which the Indemnifying Party may exercise
         in its  sole  discretion  and at its  expense,  to  participate  in the
         investigation, defense and settlement of such claim;

                                        (v) neither  incur any material  expense
         to defend  against  nor  release  or settle  any such claim or make any
         admission  with respect  thereto  (other than routine or  incontestable
         admissions or factual admissions the failure to make which would expose
         such Indemnified Party to unindemnified liability) nor permit a default
         or consent to the entry of any  judgment  in respect  thereof,  in each
         case without the prior written consent of the Indemnifying Party; and

                                        (vi)  upon   reasonable   prior  notice,
         afford to the Indemnifying  Party the right, in its sole discretion and
         at its sole  expense,  to assume the defense of such claim,  including,
         but not limited to, the right to  designate  counsel and to control all
         negotiations,  litigation,  arbitration,  settlements,  compromises and
         appeals of such claim; provided, that if the Indemnifying Party assumes
         the  defense  of such  claim,  it shall not be liable  for any fees and
         expenses of counsel for any  Indemnified  Party incurred  thereafter in
         connection  with  such  claim  except  that if such  Indemnified  Party
         reasonably determines that counsel designated by the Indemnifying Party
         has a conflict  of interest  due to the  conflicting  interests  of the
         Indemnifying  Party and the Indemnified  Party, such Indemnifying Party
         shall pay the  reasonable  fees and  disbursements  of one  counsel (in
         addition to any local  counsel)  separate  from its own counsel for all
         Indemnified  Parties in connection  with any one action or separate but
         similar or related actions in the same jurisdiction  arising out of the
         same general allegations or circumstances;  and provided further,  that
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         prior to  entering  into  any  final  settlement  or  compromise,  such
         Indemnifying  Party shall use its best efforts in the light of the then
         prevailing circumstances.

                           (d) In the event that any  Indemnified  Party  waives
its right to  indemnification  hereunder,  the  Indemnifying  Party shall not be
entitled to appoint  counsel to represent such  Indemnified  Party nor shall the
Indemnifying  Party reimburse such Indemnified Party for any costs of counsel to
such Indemnified Party.

                           (e)  Nothing  herein  shall in any way  constitute  a
waiver or  limitation  of any  rights  which the  Issuer may have under any U.S.
federal securities laws.

                  11.      No Partnership or Joint Venture.

                  The Issuer and the  Collateral  Manager  are not  partners  or
joint  venturers  with each other and nothing  herein shall be construed to make
them such partners or joint  venturers or impose any liability as such on either
of them. The Collateral  Manager's  relation to the Issuer shall be deemed to be
that of an independent contractor.

                  12.      Term; Termination.

                           (a)  This  Agreement  shall  commence  as of the date
first set forth above and shall  continue in force and effect until the first of
the following  occurs:  (i) the payment in full of the Notes and the termination
of the  Indenture in  accordance  with its terms;  (ii) the  liquidation  of the
Collateral and the final distribution of the proceeds of such liquidation to the
Noteholders;  or (iii) the  termination  of this  Agreement in  accordance  with
subsection (b), (c) or (d) of this Section 12 or Section 14 of this Agreement.

                           (b) Notwithstanding any other provision hereof to the
contrary,  this  Agreement  may be terminated  without  cause by the  Collateral
Manager,  and the Collateral Manager may resign,  upon 90 days' (or such shorter
notice as is acceptable to the Issuer)  written notice to the Issuer;  provided,
however,  that no such  termination or resignation  shall be effective until the
date as of which a successor  Collateral Manager shall have agreed in writing to
assume all of the Collateral  Manager's duties and obligations  pursuant to this
Agreement,  and the Issuer  shall use its best  efforts  to appoint a  successor
Collateral  Manager to assume  such  duties  and  obligations.  Any  replacement
Collateral  Manager  must be appointed by the Issuer and approved by the Holders
of a Majority of the Aggregate  Outstanding  Amount of the Controlling  Class of
Notes.

                           (c) This  Agreement  may be terminated at any time by
the  Issuer,  and the Issuer may remove the  Collateral  Manager,  upon 90 days'
prior written  notice to the  Collateral  Manager (or such shorter  notice as is
acceptable  to the  Collateral  Manager).  The Issuer  agrees  that prior to the
delivery by it of a notice of termination  pursuant to this  subsection  (c), it
shall obtain the consent to such  termination  from the holders of a Majority of
the  Aggregate   Outstanding   Amount  of  the   Controlling   Class  of  Notes.
Notwithstanding  the foregoing,  no termination  pursuant to this subsection (c)
shall be  effective  until the date as of which a successor  Collateral  Manager
shall have agreed in writing to assume all of the  Collateral  Manager's  duties
and obligations pursuant to this Agreement.

                           (d) This Agreement shall be automatically  terminated
in the event  that the  Issuer  determines  in good faith that the Issuer or the
Co-Issuer or the pool of Collateral has become  required to be registered  under
the  provisions  of the  Investment  Company  Act,  and the Issuer  notifies the
Collateral Manager thereof.
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                           (e) Upon termination of this Agreement, neither party
shall have any further liability or obligation to the other,  except as provided
in Sections 2(f)(i), 10 and 15 of this Agreement.

                           (f) Any  removal  or  resignation  of the  Collateral
Manager while any Notes are  Outstanding  will be effective upon the appointment
by the  Issuer  (and the  acceptance  in writing  by such  successor  Collateral
Manager) of a successor  Collateral  Manager that is an established  institution
which (i) has demonstrated an ability to professionally and competently  perform
duties similar to those imposed upon the Collateral Manager  hereunder,  (ii) is
legally qualified and has the capacity to act as Collateral  Manager  hereunder,
as successor to the Collateral Manager under this Agreement in the assumption of
all of the  responsibilities,  duties and obligations of the Collateral  Manager
hereunder  and under the  applicable  terms of the Indenture and (iii) shall not
cause the Issuer or the Co-Issuer or the pool of  Collateral to become  required
to register under the provisions of the Investment  Company Act. The Issuer, the
Trustee and the  successor  Collateral  Manager shall take such action (or cause
the  outgoing  Collateral  Manager  to take such  action)  consistent  with this
Agreement and the terms of the Indenture  applicable to the Collateral  Manager,
as shall be necessary to effectuate any such succession.

                           (g) In the event of removal of the Collateral Manager
pursuant  to this  Agreement  by the Issuer or, to the extent so provided in the
Indenture,  by the Trustee, the Issuer shall have all of the rights and remedies
available  with  respect  thereto at law or equity,  and,  without  limiting the
foregoing,  the Issuer  or, to the  extent so  provided  in the  Indenture,  the
Trustee may by notice in writing to the  Collateral  Manager as  provided  under
this  Agreement  terminate  all the rights  and  obligations  of the  Collateral
Manager under this Agreement (except those that survive termination  pursuant to
Section  12(e) above).  Upon  expiration  of the  applicable  notice period with
respect  to  termination  specified  in this  Section  12 or  Section 14 of this
Agreement,  as  applicable,  all authority and power of the  Collateral  Manager
under this Agreement, whether with respect to the Collateral or otherwise, shall
automatically  and without further action by any person or entity pass to and be
vested in the successor Collateral Manager upon the appointment thereof.

                  13.      Delegation; Assignments.

                  This  Agreement  shall  not be  delegated  by  the  Collateral
Manager,  in whole or in part,  without the prior written  consent of the Issuer
and the  holders  of a  Majority  of the  Aggregate  Outstanding  Amount  of the
Controlling Class of Notes and,  notwithstanding any such consent, no delegation
of  duties  by the  Collateral  Manager  shall  relieve  it from  any  liability
hereunder.  Any assignment of this Agreement to any Person, in whole or in part,
by the Collateral  Manager shall be deemed null and void unless such  assignment
is  consented  to in writing by the Issuer and the  holders of a Majority of the
Aggregate  Outstanding  Amount of the Controlling Class of Notes. Any assignment
consented  to by the  Issuer  and  such  Noteholders  shall  bind  the  assignee
hereunder in the same manner as the  Collateral  Manager is bound.  In addition,
the  assignee  shall  execute  and  deliver  to the  Issuer  and the  Trustee  a
counterpart of this Agreement naming such assignee as Collateral  Manager.  Upon
the execution and delivery of such a counterpart by the assignee, the Collateral
Manager shall be released from further  obligations  pursuant to this Agreement,
except  with  respect  to its  obligations  arising  under  Section  10 of  this
Agreement  prior to such  assignment and except with respect to its  obligations
under  Section  2(f)(i)  and  Section 15  hereof.  This  Agreement  shall not be
assigned  by the Issuer  without  the prior  written  consent of the  Collateral
Manager and the Trustee,  except in the case of  assignment by the Issuer to (i)
an entity which is a successor to the Issuer  permitted under the Indenture,  in
which case such successor organization shall be bound hereunder and by the terms
of said assignment in the same manner as the Issuer is bound  thereunder or (ii)
the Trustee as contemplated by the Indenture.  In the event of any assignment by
the Issuer,  the Issuer  shall use its best  efforts to cause its  successor  to
execute and deliver to the  Collateral  Manager such documents as the
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Collateral  Manager  shall  consider  reasonably  necessary to effect fully such
assignment.  The Collateral  Manager hereby consents to the matters set forth in
Section 15.1 of the Indenture.

                  14.      Termination by the Issuer for Cause.

                  This Agreement may be terminated,  and the Collateral  Manager
may be removed,  by the Issuer,  the Trustee or the holders of a Majority of the
Aggregate Outstanding Amount of the Controlling Class of Notes, in each case for
cause upon 10 days'  prior  written  notice to the  Collateral  Manager and upon
written  notice to the  Noteholders as set forth below.  No such  termination or
removal shall be effective (i) until the date as of which a successor Collateral
Manager shall have agreed in writing to assume all of the  Collateral  Manager's
duties  pursuant to this  Agreement and (ii) in the case of a termination by the
Issuer or the Trustee,  unless  written  notice thereof shall have been given to
the Noteholders stating that such termination shall be effective unless rejected
in  writing  within 30 days  after the date of such  notice by the  holders of a
Majority of the Aggregate  Outstanding Amount of the Controlling Class of Notes,
which  rejection  shall not be  unreasonable  (except  pursuant to paragraph (c)
below where such notice to Noteholders  shall not be required).  For purposes of
determining "cause" with respect to any such termination of this Agreement, such
term shall mean any one of the following events:

                           (a) the Collateral  Manager  willfully  violates,  or
takes any action that it knows breaches,  any provision of this Agreement or the
Indenture applicable to it;

                           (b) the  Collateral  Manager  breaches in any respect
any provision of this  Agreement or any terms of the Indenture  applicable to it
and fails to cure such breach  within 30 days of its  becoming  aware of, or its
receiving notice from, the Trustee of, such breach;

                           (c) the  Collateral  Manager is wound up or dissolved
or there is appointed over it or a substantial portion of its assets a receiver,
administrator,  administrative  receiver,  trustee  or similar  officer;  or the
Collateral  Manager (i) ceases to be able to, or admits in writing its inability
to, pay its debts as they become due and payable,  or makes a general assignment
for the benefit of, or enters into any  composition  or  arrangement  with,  its
creditors  generally;  (ii)  applies for or consents  (by  admission of material
allegations  of a petition  or  otherwise)  to the  appointment  of a  receiver,
trustee,  assignee,  custodian,  liquidator  or  sequestrator  (or other similar
official) of the Collateral Manager or of any substantial part of its properties
or assets, or authorizes such an application or consent,  or proceedings seeking
such  appointment  are  commenced   without  such   authorization,   consent  or
application against the Collateral Manager and continue undismissed for 60 days;
(iii) authorizes or files a voluntary petition in bankruptcy,  or applies for or
consents (by  admission of material  allegations  of a petition or otherwise) to
the application of any bankruptcy, reorganization,  arrangement, readjustment of
debt,  insolvency or dissolution,  or authorizes such application or consent, or
proceedings to such end are instituted  against the Collateral  Manager  without
such  authorization,  application  or  consent  and  are  approved  as  properly
instituted  and  remain  undismissed  for 60 days or result in  adjudication  of
bankruptcy or insolvency; or (iv) permits or suffers all or any substantial part
of its properties or assets to be sequestered or attached by court order and the
order remains undismissed for 60 days;

                           (d) the  occurrence  of any  Event of  Default  under
Section  5.1(a) or Section  5.1(b) of the  Indenture or an Event of Default that
results  from any  breach by the  Collateral  Manager  of its  duties  under the
Indenture or hereunder;
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<PAGE>
                           (e)  the  occurrence  of an  act  by  the  Collateral
Manager that  constitutes  fraud or criminal  activity in the performance of its
obligations under this Agreement, or the Collateral Manager being indicted for a
criminal offense materially related to its primary businesses; or

                           (f) a Change of Control  shall occur with  respect to
the Collateral Manager.

                  If any of the events specified in this Section 14 shall occur,
the  Collateral  Manager shall give prompt written notice thereof to the Issuer,
the  Trustee  and the  holders  of all  outstanding  Notes  upon the  Collateral
Manager's  becoming  aware of the  occurrence  of such event.  A Majority of the
Aggregate  Outstanding  Amount of the  Controlling  Class of Notes may waive any
event described in (a), (b), (d), (e) or (f) above as a basis for termination of
this Agreement and removal of the Collateral Manager under this Section 14.

                  15.      Action Upon Termination.

                           (a) Upon the effective  date of  termination  of this
Agreement, the Collateral Manager shall as soon as practicable:

                                        (i)  deliver to the Issuer all  property
         and documents of the Trustee or the Issuer or otherwise relating to the
         Collateral then in the custody of the Collateral Manager; and

                                        (ii)   deliver   to   the   Trustee   an
         accounting  with  respect  to the books and  records  delivered  to the
         Trustee or the  successor  Collateral  Manager  appointed  pursuant  to
         Section 12(f) hereof.

                  Notwithstanding such termination, the Collateral Manager shall
remain  liable to the extent set forth herein (but subject to Section 10 hereof)
for its acts or omissions  hereunder  arising prior to  termination  and for any
expenses, losses, damages,  liabilities,  demands, charges and claims (including
reasonable  attorneys'  fees) in respect  of or  arising  out of a breach of the
representations  and warranties made by the Collateral  Manager in Section 16(b)
hereof  or from  any  failure  of the  Collateral  Manager  to  comply  with the
provisions of this Section 15.

                           (b)   The    Collateral    Manager    agrees    that,
notwithstanding any termination, it shall reasonably cooperate in any Proceeding
arising  in  connection  with  this  Agreement,  the  Indenture  or  any  of the
Collateral  (excluding any such Proceeding in which claims are asserted  against
the Collateral Manager or any Affiliate of the Collateral  Manager) upon receipt
of appropriate indemnification and expense reimbursement.

                  16.      Representations and Warranties.

                           (a) The Issuer hereby  represents and warrants to the
Collateral Manager as follows:

                                        (i)   The    Issuer    has   been   duly
         incorporated  and is  validly  existing  under  the laws of the  Cayman
         Islands,  has the full corporate  power and authority to own its assets
         and the  securities  proposed  to be  owned by it and  included  in the
         Collateral  and to  transact  the  business  in which  it is  presently
         engaged and is duly qualified under the laws of each jurisdiction where
         its  ownership  or lease of  property  or the  conduct of its  business
         requires,  or the performance of its obligations  under this Agreement,
         the Indenture or the Notes would require,  such  qualification,  except
         for failures to be so qualified,  authorized or licensed that would not
         in the  aggregate  have a  material  adverse  effect  on the  business,
         operations, assets or financial condition of the Issuer.
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                                        (ii) The Issuer has full corporate power
         and  authority  to execute,  deliver and perform  this  Agreement,  the
         Indenture and the Notes and all obligations  required hereunder,  under
         the  Indenture  and the Notes and has  taken  all  necessary  action to
         authorize this Agreement,  the Indenture and the Notes on the terms and
         conditions   hereof  and  thereof  and  the  execution,   delivery  and
         performance  of this  Agreement,  the  Indenture  and the Notes and the
         performance   of  all   obligations   imposed  upon  it  hereunder  and
         thereunder.   No  consent  of  any  other  person  including,   without
         limitation,  stockholders and creditors of the Issuer,  and no license,
         permit,  approval or  authorization  of, exemption by, notice or report
         to, or  registration,  filing or  declaration  with,  any  governmental
         authority, other than those that may be required under state securities
         or "blue  sky" laws and those  that have been or shall be  obtained  in
         connection  with  the  Indenture  and the  issuance  of the  Notes,  is
         required by the Issuer in connection with this Agreement, the Indenture
         or the  Notes or the  execution,  delivery,  performance,  validity  or
         enforceability  of this  Agreement,  the  Indenture or the Notes or the
         obligations  imposed upon it hereunder or  thereunder.  This  Agreement
         constitutes,  and each instrument or document required hereunder,  when
         executed and delivered hereunder,  shall constitute,  the legally valid
         and binding obligation of the Issuer enforceable  against the Issuer in
         accordance  with its terms,  subject  to (a) the effect of  bankruptcy,
         insolvency  or similar laws  affecting  generally  the  enforcement  of
         creditors' rights and (b) general equitable principles.

                                        (iii)  The   execution,   delivery   and
         performance  of  this  Agreement  and  the  documents  and  instruments
         required  hereunder shall not violate any provision of any existing law
         or regulation binding on the Issuer, or any order,  judgment,  award or
         decree of any court,  arbitrator or governmental  authority  binding on
         the Issuer,  or the Governing  Instruments of, or any securities issued
         by, the Issuer or of any mortgage,  indenture, lease, contract or other
         agreement,  instrument or undertaking to which the Issuer is a party or
         by which the Issuer or any of its assets may be bound, the violation of
         which would have a material adverse effect on the business, operations,
         assets or financial condition of the Issuer, and shall not result in or
         require the creation or  imposition of any lien on any of its property,
         assets or revenues  pursuant to the  provisions  of any such  mortgage,
         indenture,   lease,   contract  or  other   agreement,   instrument  or
         undertaking (other than the lien of the Indenture).

                                        (iv) The Issuer is not in  violation  of
         its  Governing  Instruments  or in breach or violation of or in default
         under the Indenture or any contract or agreement to which it is a party
         or by which it or any of its  assets  may be bound,  or any  applicable
         statute  or any  rule,  regulation  or order of any  court,  government
         agency or body having  jurisdiction  over the Issuer or its properties,
         the breach or  violation  of which or default  under which would have a
         material  adverse  effect on the  validity  or  enforceability  of this
         Agreement or the performance by the Issuer of its duties hereunder.

                                        (v)  True  and  complete  copies  of the
         Indenture and the Issuer's Governing Instruments have been delivered to
         the Collateral Manager.

                  The Issuer  agrees to deliver a true and complete copy of each
amendment  to  the  documents  referred  to in  Section  16(a)(v)  above  to the
Collateral Manager as promptly as practicable after its adoption or execution.

                           (b) The  Collateral  Manager  hereby  represents  and
warrants to the Issuer as follows:

                                        (i)   The   Collateral   Manager   is  a
         corporation  duly  organized and validly  existing and in good standing
         under  the  laws of the  State  of  Delaware  and has  full  power  and
         authority to own its assets and to transact the business in which it is
         currently  engaged and is duly qualified and in
                                       73
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         good standing under the laws of each  jurisdiction  where its ownership
         or lease of property or the conduct of its  business  requires,  or the
         performance of this Agreement would require such qualification,  except
         for  those  jurisdictions  in which  the  failure  to be so  qualified,
         authorized or licensed would not have a material  adverse effect on the
         business,  operations,  assets or financial condition of the Collateral
         Manager or on the  ability  of the  Collateral  Manager to perform  its
         obligations  under,  or on the  validity  or  enforceability  of,  this
         Agreement  and  the  provisions  of  the  Indenture  applicable  to the
         Collateral Manager.

                                        (ii)  The  Collateral  Manager  has full
         power and authority to execute,  deliver and perform this Agreement and
         all  obligations  required  hereunder  and under the  provisions of the
         Indenture  applicable  to the  Collateral  Manager,  and has  taken all
         necessary   action  to  authorize  this  Agreement  on  the  terms  and
         conditions  hereof and the execution,  delivery and performance of this
         Agreement and all obligations required hereunder and under the terms of
         the Indenture  applicable to the Collateral  Manager. No consent of any
         other  person,   including,   without  limitation,   creditors  of  the
         Collateral Manager, and no license,  permit,  approval or authorization
         of,  exemption  by,  notice or report  to, or  registration,  filing or
         declaration  with,  any  governmental  authority  is  required  by  the
         Collateral  Manager in connection with this Agreement or the execution,
         delivery, performance,  validity or enforceability of this Agreement or
         the obligations  required hereunder or under the terms of the Indenture
         applicable to the Collateral Manager. This Agreement has been, and each
         instrument  and document  required  hereunder or under the terms of the
         Indenture shall be, executed and delivered by a duly authorized officer
         of the Collateral  Manager,  and this Agreement  constitutes,  and each
         instrument  and document  required  hereunder or under the terms of the
         Indenture  when  executed  and  delivered  by  the  Collateral  Manager
         hereunder or under the terms of the  Indenture  shall  constitute,  the
         valid  and  legally  binding  obligations  of  the  Collateral  Manager
         enforceable  against the  Collateral  Manager in accordance  with their
         terms,  subject to (a) the effect of bankruptcy,  insolvency or similar
         laws affecting  generally the enforcement of creditors'  rights and (b)
         general equitable principles.

                                        (iii)  The   execution,   delivery   and
         performance of this Agreement and the terms of the Indenture applicable
         to the Collateral  Manager and the documents and  instruments  required
         hereunder  or under the terms of the  Indenture  shall not  violate  or
         conflict with any  provision of any existing law or regulation  binding
         on the Collateral Manager, or any order,  judgment,  award or decree of
         any  court,   arbitrator  or  governmental  authority  binding  on  the
         Collateral  Manager,  or  the  organizational   documents  of,  or  any
         securities  issued  by  the  Collateral  Manager  or of  any  mortgage,
         indenture,   lease,   contract  or  other   agreement,   instrument  or
         undertaking to which the Collateral  Manager is a party or by which the
         Collateral  Manager or any of its assets may be bound, the violation of
         which would have a material adverse effect on the business, operations,
         assets or financial  condition of the Collateral Manager or its ability
         to perform its obligations  under this Agreement,  and shall not result
         in or require  the  creation  or  imposition  of any lien on any of its
         property,  assets or revenues  pursuant to the  provisions  of any such
         mortgage, indenture, lease, contract or other agreement,  instrument or
         undertaking.

                                        (iv) There is no charge,  investigation,
         action,  suit or  proceeding  before or by any court pending or, to the
         best  knowledge  of  the  Collateral   Manager,   threatened  that,  if
         determined  adversely to the Collateral Manager,  would have a material
         adverse effect upon the  performance  by the Collateral  Manager of its
         duties under, or on the validity or  enforceability  of, this Agreement
         and  the  provisions  of the  Indenture  applicable  to the  Collateral
         Manager hereunder.

                                        (v) The Collateral Manager is registered
         as an investment  advisor under the United States  Investment  Advisers
         Act of 1940, as amended.
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                                        (vi)   The    Collateral    Manager   is
         authorized to carry on its business in the United States.

                                        (vii) The  Collateral  Manager is not in
         violation of its Governing  Instruments or in breach or violation of or
         in default under any contract or agreement to which it is a party or by
         which it or any of its property may be bound, or any applicable statute
         or any rule,  regulation  or order of any court,  government  agency or
         body having jurisdiction over the Collateral Manager or its properties,
         the breach or  violation  of which or default  under which would have a
         material  adverse  effect on the  validity  or  enforceability  of this
         Agreement  or  the  provisions  of  the  Indenture  applicable  to  the
         Collateral Manager, or the performance by the Collateral Manager of its
         duties hereunder or thereunder.

                                        (viii)   The   Section   entitled   "The
         Collateral Manager" and any other information concerning the Collateral
         Manager  contained in the Offering  Memorandum  is true in all material
         respects  and does not omit to state any  material  fact  necessary  in
         order to make the  statements  therein,  in light of the  circumstances
         under which they were made, not misleading.

                  17.      Notices.

                  Unless  expressly  provided  otherwise  herein,  all  notices,
requests,  demands and other  communications  required or  permitted  under this
Agreement  shall be in writing  (including  by telecopy)  and shall be deemed to
have been duly given,  made and received when delivered  against receipt or upon
actual receipt of registered or certified mail, postage prepaid,  return receipt
requested,  or, in the case of telecopy  notice,  when received in legible form,
addressed as set forth below:

                           (a)      If to the Issuer:

                                    ML CLO XII Pilgrim America (Cayman) Ltd.
                                    c/o Queensgate SPV Services Limited
                                    P.O. Box 1093 GT, Ugland House
                                    South Church Street
                                    George Town
                                    Grand Cayman
                                    Cayman Islands
                                    British West Indies
                                    Telephone:  (345) 945-7009
                                    Telecopy:  (345) 945-7100
                                    Attention:  The Directors


                                    with a copy to:

                                    Cleary, Gottlieb, Steen & Hamilton
                                    One Liberty Plaza
                                    New York, New York 10006
                                    Telephone:  (212) 225-2000
                                    Telecopy:  (212) 225-3999
                                    Attention:  Raymond B. Check, Esq.
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                           (b)      If to the Collateral Manager:

                                    Pilgrim America Investments, Inc.,
                                    Two Renaissance Square
                                    40 North Central Avenue, Suite 1200
                                    Phoenix, AZ 85004-4424
                                    Telephone:  (602) 417-8111
                                    Telecopy:  (602) 417-8301
                                    Attention:  James R. Reis, Vice Chairman

                                    with a copy to:

                                    Mayer Brown & Platt
                                    190 South LaSalle Street
                                    Chicago, IL 60603-3441
                                    Telephone:  (312) 782-0600
                                    Telecopy:  (312) 701-7711
                                    Attention:  J. Paul Forrester



                           (c)      If to the Trustee:

                                    State Street Bank & Trust Co.
                                    2 International Place
                                    Boston, MA 02110-2804
                                    Telephone:  (617) 664-5482
                                    Telecopy: (617) 664-5367
                                    Attention:  Raymond Wellaby


                           (d)      If to the Noteholders:

                                    At their  respective  addresses set forth on
the Note Register.

                  Any party may alter the  address or  telecopy  number to which
communications  or  copies  are to be sent by giving  notice  of such  change of
address in conformity  with the  provisions of this Section 17 for the giving of
notice.

                  18.      Binding Nature of Agreement; Successors and Assigns.

                  This Agreement  shall be binding upon and inure to the benefit
of the parties  hereto and their  respective  heirs,  personal  representatives,
successors and permitted assigns as provided herein.

                  19.      Entire Agreement.

                  This Agreement contains the entire agreement and understanding
among the  parties  hereto  with  respect  to the  subject  matter  hereof,  and
supersedes all prior and contemporaneous agreements, understandings, inducements
and conditions,  express or implied,  oral or written,  of any nature whatsoever
with respect to the subject matter hereof.  The express terms hereof control and
supersede any course of performance  and/or usage
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<PAGE>
of the trade  inconsistent with any of the terms hereof.  This Agreement may not
be modified or amended  other than by an  agreement  in writing  executed by the
parties hereto.

                  20.      Conflict with the Indenture.

                  Subject to the last two  sentences  of Section  2(a),  if this
Agreement  requires  any action to be taken  with  respect to any matter and the
Indenture requires that a different action be taken with respect to such matter,
and such actions are mutually  exclusive,  the  provisions  of the  Indenture in
respect thereof shall control.

                  21.      Priority of Payments.

                  The Collateral  Manager agrees that the payment of all amounts
to which it is entitled  pursuant to this  Agreement and the Indenture  shall be
due and  payable  only in  accordance  with  the  priorities  set  forth  in the
Indenture  and only to the  extent  funds are  available  for such  payments  in
accordance with such priorities.  The Collateral  Manager hereby consents to the
collateral assignment of this Agreement as provided in the Indenture.

                  22.      Governing Law.

                  THIS   AGREEMENT   SHALL  BE  GOVERNED  BY  AND  CONSTRUED  IN
ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF).

                  23.      Indulgences Not Waivers.

                  Neither  the  failure  nor any  delay on the part of any party
hereto to exercise any right,  remedy,  power or privilege  under this Agreement
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any right,  remedy, power or privilege preclude any other or further exercise of
the same or of any other right, remedy, power or privilege, nor shall any waiver
of any right,  remedy,  power or  privilege  with respect to any  occurrence  be
construed as a waiver of such right,  remedy, power or privilege with respect to
any other  occurrence.  No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver.

                  24.      Costs and Expenses.

                  The costs and expenses  (including the fees and  disbursements
of counsel and  accountants)  incurred by the  Collateral  Manager in connection
with the negotiation and preparation of and the execution of this Agreement, and
all matters incident thereto, shall be borne by the Collateral Manager.

                  25.      Titles Not to Affect Interpretation.

                  The titles of paragraphs and  subparagraphs  contained in this
Agreement  are  for  convenience  only,  and  they  neither  form a part of this
Agreement nor are they to be used in the construction or interpretation hereof.

                  26.      Execution in Counterparts.

                  This  Agreement may be executed in any number of  counterparts
by facsimile  or other  written  form of  communication,  each of which shall be
deemed to be an original as against any party whose signature  appears  thereon,
and all of which shall  together  constitute one and the same  instrument.  This
Agreement shall
                                       77
<PAGE>
become  binding  when one or more  counterparts  hereof,  individually  or taken
together,  shall bear the signatures of all of the parties  reflected  hereon as
the signatories.

                  27.      Provisions Separable.

                  In case any  provision  in this  Agreement  shall be  invalid,
illegal or  unenforceable  as written,  such provision shall be construed in the
manner most closely  resembling the apparent  intent of the parties with respect
to such provision so as to be valid, legal and enforceable;  provided,  however,
that if there  is no basis  for such a  construction,  such  provision  shall be
ineffective   only  to  the   extent   of   such   invalidity,   illegality   or
unenforceability  and, unless the ineffectiveness of such provision destroys the
basis of the  bargain for one of the parties to this  Agreement,  the  validity,
legality and enforceability of the remaining  provisions hereof or thereof shall
not in any way be affected or impaired thereby.

                  28.      Number and Gender.

                  Words  used  herein,  regardless  of  the  number  and  gender
specifically  used,  shall be deemed and  construed to include any other number,
singular or plural, and any other gender, masculine,  feminine or neuter, as the
context requires.

                  29.      Third Party Beneficiaries.

                  The Issuer and the Collateral Manager agree that Merrill Lynch
International  and  Merrill  Lynch,  Pierce,  Fenner  & Smith  Incorporated  are
intended third party beneficiaries of Section 16(b)(viii) of this Agreement.

                  30.      Miscellaneous.

                  In the event that any vote is  solicited  with  respect to any
Collateral Debt Security or Equity Security,  the Collateral  Manager, on behalf
of the Issuer, shall vote or refrain from voting any such security in any manner
permitted by the Indenture  that the  Collateral  Manager has  determined in its
reasonable  judgment  will  be in the  best  interests  of the  Noteholders.  In
addition,  with respect to any Defaulted  Security,  the Collateral  Manager, on
behalf of the Issuer,  may instruct the trustee for such  Defaulted  Security to
enforce the  Issuer's  rights  under the  Underlying  Documents  governing  such
Defaulted  Security and any  applicable  law,  rule or  regulation in any manner
permitted under the Indenture that the Collateral  Manager has determined in its
reasonable  judgment will be in the best  interests of the  Noteholders.  In the
event any Offer is made with respect to any  Collateral  Debt Security or Equity
Security,  the Collateral Manager, on behalf of the Issuer, may take such action
as is permitted by the Indenture and that  Collateral  Manager has determined in
its reasonable judgment will be in the best interests of the Noteholders.

                  In  connection  with taking or omitting  any action  under the
Indenture or this Agreement, the Collateral Manager may consult with counsel and
may rely in good faith on the advice of such counsel or any opinion of counsel.

                  Without  prejudice to Section 14(f) hereof,  any  corporation,
partnership or limited liability  company into which the Collateral  Manager may
be merged or converted or with which it may be consolidated, or any corporation,
partnership or limited liability  company resulting from any merger,  conversion
or  consolidation  to which  the  Collateral  Manager  shall be a party,  or any
corporation,  partnership  or limited  liability  company  succeeding  to all or
substantially  all of  the  collateral  management  business  of the  Collateral
Manager,  shall be the successor to the Collateral  Manager  without any further
action by the Collateral Manager,  the Issuer, the Co-Issuer,  the Trustee,  the
Noteholders or any other person or entity.
                                       78
<PAGE>
                  IN WITNESS  WHEREOF,  the parties  hereto have  executed  this
Agreement as of the date first written above.



                        PILGRIM AMERICA INVESTMENTS, INC.


                        By:___________________________________
                               Name:
                               Title:


                        ML CLO XII PILGRIM AMERICA
                        (CAYMAN) LTD.


                        By:____________________________________
                               Name:
                               Title:





Acknowledged by

STATE STREET BANK & TRUST COMPANY


By:_________________________________
         Name:
         Title:
                                       79