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SIGNATURE MIKE J ROLAND
TITLE CHIEF FINANCIAL OFFI
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
ITEM 77C - Submission of matters to a vote of security holders.
- --------------------------------------------------------------------------------
SPECIAL MEETING
A special meeting of the shareholders of Pilgrim Prime Rate Trust was held at
the offices of the trust on August 6, 1998. A brief description of each matter
voted upon as well as the voting results are outlined below:
<TABLE>
<CAPTION>
SHARES
SHARES VOTED AGAINST SHARES BROKER
VOTED FOR OR WITHHELD ABSTAINED NON-VOTE TOTAL
--------- ----------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
1. Vote on Trustees
Mary A. Baldwin 64,790,447 3,869,221 68,659,668
John P. Burke 64,828,649 3,831,019 68,659,668
Al Burton 64,933,568 3,726,100 68,659,668
Bruce S. Foerster 64,980,639 3,679,029 68,659,668
Jock Patton 65,006,629 3,653,039 68,659,668
Robert W. Stallings 65,004,593 3,655,075 68,659,668
</TABLE>
11. To approve a change to a fundamental investment restriction on the Trust
that would expand the types of loans in which the Trust may invest.
<TABLE>
<S> <C> <C> <C> <C> <C>
56,538,407 5,452,613 3,094,382 3,574,266 68,659,668
</TABLE>
111. To approve a proposed amendment to the Trust's investment management
agreement with Pilgrim Investments, Inc. that increases the investment
management fee paid by the Trust.
<TABLE>
<S> <C> <C> <C> <C> <C>
49,646,174 11,758,265 3,680,963 3,574,265 68,659,668
</TABLE>
IV. To ratify the appointment of KPMG Peat Marwick LLP as the independent
auditors for the Trust for the fiscal year ending February 28, 1999.
<TABLE>
<S> <C> <C> <C> <C> <C>
65,874,349 553,611 2,231,706 68,659,666
</TABLE>
V. To transact such other business as may properly come before the Annual
Meeting of Shareholders or any adjournments thereof.
<TABLE>
<S> <C> <C> <C> <C> <C>
62,641,403 2,029,029 3,989,234 68,659,666
</TABLE>
<PAGE>
ITEM 77D(a)
POLICIES WITH RESPECT TO SECURITY INVESTMENTS
A policy change approved by the Board of Trustees of the Trust, which
does not require shareholder approval, permits the Trust to accept guarantees
and expanded forms of intangible assets as collateral, including copyrights,
patents rights, and franchise value (the Trust could already accept
trade-marks). The Board of Trustees also approved a change in policy that does
not require shareholder approval, which provides that 80% of the Trust's gross
assets, as opposed to 80% of its net assets, may normally be invested in Senior
Loans. This change is intended to reflect the fact that the Trust borrows for
investment purposes, so that the Trust's policy regarding the amount invested in
Senior Loans applies to borrowings.
AMENDMENT OF POLICY REGARDING TRUST'S INVESTMENTS IN LOANS
The Trust's previous fundamental investment restriction with respect to the
Trust's ability to make loans stated the following:
[The Trust may not] make loans of money or property to any person, except
that the Trust (i) may hold Senior Loans in accordance with its investment
objectives and policies; (ii) may lend portfolio instruments; and (iii) may
acquire securities subject to repurchase agreements.
As proposed, this fundamental investment restriction will be revised to
read as follows (the revised language is upper cased):
[The Trust may not] make loans of money or property to any person, except
that the Trust (i) may MAKE LOANS TO CORPORATIONS OR OTHER BUSINESS
ENTITIES, OR ENTER INTO LEASES OR OTHER ARRANGEMENTS THAT HAVE THE
CHARACTERISTICS OF A LOAN; (ii) may lend portfolio instruments; and (iii)
may acquire securities subject to repurchase agreements.
EFFECT OF CHANGE IN INVESTMENT RESTRICTION
The effect of this change in the investment restriction regarding the
making of loans will be to allow the Board, in response to changes in the
syndicated loan market, to expand the types of loans in which the Trust may
invest and the types of borrowers that may be parties to such loans. At a
meeting held on May 4, 1998, the Board approved several such changes to the
investment policies of the Trust, which are discussed below, and which become
effective upon shareholder approval of the change in the fundamental investment
restriction.
EXPANDING PERMISSIBLE BORROWERS
Previously, the Trust was permitted to make loans only to U.S. corporations
or corporations domiciled in Canada or U.S. territories and possessions. Since
the Trust's organization, syndicated loans in which the borrower is a business
entity other than a corporation, such as a partnership, limited liability
company or other business entity, have become increasingly common. Loans to
business entities other than corporations may present attractive investment
opportunities for the Trust, while being consistent with the quality of the
corporate loans in which the Trust currently invests. As a result, the Trust
believed it would be beneficial to be able to invest in loans to any form of
business entity, as long as the loans otherwise meet the Trust's requirements
regarding the quality of loans in which it may invest.
EXPANDING THE TYPES OF LOANS IN WHICH THE TRUST MAY INVEST
The Trust's previous investment restriction limited the types of loans in
which the Trust may invest to Senior Loans. A Senior Loan is a floating-rate
corporate loan that holds the most senior position in the capital structure of
the borrower. Senior Loans are fully collateralized, with assets that the
Investment Manager believes equal or exceed the market value of the principal
amount of the Senior Loan at the time of acquisition. The Trust's investment
policies provide that normally at least 80% of the Trust's assets will be
invested in Senior Loans, while the remaining 20% may be invested in other
investments permitted by the Trust's policies ("Other Investments").
As the syndicated loan market has grown, loan structures have developed
that have many of the qualities of a Senior Loan and are consistent with the
quality of the loans in which the Trust has historically invested, but which may
not have certain security or covenant privileges as typical Senior Loans. The
Trust believed that these loans, which will be treated as Other Investments,
present attractive investment opportunities for the Trust. The Trust now has the
ability to invest in the following types of loans to the extent described, which
were approved by the Board at the May 4, 1998 meeting in response to changes in
the syndicate loan market.
LEASE PARTICIPATIONS -- (MOVED TO 80% SENIOR LOAN BASKET)
A "lease participation" is a participation interest in a lease financing.
While the Trust may currently invest in lease participations, they presently are
treated as Other Investments and, therefore, constitute part of the 20% of the
Trust's assets that may be invested in Other Investments. By changing the
Trust's investment restriction, the Trust is permitted to treat lease
participations as Senior Loans, and, therefore, would constitute part of the 80%
of the Trust's assets normally invested in Senior Loans. This would permit the
Trust to invest more than 20% of its assets in lease participations. The risks
associated with an investment in a lease participation are essentially the same
as the risks of investing in a conventional Senior Loan, which include the risk
that the borrower will default on its obligations, and the risk that in the
event of default the collateral could not be readily liquidated. Under policies
adopted by the Board, the Trust invests in lease participations only where the
collateral quality, credit quality of the borrower, and likelihood of payback
are believed by the Investment Manager to be the same as those applied to
conventional Senior Loans.
HYBRID LOANS -- (IN 20% BASKET OF OTHER INVESTMENTS)
The Trust is able to invest in certain types of "hybrid loans". Hybrid
loans are secured, floating rate loans that possess some characteristics of
Senior Loans. Hybrid loans may provide a relatively higher yield than
conventional Senior Loans. While hybrid loans are secured, with some hybrid
loans the lender may not possess a senior claim to all of the collateral
securing the loan. Therefore, the risk of nonpayment of interest or loss of
principal may be greater than would be the case with conventional Senior Loans.
Other hybrid loans do not contain certain covenants normally found in
conventional Senior Loans, such as covenants requiring the maintenance of
minimum interest coverage ratios. As a result of the absence of these or other
provisions, the lender's negotiation or voting rights in the event of a default
in the hybrid loan may be diminished.
Under investment policies recently adopted by the Trust's Board of
Trustees, the Trust may invest in hybrid loans that meet credit standards
established by the Investment Manager. Hybrid loans constitute part of the 20%
of the Trust's assets that may be invested in Other Investments, and will not
count toward the 80% of the Trust's assets that are normally invested in Senior
Loans.
SUBORDINATED AND UNSECURED LOANS -- (MAXIMUM 5% OF ASSETS COMBINED --
IN 20% BASKET OF OTHER INVESTMENTS)
Previously, the Trust may invest up to 5% of its total assets in
subordinated loans. With this change the Trust has the ability to invest up to
5% of its total assets in both subordinated and unsecured loans. Unsecured loans
are not secured by any specific collateral of the borrower. They do not enjoy
the security associated with collateralization and may pose a greater risk of
nonpayment of interest or loss of principal than do secured loans. Under
policies recently adopted by the Trust's Board of Trustees, the Trust will
acquire unsecured loans only where Pilgrim Investments, Inc. believes, at the
time of acquisition, that the Trust would have the right to payment upon default
that is not subordinate to any other creditor.
Under the Trust's previous policies, the Trust may invest up to 5% of its
total assets in subordinated loans. Unsecured loans will be added to this 5%
basket of assets, so that the Trust may not invest more than 5% of its total
assets, measured at the time of investment, in any combination of unsecured
loans and subordinated loans. The 5% of total assets that may be invested in
unsecured and subordinated loans constitutes part of the 20% of the Trust's
assets that may be invested in Other Investments, and will not count toward the
80% of the Trust's assets that are normally invested in Senior Loans.
<PAGE>
ITEM 77Q1(e)
Incorporated originally by reference the amendment to the investment
management agreement as filed on June 23, 1997 was filed as part of the
Registration Statement on August 19, 1998 and went effective September 15, 1998.
<PAGE>
ITEM 77Q1(b)
Incorporated by reference the text of the proposals as described in
Sub-Item 77(D) was filed in the Registration Statement on August 19, 1998 and
went effective September 15, 1998.
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