PILGRIM PRIME RATE TRUST
NSAR-B, 2000-04-28
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<PAGE>      PAGE  2
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SIGNATURE   MICHAEL J. ROLAND
TITLE       CFO

<TABLE> <S> <C>

<ARTICLE> 6
<CIK> 826020
<NAME> PILGRIM PRIME RATE TRUST
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLAR

<S>                             <C>
<PERIOD-TYPE>                   12-MOS
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<PERIOD-START>                             MAR-01-1999
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</TABLE>

The Board of Trustees
Pilgrim Prime Rate Trust:

In planning and performing our audit of the financial  statements of the Pilgrim
Prime Rate  Trust,  (the  "Trust")  for the year ended  February  29,  2000,  we
considered its internal control,  including control  activities for safeguarding
securities,  in order to determine  our auditing  procedures  for the purpose of
expressing  our  opinion  on the  financial  statements  and to comply  with the
requirements of Form N-SAR, not to provide assurance on internal control.

The  management of the Trust is responsible  for  establishing  and  maintaining
internal control. In fulfilling this responsibility,  estimates and judgments by
management  are  required to assess the expected  benefits and related  costs of
controls.  Generally,  controls  that are  relevant  to an audit  pertain to the
entity's objective of preparing financial  statements for external purposes that
are  fairly   presented  in  conformity  with  generally   accepted   accounting
principles.   Those  controls   include  the   safeguarding  of  assets  against
unauthorized acquisition, use, or disposition.

Because of inherent  limitations in internal  control,  error or fraud may occur
and not be detected.  Also,  projection of any evaluation of internal control to
future periods is subject to the risk that it may become  inadequate  because of
changes in conditions or that the  effectiveness of the design and operation may
deteriorate.

Our consideration of internal control would not necessarily disclose all matters
in  internal   control  that  might  be  material   weaknesses  under  standards
established  by the  American  Institute  of  Certified  Public  Accountants.  A
material  weakness  is a  condition  in which  the  design or  operation  of the
specific  internal control  components does not reduce to a relatively low level
the risk that  misstatements  caused by error or fraud in amounts  that would be
material in relation to the financial statements being audited may occur and not
be  detected  within a timely  period  by  employees  in the  normal  course  of
performing  their assigned  functions.  However,  we noted no matters  involving
internal  control,  including  controls  for  safeguarding  securities,  that we
consider to be material weaknesses as defined above as of February 29, 2000.

This report is intended solely for the information and use of management and the
Board of  Trustees  of the  Pilgrim  Prime  Rate  Trust and the  Securities  and
Exchange  Commission  and is not intended to be and should not be used by anyone
other than these specified parties.

                                        KPMG LLP

March 31, 2000

                            Pilgrim Prime Rate Trust

- --------------------------------------------------------------------------------
SHAREHOLDER MEETING
- --------------------------------------------------------------------------------

A special  meeting  of  shareholders  of  Pilgrim  Prime  Rate Trust was held on
October 26, 1999 at the offices of the Trust's Advisor.  A brief  description of
each matter vosted upon as well as the results are outlined below:

1.   Election of Trustees to serve until the election and qualification of their
     successors

                                   Shares voted
                        Shares       against     Shares     Broker
Name                   voted for   or withheld  abstained  non-vote    Total
- ----                   ---------   -----------  ---------  --------    -----
Mary A. Baldwin       101,782,368   1,407,388       --         --    103,189,556
Al Burton             101,749,793   1,439,783       --         --    103,189,556
Paul S. Doherty       101,775,317   1,414,239       --         --    103,189,556
Robert B. Goode, Jr.  101,773,015   1,416,541       --         --    103,189,556
Alan L. Gosule        101,797,466   1,392,090       --         --    103,189,556
Mark Lipson           101,796,533   1,393,023       --         --    103,189,556
Walter H. May         101,797,676   1,397,880       --         --    103,189,556
Jock Patton           101,796,056   1,393,500       --         --    103,189,556
David W.C. Putnam     101,783,951   1,405,605       --         --    103,189,556
John R. Smith         101,760,782   1,428,774       --         --    103,189,556
Robert. W. Stallings  101,795,243   1,394,313       --         --    103,189,556
John G. Turner        101,779,079   1,390,477       --         --    103,189,556
David W. Wallace      101,773,460   1,416,096       --         --    103,189,556

2.   To  approve  a new  investment  advisory  agreement  between  the Trust and
     Pilgrim Investments, Inc.

                       99,255,583   1,563,766    2,370,207     --    103,189,556

3.   To transact such other  business as may properly come before the meeting of
     shareholders or any adjournments thereof

                       99,580,861   1,253,355    2,355,340     --    103,189,556

                            Pilgrim Prime Rate Trust

                         Supplement dated August 6,1999
                      to the Prospectus dated June 18, 1999

Acquisition of Pilgrim Capital Corporation by ReliaStar Financial Corp.

     On July 22, 1999,  Pilgrim Capital Corp. (NYSE: PFX), the parent company of
Pilgrim Investments, Inc., which is the adviser to Pilgrim Prime Rate Trust (the
"Trust"), entered into an agreement under which it will be acquired by ReliaStar
Financial Corp. (NYSE: RLR).  ReliaStar  Financial Corp. is a  Minneapolis-based
holding  company whose  subsidiaries  offer  individuals and  institutions  life
insurance and  annuities,  employee  benefits  products and  services,  life and
health  reinsurance,  retirement plans, mutual funds, bank products and personal
finance  education.  Based on revenues,  ReliaStar  Financial  Corp.  is the 8th
largest publicly held life insurance holding company in the United States and at
March 31, 1999, had $23.2 billion in assets under  management and life insurance
in force of $304.7 billion.  Completion of the  acquisition is contingent  upon,
among other things,  approval by the Trustees and the  shareholders of the Trust
and certain regulatory approvals.  The closing of the acquisition is expected to
occur during the fourth quarter of 1999.

     Pilgrim  Investments  as an  organization  will  survive  the  transaction.
Pilgrim Investments does not currently anticipate that there will be any changes
in the personnel  primarily  responsible for management of the Trust as a result
of the acquisition. As a result of the transaction,  Pilgrim Investments may get
access  to the  resources  and  investment  expertise  of  Northstar  Investment
Management Corporation, an investment adviser that is a subsidiary of ReliaStar.

     Under the provisions of the advisory contract between the Trust and Pilgrim
Investments,  the  agreement  will  terminate  automatically  at the time of the
acquisition. As a result, the Board of Trustees on August 2, 1999 approved a new
advisory contract between the Trust and Pilgrim  Investments  which,  subject to
shareholder  approval,  will take effect immediately after the acquisition.  The
contract is  substantially  the same as that currently in effect.  A shareholder
meeting has been scheduled in November to approve the new agreement.

                         INVESTMENT MANAGEMENT AGREEMENT

     THIS  INVESTMENT  MANAGEMENT  AGREEMENT made as of the 29th day of October,
1999, by and between  PILGRIM PRIME RATE TRUST, a  Massachusetts  Business Trust
(hereinafter called the "Trust"),  and PILGRIM INVESTMENTS,  INC., a corporation
organized  and  existing  under the laws of the State of  Delaware  (hereinafter
called the "Manager").

                                   WITNESSTH:

     WHEREAS,  the  Trust  is  a  closed-end   management   investment  company,
registered as such under the Investment Company Act of 1940; and

     WHEREAS,  the Manager is  registered  as an  investment  adviser  under the
Investment  Advisers  Act of 1940,  and is engaged in the  business of supplying
investment  advice  and  investment   management  services,  as  an  independent
contractor; and

     WHEREAS,  the Trust  desires  to retain the  Manager  to render  investment
advice and investment management services to the Trust pursuant to the terms and
provisions of this  Agreement,  and the Manager is interested in furnishing said
advice and services.

     NOW,  THEREFORE,  in consideration of the covenants and the mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:

          1. The Trust hereby employs the Manager and the Manager hereby accepts
     such  employment,  to render  investment  advice and investment  management
     services  with  respect  to  the  assets  of  the  Trust,  subject  to  the
     supervision  and  direction of the Trust's  Board of Trustees.  The Manager
     shall,  as part of its duties  hereunder  (i) furnish the Trust with advice
     and  recommendations  with respect to the  investment of the Trust's assets
     and the purchase and sale of its portfolio securities, including the taking
     of such  other  steps as may be  necessary  to  implement  such  advice and
     recommendations,  (ii) furnish the Trust with reports, statements and other
     data on securities,  economic conditions and other pertinent subjects which
     the Trust's  Board of Trustees may  request,  (iii) permit its officers and
     employees to serve without compensation as Trustees of the Trust if elected
     to such positions and (iv) in general superintend and manage the investment
     of the Trust,  subject to the  ultimate  supervision  and  direction to the
     Trust's Board of Trustees.

          2. The Manager  shall use its best  judgment  and efforts in rendering
     the advice and services to the Trust as contemplated by this Agreement.

          3. The Manager  shall,  for all  purposes  herein,  be deemed to be an
     independent contractor,  and shall, unless otherwise expressly provided and
     authorized, have no authority to act for or represent the Trust in any way,
     or in any way be deemed an agent for the Trust. It is expressly  understood
     and agreed  that the  services  to be  rendered by the Manager to the Trust
     under the provisions of this Agreement are not to be deemed exclusive,  and
     the Manager shall be free to render similar or different services to others
     so  long  as its  ability  to  render  the  services  provided  for in this
     Agreement shall not be impaired thereby.

          4. The Manager  agrees to use its best  efforts in the  furnishing  of
     such advice and recommendations to the Trust, in the preparation of reports
     and information,  and in the management of the Trust's assets, all pursuant
     to this  Agreement,  and for this  purpose  the Manager  shall,  at its own
     expense,  maintain  such  staff and  employ or retain  such  personnel  and
     consult with such other persons as it shall from time to time  determine to
     be necessary to the  performance of its  obligations  under this Agreement.
     Without  limiting the generality of the foregoing,  the staff and personnel
     of the Manager shall be deemed to include  persons  employed or retained by
     the  Manager  to  furnish   statistical,   research,   and  other   factual
     information, advice regarding economic factors and trends, information with
<PAGE>
     respect  to  technical  and   scientific   developments,   and  such  other
     information, advice and assistance as the Manager may desire and request.

          5. The Trust will from time to time  furnish to the  Manager  detailed
     statements of the investments and assets of the Trust and information as to
     its investment objectives and needs, and will make available to the Manager
     such  financial  reports,  proxy  statements,  legal and other  information
     relating to its  investments  as may be in the  possession  of the Trust or
     available to it and such information as the Manager may reasonably request.

          6.  Whenever the Manager has  determined  that the Trust should tender
     securities  pursuant to a "tender  offer  solicitation"  the Manager  shall
     designate an affiliate as the  "tendering  dealer" so long as it is legally
     permitted to act in such  capacity  under the Federal  securities  laws and
     rules thereunder and the rules of any securities exchange or association of
     which such affiliate may be a member.  Such affiliated  dealer shall not be
     obligated  to make any  additional  commitments  of  capital,  expenses  or
     personnel beyond that already committed (other than normal periodic fees or
     payments  necessary to maintain its corporate  existence and  membership in
     the National  Associations of Securities  Dealers,  Inc.) as of the date of
     this  Agreement.  This  Agreement  shall not  obligate  the Manager or such
     affiliate  (i) to act  pursuant  to the  foregoing  requirement  under  any
     circumstances in which they might  reasonably  believe that liability might
     be imposed upon them as a result of so acting,  or (ii) to institute  legal
     or other proceedings to collect fees which may be considered to be due from
     others to it as a result of such a tender,  unless  the Trust  shall  enter
     into an  Agreement  with such  affiliate  to  reimburse it for all expenses
     connected with  attempting to collect such fees,  including  legal fees and
     expenses and that portion of the  compensation due to their employees which
     is attributable to the time involved in attempting to collect such fees.

          7. The Manager  shall bear and pay the costs of rendering the services
     to be performed by it under this Agreement.  The Trust shall be responsible
     for all other  expenses of its  operation,  including,  but not limited to,
     expenses incurred in connection with the sale, issuance,  registration, and
     transfer of its shares;  fees of its  custodian,  transfer and  shareholder
     servicing agent;  salaries of officers and fees and expenses of trustees or
     members of any advisory board or committee of the Trust who are not members
     of,  affiliated  with or  interested  persons of the  Manager;  the cost of
     preparing and printing  reports,  proxy  statements and prospectuses of the
     Trust or other communications for distribution to its shareholders;  legal,
     auditing and accounts fees; the fees of any trade associations of which the
     Trust is a  member;  fees  and  expenses  of  registering  and  maintaining
     registration  of its shares for sale under  Federal  and  applicable  State
     securities  laws; and all other charges and costs of its operation plus any
     extraordinary  and  non-recurring  expenses,  except  as  herein  otherwise
     prescribed.  To the extent the  Manager  incurs any costs or  performs  any
     services  which are an  obligation of the Trust,  as set forth herein,  the
     Trust shall promptly reimburse the Manager for such costs and expenses.  To
     the  extent  the  services  for  which the  Trust is  obligated  to pay are
     performed by the Manager, the Manager shall be entitled to recover from the
     Trust only to the extent of its costs for such services.

          8.(a) The Trust agrees to pay to the Manager,  and the Manager  agrees
     to accept,  as full  compensation  for all  administrative  and  investment
     management  services  furnished  or  provided  to the  Trust  and  as  full
     reimbursement  for all expenses  assumed by the Manager,  a management  fee
     computed  at an annual  percentage  rate of .80% of the  average  daily net
     assets of the Trust, plus the proceeds of any outstanding borrowings.

          (b) The management fee shall be accrued daily by the Trust and paid to
     the Manager at the end of each calendar month.

          (c) If,  for  any  fiscal  year,  the  expenses  borne  by the  Trust,
     including the investment advisory fee, but excluding brokerage  commissions
     and fees, taxes,  interest and to the extent  permitted,  any extraordinary
     expenses such as litigation and  non-recurring  expenses,  would exceed the
     expense limitations  applicable to the Trust imposed by the securities laws
     or  regulations  thereunder  of any state in which the  Trust's  shares are
     qualified for sale,  the Manager  agrees to reduce its fee or reimburse the
     Trust for all such excess expenses  exceeding such limitation no later than
     the last day of the first month of the next succeeding fiscal year. For the

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     purposes  of this  paragraph,  the term  "fiscal  year"  shall  exclude the
     portion of the current  fiscal year which shall have  elapsed  prior to the
     date hereof and shall  include the portion of the then current  fiscal year
     which shall have elapsed at the date of termination of this Agreement.

          (d) The management fee payable by the Trust hereunder shall be reduced
     to the extent that an affiliate of the Manager has actually  received  cash
     payments of tender offer  solicitation fees less certain costs and expenses
     incurred in connection therewith, as referred to in Paragraph 6 herein.

          9. The  Manager  agrees  that  neither it nor any of its  officers  or
     employees  shall take any short position in the capital stock of the Trust.
     This  prohibition  shall not prevent the  purchase of such shares by any of
     the  officers and  directors  or bona fide  employees of the Manager or any
     trust,  pension,  profit-sharing  or other benefit plan for such persons or
     affiliates thereof.

          10. Nothing herein  contained  shall be deemed to require the Trust to
     take any action  contrary to its Trust  Indenture or applicable  statute or
     regulation,  or to relieve or deprive the Board of Trustees of the Trust of
     its  responsibility  for and  control of the  conduct of the affairs of the
     Trust.

          11.(a)  In the  absence  of  willful  misfeasance,  bad  faith,  gross
     negligence, or reckless disregard of obligations or duties hereunder on the
     part of the Manager,  the Manager  shall not be subject to liability to the
     Trust or to any  shareholder  of the Trust for any act or  omission  in the
     course of, or  connected  with,  rendering  services  hereunder  or for any
     losses  that  may be  sustained  in the  purchase,  holding  or sale of any
     investment by the Trust.

          (b) Notwithstanding the foregoing, the Manager agrees to reimburse the
     Trust for any and all costs,  expenses,  and  counsel  and  trustees'  fees
     reasonably  incurred  by  the  Trust  in  the  preparation,   printing  and
     distribution of proxy statements, amendments to its Registration Statement,
     holding of meetings of its shareholders or trustees, the conduct of factual
     investigations,  any  legal or  administrative  proceedings  including  any
     applications  for  exemptions  or  determinations  by  the  Securities  and
     Exchange  Commission  which  the Trust  incurs  as the  result of action or
     inaction  of the  Manager  or any of its  shareholders  where the action or
     inaction  necessitating  such  expenditures  (i) is directly or  indirectly
     related to any transaction or proposed transaction in the shares or control
     of the Manager or its affiliates  (or litigation  related to any pending or
     proposed  future  transaction  in such shares or control)  which shall have
     been undertaken  without the prior express approval of the Trust's Board of
     Trustees;  or (ii) is within the sole  control of the Manager or any of its
     affiliates or any of their officers, directors,  employees or shareholders.
     The  Manager  shall not be  obligated  pursuant to the  provisions  of this
     Subparagraph 11(b), to reimburse the Trust for any expenditures  related to
     the institution of an administrative  proceeding or civil litigation by the
     Trust or a Trust  shareholder  seeking to  recover  all or a portion of the
     proceeds derived by any shareholder of the Manager or any of its affiliates
     from the sale of his shares of the Manager,  or similar matters. So long as
     this Agreement is in effect,  the Manager shall pay to the Trust the amount
     due for expenses subject to this Subparagraph 11(b) within thirty (30) days
     after a bill or statement  has been  received by the Trust  therefor.  This
     provision  shall  not be  deemed  to be a waiver of any claim the Trust may
     have or may assert  against  the Manager or others or costs,  expenses,  or
     damages heretofore  incurred by the Trust for costs,  expenses,  or damages
     the Trust may hereinafter incur which are not reimbursable to it hereunder.

          (c) No provision of this  Agreement  shall be construed to protect any
     trustee  or  officer  of the  Trust,  or the  Manager,  from  liability  in
     violation of Section 17(h) and (i) of the  Investment  Company Act of 1940,
     as amended.

          12. This  Agreement  shall become  effective on the date first written
     above,  subject  to the  condition  that the  Trust's  Board  of  Trustees,
     including a majority of those Trustees who are not  interested  persons (as
     such term is defined in the Investment Company Act of 1940) of the Manager,
     and the  shareholders  of the Trust,  shall have approved  this  Agreement.
     Unless terminated as provided herein,  the Agreement shall continue in full
     force  and  effect  for two  (2)  years  from  the  effective  date of this
     Agreement,  and shall  continue in effect from year to year  thereafter  so
     long as such continuation is specifically approved at least annually by (i)
     the  Board of  Trustees  of the Trust or by the vote of a  majority  of the
     outstanding voting securities of the Trust, and (ii) the vote of a majority

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<PAGE>
     of the  Trustees  of the Trust who are not  parties  to this  Agreement  or
     interested  persons  thereof,  cast in person at a meeting  called  for the
     purpose of voting on such approval.

          13. This Agreement may be terminated at any time,  without  payment of
     any penalty, by the Board of Trustees of the Trust or by vote of a majority
     of the  outstanding  voting  securities of the Trust,  upon sixty (60) days
     written  notice to the  Manager,  and by the  Manager  upon sixty (60) days
     written notice to the Trust.

          14. This Agreement shall terminate  automatically  in the event of any
     transfer or assignment thereof, as defined in the Investment Company Act of
     1940, as amended.

          15. If any provision of this  Agreement  shall be held or made invalid
     by a court  decision,  statute,  rule, or otherwise,  the remainder of this
     Agreement shall not be affected thereby.

          16. The term "majority of the  outstanding  voting  securities" of the
     Trust shall have the meaning as set forth in the Investment  Company Act of
     1940, as amended.

          17. In  consideration  of the execution of this Agreement the Manager,
     on behalf of its sole shareholder, Pilgrim Group, Inc. hereby grants to the
     Trust the right to use the name "Pilgrim" as part of its name. The Manager,
     on behalf of its sole  shareholder,  Pilgrim Group, Inc. reserves the right
     to grant to others  the right to use the name  "Pilgrim"  including  to any
     other investment company. The Trust agrees that in the event this Agreement
     is terminated, the Trust shall immediately take such steps as are necessary
     to amend its name and remove the reference to "Pilgrim."

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<PAGE>
     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed by their respective officers on the day and year first above written.

                            PILGRIM PRIME RATE TRUST

Attest:                                 By:
       -------------------------------     -------------------------------------

Title:                                  Title:
       -------------------------------        ----------------------------------


                           PILGRIM INVESTMENTS, INC.

Attest:                                 By:
       -------------------------------     -------------------------------------

Title:                                  Title:
       -------------------------------        ----------------------------------

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