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<SEC-DOCUMENT>0000950147-01-500790.txt : 20010501
<SEC-HEADER>0000950147-01-500790.hdr.sgml : 20010501
ACCESSION NUMBER:		0000950147-01-500790
CONFORMED SUBMISSION TYPE:	POS 8C
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20010430

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PILGRIM PRIME RATE TRUST
		CENTRAL INDEX KEY:			0000826020
		STANDARD INDUSTRIAL CLASSIFICATION:	UNKNOWN SIC - 0000 [0000]
		IRS NUMBER:				956874587
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			0228

	FILING VALUES:
		FORM TYPE:		POS 8C
		SEC ACT:		
		SEC FILE NUMBER:	333-61831
		FILM NUMBER:		1616993

	FILING VALUES:
		FORM TYPE:		POS 8C
		SEC ACT:		
		SEC FILE NUMBER:	811-05410
		FILM NUMBER:		1616994

	BUSINESS ADDRESS:	
		STREET 1:		TWO RENAISSANCE SQ
		STREET 2:		40 N CENTRAL STE 1200
		CITY:			PHOENIX
		STATE:			AZ
		ZIP:			85004-4424
		BUSINESS PHONE:		6024178100

	MAIL ADDRESS:	
		STREET 1:		TWO RENAISSANCE SQ
		STREET 2:		40 N CENTRAL STE 1200
		CITY:			PHOENIX
		STATE:			AZ
		ZIP:			85004-4424

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PILGRIM PRIME RATE TRUST
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>POS 8C
<SEQUENCE>1
<FILENAME>e-6711.txt
<DESCRIPTION>POST-EFFECTIVE AMENDMENT 4 TO FORM N-2
<TEXT>

     As filed with the Securities and Exchange Commission on April 30, 2001
                                                     1933 Act File No. 333-61831
                                                     1940 Act File No. 811-05410
================================================================================

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-2

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                           Pre-Effective Amendment No.
                         Post-Effective Amendment No. 4                      [X]
                                      and
         REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

                                Amendment No. 41                             [X]

                        (Check appropriate box or boxes)


                            PILGRIM PRIME RATE TRUST
                   (formerly Pilgrim America Prime Rate Trust)
                  Exact Name of Registrant Specified in Charter

                          7337 E. Doubletree Ranch Road
                            Scottsdale, Arizona 85258
 Address of Principal Executive Offices (Number, Street, City, State, Zip Code)

                                 (800) 992-0180
               Registrant's Telephone Number, Including Area Code

                                                            With copies to:
   James M. Hennessy, Esq.                              Jeffrey S. Puretz, Esq.
   ING Pilgrim Group, LLC                                       Dechert
7337 E. Doubletree Ranch Road                            1775 Eye Street, NW
  Scottsdale, Arizona 85258                              Washington, DC 20006
     Name and Address (Number, Street, State, Zip Code) of Agent for Service

Approximate Date of Proposed Public Offering: As soon as practical after the
effective date of this Registration Statement.

If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. [X]

It is proposed that this filing will become effective:

[X]  When declared effective pursuant to Section 8(c) of the Securities
     Act of 1933.

================================================================================
<PAGE>
LOGO                                                                  Prospectus



                                 June __, 2001


                                                                   25,000,000
                                                                   Common Shares


                                                                   PILGRIM PRIME
                                                                   RATE TRUST







This prospectus  contains  important  information about investing in the Pilgrim
Prime Rate Trust (the "Trust").  You should read it carefully before you invest,
and keep it for future reference.

The Trust has filed with the Securities  and Exchange  Commission a Statement of
Additional  Information  dated June __, 2001 (the "SAI")  containing  additional
information  about  the  Trust.  The SAI is  incorporated  by  reference  in its
entirety  into  this  prospectus.  You  may  obtain  a free  copy  of the SAI by
contacting  the Trust at (800)  992-0180  or by  writing to the Trust at 7337 E.
Doubletree Ranch Road, Scottsdale,  Arizona 85258. The prospectus, SAI and other
information   about   the   Trust   are   available   on   the   SEC's   website
(http://www.sec.gov).

Common  Shares of the Trust trade on the New York Stock  Exchange  (the  "NYSE")
under the symbol "PPR."

Market  fluctuations  and general  economic  conditions can adversely affect the
Trust.  There is no  guarantee  that  the  Trust  will  achieve  its  investment
objective.   Investment  in  the  Trust  involves   certain  risks  and  special
considerations, including risks associated with the Trust's use of leverage. See
"Risk Factors and Special Considerations" beginning on page __.

Neither  the  Securities  and  Exchange  Commission  nor  any  state  securities
commission has approved or disapproved these securities, or determined that this
prospectus  is truthful or  complete.  Any  representation  to the contrary is a
criminal offense.
<PAGE>
                                                                   WHAT'S INSIDE
- --------------------------------------------------------------------------------

[GRAPHIC] INVESTMENT OBJECTIVE

[GRAPHIC] INVESTMENT STRATEGY

[GRAPHIC] RISKS

Introduction to the Trust                                                      1
Prospectus Summary                                                             2
Investment Objective and Policies                                              6
The Trust's Investments                                                        8
Trust Characteristics and Compensation
Trading and NAV Information
Investment Performance
Comparative Performance
Risk Factors and Special Considerations
What You Pay To Invest -- Trust Expenses
Shareholder Guide
Plan of Distribution
Use of Proceeds
Dividends and Distributions
Investment Management and Other Services
Description of the Trust
Description of Capital Structure
Tax Matters
Distribution Arrangements
Legal Matters
Auditors
Registration Statement
Shareholder Reports
Privacy Policy
Financial Highlights
Statement of Additional Information Table of Contents
<PAGE>
                                                       INTRODUCTION TO THE TRUST
- --------------------------------------------------------------------------------

Risk is the potential that your investment will lose money or not earn as much
as you hope. All funds have varying degrees of risk, depending upon the
securities they invest in.

This Trust involves certain risks and special considerations, including risks
associated with investing in below investment grade assets and risks associated
with the Trust's use of borrowing and other leverage strategies. See "Risk
Factors and Special Considerations" beginning on page 14.

Please read this prospectus carefully to be sure you understand the principal
risks and strategies associated with the Trust. You should consult the SAI for a
complete list of the risks and strategies.

[GRAPHIC]

If you have any questions about the Trust, please call your financial consultant
or us at 1-800-992-0180.

This prospectus is designed to help you make informed decisions about your
investments. Please read it carefully.

Who should invest in the Trust?

THE PILGRIM PRIME RATE TRUST MAY SUIT YOU IF YOU:

     *    are seeking a high level of current income
     *    are willing to accept the risks associated with an investment in a
          leveraged portfolio of senior loans that are typically below
          investment grade credit quality
     *    are a long-term investor that does not need ready access to principal
          invested

DESCRIPTION OF THE TRUST

The Trust is a diversified, closed-end investment company that seeks to provide
long-term investors with as high a level of current income as is consistent with
the preservation of capital. The Trust seeks to achieve this objective by
investing in a professionally managed portfolio comprised primarily of senior
loans, an investment typically not available directly to individual investors.

Since the senior loans in the Trust's portfolio typically are below investment
grade credit quality and the portfolio is leveraged, the Trust has speculative
characteristics. As a result, the Trust cannot guarantee that it will achieve
its investment objective.

Common Shares of the Trust trade on the NYSE under the symbol "PPR."

The Trust's investment manager is ING Pilgrim Investments, LLC.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                                                               1
<PAGE>

PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------


The following summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this prospectus.

DESCRIPTION OF THE TRUST

The Trust                The Trust is a diversified, closed-end management
                         investment company registered under the Investment
                         Company Act of 1940, as amended (the "1940 Act"). It is
                         organized as a Massachusetts business trust. As of June
                         __, 2001, the Trust's NAV per common share was $______.

NYSE Listed              As of June __, 2001, the Trust had ______ Common Shares
                         outstanding, which are traded on the NYSE under the
                         symbol "PPR." As of June __, 2001, the last reported
                         sales price of a Common Share of the Trust was $______.

Investment Objective     To provide investors with as high a level of current
                         income as is consistent with the preservation of
                         capital. There is no assurance that the Trust will
                         achieve its investment objective.

Investment Manager       The Trust's investment manager is ING Pilgrim
                         Investments,  LLC  ("ING  Pilgrim  Investments"  or the
                         "Investment Manager").  Organized in December 1994, the
                         Investment  Manager serves as investment  adviser to 36
                         open-end  funds,  two closed-end  funds  (including the
                         Trust),   15   variable   annuity   funds,   and  other
                         institutional  and  privately  managed  accounts.   The
                         Investment  Manager had assets under management of over
                         $17.8 billion as of March 31, 2001.

                         The Investment Manager is an indirect wholly-owned
                         subsidiary of ING Groep N.V. (NYSE: ING) ("ING Group").
                         ING Group is a global financial institution active in
                         the fields of insurance, banking and asset management
                         in more than 65 countries with nearly 100,000
                         employees.

                         The Investment Manager receives an annual fee, payable
                         monthly, in a maximum amount equal to 0.80% of the
                         Trust's average daily gross asset value, minus the sum
                         of the Trust's accrued and unpaid dividends on any
                         outstanding preferred shares and accrued liabilities
                         (other than liabilities for the principal amount of any
                         borrowings incurred, commercial paper or notes issued
                         by the Trust and the liquidation preference of any
                         outstanding preferred shares) ("Managed Assets"). This
                         definition includes the assets acquired through the
                         Trust's use of leverage.

Primary Investment       The Trust seeks to achieve its investment objective by
Strategy                 investing under normal circumstances at least 80% of
                         its total assets in higher yielding, U.S. dollar
                         denominated, floating rate secured senior loans made
                         only to corporations or other business entities
                         organized under U.S. law or located in the U.S., Canada
                         or in U.S. territories or possessions. ("Senior
                         Loans").

                         Senior Loans either hold the most senior position in
                         the capital structure of the borrower or hold an equal
                         ranking with other senior debt or have characteristics
                         that the Investment Manager believes justify treatment
                         as senior debt.

                         Assets not invested in Senior Loans may be invested in
                         unsecured loans, subordinated loans, short-term and
                         longer term debt securities, and equities acquired in
                         connection with investments in loans. See "Investment
                         Objective and Policies" at page 6.

2    Prospectus Summary
<PAGE>
                                                              PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------

Other Investment         Loans in which the Trust invests typically have
Strategies and Policies  interest rates which reset at least quarterly and may
                         reset as frequently as daily. The maximum duration of
                         an interest rate reset on any loan in which the Trust
                         can invest is one year. In order to achieve overall
                         reset balance, the Trust will ordinarily maintain a
                         dollar-weighted average time to next interest rate
                         adjustment on its loans of 90 days or less.

                         Although the Trust has no restrictions on investment
                         maturity, normally at least 80% of its portfolio will
                         be invested in Senior Loans with maturities of one to
                         ten years.

                         The Trust may hold a portion of its assets in
                         short-term interest bearing instruments. Moreover, in
                         periods when, in the opinion of the Investment Manager,
                         a temporary defensive position is appropriate, up to
                         100% of the Trust's assets may be held in cash or
                         short-term interest bearing instruments. The Trust may
                         not achieve its investment objective when pursuing a
                         temporary defensive position.

                         The Trust also may invest assets not invested in Senior
                         Loans in loans to foreign borrowers.

                         Although the Investment Manager does not currently
                         anticipate making extensive use of the following
                         strategy, the Trust can engage in lending its portfolio
                         securities.

Leverage                 To seek to increase the yield on the Common Shares, the
                         Trust employs financial leverage by borrowing money and
                         issuing preferred shares. See "Risk Factors and Special
                         Considerations -- Leverage" at page 15.

Borrowings               Under the 1940 Act, the Trust may borrow up to 33 1/3%
                         of its total assets (including the proceeds of the
                         borrowings) less all liabilities other than borrowings.
                         The Trust's obligations to holders of its debt are
                         senior to its ability to pay dividends on, or redeem or
                         repurchase, Common Shares and preferred shares, or to
                         pay holders of Common Shares and preferred shares in
                         the event of liquidation.

Preferred Shares         The Trust is authorized to issue an unlimited number of
                         shares of a class of preferred stock in one or more
                         series. In November 2000, the Trust issued 3,600 shares
                         each of Series M, T, W, Th and F Auction Rate
                         Cumulative Preferred Shares, $0.01 par value, $25,000
                         liquidation preference per share, for a total issuance
                         of $450 million (the "Preferred Shares"). The Trust's
                         obligations to holders of the Preferred Shares and
                         holders of any other preferred shares, are senior to
                         its ability to pay dividends on, or redeem or
                         repurchase, Common Shares, or to pay holders of Common
                         Shares in the event of liquidation.

                         The 1940 Act also requires that the holders of the
                         Preferred Shares and holders of any other preferred
                         shares of the Trust, voting as a separate class, have
                         the right to:

                         *    elect at least two trustees at all times

                         *    elect a majority of the trustees at any time when
                              dividends on any series of Preferred Shares are
                              unpaid for two full years.

                         In each case, the holders of Common Shares voting
                         separately as a class will elect the remaining
                         trustees.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                                         Prospectus Summary    3
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------

Diversification          The Trust maintains a diversified investment portfolio,
                         a strategy which seeks to limit exposure to any one
                         issuer or industry.

                         As a diversified investment company, the Trust may not
                         make investments in any one issuer (other than the U.S.
                         government) if, immediately after such purchase or
                         acquisition, more than 5% of the value of the Trust's
                         total assets would be invested in such issuer, or the
                         Trust would own more than 25% of any outstanding issue.
                         The Trust will consider a borrower on a loan, including
                         a loan participation, to be the issuer of that loan.
                         This strategy is a fundamental policy that cannot be
                         changed without shareholder approval. With respect to
                         no more than 25% of its total assets, the Trust may
                         make investments that are not subject to the foregoing
                         restrictions.

                         In addition, a maximum of 25% of the Trust's total
                         assets, measured at the time of investment, can be
                         invested in any one industry. This strategy is also a
                         fundamental policy that cannot be changed without
                         shareholder approval.

Plan of Distribution     The Common Shares are offered by the Trust through the
                         Trust's Shareholder Investment Program. The Shareholder
                         Investment Program allows participating shareholders to
                         reinvest all dividends in additional shares of the
                         Trust, and also allows participants to purchase
                         additional Common Shares through optional cash
                         investments in amounts ranging from a minimum of $100
                         to a maximum of $5,000 per month. Subject to the
                         permission of the Trust, participating shareholders may
                         also make optional cash investments in excess of the
                         monthly maximum. Common Shares may be issued by the
                         Trust under the Shareholder Investment Program only if
                         the Trust's Common Shares are trading at a premium to
                         net asset value ("NAV"). If the Trust's Common Shares
                         are trading at a discount to NAV, Common Shares
                         purchased under the Shareholder Investment Program will
                         be purchased on the open market. See "Shareholder
                         Guide--Plan of Distribution" at page 22.

                         Shareholders may elect to participate in the
                         Shareholder Investment Program by telephoning the Trust
                         or submitting a completed Participation Form to DST
                         Systems, Inc. ("DST").

Distributions            Dividends on Common Shares accrue and are declared and
                         paid monthly. Income dividends may be distributed in
                         cash or reinvested in additional full and fractional
                         shares through the Trust's Shareholder Investment
                         Program.

Administrator            The Trust's administrator is ING Pilgrim Group, LLC
                         (the "Administrator"). The Administrator is an
                         affiliate of the Investment Manager. The Administrator
                         receives an annual fee, payable monthly, in a maximum
                         amount equal to 0.25% of the Trust's Managed Assets.

RISK FACTORS AND SPECIAL CONSIDERATIONS

Credit Risk on Loans     Loans in the Trust's portfolio will typically be below
                         investment grade credit quality. As a result,
                         investment in the Trust involves the risk that
                         borrowers may default on obligations to pay principal
                         or interest when due, that lenders may have difficulty
                         liquidating the collateral securing the loans or
                         enforcing their rights under the terms of the loans,
                         and that the Trust's investment objective may not be
                         realized.

Interest Rate Risk       Changes in market interest rates will affect the yield
                         on the Trust's Common Shares. If market interest rates
                         fall, the yield on the Trust's Common Shares will also
                         fall. In addition, changes in market interest rates may
                         cause the Trust's NAV to experience moderate volatility
                         because of the lag between changes in market rates and
                         the resetting of the floating rates on assets in the
                         Trust's portfolio. Finally, to the extent that market
                         interest rate changes are reflected as a change in the
                         market spreads for loans of the type and quality in
                         which the Trust invests, the value of the Trust's
                         portfolio may decrease in response to an increase in
                         such spreads.

4    Prospectus Summary
<PAGE>
                                                              PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------

Discount from or         As with any security, the market value of the Common
Premium to NAV           Shares may increase or decrease from the amount that
                         you paid for the Common Shares.

                         The Trust's Common Shares may trade at a discount to
                         NAV. This is a risk separate and distinct from the risk
                         that the Trust's NAV per Common Share may decrease.

Leverage                 The Trust's use of leverage through borrowings and the
                         issuance of preferred shares can adversely affect the
                         yield on the Trust's Common Shares. To the extent that
                         the Trust is unable to invest the proceeds from the use
                         of leverage in assets which pay interest at a rate
                         which exceeds the rate paid on the leverage, the yield
                         on the Trust's Common Shares will decrease. In
                         addition, in the event of a general market decline in
                         the value of assets such as those in which the Trust
                         invests, the effect of that decline will be magnified
                         in the Trust because of the leverage.

Limited Secondary        Because of the limited secondary market for loans, the
Market for Loans         Trust may be limited in its ability to sell these loans
                         in a timely fashion and/or at a favorable price.

Demand for Loans         An increase in demand for loans may adversely affect
                         the rate of interest payable on new loans acquired by
                         the Trust.

Secondary Market         The issuance of Common Shares through the Shareholder
for the Trust's          Investment Program may have an adverse effect on prices
Common Shares            in the secondary market for the Trust's Common Shares
                         by increasing the number of Common Shares available for
                         sale. In addition, the Common Shares may be issued at a
                         discount to the market price for such Common Shares,
                         which may put downward pressure on the market price for
                         Common Shares of the Trust.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                                         Prospectus Summary    5
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------

Investment Objective

The Trust's investment objective is to provide investors with as high a level of
current income as is consistent with the preservation of capital. The Trust
seeks to achieve this investment objective by investing in the types of assets
described below:

1.   Senior Loans. Under normal circumstances, at least 80% of the Trust's total
     assets will be invested in higher yielding, U. S. dollar denominated,
     floating rate secured senior loans made only to borrowers that are
     corporations or other business entities organized under U.S. law or located
     in the U.S., Canada or in U.S. territories or possessions. ("Senior
     Loans").

     Senior Loans either hold the most senior position in the capital structure
     of the borrower or hold an equal ranking with other senior debt or have
     characteristics that the Investment Manager believes justify treatment as
     senior debt.

     The Trust does not invest in Senior Loans whose interest rates are tied to
     non-domestic interest rates other than the London Inter-Bank Offered Rate
     ("LIBOR").

2.   Other Investments. Under normal circumstances the Trust can also invest up
     to 20% of its total assets in the following types of investments ("Other
     Investments"):

     *    unsecured loans

     *    subordinated loans

     *    short-term and longer term debt securities

     *    equity securities incidental to investment in loans

3.   Cash and Short-Term Instruments. Under normal circumstances, the Trust may
     invest in cash and/or short-term instruments. During periods when, in the
     opinion of the Investment Manager, a temporary defensive posture in the
     market is appropriate, the Trust may hold up to 100% of its assets in cash
     and/or short-term instruments.

4.   Other Investment Strategies. The Trust may invest assets not invested in
     Senior Loans in loans to foreign borrowers.

     The Trust may engage in lending its portfolio securities.

Fundamental Diversification Policies

1.   Industry Diversification. The Trust may invest in any industry. The Trust
     may not invest more than 25% of its total assets in any single industry.

2.   Borrower Diversification. As a diversified investment company, the Trust
     may not make investments in any one issuer (other than the U.S. government)
     if, immediately after such purchase or acquisition, more than 5% of the
     value of the Trust's total assets would be invested in such issuer, or the
     Trust would own more than 25% of any outstanding issue. The Trust will
     consider the borrower on a loan, including a loan participation, to be the
     issuer of such loan. With respect to no more than 25% of its total assets,
     the Trust may make investments that are not subject to the foregoing
     restrictions.

These fundamental diversification policies may only be changed with approval by
a majority of all shareholders, including the vote of a majority of the holders
of Preferred Shares, and holders of any other preferred shares, voting
separately as a class.

Investment Policies

The Investment Manager follows certain investment policies set by the Trust's
Board of Trustees. Some of those policies are set forth below. Please refer to
the SAI for additional information on these and other investment policies.

1.   Payable in U.S. Dollars. All investments purchased by the Trust must be
     denominated in U.S. dollars.

2.   Maturity. Although the Trust has no restrictions on portfolio maturity,
     normally at least 80% of the Trust's total assets will be invested in
     Senior Loans with maturities of one to ten years.

3.   Interest Rate Resets. Normally, at least 80% of the Trust's total assets
     will be invested in assets with rates of interest which reset either daily,
     monthly, or quarterly. The maximum duration of an interest rate reset on
     any loan investment in which the Trust may invest is one year. In addition,
     the Trust will ordinarily maintain a dollar-weighted average time to next
     interest rate adjustment on its loan investments of 90 days or less.

4.   Limitations on Subordinated and Unsecured Loans. The Trust may also invest
     up to 5% of its total assets, measured at the time of investment, in
     subordinated and unsecured loans. The Trust may acquire a subordinated loan
     only if, at the time of acquisition, it acquires or holds a Senior Loan
     from the same borrower. The Trust will acquire unsecured loans only where
     the Investment Manager 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. The maximum of 5% of the Trust's assets invested in
     subordinated and unsecured loans will constitute part of the 20% of the
     Trust's assets that may be invested in "Other Investments" as described
     above, and will not count toward the 80% of the Trust's assets that are
     normally invested in Senior Loans.

5.   Investment Quality; Credit Analysis. Loans in which the Trust invests
     generally are rated below investment grade credit quality or are unrated.
     In acquiring a loan, the Investment Manager will consider some or all of
     the following factors concerning the borrower: ability to service debt from
     internally generated funds; adequacy of liquidity and working capital;
     appropriateness of

6    Investment Objective and Policies
<PAGE>
                                               INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------

     capital structure; leverage consistent with industry norms; historical
     experience of achieving business and financial projections; the quality and
     experience of management; and adequacy of collateral coverage. The
     Investment Manager performs its own independent credit analysis of each
     borrower. In so doing, the Investment Manager may utilize information and
     credit analyses from agents that originate or administer loans, other
     lenders investing in a loan, and other sources. The Investment Manager also
     may communicate directly with management of the borrowers. These analyses
     continue on a periodic basis for any Senior Loan held by the Trust. See
     "Risk Factors and Special Considerations -- Credit Risk."

6.   Use of Leverage. The Trust may borrow money and issue preferred shares to
     the fullest extent permitted by the 1940 Act. See "Policy on Borrowing" and
     "Policy on Issuance of Preferred Shares."

7.   Short-term Instruments. Short-term instruments in which the Trust invests
     may include (i) commercial paper rated A-1 by Standard & Poor's Ratings
     Services or P-1 by Moody's Investors Service, Inc., or of comparable
     quality as determined by the Investment manager, (ii) certificates of
     deposit, bankers' acceptances, and other bank deposits and obligations, and
     (iii) securities issued or guaranteed by the U.S. Government, its agencies
     or instrumentalities.

Policy on Borrowing

Beginning in May of 1996, the Trust began a policy of borrowing for investment
purposes. The Trust seeks to use proceeds from borrowing to acquire loans and
other investments which pay interest at a rate higher than the rate the Trust
pays on borrowings. Accordingly, borrowing has the potential to increase the
Trust's total income available to holders of its Common Shares.

The Trust may issue notes, commercial paper, or other evidences of indebtedness
and may be required to secure repayment by mortgaging, pledging, or otherwise
granting a security interest in the Trust's assets. The terms of any such
borrowings are subject to the provisions of the 1940 Act, and also subject to
the more restrictive terms of the credit agreements relating to borrowings and
additional guidelines imposed by rating agencies which are more restrictive than
the provisions of the 1940 Act. The Trust is permitted to borrow up to 33 1/3%,
or such other percentage permitted by law, of its total assets (including the
amount borrowed) less all liabilities other than borrowings. See "Risk Factors
and Special Considerations- Leverage" and "Risk Factors and Special
Considerations -- Restrictive Covenants and 1940 Act Restrictions."

Policy on Issuance of Preferred Shares

The Trust has a policy of issuing preferred shares for investment purposes. The
Trust seeks to use the proceeds from preferred shares to acquire loans and other
investments which pay interest at a rate higher than the dividends payable on
preferred shares. The terms of the issuance of preferred shares are subject to
the 1940 Act and to additional guidelines imposed by rating agencies, which are
more restrictive than the provisions of the 1940 Act. The Trust is permitted to
issue preferred shares with an aggregate liquidation value of up to 50% of the
Trust's total assets (including the proceeds of the preferred shares and any
borrowings). In November 2000, the Trust issued 18,000 Preferred Shares for a
total of $450 million. See "Risk Factors and Special Considerations --
Leverage."

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                          Investment Objective and Policies    7
<PAGE>
THE TRUST'S INVESTMENTS
- --------------------------------------------------------------------------------

As stated above under Investment Objective and Policies, the Trust will invest
primarily in Senior Loans. This section contains a discussion of the
characteristics of Senior Loans, the manner in which those investments are made
and the market for Senior Loans.

Senior Loan Characteristics

Senior Loans are loans that are typically made to business borrowers to finance
leveraged buy-outs, recapitalizations, mergers, stock repurchases and to finance
internal growth. Senior Loans generally hold the most senior position in the
capital structure of a borrower and are usually secured by liens on the assets
of the borrowers, including tangible assets such as cash, accounts receivable,
inventory, property, plant and equipment, common and/or preferred stock of
subsidiaries, and intangible assets including trademarks, copyrights, patent
rights and franchise value. The Trust may also receive guarantees as a form of
collateral.

Senior Loans that the Trust may acquire include participation interests in lease
financings ("Lease Participations") where the collateral quality, credit quality
of the borrower and the likelihood of payback are believed by ING Pilgrim
Investments to be the same as those applied to conventional Senior Loans. A
Lease Participation is also required to have a floating interest rate that is
indexed to a benchmark indicator of prevailing interest rates, such as LIBOR or
the Prime Rate.

By virtue of their senior position and collateral, Senior Loans typically
provide lenders with the first right to cash flows or proceeds from the sale of
a borrower's collateral if the borrower becomes insolvent (subject to the
limitations of bankruptcy law, which may provide higher priority to certain
claims such as, for example, employee salaries, employee pensions and taxes).
This means Senior Loans are generally repaid before unsecured bank loans,
corporate bonds, subordinated debt, trade creditors, and preferred or common
stockholders.

Senior Loans typically pay interest at least quarterly at rates which equal a
fixed percentage spread over a base rate such as LIBOR. For example, if LIBOR
were 6.00% and the borrower were paying a fixed spread of 3.00%, the total
interest rate paid by the borrower would be 9.00%. Base rates and, therefore,
the total rates paid on Senior Loans float, i.e., they change as market rates of
interest change.

Although a base rate such as LIBOR can change every day, loan agreements for
Senior Loans typically allow the borrower the ability to choose how often the
base rate for the loan will change. Such periods can range from one day to one
year, with most borrowers choosing monthly or quarterly reset periods. During
periods of rising interest rates, borrowers will tend to choose longer reset
periods, and during periods of declining interest rates, borrowers will tend to
choose shorter reset periods. The fixed spread over the base rate on a Senior
Loan typically does not change.

Senior Loans generally are arranged through private negotiations between a
borrower and several financial institutions represented by an agent who is
usually one of the originating lenders. In larger transactions, it is common to
have several agents; however, generally only one such agent has primary
responsibility for ongoing administration of a Senior Loan. Agents are typically
paid fees by the borrower for their services. The agent is primarily responsible
for negotiating the loan agreement which establishes the terms and conditions of
the Senior Loan and the rights of the borrower and the lenders. The agent also
is responsible for monitoring collateral and for exercising remedies available
to the lenders such as foreclosure upon collateral.

Loan agreements may provide for the termination of the agent's agency status in
the event that it fails to act as required under the relevant loan agreement,
becomes insolvent, enters FDIC receivership or, if not FDIC insured, enters into
bankruptcy. Should such an agent, lender or assignor with respect to an
assignment interpositioned between the Trust and the borrower become insolvent
or enter FDIC receivership or bankruptcy, any interest in the Senior Loan of
such person and any loan payment held by such person for the benefit of the
Trust should not be included in such person's or entity's bankruptcy estate. If,
however, any such amount were included in such person's or entity's bankruptcy
estate, the Trust would incur certain costs and delays in realizing payment or
could suffer a loss of principal or interest. In this event, the Trust could
experience a decrease in NAV.

The Trust acquires Senior Loans from lenders such as banks, insurance companies,
finance companies, other investment companies and private investment funds. The
Trust may also acquire Senior Loans from U.S. branches of foreign banks that are
regulated by the Federal Reserve System or appropriate state regulatory
authorities.

Investment by the Trust

The Trust's investment in Senior Loans may take one of several forms including:
acting as one of the group of lenders originating a Senior Loan, purchasing an
assignment of a portion of a Senior Loan from a third party, or acquiring a
participation in a Senior Loan. When the Trust is a member of the originating
syndicate for a Senior Loan, it may share in a fee paid to syndicate. When the
Trust acquires a participation in, or an assignment of, a Senior Loan, it may
pay a fee to, or forego a portion of interest payments from, the lender selling
the participation or assignment. The Trust will act as lender, or purchase an
assignment or participation, with respect to a Senior Loan only if the agent is
determined by the Investment Manager to be creditworthy.

There is no minimum rating or other independent evaluation of a borrower
limiting the Trust's investments and most Senior Loans that the Trust may
acquire, if rated, will be rated

8    The Trust's Investments
<PAGE>
                                                         THE TRUST'S INVESTMENTS
- --------------------------------------------------------------------------------

below investment grade credit quality. See "Risk Factors and Special
Considerations-Credit Risk on Senior Loans."

Original Lender. When the Trust is one of the original lenders, it will have a
direct contractual relationship with the borrower and can enforce compliance by
the borrower with the terms of the loan agreement. It also may have negotiated
rights with respect to any funds acquired by other lenders through set-off.
Original lenders also negotiate voting and consent rights under the loan
agreement. Actions subject to lender vote or consent generally require the vote
or consent of the holders of some specified percentage of the outstanding
principal amount of the Senior Loan. Certain decisions, such as reducing the
amount or increasing the time for payment of interest on or repayment of
principal of a Senior Loan, or releasing collateral therefore, frequently
require the unanimous vote or consent of all lenders affected.

Assignments. When the Trust is a purchaser of an assignment, it typically
succeeds to all the rights and obligations under the loan agreement of the
assigning lender and becomes a lender under the loan agreement with the same
rights and obligations as the assigning lender. Assignments are, however,
arranged through private negotiations between potential assignees and potential
assignors, and the rights and obligations acquired by the purchaser of an
assignment may be more limited than those held by the assigning lender.

Participations. The Trust may also invest in participations in Senior Loans. The
rights of the Trust when it acquires a participation are likely to be more
limited than the rights of an original lender or an investor who acquired an
assignment. Participation by the Trust in a lender's portion of a Senior Loan
typically means that the Trust has a contractual relationship only with the
lender, not with the borrower. This means that the Trust has the right to
receive payments of principal, interest and any fees to which it is entitled
only from the lender selling the participation and only upon receipt by the
lender of payments from the borrower.

With a participation, the Trust will have no right to enforce compliance by the
borrower with the terms of the loan agreement or any rights with respect to any
funds acquired by other lenders through set-off against the borrower. In
addition, the Trust may not directly benefit from the collateral supporting the
Senior Loan because it may be treated as a general creditor of the lender
instead of the borrower. As a result, the Trust may be subject to delays,
expenses and risks that are greater than those that exist when the Trust is the
original lender or holds an assignment. This means the Trust must assume the
credit risk of both the borrower and the lender selling the participation.

In the event of bankruptcy or insolvency of a borrower, the obligation of the
borrower to repay the Senior Loan may be subject to certain defenses that can be
asserted by such borrower against the Trust as a result of improper conduct of
the lender selling the participation. A participation in a Senior Loan will be
deemed to be a Senior Loan for the purposes of the Trust's investment objective
and policies.

Senior Loan Market

The primary market for the issuance of new Senior Loans has become much larger
in recent years. At the same time that the primary market has grown, demand has
remained strong. Institutional investors other than banks, such as investment
companies, insurance companies and private investment vehicles are continuing to
join U.S. and foreign banks as lenders. The entrance of new investors also has
helped create an active trading market in Senior Loans with approximately $129
billion in trading volume during 2000. The active secondary market, coupled with
lender focus on portfolio management and the move toward standard market
practices, has helped increase the liquidity for Senior Loans.

Notwithstanding the recent growth in the Senior Loan market, through December
31, 2000, Senior Loan volume is estimated to be 3% below levels realized in
1999. Credit quality is the primary issue currently impacting the loan market.
The industry is experiencing deteriorating credit quality, high profile
corporate bankruptcies, rising defaults and concerns about the direction of the
general economy. As a result, average new Senior Loan credit statistics are at
their most conservative levels in the past 10 years.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                                    The Trust's Investments    9
<PAGE>
TRUST CHARACTERISTICS AND COMPOSITION
- --------------------------------------------------------------------------------

The following tables set forth certain information with respect to the
characteristics and the composition of the Trust's investment portfolio in terms
of percentages of net assets and total assets as of June __, 2001.

                            PORTFOLIO CHARACTERISTICS

     Net Assets                                               $
     Assets Invested in Senior Loans and other Loans*         $
     Total Number of Senior Loans and other Loans
     Average Amount Outstanding per Loan                      $
     Total Number of Industries
     Average Loan Amount per Industry                         $
     Portfolio Turnover Rate (Fiscal Year to Date)                      %
     Weighted Average Days to Interest Rate Reset                    days
     Average Loan Maturity                                         months
     Average Age of Loans Held in Portfolio                        months

(*Includes Senior Loans, other floating rate loan investments and other debt
received through restructures.

                       TOP 10 MOODY'S INDUSTRIES AS A % OF

                                                  NET ASSETS     TOTAL ASSETS
                                                  ----------     ------------
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %

                          TOP 10 SENIOR LOANS AS A % OF

                                                  NET ASSETS     TOTAL ASSETS
                                                  ----------     ------------
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %
                                                        %               %

10   Trust Characteristics and Composition
<PAGE>
                                                     TRADING AND NAV INFORMATION
- --------------------------------------------------------------------------------

The following table shows for the Trust's Common Shares for the periods
indicated: (1) the high and low closing prices as shown on the NYSE Composite
Transaction Tape; (2) the NAV per Common Share represented by each of the high
and low closing prices as shown on the NYSE Composite Transaction Tape; and (3)
the discount from or premium to NAV per Share (expressed as a percentage)
represented by these closing prices. The table also sets forth the aggregate
number of shares traded as shown on the NYSE Composite Transaction Tape during
the respective quarter.

<TABLE>
<CAPTION>
                                                                       Premium/(Discount)
                                Price                  NAV                  To NAV
                          ------------------    ------------------    ------------------     Reported
Calendar Quarter Ended     High        Low       High        Low       High        Low      NYSE Volume
- ----------------------    -------    -------    -------    -------    -------    -------     ----------
<S>                       <C>        <C>        <C>        <C>        <C>        <C>         <C>
December 31, 1994         $ 9.875    $ 9.000    $10.080    $10.020     (2.03)%   (10.18)%    15,590,400
March 31, 1995              9.000      8.500     10.040      9.650    (10.36)    (11.92)     24,778,200
June 30, 1995               9.250      8.750      9.650      9.600     (4.15)     (8.85)     16,974,600
September 30, 1995          9.375      8.875      9.660      9.660     (2.95)     (8.13)     15,325,900
December 31, 1995           9.500      9.000      9.650      9.620     (1.55)     (6.45)     16,428,200
March 31, 1996              9.625      9.250      9.610      9.590      0.16      (3.55)     17,978,300
June 30, 1996               9.750      9.375      9.610      9.570      1.46      (2.04)     13,187,700
September 30, 1996         10.000      9.500      9.560      9.580      4.60      (0.84)     15,821,000
December 31, 1996          10.000      9.250      9.580      9.430      4.38      (1.91)     28,740,200
March 31, 1997             10.000      9.625      9.390      9.420      6.50       2.18      18,483,600
June 30, 1997              10.125      9.875      9.400      9.380      7.71       5.28      18,863,600
September 30, 1997         10.250     10.000      9.400      9.410      9.04       6.27      15,034,200
December 31, 1997          10.375     10.125      9.310      9.380     11.44       7.94      13,270,900
March 31, 1998             10.500      9.875      9.360      9.340     12.18       5.73      15,588,500
June 30, 1998              10.250      9.875      9.360      9.330      9.51       5.84      16,225,800
September 30, 1998         10.125      9.875      9.310      9.330      8.75       5.84      23,597,200
December 31, 1998           9.938      9.000      9.300      9.240      6.86      (2.60)     25,200,000
March 31, 1999              9.563      9.188      9.250      9.250      3.38      (0.67)     19,292,300
June 30, 1999               9.688      9.125      9.120      9.150      6.22      (0.27)     19,143,900
September 30, 1999          9.563      9.313      9.110      9.040      4.97       3.02      19,130,000
December 31, 1999           9.563      7.875      9.100      8.930      5.09     (11.81)     18,387,700
March 31, 2000              9.000      7.938      8.940      8.920      0.67     (11.00)     22,230,000
June 30, 2000
September 30, 2000
December 31, 2000
March 31, 2001
</TABLE>

On June __, 2001, the last reported sale price of a Common Share of the Trust's
Common Shares on the NYSE was $______. The Trust's NAV on June __, 2001 was
$______. See "Net Asset Value." On June __, 2001, the last reported sale price
of a share of the Trust's Common Shares on the NYSE ($______) represented a
______% premium (discount) above NAV ($______) as of that date.

The Trust's Common Shares have traded in the market above, at, and below NAV
since March 9, 1992, when the Trust's Common Shares were listed on the NYSE. The
Trust cannot predict whether its Common Shares will trade in the future at a
premium or discount to NAV, and if so, the level of such premium or discount.
Shares of closed-end investment companies frequently trade at a discount from
NAV.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                               Trading and NAV Information    11
<PAGE>
INVESTMENT PERFORMANCE
- --------------------------------------------------------------------------------

[Morningstar Ratings

For the period ending May 31, 2001, the Trust received a [ ] star, [ ] star, and
[ ] star Morningstar risk-adjusted performance rating, when rated among ______,
______, and ______ taxable bond closed-end funds in its broad asset class for
the three-, five-, and ten-year periods, respectively. The Trust's overall
rating through May 31, 2001, was ___ stars.(1)

For the three-, five- and ten-year periods ending May 31, 2001, the Trust's risk
scores were ____, ____ and ____ when ranked against all funds in its taxable
bond closed-end funds broad asset class.(2) The resulting risk score expresses
how risky the fund is relative to the average fund in its broad asset class. The
average risk score for the fund's broad asset class is set equal to 1.00; thus a
Morningstar risk score of 1.35 for a taxable-bond fund reveals that the fund has
been 35% risker than the average taxable-bond fund for the period considered.
Conversely, a Morningstar risk score of .65 would indicate that the fund is 35%
less risky than the average taxable-bond fund for the period considered.]

[Lipper Rankings

According to Lipper Analytical Services, Inc. ("Lipper") (a company that
calculates and publishes rankings of closed-end and open-end management
investment companies), for the one-, three-, five- and ten-year periods ended
May 31, 2001, the Trust ranked ______, ______, and ______ among all funds in the
Loan Participation Fund Category of closed-end funds, defined by Lipper to
include closed-end management investment companies that invest in Senior Loans.
Investors should note that past performance is no assurance of future results.

      Periods ended                       Total       Number of Funds
      May 31, 2001       Ranking(3)     Return (3)    in Category (4)
      ------------       ----------     ----------    ---------------
      One year                                %
      Three years                             %
      Five years                              %
      Ten Years                               %

- ----------
(1)  [The Trust's overall rating is based on a weighted average of its
     performance for the three-year, five-year and ten-year periods ended May
     31, 2001.
(2)  Morningstar proprietary ratings on U.S. domiciled funds reflect historical
     risk-adjusted performance as of [May 31, 2001.] Morningstar's taxable bond
     fund category includes Corporate Bond -- General, Government Bond,
     International Bond and Multisector Bond funds. On Morningstar's
     risk-adjusted performance rating system, funds falling into the top 10% of
     all funds within their category receive five stars and funds in the next
     22.5% receive four stars, and the next 35% receive three stars, the next
     22.5% receive 2 stars and the bottom 10% receive 1 star. Morningstar
     ratings are calculated from the Trust's three, five and ten year returns
     (with fee adjustment, if any) in excess of 90-day Treasury bill returns,
     and a risk factor that reflects the Trust's performance below 90-day
     Treasury bill returns. The ratings are subject to change every month. Past
     performance is no guarantee of future results. Morningstar ranks funds
     within the Corporate Bond -- General category and the closed-end universe
     for risk for the three, five and ten-year periods based upon their downside
     volatility compared to a 90-day Treasury bill.
(3)  Ranking is based on total return. Total return is measured on the basis of
     NAV at the beginning and end of each period, assuming the reinvestment of
     all dividends and distributions, but not reflecting the January 1995 and
     November 1996 rights offerings. The Trust's expenses were partially waived
     for the fiscal year ended February 29, 1992. As part of the 1996 rights
     offering the Investment Manager voluntarily reduced its management fee for
     the period from November 1996 through November 1999.
(4)  This category includes other closed-end investment companies that, unlike
     the current practices of the Trust, offer their shares continuously and
     have conducted periodic tender offers for their shares. These practices may
     have affected the total returns of these companies.]

12   Investment Performance
<PAGE>
                                                         COMPARATIVE PERFORMANCE
- --------------------------------------------------------------------------------

Trailing 12 Month Average

Presented below are distribution rates for the Trust, for the period from
January 31, 1993 through [May 31, 2001.] In addition, presented below are
various benchmark indicators of interest and borrowing rates. The distribution
rates for the Trust are calculated using actual distributions annualized for the
preceding twelve months.

                  Prime Rate                         Prime Rate        60-Day
Month Ended      Trust (1)(3)     Prime Rate(4)     Trust (Market)     LIBOR(5)
- -----------      ------------     -------------     --------------     --------
  1/31/93           6.203%           6.208%             6.354%          3.677%
  2/28/93           6.151%           6.167%             6.305%          3.589%
  3/31/93           6.095%           6.125%             6.267%          3.500%
  4/30/93           6.070%           6.083%             6.229%          3.432%
  5/31/93           6.056%           6.042%             6.196%          3.375%
  6/30/93           6.022%           6.000%             6.141%          3.318%
  7/31/93           5.998%           6.000%             6.112%          3.302%
  8/31/93           6.002%           6.000%             6.110%          3.281%
  9/30/93           5.975%           6.000%             6.070%          3.281%
 10/31/93           5.899%           6.000%             5.989%          3.266%
 11/30/93           5.910%           6.000%             5.985%          3.224%
 12/31/93           5.932%           6.000%             6.018%          3.219%
  1/31/94           5.955%           6.000%             6.040%          3.214%
  2/28/94           5.978%           6.000%             6.055%          3.255%
  3/31/94           6.017%           6.021%             6.080%          3.302%
  4/30/94           6.068%           6.083%             6.103%          3.385%
  5/31/94           6.157%           6.188%             6.163%          3.484%
  6/30/94           6.258%           6.292%             6.243%          3.609%
  7/31/94           6.374%           6.396%             6.331%          3.734%
  8/31/94           6.474%           6.542%             6.404%          3.875%
  9/30/94           6.604%           6.688%             6.518%          4.042%
 10/31/94           6.738%           6.833%             6.637%          4.219%
 11/30/94           6.874%           7.042%             6.758%          4.432%
 12/31/94           7.076%           7.250%             6.971%          4.677%
  1/31/95           7.288%           7.458%             7.269%          4.927%
  2/28/95           7.487%           7.708%             7.533%          5.135%
  3/31/95           7.711%           7.938%             7.831%          5.333%
  4/30/95           7.915%           8.125%             8.119%          5.495%
  5/31/95           8.089%           8.271%             8.367%          5.625%
  6/30/95           8.249%           8.417%             8.588%          5.734%
  7/31/95           8.396%           8.542%             8.825%          5.828%
  8/31/95           8.534%           8.625%             9.034%          5.854%
  9/30/95           8.650%           8.708%             9.189%          5.911%
 10/31/95           8.749%           8.792%             9.335%          5.943%
 11/30/95           8.855%           8.813%             9.488%          5.930%
 12/31/95           8.876%           8.813%             9.506%          5.878%
  1/31/96           8.886%           8.813%             9.432%          5.812%
  2/29/96           8.895%           8.750%             9.351%          5.739%
  3/31/96           8.836%           8.688%             9.215%          5.677%
  4/30/96           8.773%           8.625%             9.084%          5.622%
  5/31/96           8.727%           8.563%             8.983%          5.573%
  6/30/96           8.671%           8.500%             8.874%          5.527%
  7/31/96           8.639%           8.458%             8.760%          5.503%
  8/31/96           8.612%           8.417%             8.679%          5.524%
  9/30/96           8.590%           8.375%             8.606%          5.493%
 10/31/96           8.577%           8.333%             8.571%          5.456%
 11/30/96           8.563%           8.292%             8.530%          5.422%
 12/31/96           8.567%           8.271%             8.486%          5.413%
  1/31/97           8.569%           8.250%             8.455%          5.422%
  2/28/97           8.564%           8.250%             8.434%          5.436%
  3/31/97           8.595%           8.271%             8.431%          5.459%
  4/30/97           8.647%           8.292%             8.439%          5.483%
  5/31/97           8.666%           8.313%             8.411%          5.507%
  6/30/97           8.715%           8.333%             8.425%          5.523%
  7/31/97           8.734%           8.354%             8.415%          5.529%
  8/31/97           8.744%           8.375%             8.384%          5.544%
  9/30/97           8.758%           8.396%             8.371%          5.560%
 10/31/97           8.768%           8.417%             8.313%          5.581%
 11/30/97           8.771%           8.438%             8.248%          5.615%
 12/31/97           8.777%           8.458%             8.206%          5.633%
  1/31/98           8.780%           8.479%             8.168%          5.639%
  2/28/98           8.777%           8.500%             8.128%          5.655%
  3/31/98           8.788%           8.500%             8.125%          5.652%
  4/30/98           8.788%           8.500%             8.107%          5.647%
  5/31/98           8.809%           8.500%             8.109%          5.642%
  6/30/98           8.798%           8.500%             8.094%          5.640%
  7/31/98           8.806%           8.500%             8.098%          5.642%
  8/31/98           8.807%           8.500%             8.101%          5.639%
  9/30/98           8.810%           8.479%             8.114%          5.610%
 10/31/98           8.793%           8.438%             8.127%          5.571%
 11/30/98           8.786%           8.375%             8.155%          5.527%
 12/31/98           8.782%           8.313%             8.220%          5.470%
  1/31/99           8.764%           8.250%             8.242%          5.420%
  2/28/99           8.737%           8.188%             8.259%          5.364%
  3/31/99           8.704%           8.125%             8.259%          5.304%
  4/30/99           8.663%           8.063%             8.259%          5.242%
  5/31/99           8.630%           8.000%             8.261%          5.187%
  6/30/99           8.609%           7.938%             8.260%          5.155%
  7/31/99           8.598%           7.896%             8.272%          5.120%
  8/31/99           8.595%           7.875%             8.293%          5.103%
  9/30/99           8.579%           7.875%             8.296%          5.114%
 10/31/99           8.606%           7.896%             8.327%          5.199%
 11/30/99           8.582%           7.958%             8.304%          5.265%
 12/30/99           8.587%           8.021%             8.402%          5.334%
  1/30/00           8.635%           8.083%             8.496%          5.418%
  2/29/00           8.729%           8.167%             8.680%          5.502%
  3/31/00           8.763%           8.271%             8.680%          5.603%
  4/30/00           8.988%           8.375%             9.110%          5.725%
  5/31/00           9.106%           8.521%             9.273%          5.869%
  6/30/00
  7/31/00
  8/31/00
  9/30/00
 10/31/00
 11/30/00
 12/30/00
  1/30/01

- ----------
[(1) The distribution rate is the average of the Trust's distribution rates for
     the preceding twelve months. Distribution rates are calculated by
     annualizing each monthly dividend and dividing the resulting annualized
     dividend amount by the Trust's net asset value (in the case of NAV) or the
     NYSE Composite Closing Price (in the case of Market) at the end of each
     month. For the one-year, five-year and ten-year periods ended [May 31,
     2001] and the period of May 12, 1988 (inception of the Trust) to May 31,
     2001, the Trust's average annual total returns, based on NAV and assuming
     all rights were exercised, were ______%, ______%, ______% and ______%,
     respectively. For the one-year and five-year periods ended [May 31, 2001]
     and the period of March 9, 1992 (initial trading on NYSE) to May 31, 2001,
     the Trust's average annual total returns based on market and assuming all
     rights were exercised, were ______%, ______% and ______%, respectively. The
     Trust's 30-day standardized yields as of [May 31, 2001] were ______% at NAV
     and % at market. The Trust's expenses were partially waived for the fiscal
     year ended February 29, 1992. As part of the 1996 rights offering the
     Investment Manager voluntarily reduced its management fee for the period
     from November 1996 through November 1999.
(2)  The distribution rate is based solely on the actual dividends and
     distributions, which are made at the discretion of management. The
     distribution rate may or may not include all investment income, and
     ordinarily will not include capital gains or losses, if any.
(3)  Source: BLOOMBERG Financial Markets.
(4)  Source: IDD/Tradeline. The LIBOR rate is the London Inter-Bank Offered Rate
     and is the benchmark for determining the interest paid on more than 90% of
     the Senior Loans in the Trust's portfolio. Generally, the yield on such
     loans has reflected, during the periods presented, a premium of
     approximately 2% or more to LIBOR.]

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                                   Comparative Performance    13
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------

Risk is inherent in all investing. The following discussion summarizes some of
the risks that you should consider before deciding whether to invest in the
Trust. For additional information about the risks associated with investing in
the Trust, see "Additional Information About Investments and Investment
Techniques" in the SAI.

Credit Risk on Senior Loans

The Trust's ability to pay dividends and repurchase its Common Shares is
dependent upon the performance of the assets in its portfolio. That performance,
in turn, is subject to a number of risks, chief among which is credit risk on
the underlying assets.

Credit risk is the risk of nonpayment of scheduled interest or principal
payments. In the event a borrower fails to pay scheduled interest or principal
payments on a Senior Loan held by the Trust, the Trust will experience a
reduction in its income and a decline in the market value of the Senior Loan,
which will likely reduce dividends and lead to a decline in the NAV of the
Trust's Common Shares. If the Trust acquires a Senior Loan from another lender,
either by means of assignment or by acquiring a participation, the Trust may
also be subject to credit risks with respect to that lender. See "The Trust's
Investments - Investment by the Trust."

Senior Loans generally involve less risk than unsecured or subordinated debt and
equity instruments of the same issuer because the payment of principal of and
interest on Senior Loans is a contractual obligation of the issuer that, in most
instances, takes precedence over the payment of dividends, or the return of
capital, to the issuer's shareholders and payments to bond holders. The Trust
generally invests in Senior Loans that are usually secured with specific
collateral. However, the value of the collateral may not equal the Trust's
investment when the loan is acquired or may decline below the principal amount
of the Senior Loan subsequent to the Trust's investment. Also, to the extent
that collateral consists of stock of the borrower or its subsidiaries or
affiliates, the Trust bears the risk that the stock may decline in value, be
relatively illiquid, or may lose all or substantially all of its value, causing
the Senior Loan to be undercollateralized. Therefore, the liquidation of the
collateral underlying a Senior Loan may not satisfy the issuer's obligation to
the Trust in the event of non-payment of scheduled interest or principal, and
the collateral may not be readily liquidated.

In the event of the bankruptcy of a borrower, the Trust could experience delays
and limitations on its ability to realize the benefits of the collateral
securing the Senior Loan. Among the credit risks involved in a bankruptcy are
assertions that the pledge of collateral to secure a loan constitutes a
fraudulent conveyance or preferential transfer that would have the effect of
nullifying or subordinating the Trust's rights to the collateral.

The Senior Loans in which the Trust invests are generally rated lower than
investment grade credit quality, i.e., rated lower than "Baa" by Moody's or
"BBB" by S&P, or have been issued by issuers who have issued other debt
securities which, if unrated, would be rated lower than investment grade credit
quality. Investment decisions will be based largely on the credit analysis
performed by the Investment Manager, and not on rating agency evaluation. This
analysis may be difficult to perform. Information about a Senior Loan and its
issuer generally is not in the public domain. Moreover, Senior Loans are not
often rated by any nationally recognized rating service. Many issuers have not
issued securities to the public and are not subject to reporting requirements
under federal securities laws. Generally, however, issuers are required to
provide financial information to lenders and information may be available from
other Senior Loan participants or agents that originate or administer Senior
Loans.

Interest Rate Risk

During normal market conditions, changes in market interest rates will affect
the Trust in certain ways. The principal effect will be that the yield on the
Trust's Common Shares will tend to rise or fall as market interest rates rise
and fall. This is because almost all of the assets in which the Trust invests
pay interest at rates which float in response to changes in market rates.
However, because the interest rates on the Trust's assets reset over time, there
will be an imperfect correlation between changes in market rates and changes to
rates on the portfolio as a whole. This means that changes to the rate of
interest paid on the portfolio as a whole will tend to lag behind changes in
market rates.

Market interest rate changes may also cause the Trust's NAV to experience
moderate volatility. This is because the value of a loan asset in the Trust is
partially a function of whether it is paying what the market perceives to be a
market rate of interest for the particular loan, given its individual credit and
other characteristics. If market interest rates change, a loan's value could be
affected to the extent the interest rate paid on that loan does not reset at the
same time. As discussed above, the rates of interest paid on the loans in which
the Trust invests have a weighted average reset period that typically is less
than 90 days. Therefore, the impact of the lag between a change in market
interest rates and the change in the overall rate on the portfolio is expected
to be minimal.

Finally, to the extent that changes in market rates of interest are reflected
not in a change to a base rate such as LIBOR but in a change in the spread over
the base rate which is payable on loans of the type and quality in which the
Trust invests, the Trust's NAV could be adversely affected. Again, this is
because the value of a loan asset in the Trust is partially a function of
whether it is paying what the market perceives to be a market rate of

14   Risk Factors and Special Considerations
<PAGE>
                                         RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------

interest for the particular loan, given its individual credit and other
characteristics. However, unlike changes in market rates of interest for which
there is only a temporary lag before the portfolio reflects those changes,
changes in a loan's value based on changes in the market spread on loans in the
Trust's portfolio may be of longer duration.

Changes to NAV

The NAV of the Trust is expected to change in response to a variety of factors,
primarily in response to changes in the creditworthiness of the borrowers on the
loans in which the Trust invests. See "Credit Risk on Senior Loans." Changes in
market interest rates may also have a moderate impact on the Trust's NAV. See
"Interest Rate Risk." Another factor which can affect the Trust's NAV is changes
in the pricing obtained for the Trust's assets. See "Transaction Policies --
Valuation of the Trust's Assets."

Discount From or Premium To NAV

The Trust's Common Shares have traded in the market above, at, and below NAV
since March 9, 1992, when the Trust's shares were listed on the NYSE. The
reasons for the Trust's Common Shares trading at a premium to or discount from
NAV are not known to the Trust, and the Trust cannot predict whether its Common
Shares will trade in the future at a premium to or discount from NAV, and if so,
the level of such premium or discount. Shares of closed-end investment companies
frequently trade at a discount from NAV. The possibility that Common Shares of
the Trust will trade at a discount from NAV is a risk separate and distinct from
the risk that the Trust's NAV may decrease.

Leverage

The Trust may borrow an amount up to 33-1/3% (or such other percentage permitted
by law) of its total assets (including the amount borrowed) less all liabilities
other than borrowings. The Trust may also issue preferred shares in an amount up
to 50% of the Trust's total assets (including the proceeds of preferred shares
and any borrowings). In November 2000, the Trust issued 18,000 Preferred Shares
for a total of $450 million.

Borrowings and the issuance of preferred shares are referred to in this
prospectus collectively as "leverage." The Trust may use leverage for investment
purposes, to finance the repurchase of its Common Shares, and to meet cash
requirements. The use of leverage for investment purposes increases both
investment opportunity and investment risk.

Capital raised through leverage will be subject to interest and other costs, and
these costs could exceed the income earned by the Trust on the proceeds of such
leverage. There can be no assurance that the Trust's income from the proceeds of
leverage will exceed these costs. However, the Investment Manager seeks to use
leverage for the purposes of making additional investments only if it believes,
at the time of using leverage, that the total return on the assets purchased
with such funds will exceed interest payments and other costs on the leverage.
In addition, the Investment Manager intends to reduce the risk that the costs of
the use of leverage will exceed the total return on investments purchased with
the proceeds of leveraging by utilizing leverage mechanisms whose interest rates
float (or reset frequently). In the event of a default on one or more loans or
other interest-bearing instruments held by the Trust, the use of leverage would
exaggerate the loss to the Trust and may exaggerate the effect on the Trust's
NAV. The Trust's lenders and preferred shareholders have priority to the Trust's
assets over the Trust's Common Share shareholders.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                   Risk Factors and Special Considerations    15
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------

Effect of Leverage

The following table is designed to illustrate the effect on return to a holder
of the Trust's Common Shares of the leverage created by the Trust's use of
borrowing, using an assumed initial interest rate of [______]%, assuming the
Trust has used leverage by borrowing an amount equal to [______]% of the Trust's
Managed Assets and assuming hypothetical annual returns on the Trust's portfolio
of minus 10% to plus 10%. As can be seen, leverage generally increases the
return to shareholders when portfolio return is positive and decreases return
when the portfolio return is negative. Actual returns may be greater or less
than those appearing in the table.

Assumed Portfolio Return, net of expenses(1) ...  (10%)   (5%)   0%    5%    10%

Corresponding Return to Common
  Shareholders(2) ..............................   --      --    --    --    --

- ----------
(1)  The Assumed Portfolio Return is required by regulation of the SEC and is
     not a prediction of, and does not represent, the projected or actual
     performance of the Trust.
(2)  In order to compute the "Corresponding Return to Common Shareholders," the
     "Assumed Portfolio Return" is multiplied by the total value of the Trust's
     assets at the beginning of the Trust's fiscal year to obtain an assumed
     return to the Trust. From this amount, all interest accrued during the year
     is subtracted to determine the return available to shareholders. The return
     available to shareholders is then divided by the total value of the Trust's
     net assets as of the beginning of the fiscal year to determine the
     "Corresponding Return to Common Shareholders."

The Trust's leveraged capital structure creates special risks not associated
with unleveraged funds having similar investment objectives and policies. The
funds borrowed pursuant to the credit facilities or obtained through the
issuance of Preferred Shares, or any other preferred shares, constitute a
substantial lien and burden by reason of their prior claim against the income of
the Trust and against the net assets of the Trust in liquidation.

The Trust is not permitted to declare dividends or other distributions,
including dividends and distributions with respect to Common Shares or Preferred
Shares, or any other preferred shares, or purchase Common Shares, Preferred
Shares or any other preferred shares unless (i) at the time thereof the Trust
meets certain asset coverage requirements and (ii) there is no event of default
under any credit facility program that is continuing. See "Risk Factors and
Special Considerations -- Restrictive Covenants and 1940 Act Restrictions." In
the event of a default under a credit facility program, the lenders have the
right to cause a liquidation of the collateral (i.e., sell Senior Loans and
other assets of the Trust) and, if any such default is not cured, the lenders
may be able to control the liquidation as well.

In addition, the Trust is not permitted to pay dividends on, or redeem Common
Shares unless all accrued dividends, or accrued interest on borrowings, on the
Preferred Shares or any other preferred shares, have been paid or set aside for
payment.

Because the fee paid to the Investment Manager will be calculated on the basis
of Managed Assets, the fee will be higher when leverage is utilized, giving the
Investment Manager an incentive to utilize leverage.

The Trust is subject to certain restrictions imposed by lenders to the Trust and
by guidelines of one or more rating agencies which issue ratings for the
Preferred Shares issued by the Trust. These restrictions impose asset coverage,
fund composition requirements and limits on investment techniques, such as the
use of financial derivative products, that are more stringent than those imposed
on the Trust by the 1940 Act. These covenants or guidelines could impede the
Investment Manager from fully managing the Trust's portfolio in accordance with
the Trust's investment objective and policies.

Secondary Market for the Trust's Shares.

The issuance of Common Shares through the Trust's Shareholder Investment Program
may have an adverse effect on the secondary market for the Trust's Common
Shares. The increase in the number of the Trust's outstanding Common Shares
resulting from issuances pursuant to the Trust's Shareholder Investment Program
or pursuant to privately negotiated transactions, and the discount to the market
price at which such Common Shares may be issued, may put downward pressure on
the market price for Common Shares of the Trust. Common Shares will not be
issued pursuant to the Trust's Shareholder Investment Program at any time when
Common Shares are trading at a price lower than the Trust's NAV per Common
Share.

When the Trust's Common Shares are trading at a premium, the Trust may also
issue Common Shares of the Trust that are sold through transactions effected on
the NYSE or through broker-dealers who have entered into selected dealer
agreements with ING Pilgrim Securities. The increase

16   Risk Factors and Special Considerations
<PAGE>
                                         RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------

in the number of outstanding Common Shares resulting from these offerings may
put downward pressure on the market price for the Common Shares.

Limited Secondary Market for Loans

Although the resale, or secondary market for loans is growing, it is currently
limited. There is no organized exchange or board of trade on which loans are
traded. Instead, the secondary market for loans is an unregulated inter-dealer
or inter-bank re-sale market.

Loans usually trade in large denominations (such as $5 million units) and trades
can be infrequent. The market has limited transparency so that information about
actual trades may be difficult to obtain. Accordingly, some or many of the loans
in which the Trust invests will be relatively illiquid.

In addition, loans in which the Trust invests may require the consent of the
borrower and/or the agent prior to sale or assignment. These consent
requirements can delay or impede the Trust's ability to sell loans and can
adversely affect the price that can be obtained. The Trust may have difficulty
disposing of loans if it needs cash to repay debt, to pay dividends, to pay
expenses or to take advantage of new investment opportunities.

Although the Trust has not conducted a tender offer since 1992, if it determines
to again conduct a tender offer, limitations of a secondary market may result in
difficulty raising cash to purchase tendered Common Shares.

These considerations may cause the Trust to sell securities at lower prices than
it would otherwise consider to meet cash needs or cause the Trust to maintain a
greater portion of its assets in cash equivalents than it would otherwise, which
could negatively impact performance. The Trust seeks to avoid the necessity of
selling assets to meet such needs by the use of borrowings.

The Trust values its assets daily. However, because the secondary market for
loans is limited, it may be difficult to value loans. Market quotations may not
be readily available for some loans and valuation may require more research than
for liquid securities. In addition, elements of judgment may play a greater role
in valuation than for securities with a secondary market, because there is less
reliable, objective data available. In addition, if the Trust purchases a
relatively large loan to generate extra income sometimes paid to large lenders,
the limitations of the secondary market may inhibit the Trust from selling a
portion of the loan and reducing its exposure to a borrower when the Investment
Manager deems it advisable to do so.

Demand for Loans

Although the volume of loans has increased in recent years, demand for loans has
also grown. An increase in demand may benefit the Trust by providing increased
liquidity for loans, but may also adversely affect the rate of interest payable
on loans acquired by the Trust and the rights provided to the Trust under the
terms of the loan.

Unsecured Loans and Subordinated Loans

Subject to the 20% of the Trust's assets that may be invested in Other
Investments, the Trust may invest up to 5% of its total assets, measured at the
time of investment, in unsecured loans and in subordinated loans. Unsecured
loans and subordinated loans share the same credit risks as those discussed
above under "Credit Risk on Senior Loans" except that unsecured loans are not
secured by any collateral of the borrower and subordinated loans are not the
most senior debt in a borrower's capital structure. Unsecured loans 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. The primary
additional risk in a subordinated loan is the potential loss in the event of
default by the issuer of the loan. Subordinated loans in an insolvency bear an
increased share, relative to senior secured lenders, of the ultimate risk that
the borrower's assets are insufficient to meet its obligations to its creditors.

Short-Term and Longer Term Debt Securities

Subject to the 20% of the Trust's assets that may be invested in Other
Investments, the Trust may invest in short-term and longer term debt securities.
Short-term and longer-term debt securities are subject to the risk of the
issuer's inability to meet principal and interest payments on the obligation and
also may be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity.

Because short-term and longer term debt securities pay interest at a fixed-rate,
when interest rates decline, the value of the Trust's short-term and longer term
debt securities can be expected to rise, and when interest rates rise, the value
of those securities can be expected to decline. Debt securities with longer
maturities tend to be more sensitive to interest rate movements than those with
shorter maturities.

Investments in Equity Securities Incidental to Investment in Loans

Subject to the 20% of the Trust's assets that may be invested in Other
Investments, the Trust may acquire equity securities as an incident to the
purchase or ownership of a loan or in connection with a reorganization of a
borrower. Investments in equity securities incidental to investment in loans
entail certain risks in addition to those associated with investment in loans.
The value of these securities may be affected more rapidly, and to a greater
extent, by company- specific developments and general market conditions. These
risks may increase fluctuations in the Trust's NAV. The Trust may frequently
possess material non-public information about a borrower as a result of its
ownership of a loan of such borrower. Because of prohibitions on trading in
securities of issuers while in possession of such information the Trust might be
unable to enter into a transaction in a

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                   Risk Factors and Special Considerations    17
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
- --------------------------------------------------------------------------------

security of such a borrower when it would otherwise be advantageous to do so.

Investment In Non-U.S. Issuers

Subject to the 20% of the Trust's assets that may be invested in Other
Investments, the Trust may invest in U.S. dollar denominated loans and corporate
debt made to borrowers and issuers that are organized or located in countries
other than the United States. Although such loans and debt investments
associated with other investments will require payment of interest and principal
in U.S. dollars, these borrowers and issuers may have significant non-U.S.
dollar revenues. Investment in non-U.S. entities involves special risks,
including that non-U.S. entities may be subject to less rigorous accounting and
reporting requirements than U.S. entities, less rigorous regulatory
requirements, differing legal systems and laws relating to creditors' rights,
the potential inability to enforce legal judgments, fluctuations in currency
values and the potential for political, social and economic adversity.

Borrowings under the Credit Facility Program

In May 1996, the Trust began a policy of borrowing to acquire income-producing
investments which, by their terms, pay interest at a rate higher than the rate
the Trust pays on borrowings. Accordingly, borrowing has the potential to
increase the Trust's total income. The Trust currently is a party to two credit
facilities with financial institutions that permit the Trust to borrow up to an
aggregate of $[______] million. Interest is payable on the credit facilities by
the Trust at a variable rate that is tied to either LIBOR, the federal funds
rate, or a commercial paper based rate and includes a facility fee on unused
commitments. As of June __, 2001, the Trust had outstanding borrowings under the
credit facilities of approximately $ million. Collectively, the lenders under
the credit facilities have a security interest in all assets of the Trust. Under
each of the credit facilities, the lenders have the right to liquidate Trust
assets in the event of default by the Trust under such credit facility, and the
Trust may be prohibited from paying dividends in the event of certain adverse
events or conditions respecting the Trust or Investment Manager until the credit
facility is repaid in full or until the event or condition is cured.

Ranking of Senior Indebtedness

The rights of lenders to receive payments of interest on and repayments of
principal of any borrowings made by the Trust under the credit facility program
are senior to the rights of holders of Common Shares, Preferred Shares and any
other preferred shares, with respect to the payment of dividends or upon
liquidation.

Restrictive Covenants and 1940 Act Restrictions

The credit agreements governing the credit facility program (the "Credit
Agreements") include usual and customary covenants for their respective type of
transaction, including limits on the Trust's ability to (i) issue preferred
shares, (ii) incur liens or pledge portfolio securities, (iii) change its
investment objective or fundamental investment restrictions without the approval
of lenders, (iv) make changes in any of its business objectives, purposes or
operations that could result in a material adverse effect, (v) make any changes
in its capital structure, (vi) amend the Trust documents in a manner which could
adversely affect the rights, interests or obligations of any of the lenders,
(vii) engage in any business other than the businesses currently engaged in,
(viii) create, incur, assume or permit to exist certain debt except for certain
specified types of debt, and (ix) permit any of its ERISA affiliates to cause or
permit to occur an event that could result in the imposition of a lien under the
Internal Revenue Code or ERISA. In addition, the Credit Agreements do not permit
the Trust's asset coverage ratio (as defined in the credit agreements) to fall
below 300% at any time (the "Credit Agreement Asset Coverage Test").

Under the requirements of the 1940 Act, the Trust must have asset coverage of at
least 300% immediately after any borrowing, including borrowing under the credit
facility program. For this purpose, asset coverage means the ratio which the
value of the total assets of the Trust, less liabilities and indebtedness not
represented by senior securities, bears to the aggregate amount of borrowings
represented by senior securities issued by the Trust. The Credit Agreements
limit the Trust's ability to pay dividends or make other distributions on the
Trust's Common Shares, or purchase or redeem Common Shares, unless the Trust
complies with the Credit Agreement Asset Coverage Test. In addition, the Credit
Agreements do not permit the Trust to declare dividends or other distributions
or purchase or redeem Common Shares or any preferred shares (i) at any time that
an event of default under a Credit Agreement has occurred and is continuing; or
(ii) if, after giving effect to such declaration, the Trust would not meet the
Credit Agreement Asset Coverage Test set forth in the Credit Agreement.

18   Risk Factors and Special Considerations
<PAGE>
                                        WHAT YOU PAY TO INVEST -- TRUST EXPENSES
- --------------------------------------------------------------------------------

The following table is intended to assist you in understanding the various costs
and expenses associated with investing in the Trust.(1)

Shareholder Transaction Expenses
Shareholder Investment Program
  Commission (as a percentage of offering price)(2)                        1.00%
  Shareholder Investment Program Fees                                       NONE
Privately Negotiated Transactions
  Commission (as a percentage of offering price)(2)                        3.00%
  Shareholder Investment Program Fees                                       NONE

Annual Expenses (as a percentage of net assets)
Management and Administrative Fees(3)                                          %
Other Operating Expenses(4)                                                    %
Total Annual Expenses before Interest                                          %
Interest Expense on Borrowed Funds                                             %
Total Annual Expenses                                                          %

- ----------
(1)  The table assumes that the Trust has used leverage by borrowing an amount
     equal to 33 1/3% of the Trust's net assets plus borrowings and shows
     expenses as a percentage of net assets. However, certain expenses of the
     Trust, such as management fees, are calculated on the basis of net assets
     plus borrowings. If the Trust's expenses assuming the use of leverage by
     borrowing an amount equal to 33 1/3% of net assets plus borrowings, are
     shown as a percentage of net assets plus borrowings rather than as a
     percentage of net assets, the annual expenses in the fee table would read
     as follows:

                                                                         Class A
                                                                         -------
     Annual Expenses (as a percentage of net assets plus borrowings)
     Management and Administrative Fees                                        %
     Other Operating Expenses                                                  %
     Total Annual Expenses before Interest Expense                             %
     Interest Expense on Borrowed Funds                                        %
     Total Annual Expenses                                                     %

     If the Trust does not use leverage the Trust's annual expenses
     as a percentage of net assets would be:
     Annual Expenses (as a percentage of net assets)
     Management and Administrative Fees                                        %
     Other Operating Expenses                                                  %
     Total Annual Expenses                                                     %

     Borrowing may be made for the purpose of acquiring additional
     income-producing investments when the Investment Manager believes that such
     use of borrowed proceeds will enhance the Trust's net yield.

(2)  In connection with optional cash investments in excess of $5,000 pursuant
     to a waiver, a commission of up to 1.00% of the amount of such investment
     may be paid to ING Pilgrim Securities for services in connection with the
     sale of the Common Shares, while in connection with certain privately
     negotiated transactions, a commission of up to 3.00% of such investment may
     be paid to ING Pilgrim Securities. ING Pilgrim Securities may allow all or
     some of such commission to other broker-dealers. See "Distribution
     Arrangements." No commissions will be paid by the Trust or its shareholders
     in connection with the reinvestment of dividends and capital gains
     distributions or in connection with optional cash investments up to the
     maximum of $5,000 per month.
(3)  Pursuant to the Investment Management Agreement with the Trust, ING Pilgrim
     Investments is paid a fee of 0.80% of the Trust's Managed Assets. Pursuant
     to its Administration Agreement with the Trust, ING Pilgrim Group, LLC.
     ("Administrator"), the Trust's Administrator, is paid a fee of 0.25% of the
     Trust's Managed Assets. See "Investment Management and Other Services --
     The Administrator."
(4)  "Other Operating Expenses" are based on estimated amounts for the current
     fiscal year, which, in turn, are based on "other operating expenses" for
     the fiscal year ended February 28, 2001, and does not include the expenses
     of borrowing.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                  What You Pay to Invest -- Trust Expenses    19
<PAGE>
WHAT YOU PAY TO INVEST -- TRUST EXPENSES
- --------------------------------------------------------------------------------

The following example applies to shares issued in connection with the Trust's
Shareholder Investment Program. Because the assumed amount of investment in the
example is $1,000, the example does not reflect the maximum front-end commission
of 1.00% on sales of greater than $5,000 per month pursuant to a request for
waiver.

<TABLE>
<CAPTION>
Example                                                           1 Year     3 Years     5 Years     10 Years
- -------                                                           ------     -------     -------     --------
<S>                                                               <C>        <C>         <C>         <C>
You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and where the Trust has borrowed      $          $           $           $

You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and where the Trust has not
borrowed                                                          $          $           $           $

The following example applies to shares issued in connection with privately
negotiated transactions, which may have a maximum front-end commission of 3.0%.


Example                                                           1 Year     3 Years     5 Years     10 Years
- -------                                                           ------     -------     -------     --------
You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and where the Trust has borrowed      $          $           $           $

You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and where the Trust has not
borrowed                                                          $          $           $           $
</TABLE>

These hypothetical examples assume that all dividends and other distributions
are reinvested at NAV and that the percentage amounts listed under Annual
Expenses above remain the same in the years shown. The above tables and the
assumption in the hypothetical example of a 5% annual return are required by
regulation of the Commission applicable to all investment companies; the assumed
5% annual return is not a prediction of, and does not represent, the projected
or actual performance of the Trust's Shares. For more complete descriptions of
certain of the Trust's costs and expenses, see "Investment Management and Other
Services."

The foregoing examples should not be considered a representation of past or
future expenses, and actual expenses may be greater or less than those shown.

20   What You Pay to Invest -- Trust Expenses
<PAGE>
                                                                     SHAREHOLDER
TRANSACTION POLICIES                                                       GUIDE
- --------------------------------------------------------------------------------

Net Asset Value

The NAV per Common Share of the Trust is determined once daily at the close of
regular trading on the NYSE (normally 4:00 p.m. Eastern Time) on each day the
NYSE is open. The NAV per Common Share is determined by dividing the value of
the Trust's loan assets plus all cash and other assets (including interest
accrued but not collected) less all liabilities (including accrued expenses but
excluding capital and less the liquidation preference of any outstanding
preferred shares) by the number of shares outstanding. The NAV per Common Share
is made available for publication.

Valuation of the Trust's Assets

The assets in the Trust's portfolio are valued daily in accordance with the
Trust's Valuation Procedures adopted by the Board of Trustees. A majority of the
Trust's assets are valued using market quotations supplied by a third party loan
pricing service. However, the loans in which the Trust invests are not listed on
any securities exchange or board of trade. Some loans are traded by
institutional investors in an over-the-counter secondary market that has
developed in the past several years. This secondary market generally has fewer
trades and less liquidity than the secondary markets for other types of
securities. Some loans have few or no trades. Accordingly, determinations of the
market value of loans may be based on infrequent and dated trades. Because there
is less reliable, objective data available, elements of judgment may play a
greater role in valuation of loans than for other types of securities. For
further information, see "Risk Factors and Special Considerations -- Limited
Secondary Market for Senior Loans."

Loans are normally valued at the mean of the means of one or more bid and asked
quotations obtained from a pricing service or other sources believed to be
reliable. Loans for which reliable quotations are not available may be valued
with reference to another loan or a group of loans for which quotations are more
readily available and whose characteristics are comparable to the loan being
valued. Under this approach, the comparable loan or loans serve as a "proxy" for
changes in value.

The Trust has engaged an independent pricing service to provide quotations from
dealers in loans and to calculate values under the "proxy" procedure described
above.

It is expected that most of the loans held by the Trust will be valued with
reference to quotations from the independent pricing service or with reference
to the "proxy" procedure described above. The Investment Manager may believe
that the price for a loan derived from market quotations or the "proxy"
procedure described above is not reliable or accurate. Among other reasons, this
may be the result of information about a particular loan or borrower known to
the Investment Manager that it believes may not be known to the pricing service
or reflected in a price quote. In this event, the loan is valued at fair value
as determined in good faith under procedures established by the Trust's Board of
Trustees, and in accordance with the provisions of the 1940 Act.

Under these procedures, fair value is determined by the Investment Manager and
monitored by the Trust's Board of Trustees through its Valuation Committee. In
fair valuing a loan, consideration is given to several factors, which may
include, among others, the following:

     *    the characteristics of and fundamental analytical data relating to the
          loan, including the cost, size, current interest rate, period until
          the next interest rate reset, maturity and base lending rate of the
          loan, the terms and conditions of the loan and any related agreements,
          and the position of the loan in the borrower's debt structure;

     *    the nature, adequacy and value of the collateral, including the
          Trust's rights, remedies and interests with respect to the collateral;

     *    the creditworthiness of the borrower and the cash flow coverage of
          outstanding principal and interest, based on an evaluation of its
          financial condition, financial statements and information about the
          borrower's business, cash flows, capital structure and future
          prospects;

     *    information relating to the market for the loan, including price
          quotations for, and trading in, the loan and interests in similar
          loans and the market environment and investor attitudes towards the
          loan and interests in similar loans;

     *    the reputation and financial condition of the agent of the loan and
          any intermediate participants in the loans;

     *    the borrower's management; and

     *    the general economic and market conditions affecting the fair value of
          the loan.

Securities for which the primary market is a national securities exchange or the
NASDAQ National Market System are stated at the last reported sale price on the
day of valuation. Debt and equity securities traded in the over-the-counter
market and listed securities for which no sale was reported on that date are
valued at the mean between the last reported bid and asked price. Valuation of
short term cash equivalent investments will be at amortized cost.

Account Access

Unless your Common Shares are held through a third-party fiduciary or in an
omnibus registration at your bank or brokerage firm, you may be able to access
your account information over the internet at www.pilgrimfunds.com, or via a
touch tone telephone by calling (800) 992-0180 and selecting Option 1. Should
you wish to speak with a Shareholder Service Representative, you may call the
toll-free number listed above and select Option 2.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                                         Shareholder Guide    21
<PAGE>
                                                                     SHAREHOLDER
PLAN OF DISTRIBUTION                                                       GUIDE
- --------------------------------------------------------------------------------

Shareholder Investment Program

The following is a summary of the Shareholder Investment Program (the
"Program"). Shareholders are advised to review a fuller explanation of the
Program contained in the Trust's SAI. Common Shares are offered by the Trust
through the Program. The Program allows participating shareholders to reinvest
all dividends ("Dividends") in additional Common Shares of the Trust, and also
allows participants to purchase additional Common Shares through optional cash
investments in amounts ranging from a minimum of $100 to a maximum of $5,000 per
month. Subject to the permission of the Trust ("Waiver"), participating
shareholders may also make optional cash investments in excess of the monthly
maximum. Common Shares may be issued by the Trust under the Program only if the
Trust's Common Shares are trading at a premium to NAV. If the Trust's Common
Shares are trading at a discount to NAV, Common Shares purchased under the
Program will be purchased on the open market.

Shareholders may elect to participate in the Program by telephoning the Trust or
submitting a completed Participation Form to DST Systems, Inc. ("DST"), the
Program administrator. DST will credit to each participant's account funds it
receives from: (a) Dividends paid on Trust shares registered in the
participant's name, and (b) optional cash investments. DST will apply all
Dividends and optional cash investments received to purchase Common Shares as
soon as practicable beginning on the relevant investment date (as described
below) and not later than six business days after the relevant investment date,
except when necessary to comply with applicable provisions of the federal
securities laws. For more information on the Trust's distribution policy, see
"Dividends and Distributions."

In order for participants to purchase shares through the Program in any month,
the Administrator must receive from the participant any optional cash investment
by the relevant investment date. The relevant investment date will be set in
advance by the Trust, upon which optional cash investments are first applied by
DST to the purchase of Common Shares. Investment dates may vary depending on
whether or not the optional cash investment exceeds $5,000. Participants may
obtain a schedule of relevant dates, including investments dates, the dates in
which all requests for a Waiver must be received and the dates in which shares
will be paid by referring to the Summary Program Description or calling the
Trust at (800) 992-0180.

With the exception of shares purchased in connection with optional cash
investments in excess of $5,000, shares issued by the Trust under the Program
will be issued commission free. Common Shares purchased for the Program directly
from the Trust in connection with the Program will be acquired at the greater of
(i) NAV at the close of business on the day preceding the relevant investment
date or (ii) the average of the daily market price of the Common Shares during
the pricing period minus a discount of 5%, for reinvested Dividends, and 0%-5%,
for optional cash investments.

It is solely within the Trust's discretion as to whether approval for any cash
investments in excess of $5,000 will be granted. In deciding whether to approve
a request for Waiver, the Trust will consider relevant factors including, but
not limited to, whether the Program is then acquiring newly issued Common Shares
directly from the Trust or acquiring shares from third parties in the open
market, the Trust's need for additional funds, the attractiveness of obtaining
such additional funds through the sale of Common Shares as compared to other
sources of funds, the purchase price likely to apply to any sale of Common
Shares under the Program, the participant submitting the request, the extent and
nature of such participant's prior participation in the Program, the number of
Common Shares held by such participant and the aggregate amount of cash
investments for which requests for Waiver have been submitted by all
participants. If such requests are submitted for any Waiver for an aggregate
amount in excess of the amount the Trust is then willing to accept, the Trust
may honor such requests in order of receipt, pro rata or by any other method
that the Trust determines in its sole discretion to be appropriate. For
information on a commission that may apply in connection with an optional cash
investment in excess of $5,000, see "Distribution Arrangements."

The Trust may establish for a minimum price applicable to the purchase of newly
issued Common Shares through requests for Waiver, which will be a stated dollar
amount that the market price of the Common Shares during a day in which the
shares are reported on the New York Stock Exchange ("Trading Day") during the
relevant pricing period must equal or exceed. No shares will be issued and funds
submitted pursuant to requests for Waiver will be returned to the participant if
the minimum price is not obtained for at least three of the five Trading Days.

Participants will pay a pro rata share of brokerage commissions with respect to
DST's open market purchases in connection with the reinvestment of Dividends or
purchases made with optional cash investments.

>From time to time, financial intermediaries, including brokers and dealers, and
other persons may wish to engage in positioning transactions in order to benefit
from the discount from market price of the Common Shares acquired under the
Program. Such transactions could cause fluctuations in the trading volume and
price of the Common Shares. The difference between the price such owners pay to
the Trust for Shares acquired under the Program, after deduction of the
applicable discount from the market price, and the price at which such Common
Shares are resold, may be deemed to constitute underwriting commissions received
by such owners in connection with such transactions.

22   Plan of Distribution
<PAGE>
SHAREHOLDER
GUIDE                                                       PLAN OF DISTRIBUTION
- --------------------------------------------------------------------------------

The Program is intended for the benefit of investors in the Trust. The Trust
reserves the right to exclude from participation, at any time, (i) persons or
entities who attempt to circumvent the Program's standard $5,000 maximum by
accumulating accounts over which they have control or (ii) any other persons or
entities, as determined in the sole discretion of the Trust.

Currently, persons who are not shareholders of the Trust may not participate in
the Program. The Board of Trustees of the Trust may elect to change this policy
at a future date, and permit non-shareholders to participate in the Program.

Shareholders may request to receive their Dividends in cash at any time by
giving DST written notice or by contacting the Trust's Shareholder Services
Department at (800) 992-0180. Shareholders may elect to close their account at
any time by giving DST written notice. When a participant closes their account,
the participant upon request will receive a certificate for full Common Shares
in the Account. Fractional Common Shares will be held and aggregated with other
fractional Common Shares being liquidated by DST as agent of the Program and
paid for by check when actually sold.

The automatic reinvestment of Dividends does not affect the tax characterization
of the Dividends (i.e., capital gains and income are realized even though cash
is not received). If shares are issued pursuant to the Program's dividend
reinvestment provisions or cash purchase provisions at a discount from market
price, participants may have income equal to the discount.

Additional information about the Program may obtained from the Trust's
Shareholder Services Department at (800) 992-0180.

Privately Negotiated Transactions

The Common Shares may also be offered pursuant to privately negotiated
transactions between the Trust and specific investors. The terms of such
privately negotiated transactions will be subject to the discretion of the
management of the Trust. In determining whether to sell Common Shares pursuant
to a privately negotiated transaction, the Trust will consider relevant factors
including, but not limited to, the attractiveness of obtaining additional funds
through the sale of Common Shares, the purchase price to apply to any such sale
of Common Shares and the person seeking to purchase the Common Shares.

Common Shares issued by the Trust in connection with privately negotiated
transactions will be issued at the greater of (i) NAV per Common Share of the
Trust's Common Shares or (ii) at a discount ranging from 0% to 5% of the average
of the daily market price of the Trust's Common Shares at the close of business
on the two business days preceding the date upon which Common Shares are sold
pursuant to the privately negotiated transaction. The discount to apply to such
privately negotiated transactions will be determined by the Trust with regard to
each specific transaction. For information on a commission that may apply in
connection with privately negotiated transactions, see "Distribution
Arrangements."

USE OF PROCEEDS
- --------------------------------------------------------------------------------

It is expected that the net proceeds of Common Shares issued pursuant to the
Program will be invested in Senior Loans and other securities consistent with
the Trust's investment objective and policies. Pending investment in Senior
Loans, the proceeds will be used to pay down the Trust's outstanding borrowings
under its credit facilities. See "Investment Objective and Policies -- Policy on
Borrowing."

As of ______, 2001, the Trust's outstanding borrowings under its credit
facilities was $______. By paying down the Trust's borrowings, the Trust can
avoid adverse impacts on yields pending investment of such proceeds in Senior
Loans. As investment opportunities are subsequently identified, it is expected
that the Trust will reborrow amounts previously repaid and invest such amounts
in additional Senior Loans.

DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------

Distribution Policy

Income dividends on Common Shares accrue and are declared and paid monthly under
guidelines approved by the Board of Trustees.

Dividend Reinvestment

Unless you instruct the Trust to pay you dividends in cash, dividends and
distributions paid by the Trust will be reinvested in additional Common Shares
of the Trust. You may request to receive dividends in cash at any time by giving
DST written notice or by contacting the Trust's Shareholder Services Department
at 1-800-992-0180.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                                      Plan of Distribution    23
<PAGE>
INVESTMENT
MANAGEMENT AND
OTHER SERVICES
- --------------------------------------------------------------------------------

Investment Manager

ING Pilgrim Investments, LLC (the "Investment Manager" or "ING Pilgrim
Investments") serves as Investment Manager to the Trust and has overall
responsibility for the management of the Trust under the general supervision of
the Board of Trustees. Its principal business address is 7337 East Doubletree
Ranch Road, Scottsdale, Arizona 85258. The Trust and the Investment Manager have
entered into an Investment Management Agreement that requires ING Pilgrim
Investments to provide all investment advisory and portfolio management services
for the Trust. It also requires ING Pilgrim Investments to assist in managing
and supervising all aspects of the general day-to-day business activities and
operations of the Trust, including custodial, transfer agency, dividend
disbursing, accounting, auditing, compliance and related services. ING Pilgrim
Investments provides the Trust with office space, equipment and personnel
necessary to administer the Trust. The agreement with ING Pilgrim Investments
can be canceled by the Board of Trustees upon 60 days' written notice.

ING Pilgrim Investments is an indirect wholly-owned subsidiary of ING Groep N.V.
(NYSE: ING). ("ING Group"). ING Group is a global financial institution active
in the field of insurance, banking and asset management in more than 65
countries, with nearly 100,000 employees. Organized in December 1994, the
Investment Manager is registered as an investment adviser with the SEC. The
Investment Manager serves as investment manager to 36 open-end funds, two
closed-end funds (including the Trust), 15 variable annuity funds, and other
institutional and privately managed accounts, and has assets under management of
over $17.8 billion as of March 31, 2001.

The Investment Manager bears its expenses of providing the services described
above. The Investment Manager currently receives from the Trust an annual fee,
paid monthly, of 0.80% of the Trust's Managed Assets.

The Trust pays all operating and other expenses of the Trust not borne by ING
Pilgrim Investments including, but not limited to, audit and legal fees,
transfer agent, registrar and custodian fees, expenses in preparing repurchase
offers, shareholder reports and proxy solicitation materials and other
miscellaneous business expenses. The Trust also pays all taxes imposed on it and
all brokerage commissions and loan-related fees.

Portfolio Management. The Trust is managed by a portfolio management team
consisting of the following individuals.

Daniel A. Norman is Senior Vice President, Treasurer and Co-Senior Portfolio
Manager of the Trust. Mr. Norman has served Pilgrim Prime Rate Trust in various
capacities from September 1996 to the present. He also serves as Senior Vice
President, Treasurer and Co-Senior Portfolio Manager of Pilgrim Senior Income
Fund, another closed-end fund that invests primarily in Senior Loans. Mr. Norman
is a Senior Vice President of ING Pilgrim Investments (since December 1995). Mr.
Norman has served as an officer of other affiliates of ING Pilgrim Capital
Corporation, LLC since February 1992. Mr. Norman co-manages the Trust with
Jeffrey A. Bakalar.

Jeffrey A. Bakalar is Senior Vice President and Co-Senior Portfolio Manager of
the Trust. Mr. Bakalar has served Pilgrim Prime Rate Trust in various capacities
from February 1998 to the present. He also serves as Senior Vice President and
Co-Senior Portfolio Manager of Pilgrim Senior Income Fund, another closed-end
fund that invests primarily in Senior Loans. Prior to joining ING Pilgrim
Investments, Mr. Bakalar was Vice President of The First National Bank of
Chicago (July 1994-January 1998) and Corporate Finance Officer of the
Securitized Products Group of Continental Bank (November 1993-July 1994). Mr.
Bakalar co-manages the Trust with Daniel A. Norman.

Curtis F. Lee has served as Senior Vice President and Chief Credit Officer of
the Trust since January 2001. He also serves as Senior Vice President and Chief
Credit Officer of Pilgrim Senior Income Fund, another closed-end fund that
invests primarily in Senior Loans. Mr. Lee is a Vice President of ING Pilgrim
Investments (since August 1999). Prior to joining ING Pilgrim Investments, Mr.
Lee held a series of positions with Standard Chartered Bank in the credit
approval and problem loan management functions (1992-1999).

Robert L. Wilson has served as Portfolio Manager of the Trust since July 1998.
He has also serves as Portfolio Manager of Pilgrim Senior Income Fund, another
closed-end fund that invests primarily in Senior Loans. Mr. Wilson is a Vice
President of ING Pilgrim Investments (since July 1998). Prior to joining ING
Pilgrim Investments, Mr. Wilson was a Vice President of Bank of Hawaii (May
1997-June 1998); Vice President of Union Bank of California (November 1994-May
1997); and Vice President of Bank of California (October 1990-November 1994).

Michel Prince, CFA, has served as Portfolio Manager of the Trust since May 1998.
He also serves as Portfolio Manager of Pilgrim Senior Income Fund, another
closed-end fund that invests primarily in Senior Loans. Mr. Prince is a Vice
President of ING Pilgrim Investments (since May 1998). Prior to joining ING
Pilgrim Investments, Mr. Prince was Vice President of Rabobank International,
Chicago Branch (July 1996-April 1998) and Vice President of Fuji Bank, Chicago
Branch (April 1992-July 1996).

Jason T. Groom has served as Portfolio Manager of the Trust since May 2000. He
also serves as Portfolio Manager of Pilgrim Senior Income Fund, another
closed-end fund that invests primarily in Senior Loans. Mr. Groom is a Vice
President of ING Pilgrim Investments (since June 2000). He served as an
Assistant Vice President from July 1998 to May 2000. Prior to joining ING
Pilgrim Investments, Mr. Groom was an Associate in the Corporate Finance Group
of NationsBank (January 1998-June 1998); Assistant Vice President, Corporate

24   Investment Management and Other Services
<PAGE>
                                                                      INVESTMENT
                                                                  MANAGEMENT AND
                                                                  OTHER SERVICES
- --------------------------------------------------------------------------------

Finance Group of The Industrial Bank of Japan Limited (August 1995-December
1997); and an Associate in the Corporate Finance Group of The Long-Term Credit
Bank of Japan Limited (August 1994-August 1995). He received a Masters in
International Management degree from the American Graduate School of
International Management in 1993, and a BA in Economics from the University of
Arizona in 1992.

Charles E. Lemieux, CFA, has served as Assistant Portfolio Manager of the Trust
since July 1998. He also serves as Assistant Portfolio Manager of Pilgrim Senior
Income Fund, another closed-end fund that invests primarily in Senior Loans. Mr.
LeMieux is a Vice President of ING Pilgrim Investments (since June 2000). He
served as an Assistant Vice President of ING Pilgrim Investments from July 1998
to May 2000. Prior to joining ING Pilgrim Investments, Mr. LeMieux was Assistant
Treasurer Cash Management with Salt River Project (October 1993-June 1998) and
Senior Metals Trader/Senior Financial Analyst with Phelps Dodge Corporation
(January 1992-October 1993). Mr. LeMieux is a Chartered Financial Analyst.

Mark F. Haak has served as Assistant Portfolio Manager of the Trust since June
1999. He also serves as Assistant Portfolio Manager of Pilgrim Senior Income
Fund, another closed-end fund that invests primarily in Senior Loans. Mr. Haak
is an Assistant Vice President of ING Pilgrim Investments (June 1999). Prior to
joining ING Pilgrim Investments, Mr. Haak was Assistant Vice President,
Corporate Banking with Norwest Bank (December 1997 - June 1998); Lead Financial
Analyst and Portfolio Manager for Bank One AZ, N.A. (May 1996 - December 1997);
and Credit Manager, Norwest Financial (May 1994 - May 1996). Mr. Haak also
received a masters degree from the University of Notre Dame (May 1999) and a
bachelors degree from Marquette University (May 1994).

William F. Nutting, Jr. has served as Senior Portfolio Analyst of the Trust, and
Assistant Vice President and Secondary Loan Trader for the Trust since ______.
He also serves as a Senior Portfolio Analyst and a Secondary Loan Trader for
Pilgrim Senior Income Fund, another closed-end fund that invests primarily in
Senior Loans. Mr. Nutting is an Assistant Vice President of ING Pilgrim
Investments (since December 1999) and joined ING Pilgrim Group in July 1995 as
an Operations Associate. Prior to joining ING Pilgrim Group, Mr. Nutting
received a bachelors degree from Arizona State University (December 1994).

Mohamed Basma has served as Analyst of the Trust since _________.

Jeffrey S. Schultz has served as Analyst of the Trust since _________.

James E. Grimes has served as Analyst of the Trust since _________.

The Administrator

The Administrator of the Trust is ING Pilgrim Group, LLC. ("ING Pilgrim Group").
Its principal business address is 7337 East Doubletree Ranch Road, Scottsdale,
Arizona 85258. The Administrator is a wholly-owned subsidiary of ING Group and
the immediate parent company of the Investment Manager.

Under an Administration Agreement between ING Pilgrim Group and the Trust, ING
Pilgrim Group administers the Trust's corporate affairs subject to the
supervision of the Board of Trustees of the Trust. In that connection, ING
Pilgrim Group monitors the provisions of the Senior Loan agreements and any
agreements with respect to interests in Senior Loans and is responsible for
recordkeeping with respect to the Senior Loans in the Trust's repurchase offers
portfolio. ING Pilgrim Group also furnishes the Trust with office facilities and
furnishes executive personnel together with clerical and certain recordkeeping
and administrative services. These services include preparation of annual and
other reports to shareholders and to the SEC. ING Pilgrim Group also handles the
filing of federal, state and local income tax returns not being furnished by the
Custodian or Transfer Agent (as defined below). The Administrator has authorized
all of its officers and employees who have been elected as Trustees or officers
of the Trust to serve in the latter capacities. All services furnished by the
Administrator under the Administration Agreement may be furnished by such
officers or employees of the Administrator.

The Trust pays ING Pilgrim Group an administration fee, computed daily and
payable monthly. The Administration Agreement states that ING Pilgrim Group is
entitled to receive a fee at an annual rate of 0.25% of the Trust's Managed
Assets.

Transfer Agent, Dividend Disbursing Agent and Registrar

The transfer agent, dividend disbursing agent and registrar for the Common
Shares is DST, whose principal business address is 330 West 9th Street, Kansas
City, Missouri 64105.

Custodian

The Trust's securities and cash are held and maintained under a Custody
Agreement with State Street Bank and Trust Company, whose principal place of
business is 801 Pennsylvania Avenue, Kansas City, Missouri 64105.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                  Investment Management and Other Services    25
<PAGE>
DESCRIPTION OF THE
TRUST
- --------------------------------------------------------------------------------

The Trust is an unincorporated business trust established under the laws of the
Commonwealth of Massachusetts by the Declaration of Trust dated December 2,
1987, as amended. The Declaration of Trust provides that the Trustees of the
Trust may authorize separate classes of shares of beneficial interest. The
Trustees have authorized an unlimited number of shares of beneficial interest,
par value $0.01 per share, all of which were initially classified as Common
Shares. The Declaration of Trust also authorizes the creation of an unlimited
number of shares of beneficial interest with preference rights, including
preferred shares, having a par value of $0.01 per share, in one or more series,
with rights as determined by the Board of Trustees, by action of the Board of
Trustees without the approval of the shareholders. The following table shows the
amount of (i) shares authorized, (ii) shares held by the Trust for its own
account and (iii) shares outstanding, for each class of authorized securities of
the Trust as of June __, 2001.

                                                Amount Held by
                                   Amount       Trust for its        Amount
      Title of Class            Authorized        Own Account      Outstanding
      --------------            ----------        -----------      -----------
Common Shares                    unlimited             0
Preferred Shares, Series M         3,600               0              3,600
Preferred Shares, Series T         3,600               0              3,600
Preferred Shares, Series W         3,600               0              3,600
Preferred Shares, Series Th        3,600               0              3,600
Preferred Shares, Series F         3,600               0              3,600

The Common Shares outstanding are fully paid and nonassessable by the Trust.
Holders of Common Shares are entitled to share equally in dividends declared by
the Board of Trustees payable to holders of common shares and in the net assets
of the Trust available for distribution to holders of Common Shares after
payment of the preferential amounts payable to holders of any outstanding
Preferred Shares. Neither holders of Common Shares nor holders of Preferred
Shares have pre-emptive or conversion rights and Common Shares are not
redeemable. Upon liquidation of the Trust, after paying or adequately providing
for the payment of all liabilities of the Trust and the liquidation preference
with respect to any outstanding preferred shares, and upon receipt of such
releases, indemnities and refunding agreements as they deem necessary for their
protection, the Trustees may distribute the remaining assets of the Trust among
the holders of the Common Shares. Under the rules of the NYSE applicable to
listed companies, the Trust is required to hold an annual meeting of
shareholders in each year. If the Trust is converted to an open-end investment
company or if for any other reason Common Shares are no longer listed on the
NYSE (or any other national securities exchange the rules of which require
annual meetings of shareholders), the Trust does not intend to hold annual
meetings of shareholders.

Under Massachusetts law, shareholders, including holders of Preferred Shares,
could under certain circumstances be held personally liable for the obligations
of the Trust. However, the Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all loss and expense of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust would be unable to meet its
obligations.

Holders of Common Shares are entitled to one vote for each share held and will
vote with the holders of any outstanding Preferred Shares or any other preferred
shares on each matter submitted to a vote of holders of Common Shares, except as
described under "Description of Capital Structure--Preferred Shares."

Shareholders are entitled to one vote for each share held. The Common Shares,
Preferred Shares and any other preferred shares do not have cumulative voting
rights, which means that the holders of more than 50% of the shares of Common
Shares, Preferred Shares and any other preferred shares voting for the election
of Trustees can elect all of the Trustees standing for election by such holders,
and, in such event, the holders of the remaining shares of Common Shares,
Preferred Shares and any other preferred shares will not be able to elect any of
such Trustees.

So long as any Preferred Shares or any other preferred shares are outstanding,
holders of Common Shares will not be entitled to receive any dividends of or
other distributions from the Trust, unless at the time of such declaration, (1)
all accrued dividends on preferred shares or accrued interest on borrowings has
been paid and (2) the value of the Trust's total assets (determined after
deducting the amount of such dividend or other distribution), less all
liabilities and indebtedness of the Trust not represented by senior securities,
is at least 300% of the aggregate amount of such securities representing
indebtedness and at least 200% of the aggregate amount of securities
representing indebtedness plus the aggregate liquidation value of the
outstanding preferred shares (expected to equal the aggregate original purchase
price of the outstanding preferred shares plus redemption premium, if any,
together with any accrued and unpaid dividends thereon, whether or not earned or
declared and on a cumulative basis). In addition to the requirements of the 1940
Act, the Trust is required to comply with other asset coverage requirements as a
condition of the

26   Description of the Trust
<PAGE>
                                                              DESCRIPTION OF THE
                                                                           TRUST
- --------------------------------------------------------------------------------

Trust obtaining a rating of the preferred shares from a rating agency. These
requirements include an asset coverage test more stringent than under the 1940
Act.

The Trust will send unaudited reports at least semi-annually and audited
financial statements annually to all of its shareholders.

The Declaration of Trust further provides that obligations of the Trust are not
binding upon Trustees individually but only upon the property of the Trust and
that the Trustees will not be liable for errors of judgment or mistakes of fact
or law, but nothing in the Declaration of Trust protects a Trustee against any
liability to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.

Conversion to Open-End Fund

The Trustees may at any time propose conversion of the Trust to an open-end
management investment company depending upon their judgment as to the
advisability of such action in light of circumstances then prevailing. In
considering whether to submit an open-ending proposal to shareholders, the
Trustees might consider, among other factors, the differences in operating
expenses between open-end and closed-end funds (due to the expenses of
continuously selling shares and of standing ready to effect redemptions), the
potentially adverse tax consequences to non-redeeming shareholders once a fund
is open-ended, and the impact of open-ending on portfolio management policies.
Such a conversion would require the approval of both a majority of the Trust's
outstanding Common Shares and preferred shares voting together as a single class
and a majority of the outstanding preferred shares voting as a separate class on
such conversion. Conversion of the Trust to an open-end investment company would
require the redemption of all outstanding preferred shares, including the
Preferred Shares, which would eliminate the leveraged capital structure of the
Trust with respect to the Common Shares. A delay in conversion could result
following shareholder approval due to the Trust's inability to redeem the
preferred shares. Shareholders of an open-end investment company may require the
company to redeem their shares at any time (except in certain circumstances as
authorized by or under the 1940 Act) at their next computed NAV less any
redemption charge as might be in effect at the time of redemption. If the Trust
is converted to an open-end management investment company, it could be required
to liquidate portfolio securities to meet requests for redemption, and its
shares would no longer be listed on the NYSE. If the Trust were to experience
significant redemptions as an open-end fund, the decrease in total assets could
result in a higher expense ratio and inefficiencies in portfolio management. In
this regard, the Trust could reserve the right to effect redemptions in-kind
with portfolio securities, which would subject redeeming shareholders to
transaction costs in liquidating those securities.

Repurchase of Common Shares

In recognition of the possibility that the Trust's Common Shares may trade at a
discount to their NAV, the Trust may from time to time take action to attempt to
reduce or eliminate a market value discount from NAV by repurchasing its Common
Shares in the open market or by tendering its Common Shares at NAV. So long as
any preferred shares are outstanding, the Trust may not purchase, redeem or
otherwise acquire any Common Shares unless (1) all accumulated dividends on the
preferred shares have been paid or set aside for payment through the date of
such purchase, redemption or other acquisition and (2) at the time of such
purchase, redemption or acquisition the Preferred Shares Basic Maintenance
Amount (as defined in the Trust's Certificate of Designation for the Preferred
Shares) and the 1940 Act Preferred Shares Asset Coverage (determined after
deducting the acquisition price of the Common Shares) are met. Repurchases of
Common Shares may result in the Trust being required to redeem preferred shares
to satisfy asset coverage requirements.

Fundamental and Non-Fundamental Policies of the Trust

The investment objective of the Trust, certain policies of the Trust specified
herein as "fundamental" and the investment restrictions of the Trust described
in the SAI are fundamental policies of the Trust and may not be changed without
a "Majority Vote" of the shareholders of the Trust. The term "Majority Vote"
means the affirmative vote of (a) more than 50% of the outstanding shares of the
Trust or (b) 67% or more of the shares present at a meeting if more than 50% of
the outstanding shares of the Trust are represented at the meeting in person or
by proxy, whichever is less. All other policies of the Trust may be modified by
resolution of the Board of Trustees of the Trust.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                                  Description of the Trust    27
<PAGE>
DESCRIPTION OF
CAPITAL STRUCTURE
- --------------------------------------------------------------------------------

Common Shares

The Trust's Declaration of Trust authorizes the issuance of an unlimited number
of Common Shares of beneficial interest, par value $.01 per share. All Common
Shares have equal rights to the payment of dividends and the distribution of
assets upon liquidation. Common Shares will, when issued, be fully paid and
non-assessable, and will have no pre-emptive or conversion rights or rights to
cumulative voting.

Whenever preferred shares are outstanding, holders of Common Shares will not be
entitled to receive any distributions from the Trust, unless at the time of such
declaration, (1) all accrued dividends on preferred shares or accrued interest
on borrowings have been paid and (2) the value of the Trust's total assets (as
determined after deducting the amount of such dividend or other distribution),
less all liabilities and indebtedness of the Trust not represented by senior
securities, is at least 200% of the aggregate amount of securities representing
indebtedness plus the aggregate liquidation value of the outstanding preferred
shares. In addition to the requirements of the 1940 Act, the Trust is required
to comply with the other asset coverage requirements as a condition of the Trust
obtaining a rating of the preferred shares from a rating agency. These
requirements include asset coverage tests more stringent than under the 1940
Act. See "Preferred Shares" below.

Borrowings

The Trust's Declaration of Trust authorizes the Trust, without the prior
approval of holders of Common Shares, to borrow money. In this connection, the
Trust may issue notes or other evidence of indebtedness (including bank
borrowings or commercial paper) and may secure any such borrowings by
mortgaging, pledging or otherwise granting a security interest in the Trust's
assets. See "Risk Factors and Special Considerations -- Leverage."

Preferred Shares

Under the 1940 Act, the Trust is permitted to have outstanding more than one
series of preferred shares as long as no single series has priority over another
series nor holders of preferred shares have pre-emptive rights to purchase any
Preferred Shares or any other preferred shares that might be issued.

The Trust's Declaration of Trust authorizes the issuance of a class of preferred
shares (which class may be divided into two or more series) as the Trustees may,
without shareholder approval, authorize. The prefered shares have such
preferences, voting powers, terms of redemption, if any, and special or relative
rights or privileges (including conversion rights, if any) as the Trustee may
determine and as are set forth in the Trust's Certificate of Designation
establishing the terms of the preferred shares. The number of shares of the
preferred class or series authorized is unlimited, and the shares authorized may
be represented in part by fractional shares. Under the Trust's Certificate of
Designation, the Trustees have authorized the creation of 18,000 Auction Rate
Cumulative Preferred Shares, having a par value of $0.01 per share, with a
liquidation preference of $25,000 per share, classified as Series M, T, W, Th
and F Auction Rate Cumulative Preferred Shares.

Any decision to offer preferred shares is subject to market conditions and to
the Board of Trustees' and the Investment Manager's continuing belief that
leveraging the Trust's capital structure through the issuance of preferred
shares is likely to achieve the benefits to the Common Shares described in this
prospectus for long-term investors. The terms of the preferred shares will be
determined by the Board of Trustees in consultation with the Investment Manager
(subject to applicable law and the Trust's Declaration of Trust) if and when it
authorizes a preferred shares offering.

The preferred shares have complete priority over the Common Shares as to
distribution of assets. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Trust, holders of
preferred shares will be entitled to receive a preferential liquidating
distribution (expected to equal the original purchase price per share plus
accumulated and unpaid dividends thereon, whether or not earned or declared)
before any distribution of assets is made to holders of Common Shares.

Senior Securities Table

The table below sets forth certain specified information for the senior
securities that are outstanding for the Trust; these securities are the Series
M, T, W, Th and F Preferred Shares. The calculation of asset coverage per share
is explained in a note to the table below.

<TABLE>
<CAPTION>
                                                         For the Fiscal Year Ended February 28, 2001*
                                                -------------------------------------------------------------
                                                Series M     Series T     Series W     Series Th     Series F
                                                --------     --------     --------     ---------     --------
<S>                                             <C>          <C>          <C>          <C>           <C>
Total Number of Shares Outstanding
Asset Coverage Per Share**
Involuntary Liquidating Preference Per Share
Average Market Value Per Share
</TABLE>

- ----------
*    This information is unaudited.
**   Asset Coverage per share means the ratio that the total assets of the Trust
     to the total number of Preferred Shares outstanding at the end of the
     period.

28   Description of Capital Structure
<PAGE>
                                                                     TAX MATTERS
- --------------------------------------------------------------------------------

The following information is meant as a general summary for U.S. shareholders.
Please see the SAI for additional information. Investors should rely on their
own tax adviser for advice about the particular federal, state and local tax
consequences to them of investing in the Trust.

The federal income tax treatment of the Preferred Shares is not entirely clear,
but the Trust believes, based on the advice of its counsel, that the Preferred
Shares will constitute stock of the Trust. It is possible, however, that the IRS
may take a contrary position, asserting, for example, that the Preferred Shares
constitute debt of the Trust. The discussion below assumes that the Preferred
Shares are stock.

The Trust will distribute most of its net investment income and net capital
gains to its shareholders each year. Although the Trust will not be taxed on
amounts it distributes, most shareholders will be taxed on amounts they receive.
A particular distribution generally will be taxable as either ordinary income or
long-term capital gains. The Trust will allocate a proportionate amount of each
type of its income to the Common Shares and the Preferred Shares. It does not
matter how long a shareholder has held the Trust's Common Shares or Preferred
Shares or whether the shareholder elects to receive distributions in cash or
reinvest them in additional Trust's Common Shares or Preferred Shares. For
example, if the Trust designates a particular distribution as a long-term
capital gains distribution, it will be taxable to a shareholder at his or her
long-term capital gains rate.

Dividends declared by the Trust in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.

Each shareholder will receive an annual statement summarizing the shareholder's
dividend and capital gains distributions.

If a shareholder invests through a tax-deferred account, such as a retirement
plan, the shareholder generally will not have to pay tax on dividends until they
are distributed from the account. These accounts are subject to complex tax
rules, and shareholders should consult a tax adviser about investment through a
tax-deferred account.

There may be tax consequences to a shareholder if the shareholder sells the
Trust's Common Shares or Preferred Shares. A shareholder will generally have a
capital gain or loss, which will be long-term or short-term, generally depending
on how long the shareholder holds those Common Shares or Preferred Shares. If a
shareholder exchanges shares, the shareholder may be treated as if he or she
sold them. Shareholders are responsible for any tax liabilities generated by
their own transactions.

As with all investment companies, the Trust may be required to withhold U.S.
federal income tax at the rate of 31% of all taxable distributions payable to a
shareholder if the shareholder fails to provide the Trust with his or her
correct taxpayer identification number or to make required certifications, or if
the shareholder has been notified by the IRS that he or she is subject to backup
withholding. Backup withholding is not an additional tax; rather, it is a way in
which the IRS ensures it will collect taxes otherwise due. Any amounts withheld
may be credited against a shareholder's U.S. federal income tax liability.

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                                               Tax Matters    29
<PAGE>
MORE INFORMATION
- --------------------------------------------------------------------------------

Distribution Arrangements

Pursuant to the terms of a Distribution Agreement, ING Pilgrim Securities will
provide certain soliciting services on behalf of the Trust in connection with
certain privately negotiated transactions and investments in excess of $5,000
pursuant to a waiver. The Trust has agreed to pay ING Pilgrim Securities a
commission in connection with the sale of the Common Shares under the
Distribution Agreement up to 1.00% of the gross sales price of the Common Shares
sold pursuant to requests for waiver, and up to 3.00% of the gross sales price
of the Common Shares sold pursuant to privately negotiated transactions, payable
from the proceeds of the sale of the Common Shares. ING Pilgrim Securities may
allow all or a portion of the fee to another broker-dealer. In any event, the
net proceeds received by the Trust in connection with the sale may not be less
than the greater of (i) the net asset value per Common Share or (ii) 94% of the
average daily market price over the relevant Pricing Period (as described in
"Plan of Distribution"). No commissions will be paid by the Trust or its
shareholders in connection with the reinvestment of dividends and capital gains
distributions or in connection with optional cash investments up to the maximum
of $5,000 per month. ING Pilgrim Securities' principal business address is 7337
Doubletree Ranch Road, Scottsdale, Arizona 85258. ING Pilgrim Securities and ING
Pilgrim Investments, the Trust's Investment Manager, are indirect, wholly-owned
subsidiaries of ING Group. See "Investment Management and Other Services
Investment Manager."

The Trust bears the expenses of issuing the Common Shares. These expenses
include, but are not limited to, the expense of preparation and printing of the
prospectus and SAI, the expense of counsel and auditors, and others.

Legal Matters

The validity of the Common Shares offered hereby will be passed on for the Trust
by Dechert, 1775 Eye Street, NW, Washington, DC, counsel to the Trust.

Auditors

KPMG LLP serves as independent auditors for the Trust. The auditors' address is
355 South Grand Avenue, Los Angeles, California 90071.

Registration Statement

The Trust has filed with the SEC, Washington, DC, a Registration Statement under
the Securities Act, relating to the Common Shares offered hereby. For further
information with respect to the Trust and its Common Shares, reference is made
to such Registration Statement and the exhibits filed with it.

Shareholder Reports

The Trust issues reports that include financial information to its shareholders
at least semi-annually.

Privacy Policy

You may review the Trust's policy concerning investor privacy over the internet
at www.pilgrimfunds.com, or you may obtain a copy of the policy by calling (800)
992-0180 and selecting Option 1.

30   More Information
<PAGE>
                                                                       FINANCIAL
FINANCIAL HIGHLIGHTS                                                  HIGHLIGHTS
- --------------------------------------------------------------------------------

Financial Highlights Table

The table below sets forth selected financial information which has been derived
from the financial statements in the Trust's Annual Report dated as of February
28, 2001. For the fiscal years ended February 28, 2001, February 29, 2000,
February 28, 1999, 1998 and 1997, and February 29, 1996, the information in the
table below has been audited by KPMG LLP, independent auditors. For all periods
ended prior to February 29, 1996, the financial information was audited by the
Trust's former auditors.

<TABLE>
<CAPTION>
                                                   Year Ended February 28 or February 29,
                                 --------------------------------------------------------------------------
                                    2001            2000          1999(7)         1998(7)         1997(7)
                                 ----------      ----------      ----------      ----------      ----------
<S>                              <C>             <C>             <C>             <C>             <C>
Per Share Operating
 Performance
NAV, beginning of period .....   $               $     9.24      $     9.34      $     9.45      $     9.61
                                 ----------      ----------      ----------      ----------      ----------
Net investment income ........                         0.79            0.79            0.87            0.82
Net realized and unrealized
 gain (loss) on investments...                        (0.30)          (0.10)         (0.13)           (0.02)
                                 ----------      ----------      ----------      ----------      ----------
Increase in NAV from
 investment operations .......                         0.49            0.69            0.74            0.80
Distributions from net
 investment income ...........                        (0.78)          (0.82)          (0.85)          (0.82)
Increase in NAV from share
 offering ....................                           --            0.03
Reduction in NAV from rights
 offering ....................                           --              --              --           (0.14)
Increase in NAV from
 repurchase of capital
 stock........................                           --              --              --              --
                                 ----------      ----------      ----------      ----------      ----------
NAV, end of period ...........   $               $     8.95      $     9.24      $     9.34      $     9.45
                                 ==========      ==========      ==========      ==========      ==========
Closing market price at end
 of period ...................   $               $     8.25      $     9.56      $    10.31      $    10.00
                                 ==========      ==========      ==========      ==========      ==========
Total Return
Total investment return at
 closing
 market price(2) .............                        (5.88)%          1.11%          12.70%          15.04%(4)
Total investment return based
 on NAV(3) ...................                         5.67%           7.86%           8.01%           8.06%(4)
Ratios/ Supplemental Data
Net assets, end of period
 (000's) .....................                   $1,217,339      $1,202,565      $1,034,403      $1,031,089
Average Borrowings (000's) ...                   $  524,019      $  490,978      $  346,110      $  131,773
Ratios to average net assets
 plus borrowings:
 Expenses (before interest and
 other fees related to
 revolving credit facility)...                         1.00%(8)        1.05%(8)        1.04%           1.13%
 Expenses ....................                         2.79%(8)        2.86%(8)        2.65%           1.92%
 Net investment income .......                         6.12%           6.00%           6.91%           7.59%
Ratios to average net assets:
 Expenses (before interest and
 other fees related to
 revolving credit facility)...                         1.43%(8)        1.50%(8)        1.39%           1.29%
 Expenses ....................                         4.00%(8)        4.10%(8)        3.54%           2.20%
 Net investment income .......                         8.77%           8.60%           9.23%           8.67%
Portfolio turnover rate ......                           71%             68%             90%             82%
Shares outstanding at end of
 period (000's) ..............                      136,036         130,206         110,764         109,140
Average daily balance of debt
 outstanding during the
 period (000's) (6)...........                   $  524,019      $  490,978      $  346,110      $  131,773
Average monthly shares
 outstanding during
 the period (000's) ..........                      133,619         123,102         109,998          95,917
Average amount of debt per
 share during the period(6)...                   $     3.92      $     3.99      $     3.15      $     1.37

                                                   Year Ended February 28 or February 29,
                                 --------------------------------------------------------------------------
                                  1996(5)           1995            1994            1993            1992
                                 ----------      ----------      ----------      ----------      ----------
Per Share Operating
 Performance
NAV, beginning of period .....   $     9.66      $    10.02      $    10.05      $     9.96      $     9.97
                                 ----------      ----------      ----------      ----------      ----------
Net investment income ........         0.89            0.74            0.60            0.60            0.76
Net realized and unrealized
 gain (loss) on investments...        (0.08)           0.07           (0.05)           0.01           (0.02)
                                 ----------      ----------      ----------      ----------      ----------
Increase in NAV from
 investment operations .......         0.81            0.81            0.55            0.61            0.74
Distributions from net
 investment income ...........        (0.86)          (0.73)          (0.60)          (0.57)          (0.75)
Increase in NAV from share
 offering ....................
Reduction in NAV from rights
 offering ....................           --           (0.44)             --              --              --
Increase in NAV from
 repurchase of capital
 stock........................           --              --            0.02            0.05              --
                                 ----------      ----------      ----------      ----------      ----------
NAV, end of period ...........   $     9.61      $     9.66      $    10.02      $    10.05      $     9.96
                                 ==========      ==========      ==========      ==========      ==========
Closing market price at end
 of period ...................   $     9.50      $     8.75      $     9.25      $     9.13      $       --
                                 ==========      ==========      ==========      ==========      ==========
Total Return
Total investment return at
 closing
 market price(2) .............        19.19%           3.27%(4)        8.06%          10.89%             --
Total investment return based
 on NAV(3) ...................         9.21%           5.24%(4)        6.28%           7.29%           7.71%
Ratios/ Supplemental Data
Net assets, end of period
 (000's) .....................   $  862,938      $  867,083      $  719,979      $  738,810      $  874,104
Average Borrowings (000's) ...           --              --              --              --              --
Ratios to average net assets
 plus borrowings:
 Expenses (before interest and
 other fees related to
 revolving credit facility)...           --              --              --              --              --
 Expenses ....................           --              --              --              --              --
 Net investment income .......           --              --              --              --              --
Ratios to average net assets:
 Expenses (before interest and
 other fees related to
 revolving credit facility)...           --              --              --              --              --
 Expenses ....................         1.23%           1.30%           1.31%           1.42%           1.42%(1)
 Net investment income .......         9.23%           7.59%           6.04%           5.88%           7.62%(1)
Portfolio turnover rate ......           88%            108%             87%             81%             53%
Shares outstanding at end of
 period (000's) ..............       89,794          89,794          71,835          73,544          87,782
Average daily balance of debt
 outstanding during the
 period (000's) (6)...........   $       --      $    2,811      $       --      $      636      $    8,011
Average monthly shares
 outstanding during
 the period (000's) ..........       89,794          74,598              --          79,394         102,267
Average amount of debt per
 share during the period(6)...   $       --      $     0.04      $       --      $     0.01      $     0.08
</TABLE>
                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                                      Financial Highlights    31
<PAGE>
FINANCIAL
HIGHLIGHTS                                                  FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

- ----------
(1)  Prior to the waiver of expenses, the ratio of expenses to average net
     assets was 1.44% for the the fiscal year ended February 29, 1992, and the
     ratio of net investment income to average net assets was 7.60% for the
     fiscal year ended February 29, 1992.
(2)  Total investment return at closing market price measures the change in the
     market value of your investment assuming reinvestment of dividends and
     capital gain distributions, if any, in accordance with the provisions of
     the dividend reinvestment plan. On March 9, 1992, the shares of the Trust
     were initially listed for trading on the NYSE. Accordingly, the total
     investment return for the year ended February 28, 1993, covers only the
     period from March 9, 1992 to February 28, 1993. Total investment return for
     the periods prior to the year ended February 28, 1993 is not presented
     since market values for the Trust's shares were not available.
(3)  Total investment return at NAV has been calculated assuming a purchase at
     NAV at the beginning of each period and a sale at NAV at the end of each
     period and assumes reinvestment of dividends and capital gain distributions
     in accordance with the provisions of the dividend reinvestment plan. This
     calculation differs from total investment return because it excludes the
     effects of changes in the market values of the Trust's shares.
(4)  Calculation of total return excludes the effect of the per share dilution
     resulting from the rights offering as the total account value of a fully
     subscribed shareholder was minimally impacted.
(5)  ING Pilgrim Investments, the Trust's Investment Manager, acquired certain
     assets of Pilgrim Management Corporation, the Trust's former investment
     manager, in a transaction that closed on April 7, 1995.
(6)  Prior to May 2, 1996, the Trust borrowed to enable it to purchase its
     shares in connection with periodic tender offers. On May 2, 1996, the Trust
     received shareholder approval to borrow for investment purposes. As of
     February 28, 2001, the Trust had outstanding borrowings of $______ under a
     $______ line of credit. See "Policy on Borrowing" in this section.
(7)  ING Pilgrim Investments agreed to reduce its fee for a period of three
     years from November 12, 1996 (the expiration of the 1996 rights offering)
     to 0.60% of the Trust's average daily net assets, plus the proceeds of any
     outstanding borrowings, over $1.15 billion.
(8)  Calculated on total expenses before impact of earnings credits.

32   Financial Highlights
<PAGE>
                                                                    STATEMENT OF
                                                                      ADDITIONAL
                                                                     INFORMATION
- --------------------------------------------------------------------------------

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
Change of Name ...........................................................
Investment Objective .....................................................
Investment Restrictions ..................................................
Additional Information About Investments and Investment Techniques .......
Trustees and Officers ....................................................
Code of Ethics ...........................................................
Investment Management and Other Services .................................
Portfolio Transactions ...................................................
Net Asset Value ..........................................................
Plans of Distribution.....................................................
Federal Taxation .........................................................
Advertising and Performance Data .........................................
General Information ......................................................
Financial Statements .....................................................

                [GRAPHIC] If you have any questions, please call 1-800-992-0180.

                                       Statement of Additional Information    33
<PAGE>
                            PILGRIM PRIME RATE TRUST
                         7337 E. Doubletree Ranch Road
                           Scottsdale, Arizona 85258
                                 (800) 992-0180

                25,000,000 Common Shares of Beneficial Interest

- --------------------------------------------------------------------------------
TRUST ADVISORS AND AGENTS
- --------------------------------------------------------------------------------

INVESTMENT MANAGER                          DISTRIBUTOR

ING Pilgrim Investments, LLC                ING Pilgrim Securities, Inc.
7337 E. Doubletree Ranch Road               7337 E. Doubletree Ranch Road
Scottsdale, AZ 85258                        Scottsdale, AZ 85258

ADMINISTRATOR                               TRANSFER AGENT

ING Pilgrim Group, LLC                      DST Systems, Inc.
7337 E. Doubletree Ranch Road               330 West 9th Street
Scottsdale, AZ 85258                        Kansas City, MO 64105

CUSTODIAN                                   LEGAL COUNSEL

State Street Bank and Trust Company         Dechert
801 Pennsylvania Avenue                     1775 Eye Street, NW
Kansas City, MO 64105                       Washington, DC 20006

INDEPENDENT AUDITORS                        INSTITUTIONAL INVESTORS AND ANALYSTS

KPMG LLP                                    Call Pilgrim Prime Rate Trust
355 South Grand Avenue                      1-800-336-3436
Los Angeles, CA 90071

The Trust has not authorized  any person to provide you with any  information or
to make any  representations  other than those  contained in this  prospectus in
connection  with this  offer.  You should rely only on the  information  in this
prospectus or other  information to which we have referred you. This  prospectus
is not an offer to sell or the  solicitation  of any  offer to buy any  security
other than the Common Shares offered by this prospectus,  nor does it constitute
an offer to sell or a  solicitation  of any  offer to buy the  Common  Shares by
anyone  in  any  jurisdiction  in  which  such  offer  or  solicitation  is  not
authorized,  or in which the person  making  such offer or  solicitation  is not
qualified  to do so,  or to any  person to whom it is  unlawful  to make such an
offer or solicitation. The delivery of this prospectus or any sale made pursuant
to this  prospectus  does not  imply  that  the  information  contained  in this
prospectus is correct as of any time after the date of this prospectus. However,
if any material  change  occurs while this  prospectus  is required by law to be
delivered, this prospectus will be amended or supplemented.

When  contacting the SEC, you will want to refer to the Trust's SEC file number.
The file number is as follows:

1940 Act File No. 811-5410
<PAGE>
                            Pilgrim Prime Rate Trust

                         7337 East Doubletree Ranch Road
                            Scottsdale, Arizona 85258

                       STATEMENT OF ADDITIONAL INFORMATION

                                  June __, 2001


     Pilgrim  Prime  Rate  Trust  (the  "Trust")  is a  diversified,  closed-end
management  investment  company  registered under the Investment  Company Act of
1940,  as amended  (the "1940  Act").  The Trust's  investment  objective  is to
provide  investors with as high a level of current income as is consistent
with the  preservation  of capital.  There is no  assurance  that the Trust will
achieve  its  investment  objective.   The  Trust  is  managed  by  ING  Pilgrim
Investments, LLC ("ING Pilgrim Investments" or the "Investment Manager").

     This  Statement of  Additional  Information  ("SAI") does not  constitute a
prospectus,  but  should be read in  conjunction  with the  prospectus  relating
thereto dated June ___, 2001. This SAI does not include all  information  that a
prospective  investor should consider  before  purchasing  Common Shares in this
offering,  and  investors  should  obtain  and  read  the  prospectus  prior  to
purchasing such shares.  A copy of the prospectus may be obtained without charge
by calling the Investment Manager at (800) 992-0180.

                                TABLE OF CONTENTS

                                                                           PAGE
                                                                           ----

Change of Name.............................................................  2
Investment Objective.......................................................  2
Investment Restrictions....................................................  2
Additional Information About Investments And Investment Techniques.........  3
Trustees And Officers...................................................... 11
Code Of Ethics............................................................. 16
Investment Management And Other Services................................... 16
Portfolio Transactions..................................................... 18
Net Asset Value............................................................ 29
Plans of Distribution...................................................... 20
Federal Taxation........................................................... 25
Advertising And Performance Data........................................... 28
General Information........................................................ 30
Financial Statements....................................................... 30a

     The  prospectus  and  SAI  omit  certain   information   contained  in  the
registration  statement  filed  with  the  Securities  and  Exchange  Commission
("Commission"  or "SEC"),  Washington,  DC. The  registration  statement  may be
obtained from the Commission upon payment of the fee prescribed, or inspected at
the  Commission's  office  for no charge.  The  registration  statement  is also
available on the Commission's website (www.sec.gov).

                                       1
<PAGE>
                                 CHANGE OF NAME

     The Trust  changed  its name from  "Pilgrim  Prime Rate  Trust" to "Pilgrim
America  Prime Rate  Trust" in April  1996,  and then  changed  its name back to
"Pilgrim Prime Rate Trust" on November 16, 1998.

                              INVESTMENT OBJECTIVE

     The Trust's  investment  objective  is to obtain as high a level of current
income as is consistent  with the  preservation  of capital.  The Trust seeks to
achieve its  investment  objective by investing  under normal  circumstances  at
least 80% of its  total  assets in higher  yielding,  U.S.  dollar  denominated,
floating rate secured senior loans made only to  corporations  or other business
entities  organized  under U.S.  law or  located in the U.S.,  Canada or in U.S.
territories and or possessions.  ("Senior Loans").  The Trust can also invest up
to 20% of its total  assets in other  investments,  including  unsecured  loans,
subordinated  loans,  short-term debt instruments,  longer-term debt securities,
equity  securities  acquired in connection  with  investments in loans and other
instruments as described under  "Additional  Information  About  Investments and
Investment  Techniques."  During  periods  when,  in the  opinion of the Trust's
Investment  Manager, a temporary defensive posture in the market is appropriate,
the Trust may hold up to 100% of its assets in cash  and/or in  short-term  debt
instruments.

                             INVESTMENT RESTRICTIONS

     The Trust operates under a number of investment  policies and  restrictions
which  cannot be changed  without  the  approval  of a majority  of the  Trust's
outstanding voting securities. In accordance with the 1940 Act a majority of the
Trust's  outstanding  securities  means  the  lesser  of (i)  67% or more of the
Trust's Common Shares  present at a meeting,  if the holders of more than 50% of
the Trust's Common Shares are present or represented by proxy, or (ii) more than
50% of the Trust's Common Shares.  The following  investment  restrictions  have
been designated as fundamental policies. The Trust will not:

     1. Issue senior securities, except insofar as the Trust may be deemed to
have issued a senior security by reason of (i) entering into certain interest
rate hedging transactions, (ii) entering into reverse repurchase agreements, or
(iii) borrowing money in an amount not exceeding 33 1/3%, or such other
percentage permitted by law, of the Trust's total assets (including the amount
borrowed) less all liabilities other than borrowings, or (iv) issuing a class or
classes of preferred shares in an amount not exceeding 50%, or such other
percentage permitted by law, of the Trust's total assets less all liabilities
and indebtedness not represented by senior securities.

     2. Invest more than 25% of its total assets in any industry.

     3. Make investments in any one issuer other than U.S. government securities
if, immediately after such purchase or acquisition, more than 5% of the value of
the Trust's total assets would be invested in such issuer, or the Trust would
own more than 25% of any outstanding issue, except that up to 25% of the Trust's
total assets may be invested without regard to the foregoing restrictions. For
the purpose of the foregoing restriction, the Trust will consider the borrower
on a loan, including a loan participation, to be the issuer of such loan. In
addition, with respect to a loan under which the Trust does not have privity
with the borrower or would not have a direct cause of action against the
borrower in the event of the failure of the borrower to pay scheduled principal
or interest, the Trust will also separately meet the foregoing requirements and
consider each interpositioned bank (a lender from which the Trust acquires a
loan) to be an issuer of the loan.

                                       2
<PAGE>
     4. Act as an underwriter of securities, except to the extent that it may be
deemed to act as an underwriter in certain cases when disposing of its portfolio
investments or acting as an agent or one of a group of co-agents in originating
Senior Loans.

     5. Purchase or sell equity securities, real estate, real estate mortgage
loans, commodities, commodity futures contracts, or oil or gas exploration or
development programs; or sell short, purchase or sell straddles, spreads, or
combinations thereof, or write put or call options (except that the Trust may,
incidental to the purchase or ownership of an interest in a loan, or as part of
a borrower reorganization, acquire, sell and exercise warrants and/or acquire or
sell other equity securities as well as other assets, such as real estate and
real estate mortgage loans.)

     6. Make loans of money or property to any person, except that the Trust may
(i) make loans to corporations or other business entities, or enter into leases
or other arrangements that have the characteristics of a loan consistent with
its investment objective and policies.; (ii) lend portfolio instruments; and
(iii) acquire securities subject to repurchase agreements.

     7. Make investments on margin or hypothecate, mortgage or pledge any of its
assets except for the purpose of providing security for borrowings as described
above in paragraph 1 and then only in an amount up to 33 1/3% (50% in the case
of the issuance of a preferred class of shares), or such other percentages
permitted by law, of the value of the Trust's total assets (including, with
respect to borrowings, the amount borrowed) less all liabilities other than
borrowings (or, in the case of the issuance of senior securities, less all
liabilities and indebtedness not represented by senior securities).

     8. Invest in marketable warrants other than those acquired in conjunction
with Senior Loans and such warrants will not constitute more than 5% of its
assets.

     9. Purchase shares of other investment companies, except in connection with
a merger, consolidation, acquisition or reorganization.

     If a  percentage  restriction  is adhered to at the time of  investment,  a
later increase or decrease in percentage resulting from a change in value of the
Trust's investments or amount of total assets will not be considered a violation
of any of the foregoing restrictions.

     There is no limitation  on the  percentage of the Trust's total assets that
may be invested in  instruments  which are not readily  marketable or subject to
restrictions on resale, and to the extent the Trust invests in such instruments,
the Trust's  portfolio  should be considered  illiquid.  The extent to which the
Trust  invests in such  instruments  may affect its  ability to realize  the net
asset value  ("NAV") of the Trust in the event of the  voluntary or  involuntary
liquidation of its assets.

       ADDITIONAL INFORMATION ABOUT INVESTMENTS AND INVESTMENT TECHNIQUES

     Some of the  different  types of  securities in which the Trust may invest,
subject to its investment objective, policies and restrictions, are described in
the prospectus under "Investment Objective and Policies." Additional information
concerning certain of the Trust's  investments and investment  techniques is set
forth below.

EQUITY SECURITIES

     In  connection  with its purchase or holding of interests in Senior  Loans,
the Trust may acquire  (and  subsequently  sell) equity  securities  or exercise
warrants  that it receives.  The Trust will acquire  such  interests  only as an
incident to the intended  purchase or ownership of loans or in connection with a

                                       3
<PAGE>
reorganization of a borrower.  The Trust normally will not hold more than 20% of
its total assets in equity securities.  Equity securities will not be treated as
Senior Loans;  therefore, an investment in such securities will not count toward
the 80% of the Trust's  total  assets that  normally  will be invested in Senior
Loans.  Equity  securities  are subject to financial and market risks and can be
expected to fluctuate in value.

LEASE PARTICIPATIONS

     The  credit  quality  standards  and  general  requirements  that the Trust
applies to Lease Participations including collateral quality, the credit quality
of the  borrower and the  likelihood  of payback are  substantially  the same as
those  applied to  conventional  Senior  Loans.  A Lease  Participation  is also
required to have a floating  interest  rate that is indexed to the federal funds
rate,  London  Inter-Bank  Offered Rate ("LIBOR"),  or Prime Rate in order to be
eligible for investment.

     The Office of the Comptroller of the Currency has  established  regulations
which set forth  circumstances  under which  national  banks may engage in lease
financings.  Among  other  things,  the  regulation  requires  that a lease be a
net-full payout lease  representing the noncancelable  obligation of the lessee,
and that the bank make  certain  determinations  with  respect to any  estimated
residual value of leased property relied upon by the bank to yield a full return
on the  lease.  The  Trust  may  invest  in lease  financings  only if the Lease
Participation meets these banking law requirements.

INTEREST RATES AND PORTFOLIO MATURITY

     Interest rates on loans in which the Trust invests adjust periodically. The
interest  rates are adjusted  based on a base rate plus a premium or spread over
the base rate. The base rate usually is LIBOR, the Federal Reserve federal funds
rate,  the Prime Rate or other base lending  rates used by  commercial  lenders.
LIBOR usually is an average of the interest  rates quoted by several  designated
banks as the rates at which they pay interest to major  depositors in the London
interbank market on U.S. dollar  denominated  deposits.  The Investment  Manager
believes that changes in short-term  LIBOR rates are closely  related to changes
in the Federal Reserve federal funds rate,  although the two are not technically
linked.  The Prime Rate quoted by a major U.S.  bank is  generally  the interest
rate at which that bank is willing to lend U.S. dollars to its most creditworthy
borrowers, although it may not be the bank's lowest available rate.

     Loans in which the Trust invests  typically have interest rates which reset
at least quarterly and may reset as frequently as daily. The maximum duration of
an  interest  rate  reset on any loan in which the Trust can invest is one year.
Although the Trust has no restrictions on investment maturity, normally at least
80% of its portfolio will be invested in assets with remaining maturities of one
to  ten  years.   The  Trust's   portfolio  of  loans  will  ordinarily  have  a
dollar-weighted  average time until the next interest rate adjustment of 90 days
or less,  although  the time may exceed 90 days.  The Trust may find it possible
and  appropriate  to use interest rate swaps and other  investment  practices to
shorten the effective  interest rate  adjustment  period of loans.  If the Trust
does so, it will consider the shortened  period to be the  adjustment  period of
the loan.  As  short-term  interest  rates rise,  interest  payable to the Trust
should increase.  As short-term interest rates decline,  interest payable to the
Trust  should  decrease.  The  amount of time that  will pass  before  the Trust
experiences the effects of changing short-term interest rates will depend on the
dollar-weighted  average time until the next  interest  rate  adjustment  on the
Trust's portfolio of loans.

     Loans usually have mandatory and optional prepayment provisions. Because of
prepayments,  the actual remaining  maturity of a loan may be considerably  less
than its stated maturity.  If a loan is prepaid, the Trust will have to reinvest

                                       4
<PAGE>
the  proceeds in other loans or  securities  which may have a lower fixed spread
over its base rate.  In such a case,  the amount of  interest  paid to the Trust
would likely decrease.

     In the event of a change in the benchmark interest rate on a loan, the rate
payable to lenders  under the loan will, in turn,  change at the next  scheduled
reset  date.  If the  benchmark  rate goes up,  the Trust as lender  would  earn
interest  at a higher  rate,  but  only on and  after  the  reset  date.  If the
benchmark  rate goes down,  the Trust as lender  would earn  interest at a lower
rate, but only on and after the reset date.

     During  normal market  conditions,  changes in market  interest  rates will
affect the Trust in certain ways. The principal effect will be that the yield on
the Trust's  Common  Shares will tend to rise or fall as market  interest  rates
rise and  fall.  This is  because  almost  all of the  assets in which the Trust
invests  pay  interest  at rates  which  float in  response to changes in market
rates.  However,  because the  interest  rates on the Trust's  assets reset over
time, there will be an imperfect correlation between changes in market rates and
changes to rates on the  portfolio  as a whole.  This means that  changes to the
rate of  interest  paid on the  portfolio  as a whole  will  tend to lag  behind
changes in market rates.

     Market  interest  rate changes may also cause the Trust's NAV to experience
moderate  volatility.  This is because the value of a loan asset in the Trust is
partially a function of whether it is paying what the market  perceives  to be a
market rate of interest for the particular loan, given its individual credit and
other characteristics.  If market interest rates change, a loan's value could be
affected to the extent the interest rate paid on that loan does not reset at the
same time. As discussed  above, the rates of interest paid on the loans in which
the Trust invests have a weighted  average  reset period that  typically is less
than 90 days.  Therefore,  the  impact  of the lag  between  a change  in market
interest  rates and the change in the overall rate on the  portfolio is expected
to be minimal.

     Finally,  to the  extent  that  changes  in market  rates of  interest  are
reflected  not in a change  to a base  rate such as LIBOR but in a change in the
spread  over the base rate which is payable on loans of the type and  quality in
which the Trust  invests,  the Trust's NAV could be adversely  affected.  Again,
this is because  the value of a loan asset in the Trust is  partially a function
of  whether  it is  paying  what the  market  perceives  to be a market  rate of
interest  for the  particular  loan,  given  its  individual  credit  and  other
characteristics.  However,  unlike changes in market rates of interest for which
there is only a  temporary  lag before the  portfolio  reflects  those  changes,
changes in a loan's value based on changes in the market  spread on loans in the
Trust's portfolio may be of longer duration.

OTHER INVESTMENTS

     Assets  not  invested  in Senior  Loans  will  generally  consist  of other
instruments, including unsecured loans and subordinated loans up to a maximum of
5% of the  Trust's  net  assets,  short-term  debt  instruments  with  remaining
maturities  of 120 days or less  (which may have  yields tied to the Prime Rate,
commercial  paper  rates,  the  federal  funds rate or LIBOR),  longer term debt
securities  and equity  securities  acquired in connection  with  investments in
loans. Short-term debt instruments may include (i) commercial paper rated A-1 by
Standard & Poor's Ratings Services or P-1 by Moody's Investors Service, Inc., or
of comparable quality as determined by the Investment Manager, (ii) certificates
of deposit, bankers' acceptances,  and other bank deposits and obligations,  and
(iii) securities  issued or guaranteed by the U.S.  Government,  its agencies or
instrumentalities.  During  periods  when,  in the  judgment  of the  Investment
Manager, a temporary  defensive posture in the market is appropriate,  the Trust
may hold up to 100% of its assets in cash and/or in short-term debt instruments.

                                       5
<PAGE>
REPURCHASE AGREEMENTS

     In general,  the Trust does not engage, nor does it intend to engage in the
foreseeable  future,  in  repurchase  agreements.  The  Trust  has the  ability,
however,  pursuant  to its  investment  objective  and  policies,  to enter into
repurchase agreements (a purchase of, and a simultaneous commitment to resell, a
financial  instrument  at an agreed upon price on an agreed upon date) only with
member banks of the Federal Reserve  System,  member firms of the New York Stock
Exchange ("NYSE") or other entities  determined by the Investment  Manager to be
creditworthy.  When  participating  in  repurchase  agreements,  the Trust  buys
securities  from a vendor,  e.g., a bank or brokerage  firm,  with the agreement
that the vendor  will  repurchase  the  securities  at an agreed upon price at a
later date.  The Trust may be subject to various delays and risks of loss if the
vendor is  unable  to meet its  obligation  to  repurchase.  Under the 1940 Act,
repurchase  agreements  are  deemed to be  collateralized  loans of money by the
Trust to the seller. In evaluating whether to enter into a repurchase agreement,
the  Investment  Manager will  consider  carefully the  creditworthiness  of the
vendor.  If the member bank or member  firm that is the party to the  repurchase
agreement  petitions  for  bankruptcy or otherwise  becomes  subject to the U.S.
Bankruptcy  Code, the law regarding the rights of the Trust to enforce the terms
of the repurchase agreement is unsettled. The securities underlying a repurchase
agreement  will be marked to market every  business day so that the value of the
collateral  is at least  equal to the value of the loan,  including  the accrued
interest  thereon,  and the  Investment  Manager  will  monitor the value of the
collateral.  No specific  limitation  exists as to the percentage of the Trust's
assets which may be used to participate in repurchase agreements.

REVERSE REPURCHASE AGREEMENTS

     In general,  the Trust does not engage, nor does it intend to engage in the
foreseeable future, in reverse repurchase agreements. The Trust has the ability,
however,  pursuant  to its  investment  objective  and  policies,  to enter into
reverse repurchase  agreements.  A reverse repurchase agreement is an instrument
under which the Trust may sell an underlying debt instrument and  simultaneously
obtain the commitment of the purchaser to sell the security back to the Trust at
an agreed upon price on an agreed upon date. Reverse repurchase  agreements will
be  considered  borrowings  by  the  Trust,  and  as  such  are  subject  to the
restrictions  on borrowing.  Borrowings by the Trust create an  opportunity  for
greater total return,  but at the same time,  increase exposure to capital risk.
The Trust will  maintain in a  segregated  account  with its  custodian  cash or
liquid high grade  portfolio  securities  in an amount  sufficient  to cover its
obligations with respect to the reverse  repurchase  agreements.  The Trust will
receive payment for such  securities only upon physical  delivery or evidence of
book entry  transfer by its custodian.  Regulations  of the  Commission  require
either that securities sold by the Trust under a reverse repurchase agreement be
segregated  pending repurchase or that the proceeds be segregated on the Trust's
books and records pending repurchase.  Reverse repurchase agreements may involve
certain  risks  in the  event of  default  or  insolvency  of the  other  party,
including  possible loss from delays or restrictions upon the Trust's ability to
dispose of the  underlying  securities.  An  additional  risk is that the market
value of securities sold by the Trust under a reverse repurchase agreement could
decline below the price at which the Trust is obligated to repurchase them.

LENDING LOANS AND OTHER PORTFOLIO INSTRUMENTS

     To generate additional income, the Trust may lend its portfolio  securities
including  an  interest  in a Senior  Loan,  in an amount up to 33 1/3% of total
Trust  assets to  broker-dealers,  major  banks,  or other  recognized  domestic
institutional borrowers of securities. No lending may be made with any companies
affiliated with the Investment Manager. During the time portfolio securities are
on loan,  the borrower  pays the Trust any  dividends  or interest  paid on such
securities,  and the Trust may invest the cash  collateral  and earn  additional
income,  or it may receive an  agreed-upon  amount of  interest  income from the
borrower who has delivered equivalent  collateral or a letter of credit. As with
other extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower fail financially.

                                       6
<PAGE>
     The Trust may seek to increase its income by lending financial  instruments
in its portfolio in accordance with present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the Commission.  The
lending  of  financial  instruments  is a  common  practice  in  the  securities
industry.  The loans are  required  to be secured  continuously  by  collateral,
consistent with the requirements of the 1940 Act discussed below,  maintained on
a current basis at an amount at least equal to the market value of the portfolio
instruments  loaned.  The  Trust  has the  right to call a loan and  obtain  the
portfolio  instruments  loaned at any time on such  notice as  specified  in the
transaction documents.  For the duration of the loan, the Trust will continue to
receive  the  equivalent  of the  interest  paid by the issuer on the  portfolio
instruments  loaned  and may  also  receive  compensation  for  the  loan of the
financial  instrument.  Any gain or loss in the market price of the  instruments
loaned that may occur during the term of the loan will be for the account of the
Trust.

     The Trust may lend its portfolio  instruments  so long as the terms and the
structure of such loans are not  inconsistent  with the requirements of the 1940
Act, which currently  require that (a) the borrower pledge and maintain with the
Trust  collateral  consisting  of cash, a letter of credit  issued by a domestic
U.S. bank, or securities  issued or guaranteed by the U.S.  government  having a
value at all times not less  than 100% of the value of the  instruments  loaned,
(b) the borrowers add to such  collateral  whenever the price of the instruments
loaned  rises  (i.e.,  the value of the loan is  "marked  to  market" on a daily
basis),  (c) the loan be made subject to  termination  by the Trust at any time,
and (d) the Trust receive reasonable interest on the loan (which may include the
Trust's   investing  any  cash   collateral  in  interest   bearing   short-term
investments),  any distributions on the loaned instruments and increase in their
market value.  The Trust may lend its portfolio  instruments  to member banks of
the Federal Reserve System,  members of the NYSE or other entities determined by
the Investment Manager to be creditworthy. All relevant facts and circumstances,
including the creditworthiness of the qualified  institution,  will be monitored
by the  Investment  Manager,  and will be  considered in making  decisions  with
respect to the lending of portfolio instruments.

     The Trust may pay  reasonable  negotiated  fees in  connection  with loaned
instruments.  In addition, voting rights may pass with loaned securities, but if
a material event were to occur  affecting such a loan, the Trust will retain the
right to call the loan and vote the securities. If a default occurs by the other
party to such transaction,  the Trust will have contractual remedies pursuant to
the agreements  related to the transaction,  but such remedies may be subject to
bankruptcy and insolvency laws which could  materially and adversely  affect the
Trust's  rights as a  creditor.  However,  the loans  will be made only to firms
deemed by the Investment  Manager to be of good financial  standing and when, in
the judgment of the Investment  Manager,  the consideration  which can be earned
currently from loans of this type justifies the attendant risk.

INTEREST RATE HEDGING TRANSACTIONS

     Generally,  the Trust does not engage, nor does it intend to engage, in the
foreseeable  future, in interest rate swaps, or the purchase or sale of interest
rate caps and  floors.  The  Trust has the  ability,  however,  pursuant  to its
investment  objectives and policies,  to engage in certain hedging  transactions
including interest rate swaps and the purchase or sale of interest rate caps and
floors. The Trust may undertake these  transactions  primarily for the following
reasons: to preserve a return on or value of a particular  investment or portion
of the Trust's  portfolio,  to protect against decreases in the anticipated rate
of return on floating or variable  rate  financial  instruments  which the Trust
owns or  anticipates  purchasing at a later date,  or for other risk  management
strategies such as managing the effective  dollar-weighted  average  duration of
the Trust's  portfolio.  Market  conditions  will determine  whether and in what
circumstances  the Trust would  employ any of the hedging  techniques  described
below.

                                       7
<PAGE>
     Interest rate swaps involve the exchange by the Trust with another party of
their respective commitments to pay or receive interest, e.g., an exchange of an
obligation to make floating rate payments on a specified  dollar amount referred
to as the  "notional"  principal  amount  for an  obligation  to make fixed rate
payments. For example, the Trust may seek to shorten the effective interest rate
redetermination  period of a Senior Loan in its  portfolio  that has an interest
rate  redetermination  period of one year. The Trust could exchange its right to
receive  fixed  income  payments  for one year from a borrower  for the right to
receive payments under an obligation that readjusts monthly.  In such event, the
Trust would  consider the interest  rate  redetermination  period of such Senior
Loan to be the shorter period. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive  payments of interest on a notional  principal  amount from the
party  selling such  interest  rate cap. The purchase of an interest  rate floor
entitles  the  purchaser,  to the extent  that a  specified  index falls below a
predetermined  interest  rate,  to receive  payments  of  interest on a notional
principal amount from the party selling such interest rate floor. The Trust will
not enter into swaps, caps or floors if, on a net basis, the aggregate  notional
principal  amount with respect to such agreements  exceeds the net assets of the
Trust  or to the  extent  the  purchase  of  swaps,  caps  or  floors  would  be
inconsistent with the Trust's other investment restrictions.

     The Trust  will not treat  swaps  covered  in  accordance  with  applicable
regulatory  guidance as senior  securities.  The Trust will  usually  enter into
interest  rate  swaps on a net  basis,  i.e.,  where  the two  parties  make net
payments  with the Trust  receiving or paying,  as the case may be, only the net
amount of the two payments. The net amount of the excess, if any, of the Trust's
obligations over its entitlement with respect to each interest rate swap will be
accrued and an amount of cash or liquid  securities  having an aggregate  NAV at
least equal to the accrued excess will be maintained in a segregated account. If
the Trust enters into a swap on other than a net basis,  the Trust will maintain
in the segregated account the full amount of the Trust's  obligations under each
such swap. The Trust may enter into swaps,  caps and floors with member banks of
the Federal Reserve System,  members of the NYSE or other entities determined by
Pilgrim Investments. If a default occurs by the other party to such transaction,
the Trust will have contractual  remedies pursuant to the agreements  related to
the  transaction  but such remedies may be subject to bankruptcy  and insolvency
laws  which  could  materially  and  adversely  affect the  Trust's  rights as a
creditor.

     The swap, cap and floor market has grown substantially in recent years with
a large number of banks and financial  services  firms acting both as principals
and as agents  utilizing  standardized  swap  documentation.  As a result,  this
market has become relatively liquid.  There can be no assurance,  however,  that
the Trust will be able to enter into interest rate swaps or to purchase interest
rate caps or floors at prices or on terms the  Investment  Manager  believes are
advantageous  to the Trust.  In addition,  although  the terms of interest  rate
swaps,  caps and floors may provide for  termination,  there can be no assurance
that the Trust will be able to  terminate  an  interest  rate swap or to sell or
offset interest rate caps or floors that it has purchased.

     The  successful  utilization  of hedging and risk  management  transactions
requires  skills  different  from those  needed in the  selection of the Trust's
portfolio  securities and depends on the Investment Manager's ability to predict
correctly the direction and degree of movements in interest rates.  Although the
Trust believes that use of the hedging and risk management  techniques described
above will  benefit  the  Trust,  if  Investment  Manager's  judgment  about the
direction or extent of the movement in interest rates is incorrect,  the Trust's
overall  performance  would be worse  than if it had not  entered  into any such
transactions.  The Trust will incur brokerage and other costs in connection with
its hedging transactions.

                                       8
<PAGE>
BORROWING

     Under the 1940 Act, the Trust is not permitted to incur indebtedness unless
immediately after such incurrence the Trust has an asset coverage of 300% of the
aggregate outstanding principal balance of indebtedness. Additionally, under the
1940 Act, the Trust may not declare any dividend or other  distribution upon any
class of its capital  stock,  or purchase  any such  capital  stock,  unless the
aggregate  indebtedness  of the Trust has at the time of the  declaration of any
such  dividend  or  distribution  or at the time of any such  purchase  an asset
coverage  of at  least  300%  after  deducting  the  amount  of  such  dividend,
distribution, or purchase price, as the case may be.

ORIGINATING SENIOR LOANS

     Although  the  Trust  does  not  act,  nor  does  it  intend  to act in the
foreseeable  future,  as an "agent" in originating  and  administering a loan on
behalf of all lenders or as one of a group of "co-agents" in originating  Senior
Loans,  it does have the ability to do so. The agent is  required to  administer
and manage the Senior Loan and to service or monitor the  collateral.  The agent
is also  responsible  for the  collection  of  principal  and  interest  and fee
payments from the borrower and the apportionment of these payments to the credit
of all  lenders  which are parties to the loan  agreement.  The agent is charged
with the  responsibility  of  monitoring  compliance  by the  borrower  with the
restrictive  covenants in the loan agreement and of notifying the lenders of any
adverse change in the borrower's  financial  condition.  In addition,  the agent
generally  is  responsible  for  determining  that the lenders  have  obtained a
perfected security interest in the collateral securing the Senior Loan.

     Lenders  generally  rely on the  agent  to  collect  their  portion  of the
payments on a Senior Loan and to use the appropriate  creditor  remedies against
the  borrower.  Typically  under  loan  agreements,  the  agent is  given  broad
discretion in enforcing the loan agreement and is obligated to use the same care
it would use in the management of its own property. The borrower compensates the
agent for these  services.  Such  compensation  may include special fees paid on
structuring  and funding the Senior Loan and other fees on a  continuing  basis.
The precise duties and rights of an agent are defined in the loan agreement.

     When the Trust is an agent,  it has,  as a party to the loan  agreement,  a
direct  contractual  relationship  with the borrower  and,  prior to  allocating
portions of the Senior Loan to the lenders, if any, assumes all risks associated
with the Senior Loan. The agent may enforce  compliance by the borrower with the
terms of the loan  agreement.  Agents also have voting and consent  rights under
the applicable loan agreement. Action subject to agent vote or consent generally
requires the vote or consent of the holders of some specified  percentage of the
outstanding  principal  amount  of the  Senior  Loan,  which  percentage  varies
depending on the relative loan agreement.  Certain  decisions,  such as reducing
the amount or  increasing  the time for payment of interest on or  repayment  of
principal of a Senior Loan, or relating collateral therefor,  frequently require
the unanimous vote or consent of all lenders affected.

     Pursuant to the terms of a loan  agreement,  the agent  typically  has sole
responsibility  for  servicing and  administering  a loan on behalf of the other
lenders.  Each lender in a Senior Loan is generally  responsible  for performing
its own credit analysis and its own investigation of the financial  condition of
the  borrower.  Generally,  loan  agreements  will hold the agent liable for any
action taken or omitted that amounts to gross negligence or willful  misconduct.
In the event of a borrower's default on a loan, the loan agreements provide that
the lenders do not have recourse  against the Trust for its activities as agent.
Instead, lenders will be required to look to the borrower for recourse.

     Acting in the  capacity  of an agent in a Senior Loan may subject the Trust
to certain risks in addition to those  associated  with the Trust's current role
as  lender.   An  agent  is  charged  with  the  above   described   duties  and
responsibilities  to  lenders  and  borrowers  subject  to the terms of the loan
agreement.  Failure to adequately discharge such  responsibilities in accordance
with the standard of care set forth in the loan  agreement  may expose the Trust
to liability for breach of contract. If a relationship of trust is found between

                                       9
<PAGE>
the  agent  and the  lenders,  the agent  will be held to a higher  standard  of
conduct in  administering  the loan. In  consideration  of such risks, the Trust
will  invest no more than 10% of its  total  assets in Senior  Loans in which it
acts as agent or co-agent and the size of any individual loan will not exceed 5%
of the Trust's total assets.

ADDITIONAL INFORMATION ON SENIOR LOANS

     Senior  Loans are direct  obligations  of  corporations  or other  business
entities and are arranged by banks or other commercial lending  institutions and
made  generally  to  finance  internal  growth,  mergers,  acquisitions,   stock
repurchases,  and leveraged  buyouts.  Senior Loans usually include  restrictive
covenants which must be maintained by the borrower.  Such covenants, in addition
to  the  timely  payment  of  interest  and  principal,  may  include  mandatory
prepayment  provisions  arising from free cash flow and restrictions on dividend
payments,  and usually  state that a borrower  must  maintain  specific  minimum
financial  ratios  as well as  establishing  limits on total  debt.  A breach of
covenant,   which  is  not  waived  by  the  agent,  is  normally  an  event  of
acceleration, i.e., the agent has the right to call the outstanding Senior Loan.
In addition, loan covenants may include mandatory prepayment provisions stemming
from free  cash  flow.  Free  cash  flow is cash  that is in  excess of  capital
expenditures plus debt service requirements of principal and interest.  The free
cash flow shall be applied  to prepay  the Senior  Loan in an order of  maturity
described in the loan documents.  Under certain  interests in Senior Loans,  the
Trust  may have an  obligation  to make  additional  loans  upon  demand  by the
borrower.  The Trust intends to reserve against such  contingent  obligations by
segregating  sufficient assets in high quality  short-term liquid investments or
borrowing to cover such obligations.

     In a typical interest in a Senior Loan, the agent  administers the loan and
has the right to monitor the collateral. The agent is also required to segregate
the principal and interest payments received from the borrower and to hold these
payments for the benefit of the lenders.  The Trust  normally looks to the agent
to  collect  and  distribute  principal  of  and  interest  on  a  Senior  Loan.
Furthermore, the Trust looks to the agent to use normal credit remedies, such as
to  foreclose  on  collateral,  monitor  credit loan  covenants,  and notify the
lenders  of  any  adverse  changes  in the  borrower's  financial  condition  or
declarations of insolvency. At times the Trust may also negotiate with the agent
regarding the agent's exercise of credit remedies under a Senior Loan. The agent
is  compensated  for these  services  by the  borrower  as set forth in the loan
agreement.  Such  compensation  may take the form of a fee or other  amount paid
upon the making of the Senior Loan and/or an ongoing fee or other amount.

     The loan  agreements in connection with Senior Loans set forth the standard
of care to be  exercised  by the  agents on behalf of the  lenders  and  usually
provide for the  termination  of the agent's  agency status in the event that it
fails to act properly,  becomes insolvent,  enters FDIC receivership,  or if not
FDIC insured,  enters into  bankruptcy or if the agent resigns.  In the event an
agent is unable to  perform  its  obligations  as agent,  another  lender  would
generally serve in that capacity.

     The Trust believes that the principal credit risk associated with acquiring
Senior Loans from another lender is the credit risk associated with the borrower
of the  underlying  Senior  Loan.  The Trust may incur  additional  credit risk,
however,  when the Trust acquires a participation  in a Senior Loan from another
lender because the Trust must assume the risk of insolvency or bankruptcy of the
other lender from which the Senior Loan was acquired.

     Senior Loans,  unlike certain bonds,  usually do not have call  protection.
This means that  investments  comprising the Trust's  portfolio,  while having a
stated one to ten-year term, may be prepaid,  often without  penalty.  The Trust
generally holds Senior Loans to maturity unless it has become  necessary to sell
them to satisfy any shareholder tender offers or to adjust the Trust's portfolio
in accordance with the Investment Managers' view of current or expected economic
or specific industry or borrower conditions.

                                       10
<PAGE>
     Senior Loans frequently  require full or partial  prepayment of a loan when
there are asset sales or a securities issuance.  Prepayments on Senior Loans may
also be made by the borrower at its election.  The rate of such  prepayments may
be affected by, among other things, general business and economic conditions, as
well as the financial status of the borrower.  Prepayment would cause the actual
duration of a Senior Loan to be shorter than its stated maturity. Prepayment may
be deferred by the Trust. This should, however, allow the Trust to reinvest in a
new loan and recognize as income any  unamortized  loan fees. In many cases this
will result in a new facility fee payable to the Trust.

     Because  interest rates paid on these Senior Loans  fluctuate  periodically
with the market, it is expected that the prepayment and a subsequent purchase of
a new Senior  Loan by the Trust will not have a material  adverse  impact on the
yield of the portfolio. See "Portfolio Transactions."

     Under a Senior  Loan,  the  borrower  generally  must pledge as  collateral
assets  which  may  include  one  or  more  of  the  following:  cash,  accounts
receivable,  inventory, property, plant and equipment, both common and preferred
stock in its subsidiaries,  trademarks,  copyrights, patent rights and franchise
value.  The Trust may also receive  guarantees as a form of collateral.  In some
instances,  a Senior  Loan may be  secured  only by stock in a  borrower  or its
affiliates.  There is no  assurance,  however,  that the borrower  would provide
additional  collateral or that the liquidation of the existing  collateral would
satisfy  the  borrower's  obligation  in the event of  nonpayment  of  scheduled
interest or principal, or that such collateral could be readily liquidated.

     The Trust may be required to pay and receive  various fees and  commissions
in the  process  of  purchasing,  selling  and  holding  Senior  Loans.  The fee
component  may  include  any,  or a  combination  of,  the  following  elements:
arrangement fees, non-use fees, facility fees, letter of credit fees and ticking
fees.  Arrangement  fees are paid at the  commencement of a loan as compensation
for the  initiation  of the  transaction.  A non-use  fee is paid based upon the
amount committed but not used under the loan.  Facility fees are on-going annual
fees paid in  connection  with a loan.  Letter of credit fees are paid if a loan
involves a letter of credit.  Ticking fees are paid from the initial  commitment
indication until loan closing if for an extended  period.  The amount of fees is
negotiated at the time of transaction.

     In order to allow national banks to purchase  shares of the Trust for their
own accounts without limitation, the Trust invests only in obligations which are
eligible for purchase by national  banks for their own accounts  pursuant to the
provisions of paragraph  seven of Section 24 of the U.S. Code Title 12. National
banks  which  are  contemplating  purchasing  shares  of the Trust for their own
accounts should refer to Banking Circular 220, issued by the U.S. Comptroller of
the Currency on November 21, 1986, for a description  of certain  considerations
applicable to such purchases.

                              TRUSTEES AND OFFICERS

BOARD OF TRUSTEES. The Trust is governed by its Board of Trustees. The Trustees
and Officers of the Trust are listed below.

     Mary A. Baldwin.  (age 61) Advisory  Board Member.  Realtor,  Coldwell
     Banker Success Realty  (formerly,  the Prudential  Arizona Realty) for
     more than the last five years.  Ms Baldwin is also  President,  United
     States Olympic  Committee (Since December 2000), and was formerly Vice
     President  (November   1996-December  2000)  and  Treasurer  (November
     1992-November  1996), United States Olympic Committee.  Ms. Baldwin is
     also a member of the Advisory Board of each of the Pilgrim Funds.

     Paul S. Doherty.  (Age 67) Trustee.  President,  of Doherty,  Wallace,
     Pillsbury  and Murphy,  P.C.,  Attorneys.  Mr.  Doherty was formerly a
     Director  of  Tambrands,  Inc.  (1993 - 1998).  Mr.  Doherty is also a
     Director or Trustee of each of the Pilgrim Funds.

                                    11
<PAGE>
     *Alan L. Gosule. (Age 60) Trustee. Partner of Clifford Chance Rogers &
     Wells LLP  attorneys  (since  1991).  Mr. Gosule is a Director of F.L.
     Putnam  Investment  Management  Co.,  Inc.,  Simpson  Housing  Limited
     Partnership, Home Properties of New York, Inc. and Colonnade Partners.
     Mr. Gosule is also a Director or Trustee of each of the Pilgrim Funds.

     Walter  H.  May.  (Age 64)  Trustee.  Retired.  Mr.  May was  formerly
     Managing  Director and Director of Marketing for Piper Jaffray,  Inc.,
     an investment  banking/  underwriting firm. Mr. May is also a Director
     or Trustee of each of the Pilgrim Funds.

     **Thomas  McInerney  (Age  44)  Trustee.  General  Manager  and  Chief
     Executive  Officer  of ING U.S.  Worksite  Financial  Services  (since
     December  2000).  Mr.  McInerney  was  formerly   President  of  Aetna
     Financial  Services  (August 1997 - December  2000),  head of National
     Accounts and Core Sales and Marketing for Aetna U.S. Healthcare (April
     1996 - March 1997), head of Corporate  Strategies for Aetna Inc. (July
     1995 - April  1996),  and held a variety of line and  corporate  staff
     positions since 1978. Mr.  McInerney is a member of the Board National
     Commission on Retirement  Policy,  the Governor's Council on Economics
     Competitiveness and Technology of Connecticut,  the Board of Directors
     of the  Connecticut  Business  &  Industry  Association,  the Board of
     Trustees of The Bushnell, the Board for The Connecticut Forum, and the
     Board of the  MetroHartford  Chamber of  Commerce,  and is Chairman of
     Concerned Citizens for Effective  Government.  Mr. McInerney is also a
     Director or Trustee of each of the Pilgrim Funds.

     Jock Patton. (Age 55) Trustee. Private Investor.  Director of Hypercom
     Corporation  (since January 1999), and JDA Software Group, Inc. (since
     January 1999), Buick of Scottsdale,  Inc., National Airlines, Inc., BG
     Associates, Inc., BK Entertainment, Inc., Arizona Rotorcraft, Inc. and
     Director and Chief Executive Officer of Rainbow Multimedia Group, Inc.
     Mr.  Patton  was  formerly  Director  of Stuart  Entertainment,  Inc.,
     Director of Artisoft,  Inc.  (August 1994 - July 1998);  and President
     and co-owner of  StockVal,  Inc.,  a provider of  securities  analysis
     software and proprietary  data (April 1993 - June 1997). Mr. Patton is
     also a Director or Trustee of each of the Pilgrim Funds.

     David W.C.  Putnam.  (Age 61) Trustee.  President and Director of F.L.
     Putnam Securities  Company,  Inc. and its affiliates (since 1978). Mr.
     Putnam is Director of Anchor Investment  Trusts, the Principled Equity
     Market Trust and Progressive  Capital  Accumulation  Trust. Mr. Putnam
     was formerly  Director of Trust Realty Corp.  and Bow Ridge Mining Co.
     Mr. Putnam is also a Director or Trustee of each of the Pilgrim Funds.

     Blaine E.  Rieke.  (Age 67)  Trustee.  General  Partner of  Huntington
     Partners,  an investment  partnership (1997 - present).  Mr. Rieke was
     formerly Chairman and Chief Executive Officer of Firstar Trust Company
     (1973-1996).  Mr.  Rieke is also a Director  or Trustee of each of the
     Pilgrim Funds.

     **John G. Turner.  (Age 61) Trustee and Vice Chairman of ING Americas.
     Mr.  Turner  was  formerly  Chairman  and Chief  Executive  Officer of
     ReliaStar   Financial   Corp.   and  ReliaStar   Life   Insurance  Co.
     (1993-2000),  Chairman of ReliaStar  United  Services  Life  Insurance
     Company and ReliaStar Life Insurance  Company of New York (1995-2000),
     Chairman of Northern Life Insurance Company (1992-2000),  and Chairman
     and Director/Trustee of the Northstar affiliated  investment companies
     (1993-2000).  Mr. Turner was formerly Director of Northstar Investment
     Management Corporation and affiliates (1993-2000).  Mr. Turner is also
     Chairman of the Pilgrim Funds.

                                    12
<PAGE>
     Richard A. Wedemeyer.  (Age 65) Trustee. Vice President of The Channel
     Corporation,  an importer of specialty alloy aluminum products (1996 -
     present).  Mr.  Wedemeyer was formerly Vice  President of  Performance
     Advantage, Inc. a provider of training and consultation services (1992
     - 1996),  and Vice  President,  Operations and  Administration  of Jim
     Henson  Productions  (1979 - 1997).  Mr. Wedemeyer is a trustee of the
     First  Choice  Funds.  Mr.  Wedemeyer is also a Director or Trustee of
     each of the Pilgrim Funds.

- ---------
*   An "interested person," as defined in the 1940 Act, of the Trust. Mr. Gosule
    is a partner at Clifford Chance,  Rogers & Wells LLP, which provides certain
    legal services for the Trust.
**  An  "interested  person,"  as  defined  in the 1940  Act,  by  virtue of his
    affiliation  with  the  Trust  or  the  Investment  Manager  or  any  of its
    affiliates.

     The Trust  pays  each  Trustee  who is not an  interested  person,  and the
Advisory Board Member,  a pro rata share,  as described  below, of (i) an annual
retainer of $35,000  and Mssrs.  Patton and May,  as lead  Trustees,  receive an
annual  retainer of $45,000;  (ii) $5,500 per  quarterly  Board  meeting;  (iii)
$1,000 per committee meeting; (iv) $1,000 per special or telephonic meeting; and
(v) out-of-pocket expenses. The pro rata share paid by the Trust is based on the
Trust's  average  net assets for the  previous  quarter as a  percentage  of the
average net assets of all the funds managed by the Investment  Manager for which
the Trustees serve in common as Directors/Trustees or as Advisory Board Members,
if applicable.

     The Trust currently has an Executive Committee, Audit Committee,  Valuation
Committee  and a  Nominating  Committee.  The Audit,  Valuation  and  Nominating
Committees  consist entirely of Independent  Trustees or Advisory Board Members,
if applicable.

     The following individuals serve on the Trust's Executive Committee:  Walter
H. May, Thomas J. McInerney,  Jock Patton and John G. Turner.  Mr. Turner serves
as Chairman of the Executive Committee.

     The  following  individuals  serve on the  Trust's  Audit  Committee:  Mary
Baldwin,  Paul S. Doherty,  Blaine E. Rieke and Richard A. Wedemeyer.  Mr. Rieke
serves as Chairman of the Audit Committee.

     The following individuals serve on the Trust's Valuation Committee:  Walter
H. May Jr., Jock Patton and David W.C. Putnam.  Mr. Patton serves as Chairman of
the Valuation Committee.

     The following individuals serve on the Trust's Nominating  Committee:  Mary
Baldwin, Paul S. Doherty, Walter H. May and Richard A. Wedemeyer. Mr. May serves
as Chairman of the Nominating Committee.

COMPENSATION OF TRUSTEES

     The Trustees who are  "interested  persons" as designated  above receive no
compensation from the Trust. The following table shows estimated amounts paid or
accrued to those Trustees who are not designated  "interested  persons" from the
Trust's  inception  through the end of the Trust's  current fiscal year,  except
that the information  regarding the total  compensation from the Fund Complex in
the last column is for the  calendar  year 2000 and does not  include  estimated
amounts received from the Trust for the current fiscal year.

                                    13
<PAGE>
                             COMPENSATION TABLE

                                       AGGREGATE         TOTAL COMPENSATION FROM
                                      COMPENSATION        TRUST AND FUND COMPLEX
NAME AND POSITION                      FROM TRUST            PAID TO TRUSTEES
- -----------------                     -------------          ----------------
Mary A. Baldwin                         $_______                 $_______
Advisory Board Member                                           (27 Boards)

Al Burton,                              $_______                 $_______
Trustee(1)                                                      (27 Boards)

Paul S. Doherty,                        $_______                 $_______
Trustee                                                         (27 Boards)

Robert B. Goode,                        $_______                 $_______
Trustee(1)                                                      (27 Boards)

Alan S. Gosule,                         $_______                 $_______
Trustee(2)                                                      (27 Boards)

Mark L. Lipson,                         $_______                 $_______
Trustee(5)                                                      (15 Boards)

Walter H. May,                          $_______                 $_______
Trustee                                                         (27 Boards)

Thomas McInerney,                       $_______                 $________
Trustee(3)(4)                                                   (27 Boards)

Jock Patton,                            $_______                 $_______
Trustee                                                         (27 Boards)

David W.C. Putnam,                      $_______                 $_______
Trustee                                                         (27 Boards)

Blaine E. Rieke,                        $_______                 $_______
Trustee(4)                                                      (27 Boards)

John R. Smith,                          $_______                 $_______
Trustee(1)                                                      (27 Boards)

Robert W. Stallings,                    $_______                 $_______
Trustee(1)(3)                                                   (27 Boards)

John G. Turner,                         $_______                 $_______
Trustee (3)                                                     (27 Boards)

David W. Wallace,                       $_______                 $_______
Trustee(1)                                                      (27 Boards)

Richard A. Wedemeyer                    $_______                 $________
Trustee(4)                                                      (27 Boards)

- ---------
1.  Resigned as Trustee effective February 26, 2001.
2.  An "interested  person," as defined in the 1940 Act, of the Trust.  Mr.
    Gosule is a partner  at  Clifford  Chance,  Rogers & Wells  LLP,  which
    provides certain legal services for the Trust.
3.  An  "interested  person," as defined in the 1940 Act,  because of his
    affiliation with the Investment Manager.
4.  Became a Trustee of the Trust effective February 26, 2001.
5.  Resigned as Trustee effective July 26, 2000.

                                    14
<PAGE>
OFFICERS

     James M. Hennessy,  President and Chief Executive  Officer,  7337 East
     Doubletree Ranch Road,  Scottsdale,  Arizona 85258. (Age 52) President
     and  Chief  Executive  Officer  of each of the  Pilgrim  Funds  (since
     February 2001),  Chief Operating  Officer of each of the Pilgrim Funds
     (since July 2000),  Director of ING Pilgrim  Group,  LLC,  ING Pilgrim
     Investments,  LLC, ING Pilgrim  Securities,  Inc., ING Pilgrim Capital
     Corporation,  LLC ("ING Pilgrim  Capital"),  ING Lexington  Management
     Corporation,   Lexington  Funds  Distributor,   Inc.,  Market  Systems
     Research  Advisors,  Inc.,  Market  Systems  Research,  Inc.,  Express
     America T.C.  Corporation,  EAMC  Liquidation  Corp.  (since  December
     2000),  and  President  and Chief  Executive  Officer  of ING  Pilgrim
     Investments,   LLC,  ING  Pilgrim  Group,  LLC,  ING  Pilgrim  Capital
     Corporation,  LLC,  ING  Lexington  Management  Corporation,   Express
     America T.C.  Corporation,  EAMC  Liquidation  Corp.  (since  December
     2000),. Formerly Senior Executive Vice President (June 2000 - December
     2000) and Secretary  (April 1995 - December 2000), ING Pilgrim Capital
     Corporation,  LLC, ING Pilgrim  Group,  LLC, ING Pilgrim  Investments,
     LLC,  ING  Lexington  Management  Corporation,  Express  America  T.C.
     Corporation,  EAMC Liquidation Corp.;  Senior Executive Vice President
     (July 2000 - February 2001) and Secretary (April 1995 - February 2001)
     of each of the  Pilgrim  Funds;  Executive  Vice  President  , Pilgrim
     Capital  Corporation  and its  affiliates  (May 1998 - June  2000) and
     Senior Vice President,  Pilgrim Capital and its affiliates (April 1995
     - April 1998).

     Daniel A. Norman,  Senior Vice  President,  Treasurer,  and  Co-Senior
     Portfolio  Manager,  7337  East  Doubletree  Ranch  Road,  Scottsdale,
     Arizona 85258. (Age 42) Senior Vice President (since December 1994) of
     ING Pilgrim Investments and ING Pilgrim  Securities.  Presently serves
     or has  served  as an  officer  of  other  affiliates  of ING  Pilgrim
     Capital.

     Jeffrey A. Bakalar,  Senior Vice  President  and  Co-Senior  Portfolio
     Manager, 7337 East Doubletree Ranch Road,  Scottsdale,  Arizona 85258.
     (Age 42) Senior  Vice  President  of ING  Pilgrim  Investments  (since
     November 1999).

     Michael J.  Roland,  Senior Vice  President  and  Principal  Financial
     Officer, 7337 East Doubletree Ranch Road,  Scottsdale,  Arizona 85258.
     (Age 42) Senior Vice President and Chief Financial Officer ING Pilgrim
     Group, ING Pilgrim Investments, and ING Pilgrim Securities (since June
     1998).  Senior Vice President and Chief Financial  Officer (since June
     1998) of each of the Pilgrim Funds.  Formerly  served in same capacity
     (January  1995 - April  1997).  Formerly  Chief  Financial  Officer of
     Endeaver Group (April 1997 to June 1998).

     Robert S. Naka,  Senior Vice President and Assistant  Secretary,  7337
     East Doubletree Ranch Road, Scottsdale, Arizona 85258. (Age 37) Senior
     Vice President,  ING Pilgrim Investments (since November 1999) and ING
     Pilgrim Group (since August 1999). Senior Vice President and Assistant
     Secretary of each of the other Pilgrim Funds. Formerly Vice President,
     ING Pilgrim Investments (April 1997 - October 1999), ING Pilgrim Group
     (February 1997 - August 1999). Formerly Assistant Vice President,  ING
     Pilgrim Group (August 1995-February 1997).

                                    15
<PAGE>
     William H. Rivoir III, Senior Vice President and Assistant  Secretary,
     7337 East Doubletree Ranch Road,  Scottsdale,  Arizona 85258. (Age 50)
     Senior Vice President and Assistant  Secretary,  ING Pilgrim Group and
     ING Pilgrim  Investments  (since June 1998),  Assistant  Secretary ING
     Pilgrim Capital Corporation (since 2000).

     Kimberly  A.  Anderson,  Vice  President  and  Secretary,   7337  East
     Doubletree  Ranch  Road,  Scottsdale,  Arizona  85258.  (Age  36) Vice
     President of ING Pilgrim  Group,  Inc.  (since  January 2001) and Vice
     President and  Secretary of each of the Pilgrim Funds (since  February
     2001).  Formerly  Assistant Vice President and Assistant  Secretary of
     each of the Pilgrim  Funds (August  1999-February  2001) and Assistant
     Vice  President  of ING Pilgrim  Group,  Inc.  (November  1999-January
     2001).  Ms. Anderson has held various other positions with ING Pilgrim
     Group, Inc. for more than the last five years.

     Robyn  Ichilov,  Vice President and  Treasurer,  7337 East  Doubletree
     Ranch Road,  Scottsdale,  Arizona 85258. (Age 33) Vice President,  ING
     Pilgrim  Investments  (since August 1997).  Accounting  Manager (since
     November  1995).  Vice  President  and  Treasurer of most of the other
     Pilgrim  Funds.  Formerly  Assistant  Vice  President  and  Accounting
     Supervisor for PaineWebber (June 1993-April 1995).

     As of April 1, 2001,  the  Trustees  and  Officers  of the Trust as a group
owned beneficially less than 1% of the Trust's Common Shares.

                                 CODE OF ETHICS

     The Trust's distributor,  ING Pilgrim Securities, LLC (the "Distributor" or
"ING Pilgrim Securities"), and the Trust have adopted a Code of Ethics governing
personal  trading  activities  of all Trustees and the officers of the Trust and
ING  Pilgrim  Securities  and  persons  who, in  connection  with their  regular
functions,  play a role  in the  recommendation  of any  purchase  or  sale of a
security by the Trust or obtain information pertaining to such purchase or sale.
The Code of Ethics is  intended  to  prohibit  fraud  against the Trust that may
arise from  personal  trading.  Personal  trading is  permitted  by such persons
subject  to  certain  restrictions;  however,  they are  generally  required  to
pre-clear all security  transactions with the Trust's  Compliance Officer or her
designee and to report all transactions on a regular basis.

                    INVESTMENT MANAGEMENT AND OTHER SERVICES

THE INVESTMENT MANAGER

     The Investment  Manager  serves as investment  manager to the Trust and has
overall   responsibility  for  the  management  of  the  Trust.  The  Investment
Management  Agreement between the Trust and the Investment  Manager requires the
Investment Manager to oversee the provision of all investment  advisory services
for the Trust.

     The Investment Manager is an indirect, wholly-owned subsidiary of ING Groep
N.V.  (NYSE:  ING) ("ING Group").  ING Group is a global  financial  institution
active in fields of  insurance,  banking  and asset  management  in more than 65
countries with nearly 100,000 employees.

     The Investment Manager pays all of its expenses from the performance of its
obligations  under the  Investment  Management  Agreement,  including  executive
salaries  and  expenses  of the  Trustees  and  Officers  of the  Trust  who are
employees of the Investment  Manager or its affiliates.  Other expenses incurred
in the  operation  of the  Trust  are  borne by the  Trust,  including,  without
limitation,   expenses   incurred  in  connection   with  the  sale,   issuance,
registration and transfer of its Common Shares; fees of its Custodian,  Transfer
and  Shareholder  Servicing;  salaries  of  officers  and fees and  expenses  of
Trustees or members of any advisory  board or committee of the Trust who are not

                                       16
<PAGE>
members of, affiliated with or interested persons of the Investment 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  accounting  fees;  the fees of any trade  association of which the
Trust is a member; fees and expenses of registering and maintaining registration
of its Common  Shares for sale under  federal and  applicable  state  securities
laws; and all other charges and costs of its operation plus any extraordinary or
non-recurring expenses.

     For the fiscal  years  ended  February  28,  2001,  February  29,  2000 and
February 28, 1999 the Investment  Manager was paid  $________,  $13,076,669  and
$11,973,819 respectively, for services rendered to the Trust.

     The  Investment  Management  Agreement  continues  from  year  to  year  if
specifically approved at least annually by the Trustees or the Shareholders.  In
either event, the Investment  Management Agreement must also be approved by vote
of a majority of the Trustees who are not parties to the  Investment  Management
Agreement  or  "interested  persons"  of any party,  cast in person at a meeting
called for that purpose.

     The use of the  name  "Pilgrim"  in the  Trust's  name is  pursuant  to the
Investment  Management  Agreement between the Trust and the Investment  Manager,
and in the event that the Agreement is terminated, the Trust has agreed to amend
its Agreement and Declaration of Trust to remove the reference to "Pilgrim."

THE ADMINISTRATOR

     The   Administrator   of  the  Trust  is  ING  Pilgrim   Group,   LLC  (the
"Administrator"  or "ING Pilgrim Group") which is an affiliate of the Investment
Manager.  In connection with its  administration of the corporate affairs of the
Trust, the Administrator bears the following expenses: the salaries and expenses
of all  personnel  of the Trust and the  Administrator  except  for the fees and
expenses of Trustees not  affiliated  with the  Administrator  or the Investment
Manager;  costs  to  prepare  information;  determination  of  daily  NAV by the
recordkeeping and accounting agent;  expenses to maintain certain of the Trust's
books  and  records  that are not  maintained  by the  Investment  Manager,  the
custodian,  or transfer  agent;  costs incurred to assist in the  preparation of
financial  information  for the Trust's  income tax returns,  proxy  statements,
quarterly,  semi-annual,  and annual  shareholder  reports;  costs of  providing
shareholder  services in connection  with any tender  offers or to  shareholders
proposing  to transfer  their  shares to a third  party;  providing  shareholder
services in connection  with the dividend  reinvestment  plan;  and all expenses
incurred by the  Administrator or by the Trust in connection with  administering
the  ordinary  course of the Trust's  business  other than those  assumed by the
Trust, as described below.

     Except as indicated  immediately above and under "The Investment  Manager,"
the Trust is  responsible  for the payment of its expenses  including:  the fees
payable to the Investment  Manager;  the fees payable to the Administrator;  the
fees and certain expenses of the Trust's custodian and transfer agent, including
the cost of  providing  records  to the  Administrator  in  connection  with its
obligation  of  maintaining  required  records of the  Trust;  the  charges  and
expenses of the Trust's legal counsel and independent  accountants;  commissions
and any issue or transfer taxes  chargeable to the Trust in connection  with its
transactions;  all taxes and corporate fees payable by the Trust to governmental
agencies;  the fees of any trade association of which the Trust is a member; the
costs  of  share   certificates   representing   Common  Shares  of  the  Trust;
organizational  and  offering  expenses  of the Trust and the fees and  expenses
involved in registering and maintaining registration of the Trust and its Common
Shares  with the  Commission,  including  the  preparation  and  printing of the
Trust's  registration  statement and prospectuses  for such purposes;  allocable

                                       17
<PAGE>
communications  expenses with respect to investor services,  and all expenses of
shareholders'  and  Trustees'  meetings and of  preparing,  printing and mailing
reports,  proxy  statements  and  prospectuses  to  shareholders;  the  cost  of
insurance;   and  litigation  and  indemnification  expenses  and  extraordinary
expenses not incurred in the ordinary course of the Trust's business.

     For the fiscal  years  ended  February  28,  2001,  February  29,  2000 and
February  28,  1999  the  Administrator  was  paid  $_________,  $2,139,091  and
$2,022,051, respectively, for services rendered to the Trust.

                             PORTFOLIO TRANSACTIONS

     The Trust will generally have at least 80% of its total assets  invested in
Senior  Loans.  The  remaining  assets of the Trust  will  generally  consist of
short-term  debt  instruments  with  remaining  maturities  of 120 days or less,
longer-term  debt  securities,  certain other  instruments  such as subordinated
loans up to a maximum of 5% of the Trust's net assets, unsecured loans, interest
rate  swaps,  caps  and  floors,   repurchase  agreements,   reverse  repurchase
agreements  and equity  securities  acquired in connection  with  investments in
loans.  The Trust will acquire Senior Loans from and sell Senior Loans to banks,
insurance  companies,  finance  companies,  and other  investment  companies and
private investment funds. The Trust may also purchase Senior Loans from and sell
Senior  Loans to U.S.  branches  of foreign  banks  which are  regulated  by the
Federal Reserve System or appropriate state regulatory authorities.  The Trust's
interest in a particular Senior Loan will terminate when the Trust receives full
payment  on the loan or  sells a  Senior  Loan in the  secondary  market.  Costs
associated  with  purchasing  or selling  investments  in the  secondary  market
include  commissions  paid to brokers and processing fees paid to agents.  These
costs are  allocated  between  the  purchaser  and seller as agreed  between the
parties.

     Purchases and sales of short-term debt and other financial  instruments for
the Trust's portfolio usually are principal transactions, and normally the Trust
will deal  directly  with the  underwriters  or dealers who make a market in the
securities involved unless better prices and execution are available  elsewhere.
Such market makers usually act as principals for their own account. On occasion,
securities  may  be  purchased   directly  from  the  issuer.   Short-term  debt
instruments  are  generally  traded on a net basis and do not  normally  involve
either brokerage commissions or transfer taxes. The cost of portfolio securities
transactions of the Trust that are not transactions with principals will consist
primarily of brokerage  commissions or dealer or underwriter spreads between the
bid and  asked  price,  although  purchases  from  underwriters  may  involve  a
commission or concession paid by the issuer.

     While the Investment Manager seeks to obtain the most favorable net results
in  effecting  transactions  in the  Trust's  portfolio  securities,  brokers or
dealers who provide research services may receive orders for transactions by the
Trust. Such research services  ordinarily consist of assessments and analyses of
the  business or  prospects  of a company,  industry,  or economic  sector.  The
Investment  Manager is  authorized to pay spreads or  commissions  to brokers or
dealers  furnishing  such services which are in excess of spreads or commissions
that other  brokers or dealers not  providing  such  research may charge for the
same  transaction,  even if the specific  services were not imputed to the Trust
and were useful to the Investment Manager in advising other clients. Information
so received will be in addition to, and not in lieu of, the services required to
be performed by the Investment Manager under the Investment Management Agreement
between the  Investment  Manager and the Trust.  The expenses of the  Investment
Manager  will not  necessarily  be  reduced  as a result of the  receipt of such
supplemental  information.  the Investment Manager may use any research services
obtained  in  providing  investment  advice  to its  other  investment  advisory
accounts. Conversely, such information obtained by the placement of business for
the Investment  Manager or other entities advised by the Investment Manager will
be considered by and may be useful to the Investment Manager in carrying out its
obligations to the Trust.

                                       18
<PAGE>
     The Trust  does not  intend  to effect  any  brokerage  transaction  in its
portfolio  securities with any broker-dealer  affiliated  directly or indirectly
with the  Investment  Manager,  except  for any  sales of  portfolio  securities
pursuant to a tender offer,  in which event the  Investment  Manager will offset
against  the  management  fee a part of any  tender  fees which  legally  may be
received by such affiliated broker-dealer.  To the extent certain services which
the Trust is obligated to pay for under the Investment  Management Agreement are
performed by the  Investment  Manager,  the Trust will  reimburse the Investment
Manager for the costs of personnel  involved in placing orders for the execution
of portfolio transactions.

PORTFOLIO TURNOVER RATE

     The annual rate of the Trust's total portfolio turnover for the years ended
February 28, 2001,  February 29, 2000,  and February 28, 1999 was ___%,  71% and
68% respectively. The annual turnover rate of the Trust is generally expected to
be between 50% and 100%, although as part of its investment policies,  the Trust
places  no  restrictions  on  portfolio  turnover  and the  Trust  may  sell any
portfolio  security  without  regard to the period of time it has been held. The
annual  turnover rate of the Trust also includes Senior Loans on which the Trust
has received full or partial payment.  The Investment Manager believes that full
and partial payments on loans generally comprise approximately 25% to 75% of the
Trust's total portfolio turnover each year.

                                 NET ASSET VALUE

     The NAV per Common Share of the Trust is determined once daily at the close
of regular trading on the NYSE (normally 4:00 p.m. Eastern Time) on each day the
NYSE is open.  The NAV per Common Share is  determined  by dividing the value of
the  Trust's  loan  assets plus all cash and other  assets  (including  interest
accrued but not collected) less all liabilities  (including accrued expenses but
excluding capital and surplus) by the number of Common Shares  outstanding.  The
NAV per Common Share is made available for publication.

VALUATION OF THE TRUST'S ASSETS

     The assets in the Trust's portfolio are valued daily in accordance with the
Trust's Valuation Procedures adopted by the Board of Trustees. A majority of the
Trust's assets are valued using market quotations supplied by a third party loan
pricing service. However, the loans in which the Trust invests are not listed on
any  securities   exchange  or  board  of  trade.   Some  loans  are  traded  by
institutional  investors  in  an  over-the-counter  secondary  market  that  has
developed in the past several years.  This secondary  market generally has fewer
trades  and less  liquidity  than  the  secondary  markets  for  other  types of
securities. Some loans have few or no trades. Accordingly, determinations of the
market value of loans may be based on infrequent and dated trades. Because there
is less  reliable,  objective  data  available,  elements of judgment may play a
greater role in valuation of loans than for other types of securities.

     Loans are normally valued on the basis of one or more  quotations  obtained
from a pricing service or other sources believed to be reliable. Loans for which
reliable  quotations  are not available may be valued with  reference to another
loan or a group of loans for which  quotations  are more readily  available  and
whose  characteristics  are  comparable  to the loan  being  valued.  Under this
approach, the comparable loan or loans serve as a "proxy" for changes in value.

     The Trust has engaged an independent  pricing service to provide quotations
from  dealers  in loans and to  calculate  values  under the  "proxy"  procedure
described above. Loans are valued at the mean between bid and asked quotations.

                                       19
<PAGE>
     It is expected that most of the loans held by the Trust will be valued with
reference to quotations from the  independent  pricing service or with reference
to the "proxy"  procedure  described above.  The Investment  Manager may believe
that  the  price  for a loan  derived  from  market  quotations  or the  "proxy"
procedure described above is not reliable or accurate. Among other reasons, this
may be the result of  information  about a particular  loan or borrower known to
the Investment  Manager that it believes may not be known to the pricing service
or reflected in a price quote.  In this event,  the loan is valued at fair value
as determined in good faith under procedures established by the Trust's Board of
Trustees, and in accordance with the provisions of the 1940 Act.

     Under these procedures,  fair value is determined by the Investment Manager
and monitored by the Trust's Board of Trustees through its Valuation  Committee.
In fair valuing a loan,  consideration  is given to several  factors,  which may
include, among others, the following: (i) the characteristics of and fundamental
analytical data relating to the loan, including the cost, size, current interest
rate, period until the next interest rate reset,  maturity and base lending rate
of the loan,  the terms and  conditions of the loan and any related  agreements,
and the position of the loan in the borrower's debt structure;  (ii) the nature,
adequacy and value of the collateral, including the Trust's rights, remedies and
interests  with respect to the  collateral;  (iii) the  creditworthiness  of the
borrower and the cash flow coverage of outstanding principal and interest, based
on  an  evaluation  of  its  financial   condition,   financial  statements  and
information  about the borrower's  business,  cash flows,  capital structure and
future  prospects;  (iv)  information  relating  to the  market  for  the  loan,
including  price  quotations  for,  and  trading in, the loan and  interests  in
similar  loans and the market  environment  and investor  attitudes  towards the
senior loan and  interests  in similar  senior  loans;  (v) the  reputation  and
financial  condition of the agent of the loan and any intermediate  participants
in the loans; (vi) the borrower's management; and (vii) the general economic and
market conditions affecting the fair value of the loan.

     Securities for which the primary market is a national  securities  exchange
or the NASDAQ  National Market System are stated at the last reported sale price
on  the  day  of   valuation.   Debt  and  equity   securities   traded  in  the
over-the-counter  market and listed securities for which no sale was reported on
that date are valued at the mean between the last  reported bid and asked price.
Valuation of short term cash equivalent investments are at amortized cost.

                              PLANS OF DISTRIBUTION

DISTRIBUTION AGREEMENT

     The  Trust has  entered  into a  Distribution  Agreement  with ING  Pilgrim
Securities, LLC ("ING Pilgrim Securities") which has been filed as an exhibit to
the Registration Statement.  The summary of the Distribution Agreement contained
herein is qualified by reference to the Distribution  Agreement.  Subject to the
terms and conditions of the Distribution Agreement, the Trust may issue and sell
Common  Shares of the Trust from time to time  through ING  Pilgrim  Securities,
which  is the  principal  underwriter  of the  Common  Shares,  through  certain
broker-dealers  which have  entered into  selected  dealer  agreements  with ING
Pilgrim Securities.

     The Common  Shares  will only be sold on such days as shall be agreed to by
the Trust and ING Pilgrim  Securities,  The Common Shares will be sold at market
prices,  which shall be determined with reference to trades on the NYSE, subject
to a minimum price to be established each day by the Trust. The minimum price on
any day will not be less than the  current  NAV per  Common  Share  plus the per
share amount of the commission to be paid to ING Pilgrim  Securities.  The Trust
and ING Pilgrim  Securities  will  suspend the sale of Common  Shares if the per
share price of the Common Shares is less than the minimum price.

                                       20
<PAGE>
     The  compensation  to ING  Pilgrim  Securities  with  respect to the Common
Shares  will be at a fixed  commission  rate of 4% of the gross  sales price per
share  of the  Common  Shares  sold.  ING  Pilgrim  Securities  will  compensate
broker-dealers participating in this offering at a rate of 3% of the gross sales
price  per  share  of the  Common  Shares  purchased  from  the  Trust  by  such
broker-dealer.  Dealer reallowance may be changed by ING Pilgrim Securities from
time to time.

     Settlements  of sales of Common Shares will occur on the third business day
following the date on which any such sales are made. Unless otherwise  indicated
in a further prospectus  supplement,  ING Pilgrim Securities as underwriter will
act as underwriter on a reasonable efforts basis.

     In  connection  with the sale of the Common  Shares on behalf of the Trust,
ING Pilgrim  Securities may be deemed to be an underwriter within the meaning of
the 1940 Act, and the compensation of ING Pilgrim Securities may be deemed to be
underwriting   commissions  or  discounts.   As  described  below,  ING  Pilgrim
Securities  also serves as distributor for the Trust in connection with the sale
of Common Shares of the Trust pursuant to privately negotiated  transactions and
pursuant to optional  cash  investments  in excess of $5,000.  In addition,  ING
Pilgrim  Securities  provides  administrative  services  in  connection  with  a
separate at-the-market offering of Common Shares of the Trust.

     The offering of Common Shares pursuant to the  Distribution  Agreement will
terminate upon the earlier of (i) the sale of all Common Shares subject  thereto
or (ii)  termination of the  Distribution  Agreement.  The Trust and ING Pilgrim
Securities  each have the right to terminate the  Distribution  Agreement in its
discretion at any time.

SHAREHOLDER INVESTMENT PROGRAM

     The Trust maintains a Shareholder Investment Program (the "Program"), which
allows  participating  shareholders  to reinvest all  dividends and capital gain
distributions  ("Dividends")  in  additional  Common  Shares of the  Trust.  The
Program also allows  participants to purchase  additional  Common Shares through
optional cash investments in amounts ranging from a minimum of $100 to a maximum
of $5,000  per  month.  Subject to the  permission  of the Trust,  participating
shareholders  may also make optional cash  investments  in excess of the monthly
maximum.  Common Shares may be issued by the Trust under the Program only if the
Trust's  Common  Shares  are  trading at a premium  to net asset  value.  If the
Trust's  Common  Shares are  trading at a discount  to net asset  value,  Common
Shares purchased under the Program will be purchased on the open market.

     Shareholders  may elect to participate  in the Program by  telephoning  the
Trust or submitting a completed  Participation Form to DST Systems, Inc. (DST"),
the Program  administrator.  DST will credit to each participant's account funds
it receives from:  (a) Dividends  paid on Trust Common Shares  registered in the
participant's  name  and (b)  optional  cash  investments.  DST will  apply  all
Dividends and optional cash  investments  received to purchase  Common Shares as
soon as  practicable  beginning on the relevant  Investment  Date (as  described
below) and not later than six business days after the  investment  Date,  except
when necessary to comply with  applicable  provisions of the federal  securities
laws.  For  more  information  on  distribution   policy,   see  "Dividends  and
Distributions."

     In order for  participants to purchase Common Shares through the Program in
any month, the Administrator must receive from the participant any optional cash
investment  not  exceeding  $5,000 by the OCI Payment Due Date and any  optional
cash  investment  exceeding  $5,000 by the Waiver  Payment Due Date.  The "DRIP"
Investment  Date" will be the date upon which  Dividends  will be  reinvested in

                                       21
<PAGE>
additional  Common  Shares of the Trust,  which will be on the Dividend  Payment
Date. The "OCI  Investment  Date" will be the date, set in advance by the Trust,
upon which optional cash investments not exceeding $5,000,  are first applied by
DST to the purchase of Common Shares.  The "Waiver  Investment Date" will be the
date,  set in  advance  by the  Trust,  upon  which  optional  cash  investments
exceeding  $5,000,  which have been approved by the Trust,  are first applied by
the  Administrator  to the purchase of Common Shares.  Participants may obtain a
schedule  of  upcoming  OCI  Payment  Due Dates,  Waiver  Payment  Due Dates and
Investment Dates by referring to the Summary Program  Description or calling the
Trust at (800) 992-0180.

     If the Market Price (the volume-weighted average sales price, per share, as
reported  on the New York Stock  Exchange  Composite  Transaction  Tape as shown
daily on Bloomberg's AQR screen) plus estimated commissions for Common Shares of
the  Trust is less  than the net  asset  value on the  Valuation  Date  (defined
below),  DST will purchase  Common  Shares on the open market  through a bank or
securities  broker as provided herein.  Open market purchases may be effected on
any  securities  exchange  on which  Common  Shares of the Trust trade or in the
over-the-counter  market.  If the  Market  Price,  plus  estimated  commissions,
exceeds the net asset value before DST has completed its purchases, DST will use
reasonable  efforts to cease purchasing Common Shares, and the Trust shall issue
the remaining Common Shares. If the Market Price, plus estimated commissions, is
equal to or exceeds the net asset value on the  Valuation  Date,  the Trust will
issue the Common Shares to be acquired by the Program. The "Valuation Date" is a
date  preceding  the DRIP  Investment  Date,  OCI  Investment  Date,  and Waiver
Investment  Date on which it is  determined,  based on the Market  Price and net
asset  value of Common  Shares of the Trust,  whether DST will  purchase  Common
Shares on the open  market or the Trust  will  issue the  Common  Shares for the
Program. The Trust may, without prior notice to participants,  determine that it
will not issue new Common Shares for purchase pursuant to the Program, even when
the Market Price plus estimated  commissions  equals or exceeds net asset value,
in which case DST will purchase Common Shares on the open market.

     With the exception of Common Shares  purchased in connection  with optional
cash  investments  in excess of $5,000,  Common Shares issued by the Trust under
the Program will be issued  commission  free.  Common  Shares  purchased for the
Program directly from the Trust in connection with the reinvestment of Dividends
will be  acquired on the DRIP  Investment  Date at the greater of (i) NAV at the
close of business on the Valuation  Date or (ii) the average of the daily Market
Price of the shares  during the "DRIP Pricing  Period,"  minus a discount of 5%.
The "DRIP Pricing Period" for a dividend  reinvestment is the Valuation Date and
the prior  Trading  Day.  A "Trading  Day" means any day on which  trades of the
Common Shares of the Trust are reported on the NYSE.

     Except in the case of cash investments made pursuant to Requests for Waiver
(as discussed below),  Common Shares purchased  directly from the Trust pursuant
to optional cash  investments  will be acquired on an OCI Investment Date at the
greater of (i) net asset value at the close of business on the Valuation Date or
(ii) the average of the daily Market Price of the shares  during the OCI Pricing
Period  minus a discount,  determined  at the sole  discretion  of the Trust and
announced in advance, ranging from 0% to 5%. The "OCI Pricing Period" for an OCI
Investment  Date  means the  period  beginning  four  Trading  Days prior to the
Valuation  Date  through and  including  the  Valuation  Date.  The discount for
optional cash  investments  is set by the Trust and may be changed or eliminated
by the Trust without prior notice to  participants at any time. The discount for
optional cash  investments is determined on the last business day of each month.
In all instances,  however, the discount on Common Shares issued directly by the
Trust  shall not exceed 5% of the  market  price,  and Common  Shares may not be
issued at a price less than net asset value without prior  specific  approval of
shareholders or of the Commission.  Optional cash investments received by DST no
later than 4:00 p.m.  Eastern time on the OCI payment Due Date to be invested on
the relevant OCI Investment Date.

                                       22
<PAGE>
     Optional  cash  investments  in excess of $5,000 per month may be made only
pursuant to a Request for Waiver accepted in writing by the Trust. A Request for
Waiver must be received by the Trust no later than 4:00 p.m. Eastern time on the
Request for Waiver Deadline date. Good funds on all approved Requests For Waiver
must be  received  by DST not later  than 4:00 P.M.  Eastern  time on the Waiver
Payment Due Date in order for such funds to be invested on the  relevant  Waiver
Investment Date.

     It is solely within the Trust's  discretion as to whether  approval for any
cash  investments  in excess of $5,000 will be granted.  In deciding  whether to
approve  a  Request  for  Waiver,  the  Trust  will  consider  relevant  factors
including,  but not limited to,  whether  the  Program is then  acquiring  newly
issued  Common Shares  directly  from the Trust or acquiring  Common Shares from
third parties in the open market,  the Trust's need for  additional  funds,  the
attractiveness  of obtaining  such  additional  funds through the sale of Common
Shares as compared to other sources of funds, the purchase price likely to apply
to any sale of Common Shares under the Program,  the participant  submitting the
request,  the extent and nature of such participant's prior participation in the
Program,  the number of Common Shares held by such participant and the aggregate
amount of cash  investments for which Requests for Waiver have been submitted by
all participants.  If such requests are submitted for any Waiver Investment Date
for an  aggregate  amount in excess of the amount  the Trust is then  willing to
accept,  the Trust may honor such  requests in order of receipt,  pro rata or by
any  other  method  that  the  Trust  determines  in its sole  discretion  to be
appropriate.

     Common Shares purchased directly from the Trust in connection with approved
Requests  for  Waiver  will be  acquired  on the Waiver  Investment  Date at the
greater of (i) net asset value at the close of business on the  Valuation  Date,
or (ii) the  average  of the daily  Market  Price of the  shares  for the Waiver
Pricing Period minus the  pre-announced  Waiver Discount (as defined below),  if
any,  applicable  to such  shares.  The  "Waiver  Pricing  Period"  for a Waiver
Investment  Date  means the  period  beginning  four  Trading  Days prior to the
Valuation Date through and including the Valuation Date. The Trust may establish
a  discount  applicable  to  cash  investments  exceeding  $5,000  (the  "Waiver
Discount") on the last business day of each month.  The Waiver  Discount,  which
may vary each month between 0% and 5%, will be  established  in the Trust's sole
discretion  after  a  review  of  current  market   conditions,   the  level  of
participation  in the Program and current  and  projected  capital  needs of the
Trust. The Waiver Discount will apply only to Common Shares  purchased  directly
from the Trust.

     The Trust may  establish  for each Waiver  Pricing  Period a minimum  price
applicable to the purchase of newly issued Common  Shares  through  Requests for
Waiver, which will be a stated dollar amount that the Market Price of the Common
Shares for a Trading Day of the Waiver Pricing  Period must equal or exceed.  In
the event that such  minimum  price is not  satisfied  for a Trading  Day of the
Waiver Pricing Period, then such Trading Day and the trading prices for that day
will be excluded from (i) the Waiver pricing  Period and (ii) the  determination
of the  purchase  price  of the  Common  Shares  for all cash  investments  made
pursuant to Requests for Waiver  approved by the Trust.  The minimum price shall
apply only to cash  investments made pursuant to Requests for Waiver approved by
the Trust and not to the  reinvestment of Dividends or optional cash investments
that do not exceed $5,000.  No Common Shares will be issued and funds  submitted
pursuant to Requests  for Waiver  will be  returned  to the  participant  if the
minimum price is not obtained for at least three of the five Trading Days.

     Participants  will  pay a pro  rata  share of  brokerage  commissions  with
respect to DST's open market  purchases in connection  with the  reinvestment of
Dividends or purchases made with optional cash investments.

     From time to time, financial intermediaries, including brokers and dealers,
and other  persons may wish to engage in  positioning  transactions  in order to
benefit from the discount from market price of the Common Shares  acquired under

                                       23
<PAGE>
the Program.  Such transactions  could cause  fluctuations in the trading volume
and price of the Common Shares. The difference between the price such owners pay
to the Trust for Common Shares  acquired under the Program,  after  deduction of
the  applicable  discount  from the  market  price,  and the price at which such
Common Shares are resold, may be deemed to constitute  underwriting  commissions
received by such owners in connection with such transactions.

     Subject to the availability of Common Shares  registered for issuance under
the  Program,  there is no total  maximum  number of Common  Shares  that can be
issued pursuant to the Program.

     The Program is intended  for the benefit of  investors in the Trust and not
for persons or entities  who  accumulate  accounts  under the Program over which
they have  control for the  purpose of  exceeding  the $5,000 per month  maximum
without seeking the advance  approval of the Trust or who engage in transactions
that cause or are designed to cause  aberrations  in the price or trading volume
of the Common Shares.  Notwithstanding  anything in the Program to the contrary,
the Trust  reserves the right to exclude from  participation,  at any time,  (i)
persons or entities who attempt to  circumvent  the  Program's  standard  $5,000
maximum by accumulating  accounts over which they have control or (ii) any other
persons or entities, as determined in the sole discretion of the Trust.

     Currently,   persons  who  are  not  Shareholders  of  the  Trust  may  not
participate  in the  Program.  The Board of  Trustees  of the Trust may elect to
change this policy at a future date, and permit  non-Shareholders to participate
in the Program.

     Shareholders  may request to receive their Dividends in cash at any time by
giving DST written  notice or by  contacting  the Trust's  Shareholder  Services
Department at (800) 992-0180.  Shareholders  may elect to close their account at
any time by giving DST written notice.  When a participant closes their account,
the  participant  upon request will receive a certificate for full Common Shares
in the Account.  Fractional Common Shares will be held and aggregated with other
Fractional  Common  Shares being  liquidated  by DST as agent of the Program and
paid for by check when actually sold.

     The  automatic   reinvestment   of  Dividends   does  not  affect  the  tax
characterization  of the Dividends (i.e.,  capital gains and income are realized
even though cash is not received).  If Common Shares are issued  pursuant to the
Program's  dividend  reinvestment  provisions or cash  purchase  provisions at a
discount from market price, participants may have income equal to the discount.

     Additional  information  about the  Program may  obtained  from the Trust's
Shareholder Services Department at (800) 992-0180.

     See  "Federal  Taxation--Distributions"  for a  discussion  of the  federal
income tax ramifications of obtaining Common Shares under the Program.

PRIVATELY NEGOTIATED TRANSACTIONS

     The Common  Shares may also be offered  pursuant  to  privately  negotiated
transactions  between  the  Trust  and  specific  investors.  The  terms of such
privately  negotiated  transactions  will be  subject to the  discretion  of the
management of the Trust.  In determining  whether to sell Common Shares pursuant
to a privately negotiated transaction,  the Trust will consider relevant factors
including,  but not limited to, the attractiveness of obtaining additional funds
through the sale of Common Shares,  the purchase price to apply to any such sale
of Common Shares and the person seeking to purchase the Common Shares.

     Common Shares issued by the Trust in connection  with privately  negotiated
transactions  will be issued at the  greater of (1) NAV per Common  Share of the
Trust's Common Shares or (ii) at a discount ranging from 0% to 5% of the average
of the daily market price of the Trust's  Common Shares at the close of business
on the two business  days  preceding  the date upon which Common Shares are sold

                                       24
<PAGE>
pursuant to the privately negotiated transaction.  The discount to apply to such
privately negotiated transactions will be determined by the Trust with regard to
each specific transaction.

                                FEDERAL TAXATION

     The  following  is only a  summary  of  certain  U.S.  federal  income  tax
considerations generally affecting the Trust and its shareholders. No attempt is
made to present a detailed  explanation of the tax treatment of the Trust or its
shareholders,  and the following  discussion is not intended as a substitute for
careful tax planning.  Shareholders  should  consult with their own tax advisers
regarding the specific federal, state, local, foreign and other tax consequences
of investing in the Trust.

QUALIFICATION AS A REGULATED INVESTMENT COMPANY

     The  Trust  will  elect  each  year to be taxed as a  regulated  investment
company  under  Subchapter M of the Internal  Revenue  Code (the  "Code").  As a
regulated investment company, the Trust generally will not be subject to federal
income tax on the  portion  of its  investment  company  taxable  income  (i.e.,
taxable interest,  dividends and other taxable ordinary income, net of expenses,
and net short-term  capital gains in excess of long-term capital losses) and net
capital gain (i.e.,  the excess of net  long-term  capital gains over the sum of
net short-term capital losses and capital loss carryovers from prior years) that
it distributes to shareholders, provided that it distributes at least 90% of its
investment  company  taxable  income  for the  taxable  year (the  "Distribution
Requirement"),  and satisfies  certain other  requirements  of the Code that are
described below.

     In  addition  to  satisfying  the  Distribution  Requirement  and an  asset
diversification requirement discussed below, a regulated investment company must
derive at least 90% of its gross income for each  taxable  year from  dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other  disposition  of stock or  securities or foreign  currencies  and other
income  (including,  but not limited to, gains from options,  futures or forward
contracts)  derived  with  respect to its  business of  investing in such stock,
securities or currencies.

     In general,  gain or loss  recognized by the Trust on the disposition of an
asset  will  be a  capital  gain  or  loss.  However,  gain  recognized  on  the
disposition  of a debt  obligation  purchased by the Trust at a market  discount
(generally at a price less than its principal amount) other than at the original
issue  will be treated as  ordinary  income to the extent of the  portion of the
market  discount which accrued during the period of time the Trust held the debt
obligation.

     In general, investments by the Trust in zero coupon or other original issue
discount securities will result in income to the Trust equal to a portion of the
excess of the face value of the securities over their issue price (the "original
issue discount") each year that the Trust holds the securities,  even though the
Trust receives no cash interest payments. This income is included in determining
the amount of income which the Trust must distribute to maintain its status as a
regulated investment company and to avoid federal income and excise taxes.

     In addition to satisfying the requirements  described above, the Trust must
satisfy  an  asset  diversification  test in  order to  qualify  as a  regulated
investment company. Under this test, at the close of each quarter of the Trust's
taxable  year,  at least 50% of the value of the Trust's  assets must consist of
cash  and  cash  items  (including  receivables),  U.S.  government  securities,
securities of other  regulated  investment  companies,  and  securities of other
issuers (as to which the Trust has not invested more than 5% of the value of the
Trust's  total assets in securities of any such issuer and as to which the Trust

                                       25
<PAGE>
does not hold more than 10% of the  outstanding  voting  securities  of any such
issuer),  and no more than 25% of the value of its total  assets may be invested
in the securities of any one issuer (other than U.S.  government  securities and
securities of other regulated investment  companies),  or in two or more issuers
which the Trust  controls and which are engaged in the same or similar trades or
businesses.

     If for  any  taxable  year  the  Trust  does  not  qualify  as a  regulated
investment  company,  all of its taxable income (including its net capital gain)
will be subject to tax at regular  corporate  rates  without any  deduction  for
distributions  to  shareholders,  and  such  distributions  will be  taxable  as
ordinary dividends to the extent of the Trust's current and accumulated earnings
and  profits.   Such   distributions   generally   would  be  eligible  for  the
dividends-received deduction in the case of corporate shareholders.

EXCISE TAX ON REGULATED INVESTMENT COMPANIES

     A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to the sum of (1)
98% of its ordinary taxable income for the calendar year, (2) 98% of its capital
gain net  income  (i.e.,  capital  gains in excess of  capital  losses)  for the
one-year  period ended on October 31 of such calendar year, and (3) any ordinary
taxable  income and  capital  gain net income  for  previous  years that was not
distributed or taxed to the regulated  investment  company during those years. A
distribution will be treated as paid on December 31 of the current calendar year
if it is declared by the Trust in  October,  November or December  with a record
date in such a month  and paid by the  Trust  during  January  of the  following
calendar year. Such  distributions will be taxed to shareholders in the calendar
year in which the distributions  are declared,  rather than the calendar year in
which the distributions are received.

     The Trust intends to make sufficient  distributions or deemed distributions
(discussed  below) of its ordinary taxable income and capital gain net income to
avoid liability for the excise tax.

HEDGING TRANSACTIONS

     The  Trust has the  ability,  pursuant  to its  investment  objectives  and
policies,  to hedge its  investments  in a variety  of  transactions,  including
interest  rate swaps and the purchase or sale of interest  rate caps and floors.
The treatment of these  transactions for federal income tax purposes may in some
instances  be  unclear,  and  the  regulated  investment  company  qualification
requirements  may limit the  extent  to which  the Trust can  engage in  hedging
transactions.

     Under  certain   circumstances,   the  Trust  may  recognize  gain  from  a
constructive sale of an appreciated financial position. If the Trust enters into
certain transactions in property while holding substantially identical property,
the Trust  would be treated as if it had sold and  immediately  repurchased  the
property  and would be taxed on any gain (but not  loss)  from the  constructive
sale.  The  character  of gain from a  constructive  sale would  depend upon the
Trust's holding period in the property.  Loss from a constructive  sale would be
recognized  when the property was  subsequently  disposed of, and its  character
would depend on the Trust's  holding period and the  application of various loss
deferral  provisions in the Code.  Constructive sale treatment does not apply to
transactions  closed in the  90-day  period  ending  with the 30th day after the
close of the taxable year, if certain conditions are met.

DISTRIBUTIONS

     The Trust  anticipates  distributing  substantially  all of its  investment
company taxable income for the taxable year. Such  distributions will be taxable
to shareholders as ordinary income.  If a portion of the Trust's income consists
of dividends paid by U.S.  corporations,  a portion of the dividends paid by the
Trust may be eligible for the corporate dividends received deduction.

                                       26
<PAGE>
     The Trust may either retain or distribute to  shareholders  its net capital
gain for each taxable year. The Trust  currently  intends to distribute any such
amounts.  If net capital gain is  distributed  and  designated as a capital gain
dividend,  it will generally be taxable to shareholders at a maximum federal tax
rate of 20%.  Distributions  are subject to these capital gains rates regardless
of the length of time the  shareholder has held his shares.  Conversely,  if the
Trust  elects to retain its net capital  gain,  the Trust will be taxed  thereon
(except  to  the  extent  of  any  available  capital  loss  carryovers)  at the
applicable corporate tax rate. In such event, it is expected that the Trust also
will elect to treat such gain as having been distributed to  shareholders.  As a
result,  each  shareholder will be required to report his pro rata share of such
gain on his tax return as long-term  capital  gain,  will be entitled to claim a
tax credit for his pro rata share of tax paid by the Trust on the gain, and will
increase  the  tax  basis  for his  shares  by an  amount  equal  to the  deemed
distribution less the tax credit.

     Distributions  by the Trust in excess of the Trust's  earnings  and profits
will be treated as a return of  capital to the extent of (and in  reduction  of)
the  shareholder's  tax  basis  in  his  shares;  any  such  return  of  capital
distributions in excess of the  shareholder's  tax basis will be treated as gain
from the sale of his shares, as discussed below.

     Distributions  by the Trust will be treated in the manner  described  above
regardless  of whether  such  distributions  are paid in cash or  reinvested  in
additional  shares of the Trust. If the NAV at the time a shareholder  purchases
shares of the Trust reflects undistributed income or gain, distributions of such
amounts will be taxable to the shareholder in the manner described  above,  even
though such  distributions  economically  constitute  a return of capital to the
shareholder.

     The Trust will be  required in certain  cases to withhold  and remit to the
U.S.  Treasury  31% of all  dividends  and  redemption  proceeds  payable to any
shareholder  (1) who  fails to  provide  the  Trust  with a  certified,  correct
identification number or other required  certifications,  or (2) if the Internal
Revenue  Service  notifies the Trust that the  shareholder  is subject to backup
withholding. Corporate shareholders and other shareholders specified in the Code
are exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's U.S. federal
income tax liability if the appropriate information is provided to the IRS.

SALE OF COMMON SHARES

     A shareholder will recognize gain or loss on the sale or exchange of shares
of the Trust in an amount generally equal to the difference between the proceeds
of the sale and the shareholder's  adjusted tax basis in the shares. In general,
any such gain or loss will be considered  capital gain or loss if the shares are
held as  capital  assets,  and gain or loss  will be  long-term  or  short-term,
depending upon the  shareholder's  holding period for the shares.  However,  any
capital loss arising from the sale of shares held for six months or less will be
treated as a long-term capital loss to the extent of any long-term capital gains
distributed (or deemed distributed) with respect to such shares.  Also, any loss
realized on a sale or exchange  of shares will be  disallowed  to the extent the
shares  disposed  of  are  replaced   (including  shares  acquired  through  the
Shareholder  Investment  Program  within a period of 61 days  beginning  30 days
before and ending 30 days after the shares are  disposed  of. In such case,  the
tax basis of the  acquired  shares will be  adjusted  to reflect the  disallowed
loss.

FOREIGN SHAREHOLDERS

     U.S.  taxation  of a  shareholder  who,  as  to  the  United  States,  is a
nonresident alien individual,  foreign trust or estate, foreign corporation,  or
foreign  partnership  ("foreign  shareholder")  depends, in part, on whether the
shareholder's income from the Trust is "effectively connected" with a U.S. trade
or business carried on by such shareholder.

                                       27
<PAGE>
     If the income from the Trust is not effectively connected with a U.S. trade
or business  carried on by a foreign  shareholder,  distributions  of investment
company  taxable income will be subject to U.S.  withholding  tax at the rate of
30% (or lower treaty rate). Such a foreign shareholder would generally be exempt
from U.S. federal income tax on gains realized on the sale or exchange of shares
of the Trust, capital gain dividends, and amounts retained by the Trust that are
designated as undistributed capital gains.

     If the income from the Trust is effectively  connected with a U.S. trade or
business carried on by a foreign  shareholder,  then distributions of investment
company taxable income,  capital gain dividends,  amounts  retained by the Trust
that are designated as  undistributed  capital gains and any gains realized upon
the sale or  exchange  of shares of the Trust will be  subject  to U.S.  federal
income tax at the rates  applicable to U.S.  citizens or domestic  corporations.
Such shareholders that are classified as corporations for U.S. tax purposes also
may be subject to a branch profits tax.

     In the case of foreign noncorporate shareholders, the Trust may be required
to withhold U.S. federal income tax at a rate of 31% on  distributions  that are
otherwise  exempt from  withholding  tax (or taxable at a reduced  treaty  rate)
unless such  shareholders  furnish the Trust with proper  notification  of their
foreign status. See "Distributions."

     The tax  consequences  to a  foreign  shareholder  entitled  to  claim  the
benefits  of an  applicable  tax treaty may be  different  from those  described
herein.  Foreign  shareholders  are urged to consult their own tax advisers with
respect to the  particular  tax  consequences  to them of an  investment  in the
Trust, including the applicability of foreign taxes.

EFFECT OF FUTURE LEGISLATION; OTHER TAX CONSIDERATIONS

     The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this SAI.  Future  legislative  or  administrative  changes or court
decisions may significantly  change the conclusions  expressed  herein,  and any
such  changes or  decisions  may have a  retroactive  effect with respect to the
transactions contemplated herein.

     Income  received  by the Trust  from  foreign  sources  may be  subject  to
withholding and other taxes imposed by such foreign jurisdictions, absent treaty
relief.  Distributions to shareholders  also may be subject to state,  local and
foreign  taxes,   depending  upon  each  shareholder's   particular   situation.
Shareholders  are urged to  consult  their  tax  advisers  as to the  particular
consequences to them of an investment in the Trust.

                        ADVERTISING AND PERFORMANCE DATA

ADVERTISING

     From time to time,  advertisements  and other sales materials for the Trust
may include information  concerning the historical performance of the Trust. Any
such  information may include  trading volume of the Trust's Common Shares,  the
number of Senior Loan investments,  annual total return, aggregate total return,
distribution rate, average compounded distribution rates and yields of the Trust
for specified periods of time, and diversification  statistics. Such information
may also  include  rankings,  ratings  and other  information  from  independent
organizations such as Lipper Analytical Services, Inc. ("Lipper"),  Morningstar,
Value Line, Inc., CDA Technology,  Inc., Standard & Poor's, Portfolio Management

                                       28
<PAGE>
Data (a division of Standard & Poor's),  Moody's,  Bloomberg  or other  industry
publications.  These rankings will typically compare the Trust to all closed-end
Funds,  to other  Senior Loan funds,  and/or  also to taxable  closed-end  fixed
income funds. Any such use of rankings and ratings in  advertisements  and sales
literature  will  conform  with  the  guidelines  of the  NASD  approved  by the
Commission  on July 13,  1994.  Ranking  comparisons  and ratings  should not be
considered  representative  of the Trust's  relative  performance for any future
period.

     Reports  and   promotional   literature  may  also  contain  the  following
information:  (i) number of  shareholders;  (ii)  average  account  size;  (iii)
identification  of  street  and  registered  account  holdings;  (iv)  lists  or
statistics  of certain of the Trust's  holdings  including,  but not limited to,
portfolio  composition,  sector weightings,  portfolio turnover rates, number of
holdings,  average market  capitalization and modern portfolio theory statistics
alone or in  comparison  with itself (over time) and with its peers and industry
group;  (v) public  information  about the assets  class;  and (vi)  discussions
concerning coverage of the Trust by analysts.

     In addition,  reports and  promotional  literature may contain  information
concerning  the  Investment  Manager,  ING Group,  the Portfolio  Managers,  the
Administrator  or affiliates of the Trust including (i) performance  rankings of
other funds managed by the Investment  Manager,  or the individuals  employed by
the Investment Manager who exercise responsibility for the day-to-day management
of the Trust,  including rankings and ratings of investment  companies published
by Lipper, Morningstar, Inc., Value Line, Inc., CDA Technologies, Inc., or other
rating  services,  companies,  publications  or other  persons  who rank or rate
investment  companies or other  investment  products on overall  performance  or
other criteria;  (ii) lists of clients,  the number of clients,  or assets under
management;  (iii) information regarding the acquisition of the Pilgrim Funds by
ING Pilgrim  Capital;  (iv) the past  performance of ING Pilgrim Capital and ING
Pilgrim Group; (v) the past performance of other funds managed by the Investment
Manager;  (vi)  quotes  from a  portfolio  manager  of  the  Trust  or  industry
specialists;  and (vii)  information  regarding  rights  offerings  conducted by
closed-end funds managed by the Investment Manager.

     The Trust may compare the  frequency of its reset  period to the  frequency
which LIBOR changes. Further, the Trust may compare its yield to (i) LIBOR, (ii)
the federal  funds rate,  (iii) the Prime Rate,  quoted daily in the Wall Street
Journal  as the  base  rate on  corporate  loans  at  large  U.S.  money  center
commercial  banks,  (iv) the average  yield  reported  by the Bank Rate  Monitor
National  Index for money  market  deposit  accounts  offered by the 100 leading
banks  and  thrift  institutions  in  the  ten  largest  standard   metropolitan
statistical  areas,  (v) yield  data  published  by Lipper,  Bloomberg  or other
industry sources, or (vi) the yield on an investment in 90-day Treasury bills on
a rolling basis, assuming quarterly compounding.  Further, the Trust may compare
such other yield data described above to each other.  The Trust may also compare
its total return, NAV stability and yield to fixed income  investments.  As with
yield and total return calculations,  yield comparisons should not be considered
representative  of the  Trust's  yield or  relative  performance  for any future
period.

     The Trust may provide information  designed to help individuals  understand
their  investment  goals  and  explore  various   financial   strategies.   Such
information may include information about current economic, market and political
conditions;  materials that describe  general  principles of investing,  such as
asset allocation,  diversification, risk tolerance, and goal setting; worksheets
used  to  project  savings  needs  based  on  assumed  rates  of  inflation  and
hypothetical rates of return; and action plans offering investment alternatives.
Materials  may also  include  discussion  of other  investment  companies in the
Pilgrim  Funds,  products  and  services,  and  descriptions  of the benefits of
working with investment professionals in selecting investments.

                                       29
<PAGE>
PERFORMANCE DATA

     The Trust  may  quote  annual  total  return  and  aggregate  total  return
performance  data.  Total return  quotations  for the specified  periods will be
computed by finding the rate of return (based on net  investment  income and any
capital gains or losses on portfolio  investments  over such periods) that would
equate the initial amount invested to the value of such investment at the end of
the period. On occasion, the Trust may quote total return calculations published
by  Lipper,  a widely  recognized  independent  publication  that  monitors  the
performance of both open-end and closed-end investment companies.

     The  Trust's  distribution  rate  is  calculated  on  a  monthly  basis  by
annualizing  the  dividend  declared  in the month and  dividing  the  resulting
annualized  dividend  amount by the Trust's  corresponding  month-end  net asset
value  (in the case of NAV) or the last  reported  market  price (in the case of
Market).  The  distribution  rate is based  solely on the actual  dividends  and
distributions,  which are made at the discretion of management. The distribution
rate may or may not include  all  investment  income,  and  ordinarily  will not
include capital gains or losses, if any.

     Total return and distribution rate and compounded distribution rate figures
utilized by the Trust are based on historical  performance  and are not intended
to indicate future performance.  Distribution rate, compounded distribution rate
and NAV per share can be expected to fluctuate over time. Total return will vary
depending  on  market  conditions,   the  Senior  Loans,  and  other  securities
comprising the Trust's portfolio,  the Trust's operating expenses and the amount
of net realized and unrealized capital gains or losses during the period.

                               GENERAL INFORMATION

CUSTODIAN

     State Street Bank and Trust Company, 801 Pennsylvania Avenue,  Kansas City,
Missouri  64105 has been retained to act as the  custodian for the Trust.  State
Street  Bank and  Trust  Company  does not  have  any  part in  determining  the
investment  policies of the Trust or in determining  which portfolio  securities
are to be purchased or sold by the Trust or in the  declaration of dividends and
distributions.

LEGAL COUNSEL

     Legal  matters for the Trust are passed  upon by Dechert,  1775 Eye Street,
NW, Washington, DC 20006.

INDEPENDENT AUDITORS

     KPMG LLP, 355 South Grand Avenue,  Los Angeles,  California 90071, has been
selected  as  independent  auditors  for the Trust for the  fiscal  year  ending
February 28, 2001.

                              FINANCIAL STATEMENTS

     The financial  statements contained in the Trust's February 28, 2001 Annual
Report to  shareholders  are  incorporated  herein by  reference.  Copies of the
Trust's Annual Report dated February 28, 2001 may be obtained  without charge by
contacting the Trust at 7337 East  Doubletree  Ranch Road,  Scottsdale,  Arizona
85258, at (800) 992-0180.

                                       30
<PAGE>
                                     PART C

                                OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

     1.   Financial Statements

          Contained in Part A:

          Financial Highlights for the years ended February 28, 2001; February
          29, 2000; February 28, 1999, 1998, 1997; February 29, 1996; February
          28, 1995, 1994, 1993; and February 29, 1992.

          Financial Statements are incorporated in Part B by reference to
          Registrant's February 28, 2001 Annual Report (audited).

     2.   Exhibits

          (a)  (i)  Agreement and Declaration of Trust(1)
               (ii) Amendment to the Agreement and Declaration of Trust dated
                    March 26, 1996 and effective April 12, 1996(1)
              (iii) Amendment to the Agreement and Declaration of Trust dated
                    October 23, 1998 and effective November 16, 1998(7)
               (iv) Amendment to the Agreement and Declaration of Trust dated
                    October 20, 2000 and effective October 20, 2000(9)

          (b)  (i)  By-Laws(2)
               (ii) Amendment to By-Laws(2)
              (iii) Amendment to By-Laws(8)
               (iv) Amendment to By-Laws(9)

          (c)  Not Applicable

          (d)  (i) Certificate of Designation for Preferred Shares(9)
               (ii) Form of Share Certificate

                                      C-1
<PAGE>
          (e)  Form of Shareholder Investment Program(5)

          (f)  Not Applicable

          (g)  (i)  Form of Amended and Restated Investment Management
                    Agreement(3)
               (ii) Form of Amendment to Investment Management Agreement(6)
              (iii) Amended and Restated Investment Management Agreement(8)
               (iv) Form of Amendment to the Amended and Restated Investment
                    Management Agreement(8)
                (v) Investment Management Agreement(9)

          (h)  (i)  Form of Distribution Agreement(5)
               (ii) Form of Underwriting Agreement for the Preferred Shares(9)

          (i)  Not Applicable

          (j)  Form of Custody Agreement(3)

          (k)  (i)  Form of Amended and Restated Administration Agreement(8)
               (ii) Form of Recordkeeping Agreement(3)
              (iii) Form of Revolving Loan Agreement(6)
               (iv) Form of Credit Agreement(7)
               (v)  Form of Auction Agency Agreement(9)
               (vi) Form of Broker-Dealer Agreement(9)
              (vii) Form of DTC Letter of Representations as to Preferred
                    Shares(9)

          (l)  Opinion of Dechert Price & Rhoads(7)

          (m)  Not Applicable

          (n)  (i)  Consent of Dechert is filed herewith
               (ii) Consent of KPMG LLP -  to be filed by amendment

                                      C-2
<PAGE>
          (o)  Not Applicable

          (p)  Certificate of Initial Capital(4)

          (q)  Not Applicable

          (r)  Financial Data Schedule is filed herewith

          (s)  Pilgrim Group Funds Code of Ethics(8)

- ----------
(1)  Incorporated herein by reference to Amendment No. 20 to Registrant's
     Registration Statement under the Investment Company Act of 1940 (the "1940
     Act") on Form N-2 (File No. 811-5410), filed on September 16, 1996.
(2)  Incorporated herein by reference to Amendment No. 24 to Registrant's
     Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
     filed on November 7, 1997.
(3)  Incorporated herein by reference to Amendment No. 22 to Registrant's
     Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
     filed on June 23, 1997.
(4)  Incorporated herein by reference to Pre-Effective Amendment No. 1 to
     Registrant's initial registration statement on form N-2 (File No.
     33-18886), filed on January 22, 1988.
(5)  Incorporated herein by reference to Amendment No. 27 to Registrant's
     Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
     filed on May 15, 1998.
(6)  Incorporated herein by reference to Amendment No. 28 to Registrant's
     Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
     filed on August 19, 1998.
(7)  Incorporated herein by reference to Amendment No. 29 to Registrant's
     Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
     filed on December 2, 1998.
(8)  Incorporated herein by reference to Amendment No. 33 to Registrant's
     Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
     filed on May 9, 2000.
(9)  Incorporated herein by reference to Amendment No. 38 to Registrant's
     Registration Statement under the 1940 Act on Form N-2 (File No. 811-5410),
     filed on October 23, 2000.

ITEM 25. MARKETING AGREEMENTS

     Not Applicable.

                                      C-3
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

     The following table sets forth expenses incurred or estimated to be
incurred in connection with the offering described in the Registration
Statement.

Registration Fees.......................................................$______

Trustee Fees............................................................$______

Rating Agency Fees......................................................$______

Printing Expenses.......................................................$______

Legal Fees..............................................................$______

Accounting Fees and Expenses............................................$______

Miscellaneous Expenses..................................................$______

         Total..........................................................$______

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

     Not Applicable.


ITEM 28. NUMBER OF HOLDERS OF SECURITIES

     (1) Title of Class                             (2) Number of Record Holders

     Auction Rate Cumulative Preferred Shares       _____ as of March 31, 2001
     of beneficial interest, par value $0.01 per
     share, Series M, T, W, Th and F

     Common Shares of beneficial interest,          _____ as of March 31, 2001
     par value $0.01 per share

ITEM 29. INDEMNIFICATION

     Registrant's Agreement and Declaration of Trust generally provides that the
Trust shall indemnify each of its Trustees and officers (including persons who
serve at the Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise) ("Covered Persons") against all liabilities and expenses, including
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, by reason of being or having been such a Covered Person except with
respect to any matter as to which such Covered Person shall have been finally

                                      C-4
<PAGE>

adjudicated (a) not to have acted in good faith in the reasonable belief that
such Covered Person's action was in the best interest of the Trust or (b) to be
liable to the Trust or its shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties involved in the conduct
of such Covered Person's office.

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment of the Registrant of expenses incurred or
paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will submit, unless in the opinion of its counsel the
matter has been settled by controlling precedent, to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

     Certain of the officers and directors of the Registrant's Investment
Adviser also serve as officers and/or directors for other registered investment
companies in the Pilgrim family of funds and with ReliaStar Financial Corp., the
indirect parent of the Investment Adviser, and its subsidiaries. Information as
to the directors and officers of the Adviser is included in the Investment
Adviser's Form ADV and amendments thereto filed with the Commission and is
incorporated herein by reference thereto. For additional information, see
"Management of the Trust" in the Prospectus.

ITEM 31. LOCATION OF ACCOUNTS AND RECORDS

     The amounts and records of the Registrant will be maintained at its office
at 7337 E. Doubletree Ranch Road, Scottsdale, Arizona 85258 and at the office of
its custodian, State Street Bank & Trust - Kansas City, 801 Pennsylvania, Kansas
City, Missouri 64105.

ITEM 32. MANAGEMENT SERVICES

     Not Applicable.

ITEM 33. UNDERTAKINGS

     1. The Registrant undertakes to suspend the Offer until the prospectus is
amended if (1) subsequent to the effective date of this registration statement,
the net asset value declines more than ten percent from its net asset value as
of the effective date of this registration statement or (2) the net asset value
increases to an amount greater than the net proceeds as stated in the prospectus
included in this registration statement.

                                      C-5
<PAGE>
     2. Not Applicable.

     3. Not Applicable.

     4. Not Applicable.

     5.

          a. The Registrant undertakes that for the purpose of determining any
     liability under the 1933 Act, the information omitted from the form of
     prospectus filed as part of this Registration Statement in reliance upon
     Rule 430A and contained in a form of prospectus filed by the Registrant
     under Rule 497(h) under the 1933 Act [17 CFR 230.497(h)] shall be deemed to
     be part of this Registration Statement as of the time it was declared
     effective; and

          b. that for the purpose of determining any liability under the 1933
     Act, each post-effective amendment that contains a form of prospectus shall
     be deemed to be a new registration statement relating to the securities
     offered therein, and the offering of the securities at that time shall be
     deemed to be the initial bona fide offering thereof.

     6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.

                                      C-6
<PAGE>
                                   SIGNATURES

     Pursuant  to  the  requirements  of the  Securities  Act of  1933  and  the
Investment Company Act of 1940, as amended,  the Registrant has duly caused this
Registration  Statement to be signed on its behalf by the  undersigned,  thereto
duly authorized, in the City of Scottsdale in the State of Arizona this 30th day
of April, 2001.

                                        PILGRIM PRIME RATE TRUST


                                        By: /S/ Kimberly A. Anderson
                                           -------------------------------------
                                           Kimberly A. Anderson,
                                           Vice President and Secretary

     Pursuant  to  the   requirements  of  the  Securities  Act  of  1933,  this
Registration  Statement  has been signed below by the  following  persons in the
capacities and on the date indicated:

     SIGNATURE                   TITLE                         DATE
     ---------                   -----                         ----

                              Trustee and Chairman                April 30, 2001
- ---------------------------
John G. Turner*

/s/ James M. Hennessy         President and Chief Executive       April 30, 2001
- ---------------------------   Officer
James M. Hennessy

                              Senior Vice President and           April 30, 2001
- ---------------------------   Principal Financial Officer
Michael J. Roland*

                              Trustee                             April 30, 2001
- ---------------------------
Paul S. Doherty*

                              Trustee                             April 30, 2001
- ---------------------------
Alan L. Gosule*

                              Trustee                             April 30, 2001
- ---------------------------
Walter H. May*

                              Trustee                             April 30, 2001
- ---------------------------
Thomas J. McInerney

                              Trustee                             April 30, 2001
- ---------------------------
Jock Patton

                              Trustee                             April 30, 2001
- ---------------------------
David W.C. Putnam*

                                           C-7
<PAGE>
     SIGNATURE                        TITLE                         DATE
     ---------                        -----                         ----

                              Trustee                             April 30, 2001
- ---------------------------
Blaine E. Rieke


                              Trustee                             April 30, 2001
- ---------------------------
Richard A. Wedemeyer



*By: /s/ James M. Hennessy
    ----------------------------------
    James M. Hennessy
    President and Chief Executive Officer
    Attorney-in-Fact**

- ----------
**   Powers of Attorney for the Trustees and Michael J. Roland were previously
     filed and are incorporated herein by reference to Amendment No. 34 to
     Registrant's Registration Statement under the 1940 Act on Form N-2 (File
     No. 811-5410), filed on May 9, 2000.

                                      C-8
<PAGE>
                                  EXHIBIT INDEX

Exhibit Number                              Name of Exhibit
- --------------                              ---------------

   2(n)(i)                                 Consent of Dechert
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2.N.1
<SEQUENCE>2
<FILENAME>ex2ni.txt
<DESCRIPTION>CONSENT OF DECHERT
<TEXT>

                                                                 Exhibit 2(n)(i)

                                     DECHERT
                              1775 Eye Street, N.W.
                              Washington, DC 20006

                                 April 30, 2001

Pilgrim Prime Rate Trust
7337 E. Doubletree Ranch Road
Scottsdale, Arizona  85258

     Re: Pilgrim Prime Rate Trust
         (SEC File Nos. 333-61831 and 811-5410)

Dear Sirs:

     We hereby  consent to the  incorporation  by reference to our opinion as an
exhibit to Post-Effective  Amendment No. 4 to the above-referenced  Registration
Statement  of  Pilgrim  Prime  Rate  Trust,  and to all  references  to our firm
therein. In giving such consent, however, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the Securities Act
of 1933, as amended, and the rules and regulations thereunder.

                                Very truly yours,

                                /s/ Dechert
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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