<PAGE> 1
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for use of the
Commission only
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-ll(c) or Rule 14a-12
PILGRIM PRIME RATE TRUST
---------------------------------
(Name of Registrant as Specified In Its Charter)
---------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-ll(c)(l)(ii), 14a-6(i)(1), or
14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11:(1)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-ll(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
(1) Amount Previously Paid:$______________
(2) Form, Schedule or Registration Statement No.:_________
(3) Filing Party: _________________
(4) Date Filed: __________________
_________________
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
PILGRIM AMERICA
GROUP, INC
PILGRIM PRIME RATE TRUST
---------------------
TWO RENAISSANCE SQUARE
40 NORTH CENTRAL AVENUE, SUITE 1200
PHOENIX, AZ 85004
MARCH 25, 1996
Dear Shareholder:
Enclosed you will find a Notice and Proxy Statement for the Special Meeting
of Shareholders of the Pilgrim Prime Rate Trust to be held at 10:00 a.m., local
time, on May 2, 1996. There are several important matters on which you, as a
shareholder of the Trust, are being asked to consider -- election of Trustees,
an amendment to the investment advisory agreement, approval of amendments in
connection with the Trust's ability to borrow money, which the Board of Trustees
believes will increase total return to shareholders, and the ratification of the
selection of KPMG Peat Marwick LLP.
After reviewing each matter carefully, the Board of Trustees unanimously
recommends that you vote FOR each of the proposals.
Your vote is important, regardless of the number of shares you own. Please
take a few minutes to review this material, cast your vote on the enclosed Proxy
Card and return the Proxy Card in the enclosed postage-paid envelope.
The Trust has retained Shareholder Communications Corporation, a
professional proxy solicitation firm, to assist shareholders in the voting
process. As the date of the meeting approaches, if we have not already heard
from you, you may receive a telephone call from Shareholder Communications
reminding you to exercise your right to vote.
Thank you very much for your assistance.
Sincerely,
Robert W. Stallings,
President and Chairman and the Board
YOU MAY CONTACT SHAREHOLDER COMMUNICATIONS CORPORATION FOR INFORMATION REGARDING
THE PROXY STATEMENT AT:
(800) 733-8481 EXTENSION 448
<PAGE> 3
PILGRIM PRIME RATE TRUST
---------------------
TWO RENAISSANCE SQUARE
40 NORTH CENTRAL AVENUE, SUITE 1200
PHOENIX, ARIZONA 85004
NOTICE OF SPECIAL MEETING IN LIEU OF THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 2, 1996
To the Shareholders:
A Special Meeting of Shareholders in Lieu of the Annual Meeting of Pilgrim
Prime Rate Trust (the "Trust") will be held on Thursday, May 2, 1996 at 10:00
a.m., local time, at the offices of the Trust, Two Renaissance Square, 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004 for the following purposes:
1. To elect five trustees to serve until their successors are elected and
qualified.
2. To approve the following amendments in connection with the Trust's
ability to borrow money:
a. To approve amendments to the Trust's fundamental investment
policies to expand its ability to engage in borrowing transactions.
b. To approve an amendment to the Investment Management Agreement
between the Trust and its Investment Manager to provide that the
Trust pay the Investment Manager at the current rate schedule based
on an expanded base of assets -- the Trust's average daily net
assets plus the proceeds of any outstanding borrowings.
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Trust for the fiscal year ending February 28, 1997.
4. To transact such other business as may properly come before the Special
Meeting of Shareholders or any adjournments thereof.
Shareholders of record at the close of business on March 21, 1996 are
entitled to notice of, and to vote at, the meeting. Your attention is called to
the accompanying Proxy Statement. Regardless of whether you plan to attend the
meeting, PLEASE COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD so
that a quorum will be present and a maximum number of shares may be voted. If
you are present at the meeting, you may change your vote, if desired, at that
time.
By Order of the Board of Trustees
Nancy L. Peden
Assistant Secretary
March 25, 1996
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
<PAGE> 4
PILGRIM PRIME RATE TRUST
PROXY STATEMENT
SPECIAL MEETING IN LIEU OF THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 2, 1996
This Proxy Statement is furnished by the Board of Trustees of Pilgrim Prime
Rate Trust (the "Trust") in connection with the Trust's solicitation of voting
instructions for use at a Special Meeting in Lieu of the Annual Meeting of
Shareholders of the Trust (the "Meeting") to be held on Thursday, May 2, 1996,
at 10:00 a.m., local time, at the offices of the Trust, Two Renaissance Square,
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004 for the purposes set
forth below and in the accompanying Notice of Special Meeting. At the Meeting,
the shareholders of the Trust will be asked:
1. To elect five trustees to serve until their successors are elected and
qualified.
2. To approve the following amendments in connection with the Trust's
ability to borrow money:
a. To approve amendments to the Trust's fundamental investment
policies to expand its ability to engage in borrowing transactions.
b. To approve an amendment to the Investment Management Agreement
between the Trust and its Investment Manager to provide that the
Trust pay the Investment Manager at the current rate schedule based
on an expanded base of assets -- the Trust's average daily net
assets plus the proceeds of any outstanding borrowings.
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Trust for the fiscal year ending February 28, 1997.
4. To transact such other business as may properly come before the Special
Meeting of Shareholders or any adjournments thereof.
Solicitation of proxies is being made primarily by the mailing of this
Notice and Proxy Statement with its enclosures on or about March 28, 1996.
Shareholders of the Trust whose shares of beneficial interest are held by
nominees such as brokers, can vote their shares by contacting their respective
nominee. In addition to the solicitation of proxies by mail, officers of the
Trust and employees of Pilgrim America Investments, Inc. ("Pilgrim America" or
the "Investment Manager"), investment adviser to the Trust, and its affiliates,
without additional compensation, may solicit proxies in person or by telephone,
telegraph, facsimile, or oral communication. Shareholder Communications
Corporation ("SCC") has been engaged to assist in the solicitation of proxies.
As the meeting date approaches, certain shareholders of the Trust may receive a
telephone call from a representative of SCC if the Trust has not yet received
their vote. Authorization to permit SCC to execute proxies may be obtained by
telephonic or electronically transmitted instructions from shareholders of the
Trust. Proxies that are obtained telephonically will be recorded in accordance
with the procedures set forth below. Management of the Trust believes that these
procedures are reasonably designed to ensure that the identity of the
shareholder casting the vote is accurately determined and that the voting
instructions of the shareholder are accurately determined. The Trust has
received an opinion of its counsel that addresses the validity, under the
applicable law of The Commonwealth of Massachusetts, of authorization to execute
a proxy given orally. The opinion given by the Trust's counsel concludes that a
Massachusetts court would find that there is no Massachusetts law or public
policy against the acceptance of proxies signed by an orally-authorized agent
provided that it adheres to the procedures set forth below. The cost of this
assistance is expected to be approximately $65,000. The costs associated with
such solicitation and the Meeting will be borne by the Trust, although the
Investment Manager or its affiliates shall bear the expense of any solicitation
activities by their employees.
In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name, address, social security or
employer identification number, title (if the shareholder is authorized to act
on behalf of an entity, such as a corporation), the number of shares owned and
to confirm
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<PAGE> 5
that the shareholder has received the proxy statement card in the mail. If the
information solicited agrees with the information provided to SCC by the Trust,
then the SCC representative has the responsibility to explain the process, read
the proposals listed on the proxy card, and ask for the shareholder's
instructions on each proposal. The SCC representative, although he or she is
permitted to answer questions about the process, is not permitted to recommend
to the shareholder how to vote, other than to read any recommendations set forth
in the proxy statement. SCC will record the shareholder's instructions on the
card. Within 72 hours, SCC will send the shareholder a letter or mailgram to
confirm his or her vote and asking the shareholder to call SCC immediately if
his or her instructions are not correctly reflected in the confirmation.
If any shareholder wishes to participate in the meeting of shareholders,
but does not wish to give his or her proxy by telephone, the shareholder may
still submit the proxy card originally sent with the proxy statement or attend
in person. Should shareholders require additional information regarding the
proxy or replacement proxy cards, they may contact SCC toll-free at
1-800-733-8481, Extension 448. Any proxy given by a shareholder, whether in
writing or by telephone, is revocable.
Each share of beneficial interest of the Trust (each a "Share",
collectively the "Shares") is entitled to one vote. A shareholder may revoke the
accompanying proxy or a proxy given telephonically at any time prior to its use
by filing with the Trust a written revocation or duly executed proxy bearing a
later date. In addition, any shareholder who attends the Meeting in person may
vote by ballot at the Meeting, thereby cancelling any proxy previously given.
The persons named in the accompanying proxy will vote as directed by the proxy,
but in the absence of voting directions in any proxy that is signed and
returned, they intend to vote FOR each of the proposals and may vote in their
discretion with respect to other matters not now known to the Board of Trustees
of the Trust that may be presented at the Meeting.
Shareholders of the Trust at the close of business on March 21, 1996 (the
"Record Date") will be entitled to be present and give voting instructions for
the Trust at the Meeting with respect to their Shares owned as of such Record
Date. As of March 1, 1996, there were 89,793,828 Shares outstanding and entitled
to vote as of such Record Date, and the Trust had total net assets of
approximately $863,126,490.
A majority of the outstanding Shares of the Trust on the Record Date,
represented in person or by proxy, must be present to constitute a quorum for
the transaction of the Trust's business at the Meeting.
A "Majority Vote" is required for the approval of Proposals 2.a. and 2.b.
For the purposes of this requirement, a "Majority Vote" shall mean a "majority
of the outstanding voting securities" of the Trust as defined in the Investment
Company Act of 1940, as amended, i.e., (i) 67% or more of the Shares of the
Trust present at the Meeting if more than 50% of the outstanding Shares of the
Trust are represented at the Meeting in person or by proxy, or (ii) more than
50% of the outstanding Shares of the Trust, whichever is less. Proposals 2.a.
and 2.b. will only be adopted if both of those proposals are approved by the
shareholders, even if the shareholder vote to adopt one proposal is received. A
majority of the votes cast at the Meeting is required for the approval of the
ratification of independent accountants (Proposal 3). The affirmative vote of a
majority of the votes cast at the Trust's Meeting, assuming a quorum is present,
is required for the election of the Board Members (Proposal 1).
If a quorum is not present at a Meeting, or if a quorum is present but
sufficient votes to approve any or all of the Proposals are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. In determining whether to adjourn the
Meeting, the following factors may be considered: the nature of the Proposals
that are the subject of the Meeting, the percentage of votes actually cast, the
percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any adjournment will require the affirmative
vote of a majority of those Shares represented at the Meeting in person or by
proxy. A shareholder vote may be taken on one or more of the Proposals in this
proxy statement prior to any adjournment if sufficient votes have been received
with respect to a Proposal. If a shareholder abstains from voting as to any
matter, then the Shares held by such shareholder shall be deemed present at the
Special Meeting of the Trust for purposes of determining a quorum and for
purposes of calculating the vote with respect to such matter, but shall not be
deemed to have been voted in favor or against such matter. If a broker returns a
"non-vote" proxy, indicating a lack of authority to vote on a matter, then the
Shares covered by such
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non-vote shall be deemed present at the Special Meeting for purposes of
determining a quorum, but shall not be deemed represented at the Special Meeting
for purposes of calculating the vote with respect to such matter. Therefore,
with respect to Proposals 2.a. and 2.b., which require a Majority Vote, broker
non-votes will not be taken into account when determining the number of Shares
present at the Meeting and the number of votes cast.
To the knowledge of the Trust, as of February 29, 1996, no current Trustee
of the Trust owns 1% or more of outstanding Shares of the Trust and the officers
and Trustees of the Trust own, as a group, less than 1% of the Shares of the
Trust. To the knowledge of the Trust, as of February 29, 1996, no person owned
beneficially more than 5% of the outstanding Shares of the Trust.
Pilgrim America, whose address is Two Renaissance Square, 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004, is the Investment Manager of the
Trust. Pilgrim America Group, Inc., whose address is also Two Renaissance
Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004, is the
administrator of the Trust.
1. TO ELECT FIVE TRUSTEES TO SERVE UNTIL THEIR SUCCESSORS
ARE ELECTED AND QUALIFIED
At the Meeting, five Trustees will be elected to serve as trustees, each to
serve until his or her successor is duly elected and qualified. All of the
nominees are currently Trustees. Mary A. Baldwin, Al Burton, Bruce S. Foerster,
and Robert W. Stallings were last elected at the Special Meeting of Shareholders
held on April 4, 1995. On August 28, 1995, the Board unanimously voted to
increase the number of Trustees of the Board from four to five, as provided for
in the Trust's Agreement and Declaration of Trust, and elected Jock Patton to
fill the newly created Trustee's vacancy. Each nominee has consented to serve as
a Trustee if elected; however, should any nominee become unavailable to accept
election, an event not now anticipated, the persons named in the proxy will vote
in their discretion for another person or persons who may be nominated as
Trustee.
The following table sets forth the name of each nominee and certain
additional information.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR YEAR FIRST BECAME
NOMINEE THE LAST FIVE YEARS A BOARD MEMBER
- --------------------------- --------------------------------------------------- -----------------
<S> <C> <C>
Mary A. Baldwin, Ph.D...... Trustee of the Trust; Realtor, The Prudential 1995
Age 55 Arizona Realty for more than the last five years;
Treasurer, United States Olympic Committee;
Director or Trustee of each of the funds in the
Pilgrim America Group; Formerly on the teaching
staff at Arizona State University.
Al Burton.................. Trustee of the Trust; President of Al Burton 1986
Age 66 Productions for more than the last five years;
Executive Producer, Castle Rock Entertainment;
Director or Trustee of each
of the funds in the Pilgrim America Group.
Bruce S. Foerster.......... Trustee of the Trust; President and Chief Executive 1995
Age 53 Officer, South Beach Capital (January
1995-Present); Director or Trustee of each of the
funds in the Pilgrim America Group; Managing
Director US Equity Syndicates Desk, Lehman Brothers
(June 1992-December 1994); Managing Director Equity
Transactions Group/Equity Syndicate, Paine Webber
Incorporated (September 1984-May 1992).
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR YEAR FIRST BECAME
NOMINEE THE LAST FIVE YEARS A BOARD MEMBER
- --------------------------- --------------------------------------------------- -----------------
<S> <C> <C>
Jock Patton................ Trustee of the Trust; President, StockVal, Inc. 1995
Age 49 (since 1992); Director and co-owner, StockVal, Inc.
(1982-present). Director, Artisoft, Inc.; Partner
and director, Streich, Lang (1972-1992); Director
or Trustee
of each of the funds in the Pilgrim America Group
(since August 1995).
Robert W. Stallings*....... Chairman, Chief Executive Officer and President of 1995
Age 46 the Trust (since April 1995); Chairman, Chief
Executive Officer and President, Pilgrim America
Group, Inc. and Pilgrim America Investments, Inc.
(since December 1994); Director, Pilgrim America
Securities, Inc. (since December 1994); Chairman
and Chief Executive Officer, Express America
Holdings Corporation (since August 1990) and
Express America Mortgage Corporation (since May
1991); Chairman, Chief Executive Officer and
President, of each of the funds in the Pilgrim
America Group (since April 1995); Formerly Chairman
and Chief Executive Officer of First Western
Partners, Inc. of Scottsdale, Arizona, a consulting
and management services firm to financial
institutions and private investors (February
1990-December 1991); Chairman and Chief Executive
Officer of Western Savings & Loan Assoc. (April
1989-February 1990).
</TABLE>
- ---------------
* As an officer of Pilgrim America, the Trust's investment adviser, Mr.
Stallings is an "interested person" of the Trust, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
During the Trust's fiscal year ended February 29, 1996, the Board held
eleven meetings. Each Trustee attended more than 75% of such meetings during the
period in which such Trustee served as a Trustee.
COMMITTEES
The Board has an Audit Committee whose function is to meet with the
independent accountants of the Trust in order to review the scope of the Trust's
audit, the Trust's financial statements and internal accounting controls; and to
meet with Trust management concerning these matters, among other things. This
Committee currently consists of all of the independent trustees (Mary A.
Baldwin, Al Burton, Bruce S. Foerster and Jock Patton). During the fiscal year
ended February 29, 1996, the Audit Committee met two times. Each member of the
Committee attended more than 75% of such meetings during the period in which he
or she was a member of the Audit Committee. The Trust does not have a nominating
or compensation committee.
REMUNERATION OF BOARD MEMBERS AND OFFICERS
The Trust pays each "disinterested" Trustee, in addition to out-of-pocket
expenses, the Trust's pro rata share, based on all of the investment companies
in the Pilgrim America Group of: (i) an annual retainer of $20,000; (ii) $1,500
per quarterly and special Board meeting; (iii) $500 per committee meeting; and
(iv) $100 per special telephonic meeting. The pro rata share paid by the Trust
is based upon the Trust's average net assets for the previous quarter as a
percentage of the average net assets of all of the funds in the Pilgrim America
Group for which the Board Members serve in common as directors/trustees.
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COMPENSATION TABLE
FISCAL YEAR ENDED FEBRUARY 29, 1996
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM TRUST AND
COMPENSATION FUND FAMILY
NAME OF PERSON, POSITION FROM TRUST TO TRUSTEES(1)
- -------------------------------------------------- ------------ --------------
<S> <C> <C>
Al Burton, Trustee................................ $ 16,288 $ 25,300
Mary A. Baldwin, Trustee(2)....................... $ 15,788 $ 24,800
Bruce S. Foerster, Trustee(2)..................... $ 15,853 $ 24,900
Jock Patton, Trustee(3)........................... $ 10,556 $ 15,300
Robert W. Stallings, Trustee(2)................... $ 0 $ 0
</TABLE>
- ---------------
(1) The Fund Family consists of the following funds in the Pilgrim America
Group: Pilgrim America Masters Series, Inc., which consists of Pilgrim
America Masters Asia-Pacific Equity Fund, Pilgrim America Masters MidCap
Value Fund, and Pilgrim America Masters LargeCap Value Fund, Pilgrim America
Investment Funds, Inc., which consists of Pilgrim America MagnaCap Fund and
Pilgrim America High Yield Fund, Pilgrim Government Securities Income Fund,
Inc., Pilgrim Regional BankShares, Inc., and Pilgrim Prime Rate Trust.
(2) Commenced service as a trustee on April 7, 1995.
(3) Commenced service as a trustee on August 28, 1995.
Recommendation and Required Vote
The affirmative vote of the holders of a plurality of the Shares of the
Trust represented at the Meeting, assuming a quorum is present, is required to
approve the election of the nominees.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT SHAREHOLDERS OF THE TRUST
VOTE FOR THE ELECTION OF THE NOMINEES
2. AMENDMENTS IN CONNECTION WITH THE TRUST'S ABILITY TO BORROW MONEY
A. PROPOSAL TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES TO EXPAND ITS
ABILITY TO ENGAGE IN BORROWING TRANSACTIONS TO THE EXTENT PERMITTED UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED
The Board of Trustees has approved, subject to shareholder approval,
amendments to the Trust's fundamental investment policies regarding borrowing
money that would permit the Trust to engage in borrowing transactions to the
extent permitted under the 1940 Act. The purpose of the amendments is to expand
the Trust's ability to borrow money so that the Trust can finance the purchase
of additional income-producing investments.
The Investment Manager has informed the Board that it will only borrow
money for such purposes when, at the time of borrowing, it believes that the
interest payments and other costs with respect to such borrowings will be
exceeded by the total return on the investments purchased. To mitigate interest
rate risk, it is the Investment Manager's current policy that borrowings made
will be at interest rates that float based upon a benchmark indicator of
prevailing interest rates such as the federal funds rate or the London
Inter-Bank Offered Rate. Since the Trust invests primarily in senior
collateralized corporate loans that pay interest at a floating rate, the
Investment Manager believes that it will be able to predict at the time of
borrowing or investment whether the total return on investment that could be
made with borrowed proceeds will exceed the costs of the borrowings.
Based upon recommendations from the Investment Manager, the Board believes
that the ability of the Trust to borrow money has the potential to benefit the
shareholders of the Trust in several ways. First, the total yield to
shareholders should increase, because additional income producing investments
could be acquired
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<PAGE> 9
with borrowed proceeds and would be working for the Trust. Second, the increased
liquidity that would be provided by the borrowings should enable the Trust to
participate in loan syndications on a more favorable basis. Finally, a larger
base of investable assets will allow the Trust to be more diversified in its
investments, thus potentially lessening risk. The Board noted that other
investment companies with similar objectives to those of the Trust also have the
ability to borrow money to acquire investment assets.
The Board also considered that this change in borrowing policy could
provide a source of funds to meet loan funding demands under the unused portions
of credit agreement commitments. Currently the Trust must set aside cash (or
short term cash equivalents) in anticipation of the need to fund these unused
portions of credit commitments. This use of borrowing will allow the Trust to be
more fully invested. In addition, the Board considered that the proposed change
in borrowing policy could provide the Trust with greater flexibility and
liquidity in connection with a tender offer for repurchase of its Shares in the
event that such an offer is approved in the future by the Board of Trustees. The
Trust does not currently conduct periodic tender offers, and does not anticipate
that borrowing proceeds will be used for the latter purpose at this time.
If approved by shareholders, the amount of borrowings may vary with
prevailing market or economic conditions. The change in investment policy on
borrowing will not change the Trust's investment objective or any other of its
investment policies.
The 1940 Act requires registered investment companies such as the Trust to
adopt certain specific investment policies that can be changed only by
shareholder vote. These policies are often referred to as "fundamental
policies." Included among the fundamental policies of the Trust are policies
regarding borrowing and the issuance of "senior securities," which generally
include, among other things, notes evidencing indebtedness.
The Trust's current fundamental policy on the issuance of senior securities
is as follows:
[The Trust may not] 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 or (ii) entering into
reverse repurchase agreements, and except that it may borrow in an
amount up to 33 1/3% of its total net assets to obtain such short-term
credits as are necessary for tender offers by the Trust for its shares.
In addition, the Trust's fundamental investment policies provide that:
[The Trust may not] make investments on margin or hypothecate, mortgage
or pledge any of its assets except for the purpose of securing
borrowings as described above in connection with the issuance of senior
securities and then only in an amount up to 33 1/3% of the value of the
Trust's total net assets including the borrowing or make additional
purchases of Participation Interests or make other investments while
borrowings exceed 5% of the Trust's total assets.
As amended, the Trust's fundamental policies regarding borrowing and the
issuance of senior securities would be as follows:
[The Trust may not] 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.
and
[The Trust may not] make investments on margin or hypothecate, mortgage
or pledge any of its assets except for the purpose of securing
borrowings as described above in connection with the issuance of senior
securities and then only in an amount up to 33 1/3%, or such other
percentage permitted by law, of the value of the Trust's total assets
(including the amount borrowed) less all liabilities other than
borrowings.
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<PAGE> 10
Effect of the Proposed Amendments
The proposed amendments would expand the Trust's ability to borrow money.
The ability of the Trust to borrow is currently limited to certain short-term
temporary financing arrangements and to borrowings to obtain short-term credits
to fund tender offers by the Trust for its shares. The Trust may not otherwise
enter into borrowing arrangements that would be considered to be senior
securities under the 1940 Act. If approved, the proposal would allow the Trust
to enter into borrowing transactions 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. If approved by shareholders, the Investment
Manager currently intends to use the proceeds of any borrowings (i) to fund the
purchase of additional income-producing investments, and (ii) to meet loan
funding demands under the unused portions of credit agreement commitments, thus
allowing the Trust to invest more of its assets. The Trust's ability to enter
into interest rate hedging transactions and reverse repurchase agreements would
be unaffected by the amendments.
Capital raised through borrowings will be subject to interest and other
costs. There can be no assurance that the Trust's income from borrowed proceeds
will exceed these costs; however, the Investment Manager does not intend to
borrow for the purposes of making additional investments unless it believes that
the interest payments and other costs will be exceeded by the total return on
the investments. In addition, the Investment Manager intends to mitigate the
risk that the costs of borrowing will exceed the total return on an investment
by borrowing on a variable rate basis. In the event of a default on one or more
senior loans or other interest-bearing instruments held by the Trust, borrowing
would exaggerate the loss to the Trust and may exaggerate the effect on the
Trust's net asset value. The Trust's lenders will have priority to the Trust's
assets over the Trust's shareholders.
As of February 29, 1996, the Trust had total assets of $869,464,228 and
total liabilities of $6,526,637, none of which represented the proceeds of
borrowings. Accordingly, as of that date, if the proposed amendments had been in
effect, the Trust could have borrowed up to approximately $431,404,000. The
Investment Manager has informed the Board that, initially and for the
foreseeable future, the Trust will borrow no more than 25% of the Trust's total
net assets plus borrowings. If the Trust had borrowed at this level on February
29, 1996, its total borrowings would have been approximately $287,646,000.
Recommendation and Required Vote
Assuming a quorum is present, a Majority Vote, as defined above, is
required to approve the amendment to the Trust's investment policy. This
Proposal will not be adopted unless Proposal 2.b. also is adopted by the
shareholders.
B. PROPOSAL TO AMEND THE TRUST'S INVESTMENT MANAGEMENT AGREEMENT
The Trustees have approved at a meeting held on January 30, 1996 an
amendment to the Trust's Investment Management Agreement with the Investment
Manager, subject to the approval of the shareholders of the Trust. The proposed
amendment provides that the Investment Manager will receive its current rate
schedule based upon the Trust's average daily net assets plus the proceeds of
any outstanding borrowings. Currently, the Investment Manager's fee is
calculated based on the Trust's average daily net assets only, which does not
include proceeds from any borrowing.
In approving the amendment to the Management Agreement, the Trustees
considered (i) the benefit to the Trust from the additional investment advisory
services that the Investment Manager would be performing for the Trust, and (ii)
the amount of compensation that the Investment Manager would receive pursuant to
the amendment to the Management Agreement. Currently, the investment
restrictions of the Trust prevent the Trust from entering into long-term
borrowing arrangements that are considered to be senior securities, except that
the Trust may borrow for the limited purpose of making tender offers for Shares
of the Trust. However, if the amendments to the Trust's fundamental investment
policies described in Proposal 2.a. are adopted, the Trust intends to use the
proceeds of borrowings for investment purposes. The Board of Trustees considered
the fact that managing these investments will require the Investment Manager to
provide additional services to the Trust. In particular, the Investment Manager
would be required to analyze potential
7
<PAGE> 11
investment opportunities, and would have to monitor a larger investment
portfolio. Thus, the Investment Manager would render additional services and
expend greater resources. The Trustees noted that the current advisory fee
schedule contains breakpoints that take into account the various economies of
scale that result from an increase of assets under management, and that, if
shareholders approve the amendment, additional fees earned on a base of assets
that includes borrowed money would be paid at the lowest rate in the advisory
fee schedule. In addition, the Trustees noted that other investment companies
with similar investment objectives calculate fees paid to their investment
advisers on the basis of total net assets including borrowings. The Trustees
gave particular weight to the potential benefit to shareholders from the use of
borrowing proceeds for investment and to the fact that the shareholders of the
Trust would be receiving additional services from the Investment Manager in
connection with the management of borrowed proceeds.
The Management Agreement
The Investment Management Agreement, dated April 7, 1995 (the "Management
Agreement") was initially approved by shareholders of the Trust on April 4,
1995. Pursuant to the Management Agreement, the Investment Manager furnishes the
Trust with investment advice and investment management and administrative
services with respect to the Trust's assets, including making specific
recommendations as to the purchase and sale of portfolio investments, furnishing
requisite office space and personnel, and managing the Trust's investments
subject to the ultimate supervision and direction of the Board of Trustees. The
Investment Manager is paid a fee for these services at the following annual
rates:
- 0.85% of the Trust's average daily net assets up to $700 million
- 0.75% of the Trust's average daily net assets in excess of $700 million
up to $800 million
- 0.65% of the Trust's average daily net assets over $800 million.
The Investment Manager will reduce its aggregate fees for any fiscal year,
or reimburse the Trust to the extent required so that the Trust's expenses do
not exceed the expense limitations applicable to the Trust under the securities
laws or regulations of those states or jurisdictions in which the Trust's Shares
are qualified for sale. The Trust believes that it currently is not subject to
expense limitations under state law. The investment management fees incurred by
the Trust for its most recent fiscal year ended February 29, 1996 were
$7,122,089.
In addition, the Trust pays fees to Pilgrim America Group, Inc. ("PAGI"),
an affiliate of the Investment Manager, for services provided to the Trust
pursuant to an Administrative Services Agreement, dated as of April 7, 1995 (the
"Administrative Services Agreement"). These fees were $1,264,932 for the fiscal
year ended February 29, 1996. On March 7, 1996, the Board of Trustees approved
an amendment to the Administrative Services Agreement providing that the fees
payable to PAGI under the Agreement be based on average daily net assets of the
Trust, plus the proceeds of any borrowing. Previously, fees paid under the
Agreement were based on average daily net assets of the Trust excluding any
borrowings. The services provided by PAGI will continue to be provided
regardless of whether the amendment to the Management Agreement is approved.
Effect of the Amendment to the Management Agreement
The amendment to the Management Agreement would increase the base of assets
upon which the Investment Manager's fees are calculated by the amount of any
borrowings. Currently, the fees paid to the Investment Manager are based on the
average daily net assets of the Fund, which does not include the proceeds of
borrowings.
8
<PAGE> 12
SUMMARY OF ESTIMATED ANNUAL EXPENSES
The following table is intended to assist you in understanding the various
costs and expenses directly or indirectly associated with investing in the Trust
should the amendment to the Management Agreement be adopted, as estimated by the
Investment Manager.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF
AS A PERCENTAGE OF NET ASSETS
NET ASSETS PLUS BORROWINGS
------------------------- -------------------------
AFTER AFTER
PROPOSED PROPOSED
CURRENT(1) AMENDMENT(2) CURRENT(1) AMENDMENT(2)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Investment Management Fees(3)........ 0.82% 1.04% 0.82% 0.78%
Administration Fee(4)................ 0.15% 0.18% 0.15% 0.13%
Other Expenses(5).................... 0.26% 0.26% 0.26% 0.20%
---- ---- ---- ----
TOTAL ANNUAL OPERATING EXPENSES...... 1.23% 1.48% 1.23% 1.11%
==== ==== ==== ====
</TABLE>
- ---------------
(1) Expense level based on the Trust's expenses for its fiscal year ending
February 29, 1996.
(2) Expenses estimated based upon "current expenses" as shown in the chart and
assuming borrowing in an amount of 25% of the Trust's total net assets plus
borrowings.
(3) The Investment Management Fee is determined based upon total average daily
net assets of the Trust and is calculated at the rate of 0.85% of average
daily net assets up to $700 million, 0.75 of average daily net assets in
excess of $700 million up to $800 million, and 0.65 % of average daily net
assets over $800 million. If the amendment to the Management Agreement is
adopted, the Investment Management Fee will be determined based on the
Trust's average daily net assets, plus the proceeds of outstanding
borrowings. However, the rates at which fees are calculated will remain
unchanged.
(4) Administration Fee, effective March 7, 1996, is determined based on the
Trust's average daily net assets, plus the proceeds of outstanding
borrowings.
(5) Other expenses are based upon estimates for the Trust's current fiscal year,
and does not include expenses of borrowing.
ALTHOUGH THE TRUST MAY INCUR ADDITIONAL MANAGEMENT EXPENSES AS A RESULT OF
THE PROPOSED AMENDMENT, THE INVESTMENT MANAGER BELIEVES THAT THESE INCREASED
EXPENSES WILL BE OFFSET BY INCREASED RETURN TO THE TRUST FROM THE INVESTMENTS
PURCHASED WITH BORROWING PROCEEDS. THE INVESTMENT MANAGER ONLY INTENDS TO BORROW
MONEY WHEN IT BELIEVES THAT THE INTEREST PAYMENTS, MANAGEMENT AND ADMINISTRATIVE
FEES, AND OTHER COSTS WITH RESPECT TO SUCH BORROWINGS WILL BE EXCEEDED BY THE
TOTAL RETURN ON THE INVESTMENTS PURCHASED.
EXAMPLE
Based upon the above expenses, it is estimated that you would pay the
following expenses on a $1,000 investment in the Trust, assuming a 5% annual
return:
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C>
$15 $47 $81 $ 177
</TABLE>
This example assumes that expenses in relation to average daily net assets
will be 1.48% per year for shares that are outstanding, and does not take into
account any sales load or commissions to purchase the Trust's shares. Use of the
assumed 5% return is required by the Securities and Exchange Commission. The
example is not an illustration of past or future investment results. This
example should not be considered a representation of past or future expenses;
actual expenses may be more or less than those shown.
For example, in the fiscal year ended February 29, 1996, the Investment
Manager received $7,122,089 in fees from the Trust (0.82% of net assets and
0.82% of net assets plus borrowings of the Trust) pursuant to the Management
Agreement. Had the amendment to the Management Agreement been in effect during
that
9
<PAGE> 13
fiscal year and assuming that the Trust borrowed up to 25% of its total net
assets, plus borrowings, and maintained outstanding borrowings at a rate of 25%
of its total net assets, plus borrowings, through the year, the fees received by
the Investment Manager would have been approximately $8,996,000 (1.04% of net
assets and 0.78% of total net assets, plus borrowings of the Trust). This would
represent an increase of 26% in total fees paid by the Trust to the Investment
Manager, but a 5% decrease in fees paid by the Trust as a percentage of total
net assets, plus borrowings. If the amendment to the Management Agreement had
been in effect in the fiscal year ended February 29, 1996 and the Trust had not
borrowed funds, there would have been no increase in the fees received by the
Investment Manager.
In determining whether to approve the amendment to the Management
Agreement, the Trustees considered the fact that Mr. Robert W. Stallings, who is
an executive officer and Chairman of the Trust, is also an officer and director
of the Investment Manager. In addition, the following officers of the Fund are
also officers of the Investment Manager: Howard Tiffen, James R. Reis, James M.
Hennessy, Daniel A. Norman, and Michael J. Roland. The Trustees also considered
the fact that the proposed amendment to the Management Agreement would increase
the total amount of fees received by the Investment Manager should the Trust
borrow money for investment purposes. The Trustees believe that the proposed
amendment does not represent an unfair burden on the Shareholders of the Trust,
as it compensates the Investment Manager for bona fide investment advisory
services provided in connection with the management of proceeds from borrowings.
The proposal to amend the Investment Management Agreement was unanimously
approved by the Board, including all of the Trustees who are not "interested"
persons of the Trust within the meaning of the 1940 Act.
The Investment Manager
The Investment Manager is a wholly owned subsidiary of Pilgrim America
Group, Inc., which is in turn a wholly owned subsidiary of Express America
Holdings Corporation ("Express America"). Express America (a Delaware
corporation, the shares of which are traded on the NASDAQ National Market
System) is a holding company that engages in the financial services business.
The address of Express America is Two Renaissance Square, 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004.
The name and principal occupations of the principal executive officer and
each director of the Investment Manager are set forth below under "Other
Information -- Principal Executive Officers and Directors of the Investment
Manager".
Recommendation and Required Vote
Assuming a quorum is present, a Majority Vote, as defined above, is
required to approve the amendment to the Management Agreement. This Proposal
will not be adopted unless Proposal 2.a. is approved by the shareholders.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT SHAREHOLDERS
OF THE TRUST VOTE FOR THE PROPOSED CHANGES TO THE TRUST'S FUNDAMENTAL
INVESTMENT POLICIES IN PROPOSAL 2.A. AND FOR THE PROPOSED AMENDMENT
OF THE MANAGEMENT AGREEMENT IN PROPOSAL 2.B.
3. RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
At a meeting of the Board held on January 31, 1996, the Board, including a
majority of trustees who are not "interested persons" as defined in the 1940
Act, as well as the trustees who were members of the Audit Committee, selected
the accounting firm of KPMG Peat Marwick LLP to act as the independent auditors
of the Trust for the fiscal year ending February 28, 1997.
KPMG Peat Marwick LLP was initially selected as the independent auditors of
the Trust for the fiscal year ended February 29, 1996 at a meeting of the Board
held on June 7, 1995. Selection of KPMG Peat
10
<PAGE> 14
Marwick LLP resulted in a change in the Trust's independent auditor from the
auditor used in prior years. A different auditing firm had served as independent
auditors for the Trust with respect to its financial statements for the fiscal
year ending February 28, 1995 and prior years. The Board considered the services
of the former auditing firm to have been satisfactory. However, based upon a
recommendation from the Investment Manager, the Trustees deemed it appropriate
at the meeting on June 7, 1995 to select KPMG Peat Marwick LLP as independent
auditors. The Board selected KPMG Peat Marwick LLP after considering that firm's
experience as independent auditors to investment companies.
The former auditing firm resigned as independent auditors of the Trust on
October 25, 1995. Such auditing firm's report on the financial statements for
either of the past two years has not contained an adverse opinion or disclaimer
of opinion, and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. During the Trust's two most recent fiscal years, there
were no disagreements with the former auditing firm on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of that
firm, would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report.
KPMG Peat Marwick LLP are independent auditors and have no direct financial
or material indirect financial interest in the Trust. Representatives of KPMG
Peat Marwick LLP are not expected to be at the Meeting.
The Board's selection is submitted to the shareholders for ratification.
Recommendation and Required Vote
The affirmative vote of the holders of a majority of the shares of the
Trust represented at the meeting, assuming a quorum is present, is required for
the ratification of the selection of independent auditors.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT SHAREHOLDERS OF THE
TRUST RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT
AUDITORS FOR THE TRUST FOR THE YEAR ENDING FEBRUARY 28, 1997
GENERAL INFORMATION
Other Matters to Come Before the Meeting
The Trust's management does not know of any matters to be presented at the
Meeting other than those described in this Proxy Statement. If other business
should properly come before the Meeting, the proxyholders will vote thereon in
accordance with their best judgment.
11
<PAGE> 15
Executive Officers of the Trust
Robert W. Stallings has been the Chairman of the Board, Chief Executive
Officer and President of the Trust since April 1995. Mr. Stallings' business
experience is described above under Proposal 1. The following additional persons
currently are principal executive officers of the Trust:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE
NAME POSITION WITH THE TRUST LAST FIVE YEARS
- --------------------------- -------------------------- ----------------------------------------
<S> <C> <C>
Howard Tiffen.............. Senior Vice President Senior Vice President, Pilgrim America
(Age 47) (since February 1996) Group, Inc. and Pilgrim America
Investments, Inc. (since November 1995);
Managing Director of various divisions
of Bank of America (and its predecessor,
Continental Bank) (1982-1995); Managing
Director, Wells Fargo Asia Limited,
Wells Fargo Bank, N.A. (1980-1982);
Managing Director, Wardley Thailand
Limited and various other positions,
Wardley Limited Hong Kong (1974-1980);
various international management
positions, Barclays Bank (1966-1974).
James R. Reis.............. Executive Vice President Vice Chairman (since December 1994) and
(Age 38) (since April 1995) Executive Vice President (since April
1995), Pilgrim America Group, Inc. and
Pilgrim America Investments, Inc.; a
director (since December 1994) and
Assistant Secretary (since April 1995),
Pilgrim America Securities, Inc.;
Executive Vice President of each of the
funds in the Pilgrim America Group
(since April 1995); Vice Chairman and
Chief Financial Officer, Express America
Holdings Corporation (since December
1993); President and Chief Financial
Officer, Express America Holdings
Corporation (May 1991-December 1993);
Vice Chairman (since December 1993),
Express America Mortgage Corporation and
former President (May 1991-December
1993); President and Chief Financial
Officer, First Western Partners, Inc.
(February 1990-December 1991).
James M. Hennessy.......... Senior Vice President and Senior Vice President and Secretary,
(Age 46) Secretary Express America Holdings Corporation,
(since April 1995) Pilgrim America Group, Inc., Pilgrim
America Securities Inc., Pilgrim America
Investment, Inc. and each of the funds
in the Pilgrim America Group (since
April 1995). Senior Vice President,
Express America Mortgage Corporation
(June 1992-August 1994). President,
Beverly Hills Securities Corp (January
1990-June 1992).
</TABLE>
12
<PAGE> 16
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE
NAME POSITION WITH THE TRUST LAST FIVE YEARS
- --------------------------- -------------------------- ----------------------------------------
<S> <C> <C>
Daniel A. Norman........... Senior Vice President Director and Senior Vice President,
(Age 38) (since April 1995) Pilgrim America Group, Inc.; Director,
Senior Vice President and Assistant
Secretary, Pilgrim America Investments,
Inc., Director and Senior Vice President
of Pilgrim America Securities, Inc.
(since December 1994); Senior Vice
President of each of the funds in the
Pilgrim America Group (since April
1995); Senior Vice President, Express
America Holdings Corporation (April
1995-February 1996); Senior Vice
President, Express America Mortgage
Corporation (since February 1992); Chief
Financial Officer, Prime Financial, Inc.
(December 1985-February 1992).
Nancy L. Peden............. Senior Vice President and Senior Vice President and Assistant
(Age 39) Assistant Secretary Secretary, Pilgrim America Group, Inc.
(since 1987) (since April 1995); Vice President of
Operations, The Pilgrim Group Inc. (for
more than the past five years prior to
April 1995); Senior Vice President and
Assistant Secretary, Pilgrim America
Masters Series, Inc. (since April 1995),
Pilgrim America Investment Funds, Inc.
(since April 1995), and Pilgrim
Government Securities Income Fund, Inc.
(since 1993) and Pilgrim Regional
BankShares, Inc. (since 1993).
Michael J. Roland, CPA..... Senior Vice President and Senior Vice President, Treasurer and
(Age 37) Treasurer Chief Financial Officer, Pilgrim America
(since January 1995) Group, Inc., Pilgrim America
Investments, Inc. and Pilgrim America
Securities, Inc. (since April 1995);
Senior Vice President and Treasurer of
each of the funds in the Pilgrim America
Group (since April 1995); Partner at the
consulting firm of Corporate Savings
Group, in Newport Beach, California
(July 1994-December 1994); Vice
President, Pacific Financial Asset
Management Corp. (PFAMCo) Funds
(1992-June 1994); Director of Financial
Reporting, Pacific Mutual Life Insurance
Company (1988-1992).
</TABLE>
Principal Executive Officer and Directors of the Investment Manager
Robert W. Stallings has been the Chairman, Chief Executive Officer and
President of the Investment Manager since April 1995. Mr. Stallings' business
experience is described above under Proposal 1. James R. Reis and Daniel A.
Norman are the two other directors of the Investment Manager. Mr. Reis' and Mr.
Norman's business experience is described above under "Other
Information -- Executive Officers of the Trust".
13
<PAGE> 17
Shareholder Proposals
It is anticipated that the next annual meeting of the Trust will be held in
June 1997. Any proposals of shareholders of beneficial interest of the Trust
that are intended to be presented at the Trust's next annual meeting must be
received at the Trust's principal executive offices within a reasonable period
of time before the proxy solicitation for that meeting is made and must comply
with all other legal requirements in order to be included in the Trust's proxy
statement and form of proxy for that meeting.
Reports to Shareholders
The Trust will furnish, without charge, a copy of the Annual Report and the
most recent Semi-Annual Report regarding the Trust on request. Requests for such
reports should be directed to Pilgrim America at Two Renaissance Square, 40
North Central Avenue, Suite 1200, Phoenix, Arizona 85004 or to the Trust at
(800) 331-1080.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A SELF-
ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
Nancy L. Peden
Assistant Secretary
March 25, 1996
Two Renaissance Square, Suite 1200
40 North Central Avenue
Phoenix, Arizona 85004
14
<PAGE> 18
PILGRIM AMERICA GROUP
PROXY SERVICES PILGRIM PRIME RATE TRUST
P.O. BOX 9162
FARMINGDALE, NY 11735
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES.
THE UNDERSIGNED OWNER OF SHARES OF BENEFICIAL INTEREST, (THE "SHARES") OF
PILGRIM PRIME RATE TRUST (THE "TRUST") HEREBY INSTRUCTS ROBERT W. STALLINGS OR
JAMES M. HENNESSY TO VOTE THE SHARES HELD BY HIM AT THE SPECIAL MEETING OF
SHAREHOLDERS OF THE TRUST TO BE HELD AT 10:00 A.M., LOCAL TIME, ON MAY 2, 1996
AT TWO RENAISSANCE SQUARE, 40 NORTH CENTRAL AVENUE, SUITE 1200, PHOENIX,
ARIZONA 85004 AND AT ANY ADJOURNMENT THEREOF, IN THE MANNER DIRECTED BELOW WITH
RESPECT TO THE MATTERS REFERRED TO IN THE PROXY STATEMENT FOR THE MEETING,
RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED, AND IN THE PROXIES' DISCRETION, UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION TO YOUR TRUST,
WE STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR BALLOT AS SOON AS
POSSIBLE. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING PROPOSALS.
THESE VOTING INSTRUCTIONS WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
MADE, THIS VOTING INSTRUCTION WILL BE VOTED FOR ALL PROPOSALS.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS /X/
________________________________________________________________________________
PILGRIM PRIME RATE TRUST
1. ELECTION OF TRUSTEES: 1)MARY A. BALDWIN, 2) AL BURTON,
3) BRUCE S. FOERSTER, 4) JOCK PATTON, 5) ROBERT W. STALLINGS
___ FOR ALL ___ WITHHOLD ALL ___ FOR ALL EXCEPT
(TO WITHHOLD AUTHORITY TO VOTE, MARK THE "FOR ALL EXCEPT" BOX AND WRITE THE
NOMINEE'S NUMBER ON THE LINE.)
2. TO APPROVE THE FOLLOWING AMENDMENTS IN CONNECTION WITH THE TRUST'S ABILITY
TO BORROW MONEY (PLEASE NOTE AMENDMENTS REQUIRE APPROVAL OF BOTH 2.A. AND
2.B.):
A. TO APPROVE AMENDMENTS OF THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES
TO EXPAND ITS ABILITY TO ENGAGE IN BORROWING TRANSACTIONS TO THE
EXTENT PERMITTED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
_____ FOR _____ AGAINST _____ ABSTAIN
B. TO APPROVE AN AMENDMENT TO THE INVESTMENT MANAGEMENT AGREEMENT BETWEEN
THE TRUST AND ITS INVESTMENT MANAGER TO PROVIDE THAT THE TRUST PAY THE
INVESTMENT MANAGER AT THE CURRENT RATE SCHEDULE BASED ON AN EXPANDED
BASE OF ASSETS -- THE TRUST'S AVERAGE DAILY NET ASSETS PLUS THE
PROCEEDS OF ANY OUTSTANDING BORROWINGS.
_____ FOR _____ AGAINST _____ ABSTAIN
<PAGE> 19
3. TO RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS FOR THE TRUST FOR THE FISCAL YEAR ENDING
FEBRUARY 28, 1997.
_____ FOR _____ AGAINST _____ ABSTAIN
4. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE SPECIAL MEETING OF SHAREHOLDERS OR ANY ADJOURNMENTS
THEREOF.
_____ FOR _____ AGAINST _____ ABSTAIN
PLEASE VOTE, SIGN AND DATE THIS VOTING INSTRUCTION AND RETURN IT IN THE
ENCLOSED ENVELOPE.
THIS VOTING INSTRUCTION SHALL BE SIGNED EXACTLY AS YOUR NAME(S) APPEARS HEREON.
IF SIGNING AS AN ATTORNEY, EXECUTOR, GUARDIAN OR IN SOME REPRESENTATIVE
CAPACITY OR AS AN OFFICER OF A CORPORATION, PLEASE ADD TITLE AS SUCH. JOINT
OWNERS MUST EACH SIGN.
RECEIPT OF THE NOTICE OF MEETING AND PROXY STATEMENT IS HEREBY ACKNOWLEDGED:
_________________________ ________________________________ ___________
SIGNATURE SIGNATURE (JOINT OWNERS) DATE
