PILGRIM(sm)
THE VALUE OF INVESTING(R)
PILGRIM PRIME RATE TRUST
SEMI-ANNUAL REPORT
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AUGUST 31, 1998 Q2
SEMI-ANNUAL
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Pilgrim Prime Rate Trust
SEMI-ANNUAL REPORT
AUGUST 31, 1998
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Table of Contents
Chairman's Message ........................ 2
Letter to Shareholders .................... 3
Shareholder Meeting ....................... 6
Statistics and Performance ................ 7
Performance Footnotes ..................... 9
Additional Notes and Information .......... 10
Portfolio of Investments ................. 11
Statement of Assets and Liabilities ...... 20
Statement of Operations .................. 21
Statement of Changes in Net Assets ...... 22
Statement of Cash Flows .................. 23
Financial Highlights ..................... 24
Notes to Financial Statements ............ 26
Fund Advisors and Agents .................. 33
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PILGRIM PRIME RATE TRUST
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CHAIRMAN'S MESSAGE
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Dear Shareholder:
We are pleased to present the Semi-Annual Report for Pilgrim Prime Rate Trust
(the "Trust").
On the following pages, the Portfolio Manager will discuss the Trust's
milestones and performance, as well as recent market developments. A leader in
its class, the Trust has continued to increase shareholder value through strong
management and innovative approaches.
We believe you will find the six month results a reflection of Pilgrim's
philosophy to provide core holdings which seek to meet the three key needs of
the serious investor:
1. Preservation of capital
2. Participation in rising markets
3. Outperformance in falling markets
Thank you for selecting Pilgrim Prime Rate Trust. We appreciate the confidence
you have placed in us in serving your investment needs.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim Group, Inc.
October 15, 1998
2
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PILGRIM PRIME RATE TRUST
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LETTER TO SHAREHOLDERS
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Dear Fellow Shareholders,
During the quarter ended August 31, 1998, Pilgrim Prime Rate Trust (the
"Trust") again delivered a high current yield consistent with the preservation
of capital value. Dividends declared during the quarter totaled $0.207 which
based on quarter-end net asset value ("NAV") equated to a rate of 8.81% per
annum. During the period, the prime rate was 8.50% and 60-day LIBOR averaged
5.68%. The Trust's dividend adjusted month-end NAV ranged between $9.25 and
$9.28.
MARKET PLACE
Until the very end of the quarter (as discussed below) the volume of new
transactions remained high. The Trust was able to select attractive risks from
the wide variety of assets offered in the primary market. Healthcare and
telecommunications transactions become relatively less prevalent, so from an
industry standpoint, the market became more balanced.
Continuing to counterbalance the attractive characteristics of the primary
market has been the continued development of the institutional investor
universe. In the long run, this will mean a more mature and liquid market place
for corporate loans. The near term effect is demand outstripping supply and
continued downward pressure on the returns available to the Trust. Since the
beginning of the calendar year, the average yield on the portfolio has dropped
by approximately 30 basis points. This decline in revenue is likely to result
in marginally lower dividends in the near future.
During the last two weeks of August, the equity and corporate bond markets
began to reflect increasing nervousness as many economies outside the United
States began to exhibit weakness. The effect to date of these weaknesses has
largely been to the benefit of the US consumer. Import prices have continued to
fall, commodity prices are generally lower than they have been for nearly 30
years, inflation has remained low and employment high.
However, exports are weak as many traditional markets begin to deteriorate or
remain poor. If the environment for international trade continues to be
unattractive, eventually US corporations will have to scale back production or
build inventories which they have worked hard to limit during the last ten
years. Combined with increased competitive pressure from increasingly cheap
imports, US companies are going to have to demonstrate that they have truly
become more productive and low cost manufacturers of their products, good and
services. In any event, US corporate profits are unlikely to grow at the
attractive rates seen during the last five years.
3
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PILGRIM PRIME RATE TRUST
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LETTER TO SHAREHOLDERS
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ASSET QUALITY
On August 31, non-performing loans were 0.62% of total assets and 0.90% of net
assets. On May 31, the corresponding percentages were 0.82% and 1.16%. AM
Cosmetics did not make a scheduled interest payment in June and thus became
non-performing. We continue to work with the lead lender and the borrower to
restructure this transaction. As discussed in the May 31 Letter to
Shareholders, credit risk is the critical risk factor for investors and
defaults will occur in the portfolio from time to time. Ultimately,
diversification tends to protect dividends to shareholders and the high
recovery rates inherent in the asset class ensure minimal NAV impact. Of
course, there can be no guarantees.
BORROWER DIVERSIFICATION
By Total Commitment (as of August 31, 1998)
Commitment Size by Borrower in Millions Number of Borrowers
--------------------------------------- -------------------
$30 and Over 2
$20-$30 8
$10-$20 67
Under $10 75
Portfolio Changes
During the quarter new investments have included American Color Graphics,
American Wireless Corporation, Gaylord Container Corporation, Ispat Sidbec,
Inc., Lyondell Petrochemical Company, Mitel Corporation, Neoplan USA
Corporation, Nortek Aviation Support, Inc., Paint Sundry Brands, LLC, and
Western PCS Corporation.
Repayments and sales included Arrowhead Mills, Inc., Aurora Foods, Calmar Inc,
Celestica, DenAmerica Corp., GEO Specialty Chemicals, Goodman Manufacturing
Co., Hanger Orthopedic Group, Liberty House, Inc., Long John Silvers, Inc., and
Snapple Beverage Co.
4
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PILGRIM PRIME RATE TRUST
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LETTER TO SHAREHOLDERS
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OUTLOOK
As mentioned earlier, we expect a small decline in dividends in the near term
reflective of the fall in returns in the portfolio during the last six months.
We had hoped that this would have been counterbalanced in part by lower
borrowing costs, but these arrived too late in the quarter and apply to a
limited part of the portfolio only.
While the weak equity and bond markets foreshadow somewhat more difficult
credit conditions, they will also allow for higher fees and interest rate
spreads on the senior floating rate loan asset class. This benefit is already
emerging. Increases in spreads and fees on new deals will counterbalance to
some extent the impact of lower interest rates and lower spreads on the
existing portfolio.
Since the end of August, the Federal Reserve has lowered short-term interest
rates twice. Lower short-term interest rates will normally be directly
reflected in comparably lower dividends. However, we expect the recent trend
towards higher pricing to be sustained and thus to mitigate the impact of lower
short-term rates.
We appreciate and look forward to your comments and questions.
Yours sincerely,
/s/ Howard Tiffen
Howard Tiffen
President
Chief Operating Officer
Senior Portfolio Manager
Pilgrim Prime Rate Trust
The views expressed in this letter reflect those of the portfolio manager only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
This letter contains statements that may be "forward-looking statements."
Actual results could differ materially from those projected in the
"forward-looking statements."
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE WHICH DOES NOT GUARANTEE FUTURE
RESULTS. Investement return and principal value of an investment in the Trust
will fluctuate. Shares, when sold, may be worth more or less than their
original cost.
5
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PILGRIM PRIME RATE TRUST
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SHAREHOLDER MEETING
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SPECIAL MEETING
A special meeting of the shareholders of Pilgrim Prime Rate Trust was held at
the offices of the trust on August 6, 1998. A brief description of each matter
voted upon as well as the voting results are outlined below:
SHARES
SHARES VOTED AGAINST SHARES BROKER
VOTED FOR OR WITHHELD ABSTAINED NON-VOTE TOTAL
--------- ----------- --------- -------- -----
I. Vote on Trustees
Mary A. Baldwin 64,790,447 3,869,221 68,659,668
John P. Burke 64,828,649 3,831,019 68,659,668
Al Burton 64,933,568 3,726,100 68,659,668
Bruce S. Foerster 64,980,639 3,679,029 68,659,668
Jock Patton 65,006,629 3,653,039 68,659,668
Robert W. Stallings 65,004,593 3,655,075 68,659,668
II. To approve a change to a fundamental investment restriction on the Trust
that would expand the types of loans in which the Trust may invest.
56,538,407 5,452,613 3,094,382 3,574,266 68,659,668
III. To approve a proposed amendment to the Trust's investment management
agreement with Pilgrim Investments, Inc. that increases the investment
management fee paid by the Trust.
49,646,174 11,758,265 3,680,963 3,574,265 68,659,668
IV. To ratify the appointment of KPMG Peat Marwick LLP as the independent
auditors for the Trust for the fiscal year ending February 28, 1999.
65,874,349 553,611 2,231,706 68,659,666
V. To transact such other business as may properly come before the Annual
Meeting of Shareholders or any adjournments thereof.
62,641,403 2,029,029 3,989,234 68,659,666
6
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PILGRIM PRIME RATE TRUST
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STATISTICS AND PERFORMANCE as of August 31, 1998
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PORTFOLIO CHARACTERISTICS
Net Assets $1,152,591,504
Assets Invested in Senior Loans* $1,626,434,169
Total Number of Senior Loans 152
Average Amount Outstanding per Loan $10,700,225
Total Number of Industries 30
Average Loan Amount per Industry $54,214,472
Portfolio Turnover Rate (YTD) 47%
Weighted Average Days to Interest Rate Reset 43 days
Average Loan Maturity 69 months
Average Age of Loans Held in Portfolio 9 months
* Includes loans and other debt received through restructures
TOP 10 INDUSTRIES AS A % OF
NET ASSETS TOTAL ASSETS
Healthcare, Education and Childcare 16.0% 11.1%
Telecommunications 12.7% 8.8%
Personal, Food and Misc. Services 8.1% 5.6%
Automobile 8.0% 5.5%
Broadcasting 7.9% 5.4%
Building and Real Estate 7.7% 5.3%
Chemicals, Plastics and Rubber 6.9% 4.8%
Printing and Publishing 6.0% 4.1%
Electronics 5.5% 3.8%
Beverage, Food and Tobacco 5.5% 3.8%
TOP 10 SENIOR LOANS AS A % OF
NET ASSETS TOTAL ASSETS
MAFCO Financial Corp. 3.5% 2.4%
Nextel Finance Co. 2.6% 1.8%
Laidlaw Environmental Services 2.5% 1.7%
Community Health Systems 2.1% 1.5%
Ventas, Inc. 2.0% 1.4%
Papa Gino's, Inc. 1.8% 1.2%
24-Hour Fitness, Inc. 1.7% 1.2%
American Wireless Corporation 1.7% 1.2%
Florida Panthers Holdings, Inc. 1.7% 1.2%
Patriot American Hospitality 1.7% 1.2%
7
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PILGRIM PRIME RATE TRUST
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STATISTICS AND PERFORMANCE as of August 31, 1998
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DISTRIBUTION RATES*
SEC 30-DAY SEC 30-DAY ANNUALIZED ANNUALIZED
PRIME YIELD AT YIELD AT DISTRIBUTION DISTRIBUTION
QUARTER-ENDED RATE NAV A MKT A RATE AT NAV C RATE AT MKT C
- ------------- ---- ----- ----- ------------- -------------
August 31, 1998 8.50% 8.46% 7.88% 8.81% 8.21%
May 31, 1998 8.50% 9.67% 8.82% 8.86% 8.09%
February 28, 1998* 8.50% 8.60% 7.77% 8.75% 7.92%
November 30, 1997 8.50% 9.72% 9.15% 8.82% 8.08%
This table sets forth the Trust's monthly dividend performance which is
summarized quarterly.
* Distribution Rates exclude the special dividend of $0.02875/share declared
December 19, 1997.
Including the special dividend results in a distribution rate @ NAV of 10.00%,
and a distribution rate @ MKT of 9.05%.
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
--- ---
1 Year 8.30% 7.89%
3 Years 8.17% 12.66%
5 Years 8.38% 10.14%
10 Years 8.51% N/A
Since Trust Inception F,H 8.47% N/A
Since Initial Trading on NYSE G N/A 10.93%
Assumes rights were exercised and excludes sales charges and commissions C,D,E
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO
GUARANTEE OF FUTURE RESULTS.
See performance footnotes on page 9.
8
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PILGRIM PRIME RATE TRUST
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PERFORMANCE FOOTNOTES
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(A) Yield is calculated by dividing the Trust's net investment income per share
for the most recent thirty days by the net asset value (in the case of NAV)
or the NYSE Composite closing price (in the case of market) at quarter-end.
Yield calculations do not include any commissions or sales charges, and are
compounded for six months and annualized for a twelve month period to
derive the Trust's yield consistent with the SEC standardized yield formula
for open-end investment companies.
(B) The distribution rate is calculated by annualizing the dividend declared
each month 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 the period.
(C) Calculation of total return assumes a hypothetical initial investment at
the net asset value (in the case of NAV) or the NYSE Composite closing
price (in the case of Market) on the last business day before the first day
of the stated period, with all dividends and distributions reinvested at
the actual reinvestment price. The Trust's average annual returns on a
market basis and assuming rights were exercised through August 31, 1998
were 7.89% and 10.14% for the one and five year periods, respectively. The
Trust's average annual total return assuming an initial investment at NAV
with a 3% sales charge and assuming an ending value at market and assuming
rights were exercised through August 31, 1998, was 10.14% for the ten-year
period. The average annual total returns based on market price assuming
rights were exercised with a brokerage commission are not presented.
(D) On December 27, 1994, the Trust issued to its shareholders transferable
rights which entitled the holders to subscribe for 17,958,766 shares of the
Trust's common stock at the rate of one share of common stock for each four
rights held. The offering was completed on January 27, 1995.
(E) On October 18, 1996, the Trust issued to its shareholders non-transferable
rights which entitled the holders to subscribe for 18,122,963 shares of the
Trust's common stock at the rate of one share of common stock for each five
rights held. On November 12, 1996, the offering expired and was fully
subscribed. The Trust issued 18,122,963 shares of its common stock to
exercising rights holders at a subscription price of $9.09. Offering costs
of $5,926,209 were charged against the offering proceeds.
(F) Inception Date -- May 12, 1988.
(G) Initial Trading on NYSE -- March 9, 1992.
(H) Reflects Partial Waiver of Fees.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE
TRUST WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
9
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PILGRIM PRIME RATE TRUST
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ADDITIONAL NOTES AND INFORMATION
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SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program", formerly
known as the Dividend Reinvestment and Cash Purchase Plan) which allows
shareholders a simple way to reinvest dividends and capital gains
distributions, if any, in additional shares of the Trust. The Program also
offers Trust shareholders the ability to make optional cash investments in any
amount from $100 to $5,000 on a monthly basis. Amounts in excess of $5,000
require prior approval of the Trust. DST Systems, Inc., the Trust's Transfer
Agent, is the Administrator for the Program.
For dividend reinvestment purposes, the Administrator will purchase shares of
the Trust on the open market when the market price plus estimated commissions
is less than the net asset value on the valuation date. The Trust may issue new
shares when the market price plus estimated commissions is equal to or exceeds
the net asset value on the valuation date. New shares may be issued at the
greater of (i) net asset value or (ii) the market price of the shares during
the pricing period, minus a discount of 5%.
For optional cash investments, shares will be purchased on the open market by
the Administrator when the market price plus estimated commissions is less than
the net asset value on the valuation date. New shares may be issued by the
Trust when the market price plus estimated commissions is equal to or exceeds
the net asset value on the valuation date.
There is no charge to participate in the Program. Participants may elect to
discontinue participation in the Program at any time. Participants will share,
on a pro-rata basis, in the fees or expenses of any shares acquired in the open
market.
Participation in the Program is not automatic. If you would like to receive
more information about the Program or if you desire to participate, please
contact your broker or our Shareholder Services Department at (800) 992-0180.
KEY FINANCIAL DATES -- CALENDAR 1998 DIVIDENDS:
DECLARATION DATE EX-DATE PAYABLE DATE
---------------- ------- ------------
January 30 February 6 February 24
February 27 March 6 March 23
March 26 April 8 April 22
April 30 May 7 May 22
May 29 June 8 June 22
June 30 July 8 July 22
July 31 August 6 August 24
August 31 September 8 September 22
September 30 October 8 October 22
October 30 November 6 November 23
November 30 December 8 December 22
December 21 December 29 January 13, 1999
RECORD DATE WILL BE TWO BUSINESS DAYS AFTER EACH EX-DATE. THESE DATES
ARE SUBJECT TO CHANGE.
STOCK DATA
The Trust's shares are traded on the New York Stock Exchange (Symbol: PPR).
Effective November 16, 1998 the Trust's name will change to Pilgrim Prime Rate
Trust and its cusip number will be 72146W 10 3. Prior to November 16, 1998 the
Trust's name was Pilgrim America Prime Rate Trust and its cusip number was
720906 10 6. The Trust's NAV and market price are published daily under the
"Closed-End Funds" feature in Barron's, The New York Times, The Wall Street
Journal and many other regional and national publications.
10
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PILGRIM PRIME RATE TRUST
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PORTFOLIO OF INVESTMENTS as of August 31, 1998 (Unaudited)
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SENIOR LOANS*
(DOLLAR WEIGHTED PORTFOLIO INTEREST RESET PERIOD IS 43 DAYS)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
- --------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
AEROSPACE AND DEFENSE: 5.3%
$ 8,888 Erickson Air-Crane Co. (heavy lift helicopters) Term B 12/31/04 $ 8,443,125
10,000 New Piper Aircraft (aircraft manufacturer) Term 04/15/05 10,000,000
15,000 Nortek Aviation Support, Inc. (aviation services company) Term B 06/14/05 15,000,000
6,500 Piedmont Aviation Services (airport facility operator) Term B 07/24/07 6,500,000
6,500 Piedmont Aviation Services Term C 07/24/07 6,500,000
5,394 Technetics Corp. (aircraft engine components) Term 06/20/02 5,393,939
9,355 Tri Star/Odyssey, Inc. (aerospace hardware distributor) Term 09/30/03 9,355,000
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61,192,064
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AUTOMOBILE: 8.0%
4,975 Autosystems Manufacturing Inc. (automotive lighting) Term B 05/31/04 4,975,000
4,975 Autosystems Manufacturing Inc. Term C 05/31/05 4,975,000
15,000 Breed Technologies (airbags/seatbelts) Term B 04/27/06 15,000,000
9,950 Cambridge Industries, Inc. (automotive plastics) Term B 06/30/05 9,950,000
9,410 Capital Tool & Design (brake backing plates) Term B 07/19/03 9,410,319
13,232 Federal Mogul (automotive parts) Term 12/31/05 13,231,844
9,993 Global Metal Technologies (automotive parts) Term B 03/12/05 9,993,333
12,461 Keystone Automotive (automotive aftermarket specialty parts) Term B 03/31/04 12,460,938
6,250 Safelite Glass Corp. (automobile windshield replacement) Term B 12/23/04 6,250,000
6,250 Safelite Glass Corp. Term C 12/23/05 6,250,000
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92,496,434
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BEVERAGE, FOOD AND TOBACCO: 5.5%
10,085 Del Monte Corp. (food manufacturing and distribution) Term B 03/31/05 10,085,380
2,526 Edward's Baking Co. (food service bakery) Term A 09/30/03 2,525,910
3,308 Edward's Baking Co. Term B 09/30/05 3,308,333
3,308 Edward's Baking Co. Term C 09/30/05 3,308,334
13,860 Empire Kosher Poultry (kosher chicken and poultry) Term B 07/31/04 13,860,000
12,500 Favorite Brands International (confectionery manufacturer) Term B 05/19/05 12,500,000
9,389 Imperial Holly Corp. (sugar producer) Term A 12/31/05 9,388,962
8,278 Imperial Holly Corp. Term B 12/31/05 8,278,107
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63,255,026
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</TABLE>
See Accompanying Notes to Financial Statements.
11
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PILGRIM PRIME RATE TRUST
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PORTFOLIO OF INVESTMENTS as of August 31, 1998 (Unaudited)
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
- --------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
BROADCASTING: 7.9%
$10,163 Benedek Broadcasting Television Corp. (broadcasting) Axel A (A) 12/31/04 $10,162,679
4,759 Benedek Broadcasting Television Corp. Axel B (A) 12/31/04 4,759,310
2,561 Capstar Radio Broadcasting (radio broadcasting) Term A 09/24/99 2,561,053
4,961 Capstar Radio Broadcasting Term B 05/29/05 4,960,526
5 Capstar Radio Broadcasting Revolver 09/24/99 5,263
5,000 Classic Cable (cable television operator) Term B 10/28/07 5,000,000
7,444 Entravision (Spanish broadcast television) Term B 12/31/04 7,443,750
10,000 FrontierVision (cable television) Term B 03/31/06 10,000,000
10,000 Intermedia Partners IV (cable television) Term 01/01/05 10,000,000
5,000 Intermedia Partners IV Hybrid 03/23/08 5,000,000
1,776 Liberman Broadcasting, Inc. (broadcasting) Revolver 03/31/05 1,776,000
8,000 Liberman Broadcasting, Inc. Term B 09/30/05 8,000,000
9,250 Retlaw Broadcasting, LLC (television stations) Term B 04/30/06 9,250,000
12,000 Telemundo Group, Inc. (Spanish broadcast television) Term B 12/13/06 12,000,000
-----------
90,918,581
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BUILDINGS AND REAL ESTATE: 7.7%
6,000 Dayton Superior (concrete/masonry accessories) Term 09/29/05 6,000,000
10,937 Falcon Building Products (building products) Term B 06/30/05 10,937,143
6,600 Home Decor Group (home accessories) Term B 03/12/04 6,600,000
3,400 Home Decor Group Term C 03/12/05 3,400,000
7,960 Kevco, Inc. (manufactured home components) Term B 02/02/05 7,960,000
13,120 Tree Island Industries (nail and wire products) Term B 03/31/03 13,120,000
375 United Building Materials, Inc. (stone and concrete
products)(1) Term 12/31/99 374,798
8,000 US Aggregates, Inc. (manufacturer of concrete products) Term B 03/31/06 8,000,000
23,121 Ventas, Inc. (real estate investment trust) Term D 05/05/03 23,121,212
4,030 Werner Holding Co. (ladders) Term B 11/30/04 4,029,750
4,925 Werner Holding Co. Term C 11/30/05 4,925,250
-----------
88,468,153
-----------
CARGO TRANSPORT: 2.9%
11,679 Atlas Freighter Leasing (air cargo carrier) Term 05/29/04 11,679,248
3,094 Evergreen International (air cargo carrier) Term A 05/31/02 3,094,266
1,634 Evergreen International Term B 05/31/02 1,633,668
10,000 Omnitrax, Inc. (rail operator) Term 05/12/05 10,000,000
3,740 Oshkosh Trucking (specialized truck manufacturer) Term B 03/01/04 3,740,000
3,740 Oshkosh Trucking Term C 03/01/04 3,740,000
-----------
33,887,182
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
12
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PILGRIM PRIME RATE TRUST
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PORTFOLIO OF INVESTMENTS as of August 31, 1998 (Unaudited)
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
- --------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
CHEMICALS, PLASTICS AND RUBBER: 6.6%
$ 9,964 Acadia Elastomers Corp. (specialty chemicals) Term 03/21/04 $ 9,963,504
11,283 Cedar Chemical Corp. (specialty chemicals) Term B 10/30/03 11,283,142
3,563 Foamex, L.P. (polyurethane foam) Term B 06/30/05 3,562,868
3,239 Foamex, L.P. Term C 06/30/06 3,238,971
1,944 Huntsman Chemical (specialty chemicals) Term B 03/15/04 1,944,286
1,944 Huntsman Chemical Term C 03/15/04 1,944,286
2,366 Huntsman Corp. (industrial chemicals) Revolver 12/31/02 2,365,898
684 Huntsman Corp. Term A 12/31/02 683,823
4,950 Huntsman Corp. Term B 12/31/05 4,950,000
6,000 Lyondell Petrochemical Company (petrochemicals) Term A 07/23/03 6,000,000
12,000 Lyondell Petrochemical Company Term B 07/23/03 12,000,000
5,102 NEN Life Sciences Products (biochemicals) Term B 12/31/04 5,102,041
1,133 Paint Sundry Brands (paint business & accessories) Term B 08/11/05 1,133,333
1,111 Paint Sundry Brands Term C 08/11/06 1,111,111
6,468 Sunbelt Manufacturing LLC (plastics manufacturer) Term B 09/30/04 6,467,500
4,779 Texas Petrochemical Corp. (industrial chemicals) Term B 06/30/04 4,779,347
-----------
76,530,110
-----------
CONTAINERS, PACKAGING AND GLASS: 2.2%
14,897 Gaylord Container Corporation (corrugated containers) Term 07/30/07 14,896,552
10,000 Pretium Packaging LLC (plastic packaging) Term B 07/29/06 10,000,000
-----------
24,896,552
-----------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 0.9%
276 @ KDI Corp. (defense and leisure products) (2) Term A N/A 16,791
13 @ KDI Corp. (2) Term B N/A 13,187
10,000 Private Business, Inc. (banking services & software) Term B 08/19/06 10,000,000
-----------
10,029,978
-----------
DIVERSIFIED/CONGLOMERATE SERVICES: 4.8%
36,750 MAFCO Financial Corp. (diversified services and
entertainment) Term A 04/16/00 36,750,000
3,150 MAFCO Financial Corp. Revolver 04/16/00 3,150,000
8,782 Outsourcing Solutions (accounts receivable management) Term B 11/06/03 8,781,937
6,910 Outsourcing Solutions Term C 10/15/04 6,910,390
-----------
55,592,327
-----------
ECOLOGICAL: 3.3%
4,111 Clean Harbors (environmental services) Term 05/08/00 4,110,698
14,509 Laidlaw Environmental Services (waste management) Term B 04/03/05 14,509,091
14,509 Laidlaw Environmental Services Term C 04/03/06 14,509,091
4,813 Rumpke (waste management) Term 09/25/02 4,812,500
-----------
37,941,380
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
13
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
- --------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
ELECTRONICS: 5.5%
$ 4,500 Details, Inc. (circuit board manufacturer) Term B 10/27/04 $ 4,500,000
5,000 Dictaphone Acquisition, Inc. (dictation and recording
equipment) Term C 06/30/03 5,000,000
10,224 Fairchild Semiconductor Corp. (electronic equipment) Term C 03/11/03 10,224,228
5,543 Intri-Plex Technologies, Inc. (disk drive component
manufacturer) Term 09/30/02 5,543,478
9,540 Mitel Corporation (semiconductor manufacturing) Term B 06/02/04 9,540,000
9,179 OK Industries, Inc. (circuit board manufacturing systems) Term 10/31/02 9,178,571
9,762 Sarcom, Inc. (systems integration) Term 11/20/02 9,761,905
10,000 Stonebridge Technologies, Inc. (enterprise computing) Term 07/27/05 10,000,000
-----------
63,748,182
-----------
FARMING AND AGRICULTURE: 0.8%
8,993 Purina Mills, Inc. (food products) Term 03/10/07 8,993,250
-----------
8,993,250
-----------
FINANCE: 2.6%
18,000 Bridge Information Systems (news services) Term B 05/29/05 18,000,000
6,400 National Partnership Investments Corp. (asset management) Term 06/30/01 6,400,000
5,000 Value Asset Management, Inc. (money management) Term B 04/28/03 5,000,000
-----------
29,400,000
-----------
GROCERY: 3.7%
1,455 Pathmark Stores, Inc. (mid-atlantic supermarkets) Revolver 06/15/01 1,454,545
1,589 Pathmark Stores, Inc. Term A 06/15/01 1,588,957
9,063 Pathmark Stores, Inc. Term B 12/15/01 9,062,937
17,812 Schwegmann Giant Supermarket (Louisiana supermarkets) Term B 01/31/04 17,811,771
9,316 Star Markets Co., Inc. (Boston area supermarkets) Term B 12/31/02 9,316,040
2,890 Star Markets Co., Inc. Term C 12/31/03 2,889,885
-----------
42,124,135
-----------
HEALTHCARE, EDUCATION AND CHILDCARE: 16.0%
4,092 Alaris Medical Systems (infusion pumps) Term B 11/30/03 4,092,113
4,092 Alaris Medical Systems Term C 11/30/04 4,092,113
3,851 Alaris Medical Systems Term D 05/31/05 3,851,464
1,990 Alliance Imaging, Inc. (diagnostic services) Term A 12/18/03 1,990,000
9,453 Alliance Imaging, Inc. Term C 08/09/04 9,452,500
8,938 Community Health Systems (hospitals) Term B 12/31/03 8,938,356
8,938 Community Health Systems Term C 12/31/04 8,938,356
6,712 Community Health Systems Term D 12/31/05 6,712,329
6,000 Covenant Care, Inc. (long-term healthcare facilities) Term 06/30/99 6,000,000
2,917 Dade International (medical testing equipment manufacturer) Term B 12/31/04 2,916,610
2,917 Dade International Term C 12/31/04 2,916,610
9,977 Dade International Term D 12/31/04 9,977,183
4,975 Doshi Diagnostics (radiology and medical testing) Term 05/15/05 4,975,000
15,000 Fountain View, Inc. (long-term healthcare facilities) Term B 03/31/04 15,000,000
</TABLE>
See Accompanying Notes to Financial Statements.
14
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
- --------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
HEALTHCARE, EDUCATION AND CHILDCARE (continued)
$ 9,652 Graphic Controls Corp. (industrial and medical charts) Term B 09/28/03 $ 9,652,343
12,500 Healthcare America, Inc. (youth psychiatric care) Term B 06/30/04 12,500,000
10,000 Integrated Health Services (long-term subacute care) Term B 09/30/04 10,000,000
3,750 Magellan Health Services (managed behavioral care) Term B 02/12/05 3,750,000
3,750 Magellan Health Services Term C 02/12/06 3,750,000
5,000 Paragon Health Network, Inc. (nursing homes) Term B 03/31/05 5,000,000
5,000 Paragon Health Network, Inc. Term C 03/31/06 5,000,000
5,427 Paracelsus Healthcare Corporation (for profit hospital chain) Term A 05/15/03 5,426,667
8,000 Paracelsus Healthcare Corporation Term B 06/15/04 8,000,000
5,000 Roberts Pharmaceutical Corp (pharmaceutical post
discovery) Term A 06/30/03 5,000,000
9,925 SMT Health (mobile MRI systems) Term 08/31/03 9,925,000
16,667 Vencor, Inc. (long-term care facility operator) Term A 05/05/05 16,666,667
------------
184,523,310
------------
HOME AND OFFICE FURNISHINGS, HOUSEWARES AND
DURABLE CONSUMER PRODUCTS: 4.2%
4,500 All Clad (pots and pans) Term A 03/18/04 4,500,000
3,000 All Clad Term C 03/18/05 3,000,000
8,930 Desa International (heaters and fireplaces) Term 11/26/04 8,930,000
15,739 ICON Health & Fitness Co. (exercise equipment) Term B 11/14/01 15,739,374
1,378 Panolam (design and manufacture wood paneling) Term A 01/31/03 1,377,844
8,493 Panolam Term B 01/31/03 8,493,319
4,853 Panolam Term C 01/31/03 4,853,325
2,000 Panolam Term D 01/31/03 2,000,000
------------
48,893,862
------------
HOTELS, MOTELS, INNS AND GAMING: 2.7%
2,544 Palace Station (gaming) Revolver A 09/30/00 2,544,011
8,349 Palace Station Revolver B 09/30/00 8,348,655
4,706 Patriot American Hospitality (hotels & resorts) Term II 03/31/99 4,705,882
5,294 Patriot American Hospitality Term III 03/31/00 5,294,118
9,996 Patriot American Hospitality Term B 03/31/03 9,995,833
------------
30,888,499
------------
INSURANCE: 0.5%
5,812 TRG Holdings Corp. (insurance run-off) Term 01/31/03 5,812,500
------------
5,812,500
------------
LEISURE, AMUSEMENT, MOTION PICTURES AND
ENTERTAINMENT: 4.7%
3,750 AMFAC Parks and Resorts (park services operator) Term B 09/04/04 3,750,000
3,750 AMFAC Parks and Resorts Term C 09/30/04 3,750,000
20,000 Florida Panthers Holdings, Inc. (investment holding) Term 12/15/98 20,000,000
9,950 Four Media Co. (film services) Term B 09/10/04 9,950,000
10,000 Panavision, Inc. (high precision file camera systems) Term B 03/10/05 10,000,000
7,157 Worldwide Sports & Recreation Corp. (optics,
sports products) Term B 03/31/01 6,977,665
------------
54,427,665
------------
</TABLE>
See Accompanying Notes to Financial Statements.
15
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
- --------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
MACHINERY (NONAGRICULTURE, NONCONSTRUCTION,
NONELECTRONIC): 0.6%
$ 7,474 Clearing - Niagara (metal stamping press manufacturer) Term 10/18/04 $ 7,473,571
-----------
7,473,571
-----------
MINING, STEEL, IRON AND NONPRECIOUS METALS: 4.2%
5,910 Cable Systems International (cable wire manufacturer) Term B 10/04/02 5,910,000
3,269 Centennial Resources (coal mining) Term A 03/31/02 3,105,769
8,510 Centennial Resources Term B 03/31/04 8,084,134
2,500 Ispat Sidbec, Inc. (steel producer) Term B 07/17/05 2,500,000
2,500 Ispat Sidbec, Inc. Term C 07/17/06 2,500,000
9,725 GS Technologies (metal products) Term 09/30/02 9,725,000
361 National Refractories, Inc. (kiln lining materials) Term B 09/30/99 360,933
3,223 National Refractories, Inc. Term C 09/30/99 3,222,888
8,000 Peabody Holding Company (coal producer) Term B 06/12/05 8,000,000
5,000 Scovill Fasteners, Inc. (fasteners) Term A 11/26/03 5,000,000
-----------
48,408,724
-----------
OIL AND GAS: 1.7%
11,475 Cardinal Services, Inc. (oil field services) Term B 03/10/05 11,475,428
1,492 Perf-O-Log (oil field services) Term 08/11/03 1,492,500
3,970 Perf-O-Log Term B 08/11/03 3,970,000
2,494 Perf-O-Log Term C 08/11/04 2,493,750
-----------
19,431,678
-----------
PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 8.1%
14,605 Boston Chicken, Inc. (home meal replacement) Lease/ 12/12/01 13,874,590
Term C
4,971 Brickman Group, Inc. (landscaping) Term B 12/31/05 4,970,881
18,983 Coinmach Laundry Corp. (laundry) Term B 06/30/05 18,952,500
5,618 Papa Gino's, Inc. (quick service restaurants) Term A 02/19/02 5,617,820
14,970 Papa Gino's, Inc. Term B 02/19/04 14,969,530
15,000 SC International Services (airline catering) Term 06/01/05 15,000,000
6,500 24-Hour Fitness, Inc. (health club operator) Term A 12/31/02 6,500,000
13,500 24-Hour Fitness, Inc. Term B 12/31/04 13,500,000
-----------
93,385,321
-----------
PERSONAL AND NONDURABLE CONSUMER PRODUCTS
(MANUFACTURING ONLY): 2.4%
1,186 @ AM Cosmetics (cosmetics and skin care products) Term A 06/30/03 1,008,013
8,687 @ AM Cosmetics Term B 12/31/04 7,384,362
4,013 Duo-Tang, Inc. (report cover manufacturer) Term A 12/31/02 4,012,755
5,285 Duo-Tang, Inc. Term B 12/31/02 5,285,437
9,404 Medtech Products, Inc. (non-prescription
consumer medications) Term B 10/15/02 9,403,661
-----------
27,094,228
-----------
PERSONAL TRANSPORTATION: 0.9%
10,000 Neoplan USA Corporation (personal transportation) Term B 05/29/05 10,000,000
-----------
10,000,000
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
16
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
- --------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
PRINTING AND PUBLISHING: 6.0%
$8,978 American Color Graphics (commercial printing) Term B 06/04/05 $ 8,977,500
6,738 Bankers Systems, Inc. (banking industry compliance services) Term B 11/01/02 6,737,500
18,958 Eastern Pulp & Paper Corporation (specialty paper) Term 08/31/04 18,958,330
,000 Jefferson Smurfit (pulp and paper products) Term B 03/23/06 8,000,000
12,250 Stone Container (pulp and paper products) Term D 10/01/03 12,250,000
3,336 Von Hoffman Press, Inc. (textbook manufacturer) Term B 05/29/04 3,335,714
10,829 Von Hoffman Press, Inc. Term C 05/29/05 10,828,571
------------
69,087,615
------------
RETAIL STORES: 4.2%
6,916 Color Tile, Inc. (home improvement retailer) (3) Term D 12/31/98 2,005,576
12,308 Murray's Discount Auto Parts (auto parts retailer) Term 06/30/03 12,307,692
4,981 Nebraska Book Co. (wholesale and retail textbooks) Term B 04/30/04 4,980,769
5,080 Peebles, Inc. (department store chain) Term A 04/30/01 5,080,325
12,969 Peebles, Inc. Term B 04/30/02 12,969,496
2,240 Renters Choice, Inc. (consumer goods rent to own) Term B 01/31/06 2,239,688
2,746 Renters Choice, Inc. Term C 01/31/07 2,746,181
5,953 TravelCenters of America (road transport service centers) Term B 03/27/05 5,953,125
------------
48,282,852
------------
TELECOMMUNICATIONS: 12.7%
10,000 American Wireless Corporation (rural cellular
phone operator) Term B 06/04/07 10,000,000
10,000 American Wireless Corporation Term C 12/04/97 10,000,000
8,817 Claricom Holdings, Inc. (communication systems) Term B 07/01/03 8,816,531
8,120 Commnet (cellular phones) Term A 09/30/05 8,120,000
1,173 Commnet Term B 09/18/06 1,172,903
2,323 Commnet Term C 03/18/07 2,322,920
6,504 Commnet Term D 09/18/07 6,504,177
26,500 Nextel Finance Co. (cellular phones) Term B 09/30/06 26,500,000
1,750 Nextel Finance Co. Term A 06/30/03 1,750,000
1,862 Nextel Finance Co. Revolver 06/30/03 1,862,000
10,364 Omnipoint Communications, Inc. (cellular phones) Term A 02/17/06 10,363,695
5,084 Omnipoint Communications, Inc. Term B 02/17/06 5,083,886
302 Omnipoint Communications, Inc. Term C 02/23/06 3,024,776
2,582 Pacific Coin (private pay phone operator) Term A 12/31/02 2,581,967
6,728 Pacific Coin Term B 12/31/04 6,727,500
9,474 Prodelin Holding Corporation (satellite
antenna manufacturer) Term B 05/28/06 9,473,684
10,000 Teletouch Communications (rural paging services) Term B 11/30/04 10,000,000
12,000 TSR Wireless, LLC (wireless messaging) Term 06/30/05 12,000,000
10,000 Western PCS Corporation (wireless digital comm. provider) Term B 07/09/05 10,000,000
------------
146,304,039
------------
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
- --------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
TEXTILES AND LEATHER: 4.6%
$10,000 Accessory Network Group (personal clothing accessories) Term B 08/13/05 $ 10,000,000
6,242 Harriet & Henderson (yarn manufacturer) Term A 06/12/00 6,241,578
6,790 Humphreys, Inc. (belts and personal leather goods) Term B 11/15/03 6,790,000
9,960 Polymer Group (polyolefin products manufacturer) Term B 01/31/06 9,960,000
8,528 Targus Group International, Inc. (luggage) Term B 01/05/05 8,528,079
1,427 Targus Group International, Inc. Term C 01/05/05 1,427,294
10,000 Tartan Textile Services (linen rental services) Term B 05/13/05 10,000,000
--------------
52,946,951
--------------
Total Senior Loans -- 141.2% 1,626,434,169
--------------
(Cost $1,635,368,441)
OTHER CORPORATE DEBT
FINANCE: 0.9%
10,000 Value Asset Management, Inc. (money management) Snr. Sub. 04/28/99 10,000,000
--------------
CHEMICALS, PLASTICS AND RUBBER: 0.2%
2,875 Paint Sundry Brands, LLC (paint brushes & accessories) Snr. Sub. 08/11/05 2,875,000
--------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 0.5%
6,000 Capital Tool & Design (brake backing plates) Sub. Note 07/26/03 6,000,000
--------------
Total Other Corporate Debt -- 1.6% 18,875,000
--------------
(Cost $18,875,000)
COMMON STOCK AND PREFERRED STOCK
SHARES
------
APPAREL PRODUCTS: 0.0%
13,294 @ Butterick Company, Inc. (sewing aids) 12,557
-------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 0.0%
2,633 @ KDI Corp. -- common (defense and leisure products) (2) --
-------------
DIVERSIFIED/CONGLOMERATE SERVICES: 0.1%
60,056 @ Staff Leasing, Inc. (employee leasing) (R) 810,756
-------------
RESTAURANTS: 0.3%
413,980 @ America's Favorite Chicken Co. -- common (quick service
restaurant chain) (R) 3,645,508
-------------
TEXTILES AND LEATHER: 0.1%
127,306 @ Dan River, Inc. -- common (diversified textiles) (R) 1,489,480
-------------
Total Common Stock and Preferred Stock -- 0.5% 5,958,301
-------------
(Cost $1,247,811)
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
STOCK PURCHASE WARRANTS AND OTHER SECURITIES
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C> <C> <C>
1 @ Autotote Systems, Inc., Warrant representing 48,930 common
shares (designer and manufacturer of wagering equipment),
Expires 10/30/03 (R) $ 56,025
1 @ Autotote Systems, Inc., Option representing 0.248% common
shares issued and outstanding (R) --
80,634 @ Capital Tool & Design, Warrants representing 80,634 common
shares (brake backing plates) (R) 143,528
19,000 @ Covenant Care, Inc., Warrants representing 19,000 common
shares (long-term healthcare facilities) (R) 285,000
26,606 @ KDI Corp. Units of Trust (defense and leisure products) (R)(2) --
--------------
Total Stock Purchase Warrants and Other Securities -- 0.0% 484,553
--------------
(Cost $0)
TOTAL INVESTMENTS (COST $1,655,491,252) (5) 143.3% $1,651,752,023
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS -- NET (43.3)% (499,160,519)
---------- --------------
Net Assets 100.0% $1,152,591,504
========== ==============
</TABLE>
- ----------------
@ Non-income producing security
(A) Axel describes an amortizing extended term loan with limited call
protection.
(R) Restricted security
* Senior loans, while exempt from registration under the Securities Act of
1933, contain certain restrictions on resale and cannot be sold publicly.
These senior loans bear interest (unless otherwise noted) at rates that
float periodically at a margin above the Prime Rate of a U.S. bank
specified in the credit agreement, LIBOR, the certificate of deposit rate,
or in some cases another base lending rate.
(1) The borrower has entered into a forebearance agreement pending sale of the
company or refinance of this debt.
(2) The borrower filed for protection under Chapter 7 of the U.S. Federal
bankruptcy code and is in the process of liquidation.
(3) The borrower filed for protection under Chapter 11 of the U.S. Federal
bankruptcy code and is in the process of developing a plan of
reorganization.
(4) The borrower is restructuring and interest is being recognized as cash
payments are received.
(5) For Federal income tax purposes, which is the same for financial reporting
purposes, cost of investments is $1,655,491,252 and net unrealized
depreciation consists of the following:
Gross Unrealized Appreciation $ 5,274,235
Gross Unrealized Depreciation (9,013,464)
-----------
Net Unrealized Depreciation $(3,739,229)
===========
See Accompanying Notes to Financial Statements.
19
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILTIES as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Cash $ 51,389
Investments in securities at value (Cost $1,655,491,252) 1,651,752,023
Receivables:
Fund shares sold 488,014
Interest 16,032,214
Other 80,785
Prepaid expenses 938,625
Prepaid arrangement fees on notes payable 412,265
---------------
Total assets 1,669,755,315
---------------
LIABILITIES:
Notes payable 509,000,000
Deferred arrangement fees on senior loans 3,477,789
Accrued interest payable 4,101,468
Accrued expenses 584,554
---------------
Total liabilities 517,163,811
---------------
NET ASSETS (equivalent to $9.32 per share, based on
123,649,679 shares of beneficial interest authorized
and outstanding, no par value) $ 1,152,591,504
===============
Net Assets Consist of:
Paid-in capital $ 1,174,282,745
Undistributed net investment income 12,475,716
Accumulated net realized loss on investments (30,427,728)
Net unrealized depreciation of investments (3,739,229)
---------------
Net assets $ 1,152,591,504
===============
See Accompanying Notes to Financial Statements.
20
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 66,503,413
Arrangement fees earned 2,481,784
Other 852,311
------------
Total investment income 69,837,508
------------
EXPENSES:
Interest 13,813,335
Investment management fees 5,673,671
Administration fees 972,918
Revolving credit facility fees 375,356
Miscellaneous expense 352,798
Reports to shareholders 262,751
Custodian fees 278,958
Transfer agent and registrar fees 218,173
Recordkeeping and pricing fees 99,757
Professional fees 96,548
Insurance expense 39,343
Trustees' fees 27,726
------------
Total expenses 22,211,334
Less: Earnings credits (26,596)
------------
Net expenses 22,184,738
------------
Net investment income 47,652,770
------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized loss on investments (58,171)
Change in unrealized depreciation of investments (5,319,355)
------------
Net loss on investments (5,377,526)
------------
Net increase in net assets resulting from operations $ 42,275,244
============
See Accompanying Notes to Financial Statements.
21
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR
AUGUST 31, ENDED
1998 FEBRUARY 28,
(UNAUDITED) 1998
----------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 47,652,770 $ 95,217,224
Net realized loss on investments (58,171) (18,935,269)
Change in unrealized appreciation (depreciation)
on investments (5,319,355) 5,319,483
-------------- --------------
Net increase in net assets resulting from
operations 42,275,244 81,601,438
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (47,103,768) (93,879,672)
CAPITAL SHARE TRANSACTIONS:
Issuance from dividend reinvestment 7,481,037 15,591,705
Net increase in net assets derived from the sale
of shares in connection with shelf offering 115,536,181 --
-------------- --------------
Net increase from capital share transactions 123,017,218 15,591,705
Total increase in net assets 118,188,694 3,313,471
NET ASSETS:
Beginning of period 1,034,402,810 1,031,089,339
-------------- --------------
End of period (including undistributed net
investment income of $12,475,716 and
$11,926,714 respectively) $1,152,591,504 $1,034,402,810
============== ==============
SUMMARY OF CAPITAL SHARE TRANSACTIONS:
Shares issued in payment of distributions from
net investment income 785,537 1,624,659
Shares sold in connection with shelf offering 12,099,720 --
-------------- --------------
Net increase in shares outstanding 12,885,257 1,624,659
============== ==============
See Accompanying Notes to Financial Statements.
22
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Six Months Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 63,792,801
Facility fees received 2,384,326
Commitment fees received 141,047
Other income received 944,493
Interest paid (11,529,898)
Other operating expenses paid (8,815,721)
Purchases of portfolio securities (1,002,826,959)
Proceeds from disposition of portfolio securities 719,065,223
---------------
Net cash used for operating activities (236,844,688)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (39,622,731)
Overdraft financing (6,017,373)
Proceeds from share offerings 115,536,181
Loan advance 167,000,000
---------------
Net cash provided by financing activities 236,896,077
---------------
Net change in cash 51,389
Cash at beginning of year --
---------------
Cash at end of year $ 51,389
===============
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 42,275,244
---------------
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Increase in investments in securities (284,486,743)
Increase in dividends and interest receivable (3,016,734)
Increase in receivable for fund shares sold (488,014)
Decrease in other assets 6,930,280
Increase in prepaid arrangement fees on notes payable (919)
Increase in prepaid expenses (525,198)
Increase in deferred arrangement fees on senior loans 88,069
Increase in accrued interest payable 2,587,639
Decrease in accrued expenses (208,312)
---------------
Total adjustments (279,119,932)
---------------
Net cash used for operating activities $ (236,844,688)
===============
See Accompanying Notes to Financial Statements.
23
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
AUGUST 31, 1998 -----------------------------------------------------
(UNAUDITED) 1998 1997(7) 1996(6) 1995 1994
----------- ---- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02 $ 10.05
Net investment income 0.40 0.87 0.82 0.89 0.74 0.60
Net realized and unrealized gain
(loss) on investments (0.03) (0.13) (0.02) (0.08) 0.07 (0.05)
---------- ---------- ---------- -------- -------- --------
Increase in net asset value from
investment operations 0.37 0.74 0.80 0.81 0.81 0.55
Distributions from net investment
income (0.41) (0.85) (0.82) (0.86) (0.73) (0.60)
Increase in net asset value from
share offerings 0.02 -- -- -- -- --
Reduction in net asset value from
rights offering -- -- (0.14) -- (0.44) --
Increase in net asset value from
repurchase of capital stock -- -- -- -- -- 0.02
---------- ---------- ---------- -------- -------- --------
Net asset value, end of period $ 9.32 $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02
========== ========== ========== ======== ======== ========
Closing market price at end of
period $ 10.00 $ 10.31 $ 10.00 $ 9.50 $ 8.75 $ 9.25
TOTAL RETURN
Total investment return at closing
market price(3) 1.21% 12.70% 15.04% 19.19% 3.27% 8.06%
Total investment return at net
asset value(4) 4.15% 8.01% 8.06% 9.21% 5.24% 6.28%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $1,152,592 $1,034,403 $1,031,089 $862,938 $867,083 $719,979
Average borrowings (000's) $ 452,049 $ 346,110 $ 131,773 $ -- $ -- $ --
Ratios to average net assets plus
borrowings:
Expenses (before interest and
other fees related to revolving
credit facility) 1.04% (1) 1.04% 1.13% -- -- --
Expenses 2.88% (1) 2.65% 1.92% -- -- --
Net investment income 6.18% (1) 6.91% 7.59% -- -- --
Ratios to average net assets:
Expenses (before interest and
other fees related to revolving
credit facility) 1.47% (1) 1.39% 1.29% -- -- --
Expenses 4.08% (1) 3.54% 2.20% 1.23% 1.30% 1.31%
Net investment income 8.77% (1) 9.23% 8.67% 9.23% 7.59% 6.04%
Portfolio turnover rate 47% 90% 82% 88% 108% 87%
Shares outstanding at end of
period (000's) 123,650 110,764 109,140 89,794 89,794 71,835
</TABLE>
- ------------
(1) Annualized.
(2) Prior to the waiver of expenses, the ratios of expenses to average net
assets were 1.95% (annualized), 1.48% and 1.44% for the period from May 12,
1988 to February 28, 1989, and for the fiscal years ended February 28, 1990
and February 29, 1992, respectively, and the ratios of net investment
income to average net assets were 8.91% (annualized), 10.30% and 7.60% for
the period from May 12, 1988 to February 28, 1989, and for the fiscal years
ended February 28, 1990 and February 29, 1992, respectively.
(3) Total investment return 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 New York Stock Exchange. 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 periods prior to the year ended February 28, 1993, are not presented
since market values for the Trust's shares were not available. Total
returns for less than one year are not annualized.
See Accompanying Notes to Financial Statements.
24
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Continued)
- --------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
----------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
$ 9.96 $ 9.97 $ 10.00 $ 10.00 $ 10.00
0.60 0.76 0.98 1.06 0.72
0.01 (0.02) (0.05) -- --
-------- ------- ---------- --------- --------
0.61 0.74 0.93 1.06 0.72
(0.57) (0.75) (0.96) (1.06) (0.72)
-- -- -- -- --
-- -- -- -- --
0.05 -- -- -- --
-------- ------- ---------- --------- --------
$ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00
======== ======= ========== ========= ========
$ 9.13 -- -- -- --
10.89% -- -- -- --
7.29% 7.71% 9.74% 11.13% 7.35%
$738,810 $874,104 $1,158,224 $1,036,470 $252,998
$ -- $ -- $ -- $ -- $ --
-- -- -- -- --
-- -- -- -- --
-- -- -- -- --
-- -- -- -- --
1.42% 1.42% (2) 1.38% 1.46% (2) 1.18% (1)(2)
5.88% 7.62% (2) 9.71% 10.32% (2) 9.68% (1)(2)
81% 53% 55% 100% 49% (1)
73,544 87,782 116,022 103,660 25,294
- ------------
(4) Total investment return at net asset value has been calculated assuming a
purchase at net asset value at the beginning of each period and a sale at
net asset value 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. Total returns for less than one year are not
annualized.
(5) Calculation of total return excludes the effects of the per share dilution
resulting from the rights offering as the total account value of a fully
subscribed shareholder was minimally impacted.
(6) Pilgrim America Investments, Inc., 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.
(7) The Manager has agreed to reduce its fee for a period of three years from
the Expiration Date of the November 12, 1996 Rights Offering to 0.60% of
the average daily net assets, plus the proceeds of any outstanding
borrowings, over $1.15 billion.
See Accompanying Notes to Financial Statements.
25
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Pilgrim Prime Rate Trust (the "Trust", prior to November 16, 1998 Pilgrim
America Prime Rate Trust) is registered under the Investment Company Act of
1940, as amended, as a diversified, closed-end, investment management company.
The Trust invests in senior loans which are exempt from registration under the
Securities Act of 1933 (the "`33 Act") but contain certain restrictions on
resale and cannot be sold publicly. These loans bear interest (unless otherwise
noted) at rates that float periodically at a margin above the Prime Rate of a
U.S. bank specified in the credit agreement, the London Inter-Bank Offered Rate
("LIBOR"), the certificate of deposit rate, or in some cases another base
lending rate. The following is a summary of the significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security Valuation. Senior loans are valued at fair value in the absence of
readily ascertainable market values. Fair value is determined by Pilgrim
Investments, Inc. (the "Manager") under procedures established and
monitored by the Trust's Board of Trustees. In valuing a loan, the Manager
will consider, among other factors: (i) the creditworthiness of the
corporate issuer and any interpositioned bank; (ii) the current interest
rate, period until next interest rate reset and maturity date of the senior
corporate loan; (iii) recent market prices for similar loans, if any; and
(iv) recent prices in the market for instruments with similar quality,
rate, period until next interest rate reset, maturity, terms and
conditions. The Manager may also consider prices or quotations, if any,
provided by banks, dealers or pricing services which may represent the
prices at which secondary market transactions in the loans held by the
Trust have or could have occurred. However, because the secondary market in
senior loans has not yet fully developed, the Manager will not rely solely
on such prices or quotations. 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. Securities other than
senior loans for which reliable quotations are not readily available and
all other assets will be valued at their respective fair values as
determined in good faith by, or under procedures established by, the Board
of Trustees of the Trust. Investments in securities maturing in less than
60 days are valued at amortized cost, which when combined with accrued
interest, approximates market value.
B. Federal Income Taxes. It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no federal income tax provision is
required.
At February 28, 1998, the Trust had capital loss carryforwards for federal
income tax purposes of approximately $19,738,326 which are scheduled to
expire through February 28, 2006.
The Board of Trustees intends to offset any future net capital gains with
the capital loss carryforwards until each carryforward has been fully
utilized or expires.
C. Security Transactions and Revenue Recognition. Security transactions are
accounted for on trade date. Realized gains or losses are reported on the
basis of identified cost of securities delivered. Interest income is
recorded on an accrual basis at the then current loan rate, and dividend
income is recorded on the ex-dividend date. The accrual of interest on
loans is discontinued when, in the opinion of management, there is an
indication that the borrower may be unable to meet payments as they become
due. Upon such discontinuance, all unpaid accrued interest is reversed.
Cash collections on nonaccrual senior loans are generally applied as a
reduction to the recorded investment of the loan. Senior loans are returned
to accrual status only after all past due amounts have been received and
the borrower has demonstrated sustained performance. Arrangement fees,
which represent non-refundable fees associated with the acquisition of
loans, are deferred and recognized ratably over the shorter of 2.5 years or
the actual term of the loan.
26
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
D. Distributions to Shareholders. The Trust records distributions to its
shareholders on the ex-date. Distributions from income are declared by the
Trust on a monthly basis. Distributions from capital gains, if any, are
declared on at least an annual basis. The amount of distributions from net
investment income and net realized capital gains are determined in
accordance with federal income tax regulations, which may differ from
generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. Key differences are the
treatment of short-term capital gains and other temporary differences. To
the extent that these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassifications.
Distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are
reported as distributions in excess of net investment income and/or
realized capital gains. To the extent they exceed net investment income and
net realized capital gains for tax purposes, they are reported as a tax
return of capital.
E. Dividend Reinvestments. Pursuant to the Shareholder Investment Program
(formerly known as the Automatic Dividend Reinvestment Plan), DST Systems,
Inc., the Plan Agent, purchased, from time to time, shares of beneficial
interest of the Trust on the open market to satisfy dividend reinvestments.
Such shares were purchased only when the closing sale or bid price plus
commission was less than the net asset value per share of the stock on the
valuation date. If the market price plus commissions was equal to or
exceeded the net asset value, new shares may be issued at the greater of
(i) net asset value or (ii) the market price of the shares during the
pricing period, minus a discount of 5%.
F. Use of Estimates. Management of the Trust has made certain estimates and
assumptions relating to the reporting of assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
G. Share Offerings. Beginning May, 1998 the Trust began issuing shares under
two separate shelf registration statements, whereby the net proceeds
received by the Trust from share sales may not be less than the greater of
(i) the NAV per share or (ii) 94% of the average daily market price over
the relevant pricing period.
NOTE 2 -- INVESTMENTS
For the six months ended August 31, 1998, the cost of purchases and the
proceeds from principal repayment and sales of investments, excluding
short-term notes, totaled $1,002,826,959 and $719,065,223, respectively. At
August 31, 1998, the Trust held senior loans valued at $1,626,434,169
representing 98.5% of its total investments. The market value of these
securities can only be established by negotiation between parties in a sales
transaction. Due to the uncertainty inherent in the valuation process, the fair
values as determined may materially differ from the market values that would
have been used had a ready market for these securities existed.
The senior loans acquired by the Trust may take the form of a direct co-lending
relationship with the corporate issuer, an assignment of a co-lender's interest
in a loan, or a participation interest in a co-lender's interest in a loan. The
lead lender in a typical corporate loan syndicate administers the loan and
monitors collateral. In the event that the lead lender becomes insolvent,
enters FDIC receivership or, if not FDIC insured, enters into bankruptcy, the
Trust may incur certain costs and delays in realizing payment, or may suffer a
loss of principal and/or interest. Additionally, certain situations may arise
where the Trust acquires a participation in a co-lender's interest in a loan
and the Trust does not have privity with or direct recourse against the
corporate issuer. Accordingly, the Trust may incur additional credit risk as a
participant because it must assume the risk of insolvency or bankruptcy of the
co-lender from which the participation was acquired. Common and preferred
stocks, and stock purchase warrants held in the portfolio were acquired in
conjunction with senior loans held by the Trust. Certain of these stocks and
warrants are restricted and may not be publicly sold without registration under
the '33 Act, or without an exemption under the '33 Act. In some cases, these
restrictions expire after a designated
27
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
period of time after issuance of the stock or warrant. These restricted
securities are valued at fair value as determined by the Board of Trustees by
considering quality, dividend rate, and marketability of the securities
compared to similar issues. In order to assist in the determination of fair
value, the Trust will
obtain quotes from dealers who periodically trade in such securities where such
quotes are available. Dates of acquisition and cost or assigned basis of
restricted securities are as follows:
DATE OF COST OR
ACQUISITION ASSIGNED BASIS
----------- --------------
America's Favorite Chicken Co. -- Common 11/05/92 $ 1
Autotote Systems, Inc. -- Option 11/11/92 --
Autotote Systems, Inc. -- Warrant 11/11/92 --
Capital Tool & Design -- Warrants 07/26/96 --
Covenant Care, Inc. -- Warrants 12/22/95 --
Dan River, Inc. -- Common 09/15/91 1,217,260
KDI Corp. Units of Trust 09/19/95 --
Staff Leasing, Inc. 09/01/95 30,550
----------
Total restricted securities excluding senior
loans (market value of $6,430,297 was 0.56%
of net assets at August 31, 1998) $1,247,811
==========
NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The Trust has entered into an Investment Management Agreement with Pilgrim
Investments, Inc. (the "Manager") a wholly-owned subsidiary of Pilgrim Group,
Inc. ("PG"), to provide advisory and management services. The Investment
Management Agreement compensates the Manager with a fee, computed daily and
payable monthly, at an annual rate of 0.80% of the Trust's average daily net
assets plus borrowings. Prior to August 6, 1998, the Investment Management
Agreement compensated the Manager at an annual rate of 0.85% of the Trust's
average daily net assets plus borrowings up to $700 million; 0.75% of the
average daily net assets plus borrowings of $700 million to $800 million; and
0.65% of average daily net assets plus borrowings in excess of $800 million.
The Manager has reduced its fee for a period of three years from the Expiration
Date of the November 12, 1996 Rights Offering (See Note 5) to 0.60% of the
average daily net assets, plus the proceeds of any outstanding borrowings, over
$1.15 billion.
The Trust has also entered into an Administration Agreement with PG to provide
administrative services and also to furnish facilities. The Administration
Agreement compensates the Administrator with a fee, computed daily and payable
monthly, at an annual rate of 0.15% of the Trust's average daily net assets
plus borrowings up to $800 million; and 0.10% of the average daily net assets
plus borrowings in excess of $800 million.
NOTE 4 -- COMMITMENTS
The Trust has entered into both a 364 day and a five year revolving credit
agreement to borrow up to $650 million from a syndicate of major financial
institutions maturing July 16, 2003. Borrowing rates under these agreements are
based on a fixed spread over LIBOR, the federal funds rate, or a commercial
paper based rate. The Trust also pays an unused arrangement fee for any
unborrowed amount amortized over 364 days and five years, respectively. The
amount of borrowings outstanding at August 31, 1998, was $509 million at a
weighted average interest rate of 5.9%, which represented 30.6% of net assets
plus borrowings. Average borrowings for the six months ended August 31, 1998,
were $452,049,180 and the average annualized interest rate was 6.1%.
28
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
As of August 31, 1998, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
Capstar Radio $ 2,433,684 Nextel Finance $ 3,388,000
Edward's Baking Co. 674,090 Palace Stations 35,831
Huntsman Corp. 954,660 Papa Gino's, Inc. 3,178,808
Liberman Broadcasting, Inc. 224,000 Stores Pathmark 3,834,711
Gaylord Container 9,103,448 -----------
$23,827,232
===========
NOTE 5 -- RIGHTS OFFERINGS
On October 18, 1996, the Trust issued to its shareholders transferable rights
which entitled the holders to subscribe for 18,122,963 shares of the Trust's
common stock at the rate of one share of common stock for each five rights
held. On November 12, 1996, the offering expired and was fully subscribed. The
Trust issued 18,122,963 shares of its common stock to exercising rights holders
at a subscription price of $9.09 . Offering costs of $6,972,203 were charged
against the offering proceeds.
On December 27, 1994, the Trust issued to its shareholders non-transferable
rights which entitled the holders to subscribe for 17,958,766 shares of the
Trust's common stock at the rate of one share of common stock for each four
rights held. On January 27, 1995, the offering expired and was fully
subscribed. The Trust issued 17,958,766 shares of its common stock to
exercising rights holders at a subscription price of $8.12. Offering costs of
$4,470,955 were charged against the offering proceeds.
NOTE 6 -- CUSTODIAL AGREEMENT
Investors Fiduciary Trust Company ("IFTC") serves as the Trust's custodian and
recordkeeper. Custody fees paid to IFTC are reduced by earnings credits based
on the cash balances held by IFTC for the Trust. For the six months ended
August 31, 1998, the Trust received $26,596 in earnings credits from IFTC.
NOTE 7 -- AFFILIATED TRANSACTIONS
During the six months ended August 31, 1998, the Trust sold certain holdings in
senior loans to an affiliated fund managed by the Manager at prices determined
by the Manager to represent market prices. The proceeds and cost of such loans
were $20,022,920 and $20,000,000, respectively, excluding any benefit to the
Trust from the recognition of deferred arrangement fees.
NOTE 8 -- SUBSEQUENT EVENTS
Subsequent to August 31, 1998, the Trust declared the following dividends from
net investment income:
PER SHARE AMOUNT DECLARATION DATE RECORD DATE PAYABLE DATE
- ---------------- ---------------- ----------- ------------
$0.0690 08/31/98 09/10/98 09/22/98
$0.0680 09/28/98 10/13/98 10/22/98
29
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
MANAGEMENT'S ADDITIONAL OPERATING INFORMATION
APPROVAL OF CHANGES IN INVESTMENT POLICIES
At a Special Meeting of Trust Shareholders, held August 6, 1998, Shareholders
approved changes in the Trust's fundamental investment policies which make
available certain additional investment opportunities to the Trust, including
(i) investing in loans in any form of business entity, as long as the loans
otherwise meet the Trust's requirements regarding the quality of loans in which
it may invest; (ii) the treatment of lease participations as Senior Loans which
would constitute part of the 80% of the Trust's assets normally invested in
Senior Loans; (iii) investing in all types of hybrid loans that meet credit
standards established by the Investment Manager constituting part of the 20% of
the Trust's assets that may be invested in Other Investments; (iv) the ability
to invest up to 5% of its total assets in both subordinated and unsecured loans
which would constitute part of the 20% of the Trust's assets that may be
invested in Other Investments.
Additionally, another policy change approved by the Board of Trustees of the
Trust, which does not require shareholder approval, permits the Trust to accept
guarantees and expanded forms of intangible assets as collateral, including
copyrights, patent rights, franchise value, and trademarks. Another policy
change approved by the Board that does not require shareholder approval
provides that 80% of the Trust's gross assets, as opposed to 80% of its net
assets, may normally be invested in Senior Loans.
The Trust's Manager considered the evolving nature of the syndicated loan
market and the potential benefits to the Trust and its shareholders of revising
the restriction to permit the Trust to invest in loans other than Senior Loans
and the increase in the number of attractive investment opportunities available
to the Trust due to the change.
REPURCHASE OF SECURITIES BY CLOSED-END COMPANIES
In accordance with Section 23(c) of the Investment Company Act of 1940, and
Rule 23c-1 under the Investment Company Act of 1940, the Trust may from time to
time purchase shares of beneficial interest of the Trust in the open market, in
privately negotiated transactions and/or purchase shares to correct erroneous
transactions.
SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program") which enables
investors to conveniently add to their holdings at reduced costs. Should you
desire further information concerning this Program, please contact the
Shareholder Servicing Agent at (800) 992-0180.
30
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31
<PAGE>
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32
<PAGE>
PILGRIM PRIME RATE TRUST
- --------------------------------------------------------------------------------
FUND ADVISORS AND AGENTS
- --------------------------------------------------------------------------------
INVESTMENT MANAGER INSTITUTIONAL INVESTORS AND ANALYSTS
Pilgrim Investments, Inc. Call Pilgrim Prime Rate Trust
Two Renaissance Square 1-800-336-3436, Extension 8256
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004-4424
SHAREHOLDER SERVICING AGENT TRANSFER AGENT
Pilgrim Group, Inc. DST Systems, Inc.
Two Renaissance Square P.O. Box 419368
40 North Central Avenue Kansas City, Missouri 64141
Suite 1200
Phoenix, Arizona 85004-4424
1-800-992-0180
INDEPENDENT AUDITORS CUSTODIAN
KPMG Peat Marwick LLP Investors Fiduciary Trust Company
725 South Figueroa Street 801 Pennsylvania
Los Angeles, California 90017 Kansas City, Missouri 64105
WRITTEN REQUESTS
Please mail all account inquiries and other comments to:
Pilgrim Prime Rate Trust Account Services
c/o Pilgrim Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
TOLL-FREE SHAREHOLDER INFORMATION
Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for
account or other information, at 1-800-992-0180.
33
<PAGE>
PILGRIM(sm)
THE VALUE OF INVESTING(R)
MagnaCap Fund
LargeCap Leaders Fund
MidCap Value Fund
Bank and Thrift Fund
Asia-Pacific Equity Fund
High Yield Fund
Government Securities Income Fund
---------------------------------------------------------------------------
Q2 Prospectuses containing more complete information
regarding the funds, including charges and expenses,
may be obtained by calling Pilgrim Securities, Inc.,
Distributor at 1-800-334-4444. Please read the
prospectuses carefully before you invest or send money.
13-SS-093098 103098
