Pilgrim America Prime Rate Trust
THIRD QUARTER REPORT
NOVEMBER 30, 1997
<PAGE>
Pilgrim America Prime Rate Trust
THIRD QUARTER REPORT
NOVEMBER 30, 1997
Table of Contents
Letter to Shareholders .................................................... 1
Shareholder Letter Footnotes .............................................. 5
Statistics and Performance ................................................ 6
Performance Footnotes ..................................................... 8
Additional Notes and Information .......................................... 9
Portfolio of Investments .................................................. 10
Statement of Assets and Liabilities ....................................... 18
Statement of Operations ................................................... 19
Statements of Changes in Net Assets ....................................... 20
Statement of Cash Flows ................................................... 21
Financial Highlights ...................................................... 22
Notes to Financial Statements ............................................. 24
Fund Advisor and Agents ................................................... 29
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Pilgrim America Prime Rate Trust
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Letter to Shareholders
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Dear Fellow Shareholders:
During the quarter ended November 30, 1997, Pilgrim America Prime Rate Trust
(the "Trust") paid it's 114th consecutive monthly dividend while maintaining its
net asset value ("NAV") between $9.42 and $9.33. Hence, the Trust has continued
to achieve its objective of providing a high current yield consistent with the
preservation of capital. Based on market price and NAV, the Trust's distribution
rate for the quarter was equivalent to 8.08% and 8.82%, respectively(1). The
Prime Rate remained at 8.50% throughout the period, while 60-day LIBOR, an index
of the rate of interest at which banks will lend money to one another, averaged
5.67%.(2)
Market Place
The active market for syndicated corporate loans through August, 1997 continued
during the quarter. Through November 15, 1997, primary deals in the market from
which we draw assets had a value of $119.8 billion. This compares with $104.2
billion in transactions during the comparable period in 1996.
Much of the activity in the most recent period arose in the Healthcare sector.
The growth of managed care, and continued reforms in public sector reimbursement
programs have spawned a large number of consolidations and realignments of
health care businesses. Generally, these have been designed to achieve large
operations which will derive economies of scale and thus lower costs. They have
also focused to various degrees on growth in skilled medical care outside the
traditional acute care hospital setting. Finally, the trend towards enlarged
facilities for North America's aging population has led to significant amounts
of capital being directed towards nursing homes.
Other recently active sectors include Automotive, where consolidation of
suppliers to the big manufacturers continues; Telecommunications, where
companies have continued to develop wireless and satellite capacity; Computers
and Electronics; and Retail Food and Drug, which is another industry in which
large scale operations are seen as an important way to lower costs and remain
competitive.
The presentation of industry concentrations in our Portfolio of Investments
shows each industry total as a percentage of net assets. Total Senior Loans are
therefore shown as 134.9% of net assets. The difference is represented by the
extent to which the Trust uses leverage for investment purposes. The Trust
Indenture requires that investments in any industry do not exceed 25% of total
assets. We generally manage risks as
1
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Pilgrim America Prime Rate Trust
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Letter to Shareholders
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percentages of total assets. For this reason we set out below industry
concentrations for the Trust's 10 largest sectors as percentages of net assets
and as percentages of total assets.
TOP 10 INDUSTRIES AS A % OF
NET ASSETS TOTAL ASSETS
---------- ------------
Health, Education & Childcare 18.8% 13.7%
Chemicals, Plastics & Rubber 9.9% 7.2%
Electronics 9.4% 6.8%
Aerospace and Defense 8.4% 6.1%
Beverage, Food & Tobacco 8.1% 5.9%
Automotive 7.0% 5.1%
Retail Stores 6.3% 4.6%
Printing and Publishing 5.5% 4.0%
Broadcasting 5.2% 3.8%
Buildings and Real Estate 5.2% 3.7%
We will examine sector concentrations and industry risks in more detail in the
Trust's Annual Report in February. During this quarter, however, the news which
has dominated all markets has been the progressive revaluation of the Asian
markets. How has this affected the Trust?
First, worries about Asia introduced higher levels of volatility into both
equity and corporate bond markets, hence, the return required by investors in
general rose during this quarter. The equity markets have recovered some of
their poise, but both equity and fixed income markets have become more
discriminating in applying risk premiums to specific companies as they report
more varied results.
Similarly, the risk premiums earned on senior loans have begun to rise. There is
a lag between price changes occurring in the secondary market and similar
changes in the primary market in which we raise the majority of the Trust's
assets. How far these risk premiums will rise depends on future changes in
economic fundamentals and the mood of the market. For the time being, however,
we saw, during November, the low watermark in margins offered on senior
loans.
2
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Pilgrim America Prime Rate Trust
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Letter to Shareholders
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More specifically, we have examined the Trust's portfolio to ensure that we are
monitoring risks which may alter as a result of events in Asia. Many North
American companies had expected considerable growth in their businesses as they
participated in Asia's comparatively robust growth. The combination of Asian
currency devaluations, financial sector restructuring, tight monetary policy and
fiscal conservatism being rolled out across East Asia will result in diminished
demand for imports into those countries, less disposable income and highly
competitive exports from Korea, Malaysia and Indonesia of goods with a
significant percentage of indigenous content.
Provided no dramatic political repercussions follow, most analysts believe that
the restructuring of Asian economies will take two to four years. During this
period, North American exporters are likely to see a decline in volumes and some
reduction in profit margins. Companies which sell goods and services in the
Americas, will now have to compete with relatively inexpensive imports from
Asia. This will apply downward pressure on prices of some goods and some
shrinkage in corporate profits. Overall, trade in Asia is unlikely to continue
to grow at the rates seen in the last 10 years.
While on a macro economic level the effect is expected by most analysts to be
minimal, we believe that the short term profitability and financial strength of
companies in some segments may be compromised. We have paid particular attention
to those portfolio companies which derive a significant proportion of their
revenue from Asia, those whose plans involve a large commitment of resources
there and firms which will have to compete against considerably cheaper,
Asian-sourced products. This analysis has led us to reduce or avoid further
exposure to wood products, air cargo, commodity steel and clothing. We will
continue to monitor developments in Asia carefully. It should be remembered that
unlike the equity of companies directly involved in Asia, which will tend to
fluctuate in value as market conditions change in Asia, the intrinsic value of
senior loans is very unlikely to be altered if the obligor's business has
significant non-Asian components and the underlying value of the Trust's
collateral is independent of economic variables in Asia.
The other result of the relative market instability caused by Asia's adjustments
has been a moderation in the amount of capital available to some institutional
investors in the senior loan market. It is too early to judge the extent of this
change, but if it were sustained, pricing on investments made by the Trust
should improve as demand for senior loan investments declines.
3
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Pilgrim America Prime Rate Trust
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Letter to Shareholders
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Asset Quality
Last quarter we reported an improving trend in the percentage of non-performing
assets in the portfolio. On September 30th, non-performing loans represented
1.27% of net assets and 0.96% of total assets. On November 30th, the comparable
percentages were 0.37% and 0.27%, respectively.
Portfolio Changes
Since August 1997, new investments have included Goodman Manufacturing Company,
L.P., Sun Healthcare, Panolam Industries and Extendicare Health Services, Inc.,
while sales and full repayments have included Ameriserve Food Distribution,
Carson Products Co., Continental Airlines, International Home Foods, IRI
International Co. and Mettler-Toledo.
Outlook
With the possible exception of the effect of developments in Asia on individual
companies, we do not foresee any significant changes in broad issues affecting
our market.
The re-alignment of supply and demand described earlier seems likely to apply
modest upward pressure to returns which may help to moderate recent downward
pressure on net investment income and consequent marginal pressure on dividends.
Thank you for your continued interest in the Trust. We welcome your comments and
questions.
/s/ Howard Tiffen /s/ Robert W. Stallings
Howard Tiffen Robert W. Stallings
President, COO, and Chairman and CEO
Senior Portfolio Manager Pilgrim America Investments, Inc.
Pilgrim America Prime Rate Trust January 16, 1998
January 16, 1998
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Pilgrim America Prime Rate Trust
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Letter to Shareholders
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(1) The distribution rate is calculated by annualizing the dividends
declared in each month and dividing the resulting annualized dividend
amount by the Trust's net asset value or NYSE Composite closing price,
as applicable at the end of the period. The distribution rate is based
solely on the actual dividends and distributions, which are made at the
discretion of management. The distribution rate may or may not include
all investment income and ordinarily will not include capital gains or
losses, if any.
(2) Source: Bloomberg Financial Markets. LIBOR is the London Inter-Bank
Offered Rate and is the benchmark for determining the interest paid on
more than 90% of the senior loans in the Trust's portfolio.
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.
This letter contains statements that may be "forward-looking statements." Actual
results could differ materially from those projected in the "forward-looking
statements".
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.
5
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Pilgrim America Prime Rate Trust
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Statistics and Performance as of November 30, 1997
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Portfolio Characteristics
Net Assets $1,037,186,845
Assets Invested in Senior Loans $1,398,930,957
Total Number of Senior Loans 138
Average Amount Outstanding per Loan $ 10,137,181
Total Number of Industries 28
Year to Date Portfolio Turnover Rate 64%
Average Loan Amount per Industry $ 49,961,820
Weighted Average Days to Interest Rate Reset 42 days
Average Loan Maturity 67 months
Average Age of Loans Held in Portfolio 11 months
TOP 10 INDUSTRIES AS A % OF
NET ASSETS TOTAL ASSETS
---------- ------------
Health, Education & Childcare 18.8% 13.7%
Chemicals, Plastics & Rubber 9.9% 7.2%
Electronics 9.4% 6.8%
Aerospace and Defense 8.4% 6.1%
Beverage, Food & Tobacco 8.1% 5.9%
Automotive 7.0% 5.1%
Retail Stores 6.3% 4.6%
Printing and Publishing 5.5% 4.0%
Broadcasting 5.2% 3.8%
Buildings and Real Estate 5.2% 3.7%
TOP 10 SENIOR LOANS AS A % OF
NET ASSETS TOTAL ASSETS
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MAFCO Financial Corp. 2.9% 2.1%
Community Health Systems 2.4% 1.7%
Favorite Brands International 2.3% 1.7%
Huntsman Chemical 2.2% 1.6%
Dade International 2.2% 1.5%
Liberty House, Inc. 2.1% 1.5%
Papa Gino's, Inc. 2.1% 1.5%
24-Hour Fitness,Inc 2.0% 1.5%
Paragon Health Network 1.9% 1.4%
Sun Healthcare 1.9% 1.4%
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Pilgrim America Prime Rate Trust
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Statistics and Performance as of November 30, 1997
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DISTRIBUTION RATES
30-Day 30-Day Annualized Annualized
Prime Yield at Yield at Distribution Distribution
Quarter-ended Rate NAV(A,D) MKT(A,D) Rate at NAV(B,D) Rate at MKT(B,D)
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November 30, 1997 8.50% 9.93% 9.08% 8.82% 8.08%
August 31, 1997 8.50% 8.58% 7.95% 8.82% 8.19%
May 31, 1997 8.50% 9.72% 9.15% 8.74% 8.23%
February 28, 1997 8.25% 8.44% 7.97% 8.69% 8.22%
This table sets forth the Trust's monthly dividend performance which is
summarized quarterly.
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
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Year to Date 7.57% 12.97%
1 Year 8.35% 19.22%
3 Years 8.44% 12.05%
5 Years 8.01% 11.14%
Since Trust Inception(G,I) 8.48% N/A
Since Initial Trading on NYSEH N/A 11.62%
Assumes rights were exercised and excludes sales charges and
commissions.(C,D,E,F)
See performance footnotes on page 8
7
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Pilgrim America 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 dividends
declared in 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 returns 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 total returns on an NAV basis with a 3% sales charge and
assuming rights were exercised through November 30, 1997 were 7.35% and
8.14% for the five-year and since inception periods, respectively. The
average annual total returns based on market price assuming rights were
exercised with a brokerage commission are not presented.
(D) As part of the 1996 rights offering (see F), the Investment Manager has
voluntarily reduced its management fee for the period from November
1996 through November 1999.
(E) 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. 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 charges against the offering
proceeds.
(F) 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 $6,972,203 were charged
against the offering proceeds.
(G) Inception date - May 12, 1988.
(H) Initial trading on NYSE - March 9, 1992.
(I) Reflects a 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.
8
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Pilgrim America Prime Rate Trust
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ADDITIONAL NOTES AND INFORMATION
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Trust shareholders are paid distributions in cash unless they elect to reinvest
the payments in additional shares of the Trust, at reduced brokerage
commissions, pursuant to the Dividend Reinvestment and Cash Purchase Plan. This
Plan also allows shareholders to make periodic cash purchases. For a copy of the
Plan, or for more information, contact our Shareholder Service Department at
1-800-331-1080.
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 31 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). The
Trust's name changed to Pilgrim America Prime Rate Trust and its cusip number
changed to 720906 10 6 effective April 12, 1996. The Trust's NAV and market
price are published weekly under the "Closed-End Funds" feature in Barron's, The
New York Times, The Wall Street Journal and many other regional and national
publications.
9
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Pilgrim America Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited)
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SENIOR LOANS*
(Dollar weighted portfolio interest reset period is 42 days)
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Aerospace and Defense: 8.4%
$ 5,060 Aerostructures Corp. (airframe and component manufacturer) Term B 09/30/03 $ 5,060,000
1,840 Aerostructures Corp. Term C 09/30/04 1,840,000
14,850 Banner Aerospace (aerospace fasteners) Term B 07/01/03 14,850,000
8,955 Erickson Air-Crane Co. (heavy lift helicopters) Term B 12/31/04 8,955,000
3,885 Fairchild Holdings Corp. (aerospace fasteners) Term 07/28/00 3,884,921
1,379 Fairchild Holdings Corp. Revolver 07/28/00 1,379,365
10,875 K&F Industries, Inc. (aircraft brakes) Term B 10/15/05 10,875,000
4,860 Mag Aerospace Industries (aircraft component supplier) Term B 06/15/03 4,859,750
6,530 Technetics Corp. (aircraft engine components) Term 06/20/02 6,530,303
14,355 Tri Star/Odyssey, Inc. (aerospace hardware distributor) Term 09/30/03 14,355,000
7,533 United Defense (defense contractor) Term B 10/02/05 7,532,609
7,317 United Defense Term C 10/08/05 7,317,391
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87,439,339
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Automotive: 7.0%
15,000 American Axel & Manufacturing (car/truck axel
manufacturing) Term B 04/30/06 15,000,000
17,000 Breed Technologies, Inc. (airbags/seatbelts) Term 10/30/98 17,000,000
10,000 Cambridge Industries, Inc. (automotive plastics) Term B 05/17/02 10,000,000
9,457 Capital Tool & Design (brake backing plates) Term B 07/19/03 9,457,199
4,216 Hayes Wheels International (automotive wheels) Term B 07/31/03 4,216,000
3,415 Hayes Wheels International Term C 07/31/04 3,415,111
4,000 Safelite Glass Corp. (automobile windshield replacement) Term B 12/20/04 4,000,000
9,760 Schrader, Inc. (fluid/air control valve manufacturer) Term B 11/30/02 9,759,718
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72,848,028
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Beverage, Food and Tobacco: 8.1%
8,100 Del Monte Corp. (food manufacturing and distribution) Term B 03/31/05 8,100,000
2,726 Edward's Baking Co. (food service bakery) Term A 09/30/03 2,725,910
3,333 Edward's Baking Co. Term B 09/30/05 3,333,333
3,333 Edward's Baking Co. Term C 09/30/05 3,333,334
13,965 Empire Kosher Poultry (kosher chicken and poultry) Term B 07/31/04 13,965,000
20,749 Favorite Brands International (confectionary manufacturer) Term B 08/01/04 20,749,282
3,404 Favorite Brands International Term C 02/01/05 3,403,785
8,728 Snapple Beverage Co. (soft drink manufacturer) Term B 06/01/04 8,728,125
8,728 Snapple Beverage Co. Term C 06/01/05 8,728,125
7,030 Van De Kamp's (frozen foods) Term B 04/30/03 7,029,687
4,411 Van De Kamp's Term C 09/30/03 4,410,601
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84,507,182
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Broadcasting: 5.2%
3,741 Benedek Broadcasting Television Corp. (broadcasting) Axel A (A) 12/05/02 3,741,192
4,181 Benedek Broadcasting Television Corp. Axel B (A) 12/05/02 4,180,796
3,486 Cable Plus Company, L.P. (private cable television) Revolver 12/31/04 3,485,714
5,124 Classic Cable (rural cable system operator) Term B 06/30/05 5,124,179
889 Classic Cable Revolver 06/30/03 889,042
7,463 Entravision (Spanish broadcast television) Term B 12/31/04 7,462,500
</TABLE>
See Accompanying Notes to Financial Statements
10
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Pilgrim America Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Broadcasting (continued)
$ 8,944 FrontierVision (cable television) Term B 06/30/05 $ 8,944,444
10,000 Intermedia Partners IV (cable television) Term 01/01/05 10,000,000
9,817 Phoenix Associates, Inc. (cable television) Term B 12/31/99 9,816,667
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53,644,534
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Buildings and Real Estate: 5.2%
6,000 Dayton Superior (concrete/masonry accessories) Term 09/29/05 6,000,000
11,000 Falcon Building Products (building products) Term B 06/30/05 11,000,000
8,750 Goodman Manufacturing Company L.P. (air conditioning
(manufacturer) Term B 09/30/04 8,750,000
8,750 Goodman Manufacturing Company L.P. Term C 09/30/05 8,750,000
4,000 The Presley Companies (homebuilder) Revolver 05/20/98 4,000,000
13,965 Tree Island Industries (nail and wire products) Term B 03/31/03 13,965,000
964 United Building Materials, Inc. (stone and concrete products)(1) Term 04/30/96 964,211
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53,429,211
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Cargo Transport: 3.4%
20,000 Atlas Freighter Leasing (air cargo carrier) Term 05/29/04 20,000,000
14,937 Evergreen International (air cargo carrier) Term B 05/07/03 14,937,002
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34,937,002
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Chemicals, Plastics and Rubber: 9.9%
4,776 Behr Process Corp. (paint manufacturer) Term B 03/31/04 4,776,000
3,184 Behr Process Corp. Term C 03/31/05 3,184,000
11,368 Cedar Chemical Corp. (specialty chemicals) Term B 10/30/03 11,367,962
4,703 Foamex, L.P. (polyurethane foam) Term B 06/30/05 4,702,500
4,275 Foamex, L.P. Term C 06/30/06 4,275,000
4,792 GEO Specialty Chemicals (specialty chemicals) Term A 09/25/02 4,791,667
9,950 GEO Specialty Chemicals Term B 03/25/04 9,950,000
15,000 Huntsman Chemical (specialty chemicals) Term A 03/15/07 15,000,000
3,929 Huntsman Chemical Term B 03/15/04 3,928,571
3,929 Huntsman Chemical Term C 03/15/05 3,928,571
3,000 Huntsman Corp. (industrial chemicals) Term A 12/31/02 3,000,000
4,004 Huntsman Corp. Term B 12/31/05 4,004,382
2,738 Huntsman Corp. Revolver 12/31/02 2,737,500
8,780 Intesys Technologies, Inc. (contract engineering and
manufacturing) Term B 12/31/01 8,780,488
7,143 NEN Life Sciences Products (biochemicals) Term B 12/31/04 7,142,857
6,500 Sunbelt Manufacturing LLC (plastics manufacturer) Term B 09/30/04 6,500,000
4,862 Texas Petrochemical Corp. (industrial chemicals) Term B 06/30/04 4,861,503
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102,931,001
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Containers, Packaging and Glass: 1.4%
2,800 Calmar, Inc. (non-aerosol fluid dispensing systems) Axel A (A) 09/15/03 2,800,000
2,100 Calmar, Inc. Axel B (A) 03/15/04 2,100,000
5,713 RIC Holdings, Inc. (packaging and paper products) Term B 02/27/04 5,712,580
4,263 RIC Holdings, Inc. Term C 08/31/04 4,262,697
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14,875,277
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</TABLE>
See Accompanying Notes to Financial Statements
11
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Pilgrim America Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Diversified/Conglomerate Manufacturing: 1.8%
$ 7,000 Desa International (specialty equipment manufacturing) Term 08/31/01 $ 7,000,000
4,896 Jackson Products, Inc. Term B 09/01/02 4,895,653
(industrial safety equipment manufacturer)
4,900 Jackson Products, Inc. Term C 09/01/03 4,900,000
1,337 Jackson Products, Inc. Term D 09/01/03 1,336,500
276 @ KDI Corp. (liquidating trust) (2) Term A 12/31/96 16,791
13 @ KDI Corp. (2) Term B 12/31/96 13,187
-------------
18,162,131
-------------
Diversified/Conglomerate Services: 4.1%
30,000 MAFCO Financial Corp. Term 03/20/99 30,000,000
(diversified services and entertainment)
200 MAFCO Financial Corp. Revolver 03/20/99 200,000
12,817 Outsourcing Solutions (accounts receivable management) Term B 11/06/03 12,816,901
-------------
43,016,901
-------------
Ecological: 1.6%
6,361 Clean Harbors (environmental services) Term 05/08/00 6,360,698
4,988 Laidlaw Environmental Services, Inc. (waste management) Term B 05/15/04 4,987,500
4,988 Laidlaw Environmental Services, Inc. Term C 05/15/05 4,987,500
-------------
16,335,698
-------------
Electronics: 9.4%
5,676 Anacomp, Inc. (document storage and imaging) Term 02/28/01 5,676,466
7,450 Celestica (diversified electronic device manufacturer) Term B 06/30/03 7,450,000
11,875 Dictaphone Acquisition, Inc. Term B 06/30/02 11,875,000
(dictation and recording equipment)
5,000 Dictaphone Acquisition, Inc. Term C 06/30/03 5,000,000
3,576 Elgar Electronics (electronic testing equipment) Term B 03/31/03 3,575,734
7,375 Fairchild Semiconductor Corp. (electronic equipment) Term B 03/11/03 7,375,000
6,000 Intri-Plex Technologies, Inc. Term 09/30/02 6,000,000
(disk drive component manufacturer)
9,714 OK Industries (circuit board manufacturing systems) Term 10/31/02 9,714,286
9,925 Phase Metrics, Inc. (computer testing equipment) Term A 11/30/01 9,925,000
14,550 PSC Incorporated (scanning equipment) Term B 06/28/02 14,550,000
10,000 Sarcom Inc. (systems integration) Term 11/20/02 10,000,000
6,000 Telex Communications Group (electronic equipment) Term B 11/06/04 6,000,000
-------------
97,141,486
-------------
Finance: 0.8%
8,000 National Partnership Investments Corp. (asset management) Term 06/30/01 8,000,000
-------------
Grocery: 5.1%
5,000 Bruno's, Inc. (food retailer) Term B 04/15/05 4,200,000
1,934 Pathmark Stores, Inc. (northeastern states supermarkets) Term A 06/15/01 1,933,885
10,216 Pathmark Stores, Inc. Term B 12/15/01 10,215,909
529 Pathmark Stores, Inc. Revolver 06/15/01 528,926
5,883 Ralph's Grocery Company (supermarket) Term A 02/15/03 5,882,667
14,925 Schwegmann Giant Supermarket (Louisiana supermarkets) Term B 01/31/04 14,925,000
11,282 Star Markets Co., Inc. (Boston area supermarkets) Term B 12/31/01 11,281,694
3,500 Star Markets Co., Inc. Term C 12/31/03 3,500,000
-------------
52,468,081
-------------
</TABLE>
See Accompanying Notes to Financial Statements
12
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Healthcare, Education and Childcare: 18.8%
$ 4,123 Alaris Medical Systems (infusion pumps) Term B 11/30/03 $ 4,123,350
4,123 Alaris Medical Systems Term C 11/30/04 4,123,350
3,881 Alaris Medical Systems Term D 05/31/05 3,880,800
9,007 Community Health Systems (hospitals) Term B 12/31/03 9,006,849
9,007 Community Health Systems Term C 12/31/04 9,006,849
6,781 Community Health Systems Term D 12/31/05 6,780,822
6,000 Covenant Care, Inc. (nursing homes) Term 06/30/99 6,000,000
5,101 Dade International (medical testing equipment manufacturer) Term B 12/31/02 5,101,436
5,101 Dade International Term C 12/31/03 5,101,436
12,304 Dade International Term D 12/31/04 12,304,128
14,000 Extendicare Health Services, Inc. (long-term care facility
operator) Term B 12/31/04 14,000,000
7,481 Fountain View (nursing homes) Term B 09/30/04 7,481,250
7,729 Genesis Corp. (elderly healthcare and support) Term B 06/01/04 7,729,167
5,521 Genesis Corp. Term C 06/01/05 5,520,833
9,818 Graphic Controls Corp. (industrial and medical charts) Term B 09/28/03 9,818,220
2,808 Hanger Orthopedics Group (orthopedic and prosthetic services) Term B 12/31/01 2,807,852
12,500 Healthcare America, Inc. (youth psychiatric care) Term B 06/30/04 12,500,000
9,880 Mediq/PRN Life Support, Inc. (hospital equipment leasing) Term 09/28/98 9,879,577
4,988 Packard Bioscience Co. (analytical instrument manufacturer) Term B 03/13/03 4,987,500
10,000 Paragon Health Network (nursing homes) Term B 03/31/05 10,000,000
10,000 Paragon Health Network Term C 03/31/06 10,000,000
5,000 Prime Medical Supplies (lithotripter services) Term B 04/30/03 5,000,000
10,000 SMT Health (mobile MRI systems) Term 08/31/03 10,000,000
10,000 Sun Healthcare (nursing homes) Term B 12/31/97 10,000,000
10,000 Sun Healthcare Term C 12/31/97 10,000,000
-------------
195,153,419
-------------
Home and Office Furnishings, Housewares and Durable
Consumer Products: 3.3%
16,941 ICON Health & Fitness Co. (exercise equipment) Term B 11/14/01 16,941,328
1,553 Panolam Industries (design and manufacture wood paneling) Term A 01/31/03 1,552,500
8,558 Panolam Industries Term B 01/31/03 8,557,500
4,890 Panolam Industries Term C 01/31/03 4,890,000
2,000 Panolam Industries Term D 01/31/03 2,000,000
-------------
33,941,328
-------------
Hotels, Motels, Inns and Gaming: 4.0%
3,125 Capstar Hotel Co. (hotel management and ownership) Term 06/30/04 3,125,000
5,971 Doubletree Corp. (hotel management) Term B 05/08/04 5,970,694
6,987 Interstate Hotels Corp. (hotel management and ownership) Term C 06/25/04 6,987,037
8,062 Palace Stations (gaming) Revolver 09/30/00 8,062,006
11,460 Sunset Station Hotel and Casino, Inc. (gaming) Term 09/30/00 11,459,773
6,360 Sunset Station Hotel and Casino, Inc. Term 09/30/00 6,360,227
-------------
41,964,737
-------------
</TABLE>
See Accompanying Notes to Financial Statements
13
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Insurance: 0.7%
$ 7,500 TRG Holdings Corp. (insurance run-off) Term 01/31/03 $ 7,500,000
-------------
Leisure, Amusement, Motion Pictures and Entertainment: 4.8%
7,075 AMF Group (bowling centers and equipment) Term A (A) 05/01/03 7,146,226
4,416 AMF Group Term B (A) 05/01/04 4,460,372
10,000 Metro-Goldwyn-Mayer, Inc. (film library) Term B 10/10/03 10,000,000
19,000 24-Hour Fitness, Inc. (health club operator) Term 05/31/00 19,000,000
2,019 24-Hour Fitness, Inc. Revolver 05/31/00 2,019,204
7,157 Worldwide Sports & Recreation Corp. (optics, sports products) Term B 03/31/01 6,977,665
-------------
49,603,467
-------------
Machinery (Nonagriculture, Nonconstruction,
Nonelectronic): 1.7%
7,789 Clearing - Niagra (metal stamping press manufacturer) Term 10/18/04 7,789,474
9,592 Columbus McKinnon (industrial lifts and hoists) Term B 03/01/04 9,591,807
-------------
17,381,281
-------------
Mining, Steel, Iron and Nonprecious Metals: 3.3%
5,955 Cable Systems International (cable wire manufacturer) Term B 10/04/02 5,955,000
3,462 Centennial Resources (coal mining) Term A 03/31/02 3,461,539
8,558 Centennial Resources Term B 03/31/04 8,557,692
9,800 GS Technologies (metal products) Term 09/30/02 9,800,000
1,023 National Refractories, Inc. (kiln lining materials) Term B 09/30/99 1,023,227
4,980 National Refractories, Inc. Term C 09/30/99 4,979,726
-------------
33,777,184
-------------
Oil & Gas: 0.4%
1,091 Perf-O-Log (oil field services) Term 08/11/03 1,090,910
2,909 Perf-O-Log Term B 08/11/03 2,909,090
-------------
4,000,000
-------------
Personal, Food and Miscellaneous Services: 5.1%
14,813 Boston Chicken, Inc. (quick service restaurant chain) Term C 12/12/01 14,812,500
10,782 Coinmach Corp. (commercial laundry operator) Term B 06/08/04 10,782,122
2,604 Denamerica Corp. (quick service restaurant franchisee) Term 12/31/01 2,604,303
2,563 Long John Silvers, Inc. (quick service seafood restaurant chain) Term B 09/30/02 2,435,058
6,204 Papa Gino's, Inc. (quick service restaurants) Term A 02/19/02 6,204,348
15,112 Papa Gino's, Inc. Term B 02/19/04 15,111,946
4,357 @ Softworld Services (software fulfillment services) Term A 06/30/00 522,840
4,357 @ Softworld Services Term B 06/30/01 522,840
-------------
52,995,957
-------------
Personal and Nondurable Consumer Products
(Manufacturing Only): 4.5%
1,250 AM Cosmetics (cosmetics and skin care products) Term A 06/30/03 1,250,000
8,731 AM Cosmetics Term B 12/31/04 8,731,250
4,294 Duo-Tang, Inc. (report cover manufacturer) Term A 12/31/02 4,293,648
5,342 Duo-Tang, Inc. Term B 12/31/02 5,341,666
</TABLE>
See Accompanying Notes to Financial Statements
14
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Personal and Nondurable Consumer Products
(Manufacturing Only)(continued)
$11,313 Eye Care Centers, Inc. (retail eye care products and services) Term 09/26/02 $ 11,312,500
10,000 Medtech Products, Inc. (non-prescription consumer medications) Term B 10/15/02 10,000,000
2,750 Rayovac Corp. (battery manufacturer) Term B 09/30/03 2,750,000
2,750 Rayovac Corp. Term C 09/30/04 2,750,000
-------------
46,429,064
-------------
Printing and Publishing: 5.5%
6,825 Bankers Systems, Inc. (compliance services to banking industry) Term B 11/01/02 6,825,000
19,896 Eastern Pulp & Paper (specialty paper) Term 08/31/04 19,895,833
2,096 Jefferson Smurfit Corp. (linerboard/paper products) Term A 04/30/01 2,096,290
1,899 Jefferson Smurfit Corp. Revolver 04/01/01 1,899,308
3,634 St. Laurent Paper Products (linerboard manufacturer) Term B 05/31/03 3,634,021
13,866 St. Laurent Paper Products Term C 05/31/04 3,865,979
12,313 Stone Container (paper products) Term D 10/01/03 12,312,500
3,363 Von Hoffman Press, Inc. (textbook manufacturer) Term B 05/29/04 3,362,500
3,363 Von Hoffman Press, Inc. Term C 05/29/05 3,362,500
-------------
57,253,931
-------------
Retail Stores: 6.3%
6,916 @ Color Tile, Inc. (home improvement retailer)(3) Term D 12/31/98 2,766,311
1,352 Color Tile, Inc. (D.I.P.) (3) Revolver 12/30/97 1,352,066
3,083 Liberty House, Inc. (Hawaii department store chain) Term A 06/30/01 3,082,927
18,950 Liberty House, Inc. Term B 06/30/02 18,950,000
12,452 Murray's Discount Auto Parts (auto parts retailer) Term 06/30/03 12,451,923
7,400 NBC Acquisition (wholesale and retail textbooks) Term 08/31/03 7,400,000
5,941 Peebles, Inc. (department store chain) Term A 04/30/01 5,941,375
7,794 Peebles, Inc. Term B 04/30/02 7,793,641
5,981 TravelCenters of America (road transport service centers) Term B 03/27/05 5,981,250
-------------
65,719,493
-------------
Telecommunications: 2.9%
8,920 Clarity Telecommunications (telecommunications service) Term B 07/01/03 8,920,000
1,873 Nextel Finance Co. (personal communications services) Term C 06/30/03 1,872,659
9,571 Shared Technologies, Inc. (communication services) Term B 03/31/03 9,571,429
10,000 Teletouch Communications (rural paging services) Term A 11/30/03 10,000,000
-------------
30,364,088
-------------
Textiles and Leather: 2.2%
6,708 Harriet & Henderson (yarn manufacturer) Term A 06/12/00 6,708,237
6,860 Humphreys, Inc. (belts and personal leather goods) Term B 11/15/03 6,860,000
5,478 Targus Group, Int'l. (computer luggage manufacturer) Term A 01/18/02 5,477,707
4,065 Targus Group, Int'l. Term B 01/18/03 4,065,193
-------------
23,111,137
-------------
Total Senior Loans - 134.9% 1,398,930,957
-------------
(Cost $1,411,424,325)
</TABLE>
See Accompanying Notes to Financial Statements
15
<PAGE>
Pilgrim America Prime Rate Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTHER CORPORATE DEBT
Loan Stated
Shares Type Maturity Value
- ------ ---- -------- -----
<S> <C> <C> <C> <C>
Automotive: 0.6%
6,000 Capital Tool & Design (brake backing plates) Sub. 07/26/03 $ 6,000,000
Note
--------------
Total Other Corporate Debt - 0.6% 6,000,000
--------------
(Cost $6,000,000)
COMMON STOCK AND PREFERRED STOCK
Apparel Products: 0.0%
13,924 @ Butterick Company, Inc. (sewing aids) 12,557
--------------
Diversified/Conglomerate Manufacturing: 0.0%
2,632 @ KDI Corp.--common (defense and leisure products) (2) --
--------------
Restaurants: 0.3%
413,980 @ America's Favorite Chicken Co.--common
(quick service restaurant chain) (R) 3,645,645
17,664 @ Flagstar, Inc.--common (family restaurants, institutional food
service companies) 530
--------------
3,646,175
--------------
Textiles and Leather: 0.2%
127,306 @ Dan River (Braelan) Corp.--common (diversified textiles) (R) 1,718,631
--------------
Total Common Stock and Preferred Stock - 0.5% 5,377,363
--------------
(Cost $1,471,624)
</TABLE>
<TABLE>
<CAPTION>
STOCK PURCHASE WARRANTS AND OTHER SECURITIES
<S> <C> <C> <C>
1 @ Autotote Systems, Inc., Warrant representing 48,930 common
shares (designer and manufacturer of wagering equipment),
Expires 10/30/03 (R) 35,474
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) 143,529
19,000 @ Covenant Care, Inc., Warrants representing 19,000 common
shares (nursing homes) (R) 285,000
26,606 @ KDI Corp. Units of Trust (liquidating trust) (R)(2) --
106,902 @ Staff Leasing, Inc. (employee leasing)(R) 2,140,713
--------------
Total Stock Purchase Warrants and Other Securities - 0.2% 2,604,716
--------------
(Cost $61,100)
Total Investments (Cost $1,418,957,049) (5) 136.2% $1,412,913,036
Liabilities in Excess of Cash and Other Assets-Net (36.2) (375,726,191)
----- --------------
Net Assets 100.0% $1,037,186,845
===== ==============
</TABLE>
See Accompanying Notes to Financial Statements
16
<PAGE>
Pilgrim America Prime Rate Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
- ----------------
@ 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 has converted to a liquidating trust.
(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) For Federal income tax purposes, which is the same for financial reporting
purposes, cost of investments is $1,418,957,049 and net unrealized
depreciation consists of the following:
Gross Unrealized Appreciation $ 7,951,302
Gross Unrealized Depreciation (13,995,315)
-------------
Net Unrealized Depreciation $ (6,044,013)
=============
See Accompanying Notes to Financial Statements
17
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Cash $ 1,481,681
Investments in securities at value (Cost $1,418,957,049) 1,412,913,036
Receivables:
Interest 14,302,950
Other 129,422
Prepaid arrangement fees on notes payable 471,951
Prepaid expenses 223,766
--------------
Total assets 1,429,522,806
--------------
LIABILITIES:
Notes payable 386,000,000
Deferred arrangement fees on senior loans 4,471,637
Accrued interest payable 1,470,105
Accrued expenses 394,219
--------------
Total liabilities 392,335,961
--------------
NET ASSETS (equivalent to $9.40 per share, based on 110,320,982 shares
of beneficial interest authorized and outstanding, no par value) $1,037,186,845
==============
Net Assets Consist of:
Paid-in capital $1,047,106,395
Undistributed net investment income 14,797,295
Accumulated net realized loss on investments (18,672,832)
Net unrealized depreciation of investments (6,044,013)
--------------
Net assets $1,037,186,845
==============
</TABLE>
See Accompanying Notes to Financial Statements
18
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Nine Months Ended November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 90,878,578
Arrangement fees earned 5,083,731
Other 2,563,830
------------
Total investment income 98,526,139
------------
EXPENSES:
Interest 15,334,652
Investment management fees 7,712,724
Administration fees 1,328,907
Revolving credit facility fees 689,134
Transfer agent and registrar fees 312,146
Recordkeeping and pricing fees 158,477
Reports to shareholders 249,211
Miscellaneous expense 174,655
Custodian fees 232,141
Professional fees 132,099
Trustees' fees 58,000
Insurance expense 42,229
------------
Total expenses 26,424,375
Less: Earnings credits (1,782)
------------
Net expenses 26,422,593
------------
Net investment income 72,103,546
------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized loss on investments (7,238,544)
Change in unrealized depreciation of investments (2,304,656)
------------
Net loss on investments (9,543,200)
------------
Net increase in net assets resulting from operations $ 62,560,346
============
See Accompanying Notes to Financial Statements
19
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended Year
November 30, Ended
1997 February 28,
(Unaudited) 1997
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 72,103,546 $ 78,947,910
Net realized loss on investments (7,238,544) (3,523,769)
Change in unrealized appreciation (depreciation) of
investments (2,304,656) 974,085
-------------- --------------
Net increase in net assets resulting from operations 62,560,346 76,398,226
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (67,723,777) (77,640,968)
CAPITAL SHARE TRANSACTIONS:
Issuance from dividend reinvestment 11,260,937 11,628,959
Net increase in net assets derived from the sale of shares in
connection with rights offering -- 157,765,531
-------------- --------------
Net increase in capital share transactions 11,260,937 169,394,490
Total increase in net assets 6,097,506 168,151,748
NET ASSETS:
Beginning of period 1,031,089,339 862,937,591
-------------- --------------
End of period (including undistributed net investment
income of $14,797,295 and $10,417,526, respectively) $1,037,186,845 $1,031,089,339
============== ==============
SUMMARY OF CAPITAL SHARE TRANSACTIONS:
Shares issued in payment of distributions from net
investment income 1,181,153 1,011,738
Shares sold in connection with Rights Offering -- 18,122,963
-------------- --------------
Net increase in shares outstanding 1,181,153 19,134,701
============== ==============
</TABLE>
See Accompanying Notes to Financial Statements
20
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Nine Months Ended November 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
Cash Flows From Operating Activities:
Interest received $ 89,032,625
Facility fees received 2,819,537
Commitment fees received 188,549
Other income received 2,838,623
Interest paid (15,308,879)
Other operating expenses paid (11,011,815)
Purchases of short-term investments (8,000,000)
Purchases of portfolio securities (994,452,928)
Proceeds from disposition of portfolio securities 873,179,595
------------
Net cash used for operating activities (60,714,693)
------------
Cash Flows From Financing Activities:
Dividends paid (56,803,626)
Overdraft financing --
Loan advance 119,000,000
------------
Net cash provided by financing activities 62,196,374
------------
Net increase in cash 1,481,681
Cash at beginning of year --
------------
Cash at end of period $ 1,481,681
------------
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 62,560,346
------------
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operating activities:
Increase in investments in securities (119,280,425)
Increase in dividends and interest receivable (2,557,844)
Decrease in other assets 94,002
Decrease in prepaid arrangement fees on notes payable 229,620
Increase in prepaid expenses (178,348)
Decrease in deferred arrangement fees on senior loans (1,603,883)
Increase in accrued interest payable 412,604
Decrease in accrued expenses (390,765)
------------
Total adjustments (123,275,039)
------------
Net cash used for operating activities $(60,714,693)
============
</TABLE>
See Accompanying Notes to Financial Statements
21
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended
November 30, Years Ended February 28 or February 29,
1997 ----------------------------------------------------
(Unaudited) 1997(7) 1996(6) 1995 1994
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 9.45 $ 9.61 $ 9.66 $ 10.02 $ 10.05
Net investment income 0.66 0.82 0.89 0.74 0.60
Net realized and unrealized gain (loss) on
investments (0.09) ( 0.02) (0.08) 0.07 (0.05)
---------- -------- -------- -------- --------
Increase in net asset value from investment
operations 0.57 0.80 0.81 0.81 0.55
Distributions from net investment income (0.62) ( 0.82) (0.86) (0.73) (0.60)
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 $ 9.40 $ 9.45 $ 9.61 $ 9.66 $ 10.02
========== ======== ======== ======== ========
Closing market price at end of period $ 10.25 $ 10.00 $ 9.50 $ 8.75 $ 9.25
Total Return
Total investment return at closing market
price(3) 9.33% 15.04%(5) 19.19% 3.27%(5) 8.06%
Total investment return at closing net asset
value(4) 5.99% 8.06%(5) 9.21% 5.24%(5) 6.28%
Ratios/Supplemental Data
Net assets, end of period (000's) $1,037,187 $1,031,089 $862,938 $867,083 $719,979
Average borrowings (000's) $ 332,942 $131,773 $ -- $ -- $ --
Ratios to average net assets plus borrowing:
Expenses (before interest and other fees
related to revolving credit facility) 1.01%(1) 1.13% -- -- --
Expenses 2.56%(1) 1.92% 1.23% 1.30% 1.31%
Net investment income 7.02%(1) 7.59% 9.23% 7.59% 6.04%
Portfolio turnover rate 64% 82% 88% 108% 87%
Shares outstanding at end of period (000's) 110,321 109,140 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
22
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended February 28 or February 29,
-------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$ 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
</TABLE>
- ------------
(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
23
<PAGE>
Pilgrim America Prime Rate Trust
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NOTES TO FINANCIAL STATEMENTS as of November 30,1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Pilgrim America Prime Rate Trust (the "Trust", formerly Pilgrim Prime Rate
Trust) is registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end, management investment 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
America 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. Due to
the timing of dividend distributions and the differences in accounting for
income and realized gains (losses) for financial statement and federal income
tax purposes, the fiscal year in which amounts are distributed may differ
from the year in which the income and realized gains (losses) were recorded
by the Trust. The differences between the income or gains distributed on a
book versus tax basis, if any, are shown as excess distributions of net
investment income and net realized gain on sales of investments in the
accompanying Statements of Changes in Net Assets.
At February 28, 1997, the Trust had a capital loss carryforward for federal
income tax purposes of approximately $7,196,156 which is scheduled to
expire through February 28, 2005.
The Board of Trustees intends to offset net capital gains with capital loss
carryforwards until each carryforward has been fully utilized or expires.
In addition, no capital gain distributions shall be made until the capital
loss carryforward has been fully utilized or expires.
24
<PAGE>
Pilgrim America Prime Rate Trust
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NOTES TO FINANCIAL STATEMENTS as of November 30,1997 (Unaudited)
- --------------------------------------------------------------------------------
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.
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 Automatic Dividend Reinvestment Plan,
Investors Fiduciary Trust Co., the Plan Agent, may purchase, from time to
time, shares of beneficial interest of the Trust on the open market to
satisfy dividend reinvestments. Such shares will be purchased only when the
closing sale or bid price plus commission is less than the net asset value
per share of the stock. If the market price plus commissions is equal to or
exceeds the net asset value, new shares valued at the net asset value most
recently calculated will be issued.
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.
NOTE 2 -- INVESTMENTS
For the nine months ended November 30, 1997, the cost of purchases and the
proceeds from principal repayment and sales of investments, excluding
short-term notes, totaled $994,452,928 and $ 873,179,595, respectively. At
November 30, 1997, the Trust held senior loans valued at $1,398,930,957
representing 99.0% 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.
25
<PAGE>
Pilgrim America Prime Rate Trust
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NOTES TO FINANCIAL STATEMENTS as of November 30,1997 (Unaudited)
- --------------------------------------------------------------------------------
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 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:
<TABLE>
<CAPTION>
Date of Cost or
Acquisition Assigned Basis
----------- --------------
<S> <C> <C>
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 61,100
----------
Total restricted securities excluding senior loans (market value
of $7,968,992 was 0.77% of net assets at November 30, 1997) $1,278,361
==========
</TABLE>
NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The Trust has entered into an Investment Management Agreement with Pilgrim
America Investments, Inc. (the "Manager") a wholly-owned subsidiary of Pilgrim
America Group, Inc. ("PAG"), 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 0.85% 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 to $800 million; and 0.65% of the average
daily net assets plus borrowings in excess of $800 million.
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 (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 PAG 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.
26
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30,1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 -- COMMITMENTS
The Trust has entered into both a 364 day and a four year revolving credit
agreement to borrow up to $515 million from a syndicate of major banks maturing
June 25, 1998 and May 2, 2000, respectively. Borrowing rates under these
agreements are based on a fixed spread over LIBOR or the federal funds rate.
The Trust also pays an unused arrangement fee for any unborrowed amount
amortized over 364 days and four years, respectively. The amount of borrowings
outstanding at November 30, 1997, was $386.0 million at a weighted average
interest rate of 6.2%, which represented 27.1% of net assets plus borrowings.
Average borrowings for the nine months ended November 30, 1997, were
$332,942,101 and the average annualized interest rate was 6.1%.
As of November 30, 1997, the Trust had unfunded loan commitments pursuant to
the terms of the following loan participation agreements:
Cable Plus Company, L.P. $ 6,514,286 Nextel Finance Co. $ 7,902,622
Capstar Hotel Co. 3,125,000 Palace Stations 3,529,367
Classic Cable 39,702 Papa Gino's, Inc. 3,178,808
Edward's Baking Co. 607,423 Pathmark Stores 4,760,331
Fairchild Holdings 2,985,715 The Presley Companies 2,000,000
Huntsman Corp. 3,262,500 Viasystems 7,500,000
Jefferson Smurfit Corp. 7,003,697 24-Hour Fitness, Inc. 860,796
MAFCO Financial Corp 9,800,000 -----------
$63,070,247
===========
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 nine months ended
November 30, 1997, the Trust received earnings credits of $1,782.
NOTE 7 -- SUBSEQUENT EVENT
Subsequent to November 30 1997, the Trust declared a dividend from net
investment income of $0.09875 payable on January 13, 1998 to shareholders of
record on December 31, 1997.
27
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30,1997 (Unaudited)
- --------------------------------------------------------------------------------
Management's Additional Operating Information
---------------------------------------------
APPROVAL OF CHANGES IN INVESTMENT POLICIES
At the Annual Meeting of Trust Shareholders, held August 30, 1994, shareholders
approved changes in the Trust's fundamental investment policies which make
available certain additional investment opportunities to the Trust, including
the purchase (i) of U.S. dollar denominated senior corporate loans made to
companies headquartered in Canada or U.S. Territories or Possessions; (ii)
subject to certain limitations, loans in excess of 10% of an issue of senior
bank debt of a corporate borrower; and (iii) with up to 5% of the Trust's
assets, loans in tranches of senior collateralized corporate loans that are
subordinated in some manner as to the payment of interest and/or principal. At
a special meeting held May 2, 1996, Trust Shareholders approved an amendment to
the Trust's fundamental investment policies to expand its ability to engage in
borrowing transactions up to 33.33% of net assets including borrowings,
primarily to acquire additional income producing investments.
The Trust's Manager believes that these changes in the Trust's investment
policies will increase the number of loan offerings which the Trust may
consider acquiring. Furthermore, the Manager also believes that these changes
are fully consistent with the Trust's overall investment philosophy of
purchasing senior collateralized corporate loans.
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.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Trust offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan")
which enables investors to conveniently add to their holdings at reduced costs.
Should you desire further information concerning this Plan, please contact the
Shareholder Servicing Agent at (800) 331-1080.
28
<PAGE>
Pilgrim America Prime Rate Trust
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FUND ADVISORS AND AGENTS
- --------------------------------------------------------------------------------
INVESTMENT MANAGER INSTITUTIONAL INVESTORS AND ANALYSTS
Pilgrim America Investments, Inc. Call Pilgrim America Prime Rate Trust
Two Renaissance Square 1-800-336-3436, Extension 8256
40 North Central Avenue
Suite 1200
Phoenix, AZ85004-4424
SHAREHOLDER SERVICING AGENT TRANSFER AGENT
Pilgrim America Group, Inc. DST Systems, Inc.
Two Renaissance Square P.O. Box 419368
40 North Central Avenue Kansas City, Missouri 64141
Suite 1200
Phoenix, AZ85004-4424
1-800-331-1080
WRITTEN REQUESTS
Please mail all account inquiries and other comments to:
Pilgrim America Prime Rate Trust Account Services
c/o Pilgrim America Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, AZ 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 1-800-331-1080.
29
<PAGE>
Pilgrim America Funds
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
Pilgrim America
Bank and Thrift Fund
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
Pilgrim America
Funds
"Our goal is for every investor to have a successful investment experience."
Prospectuses containing more complete information regarding the funds, including
charges and expenses, may be obtained by calling Pilgrim America Securities,
Inc. Distributor at 1-800-334-3444. Please read the prospectuses carefully
before you invest or send money.
13-SS-121997 01XX98
