Pilgrim(SM)
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THE VALUE OF INVESTING(R)
P r i m e R a t e T r u s t
Annual Report
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February 28, 1999
Annual Report
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Pilgrim Prime Rate Trust
ANNUAL REPORT
February 28, 1999
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Table of Contents
Chairman's Message ........................ 2
Letter to Shareholders .................. 3
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
Statements of Changes in Net Assets ...... 22
Statement of Cash Flows .................. 23
Financial Highlights ..................... 24
Notes to Financial Statements ............ 26
Report of Independent Auditors ............ 31
Tax Information ........................... 32
Fund Advisors and Agents .................. 33
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1
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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 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 twelve month results a reflection of the Pilgrim
Investment, Inc. 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.
April 23, 1999
2
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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Dear Fellow Shareholders,
The objective of Pilgrim Prime Rate Trust is to provide a high level of current
income consistent with the preservation of capital. During the fiscal year,
which ended on February 28, 1999, the Trust declared distributions to
shareholders totaling $0.813 per share. Based on the average month-end net
asset value ("NAV") per share, this distribution rate is equivalent to 8.74%(1)
per anum. If compared with average closing prices for the Trust's stock at the
end of each month, the distribution rate, based on market was equivalent to
8.26%(1) per anum. Interest rates generally fell in the second half of the
fiscal year. The Trust's distribution rates for the period from January 1, 1991
through February 28, 1999 in relation to the Prime Rate and LIBOR, an index of
the rate of interest at which banks lend to one another, is shown in Chart I.
Comparative Performance -- Trailing 12 Month Average
Prime Rate Trust (2) Prime Rate (3) 60-Day LIBOR (4)
-------------------- -------------- ----------------
Jan-91 9.675% 9.917% 8.063%
Jan-92 7.739 8.125 5.574
Jan-93 6.203 6.208 3.677
Jan-94 5.955 6.000 3.214
Jan-95 7.288 7.458 4.927
Jan-96 8.886 8.813 5.812
Jan-97 8.569 8.250 5.422
Jan-98 8.780 8.479 5.639
Jan-99 8.764 8.250 5.420
Chart I Past performance is no guarantee of future results.
The Trust's month-end net asset value ranged between $9.36 and $9.23. Financial
assets generally experienced a relatively high degree of volatility in the
second half of the fiscal year. Senior floating rate loans experienced less
volatility, but were not immune to the gyrations seen in the bond and equity
markets. Some of the market changes, which led to the relatively lower degree
of stability in the third and fourth fiscal quarters, may continue.
Nevertheless, the stability of the senior floating rate loan asset class
relative to the bond and equity markets, has remained fundamentally undisturbed
as shown in Chart II which illustrates volatility in the S&P 500, Merrill Lynch
High Yield Corporate Bond Domestic Cash Pay Index and the Trust's net asset
value(5).
WEEKLY VALUE VARIANCES WEEKLY VALUE VARIANCES
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3/6/98 0.0000% 0.0000% 0.0000% 9/4/98 0.1073% -5.1843% -1.1530%
3/13/98 0.2153% 1.2238% 0.4876% 9/11/98 -0.6431% 3.6113% -0.4323%
3/20/98 0.2148% 2.8589% 0.3571% 9/18/98 0.2157% 1.0931% 0.0561%
3/27/98 0.1072% -0.3384% 0.1385% 9/25/98 0.2153% 2.4174% 0.8161%
4/3/98 0.2141% 2.4885% 0.5362% 10/2/98 -0.1074% -4.0345% 0.2125%
4/9/98 -0.6410% -1.0715% -0.0018% 10/9/98 -0.6452% -1.8163% -2.8874%
4/17/98 0.2151% 1.0849% 0.1884% 10/16/98 0.2165% 7.3172% -0.3787%
4/24/98 0.1073% -1.3200% 0.0377% 10/23/98 0.1080% 1.3489% 0.8413%
5/1/98 0.1072% 1.1824% -0.0914% 10/30/98 0.1079% 2.6152% 0.8191%
5/8/98 -0.5353% -1.1472% 0.1388% 11/6/98 -0.5388% 3.8538% 0.7345%
5/15/98 0.2153% 0.0532% -0.0334% 11/13/98 0.1083% -1.3400% 1.5101%
5/22/98 0.2148% 0.1569% 0.1955% 11/20/98 0.2165% 3.3605% 1.1347%
5/29/98 0.3215% -1.7695% 0.2833% 11/27/98 0.1080% 2.4700% 0.7656%
6/5/98 0.1068% 2.1122% 0.2530% 12/4/98 0.2157% -1.3042% 0.4305%
6/12/98 -0.6403% -1.3485% 0.2915% 12/11/98 -0.5382% -0.8736% -0.0799%
6/19/98 0.1074% 0.1647% -0.1842% 12/18/98 0.1082% 1.8492% -0.2256%
6/26/98 0.2146% 2.9573% 0.1998% 12/24/98 0.2162% 3.2188% -0.1022%
7/2/98 0.1071% 1.1666% 0.1199% 12/31/98 -0.4315% 0.2414% 0.3704%
7/10/98 -0.5348% 1.5623% 0.2812% 1/8/99 0.2167% 3.7308% 0.3596%
7/17/98 0.0000% 1.9256% 0.0592% 1/15/99 0.1081% -2.4963% -0.1022%
7/24/98 0.2151% -3.8719% 0.2412% 1/22/99 0.1080% -1.4534% 0.3956%
7/31/98 0.1073% -1.7646% -0.1480% 1/29/99 0.0000% 4.4442% 0.2850%
8/7/98 -0.5359% -2.7858% -0.1317% 2/5/99 0.1079% -3.1446% -0.1497%
8/14/98 0.1078% -2.4508% -0.6916% 2/12/99 -0.5388% -0.7479% 0.0036%
8/21/98 0.2153% 1.7342% -0.6880% 2/19/99 0.0000% 0.7365% 0.0000%
8/28/98 0.1074% -4.9982% -2.1861%
Chart II Past performance is no guarantee of future results.
3
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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MARKET PERFORMANCE
The Trust's shares have continued to trade at a premium to NAV although the
premium recently declined. During 1998, new higher yielding, New York Stock
Exchange listed closed-end funds were launched raising more than $5.5 billion.
Four of these funds, with over $2 billion in net assets, invest primarily in
senior floating rate loans. This increase in competitive investment
alternatives probably reduced demand for the Trust's shares. In October, the
Trust's share price dipped to as low as $8.50, most likely because of hedge
fund panic selling. By the end of February, the price had returned to $9.56.
Chart III depicts the Trust's market price performance.
DATE PRICE NAV % PREM
---- ----- --- ------
7/31/98 10.000 9.330 7.18
7/24/98 9.938 9.320 6.63
7/17/98 10.000 9.300 7.53
7/10/98 10.000 9.300 7.62
6/26/98 9.938 9.340 6.40
6/19/98 9.938 9.320 6.63
6/12/98 10.000 9.310 7.41
6/5/98 10.125 9.370 8.06
5/29/98 10.250 9.360 9.51
5/22/98 10.188 9.330 9.19
5/15/98 10.188 9.310 9.43
5/8/98 10.063 9.290 8.32
5/1/98 10.125 9.340 8.40
4/24/98 10.000 9.330 7.18
4/17/98 10.063 9.320 7.97
4/10/98 9.938 9.300 6.85
4/3/98 10.063 9.360 7.51
3/27/98 9.875 9.340 5.73
3/20/98 10.000 9.330 7.18
3/13/98 10.125 9.310 8.75
3/6/98 10.250 9.290 10.33
2/26/99 9.563 9.240 3.49
2/19/99 9.500 9.230 2.93
2/12/99 9.500 9.230 2.93
2/5/99 9.438 9.280 1.70
1/29/99 9.563 9.270 3.16
1/22/99 9.438 9.270 1.81
1/15/99 9.313 9.260 .57
1/8/99 9.313 9.250 .68
1/1/99 9.313 9.230 .89
12/25/98 9.313 9.270 .46
12/18/98 9.250 9.250 .00
12/11/98 9.375 9.240 1.46
12/4/98 9.563 9.290 2.93
11/27/98 9.563 9.270 3.16
11/20/98 9.563 9.260 3.27
11/13/98 9.625 9.240 4.17
11/6/98 9.688 9.230 4.96
10/30/98 9.688 9.280 4.39
10/23/98 9.625 9.270 3.83
10/16/98 9.375 9.260 1.24
10/9/98 9.125 9.240 -1.24
10/2/98 9.938 9.300 6.85
9/25/98 9.938 9.310 6.74
9/18/98 9.938 9.290 6.97
9/11/98 10.000 9.270 7.87
9/4/98 10.016 9.330 7.35
8/28/98 10.000 9.320 7.30
8/21/98 10.000 9.310 7.41
8/14/98 10.063 9.290 8.32
8/7/98 10.000 9.280 7.76
In June 1998, the Trust introduced programs to allow existing shareholders and
qualified institutional investors to acquire newly issued shares of the Trust
at prices at or below market, but above NAV. Nearly 20 million new shares have
been issued under these and other programs; increasing NAV by $0.03 per share.
ASSET QUALITY
In last year's letter to shareholders, we commented on the need to minimize
non-performing assets towards the end of a period of economic expansion. The
expansion is now twelve months older, but in some parts of the market there are
scattered signs of financial stress. Some of these stresses have caused the
percentage of non-performing loans in the portfolio to increase although poor
quality assets remain within normal limits. As measured by number of loans,
problems remain few and causes seem to be peculiar to each case rather than
systemic.
4
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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As we continue our initial credit analysis and systematic review of portfolio
investments, we find few signs of stress among credits arising from weak
business models. Disappointments are nearly always connected to poor management
or weak sponsorship by equity investors. Sometimes, previously strong
management or equity sponsors have become ineffectual. We also have experienced
the adverse consequences of poor diligence on the part of acquirers. In
response to such events, we place higher emphasis on the quality, strength and
depth of management and the goals of equity sponsors. Where equity sponsors
have failed to meet our expectations and do not appear to have taken
appropriate action in response to problems, we will not invest in transactions
led by them until we have clear evidence that they intend to act more
responsibly.
In addition to our focus on the strength of management and equity sponsors, we
also focus on the integrity of the credit monitoring and management function of
lead lenders. We give lead lenders active support in their efforts to manage
the loans in which the Trust invests. Our goal is to help lead lenders to
optimize the quality of the Trust's investments and to offer ideas on how
processes and practices might be improved to enhance credit management
practices.
Diversification remains our principal defense against defaults. Defaults are an
inevitable consequence of investing in this asset class. Diversification seeks
to ensure that the impact of failure to pay interest or suffer losses in the
event of default is minimized.
THE FOURTH QUARTER AND OUTLOOK
The market dislocations which occurred during the summer and fall of 1998
resulted in a reduced supply of new deals and a lower but still favorable yield
margin over LIBOR and the Prime Rate. Although the Trust's yield has declined,
the Trust has outperformed its peer group(6). Of course, there can be no
guarantees, however, we expect the yield based on the Trust's NAV to maintain
its close historical relationship to Prime (currently 7.75%) and LIBOR + 2.75%
(also approximately 7.75%) provided there are no material changes in defaults,
interest rate levels or in the margins earned on investments.
We look forward to receiving your comments and questions.
/s/ Howard Tiffen
Howard Tiffen
President, COO, and
Senior Portfolio Manager
Pilgrim Prime Rate Trust
April 23, 1999
5
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Pilgrim Prime Rate Trust
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SHAREHOLDER LETTER FOOTNOTES
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(1) Distribution rate is calculated by dividing the total distributions of
$0.813 per share by the average month-end net asset value (in the case of
NAV) or the average month-end NYSE Composite closing price (in the case of
Market). The distribution rate is based solely on the actual dividends and
distributions, which are made at the discretion of management. The
distribution rate may or may not include all investment income, and
ordinarily will not include capital gains or losses, if any.
(2) The distribution rate in chart I is the average of the distribution rates
for the preceding twelve months. Distribution rates are calculated by
annualizing each monthly dividend and dividing the resulting annualized
dividend amount by the Trust's net asset value at the end of that month.
(3) Source: Bloomberg Financial Markets.
(4) Source: IDD/Tradeline. The LIBOR rate is the London Inter-Bank Offered Rate
and is the benchmark for determining the interest paid on more than 90% of
the senior loans in the Trust's portfolio.
(5) The Merrill Lynch High Yield Corporate Bond Domestic Cash Pay Index and the
Standard and Poor's Index are unmanaged indexes. The Standard & Poor's
Index is generally representative of the U.S. stock market. All returns
reflect reinvestment of dividends and capital gains, if any. An investor
cannot invest directly in an index.
(6) Lipper ranked the Trust #1 for the 1, 3, 5 and 10 year periods among 8, 6,
5, and 1 loan participation funds for the periods ending February 28,
1999. Lipper ranked the Trust #2, #1, #1 and #1 among 10, 6, 5 and 1 loan
participation funds for the 1, 3, 5 and 10 year periods ended March 31,
1999, respectively. Lipper ranked the Trust for total return through the
periods, excluding sales charges and not reflecting the 1995 and 1996
rights offerings. Rankings reflect partial waiver of fees for some of the
periods shown. Without such waivers, rankings may have been lower.
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.
6
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Pilgrim Prime Rate Trust
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STATISTICS AND PERFORMANCE as of February 28, 1999
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PORTFOLIO CHARACTERISTICS
Net Assets $1,202,565,343
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Assets Invested in Senior Loans* $1,700,208,675
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Total Number of Senior Loans 164
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Average Amount Outstanding per Loan $10,367,126
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Total Number of Industries 30
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Average Loan Amount per Industry $56,673,623
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Portfolio Turnover Rate 68%
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Weighted Average Days to Interest Rate Reset 53 days
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Average Loan Maturity 65 months
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Average Age of Loans Held in Portfolio 11 months
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* Includes loans and other debt received through restructures
TOP 10 INDUSTRIES AS A % OF
NET ASSETS TOTAL ASSETS
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Healthcare, Education and Childcare 17.3% 11.9%
Telecommunications 12.9% 8.9%
Containers, Packaging and Glass 7.9% 5.4%
Buildings and Real Estate 7.7% 5.3%
Chemicals, Plastics and Rubber 7.5% 5.2%
Broadcasting 6.9% 4.8%
Personal, Food and Miscellaneous Services 6.9% 4.7%
Aerospace and Defense 6.2% 4.2%
Leisure, Amusement, Motion Pictures
and Entertainment 6.1% 4.2%
Beverage, Food and Tobacco 5.6% 3.9%
TOP 10 SENIOR LOANS AS A % OF
NET ASSETS TOTAL ASSETS
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Patriot American Hospitality 2.5% 1.7%
Nextel Finance Co. 2.4% 1.6%
Lyondell Petrochemical Company 2.2% 1.5%
MAFCO Finance Corp. 2.1% 1.5%
Community Health Systems, Inc. 2.0% 1.4%
Jefferson Smurfit 2.0% 1.4%
Omnipoint Corp. 1.9% 1.3%
Ventas, Inc. 1.8% 1.2%
Gaylord Container Corporation 1.7% 1.2%
Florida Panthers Holdings, Inc. 1.7% 1.1%
7
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Pilgrim Prime Rate Trust
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STATISTICS AND PERFORMANCE as of February 28, 1999
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YIELDS AND DISTRIBUTION RATES
<TABLE>
<CAPTION>
(NAV) (MKT) Annualized Annualized
Prime 30-Day SEC 30-Day SEC Distribution Distribution
Quarter-ended Rate Yield A Yield A Rate at NAV B Rate at MKT B
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<S> <C> <C> <C> <C> <C>
February 28, 1999 7.75% 8.28% 7.99% 8.56% 8.27%
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November 30, 1998 7.75% 9.02% 8.68% 8.74% 8.42%
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August 31, 1998 8.50% 8.46% 7.88% 8.81% 8.21%
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May 31, 1998 8.50% 9.67% 8.82% 8.86% 8.09%
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</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
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1 Year 7.86% 1.11%
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3 Years 7.98% 9.44%
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5 Years 8.29% 9.99%
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10 Years 8.34% N/A
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Since Trust Inception F,H 8.41% N/A
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Since Initial Trading on NYSE G N/A 10.10%
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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 each monthly dividend,
then averaging the annualized dividends declared for each month during the
quarter and dividing the resulting average 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 February 28, 1999
were 1.11% and 9.99% 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 February 28, 1999, was 9.58% 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. 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.
(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 $6,972,203 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 1999 DIVIDENDS:
DECLARATION DATE EX-DATE PAYABLE DATE
---------------- ------- ------------
January 29 February 8 February 23
February 26 March 8 March 22
March 31 April 8 April 22
April 30 May 6 May 24
May 28 June 8 June 22
June 30 July 8 July 22
July 30 August 6 August 23
August 31 September 8 September 22
September 30 October 6 October 22
October 28 November 8 November 22
November 30 December 8 December 22
December 20 December 28 January 13, 2000
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 changed to Pilgrim Prime Rate
Trust and its cusip number became 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 February 28, 1999
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SENIOR LOANS*
(Dollar weighted portfolio interest reset period is 53 days)
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
AEROSPACE AND DEFENSE: 6.2%
$8,843 Erickson Air-Crane Co. (heavy lift helicopters) Term B 12/31/04 $ 8,400,375
8,816 New Piper Aircraft, Inc. (aircraft manufacturer) Term 04/15/05 8,816,484
14,925 Nortek Aviation Support, Inc. (aviation services company) Term B 06/30/03 14,925,000
6,390 Piedmont Aviation Services (airport facility operator) Term B 07/23/06 6,389,830
6,390 Piedmont Aviation Services Term C 07/23/07 6,389,830
4,899 Technetics Corp. (aircraft engine components) Term 06/20/02 4,899,082
15,000 TRANSTAR (aluminum distribution) Term B 01/20/06 15,000,000
9,261 Tri Star/Odessy, Inc. (aerospace hardware distributor) Term 09/30/03 9,260,505
------------
74,081,106
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AUTOMOBILE: 5.6%
4,963 Autosystems manufacturing, Inc. (automotive lighting) Term B 05/31/04 4,863,250
4,963 Autosystems manufacturing, Inc. Term C 05/31/05 4,863,250
14,438 Breed Technologies, Inc. (airbags/seatbelts) Term B 04/27/06 14,437,870
9,900 Cambridge Industries, Inc. (automotive plastics) Term B 06/30/06 9,900,000
9,380 Capital Tool & Design, Ltd. (brake backing plates) Term B 07/19/03 9,379,829
3,000 Federal Mogul Corp. (automotive parts) Term B 12/31/05 3,000,000
8,767 Global Metal Technologies, Inc. (automotive parts) Term B 03/12/05 8,767,420
5,978 Safelite Glass Corp. (automobile windshield replacement) Term B 12/23/04 5,978,143
5,978 Safelite Glass Corp. Term C 12/23/05 5,978,143
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67,167,905
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BANKING: 0.8%
10,000 Alliance Data Systems (financial data processing) Term B 07/25/05 10,000,000
------------
10,000,000
------------
BEVERAGE, FOOD AND TOBACCO: 5.6%
2,359 Edward's Baking Co. (food service bakery) Term A 09/30/03 2,241,280
3,292 Edward's Baking Co. Term B 09/30/05 3,127,083
3,292 Edward's Baking Co. Term C 09/30/05 3,127,083
13,790 Empire Kosher Poultry (kosher chicken and poultry) Term B 07/31/04 13,790,000
12,417 Favorite Brands International (confectionary manufacturer) Term B 05/19/05 12,416,667
15,000 General Nutrition Corp. (nutritional product retail
and manufacturer) Term 12/18/05 15,000,000
9,214 Imperial Holly Corp. (sugar producer) Term A 12/31/05 9,213,617
8,274 Imperial Holly Corp. Term B 12/31/05 8,274,164
------------
67,189,894
------------
</TABLE>
See Accompanying Notes to Financial Statements.
11
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
BROADCASTING: 6.9%
$10,000 American Cable Entertainment (cable television) Term B 09/30/07 $ 10,000,000
9,899 Benedek Broadcasting Corp. (television broadcasting) Axel A (A) 12/31/04 9,898,713
4,689 Benedek Broadcasting Corp. Axel B (A) 12/31/04 4,688,941
2,368 Capstar Radio Broadcasting (radio broadcasting) Term A 09/24/99 2,368,421
4,963 Capstar Radio Broadcasting Term B 07/01/07 4,962,500
326 Capstar Radio Broadcasting Revolver 09/24/99 326,316
5,000 Classic Cable, Inc. (cable television) Term B 10/31/07 5,000,000
9,977 Intermedia Partners IV (cable television) Term 01/01/05 9,977,273
1,728 Liberman Broadcasting, Inc. (spanish radio/tv) Revolver 03/31/05 1,728,000
8,000 Liberman Broadcasting, Inc. Term B 09/30/05 8,000,000
9,204 Retlaw Broadcasting, LLC (television broadcasting) Term B 04/30/06 9,203,750
17,000 Telemundo (television broadcasting) Term B 12/28/06 17,000,000
-------------
83,153,914
-------------
BUILDINGS AND REAL ESTATE: 7.7%
5,000 Alliance National, Inc. (temporary offices) Term B 09/04/05 5,000,000
6,000 Dayton Superior Corp. (concrete/masonry accessories) Term 09/29/05 6,000,000
5,422 Falcon Building Products (building products) Term B 06/30/05 5,421,519
6,600 Imperial Home Decor Group (home accessories) Term B 03/13/05 6,600,000
3,400 Imperial Home Decor Group Term C 03/13/06 3,400,000
7,920 Kevco, Inc. (manufactured home components) Term B 02/02/05 7,920,000
1,500 Meditrust Corp. (real estate investment trust) Term D 07/15/01 1,500,000
15,000 Prison Realty (owner/operator of prison facilities) Term B 01/01/03 15,000,000
13,050 Tree Island Industries (nail and wire products) Term B 03/31/03 13,050,000
9 United Building Materials, Inc. (stone and concrete
products)(1) Term 03/31/06 8,658
7,800 US Aggregates (aggregate, asphalt, concrete manufacturer) Term B 03/31/06 7,800,000
21,154 Ventas, Inc. (real estate investment trust) Term D 05/05/03 21,153,789
-------------
92,853,966
-------------
CARGO TRANSPORT: 2.9%
10,922 Atlas Freighter Leasing (air cargo carrier) Term 05/29/04 10,922,074
3,094 Evergreen International Aviation, Inc. (air cargo carrier) Term A 05/07/03 3,094,266
1,569 Evergreen International Aviation, Inc. Term B 05/31/02 1,569,128
8,800 Gemini Air Cargo, Inc. (air cargo carrier) Term A 12/12/02 8,800,000
9,955 Omnitrax, Inc. (rail operator) Term 05/12/05 9,954,545
-------------
34,340,013
-------------
</TABLE>
See Accompanying Notes to Financial Statements.
12
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
CHEMICALS, PLASTICS AND RUBBER: 7.5%
$9,891 Acadia Elastomers Corp. (specialty chemicals) Term 03/31/04 $ 9,890,510
11,227 Cedar Chemical Corp. (specialty chemicals) Term B 10/30/03 11,226,596
15,000 Euro United Corp. (plastic products) Term B 05/31/01 15,000,000
3,545 Foamex, L.P. (polyurethane foam) Term B 06/30/05 3,544,874
3,223 Foamex, L.P. Term C 06/30/06 3,222,613
1,640 Huntsman Corp. (industrial chemicals) Revolver 12/31/02 1,639,526
476 Huntsman Corp. Term A 12/31/02 475,560
3,442 Huntsman Corp. Term B 06/30/04 3,442,437
1,880 Huntsman Specialty Chemicals Corp. (specialty chemicals) Term B 03/15/04 1,880,484
1,880 Huntsman Specialty Chemicals Corp. Term C 12/31/05 1,880,484
14,804 Lyondell Petrochemical Company (petrochemicals) Term A 07/23/03 14,803,889
11,379 Lyondell Petrochemical Company Term B 06/30/05 11,378,677
5,102 NEN Life Science Products (biochemicals) Term B 12/31/04 5,102,041
1,131 Paint Sundry Brands, LLC (paint supply manufacturer) Term B 08/06/05 1,130,500
1,108 Paint Sundry Brands, LLC Term C 08/06/06 1,107,778
4,722 Texas Petrochemical Corp. (industrial chemicals) Term B 06/30/04 4,722,222
------------
90,448,191
------------
CONTAINERS, PACKAGING AND GLASS: 7.9%
9,796 Crown Paper Co. (paper and pulp manufacturer) Term B 08/22/03 9,796,250
18,125 Eastern Pulp & Paper Co. (specialty paper) Term 08/31/04 18,124,995
19,897 Gaylord Container Corporation (corrugated containers) Term 07/30/04 19,896,552
728 Gaylord Container Corporation Revolver 07/30/03 728,276
24,000 Jefferson Smurfit (paperboard and packaging producer) Term B 03/31/06 24,000,000
9,950 Pretium Packaging, LLC (plastic packaging) Term B 07/29/06 9,950,020
12,056 Stone Container (pulp and paper products) Term D 10/01/03 12,055,910
------------
94,552,003
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 2.8%
4,986 Allied Digital Technologies Corp. (multimedia manufacturer) Term B 12/31/05 4,986,250
4,000 Holmes Products Corp. (consumer products manufacturer) Term B 02/28/07 4,000,000
9,977 Private Business, Inc. (banking services & software) Term B 08/19/06 9,977,273
9,975 SPX Corporation (industrial components) Term B 09/30/06 9,975,000
4,500 Superior Telecom Inc. (copper cable manufacturing) Term B 11/27/05 4,500,000
------------
33,438,523
------------
DIVERSIFIED/CONGLOMERATE SERVICES: 3.4%
25,442 MAFCO Finance Corp. (diversified services and
entertainment) Term A 04/16/00 25,442,308
315 MAFCO Finance Corp. Revolver 04/16/00 315,000
8,719 Outsourcing Solutions, Inc. (accounts receivable
management) Term B 11/06/03 8,718,530
6,895 Outsourcing Solutions, Inc. Term C 10/15/04 6,894,999
------------
41,370,837
------------
ECOLOGICAL: 0.6%
2,361 Clean Harbors, Inc. (environmental services) Term 05/08/00 2,360,698
4,688 Rumpke (waste management) Term A 09/25/02 4,687,500
------------
7,048,198
------------
</TABLE>
See Accompanying Notes to Financial Statements.
13
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
ELECTRONICS: 5.2%
$4,500 Dynamic Details, Inc. (circuit board manufacturer) Term B 04/22/05 $ 4,500,000
10,085 Fairchild Semiconductor Corp. (electronic equipment) Term C 03/11/03 10,085,123
5,348 Intri-Plex Technologies, Inc. (disk drive component
manufacturer) Term 09/30/02 5,347,826
9,492 Mitel Corporation (semiconductor manufacturing) Term B 06/02/04 9,492,030
8,714 OK Industries, Inc. (circuit board manufacturing systems) Term 10/31/02 8,714,286
9,603 Sarcom, Inc. (systems integration) Term 11/20/02 9,603,175
10,000 Stonebridge Technologies, Inc. (enterprise computing) Term 07/27/05 10,000,000
5,000 Stratus Computer, Inc. (continuous availability computing) Term B 02/26/06 5,000,000
------------
62,742,440
------------
FINANCE: 3.4%
18,000 Bridge Information Systems (news services) Term B 05/29/05 18,000,000
5,852 National Partnership Investments Corp. (asset management) Term 06/30/01 5,852,078
5,325 Rent -A-Center, Inc. (home appliances rental company) Term B 01/31/06 5,325,191
7,129 Rent -A-Center, Inc. Term C 01/31/07 7,129,434
5,000 Value Asset Management, Inc. (money management) Term B 04/28/03 5,000,000
------------
41,306,703
------------
GROCERY: 3.5%
846 Pathmark Stores, Inc. (mid atlantic supermarkets) Revolver 06/15/01 846,281
1,501 Pathmark Stores, Inc. Term A 06/15/01 1,500,682
9,043 Pathmark Stores, Inc. Term B 12/15/01 9,042,707
17,767 Schwegmann Giant Supermarket (Louisiana supermarkets)(2) Term B 07/30/06 17,766,610
273 Schwegmann Giant Supermarket(2) Revolver 01/31/04 273,133
9,287 Star Markets Co., Inc. (Boston area supermarkets) Term B 12/31/02 9,286,651
2,880 Star Markets Co., Inc. Term C 12/31/03 2,880,472
------------
41,596,536
------------
HEALTHCARE, EDUCATION AND CHILDCARE: 17.3%
3,934 Alaris Medical Systems, Inc. (infusion pumps) Term B 11/30/03 3,933,963
3,934 Alaris Medical Systems, Inc. Term C 11/30/04 3,933,963
3,693 Alaris Medical Systems, Inc. Term D 05/31/05 3,692,879
1,110 Alliance Imaging, Inc. (diagnostic services) Term A 12/18/03 1,110,435
5,275 Alliance Imaging, Inc. Term B 08/09/04 5,274,565
9,305 Children's Discovery Centers (daycare and education) Term 08/10/04 9,304,688
8,870 Community Health Systems, Inc. (hospitals) Term B 12/31/03 8,869,863
8,870 Community Health Systems, Inc. Term C 12/31/04 8,869,863
6,644 Community Health Systems, Inc. Term D 12/31/05 6,643,836
6,000 Covenant Care California, Inc. (long-term healthcare
facilities) Term 06/30/99 6,000,000
</TABLE>
See Accompanying Notes to Financial Statements.
14
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Healthcare, Education and Childcare (continued)
$4,938 Doshi Diagnostics Imaging Service (radiology and medical
testing) Term 05/15/05 $ 4,937,500
15,000 Fountain View, Inc. (long-term healthcare facilities) Term B 03/31/04 15,000,000
4,416 Genesis Eldercare Acquisition (long-term healthcare
facilities) Term 09/30/04 4,415,726
3,788 Healthcare Direct, Inc. (medical device retailer) Term A 08/01/04 3,787,500
4,080 Healthcare Direct, Inc. Term B 08/01/06 4,079,500
6,250 Magellan Health Services (managed behavioral care) Term B 02/12/05 6,250,000
6,250 Magellan Health Services Term C 02/12/06 6,250,000
10,570 Mariner Health Group, Inc. (long-term care) Term B 03/31/05 10,570,417
9,310 Mariner Health Group, Inc. Term C 03/31/06 9,309,583
9,379 Med Partners Inc. (physician practice management) Term A 06/30/99 9,379,361
4,193 Med Partners Inc. Term B 06/30/01 4,193,365
5,280 Paracelsus Healthcare Corporation (for profit hospital chain) Term A 05/15/03 5,280,000
8,000 Paracelsus Healthcare Corporation Term B 06/15/04 8,000,000
4,975 Roberts Pharmaceutical Corp. (pharmaceutical) Term A 06/30/03 4,975,000
9,875 SMT Health (mobile MRI systems) Term 08/31/03 9,875,000
1,085 Stryker Corporation (orthopedic supplies manufacturing) Term B 12/04/05 1,084,507
4,415 Stryker Corporation Term C 12/04/06 4,415,493
12,500 The Brown Schools (healthcare America) Term B 06/30/04 12,500,000
5,000 The Brown Schools Term C 06/30/05 5,000,000
15,405 Vencor, Inc. (long term care facility operator) Term B 05/05/05 15,405,376
5,000 Vision Twenty-One, Inc. (eye care PPM) Term C 06/30/05 5,000,000
-------------
207,342,383
-------------
HOME AND OFFICE FURNISHINGS, HOUSEWARES AND DURABLE
CONSUMER PRODUCTS: 3.0%
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
804 American Blind and Wallpaper (furniture and
home furnishings) Term 12/29/05 804,171
8,825 Desa International (heaters and fireplaces) Term 11/26/04 8,825,000
15,614 ICON Health & Fitness, Inc. (exercise equipment) Term B 11/14/01 15,614,374
3,625 Panolam (design and manufacture wood paneling) Term B 01/31/03 3,625,000
-------------
36,368,545
-------------
HOTELS, MOTELS, INNS AND GAMING: 2.5%
4,706 Patriot American Hospitality (hotels & resorts) Bridge II 03/31/99 4,705,882
5,294 Patriot American Hospitality Bridge III 03/31/00 5,294,118
19,988 Patriot American Hospitality Term B 03/31/03 19,987,500
-------------
29,987,500
-------------
INSURANCE: 0.7%
4,935 TRG Holdings Corp. (insurance run-off) Term 01/07/03 4,935,000
1,591 Willis Carroon Corporation (insurance brokerage) Term B 11/30/07 1,590,909
955 Willis Carroon Corporation Term C 11/30/08 954,545
955 Willis Carroon Corporation Term D 05/30/09 954,545
-------------
8,434,999
-------------
</TABLE>
See Accompanying Notes to Financial Statements.
15
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
LEISURE, AMUSEMENT, MOTION PICTURES AND
ENTERTAINMENT: 6.1%
$3,713 AMFAC Parks and Resorts (park services operator) Term B 09/04/04 $ 3,712,500
3,713 AMFAC Parks and Resorts Term C 09/30/04 3,712,500
20,000 Florida Panthers Holdings, Inc. (investment holding) Bridge 03/30/05 20,000,000
9,900 Four Media Co. (film services) Term B 09/10/04 9,900,000
10,000 Metro-Goldwyn-Mayer (media and broadcast) Term A 03/31/05 10,000,000
4,000 Metro-Goldwyn-Mayer Term B 03/31/06 4,000,000
15,000 Panavision, Inc. (movie cameras) Term B 03/31/05 15,000,000
7,157 Worldwide Sports & Recreation Corp. (optics, sports
products) Term B 03/31/01 6,977,665
------------
73,302,665
------------
MACHINERY (NONAGRICULTURE, NONCONSTRUCTION,
NONELECTRONIC): 0.6%
7,920 Clearing -- Niagara (metal stamping press manufacturer) Term 10/18/04 7,524,208
------------
7,524,208
------------
MINING, STEEL, IRON AND NONPRECIOUS METALS: 3.6%
5,880 Cable Systems International (cable wire manufacturer) Term B 10/04/02 5,880,000
3,269 Centennial Resources (coal mining)(2)(3) Term A 03/31/02 1,536,539
8,510 Centennial Resources(2)(3) Term B 03/31/04 3,999,519
1,722 Centennial Resources(3) DIP Loan (B) 06/30/99 1,721,676
9,825 Ispat Sidbec, Inc. (steel producer) Term B 07/16/04 9,825,345
9,825 Ispat Sidbec, Inc. Term C 01/16/05 9,825,345
3,270 National Refractories Co. (kiln lining materials) Term C 09/30/99 3,269,726
7,385 P & L Coal Holdings (coal producer) Term B 06/30/06 7,384,615
------------
43,442,765
------------
OIL AND GAS: 2.6%
11,426 Cardinal Services, Inc. (marine liftboats and
wireline services) Term B 03/10/05 11,426,283
5,000 Key Energy Group, Inc. (oil field services) Term B 10/26/04 5,000,000
6,397 Kinder Morgan, Inc. (pipeline operator) Term 05/31/00 6,397,059
1,485 Perf-O-Log (oil field services) Term 08/11/03 1,485,000
3,950 Perf-O-Log Term B 08/11/03 3,950,000
2,481 Perf-O-Log Term C 08/11/04 2,481,250
------------
30,739,592
------------
PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 6.9%
14,605 Boston Chicken, Inc. (quick service restaurant)(3) Term C 12/09/01 13,874,590
4,831 Brickman Group, Ltd. (landscaping) Term B 12/31/05 4,830,933
8,870 Coinmach Laundry Corp. (laundry) Term B 06/30/05 8,870,063
5,000 Otis Spunkmeyer (food, beverage, tobacco) Term B 12/31/05 5,000,000
5,098 Papa Gino's, Inc. (quick service restaurants) Term A 02/19/02 5,097,714
14,765 Papa Gino's, Inc. Term B 02/19/04 14,765,231
9,937 SC International Services (airline catering) Term 06/01/05 9,937,303
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
------------
82,375,834
------------
</TABLE>
See Accompanying Notes to Financial Statements.
16
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
<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): 1.3%
$1,186 AM Cosmetics (cosmetics and skin care products)(2) Term A 06/30/03 $ 830,128
8,687 AM Cosmetics(2) Term B 12/31/04 6,081,239
9,154 Medtech Products, Inc. (non-prescription consumer
medications) Term B 10/15/02 9,153,661
------------
16,065,028
------------
PERSONAL TRANSPORTATION: 0.8%
9,949 Neoplan USA Corporation (personal transportation) Term B 05/29/05 9,948,561
------------
9,948,561
------------
PRINTING AND PUBLISHING: 4.6%
6,650 Bankers Systems, Inc. (banking industry compliance services) Term B 11/01/02 6,650,000
8,978 Norwood Promotional Productions (licensed products) Term B 08/31/04 8,977,500
8,000 Reiman Publications Term B 12/01/05 8,000,000
3,318 Von Hoffman Press, Inc. (textbook manufacturer) Term B 05/29/04 3,317,857
10,773 Von Hoffman Press, Inc. Term C 05/29/05 10,773,214
9,950 Weider Publications, Inc. (magazine publications) Term 09/18/05 9,950,000
3,989 20th Century Plastics, Inc. (album manufacturing) Term B 09/30/05 3,988,889
3,491 20th Century Plastics, Inc. Term C 09/30/06 3,491,250
------------
55,148,710
------------
RETAIL STORES: 3.8%
9,950 Amscan Holdings, Inc. (party goods) Axel (A) 12/31/04 9,949,749
13,840 Murray's Discount Auto Parts (auto parts retailer) Term 06/30/03 13,147,756
468 Murray's Discount Auto Parts Revolver 01/26/06 467,500
4,942 Nebraska Book Co. (wholesale and retail textbooks) Term B 04/30/04 4,942,308
4,546 Peebles, Inc. (department store chain) Term A 04/30/01 4,545,554
12,904 Peebles, Inc. Term B 04/30/02 12,904,486
------------
45,957,353
------------
TELECOMMUNICATIONS: 12.9%
10,000 American Wireless Corporation (rural cellular phone
operator) Term B 06/04/07 10,000,000
10,000 American Wireless Corporation Term C 12/04/07 10,000,000
8,803 Claricom Holdings, Inc. (communication systems) Term B 07/01/03 8,362,585
10,620 Commnet (PCS services) Term A 09/30/05 10,620,000
1,481 Commnet Term B 09/18/06 1,480,830
1,433 Commnet Term C 03/18/07 1,432,676
4,586 Commnet Term D 09/18/07 4,586,494
8,000 Dobson Communications Corp. (cellular communications) Term C 12/23/07 8,000,000
10,000 Nextel Finance Co. (cellular phones) Lease 03/15/06 10,000,000
7,000 Nextel Finance Co. Term A 03/10/06 7,000,000
11,500 Nextel Finance Co. Term B 09/10/06 11,500,000
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
$11,967 Omnipoint Corp. (PCS services) Term A 02/17/06 $ 11,966,749
3,415 Omnipoint Corp. Term B 02/17/06 3,415,172
7,997 Omnipoint Corp. Term C 02/17/06 7,997,050
2,496 Pacific Coin (private pay phone operator) Term A 12/31/02 2,495,902
6,666 Pacific Coin Term B 12/31/04 6,665,625
8,069 Prodelin Holding Corporation (satellite antenna
manufacturer) Term B 05/28/06 8,068,693
10,000 Teletouch Communications (rural paging services) Term B 11/30/04 10,000,000
12,000 TSR Wireless, LLC (paging) Term 06/30/05 12,000,000
10,000 Western PCS Corporation (cellular phones) Term B 07/09/05 10,000,000
---------------
155,591,776
---------------
TEXTILES AND LEATHER: 4.7%
9,466 Accessory Network Group (personal clothing accessories) Term B 08/13/05 9,465,909
5,435 Harriet & Henderson (yarn manufacturer) Term A 06/12/00 5,434,825
527 Harriet & Henderson Term C 01/20/04 526,673
6,650 Humphrey's, Inc. (belts and personal leather goods) Term B 11/15/03 6,650,000
9,920 Polymer Group (manufacturer of woven/unwoven
polyolefin products) Term B 01/31/06 9,920,000
4,821 Scovill Fasteners, Inc. (metal/plastic fasteners) Term A 11/26/03 4,821,429
8,492 Targus Group International, Inc. (computer luggage) Term B 01/05/05 8,492,397
1,427 Targus Group International, Inc. Term C 01/05/05 1,427,294
9,950 Tartan Textile Services (commercial linen supply) Term B 05/13/05 9,950,000
---------------
56,688,527
---------------
Total Senior Loans -- 141.4% 1,700,208,675
---------------
(Cost $1,711,502,974)
OTHER CORPORATE DEBT
FINANCE: 0.8%
10,000 Value Asset Management, Inc. (money management) Sr. Sub. Bridge 04/28/99 10,000,000
---------------
10,000,000
---------------
CHEMICALS, PLASTICS AND RUBBER: 0.2%
2,875 Paint Sundry Brands, LLC (paint brushes & accessories) Sub. Credit 08/11/08 2,875,000
---------------
2,875,000
---------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 0.5%
6,000 Capital Tool & Design, Ltd. (brake backing plates) Sub. Note 07/26/03 6,000,000
---------------
6,000,000
---------------
Total Other Corporate Debt -- 1.5% 18,875,000
---------------
(Cost $18,875,000)
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
COMMON STOCK
<TABLE>
<CAPTION>
Shares Value
- --------- ---------------
<S> <C> <C> <C>
APPAREL PRODUCTS: 0.0%
13,294 @ Butterick Company, Inc. (sewing aids) (R) $ 17,645
--------------
DIVERSIFIED/CONGLOMERATE SERVICES: 0.0%
60,056 @ Staff Leasing, Inc. (employee leasing) 675,630
--------------
HOME AND OFFICE FURNISHINGS: 0.1%
714,000 @ American Blind and Wallpaper (R) 714,000
--------------
RESTAURANTS: 0.3%
413,980 @ America's Favorite Chicken Co. (quick service
restaurant chain) (R) 3,645,508
--------------
TEXTILES AND LEATHER: 0.1%
127,306 @ Dan River, Inc. (diversified textiles) 835,446
--------------
Total Common Stock -- 0.5% 5,888,229
--------------
(Cost $1,251,586)
STOCK PURCHASE WARRANTS AND OTHER SECURITIES
48,930
@ Autotote Systems, Inc., Warrants representing 48,930 common
shares (designer and manufacturer of wagering equipment),
Expires 10/30/03 (R) 6,042
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) 256,658
10,000 @ Casden Properties Operation, 10,000 shares of Junior Cumulative
Preferred Partnership Units (Asset Management) (R) 250,000
19,000 @ Covenant Care, Inc., Warrants representing 19,000 common
shares (long-term healthcare facilities) (R) 177,270
1 @ CT Recovery Liquidating Trust, Inc. (home improvement retailer)
(R)(3) 79,102
449 @ Murray's Discount, Warrants representing 5% equity stakes on a
fully diluted basis (retail stores) (R) 5
---------------
Total Stock Purchase Warrants and Other Securities -- 0.1% 769,077
---------------
(Cost $79,102)
TOTAL INVESTMENTS (COST $1,731,708,662)(4) 143.5% $ 1,725,740,981
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS-NET (43.5) (523,175,638)
------ ---------------
NET ASSETS 100.0% $ 1,202,565,343
====== ===============
</TABLE>
- ----------------
@ Non-income producing security
(A) Axel describes an amortizing extended term loan with limited call
protection
(B) DIP loan describes debtor in possession loan.
(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) Loan is on non-accrual status.
(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, the cost of investments is $1,732,047,599
and net unrealized depreciation consists of the following:
Gross Unrealized Appreciation $ 5,489,693
Gross Unrealized Depreciation (11,796,311)
-------------
Net Unrealized Depreciation $ (6,306,618)
=============
See Accompanying Notes to Financial Statements.
19
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of February 28, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities at value (Cost $1,731,708,662) $ 1,725,740,981
Receivables:
Interest 16,308,355
Investment securities sold 977,084
Other 100,347
Prepaid expenses 816,660
Prepaid arrangement fees on notes payable 341,252
---------------
Total assets 1,744,284,679
---------------
LIABILITIES:
Notes payable 534,000,000
Overdraft payable to custodian 887,065
Deferred arrangement fees on senior loans 3,081,010
Accrued interest payable 2,524,874
Accrued expenses 1,226,387
---------------
Total liabilities 541,719,336
---------------
NET ASSETS (equivalent to $9.24 per share, based on
130,206,151 shares of beneficial interest authorized
and outstanding, no par value) $ 1,202,565,343
===============
Net Assets Consist of:
Paid in capital $ 1,235,061,394
Undistributed net investment income 9,887,931
Accumulated net realized loss on investments (36,416,301)
Net unrealized depreciation of investments (5,967,681)
---------------
Net assets $ 1,202,565,343
===============
See Accompanying Notes to Financial Statements.
20
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Year Ended February 28, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 136,459,573
Arrangement fees earned 4,778,633
Other 2,289,858
-------------
Total investment income 143,528,064
-------------
EXPENSES:
Interest 28,753,583
Investment management fees 11,973,819
Administration fees 2,022,051
Shareholder communications 1,112,498
Revolving credit facility fees 634,761
Custodian fees 495,623
Miscellaneous expense 494,991
Transfer agent and registrar fees 424,819
Recordkeeping and pricing fees 200,515
Professional fees 169,893
Insurance expense 75,954
Trustees' fees 60,000
-------------
Total expenses 46,418,507
Less: Earnings credits (271,716)
-------------
Net expenses 46,146,791
-------------
Net investment income 97,381,273
-------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized loss on investments (6,313,758)
Change in unrealized depreciation of investments (7,547,808)
-------------
Net loss on investments (13,861,566)
-------------
Net increase in net assets resulting from operations $ 83,519,707
=============
See Accompanying Notes to Financial Statements.
21
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
February 28, February 28,
1999 1998
---------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 97,381,273 $ 95,217,224
Net realized loss on investments (6,313,758) (18,935,269)
Change in unrealized appreciation/(depreciation)
on investments (7,547,808) 5,319,483
--------------- ---------------
Net increase in net assets resulting from operations 83,519,707 81,601,438
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (99,153,106) (93,879,672)
CAPITAL SHARE TRANSACTIONS:
Issuance from dividend reinvestment 14,460,902 15,591,705
Net increase in net assets derived from the sale of
shares in connection with share offerings 169,335,030 --
--------------- ---------------
Net increase from capital share transactions 183,795,932 15,591,705
--------------- ---------------
Total increase in net assets 168,162,533 3,313,471
NET ASSETS:
Beginning of year 1,034,402,810 1,031,089,339
--------------- ---------------
End of year (including undistributed net investment
income of $9,887,931 and $11,926,714 respectively) $ 1,202,565,343 $ 1,034,402,810
=============== ===============
SUMMARY OF CAPITAL SHARE TRANSACTIONS:
Shares issued from dividend reinvestment 1,537,475 1,624,659
Shares sold in connection with share offerings 17,904,188 --
--------------- ---------------
Net increase in shares outstanding 19,441,663 1,624,659
=============== ===============
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Year Ended February 28, 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 133,166,698
Arrangement fees received 4,189,856
Commitment fees received 200,615
Other income received 2,397,452
Interest paid (27,742,538)
Facility fees paid (564,667)
Other operating expenses paid (16,728,159)
Purchases of portfolio securities (1,473,315,732)
Proceeds from disposition of portfolio securities 1,106,883,957
---------------
Net cash used for operating activities (271,512,518)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (84,692,204)
Overdraft financing (5,130,308)
Proceeds from share offerings 169,335,030
Loan advance 192,000,000
---------------
Net cash provided by financing activities 271,512,518
---------------
Net change in cash --
Cash at beginning of year --
---------------
Cash at end of year $ --
===============
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 $ 83,519,707
---------------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Increase in investments in securities (352,570,209)
Increase in dividends and interest receivable (3,292,875)
Decrease in other assets 28,142
Decrease in prepaid arrangement fees on notes payable 70,094
Increase in prepaid expenses (403,233)
Decrease in deferred arrangement fees on senior loans (308,710)
Increase in accrued interest payable 1,011,045
Increase in accrued expenses 433,521
---------------
Total adjustments (355,032,225)
---------------
Net cash used for operating activities $ (271,512,518)
===============
See Accompanying Notes to Financial Statements.
23
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended February 28 or February 29,
-------------------------------------------------------------------------------------
1999 (7) 1998 (7) 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 0.79 0.87 0.82 0.89 0.74 0.60
Net realized and unrealized gain
(loss) on investments (0.10) (0.13) (0.02) (0.08) 0.07 (0.05)
----------- ----------- ----------- --------- --------- ---------
Increase in net asset value from
investment operations 0.69 0.74 0.80 0.81 0.81 0.55
Distributions from net investment
income (0.82) (0.85) (0.82) (0.86) (0.73) (0.60)
Increase in net asset value from
share offerings 0.03 -- -- -- -- --
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 $ 9.24 $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02
=========== =========== =========== ========= ========= =========
Closing market price at end of
period $ 9.56 $ 10.31 $ 10.00 $ 9.50 $ 8.75 $ 9.25
TOTAL RETURN
Total investment return at closing
market price(3) 1.11% 12.70% 15.04%(5) 19.19% 3.27%(5) 8.06%
Total investment return at net
asset value(4) 7.86% 8.01% 8.06%(5) 9.21% 5.24%(5) 6.28%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $ 1,202,565 $ 1,034,403 $ 1,031,089 $ 862,938 $ 867,083 $ 719,979
Average borrowings (000's) $ 490,978 $ 346,110 $ 131,773 $ -- $ -- $ --
Ratios to average net assets plus
borrowings:
Expenses (before interest and
other fees related to revolving
credit facility) 1.05%(8) 1.04% 1.13% -- -- --
Expenses 2.86%(8) 2.65% 1.92% -- -- --
Net investment income 6.00% 6.91% 7.59% -- -- --
Ratios to average net assets:
Expenses (before interest and
other fees related to revolving
credit facility) 1.50%(8) 1.39% 1.29% -- -- --
Expenses 4.10%(8) 3.54% 2.20% 1.23% 1.30% 1.31%
Net investment income 8.60% 9.23% 8.67% 9.23% 7.59% 6.04%
Portfolio turnover rate 68% 90% 82% 88% 108% 87%
Shares outstanding at end of
period (000's) 130,206 110,764 109,140 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 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.
(8) Calculated on total expenses before impact of earnings credits.
See Accompanying Notes to Financial Statements.
25
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
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. SENIOR LOAN AND OTHER 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, 1999, the Trust had capital loss carryforwards for federal
income tax purposes of approximately $30,223,359 which are scheduled to
expire through February 28, 2007.
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 (date the order to buy or sell is executed).
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. 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 February 28, 1999
- --------------------------------------------------------------------------------
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, purchases, from time to time, shares of beneficial
interest of the Trust on the open market to satisfy dividend reinvestments.
Such shares are purchased only when the closing sale or bid price plus
commission is less than the net asset value per share of the stock on the
valuation date. If the market price plus commissions is equal to or exceeds
the net asset value, new shares are 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, liabilities, revenues,
expenses and contingencies to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from these estimates.
G. SHARE OFFERINGS. During the year ended February 28, 1999, the Trust began
issuing shares under various 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 year ended February 28, 1999, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term notes,
totaled $1,473,315,732 and $1,100,978,465, respectively. At February 28, 1999,
the Trust held senior loans valued at $1,700,208,675 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 February 28, 1999
- --------------------------------------------------------------------------------
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
------------- --------------
American Blind and Wallpaper -- Common 01/12/99 --
America's Favorite Chicken Co. -- Common 11/05/92 $ 1
Autotote Systems, Inc. -- Option 11/11/92 --
Autotote Systems, Inc. -- Warrant 11/11/92 --
Butterick Company, Inc. -- Common 05/01/97 --
Capital Tool & Design -- Warrants 07/26/96 --
Casden Properties Operation -- Preferred
Partnership Units 12/31/98 --
Covenant Care, Inc. -- Warrants 12/22/95 --
CT Recovery Liquidating Trust 01/12/99 79,102
Murray's Discount -- Warrants 02/16/99 --
--------
Total restricted securities excluding senior
loans (market value of $5,146,230 was 0.43%
of net assets at February 28, 1999) $ 79,103
========
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, collateralized by assets of the Trust, to borrow up to $650 million
from a syndicate of major financial institutions maturing July 15, 2003.
Borrowing rates under these agreements are based on a fixed spread over LIBOR,
the federal funds rate, or a commercial paper based rate. Prepaid arrangement
fees for any unborrowed amounts are amortized over the term of the agreements.
The amount of borrowings outstanding at February 28, 1999, was $534 million, at
a weighted average interest rate of 5.3%, which represented 30.7% of net assets
plus borrowings. Average borrowings for the year ended February 28, 1999 were
$490,978,082 and the average annualized interest rate was 5.9%.
28
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
As of February 28, 1999, the Trust had unfunded loan commitments pursuant to
the terms of the following loan agreements:
<TABLE>
<S> <C> <C> <C>
Capstar Radio Broadcasting $ 2,305,263 Huntsman Corporation $ 2,243,453
Centennial Resources Inc. 612,646 Liberman Broadcasting, Inc. 272,000
Clarity Telecom, Inc. 244,367 Mafco Finance Co. 5,451,923
Edwards Baking Co. 674,090 Murray's Discount Auto Stores 1,532,500
Gaylord Container Corp. 8,375,172 Pathmark Stores Inc. 4,442,975
Genesis Eldercare Acquisition 84,274 -----------
$26,238,663
===========
</TABLE>
NOTE 5 -- RIGHTS AND OTHER OFFERINGS
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.
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 charged
against the offering proceeds.
As of February 28, 1999, share offerings pursuant to shelf registrations were
drawn down as follows:
Registration Shares Shares
Date Registered Remaining
------------ ---------- ----------
6/11/98 15,000,000 --
6/19/98 10,000,000 9,730,800
9/15/98 25,000,000 22,365,012
During the year ended February 28, 1999, expenses related to the offerings, in
the amount of $800,373, were charged against the proceeds received upon
issuance of the shares.
NOTE 6 -- CUSTODIAL EARNINGS CREDITS
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 year ended February
28, 1999, the Trust received $271,716 in earnings credits from IFTC.
NOTE 7 -- AFFILIATED TRANSACTIONS
During the year ended February 28, 1999, the Trust purchased and sold certain
holdings in senior loans from/to an affiliated fund managed by the Manager at
prices determined by the Manager to represent market prices. The cost of
purchased loans was $53,365,698 and the proceeds and cost of sold loans were
$40,001,830 and $40,000,000, respectively, excluding any benefit to the Trust
from the recognition of deferred arrangement fees.
29
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Pilgrim Prime Rate Trust
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NOTES TO FINANCIAL STATEMENTS as of February 28, 1999
- --------------------------------------------------------------------------------
NOTE 8 -- SUBSEQUENT EVENTS
The Trust has filed a shelf registration statement for an additional 5,000,000
shares, effective March 4, 1999. In addition, subsequent to February 28, 1999,
the Trust paid the following dividends from net investment income:
Per Share Amount Declaration Date Record Date Payable Date
- ---------------- ---------------- ----------- ------------
$0.0590 02/26/99 03/10/99 03/22/99
$0.0660 03/31/99 04/12/99 04/22/99
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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Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Pilgrim Prime Rate Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Pilgrim Prime Rate Trust (the "Trust")
(formerly Pilgrim America Prime Rate Trust) as of February 28, 1999, and the
related statements of operations and cash flows for the year then ended, and
the statements of changes in net assets for each of the years in the two-year
period ended February 28, 1999 and the financial highlights for each of the
years in the four-year period ended February 28, 1999. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. For all periods ending
prior to March 1, 1995, the financial highlights were audited by other auditors
whose report thereon dated March 16, 1995, expressed an unqualified opinion on
those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of February 28, 1999, by examination and other procedures
we considered necessary. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 1999 through 1996 financial statements and financial
highlights referred to above present fairly, in all material respects, the
financial position of Pilgrim Prime Rate Trust as of February 28, 1999, and the
results of its operations and its cash flows for the year then ended, and the
changes in its net assets for each of the years in the two-year period ended
February 28, 1999 and the financial highlights for each of the years in the
four-year period ended February 28, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Los Angeles, California
April 10, 1999
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Pilgrim Prime Rate Trust
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TAX INFORMATION
- --------------------------------------------------------------------------------
The Trust is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise within 60 days of the Trust's fiscal year end (February 28,
1999) as to the federal tax status of distributions received by the Trust's
shareholders. Accordingly, the Trust is hereby advising you that the following
dividends were paid during the fiscal year ended February 28, 1999:
Per Share
Type of Dividend Amount Ex-Dividend Date Payable Date
---------------- --------- ---------------- ------------
Ordinary Income $ 0.0620 03/06/98 03/23/98
$ 0.0700 04/08/98 04/22/98
$ 0.0680 05/07/98 05/22/98
$ 0.0710 06/08/98 06/22/98
$ 0.0680 07/08/98 07/22/98
$ 0.0700 08/06/98 08/24/98
$ 0.0690 09/08/98 09/22/98
$ 0.0680 10/08/98 10/22/98
$ 0.0670 11/06/98 11/23/98
$ 0.0670 12/08/98 12/22/98
$ 0.0690 12/29/98 01/13/99
$ 0.0670 02/08/99 02/23/99
--------
Total $ 0.8160
========
Corporate shareholders are generally entitled to take the dividend received
deduction on the portion of the Trust's dividend distributions that qualify
under tax law. The percentage of the Trust's fiscal year 1999 net investment
income dividends that qualify for the corporate dividends received deductions
is 0%.
Shareholders are strongly advised to consult their own tax advisers with
respect to the tax consequences of their investment in the Trust. In January
1999, you should have received an IRS Form 1099 DIV regarding the federal tax
status of the dividends and distributions received by you in calendar year
1998.
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Pilgrim Prime Rate Trust
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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 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
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Pilgrim(sm)
-------
THE VALUE OF INVESTING(R)
U.S. EQUITY FUNDS
-----------------
Pilgrim MagnaCap Fund
Pilgrim LargeCap Leaders Fund
Pilgrim Large Cap Growth Fund
Pilgrim MidCap Value Fund
Pilgrim Mid Cap Growth Fund
Pilgrim Small Cap Growth Fund
Pilgrim Bank and Thrift Fund
INTERNATIONAL EQUITY FUNDS
--------------------------
Pilgrim Worldwide Growth Fund
Pilgrim International Core Growth Fund
Pilgrim International Small Cap Growth Fund
Pilgrim Emerging Countries Fund
Pilgrim Asia-Pacific Equity Fund
INCOME FUNDS
------------
Pilgrim Government Securities Income Fund
Pilgrim High Quality Bond Fund
Pilgrim High Yield Fund
Pilgrim High Yield II Fund
OTHER FUNDS
-----------
Pilgrim Balanced Fund
Pilgrim Convertible Fund
Prospectuses containing more complete information regarding the funds, including
charges and expenses, may be obtained by calling Pilgrim Securities, Inc.,
Distributor at 1-800-334-3444. Please read the prospectuses carefully before you
invest or send money.
PRANN0299-042999
