[PILGRIM LOGO]
PRIME RATE TRUST
Semi-Annual Report
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Q2
August 31, 1999
Semi-Annual Report
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Pilgrim Prime Rate Trust
SEMI-ANNUAL REPORT
August 31, 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 ........................ 22
Statement of Operations .................................... 23
Statements of Changes in Net Assets ........................ 24
Statement of Cash Flows .................................... 25
Financial Highlights ....................................... 26
Notes to Financial Statements .............................. 28
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 Semi-Annual Report for Pilgrim Prime Rate Trust
(the "Trust").
On the following pages, the Portfolio Manager will discuss the Trust's
milestones and performance, as well as recent market developments. A leader in
its class, the Trust has continued to increase shareholder value through strong
management and innovative approaches.
We believe you will find the six month results a reflection of the Pilgrim's
philosophy to provide core holdings which seek to meet the three key needs of
the serious investor:
1. Preservation of capital
2. Participation in rising markets
3. Outperformance in falling markets
Thank you for selecting Pilgrim Prime Rate Trust. We appreciate the confidence
you have placed in us in serving your investment needs.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim Group, Inc.
October 15, 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 (the "Trust") is to deliver a high
level of current income consistent with the preservation of capital. During the
fiscal quarter ended August 31, 1999, the Trust has paid its 136th consecutive
dividend. Distributions paid during the quarter totaled $0.198 per share. Based
on average month-end net asset value ("NAV") per share, this is equivalent to
8.65%(1) per annum. During the quarter, the Trust's month end NAV ranged between
$9.11 and $9.08. The Trust's distribution rates for the period from March 9,
1992 (initial trading on NYSE) through August 31, 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 Prime Rate Trust
Month Ended (1)(3) Prime Rate(4) (Market) 60-Day LIBOR(5)
- ----------- ---------------- ------------- ---------------- ---------------
3/31/92 7.382% 7.708% 7.397% 5.157%
4/30/92 7.199% 7.500% 7.239% 4.990%
5/31/92 7.072% 7.333% 7.142% 4.823%
6/30/92 6.939% 7.167% 7.034% 4.641%
7/31/92 6.790% 6.958% 6.895% 4.432%
8/31/92 6.671% 6.750% 6.779% 4.250%
9/30/92 6.578% 6.583% 6.697% 4.063%
10/31/92 6.498% 6.417% 6.621% 3.932%
11/30/92 6.394% 6.292% 6.533% 3.844%
12/31/92 6.277% 6.250% 6.417% 3.755%
1/31/93 6.203% 6.208% 6.354% 3.677%
2/28/93 6.151% 6.167% 6.305% 3.589%
3/31/93 6.095% 6.125% 6.267% 3.500%
4/30/93 6.070% 6.083% 6.229% 3.432%
5/31/93 6.056% 6.042% 6.196% 3.375%
6/30/93 6.022% 6.000% 6.141% 3.318%
7/31/93 5.998% 6.000% 6.112% 3.302%
8/31/93 6.002% 6.000% 6.110% 3.281%
9/30/93 5.975% 6.000% 6.070% 3.281%
10/31/93 5.899% 6.000% 5.989% 3.266%
11/30/93 5.910% 6.000% 5.985% 3.224%
12/31/93 5.932% 6.000% 6.018% 3.219%
1/31/94 5.955% 6.000% 6.040% 3.214%
2/28/94 5.978% 6.000% 6.055% 3.255%
3/31/94 6.017% 6.021% 6.080% 3.302%
4/30/94 6.068% 6.083% 6.103% 3.385%
5/31/94 6.157% 6.188% 6.163% 3.484%
6/30/94 6.258% 6.292% 6.243% 3.609%
7/31/94 6.374% 6.396% 6.331% 3.734%
8/31/94 6.474% 6.542% 6.404% 3.875%
9/30/94 6.604% 6.688% 6.518% 4.042%
10/31/94 6.738% 6.833% 6.637% 4.219%
11/30/94 6.874% 7.042% 6.758% 4.432%
12/31/94 7.076% 7.250% 6.971% 4.677%
1/31/95 7.288% 7.458% 7.269% 4.927%
2/28/95 7.487% 7.708% 7.533% 5.135%
3/31/95 7.711% 7.938% 7.831% 5.333%
4/30/95 7.915% 8.125% 8.119% 5.495%
5/31/95 8.089% 8.271% 8.367% 5.625%
6/30/95 8.249% 8.417% 8.588% 5.734%
7/31/95 8.396% 8.542% 8.825% 5.828%
8/31/95 8.534% 8.625% 9.034% 5.854%
9/30/95 8.650% 8.708% 9.189% 5.911%
10/31/95 8.749% 8.792% 9.335% 5.943%
11/30/95 8.855% 8.813% 9.488% 5.930%
12/31/95 8.876% 8.813% 9.506% 5.878%
1/31/96 8.886% 8.813% 9.432% 5.812%
2/29/96 8.895% 8.750% 9.351% 5.739%
3/31/96 8.836% 8.688% 9.215% 5.677%
4/30/96 8.773% 8.625% 9.084% 5.622%
5/31/96 8.727% 8.563% 8.983% 5.573%
6/30/96 8.671% 8.500% 8.874% 5.527%
7/31/96 8.639% 8.458% 8.760% 5.503%
8/31/96 8.612% 8.417% 8.679% 5.524%
9/30/96 8.590% 8.375% 8.606% 5.493%
10/31/96 8.577% 8.333% 8.571% 5.456%
11/30/96 8.563% 8.292% 8.530% 5.422%
12/31/96 8.567% 8.271% 8.486% 5.413%
1/31/97 8.569% 8.250% 8.455% 5.422%
2/28/97 8.564% 8.250% 8.434% 5.436%
3/31/97 8.595% 8.271% 8.431% 5.459%
4/30/97 8.647% 8.292% 8.439% 5.483%
5/31/97 8.666% 8.313% 8.411% 5.507%
6/30/97 8.715% 8.333% 8.425% 5.523%
7/31/97 8.734% 8.354% 8.415% 5.529%
8/31/97 8.744% 8.375% 8.384% 5.544%
9/30/97 8.758% 8.396% 8.371% 5.560%
10/31/97 8.768% 8.417% 8.313% 5.581%
11/30/97 8.771% 8.438% 8.248% 5.615%
12/31/97 8.777% 8.458% 8.206% 5.633%
1/31/98 8.780% 8.479% 8.168% 5.639%
2/28/98 8.777% 8.500% 8.128% 5.655%
3/31/98 8.788% 8.500% 8.125% 5.652%
4/30/98 8.788% 8.500% 8.107% 5.647%
5/31/98 8.809% 8.500% 8.109% 5.642%
6/30/98 8.798% 8.500% 8.094% 5.640%
7/31/98 8.806% 8.500% 8.098% 5.642%
8/31/98 8.807% 8.500% 8.101% 5.639%
9/30/98 8.810% 8.479% 8.114% 5.610%
10/31/98 8.793% 8.438% 8.127% 5.571%
11/30/98 8.786% 8.375% 8.155% 5.527%
12/31/98 8.782% 8.313% 8.220% 5.470%
1/31/99 8.764% 8.250% 8.242% 5.420%
2/28/99 8.737% 8.188% 8.259% 5.364%
3/31/99 8.704% 8.125% 8.259% 5.304%
4/30/99 8.663% 8.063% 8.259% 5.242%
5/31/99 8.630% 8.000% 8.261% 5.187%
6/30/99 8.609% 7.938% 8.260% 5.155%
7/31/99 8.598% 7.896% 8.272% 5.120%
8/31/99 8.595% 7.875% 8.293% 5.103%
CHART I
THE TRUST
The Trust invests primarily in senior loans made to large American and Canadian
corporations. All investments are made in US dollars and bear interest at rates
which adjust to current market conditions periodically. The Trust buys
investments from large, sophisticated banks and financial institutions. These
institutions typically administer the loans on the Trust's behalf. Investments
usually have a final maturity between seven and ten years, but most are repaid
within two to five years. Interest rates on most of the loans reset to current
market indices every thirty to ninety days. Consequently, the Trust's
investments exhibit very low price volatility unlike corporate bonds, whose
prices fluctuate significantly in response to changes in interest rates.
Other factors which reduce the risk of the senior loan asset class include (i)
senior status among all lenders; (ii) collateral coverage; and (iii) covenants
by borrowers to adhere to certain operating and financial standards.
Additionally, the Trust maintains a highly diversified portfolio, which limits
the adverse effect of loan defaults on the Trust's performance.
3
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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The two to ten year lifecycle of senior loan investments suggests that investors
should have a moderate to long term investment horizon when investing in the
Trust. The Trust seeks to provide a high degree of principal stability relative
to the traditional fixed income component of an appropriately diversified
investment portfolio.
MARKET PLACE
When writing this letter twelve months ago, we had just experienced the Russian
default, the salvage of Long Term Capital Management and were threatened by what
appeared to be a steady decline in global economic activity.
In the last year, Asia appears, at least for now, to be well on the way to
healing itself; Japan is struggling to contain an overstrong, not a weak
currency; most European economics are learning to live with if not love the weak
Euro; our Federal Reserve has raised interest rates twice, as we foreshadowed in
our May letter, to try to restrain the apparently boundless energy of the US
economy where the willingness of the American consumer to spend (and not save)
has continued to shroud relatively poor productivity improvements.
Against this backdrop, the performance of most companies in the Trust's
portfolio has been good. The supply of new transactions has been robust. Demand
for senior loans has abated somewhat during the past quarter and pricing has
remained stable and attractive in the market.
Challenging credits continue to emerge but overall, the quality of the Trust's
portfolio and the prospects for attractive ultimate recovery values in those
pockets of the portfolio which are troubled remain good.
ASSET QUALITY
Non-performing loans have fallen during the quarter. From May 31, 1999 when
non-performing loans represented 1.48% and 2.13% of total assets and net assets
respectively, by August 31, 1999, the comparable measures had declined to 0.62%
and 0.91%. It is the nature of the senior loan asset class for defaults to
occur. We expect to see further defaults in 1999, especially in the Long Term
Care sector of the Healthcare Industry. Loans to companies in the
Residential/Long Term Care and Hospitals segment represent 6.6% of the overall
portfolio. The problems in this sector have arisen from recent changes to
Medicare reimbursement practices which had been forecast to generate savings of
$8 billion over five years. Changes of this level had been factored in to our
analysis of the industry and of its largest enterprises. In reality, about $17
billion has been removed from the cash flows of nursing homes directly as a
result of changes made by government. This dramatic difference in outcomes has
not been manageable for the largest companies in the sector. Virtually all of
them are having to find ways to re-configure both their businesses and their
balance sheets to accommodate the changed reimbursement scenario. The successful
recapitalization and operation of these companies will hinge on the quality of
management; the commitment of capital and governance resources by equity
sponsors; and the willingness of investors to reconfigure or eliminate their
claims against these enterprises. We believe that there is long term value in
this sector and as senior, secured investors, we will benefit in the long run
from reduced financial leverage and the stability which will return to revenues
as the sector absorbs changed reimbursement practices over the next three to
five years.
4
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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MARKET PRICE FOR TRUST SHARES
Chart II shows the Trust's share price over the last twelve months and compares
it to the Trust's NAV. The resulting premium is shown in the shaded area at the
bottom of the chart. As mentioned in our May Letter to Shareholders, the
widening premium exhibited increased opportunities for shareholders to acquire
new shares under the Trust's shelf programs. For more complete information,
including charges and expenses for purchasing shares under the shelf programs
please call Pilgrim Securities at 1-800-334-3436, extension 8112. Please read
the prospectus carefully before investing or sending money.
PILGRIM PRIME RATE TRUST
DATE PRICE NAV %PREM DATE PRICE NAV %PREM
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05/28/99 9.500 9.100 4.40 03/19/99 9.313 9.210 1.11
05/21/99 9.375 9.100 3.02 03/12/99 9.438 9.200 2.58
05/14/99 9.313 9.080 2.56 03/05/99 9.500 9.240 2.81
05/07/99 9.438 9.070 4.05 02/26/99 9.563 9.240 3.49
04/30/99 9.438 9.170 2.92 02/19/99 9.500 9.230 2.92
04/23/99 9.438 9.160 3.03 02/12/99 9.500 9.230 2.93
04/16/99 9.313 9.140 1.89 02/05/99 9.438 9.280 1.70
04/09/99 9.375 9.130 2.68 01/29/99 9.563 9.270 3.16
04/02/99 9.438 9.190 2.69 01/22/99 9.438 9.270 1.81
03/26/99 9.375 9.230 1.57 01/15/99 9.313 9.260 0.57
01/08/99 9.313 9.250 0.68
01/01/99 9.313 9.230 0.89
DATE PRICE NAV %PREM DATE PRICE NAV %PREM
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12/25/98 10.000 9.280 7.76 06/26/98 9.938 9.340 6.40
12/11/98 10.000 9.330 7.18 06/19/98 9.938 9.320 6.63
12/11/98 9.938 9.320 6.63 06/12/98 10.000 9.310 7.41
12/04/98 10.000 9.300 7.53 06/05/98 10.125 9.370 8.06
11/27/98 10.000 9.280 7.76 05/29/98 10.250 9.360 9.51
11/20/98 10.000 9.330 7.18 05/22/98 10.188 9.330 9.19
11/13/98 9.938 9.320 7.76 05/15/98 10.188 9.310 9.43
11/06/98 10.000 9.300 7.18 05/08/98 10.063 9.290 8.32
10/30/98 10.000 9.300 6.63 05/01/98 10.125 9.340 8.10
10/23/98 10.000 9.350 7.53 04/24/98 10.000 9.330 7.18
10/16/98 9.938 9.340 7.76 04/17/98 10.063 9.320 7.97
10/02/98 9.938 9.320 7.76 04/10/98 9.938 9.300 6.85
09/25/98 10.000 9.310 7.18 04/03/98 10.063 9.360 7.51
09/18/98 10.125 9.370 6.63 03/27/98 9.875 9.340 5.73
09/11/98 10.250 9.360 7.53 03/20/98 10.000 9.330 7.18
09/04/98 10.188 9.330 7.76 03/13/98 10.125 9.310 8.75
08/28/98 10.188 9.310 7.76 03/06/98 10.250 9.290 10.33
08/21/98 10.063 9.290 7.18 02/27/98 10.313 9.340 10.41
08/14/98 10.125 9.340 6.63 02/20/98 10.313 9.340 10.41
08/07/98 10.000 9.280 7.53 02/13/98 10.250 9.340 9.74
07/31/98 10.000 9.330 7.76 02/06/98 10.250 9.320 9.98
07/24/98 9.938 9.320 7.76 01/30/98 10.250 9.380 9.28
07/17/98 10.000 9.300 6.63 01/23/98 10.500 9.360 12.18
07/10/98 10.000 9.300 7.53 01/16/98 10.313 9.340 10.41
07/03/98 10.063 9.350 7.76 01/09/98 10.313 9.330 10.53
01/02/98 10.313 9.310 10.77
DATE PRICE NAV %PREM DATE PRICE NAV %PREM
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12/26/97 10.375 9.390 10.49 07/04/97 10.000 9.430 6.04
12/19/97 10.375 9.380 10.61 06/27/97 10.031 9.420 6.49
12/12/97 10.250 9.360 9.51 06/20/97 10.125 9.400 7.71
12/05/97 10.250 9.340 9.74 06/13/97 10.125 9.390 7.83
11/28/97 10.250 9.390 9.16 06/06/97 10.063 9.370 7.39
11/21/97 10.188 9.390 8.49 05/30/97 10.063 9.420 6.82
11/14/97 10.188 9.360 8.84 05/23/97 10.125 9.400 7.71
11/07/97 10.250 9.350 9.63 05/16/97 9.875 9.380 5.28
10/31/97 10.250 9.400 9.04 05/09/97 10.000 9.370 6.72
10/24/97 10.313 9.390 9.82 05/02/97 10.000 9.420 6.16
10/17/97 10.188 9.380 8.61 04/25/97 10.000 9.420 6.16
10/10/97 10.188 9.360 8.84 04/18/97 10.125 9.400 7.71
10/03/97 10.250 9.410 8.93 04/11/97 10.125 9.380 7.94
09/26/97 10.188 9.390 8.49 04/04/97 10.125 9.440 7.26
09/19/97 10.188 9.380 8.61 03/28/97 9.875 9.420 4.83
09/12/97 10.125 9.350 8.29 03/21/97 9.750 9.410 3.61
09/05/97 10.125 9.330 8.52 03/14/97 10.000 9.390 6.50
08/29/97 10.125 9.400 7.71 03/07/97 10.000 9.400 6.38
08/22/97 10.125 9.380 7.94 02/28/97 9.875 9.450 4.50
08/15/97 10.188 9.370 8.72 02/21/97 9.875 9.430 4.72
08/08/97 10.125 n.a. n.a 02/14/97 10.000 n.a. n.a
08/01/97 10.188 9.430 8.03 02/07/97 9.750 9.410 3.61
07/25/97 10.125 9.410 7.60 01/31/97 9.750 9.460 3.07
07/18/97 10.000 9.380 6.61 01/24/97 9.813 9.440 3.95
07/11/97 10.000 9.380 6.61 01/17/97 9.750 9.430 3.39
01/10/97 9.875 9.410 4.94
01/03/97 9.875 9.390 5.17
DATE PRICE NAV %PREM DATE PRICE NAV %PREM
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12/27/96 9.750 9.380 3.94 06/28/96 9.750 9.610 1.46
12/20/96 9.750 n.a. n.a. 06/21/96 9.625 9.590 .36
12/13/96 9.625 9.410 2.28 06/14/96 9.750 9.570 1.88
12/06/96 9.375 9.390 -.16 06/07/96 9.625 9.560 .68
11/29/96 9.375 9.450 -.79 05/31/96 9.500 9.610 -1.14
11/22/96 9.375 9.430 -.58 05/24/96 9.625 9.590 .36
11/15/96 9.375 9.560 -1.94
05/17/96 9.625 9.570 .57
11/08/96 9.250 9.560 -3.24 05/10/96 9.500 9.560 -.63
11/01/96 9.438 9.610 -1.80 05/03/96 9.625 9.600 .26
10/25/96 9.625 9.600 .26 04/26/96 9.500 9.580 -.84
10/18/96 9.625 9.580 .47 04/19/96 9.625 9.570 .57
10/11/96 9.750 9.570 1.88
04/12/96 9.625 9.550 .79
10/04/96 9.875 9.620 2.65 04/05/96 9.500 9.540 -.42
09/27/96 9.875 9.600 2.86 03/29/96 9.625 9.610 .16
09/20/96 9.625 9.580 .47 03/22/96 9.375 9.590 -2.24
09/13/96 10.000 9.560 4.60 03/15/96 9.375 9.570 -2.04
09/06/96 9.875 n.a. n.a.
03/08/96 9.375 n.a. n.a.
08/30/96 9.875 9.600 2.86 03/01/96 9.375 9.610 -2.45
08/23/96 9.875 9.600 2.86 02/23/96 9.500 9.610 -1.14
08/16/96 9.875 9.580 3.08 02/16/96 9.375 9.590 -2.24
08/09/96 9.875 9.560 3.29 02/09/96 9.375 9.580 -2.14
08/02/96 9.813 9.620 2.00
02/02/96 9.313 9.640 -3.40
07/26/96 9.750 9.600 1.56 01/26/96 9.375 9.620 -2.55
07/19/96 9.625 9.580 .47 01/19/96 9.375 9.620 -2.55
07/12/96 9.625 9.570 .57 01/12/96 9.375 9.600 -2.34
07/05/96 9.750 9.550 2.09 01/05/96 9.375 9.590 -2.24
DATE PRICE NAV %PREM DATE PRICE NAV %PREM
- --------------------------------------------------------------------------------
12/29/95 9.250 9.580 -3.44 07/14/95 9.000 9.620 -6.44
12/22/95 9.375 9.630 -2.65 07/07/95 9.125 9.600 -4.95
12/15/95 9.375 9.630 -2.65 06/30/95 9.125 9.650 -5.44
12/08/95 9.250 9.610 -3.75 06/23/95 9.125 9.650 -5.44
06/16/95 9.000 9.630 -6.54
12/01/95 9.125 9.670 -5.64
11/24/95 9.125 9.650 -5.44 06/09/95 9.125 9.620 -5.15
11/17/95 9.250 9.620 -3.85 06/02/95 9.000 9.670 -6.93
11/10/95 9.000 9.620 -6.44 05/26/95 8.875 9.660 -8.13
11/03/95 9.125 9.670 -5.64 05/19/95 9.000 9.640 -6.64
05/12/95 8.875 9.620 -7.74
10/27/95 9.250 9.660 -4.25
10/20/95 9.250 9.640 -4.05 05/05/95 8.875 9.600 -7.55
10/13/95 9.375 9.620 -2.55 04/28/95 8.875 9.660 -8.13
10/06/95 9.375 9.610 -2.45 04/21/95 8.875 9.640 -7.94
09/29/95 9.375 9.660 -2.95 04/14/95 8.750 9.620 -9.04
04/07/95 8.750 9.610 -8.95
09/22/95 9.250 9.640 -4.05
09/15/95 9.375 9.630 -2.65 03/31/95 8.750 9.670 -9.51
09/08/95 9.250 9.610 -3.75 03/24/95 8.750 9.650 -9.33
09/01/95 9.250 9.670 -4.34 03/17/95 8.750 9.630 -9.14
08/25/95 9.250 9.640 -4.05 03/10/95 8.750 9.610 -8.95
03/03/95 8.750 9.660 -9.42
08/18/95 9.125 9.620 -5.15
08/11/95 9.000 9.610 -6.35
08/04/95 9.125 9.670 -5.64
07/28/95 9.000 9.650 -6.74
07/21/95 8.875 9.630 -7.84
Source: Bloomberg
Past performance is no guarantee of future results
Chart II
OUTLOOK
The opening weeks of the new fiscal quarter are likely to produce a good
selection of new transactions from which to select assets. The closer we get to
the twenty-first century, however, the murkier the outlook for primary issuance.
Few new investments will be made by equity sponsors if systems integration might
be compromised by the fear of computer problems at year-end. On the other hand,
an abnormally high degree of window dressing and liquidity raising exercises may
result in some unusual opportunities for liquid investors in the last months of
1999. The Trust will try to be even more selective during this period.
We encourage your questions and comments.
/s/ Howard Tiffen
Howard Tiffen
President, COO, and
Senior Portfolio Manager
Pilgrim Prime Rate Trust
September 22, 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
$0.198 per share by 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 Trust's distribution
rates for the preceding twelve months. Distribution rates are calculated by
annualizing each monthly dividend and dividing the resulting annualized
dividend amount by the Trust's net asset value (in the case of NAV) or the
NYSE composite closing price (in the case of market) at the end of each
month.
(3) Source: Bloomberg Financial Markets.
(4) 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.
6
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATISTICS AND PERFORMANCE as of August 31, 1999
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
Net Assets $1,218,926,146
Assets Invested in Senior Loans* $1,738,658,417
Total Number of Senior Loans 181
Average Amount Outstanding per Loan $9,605,848
Total Number of Industries 34
Average Loan Amount per Industry $51,137,012
Portfolio Turnover Rate (YTD) 40%
Weighted Average Days to Interest Rate Reset 37 days
Average Loan Maturity 64 months
Average Age of Loans Held in Portfolio 11 months
* Includes loans and other debt received through restructures
TOP 10 INDUSTRIES AS A % OF
NET ASSETS TOTAL ASSETS
---------- ------------
Telecommunications 11.6% 8.0%
Buildings and Real Estate 9.6% 6.6%
Residential/Long Term Care and Hospitals 9.6% 6.6%
Chemicals, Plastics and Rubber 8.2% 5.7%
Electronics 7.3% 5.0%
Automobile 6.6% 4.5%
Medical Services and Products 5.9% 4.1%
Aerospace and Defense 5.9% 4.0%
Personal, Food and Miscellaneous Services 5.7% 3.9%
Diversified/Conglomerate Services 5.2% 3.5%
TOP 10 SENIOR LOANS AS A % OF
NET ASSETS TOTAL ASSETS
---------- ------------
Allied Waste Industries 2.9% 2.0%
Mafco Finance Corp. 2.6% 1.8%
Ventas Inc. 2.1% 1.4%
Lyondell Petrochemical Co. 2.1% 1.4%
Avis Rent-A-Car, Inc. 2.1% 1.4%
Community Health Systems Inc. 2.0% 1.4%
Mariner Post-Accute Network 1.9% 1.3%
Omnipoint Corp. 1.9% 1.3%
Gaylord Container Corp. 1.8% 1.2%
Papa Gino's Inc. 1.7% 1.2%
7
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATISTICS AND PERFORMANCE as of August 31, 1999
- --------------------------------------------------------------------------------
YIELDS AND DISTRIBUTION RATES
(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
- ------------- ----- ---------- ---------- ------------- -------------
August 31, 1999 7.75% 8.74% 8.43% 8.65% 8.35%
May 31, 1999 7.75% 8.78% 8.40% 8.52% 8.20%
February 28, 1999 7.75% 8.28% 7.99% 8.56% 8.27%
November 30, 1998 7.75% 9.02% 8.68% 8.74% 8.42%
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
----- -----
1 Year 6.51% 2.84%
3 Years 7.51% 7.57%
5 Years 8.02% 8.45%
10 Years 8.05% N/A
Since Trust Inception F,H 8.29% N/A
Since Initial Trading on NYSE G N/A 9.82%
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
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PERFORMANCE FOOTNOTES
- --------------------------------------------------------------------------------
(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 August 31, 1999
were 2.84% and 8.45% for the one and five year periods, respectively. The
Trust's average annual total return assuming an initial investment at NAV
with a 3% sales charge and assuming an ending value at market and assuming
rights were exercised through August 31, 1999, was 9.29% 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
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
ADDITIONAL NOTES AND INFORMATION
- --------------------------------------------------------------------------------
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
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
SENIOR LOANS*
(Dollar weighted portfolio interest reset period is 37 days)
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- --------- --------------------------------------------------------- ------ -------- -----------
<S> <C> <C> <C> <C>
AEROSPACE AND DEFENSE: 5.9%
$ 14,850 Avborne (aircraft maintenance) Term B 06/30/03 $ 14,850,000
8,798 Erickson Air-Crane Co. (heavy lift helicopters) Term B 12/31/04 8,093,700
8,772 New Piper Aircraft, Inc. (aircraft manufacturer) Term 04/15/05 8,772,180
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
2,494 Stellex Industries, Inc. (aerospace & defense parts mfg.) Term B 09/30/06 2,494,318
4,355 Technetics Corp. (aircraft engine components) Term 06/20/02 4,354,740
5,000 Titan Corp. (defense electronics contractor) Term B 05/10/05 5,000,000
14,973 TRANSTAR (aluminum distribution) Term B 01/20/06 14,973,214
------------
71,317,812
------------
AUTOMOBILE: 6.6%
4,962 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
12,500 Avis Rent-A-Car (automotive leasing) Term B 06/30/06 12,500,000
12,500 Avis Rent-A-Car Term C 06/30/07 12,500,000
9,800 Cambridge Industries, Inc. (automotive plastics) Term B 06/30/05 9,800,000
9,351 Capital Tool & Design (brake backing plates) Term B 07/19/03 9,350,099
8,767 Global Metal Technologies, Inc. (automotive parts) Term B 03/12/05 8,767,420
7,101 Safelite Glass Corp. (automobile windshield replacement) Term B 12/23/04 7,101,000
7,101 Safelite Glass Corp. Term C 12/23/05 7,101,000
3,333 Venture Holdings (auto supplier/plastics) Term B 04/05/05 3,333,333
------------
80,179,352
------------
BANKING: 1.5%
837 Alliance Data Systems (banking) Term A 03/04/06 837,054
14,700 Alliance Data Systems Term B 10/31/05 14,700,000
2,149 Alliance Data Systems US Term 03/04/06 2,149,295
------------
17,686,349
------------
BEVERAGE, FOOD AND TOBACCO: 3.4%
2,833 Edward's Baking Co. (food service bakery) Term A 09/30/03 2,691,667
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 3,127,084
13,720 Empire Kosher Poultry (kosher chicken and poultry) Term B 07/31/04 13,720,000
5,000 Houston Process (meat products producer) Term B 12/18/05 4,999,995
7,074 Imperial Holly Corp. (sugar producer) Term A 12/31/05 7,074,799
6,508 Imperial Holly Corp. Term B 12/31/05 6,508,033
------------
41,248,661
------------
</TABLE>
See Accompanying Notes to Financial Statements.
11
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- --------- ----------------------------------------------------------- ------ -------- ------------
<S> <C> <C> <C> <C>
BROADCASTING: 5.1%
$ 8,000 Benedek Broadcasting Corp. (television broadcasting) Term B 11/20/07 $ 8,000,000
2,087 Capstar Radio Broadcasting (radio broadcasting) Revolver 11/30/04 2,086,842
2,309 Capstar Radio Broadcasting Term A 11/30/04 2,309,211
4,000 Charter Communications Operating, LLC (cable television) Term B 03/17/08 4,000,000
9,955 Intermedia Partners IV (cable television) Term 01/01/05 9,954,545
1,642 Liberman Broadcasting, Inc. (spanish radio/tv) Revolver 03/31/05 1,641,600
7,840 Liberman Broadcasting, Inc. Term B 09/30/05 7,840,000
17,000 Telemundo (television broadcasting) Term B 12/28/06 17,000,000
4,000 Z Spanish (radio broadcasting) Bridge TL (A) 03/31/06 4,000,000
5,000 Z Spanish Term 03/31/06 5,000,000
------------
61,832,198
------------
BUILDINGS AND REAL ESTATE: 9.6%
6,000 Dayton Superior Corp. (concrete/masonry accessories) Term 09/29/05 6,000,000
5,406 Falcon Building Products (building products) Term B 06/30/05 5,405,895
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
6,400 Juno Lighting (recess/track lighting) Term B 11/30/06 6,400,000
7,761 Kevco Inc. (manufactured home components) Term B 02/02/05 7,761,110
9,939 Meditrust Corp. (real estate investment trust) Revolver 07/15/01 9,938,676
6,500 Meditrust Corp. Term D 07/15/01 6,500,000
10,000 National Golf Operating Partnership (golf course REIT) Term B 07/22/04 10,000,000
5,000 Prison Realty (owner/operator of prison facilities) Term C 12/31/02 5,000,000
11,233 Tree Island Industries (nail and wire products) Term B 03/31/03 11,233,000
6,187 US Aggregates (aggregate, asphalt, concrete manufacturer) Term B 03/31/06 6,187,143
7,500 Vantas, Inc. (executive office suite provider) Term B 09/04/09 7,500,000
1,912 Ventas, Inc. (real estate investment trust) Bridge TL (A) 11/05/99 1,912,426
1,259 Ventas, Inc. Term A 05/05/01 1,259,281
22,486 Ventas, Inc. Term B 05/05/03 22,486,296
------------
117,583,827
------------
CARGO TRANSPORT: 2.4%
5,344 Atlas Freighter Leasing (air cargo carrier) Term 05/29/04 5,344,435
2,709 Evergreen International Aviation, Inc. (air cargo carrier) Term B 05/31/02 2,709,006
1,368 Evergreen International Aviation, Inc. Term B 05/31/02 1,367,553
385 Evergreen International Aviation, Inc. Term B-1 05/19/03 385,260
5,000 Havco Wood Products, Inc. (wood flooring) Term B 09/30/06 5,000,000
9,000 Omnitrax, Inc. (rail operator) Term 05/12/05 9,000,000
5,852 Terex Corp. (construction and mining capital equipment) Term C 03/06/06 5,852,000
------------
29,658,254
------------
</TABLE>
See Accompanying Notes to Financial Statements.
12
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ---------- ----------------------------------------------------------- -------- -------- ------------
<S> <C> <C> <C> <C>
CHEMICALS, PLASTICS AND RUBBER: 8.2%
$ 9,818 Acadia Elastomers Corp. (specialty chemicals) Term 02/17/04 $ 9,817,518
11,170 Cedar Chemical Corp. (specialty chemicals) Term B 10/30/03 11,170,050
14,925 Euro United Corp. (plastic products) Term B 05/31/01 14,925,000
7,125 Foam Fabrics Inc. (styrofoam products) Term A 03/05/05 7,125,000
3,527 Foamex, L.P. (polyurethane foam) Term B 06/30/05 3,526,880
3,206 Foamex, L.P. Term C 06/30/06 3,206,254
2,117 Huntsman Corp. (industrial chemicals) Revolver 12/31/02 2,116,856
476 Huntsman Corp. Term A 12/31/02 475,560
3,442 Huntsman Corp. Term B 10/07/04 3,442,437
2,000 Huntsman Specialty (specialty chemicals) Term B 03/15/04 2,000,000
2,000 Huntsman Specialty Term C 03/15/05 2,000,000
5,000 Identity Group, Inc. (office product manufacturer) Term B 05/07/07 5,000,000
10,875 Lyondell Petrochemical Company (petrochemicals) Term A 07/23/03 10,875,214
2,796 Lyondell Petrochemical Company Term B 07/23/05 2,795,502
11,958 Lyondell Petrochemical Company Term E 05/20/06 11,957,500
5,102 NEN Life Sciences Products (biochemicals) Term B 12/31/04 5,102,041
4,667 Texas Petrochemical Corp. (industrial chemicals) Term B 06/30/04 4,666,667
------------
100,202,479
------------
CONTAINERS, PACKAGING AND GLASS: 4.5%
9,000 Blue Ridge Paper Products (paper producer) Term B 05/14/06 9,000,000
1,769 Gaylord Container Corporation (corrugated containers) Revolver 06/19/03 1,768,670
19,797 Gaylord Container Corporation Term 06/19/03 19,797,069
5,000 Impaxx Inc. (industrial labeling & packaging) Term C 12/31/05 5,000,000
4,000 Pacifica Paper Inc. (manufacturer of value added paper) Term B 03/12/06 4,000,000
9,900 Pretium Packaging LLC (plastic packaging) Term B 07/29/06 9,900,020
5,498 RIC Holdings Inc. (Riverwood) (paper and pulp company) Term A 02/28/03 5,497,622
------------
54,963,381
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 3.1%
9,950 Allied Digital Technologies Corp. (multimedia manufacturer) Term B 12/31/05 9,950,000
6,250 General Cable Corp. (copper cable mfg.) Term B 05/24/07 6,250,000
4,000 Holmes Products Corp. (consumer products manufacturer) Term B 02/15/07 4,000,000
2,500 Mueller Group, Inc. (cast iron & brass products) Term B 08/12/06 2,500,000
2,500 Mueller Group, Inc. Term C 08/12/07 2,500,000
5,863 Private Business, Inc. (banking services & software) Term B 08/19/06 5,863,236
7,000 United Pet Group (pet supplies manufacturer) Term B 03/31/06 7,000,000
------------
38,063,236
------------
</TABLE>
See Accompanying Notes to Financial Statements.
13
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ----------- ---------------------------------------------------------- -------- -------- -----------
<S> <C> <C> <C> <C>
DIVERSIFIED/CONGLOMERATE SERVICES: 5.2%
$ 5,000 Barjan Products (truck stop distributor) Term B 05/31/06 $ 5,000,000
2,936 Enterprise Profit Solutions Corp. (business services
outsourcing) Term 09/25/02 2,935,714
30,635 MAFCO Financial Corp. (diversified services and
entertainment) Term A 04/16/00 30,634,615
788 MAFCO Financial Corp. Revolver 04/16/00 787,500
11,811 Outsourcing Solutions (accounts receivable management) Term B 11/06/03 11,811,173
6,880 Outsourcing Solutions Term C 10/15/04 6,879,609
2,500 URS Corp. (consulting company) Term B 06/09/06 2,500,000
2,500 URS Corp. Term C 06/09/07 2,500,000
-----------
63,048,611
-----------
ECOLOGICAL: 3.7%
15,909 Allied Waste (waste management) Term B 07/12/06 15,909,091
19,090 Allied Waste Term C 07/12/07 19,090,910
5,700 Clean Harbors, Inc. (environmental services) Term 05/08/00 5,700,000
4,562 Rumpke (waste management) Term A 09/26/02 4,562,500
-----------
45,262,501
-----------
EDUCATION AND CHILDCARE: 2.2%
9,258 Children's Discovery Centers (daycare and education) Term 08/10/04 9,257,813
12,500 The Brown Schools (behavioral healthcare) Term B 06/30/04 12,500,000
5,000 The Brown Schools Term C 06/30/05 5,000,000
-----------
26,757,813
-----------
ELECTRONICS: 7.3%
469 Decision One Corp. (electronic equipment) Revolver 08/31/03 225,257
2,649 Decision One Corp. Term A 08/31/03 1,271,432
6,299 Decision One Corp. Term B 08/31/05 3,023,521
9,491 Dynamic Details Silicon, Inc. (circuit board manufacturer) Term B 04/22/05 9,491,000
5,348 Intri-Plex Technologies, Inc. (disk drive component
manufacturer) Term 09/30/02 5,080,435
7,000 Knowles Electronics (manufacturers, transducers) Term B 06/29/07 7,000,000
9,444 Mitel Corp. (semiconductor manufacturing) Term B 06/02/04 9,444,091
8,143 OK Industries, Inc. (circuit board manufacturing systems) Term 10/31/02 8,142,857
4,334 RSP Manufacturing (electronic enclosures) Term B 06/30/04 4,334,074
9,306 Sarcom, Inc. (systems integration) Term 11/20/02 9,305,556
7,704 Semiconductor Components (semiconductors) Term B 08/04/06 7,703,704
8,296 Semiconductor Components Term C 08/04/07 8,296,296
7,500 Stonebridge Technologies, Inc. (enterprise computing) Term 07/27/05 7,500,000
8,300 Viasystems Group, Inc. (electronic equipment) Term C 06/30/05 8,300,000
-----------
89,118,223
-----------
FARMING AND AGRICULTURE: 0.4%
5,000 Purina Mills, Inc. (animal nutrition products) Term B 01/20/06 5,000,000
-----------
5,000,000
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
14
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ---------- --------------------------------------------------------- ---------- -------- -----------
<S> <C> <C> <C> <C>
FINANCE: 3.0%
$ 8,000 Bridge Information Systems (news services) Term B 05/29/05 $ 8,000,000
2,420 Bridge Information Systems Lease-4 04/01/01 2,419,548
4,620 Bridge Information Systems Lease-6 04/01/01 4,619,719
5,823 National Partnership Investments Corp. (asset management) Term 06/30/01 5,822,902
5,163 Rent-A-Center, Inc. (home appliances rental company) Term B 01/31/06 5,163,454
6,913 Rent-A-Center, Inc. Term C 01/31/07 6,912,900
4,250 Value Asset Management, Inc. (money management) Term B 04/28/03 4,250,000
-----------
37,188,523
-----------
GROCERY: 1.9%
1,917 Pathmark Stores, Inc. (mid-atlantic supermarkets) Revolver 06/15/01 1,917,355
1,412 Pathmark Stores, Inc. Term A 06/15/01 1,412,406
9,022 Pathmark Stores, Inc. Term B 12/15/01 9,022,478
273 Schwegmann Giant Supermarket (Louisiana
supermarkets)(1)(2) Revolver B 01/31/04 163,880
402 Schwegmann Giant Supermarket(1)(2) Revolver C 08/04/99 241,468
17,767 Schwegmann Giant Supermarket(1)(2) Term B 07/30/02 10,659,966
-----------
23,417,553
-----------
HOME AND OFFICE FURNISHINGS, HOUSEWARES AND DURABLE
CONSUMER PRODUCTS: 2.6%
723 American Blind and Wallpaper (furniture and home
furnishings) Term 12/29/05 722,983
8,755 Desa International (heaters and fireplaces) Term 11/26/04 8,755,000
15,489 ICON Health & Fitness Co. (exercise equipment) Term B 11/14/01 15,489,375
7,091 Pebble Beach Co. (golf resorts) Term B 07/30/06 7,090,909
-----------
32,058,267
-----------
HOTELS, MOTELS, INNS AND GAMING: 2.3%
3,000 Aladdin Gaming, LLC (hotel, casino) Term B 02/28/06 3,000,000
4,500 Aladdin Gaming, LLC Term C 02/28/06 4,500,000
2,500 Boyd Gaming, Corp. (hotel, casino) Term 06/15/03 2,500,000
5,000 Wyndham International (owner & operator of
upscale hotels) IR Term 06/30/04 5,000,000
13,500 Wyndham International Term 06/30/06 13,500,000
-----------
28,500,000
-----------
INSURANCE: 0.3%
3,750 TRG Holdings Corp. (insurance run-off) Term 01/07/03 3,750,000
-----------
3,750,000
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
15
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ----------- ----------------------------------------------------------- ------ -------- -----------
<S> <C> <C> <C> <C>
LEISURE, AMUSEMENT, MOTION PICTURES AND
ENTERTAINMENT: 4.8%
$ 3,712 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
7,500 Edwards Megaplex Holdings, Inc. (movie theatres) Term B 12/26/05 7,500,000
9,850 Four Media Co. (film services) Term B 09/10/04 9,850,000
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
14,975 Panavasion, Inc. (high precision file camera systems) Term B 03/10/05 14,975,000
5,000 SFX Entertainment (concert promotion/venue operator) Term B 03/31/01 5,000,000
-----------
58,750,000
-----------
MACHINERY (NONAGRICULTURE, NONCONSTRUCTION,
NONELECTRONIC): 2.6%
20,000 Anthony Crane (equipment rental) Term B 07/20/06 20,000,000
8,025 Clearing -- Niagara (metal stamping press manufacturer) Term 10/18/04 6,821,218
4,938 Morris Material Handling (industrial cranes) Term B 03/31/05 4,937,500
-----------
31,758,718
-----------
MEDICAL SERVICES AND PRODUCTS: 5.9%
1,105 Alliance Imaging, Inc. (diagnostic services) Term A 12/18/03 1,104,827
5,248 Alliance Imaging, Inc. Term B 08/09/04 5,247,926
5,000 Alliance Imaging, Inc. Term D 06/18/05 5,000,000
10,000 Compdent Corp. (dental benefits provider) Term B 06/30/06 10,000,000
3,333 Concentra Managed Care, Inc. (healthcare cost management) Term B 06/30/06 3,333,333
1,667 Concentra Managed Care, Inc. Term C 06/30/07 1,666,667
5,750 Dade Behring (medical equipment) Term B 06/30/06 5,750,000
5,750 Dade Behring Term C 06/30/07 5,750,000
4,913 Doshi Diagnostics Imaging Service (radiology and medical
testing) Term 05/15/05 4,912,500
4,408 Genesis Eldercare Acquisition (long term healthcare
facilities) Term 09/30/04 4,408,240
3,041 Genesis Health Ventures, Inc. (elderly healthcare and
support) Term A 09/30/03 3,040,659
3,882 Genesis Multicare Co. (elderly healthcare and support) Term A 09/30/03 3,882,297
3,675 Healthcare Direct, Inc. (medical device retailer) Term A 08/01/04 3,675,000
4,059 Healthcare Direct, Inc. Term B 08/01/06 4,059,000
3,609 Med Partners Inc. (physician practice management) Term A 06/09/01 3,608,628
1,613 Med Partners Inc. Term B 06/09/01 1,613,360
4,715 Vision Twenty-One, Inc. (eye care PPM) Term C 06/30/05 4,714,923
-----------
71,767,360
-----------
MINING, STEEL, IRON AND NONPRECIOUS METALS: 2.0%
9,776 Ispat Sidbec, Inc. (steel producer) Term B 07/17/03 9,775,971
9,776 Ispat Sidbec, Inc. Term C 07/17/04 9,775,971
4,583 National Refractories, Inc. (kiln lining materials) Term C 09/30/99 4,583,333
-----------
24,135,275
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
16
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ---------- ---------------------------------------------------------- -------------- -------- -----------
<S> <C> <C> <C> <C>
OIL AND GAS: 3.8%
$ 9,000 Clark Refining and Marketing (petroleum refining/
distribution) FRN (C) 11/15/04 $ 9,000,000
13,000 Key Energy Group, Inc. (oil field services) Term B 09/14/04 13,000,000
1,477 Perf-O-Log (oil field services) Delayed TL (B) 08/11/03 1,477,500
3,930 Perf-O-Log Term B 08/11/03 3,930,000
2,469 Perf-O-Log Term C 08/11/04 2,468,750
17,000 Plains Resources, Inc. (oil pipeline) Term B 06/29/04 17,000,000
-----------
46,876,250
-----------
PERSONAL AND NONDURABLE CONSUMER PRODUCTS: 1.5%
1,103 AM Cosmetics (cosmetics & skin care products) Revolver 05/30/04 1,103,268
1,305 AM Cosmetics Term A 06/30/03 1,305,151
2,610 AM Cosmetics Term B 12/31/04 2,610,303
2,000 American Safety Razor (consumer products) Term A 04/30/05 2,000,000
8,690 Medtech Products (non-prescription consumer medications) Term B 10/15/02 8,689,642
1,128 Paint Sundry Brands, LLC (paint supply manufacturer) Term B 08/11/05 1,127,549
1,104 Paint Sundry Brands, LLC Term C 08/11/06 1,104,305
-----------
17,940,218
-----------
PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 5.7%
14,604 Boston Chicken, Inc. (quick service restaurant)(2) Term C 12/09/01 10,369,430
4,803 Brickman Group, Inc. (landscaping) Term B 12/31/05 4,802,912
8,825 Coinmach Laundry Corp. (laundry) Term B 06/30/05 8,825,377
4,975 Otis Spunkmeyer (food, beverage, tobacco) Term B 12/31/05 4,975,000
1,788 Papa Gino's, Inc. (quick service restaurants) T/L A-2 08/31/04 1,788,079
4,486 Papa Gino's, Inc. Term A 02/19/02 4,486,458
14,671 Papa Gino's, Inc. Term B 02/19/04 14,670,985
5,850 24-Hour Fitness, Inc. (health club operator) Term A 12/31/02 5,850,000
13,500 24-Hour Fitness, Inc. Term B 12/31/04 13,500,000
-----------
69,268,241
-----------
PERSONAL TRANSPORTATION: 1.5%
9,897 Neoplan USA Corporation (transit bus manufacturer) Term B 05/29/05 9,897,133
8,000 Transportation Manufacturing Operation (bus manufacturing) Term B 06/16/06 8,000,000
-----------
17,897,133
-----------
PRINTING AND PUBLISHING: 5.1%
8,213 Crown Paper Co. (paper and pulp manufacturer) Term B 08/22/03 8,213,327
17,500 Lincoln Pulp & Eastern Fine (specialty paper) Term 08/31/04 17,499,996
615 Lincoln Pulp & Eastern Fine Term A 12/31/99 615,200
5,000 Susquehanna Media (radio broadcaster) Term B 06/30/08 5,000,000
3,300 Von Hoffman Press, Inc. (textbook manufacturer) Term B 05/29/04 3,300,000
10,718 Von Hoffman Press, Inc. Term C 05/29/05 10,717,857
9,900 Weider Publications, Inc. (magazine publications) Term 09/18/05 9,900,000
3,967 20th Century Plastics, Inc. (album manufacturing) Term B 9/30/05 3,966,667
3,474 20th Century Plastics, Inc. Term C 9/30/06 3,473,750
-----------
62,686,797
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ---------- --------------------------------------------------------- --------- -------- ------------
<S> <C> <C> <C> <C>
Residential/Long Term Care and Hospitals: 9.6%
$ 8,801 Community Health Systems (hospitals) Term B 12/31/03 $ 8,801,370
8,801 Community Health Systems Term C 12/31/04 8,801,370
6,575 Community Health Systems Term D 12/31/05 6,575,342
6,000 Covenant Care California, Inc. (long term healthcare
facilities) Term 04/30/01 6,000,000
14,779 Fountain View, Inc. (long term healthcare facilities) Term B 03/31/04 14,779,413
1,275 Integrated Health Services (subacute care/ home health) Term B 09/30/04 1,274,885
9,788 Integrated Health Services Term C 12/31/05 9,787,658
5,775 Magellan Health Services (managed behavioral care) Term B 02/28/05 5,775,134
5,775 Magellan Health Services Term C 02/28/06 5,775,134
14,862 Mariner Health Group, Inc. (long term care) Term B 03/31/05 14,862,217
8,892 Mariner Health Group, Inc. Term C 03/31/06 8,891,860
5,109 Paracelsus Healthcare Corporation (for profit hospitals) Term A 05/15/03 5,108,889
7,943 Paracelsus Healthcare Corporation Term B 06/15/04 7,942,857
13,134 Vencor, Inc. (long term care facility operator) Term B 05/05/05 12,083,338
------------
116,459,467
------------
Retail Stores: 4.8%
9,899 Amscan Holdings, Inc. (party goods) Hybrid TL 12/31/04 9,899,498
3,667 CSK Auto, Inc. (auto parts retailer) Term B 04/30/06 3,666,667
13,748 Murray's Discount Auto Stores (auto parts retailer) Term 06/30/03 13,748,385
9,000 Norwood Promotional Products (licensed products) Term B 03/31/06 9,000,000
4,011 Peebles, Inc. (department store chain) Term A 04/30/01 4,010,782
12,839 Peebles, Inc. Term B 04/30/02 12,839,475
4,981 Quality Stores (agricultural specialty retailer) Term B 04/30/06 4,981,250
------------
58,146,057
------------
Telecommunications: 11.6%
9,975 American Wireless Corporation (rural cellular operator) Term B 06/04/07 9,975,000
9,975 American Wireless Corporation Term C 12/04/07 9,975,000
10,620 Commnet (PCS services) Term A 09/30/05 10,620,000
10,000 ICG Communications, Inc. (telecom/CLEC) Term B 12/23/07 10,000,000
3,000 Infonet Services Corp (communication services) Term B 06/30/06 3,000,000
8,000 Microcell Communications Inc. (Canadian PCS) Term B 03/17/06 8,000,000
2,801 Microcell Communications Inc. Term E 03/17/06 2,800,788
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
1,500 Nextel Finance Co. Term B 09/30/06 1,500,000
11,918 Omnipoint Communications, Inc. (PCS services) Term A 02/23/06 11,918,250
7,963 Omnipoint Communications, Inc. Term C 02/23/06 7,962,731
3,401 Omnipoint Communications, Inc. Term B 02/23/06 3,401,179
2,302 Pacific Coin (private pay phone operator) Term A 12/31/02 2,302,254
6,649 Pacific Coin Term B 12/31/04 6,648,750
6,680 Paging Network, Inc. (paging service provider) Revolver 12/31/04 6,680,000
7,674 Prodelin Holding Corporation (satellite antenna
manufacturer) Term B 05/28/06 7,673,785
9,958 Teletouch Communications (rural paging services) Term B 11/30/04 9,958,333
12,000 TSR Wireless, LLC (paging) Term 06/30/05 12,000,000
------------
141,416,070
------------
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ---------- ------------------------------------------------------- ------ -------- --------------
<S> <C> <C> <C> <C>
TEXTILES AND LEATHER: 4.1%
$ 9,266 Accessory Network Group (personal clothing accessories) Term B 08/13/05 $ 9,265,909
2,395 Galey & Lord (textile manufacturer) Term B 03/23/05 2,395,615
1,699 Galey & Lord Term C 03/23/06 1,699,416
4,898 Harriet & Henderson (yarn manufacturer) Term A 06/12/00 4,898,158
473 Harriet & Henderson Term C 01/20/04 473,113
6,650 Humphreys, Inc. (belts and personal leather goods) Term B 11/15/03 6,650,000
4,554 Scovill Fasteners Inc. (metal/plastic fasteners) Term 11/26/03 4,553,571
8,457 Targus Group International, Inc. (computer luggage) Term B 01/05/05 8,456,715
1,427 Targus Group International, Inc. Term C 01/05/05 1,427,294
9,900 Tartan Textile Services (commercial linen supply) Term B 05/13/05 9,900,000
--------------
49,719,791
--------------
UTILITIES: 0.4%
5,000 AES Corporation (power generation, coal fired plants) Term 05/11/02 5,000,000
--------------
5,000,000
--------------
Total Senior Loans -- 142.6% 1,738,658,417
--------------
(Cost $1,748,139,862)
</TABLE>
OTHER CORPORATE DEBT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AUTOMOBILE: 0.5%
6,000 Capital Tool & Design (brake backing plates)+ Sub. Note 07/26/03 6,000,000
----------
6,000,000
----------
FINANCE: 0.8%
10,000 Value Asset Management, Inc. (money management)+ Sr. Sub. Bridge 08/31/05 10,000,000
----------
10,000,000
----------
PERSONAL AND NONDURABLE CONSUMER PRODUCTS: 0.5%
2,610 AM Cosmetics+ Senior Sub 05/30/07 2,610,303
2,875 Paint Sundry Brands, LLC (paint brushes & accessories)+ Sub. Credit 08/11/08 2,875,000
----------
5,485,303
----------
Total Other Corporate Debt -- 1.8% 21,485,303
----------
(Cost $18,875,000)
</TABLE>
See Accompanying Notes to Financial Statements.
19
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCK AND PREFERRED STOCK
<TABLE>
<CAPTION>
Shares Value
- --------- --------------
<S> <C> <C> <C>
APPAREL PRODUCTS: 0.0%
13,294 @ Butterick Company, Inc. (sewing aids) $ 17,653
--------------
DIVERSIFIED/CONGLOMERATE SERVICES: 0.0%
60,056 @ Staff Leasing, Inc. (employee leasing) 555,518
--------------
HOME AND OFFICE FURNISHINGS: 0.1%
80,400 @ American Blind and Wallpaper (furniture and home furnishing) 1,045,200
--------------
PERSONAL AND NONDURABLE CONSUMER PRODUCTS: 0.0%
37,197 @ AM Cosmetics 385,617
--------------
RESTAURANTS: 0.5%
413,980 @ America's Favorite Chicken Co. -- common (quick service
restaurant chain)(R) 5,733,623
--------------
TEXTILES AND LEATHER: 0.1%
127,306 @ Dan River, Inc. -- common (diversified textiles) (R) 899,099
--------------
Total Common Stock and Preferred Stock -- 0.7% 8,636,710
--------------
(Cost $1,637,196)
</TABLE>
STOCK PURCHASE WARRANTS AND OTHER SECURITIES
<TABLE>
<S> <C> <C> <C> <C>
48,930
@ Autotote Systems, Inc., Warrant representing 48,930 common
shares (designer and manufacturer of wagering equipment),
Expires 10/30/03 (R) 78,749
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 Partenership Units (Asset Management)(R) 250,000
19,000 @ Covenant Care, Inc., Warrants representing 19,000 common
shares (long-term healthcare facilities) (R) 177,270
449 @ Murray's Discount, Warrants representing 5% equity stakes on a
fully diluted basis (retail stores) 4
--------------
Total Stock Purchase Warrants and Other Securities -- 0.1% 762,681
--------------
(Cost $0)
TOTAL INVESTMENTS (COST $1,768,652,058) (4) 145.2% $1,769,543,111
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS -- NET (45.2)% (550,616,965)
----- --------------
NET ASSETS 100.0% $1,218,926,146
===== ==============
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- ----------
+ Non-Collateralized Loans
@ Non-income producing security
(A) Bridge Term Loan
(B) Delayed Term Loan
(C) Floating Rate Note
(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) Loan is on non-accrual status.
(2) 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.
(3) The borrower has entered into a forebearance agreement pending sale of the
company or refinance of this debt.
(4) For Federal income tax purposes, which is the same for financial reporting
purposes, cost of investments is $1,768,652,058 and net unrealized
appreciation consists of the following:
Gross Unrealized Appreciation $ 16,901,983
Gross Unrealized Depreciation (16,010,930)
-------------
Net Unrealized Appreciation $ 891,053
=============
See Accompanying Notes to Financial Statements.
21
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities at value (Cost $1,768,652,058) $ 1,769,543,111
Receivables:
Interest 16,975,048
Receivable for fund shares sold 644,096
Other 77,624
Prepaid expenses 162,690
Prepaid arrangement fees on notes payable 735,029
---------------
Total assets 1,788,137,598
---------------
LIABILITIES:
Notes payable 562,000,000
Overdraft payable to custodian 572,343
Deferred arrangement fees on senior loans 2,608,175
Accrued interest payable 2,828,591
Accrued expenses 1,202,343
---------------
Total liabilities 569,211,452
---------------
NET ASSETS (equivalent to $9.11 per share, based on
133,773,095 shares of beneficial interest authorized
and outstanding, no par value) $ 1,218,926,146
===============
Net Assets Consist of:
Paid in capital $ 1,267,499,591
Undistributed net investment income 11,133,138
Accumulated net realized loss on investments (60,597,636)
Net unrealized appreciation of investments 891,053
---------------
Net assets $ 1,218,926,146
===============
See Accompanying Notes to Financial Statements.
22
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 71,261,218
Arrangement fees earned 2,213,039
Dividends 15,000
Other 1,429,655
------------
Total investment income 74,918,912
------------
EXPENSES:
Interest 14,221,316
Investment management fees 6,358,158
Administration fees 1,068,095
Miscellaneous expense 353,246
Reports to shareholders 328,965
Revolving credit facility fees 318,929
Transfer agent and registrar fees 239,200
Professional fees 157,429
Recordkeeping and pricing fees 92,000
Custodian fees 69,036
Insurance expense 24,202
Trustees' fees 15,088
------------
Total expenses 23,245,664
Less: Earnings credits (32,236)
------------
Net expenses 23,213,428
------------
Net investment income 51,705,484
------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized loss on investments (24,181,335)
Change in unrealized appreciation of investments 6,858,734
------------
Net loss on investments (17,322,601)
------------
Net increase in net assets resulting from operations $ 34,382,883
============
See Accompanying Notes to Financial Statements.
23
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
August 31,1999, February 28,
(Unaudited) 1999
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 51,705,484 $ 97,381,273
Net realized loss on investments (24,181,335) (6,313,758)
Change in unrealized appreciation (depreciation)
on investments 6,858,734 (7,547,808)
--------------- ---------------
Net increase in net assets resulting from operations 34,382,883 83,519,707
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (50,460,278) (99,153,106)
CAPITAL SHARE TRANSACTIONS:
Increase from dividend reinvestment 6,053,043 14,460,902
Net increase in net assets derived from the sale of
shares in connection with shelf offerings 26,385,155 169,335,030
--------------- ---------------
Net increase from capital share transactions 32,438,198 183,795,932
--------------- ---------------
Total increase in net assets 16,360,803 168,162,533
NET ASSETS:
Beginning of period 1,202,565,343 1,034,402,810
--------------- ---------------
End of year (including undistributed net investment
income of $11,133,138 and $9,887,931 respectively) $ 1,218,926,146 $ 1,202,565,343
=============== ===============
SUMMARY OF CAPITAL SHARE TRANSACTIONS:
Shares issued in payment of distributions from net
investment income 665,483 1,537,475
Shares sold in connection with shelf offerings 2,901,461 17,904,188
--------------- ---------------
Net increase in shares outstanding 3,566,944 19,441,663
=============== ===============
</TABLE>
See Accompanying Notes to Financial Statements.
24
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Six Months Ended August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 70,594,525
Dividends received 15,000
Facility fees paid (712,706)
Commitment fees received 231,623
Arrangement fee received 1,740,204
Other income received 1,220,753
Interest paid (13,917,599)
Other operating expenses paid (8,697,227)
Purchases of portfolio securities (755,557,529)
Proceeds from disposition of portfolio securities 695,419,756
-------------
Net cash used for operating activities (9,663,200)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (44,407,235)
Overdraft financing (314,720)
Proceeds from share offerings 26,385,155
Loan advance 28,000,000
-------------
Net cash flows from financing activities 9,663,200
-------------
Net change in cash --
Cash at beginning of period --
-------------
Cash at end of period $ --
=============
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 $ 34,382,883
-------------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Increase in investments in securities (42,825,046)
Increase in dividends and interest receivable (666,693)
Increase in receivable for fund shares sold (644,096)
Decrease in other assets 22,721
Increase in prepaid arrangement fees on notes payable (393,777)
Decrease in prepaid expenses 653,970
Decrease in deferred arrangement fees on senior loans (472,835)
Increase in accrued interest payable 303,717
Decrease in accrued expenses (24,044)
-------------
Total adjustments (44,046,083)
-------------
Net cash used for operating activities $ (9,663,200)
=============
See Accompanying Notes to Financial Statements.
25
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Years Ended February 28 or February 29,
August 31, 1999 -------------------------------------------------------------------------------
(Unaudited) 1999 (7) 1998 (7) 1997(7) 1996(6) 1995 1994
--------------- -------------- ----------- -------------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period $ 9.24 $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02 $ 10.05
Net investment income 0.40 0.79 0.87 0.82 0.89 0.74 0.60
Net realized and unrealized
gain (loss) on investments (0.15) (0.10) (0.13) (0.02) (0.08) 0.07 (0.05)
----------- ---------- ---------- --------- -------- -------- --------
Increase in net asset value
from investment operations 0.25 0.69 0.74 0.80 0.81 0.81 0.55
Distributions from net
investment income (0.39) (0.82) (0.85) (0.82) (0.86) (0.73) (0.60)
Increase in net asset value
from share offerings 0.01 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 $ 9.11 $ 9.24 $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02
=========== ========== ========== ========== ======== ======== ========
Closing market price at end of
period $ 9.44 $ 9.56 $ 10.31 $ 10.00 $ 9.50 $ 8.75 $ 9.25
Total Return
Total investment return at
closing market price(3) 2.94% 1.11% 12.70% 15.04%(5) 19.19% 3.27%(5) 8.06%
Total investment return at net
asset value(4) 2.84% 7.86% 8.01% 8.06%(5) 9.21% 5.24%(5) 6.28%
Ratios/Supplemental Data
Net assets, end of period
(000's) $ 1,218,926 $1,202,565 $1,034,403 $1,031,089 $862,938 $867,083 $719,979
Average borrowings (000's) $ 522,065 $ 346,110 $ 131,773 $ -- $ -- $ --
Ratios to average net assets
plus borrowings:
Expenses (before interest and
other fees related to
revolving credit facility) 0.97%(1)(8) 1.05%(8) 1.04% 1.13% -- -- --
Expenses 2.65%(1)(8) 2.86%(8) 2.65% 1.92% -- -- --
Net investment income 6.00%(1) 6.00% 6.91% 7.59% -- -- --
Ratios to average net assets:
Expenses (before interest and
other fees related to
revolving credit facility) 1.39%(1)(8) 1.50%(8) 1.39% 1.29% -- -- --
Expenses 3.80%(1)(8) 4.10%(8) 3.54% 2.20% 1.23% 1.30% 1.31%
Net investment income 8.62%(1) 8.60% 9.23% 8.67% 9.23% 7.59% 6.04%
Portfolio turnover rate 40% 68% 90% 82% 88% 108% 87%
Shares outstanding at end of
period (000's) 133,773 130,206 110,764 109,140 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.
26
<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.
27
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Pilgrim Prime Rate Trust (the "Trust", prior to November 16, 1998 Pilgrim
America Prime Rate Trust) is registered under the Investment Company Act of
1940, as amended, as a diversified, closed-end, investment management company.
The Trust invests in senior loans which are exempt from registration under the
Securities Act of 1933 (the "`33 Act") but contain certain restrictions on
resale and cannot be sold publicly. These loans bear interest (unless otherwise
noted) at rates that float periodically at a margin above the Prime Rate of a
U.S. bank specified in the credit agreement, the London Inter-Bank Offered Rate
("LIBOR"), the certificate of deposit rate, or in some cases another base
lending rate. The following is a summary of the significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. 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.
28
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
D. DISTRIBUTIONS TO SHAREHOLDERS. The Trust records distributions to its
shareholders on the ex-date. Distributions from income are declared by the
Trust on a monthly basis. Distributions from capital gains, if any, are
declared on at least an annual basis. The amount of distributions from net
investment income and net realized capital gains are determined in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. Key differences are the treatment of
short-term capital gains and other temporary differences. To the extent that
these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassifications. Distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions in
excess of net investment income and/or realized capital gains. To the extent
they exceed net investment income and net realized capital gains for tax
purposes, they are reported as a tax return of capital.
E. DIVIDEND REINVESTMENTS. Pursuant to the Shareholder Investment Program
(formerly known as the Automatic Dividend Reinvestment Plan), DST Systems,
Inc., the Plan Agent, 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. Beginning May 31, 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 six months ended August 31, 1999, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term notes,
totaled $755,557,529 and $694,328,274, respectively. At August 31, 1999, the
Trust held senior loans valued at $1,738,658,417 representing 98.3% 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
29
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
period of time after issuance of the stock or warrant. These restricted
securities are valued at fair value as determined by the Board of Trustees by
considering quality, dividend rate, and marketability of the securities compared
to similar issues. In order to assist in the determination of fair value, the
Trust will obtain quotes from dealers who periodically trade in such securities
where such quotes are available. Dates of acquisition and cost or assigned basis
of restricted securities are as follows:
Date of Cost or
Acquisition Assigned Basis
----------- --------------
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 --
Murray's Discount -- Warrants 02/16/99 --
----
Total restricted securities excluding senior
loans (market value of $7,559,158 was 0.62%
of net assets at August 31, 1999) $ 1
====
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 August 31, 1999, was $562 million, at a
weighted average interest rate of 5.4%, which represented 30.3% of net assets
plus borrowings. Average borrowings for the six months ended August 31, 1999
were $522,065,217 and the average annualized interest rate was 5.6%.
30
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
As of August 31, 1999, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
<TABLE>
<S> <C> <C> <C>
Alliance Data Systems $ 1,428,571 Mafco Finance Co. $ 4,774,299
AM Cosmetics 594,743 Meditrust Corp. 4,238,976
Capstar Radio Broadcasting 544,737 Murray's Discount Auto Stores 2,000,000
Decisione One Corp. 280,714 Paging Network 3,320,000
Gaylord Container Corp. 7,334,778 Papa Gino's Inc. 1,192,053
Genesis Eldercare Acquisition 91,760 Pathmark Stores Inc. 3,349,939
Huntsman Corporation 1,766,122 Schwegmann Giant Super Market 1,681,314
Liberman Broadcasting, Inc. 258,400 Terex Corporation 1,148,000
-----------
$34,004,406
===========
</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 August 31, 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 20,177,708
3/04/99 5,000,000 4,285,840
During the three months ended August 31, 1999, expenses related to the
offerings, in the amount of $282,921, 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 six months ended August
31, 1999, the Trust received $32,236 in earnings credits from IFTC.
NOTE 7 -- AFFILIATED TRANSACTIONS
During the six months ended August 31, 1999, the Trust sold certain holdings in
senior loans to an affiliated fund managed by the Manager at prices determined
by the Manager to represent market prices. The proceeds and cost of sold loans
were $16,009,500 and $15,973,500, respectively, excluding any benefit to the
Trust from the recognition of deferred arrangement fees.
31
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 8 -- SUBORDINATED AND UNCOLLATERALIZED LOANS
The Trust may acquire a subordinated loan only if, at the time of acquisition,
it acquires or holds a Senior Loan from the same borrower. The primary risk
arising from a holder's subordination is the potential loss in the event of
default by the issuer of the loans. The trust may invest up to 5% of its total
assets, measured at the time of investment, in subordinated and uncollateralized
loans. As of August 31, 1999, the Trust held 2.4% of its total assets in
subordinated and uncollateralized loans.
NOTE 9 -- SUBSEQUENT EVENTS
Subsequent to August 31, 1999, the Trust paid the following dividends from net
investment income:
<TABLE>
<CAPTION>
Per Share Amount Declaration Date Record Date Payable Date
- ---------------- ---------------- ----------- ------------
<S> <C> <C> <C>
$0.067 08/31/99 09/10/99 09/22/99
$0.065 09/30/99 10/11/99 10/22/99
</TABLE>
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.
32
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
FUND ADVISORS AND AGENTS
- --------------------------------------------------------------------------------
INVESTMENT MANAGER INSTITUTIONAL INVESTORS AND ANALYSTS
Pilgrim Investments, Inc. Call Pilgrim Prime Rate Trust
Two Renaissance Square 1-800-336-3436, Extension 8256
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004-4424
SHAREHOLDER SERVICING AGENT TRANSFER AGENT
Pilgrim Group, Inc. DST Systems, Inc.
Two Renaissance Square P.O. Box 419368
40 North Central Avenue Kansas City, Missouri 64141
Suite 1200
Phoenix, Arizona 85004-4424
1-800-992-0180
INDEPENDENT AUDITORS CUSTODIAN
KPMG LLP Investors Fiduciary Trust Company
355 South Grand Avenue 801 Pennsylvania
Los Angeles, California 90071 Kansas City, Missouri 64105
WRITTEN REQUESTS
Please mail all account inquiries and other comments to:
Pilgrim Prime Rate Trust Account Services
c/o Pilgrim Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
TOLL-FREE SHAREHOLDER INFORMATION
Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for
account or other information, at 1-800-992-0180.
33
<PAGE>
[PILGRIM LOGO]
U.S. EQUITY FUNDS
Pilgrim MagnaCap Fund
Pilgrim LargeCap Leaders Fund
Pilgrim LargeCap Growth FUnd
Pilgrim MidCap Value Fund
Pilgrim MidCap Growth Fund
Pilgrim SmallCap Growth Fund
Pilgrim Bank and Thrift Fund
INTERNATIONAL EQUITY FUNDS
Pilgrim Worldwide Growth Fund
Pilgrim International Core Growth Fund
Pilgrim International SmallCap Growth Fund
Pilgrim Emerging Countries Fund
Pilgrim Asia-Pacific Equity Fund
INCOME FUND
Pilgrim Government Securities Income Fund
Pilgrim Strategic Income Fund
Pilgrim High Yield Fund
Pilgrim High Yield Fund II
EQUITY & INCOME FUNDS
Pilgrim Balanced Fund
Pilgrim Convertible Fund
- --------------------------------------------------------------------------------
Q2
Prospectuses containing more complete information regarding the funds, including
charges and expenses, may be obtained by calling Pilgrim Securities, Inc.,
Distributor at 1-800-334-3444. Please read the prospectuses carefully before you
invest or send money.
PRT2Q0899-102999
