Pilgrim
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THE VALUE OF INVESTING
P r i m e R a t e T r u s t
Third Quarter Report
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November 30, 1998
Q3
Third Quarter Report
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Pilgrim Prime Rate Trust
THIRD QUARTER REPORT
November 30, 1998
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Table of Contents
Chairman's Message ........................ 2
Letter to Shareholders .................... 3
Statistics and Performance ................ 7
Performance Footnotes ..................... 9
Additional Notes and Information .......... 10
Portfolio of Investments .................. 11
Statement of Assets and Liabilities ....... 20
Statement of Operations ................... 21
Statement of Changes in Net Assets ........ 22
Statement of Cash Flows ................... 23
Financial Highlights ...................... 24
Notes to Financial Statements ............. 26
Fund Advisors and Agents .................. 33
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Pilgrim Prime Rate Trust
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CHAIRMAN'S MESSAGE
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Dear Shareholder:
We are pleased to present the Third Quarter 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 nine month results a reflection of Pilgrim's
philosophy to provide core holdings which seek to meet the three key needs of
the serious investor:
1. Preservation of capital
2. Participation in rising markets
3. Outperformance in falling markets
Thank you for selecting Pilgrim Prime Rate Trust. We appreciate the confidence
you have placed in us in serving your investment needs.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim Group, Inc.
December 21, 1998
2
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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Dear Fellow Shareholders:
On November 30, 1998, Pilgrim Prime Rate Trust (the "Trust") declared its 126th
consecutive monthly dividend. For the quarter, month end net asset value ("NAV")
varied between $9.29 and $9.27. Based on the period end market price and NAV,
the Trust's distribution rate for the quarter was equivalent to 8.42% and 8.74%
respectively.(1) The Prime Rate was lowered three times during the quarter to
8.25% on October 1, 1998, to 8.00% on October 16, 1998, and again to 7.75% on
November 18, 1998 where it currently stands. Sixty-day Libor, an index of the
rate of interest at which banks lend money to one another was 5.59% on September
1, 1998, 5.37% on November 30, 1998 and averaged 5.40% during the quarter.(2)
THE TRUST
The Trust invests primarily in secured 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 contribute to the lower risk characteristics of the loan
asset class include being senior claims against borrowers, pledge of collateral
and 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.
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
All capital markets, including the primary market for senior, secured loans,
slowed markedly in September and October. Bond and equity markets rebounded in
November but the market for new senior loans remained relatively restrained and
cautious. Prepayment and refinancing rates also decelerated as acquisition
activities declined and alternative sources of capital became more limited. As a
result, the Trust was able to remain fully invested during the quarter.
3
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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The Trust's investment income has remained relatively stable as lower interest
rates triggered by the three reductions in Federal Fund rates during the
quarter, have been partly offset by lower borrowing costs, higher profit margins
on new and renegotiated portfolio investments and somewhat higher fee income.
The continuation of lower short-term interest rates may eventually lead to
somewhat lower dividends for Trust shareholders. However, as compared with
alternative investments indexed to short term rates, we expect the Trust to
continue to provide a relatively attractive yield.
ASSET QUALITY
On November 30th, non-performing loans were 1.03% of total assets and 1.50% of
net assets. On August 31st, the corresponding percentages were 0.62% and 0.90%.
Borrower and industry diversification remains a key defense against the effects
of default.
TOP 10 INDUSTRIES
AS OF NOVEMBER 30, 1998
% OF TOTAL ASSETS
Healthcare, Education & Childcare 11.46%
Telecommunications 7.10%
Chemicals, Plastics & Rubber 5.64%
Broadcasting 5.58%
Personal, Food and Misc. Services 5.28%
Automobile 5.21%
Containers, Packaging & Glass 4.87%
Buildings & Real Estate 4.78%
Electronics 3.60%
Beverage, Food & Tobacco 3.58%
The Trust's primary goal is to preserve capital. Management's careful attention
to diversification and the low price volatility of senior loans helps the Trust
to meet this goal. These same characteristics also limit the opportunities for
generating capital gains. Occassionally, the Trust will accumulate relatively
high concentrations in cyclical industries to benefit from unusually elevated
returns available when a sector has been out of favor. Generally though, the
Trust adopts a purely defensive approach to diversification.
4
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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OUTLOOK
The eighteen-month period of exceptionally low margins in the senior secured
loan market appeared to have ended in early September. By late November,
however, interest rate spreads again began to moderate.
We believe that the full impact of adverse conditions in many of America's
international markets may still not have been felt in the United States. Until
this has happened, we believe that we will remain in a period of greater risk
deserving the continuation of higher credit spreads.
As always, we welcome your questions and comments.
/s/ Howard Tiffen
Howard Tiffen
President, COO, and
Senior Portfolio Manager
Pilgrim Prime Rate Trust
December 3, 1998
5
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Pilgrim Prime Rate Trust
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SHAREHOLDER LETTER FOOTNOTES
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(1) The distribution rate is calculated by annualizing the dividends declared in
each month and dividing the resulting annualized dividend amount by the
Trust's net asset value or NYSE composite closing price, as applicable at
the end of the period. The distribution rate is based solely on the actual
dividends and distributions, which are made at the discretion of management.
The distribution rate may or may not include all investment income and
ordinarily will not include capital gains or losses, if any.
(2) Source: Bloomberg Financial Markets. LIBOR is the London Inter-Bank Offered
Rate and is the benchmark for determining the interest paid on more than 90%
of the senior loans in the Trust's portfolio.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE TRUST
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
This letter contains statements that may be "forward-looking statements". Actual
results could differ materially from those projected in the "forward-looking
statements".
The views expressed in this letter reflect those of the portfolio manager, only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
6
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Pilgrim Prime Rate Trust
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STATISTICS AND PERFORMANCE as of November 30, 1998
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PORTFOLIO CHARACTERISTICS
Net Assets $1,203,547,938
Assets Invested in Senior Loans* $1,708,720,498
Total Number of Senior Loans 168
Average Amount Outstanding per Loan $10,170,955
Total Number of Industries 30
Average Loan Amount per Industry $56,957,350
Portfolio Turnover Rate (YTD) 70%
Weighted Average Days to Interest Rate Reset 46 days
Average Loan Maturity 66 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
Healthcare, Education and Childcare 16.8% 11.5%
Telecommunications 10.4% 7.1%
Chemicals, Plastics and Rubber 8.2% 5.6%
Broadcasting 8.2% 5.6%
Personal, Food and Miscellaneous Services 7.7% 5.3%
Automobile 7.6% 5.2%
Containers, Packaging and Glass 7.0% 4.9%
Buildings and Real Estate 7.0% 4.8%
Electronics 5.3% 3.6%
Beverage, Food and Tobacco 5.2% 3.6%
TOP 10 SENIOR LOANS AS A % OF
NET ASSETS TOTAL ASSETS
MAFCO Finance Corp. 3.7% 2.6%
Community Health Systems 2.0% 1.4%
Lyondell Petrochemical Company 1.9% 1.3%
Ventas, Inc. 1.9% 1.3%
Papa Gino's, Inc. 1.7% 1.2%
24-Hour Fitness, Inc. 1.7% 1.2%
American Wireless Corporation 1.7% 1.2%
Euro United Corp. 1.7% 1.2%
Florida Panthers Holdings, Inc. 1.7% 1.2%
Patriot American Hospitality 1.7% 1.2%
7
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Pilgrim Prime Rate Trust
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STATISTICS AND PERFORMANCE as of November 30, 1998
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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)
- ------------- ---- -------- -------- -----------------------------
November 30, 1998 7.75% 9.02% 8.68% 8.74% 8.42%
August 31, 1998 8.50% 8.46% 7.88% 8.81% 8.21%
May 31, 1998 8.50% 9.67% 8.82% 8.86% 8.09%
February 28, 1998* 8.50% 8.60% 7.77% 8.75% 7.92%
This table sets forth the Trust's monthly dividend performance which is
summarized quarterly.
* Distribution Rates exclude the special dividend of $0.02875/share declared
December 19, 1997.
Including the special dividend results in a distribution rate @ NAV of 10.00%,
and a distribution rate @ MKT of 9.05%.
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
--- ---
1 Year 7.89% 2.62%
3 Years 7.90% 10.69%
5 Years 8.33% 9.00%
10 Years 8.42% N/A
Since Trust Inception(F,H) 8.43% N/A
Since Initial Trading on NYSE(G) N/A 10.24%
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.
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Pilgrim Prime Rate Trust
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PERFORMANCE FOOTNOTES
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(A) Yield is calculated by dividing the Trust's net investment income per share
for the most recent thirty days by the net asset value (in the case of NAV)
or the NYSE Composite closing price (in the case of market) at quarter-end.
Yield calculations do not include any commissions or sales charges, and are
compounded for six months and annualized for a twelve month period to
derive the Trust's yield consistent with the SEC standardized yield formula
for open-end investment companies.
(B) The distribution rate is calculated by annualizing the dividend declared
each month and dividing the resulting annualized dividend amount by the
Trust's net asset value (in the case of NAV) or the NYSE Composite closing
price (in the case of Market) at the end of the period.
(C) Calculation of total return assumes a hypothetical initial investment at
the net asset value (in the case of NAV) or the NYSE Composite closing
price (in the case of Market) on the last business day before the first day
of the stated period, with all dividends and distributions reinvested at
the actual reinvestment price. The Trust's average annual returns on a
market basis and assuming rights were exercised through November 30, 1998
were 2.62% and 9.00% 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 November 30, 1998, was 10.19% for the
ten-year period. The average annual total re-turns based on market price
assuming rights were exercised with a brokerage commission are not
presented.
(D) On December 27, 1994, the Trust issued to its shareholders transferable
rights which entitled the holders to subscribe for 17,958,766 shares of the
Trust's common stock at the rate of one share of common stock for each four
rights held. The offering was completed on January 27, 1995.
(E) On October 18, 1996, the Trust issued to its shareholders non-transferable
rights which entitled the holders to subscribe for 18,122,963 shares of the
Trust's common stock at the rate of one share of common stock for each five
rights held. On November 12, 1996, the offering expired and was fully
subscribed. The Trust issued 18,122,963 shares of its common stock to
exercising rights holders at a subscription price of $9.09. Offering costs
of $5,926,209 were charged against the offering proceeds.
(F) Inception Date -- May 12, 1988.
(G) Initial Trading on NYSE -- March 9, 1992.
(H) Reflects Partial Waiver of Fees.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE
TRUST WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
9
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Pilgrim Prime Rate Trust
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ADDITIONAL NOTES AND INFORMATION
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SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program", formerly known
as the Dividend Reinvestment and Cash Purchase Plan) which allows shareholders a
simple way to reinvest dividends and capital gains distributions, if any, in
additional shares of the Trust. The Program also offers Trust shareholders the
ability to make optional cash investments in any amount from $100 to $5,000 on a
monthly basis. Amounts in excess of $5,000 require prior approval of the Trust.
DST Systems, Inc., the Trust's Transfer Agent, is the Administrator for the
Program.
For dividend reinvestment purposes, the Administrator will purchase shares of
the Trust on the open market when the market price plus estimated commissions is
less than the net asset value on the valuation date. The Trust may issue new
shares when the market price plus estimated commissions is equal to or exceeds
the net asset value on the valuation date. New shares may be issued at the
greater of (i) net asset value or (ii) the market price of the shares during the
pricing period, minus a discount of 5%.
For optional cash investments, shares will be purchased on the open market by
the Administrator when the market price plus estimated commissions is less than
the net asset value on the valuation date. New shares may be issued by the Trust
when the market price plus estimated commissions is equal to or exceeds the net
asset value on the valuation date.
There is no charge to participate in the Program. Participants may elect to
discontinue participation in the Program at any time. Participants will share,
on a pro-rata basis, in the fees or expenses of any shares acquired in the open
market.
Participation in the Program is not automatic. If you would like to receive more
information about the Program or if you desire to participate, please contact
your broker or our Shareholder Services Department at (800) 992-0180.
KEY FINANCIAL DATES -- CALENDAR 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.
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Pilgrim Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited)
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SENIOR LOANS*
(DOLLAR WEIGHTED PORTFOLIO INTEREST RESET PERIOD IS 46 DAYS)
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
AEROSPACE AND DEFENSE: 5.0%
$ 8,865 Erickson Air Crane Co. (heavy lift helicopters) Term B 12/31/04 $ 8,421,750
9,952 New Piper Aircraft, Inc. (aircraft manufacturer) Term 04/15/05 9,952,273
14,962 Nortek Aviation Support, Inc. (aviation services company) Term B 06/30/05 14,962,500
6,500 Piedmont Aviation Services (airport facility operator) Term B 07/23/06 6,500,000
6,500 Piedmont Aviation Services Term C 07/23/07 6,500,000
5,146 Technetics Corp. (aircraft engine components) Term 06/20/02 5,146,511
9,261 Tri Star/Odyssey, Inc. (aerospace hardware distributor) Term 09/30/03 9,260,505
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60,743,539
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AUTOMOBILE: 7.6%
4,963 Autosystems Manufacturing, Inc. (automotive lighting) Term B 05/31/04 4,863,250
4,963 Autosystems Manufacturing, Inc. Term C 05/31/05 4,863,250
14,438 Breed Technologies (airbags/seatbelts) Term B 04/27/06 14,437,870
9,925 Cambridge Industries, Inc. (automotive plastics) Term B 06/30/05 9,925,000
9,410 Capital Tool & Design (brake backing plates) Term B 07/19/03 9,410,319
13,232 Federal Mogul Corp. (automotive parts) Term B 12/31/05 13,231,843
9,987 Global Metal Technologies, Inc. (automotive parts) Term B 03/12/05 9,986,667
12,422 Keystone Companies (automotive aftermarket specialty parts) Term B 03/31/04 12,421,875
6,250 Safelite Glass Corp. (automobile windshield replacement) Term B 12/23/04 6,250,000
6,250 Safelite Glass Corp. Term C 12/23/05 6,250,000
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91,640,074
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BANKING: 0.8%
10,000 Alliance Data Systems (financial data processing) Term B 10/31/05 10,000,000
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10,000,000
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BEVERAGE, FOOD AND TOBACCO: 5.2%
10,013 Del Monte Corp. (food manufacturing and distribution) Term B 03/31/05 10,012,744
2,526 Edward's Baking Co. (food service bakery) Term A 09/30/03 2,525,910
3,308 Edward's Baking Co. Term B 09/30/05 3,308,333
3,308 Edward's Baking Co. Term C 09/30/05 3,308,334
13,825 Empire Kosher Poultry, Inc. (kosher chicken and poultry) Term B 07/31/04 13,825,000
12,458 Favorite Brands International (confectionery manufacturer) Term B 05/19/05 12,458,333
9,389 Imperial Holly Corp. (sugar producer) Term A 12/31/05 9,388,962
8,278 Imperial Holly Corp. Term B 12/31/05 8,278,107
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63,105,723
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</TABLE>
See Accompanying Notes to Financial Statements.
11
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Pilgrim Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
BROADCASTING: 8.2%
$10,000 American Cable Entertainment (cable television) Term B 09/30/07 $10,000,000
5,000 Avalon Cable of Michigan, Inc. (cable television) Term B 11/06/06 5,000,000
10,031 Benedek Broadcasting Television Corp. (television
broadcasting) Axel A (A) 12/31/04 10,030,696
4,724 Benedek Broadcasting Television Corp. Axel B (A) 12/31/04 4,724,125
2,368 Capstar Radio Broadcasting (radio broadcasting) Term A 09/24/99 2,368,421
4,975 Capstar Radio Broadcasting Term B 05/31/05 4,975,000
305 Capstar Radio Broadcasting Revolver 09/24/99 305,263
5,000 Classic Cable, Inc. (cable television) Term 10/31/07 5,000,000
10,000 FrontierVision (cable television) Term B 03/31/06 10,000,000
9,977 Intermedia Partners IV LP (cable television) Term 01/01/05 9,977,273
5,000 Intermedia Partners VI LP (cable television) Hybrid 03/23/08 5,000,000
1,680 Liberman Broadcasting, Inc. (broadcasting) Revolver 03/31/05 1,680,000
8,000 Liberman Broadcasting, Inc. Term B 09/30/05 8,000,000
9,250 Retlaw Broadcasting, LLC (television broadcasting) Term B 04/30/06 9,250,000
12,000 Telemundo Group, Inc. (Spanish broadcast television) Term B 12/28/06 12,000,000
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98,310,778
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BUILDINGS AND REAL ESTATE: 7.0%
5,000 Alliance National, Inc. (temporary offices) Term B 09/04/05 5,000,000
6,000 Dayton Superior Corp. (concrete/masonry accessories) Term 09/29/05 6,000,000
10,937 Falcon Building Products (building products) Term B 06/30/05 10,937,143
6,600 Imperial Home Decor Group (home accessories) Term B 03/13/05 6,600,000
3,400 Imperial Home Decor Group Term C 03/13/06 3,400,000
7,940 Kevco, Inc. (manufactured home components) Term B 02/02/05 7,940,000
13,085 Tree Island Industries (nail and wire products) Term B 03/31/03 13,085,000
22,273 Ventas, Inc. (real estate investment trust) Term D 05/05/03 22,272,727
4,020 Werner Holding Co. (ladders) Term B 11/30/04 4,019,625
4,913 Werner Holding Co. Term C 11/30/05 4,912,875
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84,167,370
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CARGO TRANSPORT: 3.5%
11,301 Atlas Freighter Leasing (air cargo carrier) Term 05/29/04 11,300,661
3,094 Evergreen International Aviation, Inc. (air cargo carrier) Term A 05/31/02 3,094,266
1,630 Evergreen International Aviation, Inc. Term B 05/31/02 1,629,634
8,800 Gemini Air Cargo, Inc. (air cargo carrier) Term A 12/12/02 8,800,000
9,977 Omnitrax, Inc. (rail operator) Term 05/12/05 9,977,273
3,740 Oshkosh Truck Corp (specialized truck manufacturer) Term B 03/31/05 3,740,000
3,740 Oshkosh Truck Corp Term C 03/31/06 3,740,000
-----------
42,281,834
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
12
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Pilgrim Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
CHEMICALS, PLASTICS AND RUBBER: 8.2%
$ 9,927 Acadia Elastomers Corp. (specialty chemicals) Term 03/21/04 $ 9,927,007
11,255 Cedar Chemical Corp. (specialty chemicals) Term B 10/30/03 11,254,869
20,000 Euro United Corp. (plastic products) Term B 05/31/01 20,000,000
3,554 Foamex, L.P. (polyurethane foam) Term B 06/30/05 3,553,871
3,231 Foamex, L.P. Term C 06/30/06 3,230,792
1,925 Huntsman Specialty Chemical (specialty chemicals) Term B 03/15/04 1,924,646
1,925 Huntsman Speciality Chemical Term C 03/15/04 1,924,646
2,490 Huntsman Corp. (industrial chemicals) Revolver 12/31/02 2,490,418
684 Huntsman Corp. Term A 12/31/02 683,823
4,950 Huntsman Corp. Term B 12/31/05 4,950,000
11,000 Lyondell Petrochemical Company (petrochemicals) Term A 07/23/03 11,000,000
12,000 Lyondell Petrochemical Company Term B 07/23/05 12,000,000
5,102 NEN Life Sciences Products (biochemicals) Term B 12/31/04 5,102,041
6,468 Sunbelt Manufacturing LLC (plastics manufacturer) Term B 09/30/04 6,467,500
4,752 Texas Petrochemical Corp. (industrial chemicals) Term B 06/30/04 4,751,961
-----------
99,261,574
-----------
CONTAINERS, PACKAGING AND GLASS: 7.0%
4,809 Crown Paper Co. (papers and packaging) Term B 08/22/03 4,808,750
18,625 Eastern Pulp & Paper Corporation (specialty paper) Term 08/31/04 18,624,996
19,897 Gaylord Container Corporation (corrugated containers) Term 07/30/07 19,896,552
19,000 Jefferson Smurfit (pulp and paper products) Term B 03/23/06 19,000,000
9,975 Pretium Packaging LLC (plastic packaging) Term B 07/29/06 9,975,020
12,188 Stone Container (pulp and paper products) Term D 10/01/03 12,187,500
-----------
84,492,818
-----------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 1.8%
276 @ KDI Corp. (defense and leisure products) (2) Term A N/A 16,791
13 @ KDI Corp. (2) Term B N/A 803
10,000 Private Business, Inc. (banking services & software) Term B 08/19/06 10,000,000
10,000 SPX Corporation (industrial components) Term B 10/06/06 10,000,000
1,133 Paint Sundry Brands, LLC (paint brushes & accessories) Term B 08/11/05 1,133,333
1,111 Paint Sundry Brands, LLC Term C 08/11/06 1,111,111
-----------
22,262,038
-----------
DIVERSIFIED/CONGLOMERATE SERVICES: 5.0%
36,750 MAFCO Finance Corp. (diversified services and
entertainment) Term A 04/16/00 36,750,000
7,403 MAFCO Finance Corp. Revolver 04/16/00 7,402,500
8,782 OSI Holdings Corp. (accounts receivable management) Term B 11/06/03 8,781,937
6,910 OSI Holdings Corp. Term C 10/15/04 6,910,390
-----------
59,844,827
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
13
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Pilgrim Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- ------- -----
<S> <C> <C> <C> <C>
ECOLOGICAL: 1.5%
$3,611 Clean Harbors, Inc. (environmental services) Term 05/08/00 $ 3,610,698
4,750 Rumpke (waste management) Term 09/25/02 4,750,000
4,498 Safety Kleen Services (waste management) Term B 03/10/05 4,497,790
4,498 Safety Kleen Services Term C 03/10/06 4,497,790
-----------
17,356,278
-----------
ELECTRONICS: 5.3%
4,500 Dynamic Details, Inc. (circuit board manufacturer) Term B 04/22/05 4,500,000
5,000 Dictaphone Acquisition, Inc. (dictation and recording
equipment) Term C 06/30/03 5,000,000
10,224 Fairchild Semiconductor Corp. (electronic equipment) Term C 03/11/03 10,224,228
5,478 Intri Plex Technologies, Inc. (disk drive component
manufacturer) Term 09/30/02 5,478,261
9,516 Mitel Corporation (semiconductor manufacturing) Term B 06/02/04 9,516,031
9,000 OK Industries, Inc. (circuit board manufacturing systems) Term 10/31/02 9,000,000
9,683 Sarcom, Inc. (systems integration) Term 11/20/02 9,682,540
10,000 Stonebridge Technologies, Inc. (enterprise computing) Term 07/27/05 10,000,000
-----------
63,401,060
-----------
FINANCE: 2.4%
18,000 Bridge Information Systems (news services) Term B 05/29/05 18,000,000
6,400 National Partnership Investments Corp. (asset management) Term 06/30/01 6,400,000
5,000 Value Asset Management, Inc. (money management) Term B 04/28/03 5,000,000
-----------
29,400,000
-----------
GROCERY: 3.5%
1,983 Pathmark Stores, Inc. (mid atlantic supermarkets) Revolver 06/15/01 1,983,471
1,545 Pathmark Stores, Inc. Term A 06/15/01 1,544,819
9,054 Pathmark Stores, Inc. Term B 12/15/01 9,052,822
17,812 Schwegmann Giant Supermarket (Louisiana supermarkets) Term B 01/31/04 17,811,771
9,316 Star Markets Co., Inc. (Boston area supermarkets) Term B 12/31/02 9,316,039
2,890 Star Markets Co., Inc. Term C 12/31/03 2,889,885
-----------
42,598,807
-----------
HEALTHCARE, EDUCATION AND CHILDCARE: 16.8%
4,092 Alaris Medical Systems (infusion pumps) Term B 11/30/03 4,092,113
4,092 Alaris Medical Systems Term C 11/30/04 4,092,113
3,851 Alaris Medical Systems Term D 05/31/05 3,851,464
1,985 Alliance Imaging, Inc. (diagnostic services) Term A 12/18/03 1,985,000
9,429 Alliance Imaging, Inc. Term B 08/09/04 9,428,750
6,250 Arterial Vascular Engineering (medical devices) Term B 08/31/04 6,250,000
17,500 The Brown Schools (behavioral care) Term C 06/30/05 17,500,000
9,328 Children's Discovery Centers (daycare and education) Revolver 08/10/05 9,328,125
8,904 Community Health Systems, Inc. (hospitals) Term B 12/31/03 8,904,110
8,904 Community Health Systems, Inc. Term C 12/31/04 8,904,110
6,678 Community Health Systems, Inc. Term D 12/31/05 6,678,082
</TABLE>
See Accompanying Notes to Financial Statements.
14
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
HEALTHCARE, EDUCATION AND CHILDCARE (CONTINUED)
$ 6,000 Covenant Care California, Inc. (long term healthcare
facilities) Term 06/30/99 $ 6,000,000
2,000 Dade International, Inc. (medical testing equipment
manufacturer) Term B 12/31/04 2,000,000
2,000 Dade International, Inc. Term C 12/31/04 2,000,000
2,000 Dade International, Inc. Term D 12/31/04 2,000,000
4,950 Doshi Diagnostic Imaging Service (radiology and medical
testing) Term 05/15/05 4,950,000
15,000 Fountain View, Inc. (long term healthcare facilities) Term B 03/31/04 15,000,000
4,423 Genesis Eldercare Acquisition (long term healthcare
facilities) Term B 09/30/04 4,423,212
3,844 Healthcare Direct, Inc. (medical device retailer) Term A 08/01/04 3,843,750
4,090 Healthcare Direct, Inc. Term B 08/01/06 4,089,750
10,000 Integrated Health Services (long term subacute care) Term B 09/30/04 10,000,000
3,750 Magellan Health Services (managed behavioral care) Term B 02/12/05 3,750,000
3,750 Magellan Health Services Term C 02/12/06 3,750,000
5,000 Mariner Post Acute Network (long term care) Term B 03/31/09 5,000,000
5,000 Mariner Post Acute Network Term C 03/31/06 5,000,000
5,353 Paracelsus Healthcare Corporation (for profit hospital chain) Term A 05/15/03 5,353,333
8,000 Paracelsus Healthcare Corporation Term B 06/15/04 8,000,000
4,988 Roberts Pharmaceutical Corp (pharmaceuticals) Term A 06/30/03 4,987,500
9,900 SMT Health (mobile MRI systems) Term 08/31/03 9,900,000
15,667 Vencor, Inc. (long term care facility operator) Term A 05/05/05 15,667,460
5,000 Vision Twenty One, Inc. (eyecare retailer) Term B 06/30/05 5,000,000
------------
201,728,872
------------
HOME AND OFFICE FURNISHINGS, HOUSEWARES AND
DURABLE CONSUMER PRODUCTS: 4.0%
4,500 All Clad (pots and pans) Term A 03/18/04 4,500,000
3,000 All Clad Term C 03/18/05 3,000,000
8,895 Desa International, Inc. (heaters and fireplaces) Term 11/26/04 8,895,000
15,739 ICON Health & Fitness Co. (exercise equipment) Term B 11/14/01 15,739,374
1,358 Panolam Industries, Ltd (synthetic wood paneling) Term A 01/31/03 1,358,439
8,435 Panolam Industries, Ltd Term B 01/31/03 8,434,977
4,820 Panolam Industries, Ltd Term C 01/31/03 4,819,987
1,900 Panolam Industries, Ltd Term D 01/31/03 1,900,009
------------
48,647,786
------------
HOTELS, MOTELS, INNS AND GAMING: 2.1%
4,706 Patriot American Hospitality (hotels & resorts) Bridge II 03/31/99 4,705,882
5,294 Patriot American Hospitality Bridge III 03/31/00 5,294,118
9,992 Patriot American Hospitality Term B 03/31/03 9,991,667
5,000 Station Casinos, Inc. (gaming) Term B 12/31/05 5,000,000
------------
24,991,667
------------
</TABLE>
See Accompanying Notes to Financial Statements.
15
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
INSURANCE: 0.5%
$ 5,438 TRG Holdings Corp. (insurance run off) Term 01/31/03 $ 5,437,500
-----------
5,437,500
-----------
LEISURE, AMUSEMENT, MOTION PICTURES AND
ENTERTAINMENT: 4.5%
3,713 AMFAC Parks and Resorts (park services operator) Term B 09/04/04 3,712,500
3,713 AMFAC Parks and Resorts Term C 09/30/04 3,712,500
20,000 Florida Panthers Holdings, Inc. (investment holding) Bridge 06/15/99 20,000,000
9,925 Four Media Co. (film services) Term B 09/10/04 9,925,000
10,000 Panavision, Inc. (high precision file camera systems) Term B 03/10/05 10,000,000
7,157 Worldwide Sports & Recreation Corp. (optics, sports
products) Term B 03/31/01 6,977,665
-----------
54,327,665
-----------
MACHINERY (NONAGRICULTURE, NONCONSTRUCTION,
NONELECTRONIC): 0.6%
7,474 Clearing Niagara (metal stamping press manufacturer) Term 10/18/04 7,473,571
-----------
7,473,571
-----------
MINING, STEEL, IRON AND NONPRECIOUS METALS: 4.5%
5,895 Cable Systems International (cable wire manufacturer) Term B 10/04/02 5,895,000
3,269 @ Centennial Resources, Inc. (coal mining)(3) Term A 03/31/02 2,125,000
8,510 @ Centennial Resources, Inc. Term B 03/31/04 5,531,250
1,177 Centennial Resources, Inc. DIP Loan 06/30/99 1,177,001
7,344 Ispat Sidbec, Inc. (steel producer) Term B 07/17/03 7,343,750
7,344 Ispat Sidbec, Inc. Term C 07/17/04 7,343,750
174 National Refractories, Inc. (kiln lining materials) Term B 09/30/99 173,580
3,270 National Refractories, Inc. Term C 09/30/99 3,269,726
8,000 P & L Coal Holdings (coal mining) Term B 06/30/06 8,000,000
5,000 Scovill Fasteners, Inc. (fasteners) Term A 11/26/03 5,000,000
83 United Building Materials, Inc. (stone and concrete
products) Term 12/31/99 82,875
7,800 US Aggregates, Inc. (stone and concrete products) Term B 03/31/06 7,800,000
-----------
53,741,932
-----------
OIL AND GAS: 2.7%
11,451 Cardinal Services, Inc. (oil field services) Term B 03/10/05 11,450,855
5,000 Key Energy Group, Inc. (oil field services) Term B 10/26/04 5,000,000
7,500 Kinder Morgan, Inc. (pipeline operator) Term 05/31/00 7,500,000
1,489 Perf O Log (oil field services) Term 08/11/03 1,488,750
3,960 Perf O Log Term B 08/11/03 3,960,000
2,488 Perf O Log Term C 08/11/04 2,487,500
-----------
31,887,105
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
16
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 7.7%
$14,605 Boston Chicken, Inc. (quick service restaurant) (3) Lease 12/09/01 $13,874,590
4,949 Brickman Group, Inc. (landscaping) Term B 12/31/05 4,949,455
18,905 Coinmach Laundry Corp. (laundry) Term B 06/30/05 18,905,000
5,377 Papa Gino's, Inc. (quick service restaurants) Term A 02/19/02 5,376,645
14,922 Papa Gino's, Inc. Term B 02/19/04 14,922,058
14,962 SC International Services (airline catering) Term 06/01/05 14,962,363
6,500 24 Hour Fitness, Inc. (health club operator) Term A 12/31/02 6,500,000
13,500 24 Hour Fitness, Inc. Term B 12/31/04 13,500,000
-----------
92,990,111
-----------
PERSONAL AND NONDURABLE CONSUMER PRODUCTS
(MANUFACTURING ONLY): 3.7%
1,186 @ AM Cosmetics (cosmetics and skin care products) Term A 06/30/03 1,008,013
8,687 @ AM Cosmetics Term B 12/31/04 7,384,362
10,000 Amscan Holdings, Inc. (party goods) Hybrid 12/31/04 10,000,000
9,279 Medtech Products, Inc. (non prescription consumer
medications) Term B 10/15/02 9,278,661
9,000 Norwood Promotional Productions (licensed products) Term B 08/31/04 9,000,000
4,000 20th Century Plastics Inc. (album manufacturing) Term B 09/30/05 4,000,000
3,500 20th Century Plastics Inc. Term C 09/30/06 3,500,000
-----------
44,171,036
-----------
PERSONAL TRANSPORTATION: 0.8%
9,974 Neoplan USA Corporation (personal transportation) Term B 05/29/05 9,974,275
-----------
9,974,275
-----------
PRINTING AND PUBLISHING: 3.4%
8,930 American Color Graphics (commercial printing) Term B 06/04/05 8,929,756
6,738 Bankers Systems, Inc. (banking industry compliance
services) Term B 11/01/02 6,737,500
3,327 Von Hoffman Press, Inc. (textbook manufacturer) Term B 05/29/04 3,326,786
10,801 Von Hoffman Press, Inc. Term C 05/29/05 10,800,893
4,988 Weider Publications, Inc (magazine publications) Term B 09/18/05 4,987,500
4,988 Weider Publications, Inc Term C 09/18/05 4,987,500
-----------
39,769,935
-----------
RETAIL STORES: 4.0%
6,916 @ Color Tile, Inc. (home improvement retailer) (3) Term D 12/31/98 2,005,576
12,260 Murray's Discount Auto Parts (auto parts retailer) Term 06/30/03 11,646,635
4,962 Nebraska Book Co. (wholesale and retail textbooks) Term B 04/30/04 4,961,538
5,080 Peebles, Inc. (department store chain) Term A 04/30/01 5,080,325
12,969 Peebles, Inc. Term B 04/30/02 12,969,496
2,162 Renters Choice, Inc. (consumer goods rent to own) Term B 01/31/06 2,161,563
2,651 Renters Choice, Inc. Term C 01/31/07 2,650,694
5,944 TravelCenters of America (road transport service centers) Term B 03/27/05 5,943,750
-----------
47,419,577
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS: 10.4%
$10,000 American Wireless Corporation (rural cellular phone
operator) Term B 06/04/07 $ 10,000,000
10,000 American Wireless Corporation Term C 12/04/07 10,000,000
8,803 Claricom Holdings, Inc. (communication systems) Term B 07/01/03 8,362,585
8,120 CommNet Cellular, Inc. (cellular phones) Term A 09/30/05 8,120,000
1,173 CommNet Cellular, Inc. Term B 09/18/06 1,172,903
823 CommNet Cellular, Inc. Term C 03/18/07 822,920
3,004 CommNet Cellular, Inc. Term D 09/18/07 3,004,177
11,500 Nextel Finance Co. (cellular phones) Term B 09/30/06 11,500,000
1,750 Nextel Finance Co. Term A 06/30/03 1,750,000
2,307 Nextel Finance Co. Revolver 06/30/03 2,306,500
10,364 Omnipoint Communications, Inc. (cellular phones) Term A 02/23/06 10,363,695
5,084 Omnipoint Communications, Inc. Term B 02/23/06 5,083,886
3,017 Omnipoint Communications, Inc. Term C 02/23/06 3,017,195
2,496 Pacific Coin (private pay phone operator) Term A 12/31/02 2,495,902
6,666 Pacific Coin Term B 12/31/04 6,665,625
8,368 Prodelin Holding Corporation (satellite antenna
manufacturer) Term B 05/28/06 8,368,421
10,000 Teletouch Communications (rural paging services) Term B 11/30/04 10,000,000
12,000 TSR Wireless, LLC (paging) Term 06/30/05 12,000,000
10,000 Western PCS Corporation (cellular phones) Term B 07/09/05 10,000,000
--------------
125,033,809
--------------
TEXTILES AND LEATHER: 4.3%
9,975 Accessory Network Group (personal clothing accessories) Term B 08/13/05 9,975,000
5,761 Harriet & Henderson Yarns, Inc. (yarn manufacturer) Term A 06/12/00 5,761,405
6,650 Humphreys, Inc. (belts and personal leather goods) Term B 11/15/03 6,650,000
9,960 Polymer Group (polyolefin products manufacturer) Term B 01/31/06 9,960,000
8,510 Targus Group International, Inc. (luggage) Term B 01/05/05 8,510,238
1,427 Targus Group International, Inc. Term C 01/05/05 1,427,294
9,975 Tartan Textile Services (linen rental services) Term B 05/13/05 9,975,000
--------------
52,258,937
--------------
Total Senior Loans -- 142.0% 1,708,720,498
--------------
(Cost $1,722,242,299)
OTHER CORPORATE DEBT
FINANCE: 0.8%
10,000 Value Asset Management, Inc. (money management) Sr. Sub. Note 04/28/99 10,000,000
--------------
10,000,000
--------------
CHEMICALS, PLASTICS AND RUBBER: 0.3%
2,875 Paint Sundry Brands, LLC (paint brushes & accessories) Sub. Note 08/11/05 2,875,000
--------------
2,875,000
--------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 0.5%
6,000 Capital Tool & Design Ltd. (brake backing plates) Sub. Note 07/26/03 6,000,000
--------------
6,000,000
--------------
Total Other Corporate Debt -- 1.6% 18,875,000
--------------
(Cost $18,875,000)
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCK AND PREFERRED STOCK
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
APPAREL PRODUCTS: 0.0%
13,294 @ Butterick Company, Inc. (sewing aids) $ 12,557
----------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 0.0%
2,633 @ KDI Corp. common (defense and leisure products) (2) --
----------
DIVERSIFIED/CONGLOMERATE SERVICES: 0.0%
22,694 @ Staff Leasing, Inc. (employee leasing) (R) 486,454
----------
RESTAURANTS: 0.3%
413,980 @ America's Favorite Chicken Co. common (quick service
restaurant chain) (R) 3,645,508
----------
TEXTILES AND LEATHER: 0.1%
127,306 @ Dan River, Inc. common (diversified textiles) (R) 930,925
----------
Total Common Stock and Preferred Stock -- 0.4% 5,075,444
----------
(Cost $1,251,586)
STOCK PURCHASE WARRANTS AND OTHER SECURITIES
1 @ Autotote Systems, Inc., Warrant representing 48,930 common
shares (designer and manufacturer of wagering equipment),
Expires 10/30/03 (R) 30,150
1 @ Autotote Systems, Inc., Option representing 0.248% common
shares issued and outstanding (R) --
80,634 @ Capital Tool & Design, Warrants representing 80,634 common
shares (brake backing plates) (R) 143,528
19,000 @ Covenant Care, Inc., Warrants representing 19,000 common
shares (long term healthcare facilities) (R) 285,000
26,606 @ KDI Corp. Units of Trust (defense and leisure products) (R)(2) --
-------------
Total Stock Purchase Warrants and Other Securities -- 0.0% 458,678
-------------
(Cost $0)
TOTAL INVESTMENTS (COST $1,742,368,885) (5) 144.0% 1,733,129,620
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS NET (44.0)% (529,581,682)
----- -------------
NET ASSETS 100.0% 1,203,547,938
====== =============
</TABLE>
- ----------
@ Non-income producing security
(A) Axel describes an amortizing extended term loan with limited call
protection.
(R) Restricted security
* Senior loans, while exempt from registration under the Securities Act of
1933, contain certain restrictions on resale and cannot be sold publicly.
These senior loans bear interest (unless otherwise noted) at rates that
float periodically at a margin above the Prime Rate of a U.S. bank
specified in the credit agreement, LIBOR, the certificate of deposit rate,
or in some cases another base lending rate.
(1) The borrower has entered into a forebearance agreement pending sale of the
company or refinance of this debt.
(2) The borrower filed for protection under Chapter 7 of the U.S. Federal
bankruptcy code and is in the process of liquidation.
(3) The borrower filed for protection under Chapter 11 of the U.S. Federal
bankruptcy code and is in the process of developing a plan of
reorganization.
(4) The borrower is restructuring and interest is being recognized as cash
payments are received.
(5) For Federal income tax purposes, which is the same for financial reporting
purposes, cost of investments is $1,742,368,885 and net unrealized
depreciation consists of the following:
Gross Unrealized Appreciation $ 4,596,754
Gross Unrealized Depreciation (13,836,019)
------------
Net Unrealized Depreciation $ (9,239,265)
============
See Accompanying Notes to Financial Statements.
19
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Cash $ 3,318,322
Investments in securities at value (Cost $1,742,368,885) 1,733,129,620
Receivables:
Interest 22,609,189
Other 90,930
Prepaid expenses 1,042,233
Prepaid arrangement fees on notes payable 394,681
--------------
Total assets 1,760,584,975
--------------
LIABILITIES:
Notes payable 550,000,000
Deferred arrangement fees on senior loans 3,187,612
Accrued interest payable 2,741,740
Accrued expenses 1,107,685
--------------
Total liabilities 557,037,037
--------------
NET ASSETS (equivalent to $9.27 per share, based on
129,774,791 shares of beneficial interest authorized
and outstanding, no par value) $1,203,547,938
==============
Net Assets Consist of:
Paid in capital $1,231,467,298
Undistributed net investment income 11,813,520
Accumulated net realized loss on investments (30,493,615)
Net unrealized depreciation of investments (9,239,265)
--------------
Net assets $1,203,547,938
==============
See Accompanying Notes to Financial Statements.
20
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Nine Months Ended November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $101,904,748
Arrangement fees earned 3,730,709
Other 1,380,030
------------
Total investment income 107,015,487
------------
EXPENSES:
Interest 21,318,872
Investment management fees 8,813,706
Administration fees 1,494,243
Miscellaneous expense 693,304
Revolving credit facility fees 505,969
Reports to shareholders 477,419
Custodian fees 322,138
Transfer agent and registrar fees 320,630
Professional fees 240,700
Recordkeeping and pricing fees 151,014
Insurance expense 57,803
Trustees' fees 41,438
------------
Total expenses 34,437,236
Less: Earnings credits (88,751)
------------
Net expenses 34,348,485
------------
Net investment income 72,667,002
------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized loss on investments (124,058)
Change in unrealized depreciation of investments (10,819,391)
------------
Net loss on investments (10,943,449)
------------
Net increase in net assets resulting from operations $ 61,723,553
============
See Accompanying Notes to Financial Statements.
21
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Nine Months Ended
Ended November 30, February 28,
1998 (Unaudited) 1998
------------------ ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 72,667,002 $ 95,217,224
Net realized loss on investments (124,058) (18,935,269)
Change in unrealized appreciation/(depreciation)
on investments (10,819,391) 5,319,483
-------------- --------------
Net increase in net assets resulting from operations 61,723,553 81,601,438
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (72,780,196) (93,879,672)
CAPITAL SHARE TRANSACTIONS:
Issuance from dividend reinvestment 11,380,175 15,591,705
Net increase in net assets derived from the sale of
shares in connection with shelf offerings 168,821,596 --
-------------- --------------
Net increase from capital share transactions 180,201,771 15,591,705
-------------- --------------
Total increase in net assets 169,145,128 3,313,471
NET ASSETS:
Beginning of period 1,034,402,810 1,031,089,339
-------------- --------------
End of period (including undistributed net investment
income of $11,813,520 and $11,926,714 respectively) $1,203,547,938 $1,034,402,810
============== ==============
SUMMARY OF CAPITAL SHARE TRANSACTIONS:
Shares issued from dividend reinvestment 1,203,272 1,624,659
Shares sold in connection with shelf offerings 17,807,031 --
-------------- --------------
Net increase in shares outstanding 19,010,303 1,624,659
============== ==============
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Nine Months Ended November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 92,981,696
Facility fees received 3,308,128
Commitment fees received 161,188
Other income received 1,476,873
Interest paid (20,470,052)
Other operating expenses paid (13,326,471)
Purchases of portfolio securities (1,223,474,617)
Proceeds from disposition of portfolio securities 853,257,375
---------------
Net cash used for operating activities (306,085,880)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (61,400,021)
Overdraft financing (6,017,373)
Proceeds from share offerings 168,821,596
Loan advance 208,000,000
---------------
Net cash provided by financing activities 309,404,202
---------------
Net change in cash 3,318,322
Cash at beginning of period --
---------------
Cash at end of period $ 3,318,322
===============
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 $ 61,723,553
---------------
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Increase in investments in securities (365,864,340)
Increase in dividends and interest receivable (9,593,709)
Decrease in other assets 6,920,135
Decrease in prepaid arrangement fees on notes payable 16,665
Increase in prepaid expenses (628,806)
Decrease in deferred arrangement fees on senior loans (202,108)
Increase in accrued interest payable 1,227,911
Increase in accrued expenses 314,819
---------------
Total adjustments (367,809,433)
---------------
Net cash used for operating activities $ (306,085,880)
===============
See Accompanying Notes to Financial Statements.
23
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended Years Ended February 28 or February 29,
November 30, 1998 ----------------------------------------------------------
(Unaudited) 1998 1997(7) 1996(6) 1995 1994
----------- ---- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02 $ 10.05
Net investment income 0.67 0.87 0.82 0.89 0.74 0.60
Net realized and unrealized gain
(loss) on investments (0.09) (0.13) (0.02) (0.08) 0.07 (0.05)
---------- ---------- ---------- -------- -------- --------
Increase in net asset value from
investment operations 0.58 0.74 0.80 0.81 0.81 0.55
Distributions from net investment
income (0.68) (0.85) (0.82) (0.86) (0.73) (0.60)
Increase in net asset value from
share offerings 0.03 -- -- -- -- --
Reduction in net asset value from
rights offering -- -- (0.14) -- (0.44) --
Increase in net asset value from
repurchase of capital stock -- -- -- -- -- 0.02
---------- ---------- ---------- -------- -------- --------
Net asset value, end of period $ 9.27 $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02
========== ========== ========== ======== ======== ========
Closing market price at end of
period $ 9.63 $ 10.31 $ 10.00 $ 9.50 $ 8.75 $ 9.25
Total Return
Total investment return at closing
market price(3) (0.44%) 12.70% 15.04%(5) 19.19% 3.27%(5) 8.06%
Total investment return at net
asset value(4) 5.87% 8.01% 8.06%(5) 9.21% 5.24%(5) 6.28%
Ratios/Supplemental Data
Net assets, end of period (000's) $1,203,548 $1,034,403 $1,031,089 $862,938 $867,083 $719,979
Average borrowings (000's) $ 471,793 $ 346,110 $ 131,773 $ -- $ -- $ --
Ratios to average net assets plus
borrowings:
Expenses (before interest and
other fees related to revolving
credit facility) 1.06%(1) 1.04% 1.13% -- -- --
Expenses 2.90%(1) 2.65% 1.92% -- -- --
Net investment income 6.14%(1) 6.91% 7.59% -- -- --
Ratios to average net assets:
Expenses (before interest and
other fees related to revolving
credit facility) 1.51%(1) 1.39% 1.29% -- -- --
Expenses 4.14%(1) 3.54% 2.20% 1.23% 1.30% 1.31%
Net investment income 8.77%(1) 9.23% 8.67% 9.23% 7.59% 6.04%
Portfolio turnover rate 70% 90% 82% 88% 108% 87%
Shares outstanding at end of
period (000's) 129,775 110,764 109,140 89,794 89,794 71,835
</TABLE>
- ----------
(1) Annualized.
(2) Prior to the waiver of expenses, the ratios of expenses to average net
assets were 1.95% (annualized), 1.48% and 1.44% for the period from May 12,
1988 to February 28, 1989, and for the fiscal years ended February 28, 1990
and February 29, 1992, respectively, and the ratios of net investment income
to average net assets were 8.91% (annualized), 10.30% and 7.60% for the
period from May 12, 1988 to February 28, 1989, and for the fiscal years
ended February 28, 1990 and February 29, 1992, respectively.
(3) Total investment return measures the change in the market value of your
investment assuming reinvestment of dividends and capital gain
distributions, if any, in accordance with the provisions of the dividend
reinvestment plan. On March 9, 1992, the shares of the Trust were initially
listed for trading on the New York Stock Exchange. Accordingly, the total
investment return for the year ended February 28, 1993, covers only the
period from March 9, 1992, to February 28, 1993. Total investment return for
periods prior to the year ended February 28, 1993, are not presented since
market values for the Trust's shares were not available. Total returns for
less than one year are not annualized.
See Accompanying Notes to Financial Statements.
24
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended February 28 or February 29,
----------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period $ 9.96 $ 9.97 $ 10.00 $ 10.00 $ 10.00
Net investment income 0.60 0.76 0.98 1.06 0.72
Net realized and unrealized gain
(loss) on investments 0.01 (0.02) (0.05) -- --
-------- -------- ---------- ---------- --------
Increase in net asset value from
investment operations 0.61 0.74 0.93 1.06 0.72
Distributions from net investment
income (0.57) (0.75) (0.96) (1.06) (0.72)
Increase in net asset value from
share offerings -- -- -- -- --
Reduction in net asset value from
rights offering -- -- -- -- --
Increase in net asset value from
repurchase of capital stock 0.05 -- -- -- --
-------- -------- ---------- ---------- --------
Net asset value, end of period $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00
======== ======== ========== ========== ========
Closing market price at end of
period $ 9.13 -- -- -- --
Total Return
Total investment return at closing
market price(3) 10.89% -- -- -- --
Total investment return at net
asset value(4) 7.29% 7.71% 9.74% 11.13% 7.35%
Ratios/Supplemental Data
Net assets, end of period (000's) $738,810 $874,104 $1,158,224 $1,036,470 $252,998
Average borrowings (000's) $ -- $ -- $ -- $ -- $ --
Ratios to average net assets plus
borrowings:
Expenses (before interest and
other fees related to revolving
credit facility) -- -- -- -- --
Expenses -- -- -- -- --
Net investment income -- -- -- -- --
Ratios to average net assets:
Expenses (before interest and
other fees related to revolving
credit facility) -- -- -- -- --
Expenses 1.42% 1.42%(2) 1.38% 1.46%(2) 1.18%(1)(2)
Net investment income 5.88% 7.62% 9.71% 10.32%(2) 9.68%(1)(2)
Portfolio turnover rate 81% 53% 55% 100% 49%(1)
Shares outstanding at end of
period (000's) 73,544 87,782 116,022 103,660 25,294
</TABLE>
- ------------
(4) Total investment return at net asset value has been calculated assuming a
purchase at net asset value at the beginning of each period and a sale at
net asset value at the end of each period and assumes reinvestment of
dividends and capital gain distributions in accordance with the provisions
of the dividend reinvestment plan. This calculation differs from total
investment return because it excludes the effects of changes in the market
values of the Trust's shares. Total returns for less than one year are not
annualized.
(5) Calculation of total return excludes the effects of the per share dilution
resulting from the rights offering as the total account value of a fully
subscribed shareholder was minimally impacted.
(6) Pilgrim America Investments, Inc., the Trust's investment manager, acquired
certain assets of Pilgrim Management Corporation, the Trust's former
investment manager, in a transaction that closed on April 7, 1995.
(7) The Manager has agreed to reduce its fee for a period of three years from
the Expiration Date of the November 12, 1996 Rights Offering to 0.60% of the
average daily net assets, plus the proceeds of any outstanding borrowings,
over $1.15 billion.
See Accompanying Notes to Financial Statements.
25
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Pilgrim Prime Rate Trust (the "Trust", prior to November 16, 1998 Pilgrim
America Prime Rate Trust) is registered under the Investment Company Act of
1940, as amended, as a diversified, closed-end, investment management company.
The Trust invests in senior loans which are exempt from registration under the
Securities Act of 1933 (the "`33 Act") but contain certain restrictions on
resale and cannot be sold publicly. These loans bear interest (unless otherwise
noted) at rates that float periodically at a margin above the Prime Rate of a
U.S. bank specified in the credit agreement, the London Inter-Bank Offered Rate
("LIBOR"), the certificate of deposit rate, or in some cases another base
lending rate. The following is a summary of the significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security Valuation. Senior loans are valued at fair value in the absence of
readily ascertainable market values. Fair value is determined by Pilgrim
Investments, Inc. (the "Manager") under procedures established and monitored
by the Trust's Board of Trustees. In valuing a loan, the Manager will
consider, among other factors: (i) the creditworthiness of the corporate
issuer and any interpositioned bank; (ii) the current interest rate, period
until next interest rate reset and maturity date of the senior corporate
loan; (iii) recent market prices for similar loans, if any; and (iv) recent
prices in the market for instruments with similar quality, rate, period until
next interest rate reset, maturity, terms and conditions. The Manager may
also consider prices or quotations, if any, provided by banks, dealers or
pricing services which may represent the prices at which secondary market
transactions in the loans held by the Trust have or could have occurred.
However, because the secondary market in senior loans has not yet fully
developed, the Manager will not rely solely on such prices or quotations.
Securities for which the primary market is a national securities exchange or
the NASDAQ National Market System are stated at the last reported sale price
on the day of valuation. Debt and equity securities traded in the
over-the-counter market and listed securities for which no sale was reported
on that date are valued at the mean between the last reported bid and asked
price. Securities other than senior loans for which reliable quotations are
not readily available and all other assets will be valued at their respective
fair values as determined in good faith by, or under procedures established
by, the Board of Trustees of the Trust. Investments in securities maturing in
less than 60 days are valued at amortized cost, which when combined with
accrued interest, approximates market value.
B. Federal Income Taxes. It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
At February 28, 1998, the Trust had capital loss carryforwards for federal
income tax purposes of approximately $19,738,326 which are scheduled to
expire through February 28, 2006.
The Board of Trustees intends to offset any future net capital gains with the
capital loss carryforwards until each carryforward has been fully utilized or
expires.
C. Security Transactions and Revenue Recognition. Security transactions are
accounted for on trade date. Realized gains or losses are reported on the
basis of identified cost of securities delivered. Interest income is recorded
on an accrual basis at the then current loan rate, and dividend income is
recorded on the ex-dividend date. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an indication that
the borrower may be unable to meet payments as they become due. Upon such
discontinuance, all unpaid accrued interest is reversed. Cash collections on
nonaccrual senior loans are generally applied as a reduction to the recorded
investment of the loan. Senior loans are returned to accrual status only
after all past due amounts have been received and the borrower has
demonstrated sustained performance. Arrangement fees, which represent
non-refundable fees associated with the acquisition of loans, are deferred
and recognized ratably over the shorter of 2.5 years or the actual term of
the loan.
26
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
D. Distributions to Shareholders. The Trust records distributions to its
shareholders on the ex-date. Distributions from income are declared by the
Trust on a monthly basis. Distributions from capital gains, if any, are
declared on at least an annual basis. The amount of distributions from net
investment income and net realized capital gains are determined in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. Key differences are the treatment of
short-term capital gains and other temporary differences. To the extent that
these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassifications. Distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions in
excess of net investment income and/or realized capital gains. To the extent
they exceed net investment income and net realized capital gains for tax
purposes, they are reported as a tax return of capital.
E. Dividend Reinvestments. Pursuant to the Shareholder Investment Program
(formerly known as the Automatic Dividend Reinvestment Plan), DST Systems,
Inc., the Plan Agent, purchased, from time to time, shares of beneficial
interest of the Trust on the open market to satisfy dividend reinvestments.
Such shares were purchased only when the closing sale or bid price plus
commission was less than the net asset value per share of the stock on the
valuation date. If the market price plus commissions was equal to or exceeded
the net asset value, new shares may be issued at the greater of (i) net asset
value or (ii) the market price of the shares during the pricing period, minus
a discount of 5%.
F. Use of Estimates. Management of the Trust has made certain estimates and
assumptions relating to the reporting of assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
G. Share Offerings. Beginning May, 1998 the Trust began issuing shares under two
separate shelf registration statements, whereby the net proceeds received by
the Trust from share sales may not be less than the greater of (i) the NAV
per share or (ii) 94% of the average daily market price over the relevant
pricing period.
NOTE 2 -- INVESTMENTS
For the nine months ended November 30, 1998, the cost of purchases and the
proceeds from principal repayment and sales of investments, excluding short-term
notes, totaled $1,223,474,617 and $853,257,375, respectively. At November 30,
1998, the Trust held senior loans valued at $1,708,720,498 representing 98.6% of
its total investments. The market value of these securities can only be
established by negotiation between parties in a sales transaction. Due to the
uncertainty inherent in the valuation process, the fair values as determined may
materially differ from the market values that would have been used had a ready
market for these securities existed.
The senior loans acquired by the Trust may take the form of a direct co-lending
relationship with the corporate issuer, an assignment of a co-lender's interest
in a loan, or a participation interest in a co-lender's interest in a loan. The
lead lender in a typical corporate loan syndicate administers the loan and
monitors collateral. In the event that the lead lender becomes insolvent, enters
FDIC receivership or, if not FDIC insured, enters into bankruptcy, the Trust may
incur certain costs and delays in realizing payment, or may suffer a loss of
principal and/or interest. Additionally, certain situations may arise where the
Trust acquires a participation in a co-lender's interest in a loan and the Trust
does not have privity with or direct recourse against the corporate issuer.
Accordingly, the Trust may incur additional credit risk as a participant because
it must assume the risk of insolvency or bankruptcy of the co-lender from which
the participation was acquired. Common and preferred stocks, and stock purchase
warrants held in the portfolio were acquired in conjunction with senior loans
held by the Trust. Certain of these stocks and warrants are restricted and may
not be publicly sold without registration under the '33 Act, or without an
exemption under the '33 Act. In some cases, these restrictions expire after a
designated
27
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
period of time after issuance of the stock or warrant. These restricted
securities are valued at fair value as determined by the Board of Trustees by
considering quality, dividend rate, and marketability of the securities compared
to similar issues. In order to assist in the determination of fair value, the
Trust will obtain quotes from dealers who periodically trade in such securities
where such quotes are available. Dates of acquisition and cost or assigned basis
of restricted securities are as follows:
Date of Cost or
Acquisition Assigned Basis
----------- --------------
America's Favorite Chicken Co. -- Common 11/05/92 $ 1
Autotote Systems, Inc. -- Option 11/11/92 --
Autotote Systems, Inc. -- Warrant 11/11/92 --
Capital Tool & Design -- Warrants 07/26/96 --
Covenant Care, Inc. -- Warrants 12/22/95 --
Dan River, Inc. -- Common 09/15/91 1,217,260
KDI Corp. Units of Trust 09/19/95 --
Staff Leasing, Inc. 09/01/95 34,325
----------
Total restricted securities excluding senior
loans (market value of $5,521,565 was 0.46%
of net assets at November 30, 1998) $1,251,586
==========
NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The Trust has entered into an Investment Management Agreement with Pilgrim
Investments, Inc. (the "Manager") a wholly-owned subsidiary of Pilgrim Group,
Inc. ("PG"), to provide advisory and management services. The Investment
Management Agreement compensates the Manager with a fee, computed daily and
payable monthly, at an annual rate of 0.80% of the Trust's average daily net
assets plus borrowings. Prior to August 6, 1998, the Investment Management
Agreement compensated the Manager at an annual rate of 0.85% of the Trust's
average daily net assets plus borrowings up to $700 million; 0.75% of the
average daily net assets plus borrowings of $700 million to $800 million; and
0.65% of average daily net assets plus borrowings in excess of $800 million.
The Manager has reduced its fee for a period of three years from the Expiration
Date of the November 12, 1996 Rights Offering (See Note 5) to 0.60% of the
average daily net assets, plus the proceeds of any outstanding borrowings, over
$1.15 billion.
The Trust has also entered into an Administration Agreement with PG to provide
administrative services and also to furnish facilities. The Administration
Agreement compensates the Administrator with a fee, computed daily and payable
monthly, at an annual rate of 0.15% of the Trust's average daily net assets plus
borrowings up to $800 million; and 0.10% of the average daily net assets plus
borrowings in excess of $800 million.
NOTE 4 -- COMMITMENTS
The Trust has entered into both a 364 day and a five year revolving credit
agreement to borrow up to $650 million from a syndicate of major financial
institutions maturing July 16, 2003. Borrowing rates under these agreements are
based on a fixed spread over LIBOR, the federal funds rate, or a commercial
paper based rate. The Trust also pays an unused arrangement fee for any
unborrowed amount amortized over 364 days and five years, respectively. The
amount of borrowings outstanding at November 30, 1998, was $550 million at a
weighted average interest rate of 5.6%, which represented 31.2% of net assets
plus borrowings. Average borrowings for the nine months ended November 30, 1998,
were $471,792,727 and the average annualized interest rate was 5.8%.
28
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
As of November 30, 1998, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
Capstar Radio Broadcasting $2,326,316 Huntsman Corporation $ 830,140
Centennial Resources Inc. 1,157,321 Liberman Broadcasting, Inc. 320,000
Edwards Baking Co. 674,090 Nextel Finance Co. 2,943,500
Gaylord Container Corp. 9,103,448 Papa Gino's, Inc. 3,178,808
Genesis Eldercare Acquisition 76,787 Pathmark Stores Inc. 3,308,785
-----------
$23,919,195
===========
NOTE 5 -- RIGHTS OFFERINGS
On October 18, 1996, the Trust issued to its shareholders transferable rights
which entitled the holders to subscribe for 18,122,963 shares of the Trust's
common stock at the rate of one share of common stock for each five rights held.
On November 12, 1996, the offering expired and was fully subscribed. The Trust
issued 18,122,963 shares of its common stock to exercising rights holders at a
subscription price of $9.09 . Offering costs of $6,972,203 were charged against
the offering proceeds.
On December 27, 1994, the Trust issued to its shareholders non-transferable
rights which entitled the holders to subscribe for 17,958,766 shares of the
Trust's common stock at the rate of one share of common stock for each four
rights held. On January 27, 1995, the offering expired and was fully subscribed.
The Trust issued 17,958,766 shares of its common stock to exercising rights
holders at a subscription price of $8.12. Offering costs of $4,470,955 were
charged against the offering proceeds.
NOTE 6 -- CUSTODIAL AGREEMENT
Investors Fiduciary Trust Company ("IFTC") serves as the Trust's custodian and
recordkeeper. Custody fees paid to IFTC are reduced by earnings credits based on
the cash balances held by IFTC for the Trust. For the nine months ended November
30, 1998, the Trust received $88,751 in earnings credits from IFTC.
NOTE 7 -- AFFILIATED TRANSACTIONS
During the nine months ended November 30, 1998, the Trust sold certain holdings
in senior loans to an affiliated fund managed by the Manager at prices
determined by the Manager to represent market prices. The proceeds and cost of
such loans were $40,001,830 and $40,000,000, respectively, excluding any benefit
to the Trust from the recognition of deferred arrangement fees.
NOTE 8 -- SUBSEQUENT EVENTS
Subsequent to November 30, 1998, the Trust declared the following dividends from
net investment income:
Per Share Amount Declaration Date Record Date Payable Date
---------------- ---------------- ----------- ------------
$.0690 12/21/98 12/31/98 01/13/99
29
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
MANAGEMENT'S ADDITIONAL OPERATING INFORMATION
APPROVAL OF CHANGES IN INVESTMENT POLICIES
At a Special Meeting of Trust Shareholders, held August 6, 1998, Shareholders
approved changes in the Trust's fundamental investment policies which make
available certain additional investment opportunities to the Trust, including
(i) investing in loans in any form of business entity, as long as the loans
otherwise meet the Trust's requirements regarding the quality of loans in which
it may invest; (ii) the treatment of lease participations as Senior Loans which
would constitute part of the 80% of the Trust's assets normally invested in
Senior Loans; (iii) investing in all types of hybrid loans that meet credit
standards established by the Investment Manager constituting part of the 20% of
the Trust's assets that may be invested in Other Investments; (iv) the ability
to invest up to 5% of its total assets in both subordinated and unsecured loans
which would constitute part of the 20% of the Trust's assets that may be
invested in Other Investments.
Additionally, another policy change approved by the Board of Trustees of the
Trust, which does not require shareholder approval, permits the Trust to accept
guarantees and expanded forms of intangible assets as collateral, including
copyrights, patent rights, franchise value, and trademarks. Another policy
change approved by the Board that does not require shareholder approval provides
that 80% of the Trust's gross assets, as opposed to 80% of its net assets, may
normally be invested in Senior Loans.
The Trust's Manager considered the evolving nature of the syndicated loan market
and the potential benefits to the Trust and its shareholders of revising the
restriction to permit the Trust to invest in loans other than Senior Loans and
the increase in the number of attractive investment opportunities available to
the Trust due to the change.
REPURCHASE OF SECURITIES BY CLOSED-END COMPANIES
In accordance with Section 23(c) of the Investment Company Act of 1940, and Rule
23c-1 under the Investment Company Act of 1940, the Trust may from time to time
purchase shares of beneficial interest of the Trust in the open market, in
privately negotiated transactions and/or purchase shares to correct erroneous
transactions.
SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program") which enables
investors to conveniently add to their holdings at reduced costs. Should you
desire further information concerning this Program, please contact the
Shareholder Servicing Agent at (800) 992-0180.
30
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
FUND ADVISORS AND AGENTS
- --------------------------------------------------------------------------------
INVESTMENT MANAGER INSTITUTIONAL INVESTORS AND ANALYSTS
Pilgrim Investments, Inc. Call Pilgrim Prime Rate Trust
Two Renaissance Square 1-800-336-3436, Extension 8256
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004-4424
SHAREHOLDER SERVICING AGENT TRANSFER AGENT
Pilgrim Group, Inc. DST Systems, Inc.
Two Renaissance Square P.O. Box 419368
40 North Central Avenue Kansas City, Missouri 64141
Suite 1200
Phoenix, Arizona 85004-4424
1-800-992-0180
INDEPENDENT AUDITORS CUSTODIAN
KPMG Peat Marwick LLP Investors Fiduciary Trust Company
725 South Figueroa Street 801 Pennsylvania
Los Angeles, California 90017 Kansas City, Missouri 64105
WRITTEN REQUESTS
Please mail all account inquiries and other comments to:
Pilgrim Prime Rate Trust Account Services
c/o Pilgrim Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
TOLL-FREE SHAREHOLDER INFORMATION
Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for
account or other information, at 1-800-992-0180.
33
<PAGE>
Pilgrim
-------
THE VALUE OF INVESTING
MagnaCap Fund
LargeCap Leaders Fund
MidCap Value Fund
Bank and Thrift Fund
Asia-Pacific Equity Fund
High Yield Fund
Government Securities Income Fund
- --------------------------------------------------------------------------------
Prospectuses containing more complete information regarding the funds,
Q3 including charges and expenses, may be obtained by calling Pilgrim
Securities, Inc. Distributor at 1-800-334-444. Please read the
prospectuses carefully before you invest or send money.
- ----------
