PILGRIM(SM)
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FUNDS FOR SERIOUS INVESTORS
PRIME RATE TRUST
Third Quarter Report
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November 30, 1999 Q3
Third Quarter Report
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Pilgrim Prime Rate Trust
THIRD QUARTER REPORT
November 30, 1999
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Table of Contents
Chairman's Message........................................................ 2
Letter to Shareholders.................................................... 3
Statistics and Performance................................................ 8
Performance Footnotes..................................................... 10
Additional Notes and Information.......................................... 11
Portfolio of Investments.................................................. 12
Statement of Assets and Liabilities....................................... 23
Statement of Operations................................................... 24
Statements of Changes in Net Assets....................................... 25
Statement of Cash Flows................................................... 26
Financial Highlights...................................................... 27
Notes to Financial Statements............................................. 29
Shareholder Meeting....................................................... 34
Fund Advisors and Agents.................................................. 35
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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 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.
January 12, 2000
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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Dear Shareholders:
The objective of Pilgrim Prime Rate Trust (the "Trust") is to deliver a high
current yield consistent with the preservation of capital. During the most
recent quarter the Trust has paid it's 139th consecutive dividend while month
end calculations of net asset value ("NAV") have ranged between $9.16 and $9.02.
Based on the $0.196 of dividends declared during the 91 day quarter, and the
average month-end net asset value ("NAV") per share, the annualized distribution
rate was 8.68% (1). The returns of the Trust calculated in relation to NAV and
market are illustrated below in Chart I compared to Prime Rate and LIBOR.
Comparative Performance -- Trailing 12 Month Average
Prime Rate Trust Prime Rate Trust 60-Day
Month Ended (at NAV)(2) Prime Rate(3) (at Market)(2) LIBOR(4)
- ----------- ----------- ------------- -------------- --------
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
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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THE TRUST
The Trust holds a diversified portfolio of leveraged loans made to American and
Canadian corporations. All loans are in US dollars. The Trust buys these loans
from large banks and financial institutions. The loans typically mature between
seven and ten years, but are generally repaid within five years. Interest rates
on the loans are based on LIBOR or Prime Rate and reset every thirty to ninety
days. Consequently, the Trust's investments exhibit lower price volatility than
corporate bonds, whose prices fluctuate in response to changes in interest
rates.
THE LOAN MARKET
The leveraged loan market continued to grow in 1999. Total leveraged lending for
the nine months ended September 30, 1999 amounted to $232.1 billion as compared
to $211.9 billion for the same period of 1998. We expect the fourth quarter of
1999 loan volume to be comparable to the third quarter of 1999, however it
appears that lower demand by loan investors early in the fourth quarter has
resulted in stable to somewhat higher interest rate spreads.
The loan market's focus on credit quality continues to grow. The high yield
default rate registered its highest level since 1991 in September posting an
annualized rate of 5.8%. As a result, during the third quarter of 1999 loan
investors demanded more conservative terms. During the quarter, average bank
debt to cash flow amounted to a relatively modest 2.9 times, equity contributed
to leveraged transactions climbed to 35.2% of the company's capital structure
and higher quality BB rated bank loans grew from 33% to 47% of total leveraged
loans. (5)
By a wide margin, healthcare particularly the post-acute and long-term areas,
continues to be the worst performing industry in the leveraged loan market.
Difficulties in this industry primarily caused by the government's healthcare
reform initiative resulted in a 12-month negative return of 34% as of October
31, 1999. By removing all post-acute and long-term healthcare loans from the
Banc of America Securities Leverage Loan Index, the Index return jumps from 4.2%
over the twelve months ended October 31, 1999 to 7.1%. (5)
PERFORMANCE OF THE TRUST
During the quarter ended November 30, 1999, the Trust:
Paid a relatively high level of current income. Based on the $0.196 of dividends
declared for the quarter, the average annualized distribution rate based on NAV
of 8.68% exceeded average 60 day LIBOR rates for the quarter by 2.8%. This yield
also exceeded the average Prime Rate for the quarter of 8.33% by 0.4%.
Maintained a high level of diversification. The Trust managed 183 senior loans
with an average investment size of $9,285,142 at the end of the quarter. These
loans represented 34 industry sectors. The Trust manages loan investments in 12
industries which each represent less than 2% of total assets. At the end of the
Quarter, the Trust's largest industry sector was Telecommunications, which
represented 9.5% of total assets.
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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Added 23 new senior loan investments. The Trust's transactions sources allowed
it to approve new investments sponsored by 10 different loan syndication
sources. The average LIBOR spread for these new loans is 3.4%. This compares
favorably to the weighted average spread across the portfolio of 3.2% at
November 30th. Notable investments added to the portfolio include: Nextel
Finance Co., Buhrmann NV, Lyondell Petrochemical Company, Fitness Holdings
Worldwide and Charter Communications Holdings.
Experienced an increase in non-performing assets. Like other investors in
leveraged loans, the Trust experienced an increase in non-performing assets
during the quarter primarily due to high default levels in the post acute and
long-term healthcare industry. Non-performing assets held by the Trust as of
November 30th were 3.6% of total assets, nearly two thirds of which were
healthcare related. We believe that there is long-term value in this sector and
expect to recover much of our investment in these companies. We continue to
monitor restructuring efforts in these companies and in order to reduce our
exposure to this industry.
MANAGEMENT OF THE TRUST
On December 9, 1999, the Trust named Daniel A. Norman and Jeffrey A. Bakalar
senior portfolio managers. Norman and Bakalar report to James R. Reis, vice
chairman and director of senior lending and structured finance for Pilgrim
Investments, Inc.
Mr. Norman has been a senior vice president of the Trust since April 1995 and a
senior vice president of Pilgrim since 1992. Mr. Norman has more than 15 years
of experience in the financial services industry. Mr. Bakalar has been a vice
president of the Trust since February 1998 and became senior vice president in
December 1999. Mr. Bakalar began his lending career in 1987 with Continental
Bank and joined The First National Bank of Chicago in 1994. Mr. Reis and
Pilgrim's Chairman and CEO, Robert W. Stallings founded Pilgrim Capital
Corporation. Mr. Stallings became president of the Trust in December 1999. Mr.
Reis continues as executive vice president of the Trust, a position he has held
since April 1995. Mr. Reis has over 18 years of banking and investment
experience.
Howard Tiffen resigned as senior portfolio manager on December 8, 1999, the
position he held from November 1995. We wish Mr. Tiffen well in his future
endeavors.
OUTLOOK
We enter the new millennium with both optimism and vigilance. We see the
continuation well into the next year of the favorable economic conditions that
have existed in recent years: good economic growth, low inflation and high
employment. Drivers for the economy continue to be high spending, low savings by
consumers and high levels of corporate investment. As these drivers slow going
into 2000, we believe that a healthier global economy will fill the gap. With
regard to interest rates, we believe that the Treasury yield curve will be
fairly stable with modest rate increases next year by the Federal Reserve. The
leveraged loan forward calendar for the first quarter appears strong as
transactions put on hold because of Y2K concerns come to market.
5
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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We remain vigilant with respect to credit. Higher default rates in the high
yield market tend to be an ominous sign for senior lenders. In that regard, we
have redoubled our focus on credit. During the past quarter the Trust added two
vice presidents. These new officers have strong lending and workout experience.
We believe diligent underwriting combined with careful loan monitoring will
ensure that the Trust continues to deliver a high current yeild to its
shareholders.
We encourage your questions and comments.
/s/ James R. Reis
James R. Reis
Executive Vice President
Director of Senior Lending
/s/ Jeffrey A. Bakalar /s/ Daniel A. Norman
Jeffrey A. Bakalar Daniel A. Norman
Senior Vice President Senior Vice President
Co-Senior Portfolio Manager Co-Senior Portfolio Manager
Pilgrim Prime Rate Trust
December 28, 1999
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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
$0.196 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 1 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.
(5) Banc of America Securities, LLC and Portfolio Data Management.
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.
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Pilgrim Prime Rate Trust
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STATISTICS AND PERFORMANCE as of November 30, 1999
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PORTFOLIO CHARACTERISTICS
Net Assets $1,230,067,845
Assets Invested in Senior Loans* $1,699,180,911
Total Number of Senior Loans 183
Average Amount Outstanding per Loan $9,285,142
Total Number of Industries 33
Average Loan Amount per Industry $51,490,331
Portfolio Turnover Rate (YTD) 53%
Weighted Average Days to Interest Rate Reset 32 days
Average Loan Maturity 62 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
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Telecommunications 13.5% 9.5%
Residential/Long Term Care and Hospitals 8.8% 6.2%
Buildings and Real Estate 8.3% 5.8%
Chemicals, Plastics and Rubber 7.2% 5.1%
Containers, Packaging and Glass 6.8% 4.8%
Electronics 6.7% 4.7%
Leisure, Amusement, Motion Pictures and Entertainment 6.0% 4.2%
Aerospace and Defense 5.8% 4.1%
Textiles and Leather 5.7% 4.0%
Diversified/Conglomerate Services 5.4% 3.8%
TOP 10 SENIOR LOANS AS A % OF
NET ASSETS TOTAL ASSETS
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Nextel Finance Corp. 3.1% 2.2%
Allied Waste Industries 2.8% 2.0%
Mafco Finance Corp. 2.8% 2.0%
Ventas Inc. 2.1% 1.5%
Community Health Systems, Inc. 2.0% 1.4%
Omnipoint Corp. 1.9% 1.3%
Papa Gino's Inc. 1.7% 1.2%
American Wireless Corp. 1.6% 1.1%
Gaylord Container Corp. 1.6% 1.1%
Mariner Post-Accute Network 1.6% 1.1%
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Pilgrim Prime Rate Trust
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STATISTICS AND PERFORMANCE as of November 30, 1999
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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)
- ------------- ---- ------- ------- ------------- -------------
November 30, 1999 8.50% 8.11% 7.87% 8.68% 8.35%
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%
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
--- ---
1 Year 6.29% 6.16%
3 Years 7.51% 9.11%
5 Years 7.89% 8.92%
10 Years 7.92% N/A
Since Trust Inception(F,H) 8.24% N/A
Since Initial Trading on NYSE(G) N/A 9.70%
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 10.
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Pilgrim Prime Rate Trust
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PERFORMANCE FOOTNOTES
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(A) Yield is calculated by dividing the Trust's net investment income per share
for the most recent thirty days by the net asset value (in the case of NAV)
or the NYSE Composite closing price (in the case of market) at quarter-end.
Yield calculations do not include any commissions or sales charges, and are
compounded for six months and annualized for a twelve month period to
derive the Trust's yield consistent with the SEC standardized yield formula
for open-end investment companies.
(B) The distribution rate is calculated by annualizing each monthly dividend,
then averaging the annualized dividends declared for each month during the
quarter and dividing the resulting average annualized dividend amount by
the Trust's net asset value (in the case of NAV) or the NYSE Composite
closing price (in the case of Market) at the end of the period.
(C) Calculation of total return assumes a hypothetical initial investment at
the net asset value (in the case of NAV) or the NYSE Composite closing
price (in the case of Market) on the last business day before the first day
of the stated period, with all dividends and distributions reinvested at
the actual reinvestment price. The Trust's average annual returns on a
market basis and assuming rights were exercised through November 30, 1999
were 6.16% and 8.92% 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, 1999, was 9.17% 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.
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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 2000 Dividends:
DECLARATION DATE EX-DATE PAYABLE DATE
---------------- ------- ------------
January 31 February 8 February 23
February 29 March 8 March 22
March 31 April 6 April 24
April 28 May 8 May 22
May 31 June 8 June 22
June 30 July 6 July 24
July 31 August 8 August 22
August 31 September 7 September 22
September 29 October 6 October 23
October 31 November 8 November 22
November 30 December 7 December 22
December 19 December 27 January 11, 2001
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, 1999 (Unaudited)
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SENIOR LOANS*
(Dollar weighted portfolio interest reset period is 32 days)
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Aerospace and Defense: 5.7%
$ 14,813 Avborne (aircraft maintenance) Term B 06/30/03 $ 14,812,500
8,775 Erickson Air-Crane Co. (heavy lift helicopters) Term B 12/31/04 8,073,000
8,750 New Piper Aircraft, Inc. (aircraft manufacturer) Term 04/15/05 8,750,028
6,390 Piedmont Aviation Services (airport facility operator) Term B 07/23/06 6,389,831
6,390 Piedmont Aviation Services Term C 07/23/07 6,389,831
2,489 Stellex Industries, Inc. (aerospace & defense parts mfg.) Term B 09/30/06 2,488,636
4,033 Technetics Corp. (aircraft engine components) Term 06/20/02 4,033,083
4,988 Titan Corp. (defense electronics) Term B 05/10/05 4,987,500
14,960 TRANSTAR (aluminum distribution) Term B 01/20/06 14,959,821
------------
70,884,230
------------
Automobile: 4.5%
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
9,800 Cambridge Industries, Inc. (automotive plastics) Term B 06/30/05 9,800,000
9,335 Capital Tool & Design (brake backing plates) Term B 07/19/03 9,335,234
8,767 Global Metal Technologies, Inc. (automotive parts) Term B 03/12/05 8,767,420
7,083 Safelite Glass Corp. (automobile windshield replacement) Term B 12/23/04 7,083,248
7,083 Safelite Glass Corp. Term C 12/23/05 7,083,248
3,325 Venture Holdings (automotive plastics) Term B 04/05/05 3,325,000
------------
55,120,650
------------
Beverage, Food and Tobacco: 3.3%
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
13,685 Empire Kosher Poultry (kosher chicken and poultry) Term B 07/31/04 13,685,000
1,825 Houston Process (meat products producer) Term B 07/01/06 1,825,377
6,987 Imperial Holly Corp. (sugar producer) Term A 12/31/03 6,986,991
6,506 Imperial Holly Corp. Term B 12/31/05 6,506,481
913 Iowa Ham (meat products producer) Term B 07/01/06 912,688
1,012 JAC Pac (meat products producer) Term B 07/01/06 1,012,436
1,237 Jordan (meat products producer) Term B 07/01/06 1,236,867
------------
41,111,674
------------
</TABLE>
See Accompanying Notes to Financial Statements.
12
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Broadcasting: 4.6%
$ 8,000 Benedek Broadcasting Corp. (TV broadcasting) Term B 11/20/07 $ 8,000,000
5,000 Charter Communications Cable Telecom (cable television) Term B 03/17/08 5,000,000
4,000 Charter Communications Operating, LLC (cable television) Term B 11/01/08 4,000,000
1,610 Liberman Broadcasting, Inc. (radio/TV broadcasting) Revolver 03/31/05 1,609,600
7,760 Liberman Broadcasting, Inc. Term B 09/30/05 7,760,000
5,000 Susquehanna Media (radio broadcasting) Term B 06/30/08 5,000,000
17,000 Telemundo (television broadcasting) Term B 12/28/06 17,000,000
3,620 Z Spanish (radio broadcasting) Bridge 05/26/00 3,620,000
5,000 Z Spanish Term 03/31/06 5,000,000
------------
56,989,600
------------
Buildings and Real Estate: 8.3%
6,000 Dayton Superior Corp. (concrete/masonry accessories) Term 09/29/05 6,000,000
6,144 Juno Lighting (access/track lighting) Term B 11/30/06 6,144,000
7,741 Kevco, Inc. (manufactured home components) Term B 02/02/05 7,741,110
10,325 Meditrust Corp. (real estate investment trust) Revolver 07/15/01 10,325,092
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
4,988 Prison Realty (owner/operator of prison facilities) Term C 12/31/02 4,987,500
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
7,490 Vantas, Inc. (executive office suite provider) Term B 09/04/09 7,489,569
1,912 Ventas, Inc. (real estate investment trust) Bridge 02/28/00 1,912,426
1,259 Ventas, Inc. Term A 05/05/01 1,259,281
22,424 Ventas, Inc. Term B 05/05/03 22,423,944
------------
102,203,065
------------
Cargo Transport: 1.9%
5,145 Atlas Freighter Leasing (air cargo carrier) Term 05/29/04 5,145,385
2,709 Evergreen International Aviation, Inc. (air cargo carrier) Term B 05/31/02 2,709,006
1,138 Evergreen International Aviation, Inc. Term B 05/31/02 1,138,311
385 Evergreen International Aviation, Inc. Term B-1 05/19/03 385,260
5,000 Havco Wood Products, Inc. (tractor trailer flooring) Term B 09/30/06 5,000,000
8,977 Omnitrax, Inc. (rail operator) Term 05/12/05 8,977,273
------------
23,355,235
------------
</TABLE>
See Accompanying Notes to Financial Statements.
13
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Chemicals, Plastics and Rubber: 7.2%
$ 9,781 Acadia Elastomers Corp. (rubber/plastic seals & pistons) Term 02/17/04 $ 9,781,022
11,142 Cedar Chemical Corp. (specialty chemicals) Term B 10/30/03 11,141,776
14,888 Euro United Corp. (plastic products) Term B 05/31/01 14,887,500
6,938 Foam Fabrics Inc. (styrofoam products) Term A 03/05/05 6,937,500
3,518 Foamex, L.P. (polyurethane foam manufacturer) Term B 06/30/05 3,517,882
3,198 Foamex, L.P. Term C 06/30/06 3,198,075
2,324 Huntsman Corp. (industrial petrochemicals) Revolver 12/31/02 2,324,390
476 Huntsman Corp. Term A 12/31/02 475,560
3,442 Huntsman Corp. Term B 10/07/04 3,442,438
4,988 Identity Group, Inc. (office products manufacturer) Term B 05/07/07 4,987,500
10,875 Lyondell Petrochemical Company (petrochemicals) Term A 07/23/03 10,875,215
2,790 Lyondell Petrochemical Company Term B 06/30/05 2,789,825
5,000 Lyondell Petrochemical Company Term E 05/20/06 5,000,000
4,592 NEN Life Sciences Products (biochemicals) Term B 12/31/04 4,591,837
4,639 Texas Petrochemical Corp. (industrial petrochemicals) Term B 06/30/04 4,638,889
-----------
88,589,409
-----------
Containers, Packaging and Glass: 6.8%
8,977 Blue Ridge Paper Products (paper producer) Term B 05/14/06 8,977,463
8,192 Crown Paper Co. (paper and pulp manufacturer) Term B 08/22/03 8,191,993
19,797 Gaylord Container Corporation (corrugated containers) Term 06/19/03 19,797,069
5,000 Impaxx Inc. (industrial labeling/packaging) Term C 12/31/05 5,000,000
17,125 Lincoln Pulp & Eastern Fine (specialty paper) Term 08/31/04 17,124,996
615 Lincoln Pulp & Eastern Fine Term A 12/31/99 615,200
2,494 Mediapak Corporation (media packaging) Term B 12/31/05 2,493,721
2,494 Mediapak Corporation Term C 12/31/06 2,493,721
3,980 Pacifica Paper Inc. (manufacturer of value added paper) Term B 03/11/06 3,980,000
9,875 Pretium Packaging LLC (plastic packaging) Term B 07/29/06 9,875,020
5,498 RIC Holdings Inc. (Riverwood) (paper and pulp producer) Term A 02/28/03 5,497,622
-----------
84,046,805
-----------
Diversified/Conglomerate Manufacturing: 3.5%
9,925 Allied Digital Technologies Corp. (multimedia manufacturer) Term B 12/31/05 9,925,000
3,750 Buhrmann NV (office products distribution) Term B 10/26/07 3,750,000
7,500 General Cable Corp. (copper cable manufacturer) Term B 05/24/07 7,500,000
3,990 Holmes Products Corp. (consumer products manufacturer) Term B 12/31/06 3,990,000
2,494 Mueller Group, Inc. (manufacturer & distributor of cast,
malleable ductile iron & brass products) Term B 08/12/06 2,493,750
2,494 Mueller Group, Inc. Term C 08/12/07 2,493,750
5,850 Private Business, Inc. (software manufacturer) Term B 08/19/06 5,849,820
6,983 United Pet Group (pet supplies manufacturer) Term B 03/31/06 6,982,500
-----------
42,984,820
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
14
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Diversified/Conglomerate Services: 5.4%
$ 4,988 Barjan Products (distributor to truck stops) Term B 05/31/06 $ 4,987,500
2,871 Enterprise Profit Solutions Corp. (business services
outsourcing) Term 06/14/01 2,871,429
30,635 MAFCO Financial Corp. (diversified services and
entertainment) Term A 04/16/00 30,634,615
3,938 MAFCO Financial Corp. Revolver 04/16/00 3,937,500
11,768 Outsourcing Solutions (accounts receivable management) Term B 10/15/03 11,767,909
6,872 Outsourcing Solutions Term C 10/15/04 6,871,913
2,494 URS Corp. (consulting company) Term B 06/09/06 2,493,750
2,494 URS Corp. Term C 06/09/07 2,493,750
-----------
66,058,366
-----------
Ecological: 4.0%
15,909 Allied Waste (waste management) Term B 07/12/06 15,909,091
19,090 Allied Waste Term C 07/12/07 19,090,909
5,400 Clean Harbors, Inc. (environmental services) Term 05/08/01 5,400,000
9,500 Rumpke (waste management) Term A 09/26/02 9,500,000
-----------
49,900,000
-----------
Education & Childcare: 1.9%
9,258 Children's Discovery Centers (daycare and education) Term 08/10/04 9,257,813
10,156 The Brown Schools (behavioral healthcare services) Term B 06/30/04 10,156,250
4,063 The Brown Schools Term C 06/30/05 4,062,500
-----------
23,476,563
-----------
Electronics: 6.7%
469 Decision One Corp. (computer equipment/services) Revolver 08/31/03 234,643
2,649 Decision One Corp. Term A 08/31/03 1,324,408
7,250 Decision One Corp. Term B 08/31/05 3,625,095
1,461 Decision One Corp. Term C 08/31/05 730,657
9,472 Dynamic Details Silicon, Inc. (circuit board manufacturer) Term B 04/22/05 9,471,980
4,323 Electro Mechanical Solutions (computer enclosure
manufacturer) Term B 06/30/04 4,323,074
5,348 Intri-Plex Technologies, Inc. (disk drive component
manufacturer) Term 09/30/02 5,080,435
7,000 Knowles Electronics (transducers manufacturer) Term B 06/29/07 7,000,000
9,420 Mitel Corporation (semiconductor manufacturer) Term B 06/02/04 9,420,121
9,157 Sarcom, Inc. (systems integration) Term 11/20/02 9,156,746
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
7,477 Stonebridge Technologies, Inc. (enterprise computing
systems/services) Term 07/27/05 7,476,563
8,300 Viasystems Group, Inc. (electronic equipment) Term C 06/30/05 8,300,000
-----------
82,143,722
-----------
Farming and Agriculture: 0.3%
4,996 Purina Mills, Inc. (animal nutrition products) Term B 03/10/07 3,953,272
-----------
3,953,272
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
15
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Finance: 4.8%
$ 837 Alliance Data Systems (credit card services) 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
7,980 Bridge Information Systems (news services) Term B 05/29/05 7,980,000
2,260 Bridge Information Systems Lease-4 04/01/01 2,260,360
4,332 Bridge Information Systems Lease-6 04/01/01 4,332,394
5,808 National Partnership Investments Corp. (asset management) Term 06/30/01 5,808,314
5,141 Rent-A-Center, Inc. (home appliances rental) Term B 01/31/06 5,141,375
6,888 Rent-A-Center, Inc. Term C 01/31/07 6,887,995
5,000 United Rental, Inc. (equipment leasing) Term B 06/30/05 5,000,000
3,833 Value Asset Management, Inc. (money management) Term B 04/28/03 3,833,333
-----------
58,930,120
-----------
Grocery: 1.5%
5,000 Grand Union Capital Corporation (grocery retail) Term 08/17/03 5,000,000
2,380 Pathmark Stores, Inc. (mid Atlantic supermarkets) Revolver 06/15/01 2,380,165
1,280 Pathmark Stores, Inc. Term A 06/15/01 1,279,993
9,012 Pathmark Stores, Inc. Term B 12/15/01 9,012,363
506 Schwegmann Giant Supermarket (Louisiana supermarkets) (1) Term B 07/30/02 303,668
-----------
17,976,189
-----------
Home and Office Furnishings, Housewares and Durable
Consumer Products: 2.8%
723 American Blind and Wallpaper (furniture and home
furnishings) Term 12/29/05 722,983
8,720 Desa International (heaters and fireplaces) Term B 11/26/04 8,720,000
5,000 ICON Health & Fitness Co. (exercise equipment) Term B 11/29/04 5,000,000
5,000 ICON Health & Fitness Co. Term C 03/01/05 5,000,000
5,000 ICON Health & Fitness Co. Term IP 08/31/04 5,000,000
6,571 Imperial Home Decor Group (wall covering) Term B 03/13/05 6,242,739
3,381 Imperial Home Decor Group Term C 03/13/06 3,212,055
-----------
33,897,777
-----------
Hotels, Motels, Inns and Gaming: 4.4%
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
2,494 Boyd Gaming, Corp. (hotel casino) Term 06/15/03 2,493,750
6,286 Pebble Beach Co. (golf resorts) Term B 07/30/06 6,286,364
10,000 Station Casinos, Inc. (hotel casino) Term 12/31/05 10,000,000
10,000 Strategic Hotel Capital, Inc. (hotel/lodging) Term B 11/09/04 10,000,000
5,000 Wyndham Int'l. (hotel/lodging) Term IRL 06/30/04 5,000,000
13,500 Wyndham Int'l. Term 06/30/06 13,500,000
-----------
54,780,114
-----------
Insurance: 1.1%
3,113 TRG Holdings Corp. (insurance run-off) Term 01/07/03 3,112,500
10,000 USI Holdings (insurance brokerage) Term 09/17/04 10,000,000
-----------
13,112,500
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
16
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 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: 6.0%
$ 3,675 AMFAC Parks and Resorts (park services operator) Term B 09/04/04 $ 3,675,000
3,675 AMFAC Parks and Resorts Term C 09/30/04 3,675,000
7,500 Edwards Megaplex Holdings, Inc. (movie theatres) Term B 12/26/05 7,500,000
5,000 Fitness Holdings Worldwide (owner/operator of fitness
centers) Term B 11/02/06 5,000,000
5,000 Fitness Holdings Worldwide Term C 11/02/07 5,000,000
9,825 Four Media Co. (film services) Term B 09/10/04 9,825,000
10,000 Metro-Goldwyn-Mayer (media and broadcast) Term A 03/31/05 10,000,000
9,000 Metro-Goldwyn-Mayer Term B 03/31/06 9,000,000
14,950 Panavision, Inc. (high precision file camera systems) Term B 06/05/05 14,950,000
5,000 SFX Entertainment (concert promotion/venue operation) Term B 06/30/06 5,000,000
-----------
73,625,000
-----------
Machinery (Nonagriculture, Nonconstruction,
Nonelectronic): 2.1%
14,950 Anthony Crane (equipment rental) Term B 07/20/06 14,950,000
8,313 Clearing-Niagara (metal stamping press manufacturer) (A) Term 10/18/04 6,234,549
4,925 Morris Material Handling (industrial cranes) Term B 03/31/05 4,925,000
-----------
26,109,549
-----------
Medical Services & Products: 3.7%
2,137 Caremark, Rx (physician practice management) Term A 06/09/01 2,137,496
956 Caremark, Rx Term B 06/09/01 955,641
10,000 Compdent Corp. (dental benefits provider) Term B 06/30/06 10,000,000
3,325 Concentra Managed Care, Inc. (healthcare cost management) Term B 06/30/06 3,325,000
1,663 Concentra Managed Care, Inc. Term C 06/30/07 1,662,500
5,736 Dade Behring (medical diagnostic equipment) Term B 06/30/06 5,735,625
5,736 Dade Behring Term C 06/30/07 5,735,625
4,900 Doshi Diagnostics Imaging Service (radiology and medical
testing) Term 05/15/05 4,900,000
3,520 Healthcare Direct, Inc. (medical device retailer) Term A 08/01/04 3,520,050
4,049 Healthcare Direct, Inc. Term B 08/01/06 4,048,750
2,898 Vision Twenty-One, Inc. (eye care physician practice
management) Term C 06/30/05 2,898,018
-----------
44,918,705
-----------
Mining, Steel, Iron and Nonprecious Metals: 0.3%
4,167 National Refractories, Inc. (kiln lining materials) Term C 09/30/01 4,166,667
-----------
4,166,667
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Oil and Gas: 4.2%
$ 9,000 Clark Refining and Marketing (petroleum refining/
distribution) Floating 11/15/04 $ 9,000,000
13,000 Key Energy Group, Inc. (oil field services) Term B 10/26/04 13,000,000
7,276 Key Energy Group, Inc. Revolver 10/26/03 7,276,000
1,474 Perf-O-Log (oil field services) Delayed Term 08/11/03 1,473,750
3,920 Perf-O-Log Term B 08/11/03 3,920,000
2,463 Perf-O-Log Term C 08/11/04 2,462,500
11,091 Plains Resources, Inc. (oil pipeline) Term B 06/29/04 11,091,627
3,787 Superior Energy Services (oil/gas services) Term B 06/30/06 3,786,813
-----------
52,010,690
-----------
Personal and Nondurable Consumer Products: 3.2%
1,155 AM Cosmetics (cosmetics and skin care products) Revolver 05/30/04 1,155,474
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
Delayed
5,225 American Safety Razor Term B 04/30/07 5,225,000
8,565 Medtech Products (non-prescription consumer medications) Term B 10/15/02 8,564,642
8,980 Norwood Promotional Products (licensed products) Term B 03/31/06 8,980,147
1,128 Paint Sundry Brands, LLC (paint brushes & accessories) Term B 08/11/05 1,127,549
1,104 Paint Sundry Brands, LLC Term C 08/11/06 1,104,305
3,956 20th Century Plastics Inc. (consumer plastic products) Term B 09/30/05 3,955,556
3,465 20th Century Plastics Inc. Term C 09/30/06 3,465,000
-----------
39,493,127
-----------
Personal, Food and Miscellaneous Services: 4.5%
35,275 Boston Chicken, Inc. (quick service restaurant) (2) Lease C 10/17/98 12,698,996
4,223 Boston Chicken, Inc. (2) Revolver A 10/17/98 1,520,319
5,379 Boston Chicken, Inc. (2) Revolver B 12/01/99 1,936,515
4,782 Brickman Group, Inc. (landscaping) Term B 12/31/05 4,781,973
8,803 Coinmach Laundry Corp. (commercial/industrial laundry) Term B 06/30/05 8,803,035
4,963 Otis Spunkmeyer (baked goods) Term B 12/31/05 4,962,500
2,337 Papa Gino's, Inc. (quick service restaurants) T/L A-2 08/31/04 2,336,871
4,127 Papa Gino's, Inc. Term A 02/19/02 4,127,354
14,624 Papa Gino's, Inc. Term B 02/19/04 14,623,862
-----------
55,791,425
-----------
Personal Transportation: 1.0%
9,871 Neoplan USA Corporation (transit bus manufacturer) Term B 05/29/05 9,871,419
2,980 Transportation Manufacturing Operation (bus manufacturing) Term B 06/16/06 2,980,000
-----------
12,851,419
-----------
Printing and Publishing: 2.0%
3,291 Von Hoffman Press, Inc. (textbook manufacturer) Term B 05/29/04 3,291,071
10,690 Von Hoffman Press, Inc. Term C 05/29/05 10,690,179
9,875 Weider Publications, Inc. (magazine publications) Term 09/18/05 9,875,000
-----------
23,856,250
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Residential/Long-Term Care & Hospitals: 8.8%
$ 8,767 Community Health Systems (accute care hospitals) Term B 12/31/03 $ 8,767,123
8,767 Community Health Systems Term C 12/31/04 8,767,123
6,541 Community Health Systems Term D 12/31/05 6,541,096
6,000 Covenant Care California, Inc. (long-term healthcare
facilities) Term 04/30/01 6,000,000
14,559 Fountain View, Inc. (long-term healthcare facilities) Term B 03/31/04 14,558,824
4,404 Genesis Eldercare Acquisition (long-term healthcare
facilities) Term 09/30/04 4,404,497
2,926 Genesis Health Ventures, Inc. (elderly healthcare & support) Term A 09/30/03 2,926,348
3,707 Genesis Multicare Co. (elderly healthcare & support) Term A 09/30/03 3,706,967
1,272 Integrated Health Services (long-term healthcare facilities) (A) Term B 09/30/04 1,080,902
9,763 Integrated Health Services (A) Term C 12/31/05 8,298,394
5,758 Magellan Health Services (managed behavioral care) Term B 02/28/05 5,757,704
5,758 Magellan Health Services Term C 02/28/06 5,757,704
14,774 Mariner Health Group, Inc. (long-term healthcare
facilities) (A) Term B 04/30/05 11,966,589
8,839 Mariner Health Group, Inc. (A) Term C 03/31/06 7,159,446
13,134 Vencor, Inc. (long-term healthcare facilities) (A) Term B 05/05/05 12,083,338
------------
107,776,055
------------
Retail Stores: 4.0%
9,874 Amscan Holdings, Inc. (party goods) Term 12/31/04 9,874,372
3,667 CSK Auto, Inc. (auto parts retailer) Term B 10/31/03 3,666,667
13,700 Murray's Discount Auto Stores (auto parts retailer) Term 06/30/03 13,699,770
3,743 Peebles, Inc. (department store chain) Term A 04/30/01 3,743,397
12,807 Peebles, Inc. Term B 04/30/02 12,806,970
4,975 Quality Stores (agricultural specialty retailer) Term B 04/30/06 4,975,000
------------
48,766,176
------------
</TABLE>
See Accompanying Notes to Financial Statements.
19
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Telecommunications: 13.5%
$ 9,950 American Wireless Corporation (wireless communications) Term B 06/04/07 $ 9,950,000
9,950 American Wireless Corporation Term C 12/04/07 9,950,000
9,975 ICG Communications, Inc. (telecom/CLEC) Term B 03/31/06 9,975,000
2,993 Infonet Services Corp (provider of cross-border data
communications services) Term B 06/30/06 2,992,500
8,000 Microcell Connexions Inc. (wireless communication) Term B 03/17/06 8,000,000
2,801 Microcell Connexions Inc. Term E 03/17/06 2,800,788
9,536 Nextel Communications Inc. (wireless communications) Lease 03/15/06 9,536,207
19,000 Nextel Finance Co. (wireless communication) Term B 06/30/08 19,000,000
19,000 Nextel Finance Co. Term C 12/31/08 19,000,000
11,897 Omnipoint Communications, Inc. (wireless communication) Term A 02/23/06 11,896,808
3,395 Omnipoint Communications, Inc. Term C 02/23/06 3,394,960
7,949 Omnipoint Communications, Inc. Term B 02/23/06 7,949,348
2,205 Pacific Coin (private pay phone operator) Term A 12/31/02 2,205,430
6,632 Pacific Coin Term B 12/31/04 6,631,875
7,450 Paging Network, Inc. (paging) Revolver 12/31/04 7,450,000
6,000 Pinnacle Towers, Inc. (telecommunication towers) Term B 06/30/07 6,000,000
7,045 Prodelin Holding Corporation (satellite antenna
manufacturer) Term B 05/28/06 7,045,320
9,958 Teletouch Communications (paging) Term B 11/30/04 9,958,333
12,000 TSR Wireless, LLC (paging) Term 06/30/05 12,000,000
--------------
165,736,569
--------------
Textiles and Leather: 5.7%
9,243 Accessory Network Group (personal/clothing accessories) Term B 08/13/05 9,242,510
8,394 Galey & Lord (textile manufacturer) Term B 03/23/05 8,393,906
5,955 Galey & Lord Term C 03/23/06 5,954,521
4,583 Harriet & Henderson (yarn manufacturer) Term A 06/12/00 4,583,158
446 Harriet & Henderson Term C 01/20/04 446,333
6,650 Humphreys, Inc. (belts and personal leather goods) Term B 11/15/03 6,650,000
10,000 Malden Mills (textile/apparel) Term B 10/28/06 10,000,000
4,554 Scovill Fasteners Inc. (metal/plastic fasteners) Term 11/26/03 4,553,571
8,439 Targus Group International, Inc. (computer luggage) Term B 01/05/05 8,438,874
1,427 Targus Group International, Inc. Term C 01/05/05 1,427,294
9,875 Tartan Textile Services (commercial linen supply) Term B 05/13/05 9,875,000
--------------
69,565,168
--------------
Utilities: 0.4%
5,000 AES Corporation (power generation, coal fired plants) Term 05/14/02 5,000,000
--------------
5,000,000
--------------
Total Senior Loans -- 138.1% 1,699,180,911
--------------
1,758,251 (Cost $1,706,872,756)
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
OTHER CORPORATE DEBT
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
Automobile: 0.5%
6,000 Capital Tool & Design (brake backing plates) + Sub. Note 07/26/03 $ 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: 0.4%
2,697 AM Cosmetics (cosmetics and skin care products) + Senior Sub 05/30/07 2,696,588
2,875 Paint Sundry Brands, LLC (paint brushes & accessories) + Sub. Credit 08/11/08 2,875,000
-----------
5,571,588
-----------
Total Other Corporate Debt -- 1.7% 21,571,588
-----------
(Cost $21,571,588)
</TABLE>
COMMON STOCK AND PREFERRED STOCK
<TABLE>
<CAPTION>
Shares
- ---------
<S> <C> <C> <C>
Apparel Products: 0.0%
13,294 @ Butterick Company, Inc. (sewing aids) (R) $ 17,653
--------------
Diversified/Conglomerate Services: 0.0%
60,056 @ Staff Leasing, Inc. (temp services) 495,462
--------------
Home and Office Furnishings: 0.1%
80,400 @ American Blind and Wallpaper (furniture and home furnishing) (R) 1,045,200
--------------
Personal and Nondurable Consumer Products: 0.0%
37,197 @ AM Cosmetics (cosmetics and skin care products) (R) 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) 700,183
--------------
Total Common Stock and Preferred Stock -- 0.7% 8,377,738
--------------
(Cost $1,637,196)
</TABLE>
See Accompanying Notes to Financial Statements.
21
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
STOCK PURCHASE WARRANTS AND OTHER SECURITIES
<TABLE>
<CAPTION>
Shares
- --------
<S> <C> <C> <C> <C>
1 @ Autotote Systems, Inc., Warrant representing 48,930 common
shares (designer and manufacturer of wagering equipment),
Expires 10/30/03 (R) $ 47,738
1 @ Autotote Systems, Inc., Option representing 0.248% common
shares issued and outstanding (R) --
80,634 @ Capital Tool & Design, Warrants representing 80,634 common
shares (brake backing plates) (R) 256,658
10,000 @ Casden Properties Operation, 10,000 shares of junior Cumulative
Preferred Partnership Units (Asset Management) (R) 250,000
19,000 @ Covenant Care, Inc., Warrants representing 19,000 common
shares (long-term healthcare facilities) (R) 177,270
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% 731,670
--------------
(Cost $0)
Total Investments (Cost $1,730,081,540) (3) 140.6% $1,729,861,907
Liabilities in Excess of Cash and Other Assets-Net -40.6% (499,794,062)
------- --------------
Net Assets 100.0% $1,230,067,845
==============
</TABLE>
- ----------
+ Non-Collateralized Loan
@ Non-income producing security
(A) Loan is on non-accrual status.
(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 filed for protection under Chapter 11 of the U.S. Federal
bankruptcy code and is in the process of developing a plan of liquidation.
(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) For Federal income tax purposes, which is the same for financial reporting
purposes, cost of investments is $1,730,081,540 and net unrealized
depreciation consists of the following:
Gross Unrealized Appreciation $ 17,279,021
Gross Unrealized Depreciation (17,498,654)
-------------
Net Unrealized Depreciation $ (219,633)
=============
See Accompanying Notes to Financial Statements.
22
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Cash $ 620,962
Investments in securities at value (Cost $1,730,081,540) 1,729,861,907
Receivables:
Interest 16,409,282
Receivable for fund shares sold 190,253
Other 72,185
Prepaid expenses 373,501
Prepaid arrangement fees on notes payable 712,969
---------------
Total assets 1,748,241,059
---------------
LIABILITIES:
Notes payable 510,000,000
Deferred arrangement fees on senior loans 2,477,031
Accrued interest payable 3,167,906
Payable to related parties 1,270,991
Accrued expenses 1,257,286
---------------
Total liabilities 518,173,214
---------------
NET ASSETS (equivalent to $9.04 per share, based on
136,024,604 shares of beneficial interest authorized
and outstanding, no par value) $ 1,230,067,845
===============
Net Assets Consist of:
Paid in capital $ 1,287,943,448
Undistributed net investment income 10,477,910
Accumulated net realized loss on investments (68,133,880)
Net unrealized depreciation of investments (219,633)
---------------
Net assets $ 1,230,067,845
===============
See Accompanying Notes to Financial Statements.
23
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Nine Months Ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 108,403,948
Arrangement fees earned 2,961,964
Dividends 22,500
Other 1,943,540
-------------
Total investment income 113,331,952
-------------
EXPENSES:
Interest 22,278,811
Investment management fees 9,611,701
Administration fees 1,609,417
Revolving credit facility fees 447,897
Transfer agent and registrar fees 357,500
Reports to shareholders 322,061
Miscellaneous expense 270,014
Professional fees 233,309
Recordkeeping and pricing fees 137,500
Custodian fees 90,062
Insurance expense 24,202
Trustees' fees 22,550
-------------
Total expenses 35,405,024
Less: Earnings credits (35,062)
-------------
Net expenses 35,369,962
-------------
Net investment income 77,961,990
-------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized loss on investments (31,717,579)
Net change in unrealized depreciation of investments 5,748,048
-------------
Net loss on investments (25,969,531)
-------------
Net increase in net assets resulting from operations $ 51,992,459
=============
See Accompanying Notes to Financial Statements.
24
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Year
Ended Ended
November 30, 1999, February 28,
(Unaudited) 1999
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 77,961,990 $ 97,381,273
Net realized loss on investments (31,717,579) (6,313,758)
Net (increase) decrease in depreciation
on investments 5,748,048 (7,547,808)
-------------- --------------
Net increase in net assets resulting from operations 51,992,459 83,519,707
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (77,372,011) (99,153,106)
CAPITAL SHARE TRANSACTIONS:
Increase from dividend reinvestment 9,370,046 14,460,902
Sale of shares in connection with shelf offerings 43,512,008 169,335,030
-------------- --------------
Net increase from capital share transactions 52,882,054 183,795,932
-------------- --------------
Total increase in net assets 27,502,502 168,162,533
NET ASSETS:
Beginning of period 1,202,565,343 1,034,402,810
-------------- --------------
End of period (including undistributed net investment
income of $10,477,910 and $9,887,931 respectively) $1,230,067,845 $1,202,565,343
============== ==============
SUMMARY OF CAPITAL SHARE TRANSACTIONS:
Shares issued in payment of distributions from net
investment income 1,031,864 1,537,475
Shares sold in connection with shelf offerings 4,786,589 17,904,188
-------------- --------------
Net increase in shares outstanding 5,818,453 19,441,663
============== ==============
</TABLE>
See Accompanying Notes to Financial Statements.
25
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Nine Months Ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Interest received $ 108,303,021
Dividends received 22,500
Facility fees paid (819,614)
Commitment fees received 105,041
Arrangement fee received 2,241,993
Other income received 1,982,653
Interest paid (21,635,779)
Other operating expenses paid (11,784,523)
Purchases of portfolio securities (950,158,506)
Proceeds from disposition of portfolio securities 921,741,199
--------------
Net cash provided by operating activities 49,997,985
--------------
Cash Flows From Financing Activities:
Dividends paid (68,001,966)
Overdraft financing (887,065)
Proceeds from share offerings 43,512,008
Loan advance (24,000,000)
--------------
Net cash flows used in financing activities (49,377,023)
--------------
Net change in cash 620,962
Cash at beginning of period --
--------------
Cash at end of period $ 620,962
==============
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 $ 51,992,459
--------------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Increase in investments in securities (3,143,841)
Increase in dividends and interest receivable (100,927)
Increase in receivable for fund shares sold (190,253)
Decrease in other assets 28,162
Increase in prepaid arrangement fees on notes payable (371,717)
Decrease in prepaid expenses 443,159
Decrease in deferred arrangement fees on senior loans (603,979)
Increase in accrued interest payable 643,032
Increase in accrued expenses 1,301,890
--------------
Total adjustments (1,994,474)
--------------
Net cash provided by operating activities $ 49,997,985
==============
See Accompanying Notes to Financial Statements.
26
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended Years Ended February 28 or February 29,
November 30, 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 0.59 0.79 0.87 0.82 0.89 0.74 0.60
Net realized and unrealized gain
(loss) on investments (0.20) (0.10) (0.13) (0.02) (0.08) 0.07 (0.05)
---------- ---------- ---------- ---------- -------- --------- --------
Increase in net asset value from
investment operations 0.38 0.69 0.74 0.80 0.81 0.81 0.55
Distributions from net investment
income (0.59) (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 $ 9.04 $ 9.24 $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02
========== ========== ========== ========== ======== ========= ========
Closing market price at end of
period $ 9.375 $ 9.56 $ 10.31 $ 10.00 $ 9.50 $ 8.75 $ 9.25
Total Return
Total investment return at closing
market price(3) 8.12% 1.11% 12.70% 15.04%(5) 19.19% 3.27%(5) 8.06%
Total investment return at net
asset value(4) 5.19% 7.86% 8.01% 8.06%(5) 9.21% 5.24%(5) 6.28%
Ratios/Supplemental Data
Net assets, end of period (000's) $1,230,068 $1,202,565 $1,034,403 $1,031,089 $862,938 $ 867,083 $719,979
Average borrowings (000's) $ 526,353 $ 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 2.72%(1)(8) 2.86%(8) 2.65% 1.92% -- -- --
Net investment income 5.99%(1) 6.00% 6.91% 7.59% -- -- --
Ratios to average net assets:
Expenses (before interest and
other fees related to revolving
credit facility) 1.40%(1)(8) 1.50%(8) 1.39% 1.29% -- -- --
Expenses 3.90%(1)(8) 4.10%(8) 3.54% 2.20% 1.23% 1.30% 1.31%
Net investment income 8.60%(1) 8.60% 9.23% 8.67% 9.23% 7.59% 6.04%
Portfolio turnover rate 53% 68% 90% 82% 88% 108% 87%
Shares outstanding at end of
period (000's) 136,024 130,206 110,764 109,140 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.
27
<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.
28
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Pilgrim Prime Rate Trust (the "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.
29
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30, 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 nine months ended November 30, 1999, the cost of purchases and the
proceeds from principal repayment and sales of investments, excluding short-term
notes, totaled $950,158,506 and $921,741,199, respectively. At November 30,
1999, the Trust held senior loans valued at $1,699,180,911 representing 98.2% of
its total investments. The market value of these securities can generally 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
30
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
designated period of time after issuance of the stock or warrant. These
restricted securities are valued at fair value as determined by the Board of
Trustees by considering quality, dividend rate, and marketability of the
securities compared to similar issues. In order to assist in the determination
of fair value, the Trust will obtain quotes from dealers who periodically trade
in such securities where such quotes are available. Dates of acquisition and
cost or assigned basis of restricted securities are as follows:
<TABLE>
<CAPTION>
Date of Cost or
Acquisition Assigned Basis
----------- --------------
<S> <C> <C>
American Blind and Wallpaper -- Common 01/12/99 --
America's Favorite Chicken Co. -- Common 11/05/92 $ 1
Autotote Systems, Inc. -- Option 02/26/97 --
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 $7,528,146 was 0.61% of net assets at November 30, 1999) $ 1
====
</TABLE>
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 to 0.60% of the average daily net
assets, plus the proceeds of any outstanding borrowings, over $1.15 billion. As
of November 11, 1999, the management reduction fee agreement expired and
currently the Manager is compensated at an annual rate of 0.80% of the Trust's
average daily net assets plus the proceeds of any outstanding borrowings.
The Trust has also entered into an Administration Agreement with Pilgrim
Investments, Inc. 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 $630 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 November 30, 1999, was $510 million, at
a weighted average interest rate of 6.2%, which represented 29.3% of net assets
plus borrowings. Average borrowings for the nine months ended November 30, 1999
were $526,352,727 and the average annualized interest rate was 5.9%.
31
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
As of November 30, 1999, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
Alliance Data Systems $ 1,428,571
AM Cosmetics 149,677
Decisione One Corp. 280,714
Genesis Eldercare Acquisition 91,760
Horseshoe Gaming 3,000,000
Huntsman Corporation 1,558,587
Key Energy Group 3,424,000
Liberman Broadcasting, Inc. 240,400
Mafco Finance Co. $ 1,624,299
Meditrust Corp. 3,852,559
Murray's Discount Auto Stores 2,000,000
Paging Network 2,550,000
Papa Gino's Inc. 47,235
Pathmark Stores Inc. 2,887,130
Schwegmann Giant Super Market 1,488,400
-----------
$24,623,332
===========
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 November 30, 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 3,274,202
During the nine months ended November 30, 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
State Street Bank ("SSB") serves as the Trust's custodian and recordkeeper.
Custody fees paid to SSB are reduced by earnings credits based on the cash
balances held by State Street Bank for the Trust. For the nine months ended
November 30, 1999, the Trust received $35,062 in earnings credits from State
Street Bank.
NOTE 7 -- AFFILIATED TRANSACTIONS
During the nine months ended November 30, 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 $59,109,753 and $59,079,188, respectively, excluding any benefit
to the Trust from the recognition of deferred arrangement fees.
32
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of November 30, 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 November 30, 1999, the Trust held 2.2% of its total assets in
subordinated and uncollateralized loans.
NOTE 9 -- SUBSEQUENT EVENTS
Subsequent to November 30, 1999, the Trust paid the following dividends from net
investment income:
Per Share Amount Declaration Date Record Date Payable Date
---------------- ---------------- ----------- ------------
$0.063 11/30/99 12/10/99 12/22/99
$0.067 12/20/99 12/30/99 01/13/2000
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.
33
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING
- --------------------------------------------------------------------------------
A special meeting of shareholders of Pilgrim Prime Rate Trust was held on
October 26, 1999 at the offices of the Trust's Advisor. A brief description of
each matter vosted upon as well as the results are outlined below:
1. Election of Trustees to serve until the election and qualification of their
successors
Shares voted
Shares against Shares Broker
Name voted for or withheld abstained non-vote Total
- ---- --------- ----------- --------- -------- -----
Mary A. Baldwin 101,782,368 1,407,388 -- -- 103,189,556
Al Burton 101,749,793 1,439,783 -- -- 103,189,556
Paul S. Doherty 101,775,317 1,414,239 -- -- 103,189,556
Robert B. Goode, Jr. 101,773,015 1,416,541 -- -- 103,189,556
Alan L. Gosule 101,797,466 1,392,090 -- -- 103,189,556
Mark Lipson 101,796,533 1,393,023 -- -- 103,189,556
Walter H. May 101,797,676 1,397,880 -- -- 103,189,556
Jock Patton 101,796,056 1,393,500 -- -- 103,189,556
David W.C. Putnam 101,783,951 1,405,605 -- -- 103,189,556
John R. Smith 101,760,782 1,428,774 -- -- 103,189,556
Robert. W. Stallings 101,795,243 1,394,313 -- -- 103,189,556
John G. Turner 101,779,079 1,390,477 -- -- 103,189,556
David W. Wallace 101,773,460 1,416,096 -- -- 103,189,556
2. To approve a new investment advisory agreement between the Trust and
Pilgrim Investments, Inc.
99,255,583 1,563,766 2,370,207 -- 103,189,556
3. To transact such other business as may properly come before the meeting of
shareholders or any adjournments thereof
99,580,861 1,253,355 2,355,340 -- 103,189,556
34
<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
ADMINISTRATOR 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 State Street Bank
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.
35
<PAGE>
PILGRIM(SM)
---------------------------
FUNDS FOR SERIOUS INVESTORS
U.S. EQUITY FUNDS
Pilgrim MagnaCap
Pilgrim LargeCap Leaders
Pilgrim Research Enhanced Index
Pilgrim Growth Opportunities
Pilgrim Growth Fund
Pilgrim LargeCap Growth
Pilgrim MidCap Value
Pilgrim MidCap Opportunities
Pilgrim MidCap Growth
Pilgrim Growth + Value
Pilgrim SmallCap Opportunities
Pilgrim SmallCap Growth
Pilgrim Bank and Thrift
INTERNATIONAL EQUITY FUNDS
Pilgrim Worldwide Growth
Pilgrim International Value
Pilgrim International Core Growth
Pilgrim International SmallCap Growth
Pilgrim Emerging Markets Value
Pilgrim Emerging Countries
Pilgrim Asia-Pacific Equity
INCOME FUNDS
Pilgrim Government Securities Income
Pilgrim Government Securities
Pilgrim Strategic Income
Pilgrim High Yield
Pilgrim High Yield II
Pilgrim High Yield III
Pilgrim High Total Return
Pilgrim High Total Return II
Pilgrim Money Market
EQUITY & INCOME FUNDS
Pilgrim Balanced
Pilgrim Income & Growth
Pilgrim Balance Sheet Oppportunities
Pilgrim Convertible
- --------------------------------------------------------------------------------
Q3 Prospectuses containing more infomration regarding the funds, including
charge and expenses, may be obtained by calling Pilgrim Securities, Inc.,
Distributor at 1-800-334-3444. Please read the prospectus carefully beofre
you invest or send money.
PRT3Q1199-012800
