Securities Act File No. 333-61831
Securities Act File No. 333-68239
PILGRIM PRIME RATE TRUST
Supplement dated September 29, 2000
to the Prime Rate Trust Prospectus and
Statement of Additional Information dated June 30, 2000
The section of both the Prospectus and Statement of Additional Information
captioned "Net Asset Value" is replaced with the following:
NET ASSET VALUE
The NAV per share of the Trust is determined once daily at 4:00 p.m. on
each day the NYSE is open. NAV per share is determined by dividing the value of
the Trust's portfolio securities plus all cash and other assets (including
dividends accrued but not collected) less all liabilities (including accrued
expenses but excluding capital and surplus) by the number of shares outstanding.
In accordance with generally accepted accounting principles for investment
companies, dividend income is accrued on the ex-dividend date. The NAV per share
is made available for publication.
The Senior Loans in which the Trust invests are not listed on any
securities exchange or board of trade. Some Senior Loans are traded by
institutional investors in an over-the-counter secondary market that has
developed in the past several years. This secondary market generally has fewer
trades and less liquidity than the secondary markets for other types of
securities. Some Senior Loans have few or no trades. Accordingly, determinations
of the market value of Senior Loans may be based on infrequent and dated trades.
Because there is less reliable, objective data available, elements of judgment
may play a greater role in the valuation of Senior Loans than in the valuation
of other types of securities. For further information, see the discussion
"Limited Secondary Market for Senior Loans."
Senior Loans are normally valued on the basis of one or more quotations
obtained from a pricing service or other sources believed to be reliable. Senior
Loans for which reliable quotations are not available, which may include those
deemed unreliable under criteria established by the Trust's Board of Trustees,
may be valued with reference to another Senior Loan or a group of Senior Loans
for which quotations are more readily available and whose characteristics are
comparable to the Senior Loan being valued. Under this approach, the comparable
Senior Loan or Loans serve as a "proxy" for changes in value. The Trust has
engaged an independent pricing service to provide quotations from dealers in
Senior Loans and to calculate values under the "proxy" procedure described
above. Senior Loans are valued at the mean between bid and asked quotations.
The Investment Manager may believe that the price for a Senior Loan derived
from market quotations or the "proxy" procedure described above is not reliable
or accurate. Among other reasons, this may be the result of information about a
particular Senior Loan or borrower known to the Investment Manager that the
Investment Manager believes may not be known to the pricing service. In this
event, the Senior Loan is valued at fair value as determined in good faith under
procedures established by the Trust's Board of Trustees. Fair value is
determined by Pilgrim Investments and ratified and monitored by the Trust's
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Board of Trustees through its Valuation Committee. In determining the fair value
of a Senior Loan, consideration is given to several factors, which may include,
among others, the following: (i) the characteristics of and fundamental
analytical data relating to the Senior Loan, including the cost, size, current
interest rate, period until the next interest rate reset, maturity and base
lending rate of the Senior Loan, the terms and conditions of the Senior Loan and
any related agreements, and the position of the Senior Loan in the borrower's
debt structure; (ii) the nature, adequacy and value of the collateral, including
the Trust's rights, remedies and interests with respect to the collateral; (iii)
the creditworthiness of the borrower and the cash flow coverage of outstanding
principal and interest, based on an evaluation of its financial condition,
financial statements and information about the borrower's business, cash flows,
capital structure and future prospects; (iv) information relating to the market
for the Senior Loan, including price quotations for and trading in the Senior
Loan and interests in similar Senior Loans and the market environment and
investor attitudes towards the Senior Loan and interests in similar Senior
Loans; (v) the reputation and financial condition of the agent of the Senior
Loan and any intermediate participants in the Senior Loans; (vi) the borrower's
management; and (vii) the general economic and market conditions affecting the
fair value of the Senior Loan.
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.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
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