PILGRIM(R)
---------------------------
FUNDS FOR SERIOUS INVESTORS
PRIME RATE TRUST
Semi-Annual Report
------------------------------------------------------------------------------Q2
August 31, 2000
Semi-Annual Report
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Pilgrim Prime Rate Trust
SEMI-ANNUAL REPORT
August 31, 2000
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Table of Contents
Chairman's Message ............................ 2
Letter to Shareholders ........................ 3
Statistics and Performance .................... 7
Performance Footnotes ......................... 9
Additional Notes and Information .............. 10
Portfolio of Investments ...................... 11
Statement of Assets and Liabilities ........... 26
Statement of Operations ....................... 27
Statements of Changes in Net Assets ........... 28
Statement of Cash Flows ....................... 29
Financial Highlights .......................... 30
Notes to Financial Statements ................. 32
Fund Advisors and Agents ...................... 38
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CHAIRMAN'S MESSAGE
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Dear Shareholder:
We are pleased to present the Semi-Annual Report for Fiscal 2001 for Pilgrim
Prime Rate Trust (the "Trust").
On the following pages, the Portfolio Managers will discuss the Trust's
milestones and performance, as well as recent market developments. A leader in
its class, the Trust has continued to increase shareholder value through strong
management and innovative approaches.
We believe you will find the six months results a reflection of the ING Pilgrim
Investments, Inc. philosophy to provide core holdings which seek to meet the
three key needs of the serious investor:
1. Preservation of capital
2. Participation in rising markets
3. Outperformance in falling markets
Thank you for selecting Pilgrim Prime Rate Trust. We appreciate the confidence
you have placed in us in serving your investment needs.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
ING Pilgrim Group, Inc.
October 20, 2000
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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 second
quarter ended, August 31, 2000, the Trust paid its 148th consecutive dividend.
Based on the $0.218 of dividends declared during the quarter, and the average
month-end net asset value ("NAV") per share of $8.78, the annualized
distribution rate was 9.85%.(1)
THE TRUST
The Trust invests in a diversified portfolio of leveraged senior loans made to
U. S. and Canadian corporations. All of the investments are denominated in U. S.
dollars. The Trust buys these loans from large corporate banks and other
sophisticated financial institutions. The typical investment matures between
seven and ten years but is generally repaid within three to five years. Interest
rates on the loans are typically based on LIBOR and reset every thirty to ninety
days. Consequently, the Trust's investments normally exhibit lower price
volatility than fixed rate corporate bonds, whose prices fluctuate in response
to changes in interest rates. Other factors which reduce the risk of the senior
loan asset class May include: (i) priority status among all lenders; (ii)
collateral coverage; and (iii) covenants granted by borrowers to adhere to
certain operating and financial standards. Additionally, the Trust maintains a
highly diversified portfolio, which seeks to limit the adverse effect of loan
defaults on performance.
THE LOAN MARKET
During the second quarter of this year, loan market participants anxiously
awaited a return to normalcy in terms of both consistency of new deal flow and
price volatility. Unfortunately, neither materialized. Despite a relatively
strong June, new issuance volume slipped during the quarter to approximately $43
billion, off some 39% as compared to the same period in 1999.(+) Virtual
gridlock in the high yield bond market during the quarter was the primary
catalyst of the slowdown, as the inability to raise sufficient amounts of junior
capital generally precluded the launch of larger transactions. Even the
Telecommunications sector, unquestionably the most prolific over the course of
the last year in terms of new volume, showed signs of weakness as investors grew
justifiably cautious in the face of the decline in the NASDAQ. In a marked
reversal from earlier quarters, Telecommunications accounted for only 13% of new
volume, outpaced by services (22%) and general industrial (21%).(+)
While the pace of new issuance moderated during the quarter, the level of
defaults did not. The number of defaulting transactions increased by one as
compared to the first quarter 2000, while the dollar amount was down slightly.
There are however, some positive trends emerging: the one-year default
experience of institutional loans originated during the twelve month period
ended June 30, 2000 fell to 3.5%, as compared to 5.3% for those originated
during the twelve month period ending March 31, 2000.(+) Nonetheless, we remain
cautious as several key factors point to the potential for defaults to remain
relatively high throughout the balance of the year. Among these factors are:
higher borrowing rates, coupled with the prospect of slowing economic growth;
prevailing and developing industry sector pressures (e.g., theater exhibitors
and auto parts suppliers, respectively); and the increasingly low level of
credit tolerance by commercial banks. An important indicator, The Federal
Reserve's May 2000 survey of senior bank loan officers indicated that nearly 25%
of lenders were tightening their credit standards on large commercial &
industrial loans, while virtually none were easing.
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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On the plus side, the continual focus on credit and structure has provided two
noticeable benefits: (1) credit standards have undoubtedly gotten more
conservative, and (2) interest spreads for all but the most creditworthy of
borrowers remain wide relative to the historical norm. The average leverage
multiple (debt/EBITDA) -- excluding media and Telecommunications issuers -- fell
to 4.0x during the second quarter from 4.1x in first quarter 2000 (and as high
as 5.7x in 1997). Although BB rated issuers that tapped the market during the
quarter saw generally good demand and pricing relief, spreads for single B rated
issuers remained relatively flat as compared to first quarter 2000.
As noted in prior reports, the Trust uses market quotes to value its investments
when the Trust believes that reliable market quotes are available and reflect
current value. Under the Trust's valuation procedures, investments that cannot
be valued based on market quotes will continue to be valued at their current
value, which is ascertained through a fundamental analysis. The amount of the
Trust's investments that are valued on the basis of market quotes has steadily
increased through this year. As of this writing, approximately 80% of the
portfolio was valued using daily market quotes.
PERFORMANCE OF THE TRUST
For the quarter ended August 31, 2000, the Trust:
Reported attractive distribution rates. The annualized distribution rate, based
on the August 2000 dividend and month-end NAV, was 9.88%, versus 9.96% at May
31st.
The Trust's annualized market yield based on the August 2000 dividend was 9.82%,
which continues to represent an attractive yield advantage over many other
variable and fixed income investment products.
Paid a relatively high level of current income. Based on the $0.218 of dividends
declared for the quarter, the annualized quarterly distribution rate based on
average NAV exceeded average 60 day LIBOR for the quarter by 3.19%. This yield
also exceeded the average Prime Rate for the quarter by approximately 0.35%.
Maintained a high level of diversification. At the end of the quarter, the Trust
managed senior loans from 179 separate borrowers, with an average investment
size of $9.02 million. These loans were diversified across 33 industry sectors,
the largest of which was Cellular (wireless providers), which represented
approximately 8.8% of total assets. The single largest issuer exposure within
this sector (Voicestream Wireless) was roughly 4.9% of total assets.
Utilized leverage to improve performance. As of August 31st, the Trust had $493
million outstanding on its leveraging facilities, representing 29.2% of total
assets. The average cost of leverage during the quarter was 7.11%, versus the
weighted average spread of portfolio investments for the quarter of 10.22%.
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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We encourage your questions and comments.
/s/ James R. Reis
James R. Reis
Executive Vice President
Director of Senior Lending
/s/ Jeffrey A. Bakalar
Jeffrey A. Bakalar
Senior Vice President
Co-Senior Portfolio Manager
/s/ Daniel A. Norman
Daniel A. Norman
Senior Vice President
Co-Senior Portfolio Manager
Pilgrim Prime Rate Trust
October 25, 2000
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Pilgrim Prime Rate Trust
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SHAREHOLDER LETTER FOOTNOTES
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(1) The distribution rate is calculated by annualizing dividends declared
during the quarter (i.e. divided by days in the related quarter times days
in the fiscal year) and then dividing the resulting annualized dividend by
the average month-end net asset value ("NAV"). The distribution rates are
based solely on the actual dividends and distributions, which are made at
the discretion of management. The distribution rates may or may not include
all investment income and ordinarily will not include capital gains or
losses, if any.
(+) Source: Standard & Poor's and Portfolio Management Data.
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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STATISTICS AND PERFORMANCE as of August 31, 2000
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PORTFOLIO CHARACTERISTICS
Net Assets $1,187,650,175
Assets Invested in Senior Loans* $1,614,012,984
Total Number of Senior Loans 179
Average Amount Outstanding per Loan $ 9,016,832
Total Number of Industries 33
Average Loan Amount per Industry $ 48,909,484
Portfolio Turnover Rate (YTD) 28%
Weighted Average Days to Interest Rate Reset 31 days
Average Loan Maturity 60 months
Average Age of Loans Held in Portfolio 11 months
* Includes loans and other debt received through restructures
TOP TEN SENIOR LOANS INDUSTRIES AS A % OF
NET ASSETS TOTAL ASSETS
---------- ------------
Cellular 12.6% 8.8%
Healthcare, Education & Childcare 10.0% 7.1%
Containers, Packaging and Glass 9.4% 6.6%
Buildings and Real Estate 7.2% 5.0%
Hotels, Motels, Inns and Gaming 7.1% 5.0%
Ecological 6.9% 4.9%
Leisure, Amusement, Motion Pictures and
Entertainment 6.9% 4.8%
Finance 6.0% 4.3%
Aerospace and Defense 5.4% 3.8%
Electronics 5.1% 3.6%
TOP 10 SENIOR LOANS AS A % OF
NET ASSETS TOTAL ASSETS
---------- ------------
Voicestream Wireless 6.9% 4.9%
Allied Waste Industries 5.8% 4.1%
Stone Container Corp. 2.7% 1.9%
Nextel Finance Corp. 2.4% 1.7%
Riverwood International 2.3% 1.7%
Ventas Realty Partnership, Inc. 2.1% 1.5%
Wyndham International 1.9% 1.4%
Charter Communications 1.9% 1.4%
Pathmark Stores, Inc. 1.7% 1.2%
Safelite Glass Corp. 1.7% 1.2%
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Pilgrim Prime Rate Trust
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STATISTICS AND PERFORMANCE as of August 31, 2000
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YIELDS AND DISTRIBUTION RATES
<TABLE>
<CAPTION>
Average Average
(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
------------- ---- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
August 31, 2000 9.50% 10.00% 9.94% 9.85% 9.79%
May 31, 2000 9.50% 7.28% 7.44% 9.94% 10.56%
February 29, 2000 8.75% 8.90% 9.67% 9.13% 9.84%
November 30, 1999 8.50% 8.11% 7.87% 8.68% 8.35%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
--- ---
1 Year 5.08% 2.01%
3 Years 6.62% 4.22%
5 Years 7.20% 8.43%
10 Years 7.54% N/A
Since Trust Inception F,H 8.03% N/A
Since Initial Trading on NYSE G N/A 8.07%
Assumes rights were exercised and excludes sales charges and commissions C,D,E
Performance data represents past performance and is no guarantee of future
results.
See performance footnotes on page 9
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Pilgrim Prime Rate Trust
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PERFORMANCE FOOTNOTES
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(A) Yield is calculated by dividing the Trust's net investment income per share
for the most recent thirty days by the net asset value (in the case of NAV)
or the NYSE Composite closing price (in the case of market) at quarter-end.
Yield calculations do not include any commissions or sales charges, and are
compounded for six months and annualized for a twelve month period to
derive the Trust's yield consistent with the SEC standardized yield formula
for open-end investment companies.
(B) The distribution rate is calculated by annualizing dividends declared
during the quarter (i.e. divided by days in the related quarter times days
in the fiscal year) and then dividing the resulting annualized dividend by
the average month-end net asset value (in the case of NAV) or the average
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.
(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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PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
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Senior Loans*
(Dollar weighted portfolio interest reset period is 31 days)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
AEROSPACE AND DEFENSE: 5.4%
Avborne
$14,700,000 Term Loan, maturing June 30, 2003 $14,479,500
Erickson Air-Crane Company
8,679,628 Term Loan, maturing December 31, 2004 8,679,628
New Piper Aircraft
8,683,573 Term Loan, maturing April 15, 2005 8,575,028
Piedmont Aviation Services
6,329,849 Term Loan, maturing July 23, 2006 6,266,551
6,329,849 Term Loan, maturing July 23, 2007 6,266,551
Stellex
2,477,273 Term Loan, maturing September 30, 2006 2,018,977
Titan Corporation
3,500,000 Term Loan, maturing February 23, 2007 3,513,125
Transtar
14,919,643 Term Loan, maturing January 20, 2006 14,528,002
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64,327,362
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AUTOMOBILE: 4.6%
Autosystems Mfg. Inc.(4)
4,962,500 Term Loan, maturing May 31, 2004(3) 3,473,750
4,962,500 Term Loan, maturing May 31, 2005(3) 3,473,750
Breed Technologies(2)
2,865,207 Term Loan, maturing December 31, 2000 1,694,054
3,973,549 Revolver, maturing April 18, 2004(3) 2,349,361
2,974,922 Term Loan, maturing April 18, 2004(3) 1,758,923
Capital Tool & Design Ltd.
9,290,638 Term Loan, maturing July 26, 2003 9,290,638
Global Metal Technologies
8,767,420 Term Loan, maturing March 12, 2005 8,767,420
Safelite Glass Corp.(2)
13,435,082 Term Loan, maturing December 23, 2005(3) 10,076,311
13,435,082 Term Loan, maturing December 23, 2004(3) 10,076,311
Venture Holdings
3,300,001 Term Loan, maturing April 5, 2005 3,239,502
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54,200,020
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See Accompanying Notes to Financial Statements
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PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
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PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
BEVERAGE, FOOD AND TOBACCO: 4.0%
Aurora Foods
$ 5,246,761 Term Loan, maturing June 30, 2005 $ 4,923,209
2,981,250 Term Loan, maturing September 30, 2006 2,823,244
Edwards Baking Co.
2,833,333 Term Loan, maturing September 30, 2003 2,833,333
3,291,666 Term Loan, maturing September 30, 2005 3,291,666
3,291,666 Term Loan, maturing September 30, 2005 3,291,666
Empire Kosher Poultry
13,632,500 Term Loan, maturing December 31, 2004 13,632,500
Imperial Sugar Company
5,463,176 Term Loan, maturing December 31, 2003 5,463,176
5,223,311 Term Loan, maturing December 31, 2005 5,223,311
Nutrasweet Acquisition Corp.
1,500,000 Term Loan, maturing May 31, 2007 1,500,938
Pabst Brewing Company
5,000,000 Term Loan, maturing April 30, 2003 4,950,000
$47,933,043
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BUILDING AND REAL ESTATE: 7.2%
HQ Global Workplaces
7,458,275 Term Loan, maturing September 4, 2009 7,448,953
Kevco, Inc.
7,681,110 Term Loan, maturing February 2, 2005 7,681,110
Meditrust Corp.
7,055,652 Revolver, maturing July 15, 2001 6,355,964
6,500,000 Term Loan, maturing July 15, 2001 5,980,000
Prison Realty
4,950,000 Term Loan, maturing December 31, 2002 4,915,969
Tree Island Industries
11,148,753 Term Loan, maturing March 31, 2003 11,148,753
US Aggregates
6,187,143 Term Loan, maturing March 31, 2006 6,179,409
Ventas Realty Limited Partnership
1,043,142 Term Loan, maturing December 31, 2002 1,043,142
521,571 Term Loan, maturing December 31, 2005 521,571
23,620,873 Term Loan, maturing December 31, 2007 23,620,873
Washington Group
10,000,000 Term Loan, maturing July 7, 2007 9,996,880
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84,892,624
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See Accompanying Notes to Financial Statements
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PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
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PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
CARGO TRANSPORT: 2.8%
American Commercial Lines
$ 1,708,773 Term Loan, maturing June 30, 2006 $ 1,662,850
2,450,994 Term Loan, maturing June 30, 2007 2,385,123
Evergreen International Aviation, Inc.
2,460,144 Term Loan, maturing May 31, 2002 2,401,715
894,457 Term Loan, maturing May 31, 2002 873,214
379,062 Term Loan, maturing May 7, 2003 370,058
Gemini Air Cargo, Inc.
7,063,393 Term Loan, maturing August 12, 2005 7,052,360
Neoplan USA Corporation
9,794,276 Term Loan, maturing May 29, 2005 9,794,296
Omnitrax Inc.
8,909,091 Term Loan, maturing May 12, 2005 8,886,818
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33,426,436
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CELLULAR: 12.6%
American Cellular Corp.
4,433,333 Term Loan, maturing March 31, 2008 4,432,101
5,066,667 Term Loan, maturing March 31, 2009 5,065,258
Independent Wireless One
10,000,000 Term Loan, maturing June 20, 2008 10,000,000
Nextel Communications, Inc.
8,854,550 Lease, maturing March 15, 2006 8,832,414
Nextel Finance
28,500,000 Term Loan, maturing March 15, 2009 28,383,407
Rural Cellular Corp.
3,750,000 Term Loan, maturing October 3, 2008 3,748,830
3,750,000 Term Loan, maturing April 3, 2009 3,748,830
Voicestream Wireless
40,000,000 Term Loan, maturing February 25, 2008 39,688,880
20,000,000 Term Loan, maturing February 25, 2008 19,844,440
22,500,000 Term Loan, maturing February 25, 2009 22,425,008
Western Wireless
3,000,000 Term Loan, maturing September 30, 2008 3,013,125
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149,182,293
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See Accompanying Notes to Financial Statements
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PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
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PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
CHEMICALS, PLASTICS AND RUBBER: 4.0%
Acadia Elastomers Corp
$ 9,671,533 Term Loan, maturing February 17, 2004 $ 9,478,102
Cedar Chemical Corp
11,056,957 Term Loan, maturing October 30, 2003 9,951,261
Euro United Corp.(4)
14,887,500 Term Loan, maturing May 31, 2001(3) 7,443,750
Foam Fabrics Inc.
5,639,180 Term Loan, maturing March 5, 2005 5,639,180
Foamex L.P.
3,314,354 Term Loan, maturing June 30, 2005 3,268,781
3,013,059 Term Loan, maturing June 30, 2006 2,971,630
Huntsman Corporation
1,120,688 Term Loan, maturing December 31, 2002 1,087,068
260,155 Term Loan, maturing December 31, 2002 254,952
7,000,000 Term Loan, maturing December 31, 2005 6,956,250
Lyondell Chemical Company
828,339 Term Loan, maturing June 30, 2005 838,855
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47,889,829
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CONTAINERS, PACKAGING AND GLASS: 9.4%
Blue Ridge Paper Products
8,909,565 Term Loan, maturing May 14, 2006 8,909,565
Crown Paper Co.(2)
2,875,000 Debtor In Possession, maturing
September 14, 2001 2,760,000
8,170,661 Term Loan, maturing August 22, 2003 7,833,621
Eastern Pulp & Paper
16,200,979 Term Loan, maturing August 31, 2004 16,200,979
352,697 Term Loan, maturing December 31, 2000 352,697
Huntsman Packaging Corp.
3,000,000 Term Loan, maturing May 15, 2008 2,947,032
Impaxx Inc.
4,900,000 Term Loan, maturing December 31, 2005 4,900,000
Nexpak Corp.
2,474,941 Term Loan, maturing December 31, 2005 2,474,941
2,474,941 Term Loan, maturing December 31, 2006 2,474,941
Riverwood International
22,812,289 Term Loan, maturing February 28, 2003 22,741,000
4,175,961 Term Loan, maturing February 28, 2004 4,190,752
1,495,216 Term Loan, maturing August 31, 2004 1,500,512
Stone Container Corp.
14,324,870 Term Loan, maturing December 31, 2006 14,364,034
17,083,889 Term Loan, maturing December 31, 2006 17,093,046
Tekni-Plex Inc.
3,000,000 Term Loan, maturing June 21, 2006 3,013,125
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111,756,245
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See Accompanying Notes to Financial Statements
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PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
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PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
DATA AND INTERNET SERVICES: 4.2%
McLeod USA Corp
$ 6,500,000 Term Loan, maturing May 31, 2008 $ 6,513,709
Paging Network
14,929,000 Revolver, maturing December 31, 2004 12,380,411
Teletouch Communications
9,958,333 Term Loan, maturing November 30, 2004 9,958,333
Teligent, Inc.
10,000,000 Term Loan, maturing July 1, 2002 9,483,330
TSR Wireless
11,970,000 Term Loan, maturing June 30, 2005 11,072,250
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49,408,033
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DIVERSIFIED/CONGLOMERATE MANUFACTURING: 2.2%
Allied Digital Technologies Corp.
9,900,000 Term Loan, Maturing December 31, 2005 4,950,000
Barjan Products
4,950,000 Term Loan, maturing May 31, 2006 4,950,000
General Cable Corporation
5,426,664 Term Loan, maturing May 24, 2007 5,400,378
Holmes Products Corp.
3,960,000 Term Loan, maturing February 15, 2007 3,905,550
United Pet Group
6,930,000 Term Loan, maturing March 31, 2006 6,930,000
-----------
26,135,928
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DIVERSIFIED/CONGLOMERATE SERVICE: 2.7%
Enterprise Profit Solutions Corp.
2,147,923 Term Loan, maturing June 14, 2001 2,147,923
Mafco Finance Corp.
10,000,000 Term Loan, maturing August 29, 2001 9,956,250
Outsourcing Solutions, Inc.
12,418,719 Term Loan, maturing June 1, 2006 12,385,089
Private Business
5,124,549 Term Loan, maturing August 19, 2006 5,073,277
URS Corporation
1,237,500 Term Loan, maturing June 9, 2006 1,240,594
1,237,500 Term Loan, maturing June 9, 2007 1,240,594
-----------
32,043,727
-----------
ECOLOGICAL: 6.9%
Allied Waste NA
5,000,000 Term Loan, maturing July 12, 2005 4,731,730
30,454,545 Term Loan, maturing July 12, 2006 29,237,490
36,545,455 Term Loan, maturing July 12, 2007 35,087,656
Clean Harbors
4,500,000 Term Loan, maturing May 5, 2001 4,500,000
Rumpke
8,787,500 Term Loan, maturing September 26, 2002 8,787,500
-----------
82,344,376
-----------
See Accompanying Notes to Financial Statements
15
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Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
ELECTRONICS: 5.1%
Decision One Corp.
$ 3,465,094 Term Loan, maturing April 18, 2005 $ 3,031,958
2,188,647 Term Loan, maturing April 18, 2005 2,188,647
Dynamic Details, Inc.
5,658,718 Term Loan, maturing April 22, 2005 5,602,131
Dynatech Corporation
11,454,902 Term Loan, maturing September 30, 2007 11,456,334
Electro Mechanical Solutions
4,187,696 Term Loan, maturing June 30, 2004 3,978,311
Frontway Network Solutions, Inc.
1,505,505 Term Loan, maturing November 20, 2002 1,505,505
Intri-Plex Technologies, Inc.
5,347,826 Term Loan, maturing September 30, 2002 4,278,261
Knowles Electronics
7,000,000 Term Loan, maturing June 29, 2007 6,658,750
Mitel Corporation
8,999,972 Term Loan, maturing June 2, 2004 8,924,039
Sarcom Inc.
7,488,141 Term Loan, maturing November 20, 2002 7,488,141
Semiconductor Components, LLC
2,510,089 Term Loan, maturing August 4, 2006 2,530,744
2,703,340 Term Loan, maturing August 4, 2007 2,725,585
-----------
60,368,406
-----------
FINANCE: 6.0%
Alliance Data systems
982,143 Revolver, maturing March 4, 2006 933,036
781,250 Term Loan, maturing March 4, 2006 761,719
14,400,000 Term Loan, maturing October 31, 2005 14,148,000
1,659,107 Term Loan, March 4, 2006 1,617,629
Anthony Crane
14,850,000 Term Loan, maturing July 20, 2006 13,723,880
Bridge Information Systems
1,625,728 Lease, maturing April 1, 2001 1,625,728
3,167,369 Lease, maturing April 1, 2001 3,167,369
5,843,952 Term Loan, maturing May 29, 2005 5,843,952
National Partnership Investments Corp.
5,764,549 Term Loan, maturing June 30, 2001 5,764,549
Rent-A-Center, Inc.
5,215,229 Term Loan, maturing January 31, 2006 5,180,459
6,729,221 Term Loan, maturing January 31, 2007 6,684,357
4,000,000 Term Loan, maturing December 31, 2007 3,990,000
United Rentals, Inc.
5,000,000 Term Loan, maturing June 30, 2006 4,936,980
Value Asset Management, Inc.
3,333,333 Term Loan, maturing August 31, 2005 3,333,333
-----------
71,710,991
-----------
See Accompanying Notes to Financial Statements
16
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Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
GROCERY: 2.1%
Grand Union Capital Corporation
$ 4,976,273 Term Loan, maturing August 17, 2003 $ 3,732,204
Pathmark Stores, Inc.(2)
2,776,860 Revolver, maturing June 15, 2001 2,760,662
3,639,850 Term Loan, maturing June 15, 2001 3,618,619
13,953,070 Term Loan, maturing December 15, 2001 13,897,844
Schwegman Giant Super Markets(1)
506,114 Term Loan, maturing July 30, 2002(3) 303,668
-----------
24,312,997
-----------
HEALTHCARE, EDUCATION AND CHILDCARE: 10.0%
Caremark, RX
466,309 Term Loan, maturing June 9, 2001 443,285
394,829 Term Loan, maturing June 9, 2001 375,828
Children's Discovery Centers
9,164,063 Term Loan, maturing August 10, 2004 8,934,961
Community Health Systems
6,193,680 Term Loan, maturing December 31, 2003 6,132,388
6,193,680 Term Loan, maturing December 31, 2004 6,136,259
1,387,907 Term Loan, maturing December 31, 2005 1,375,330
Concentra Operating Corp.
3,300,000 Term Loan, maturing June 30, 2006 3,069,000
1,650,000 Term Loan, maturing June 30, 2007 1,534,500
Covenant Care California
6,000,000 Term Loan, maturing April 30, 2001 6,000,000
Dada Behring
3,205,063 Term Loan, maturing June 30, 2006 2,948,658
3,205,063 Term Loan, maturing June 30, 2007 2,948,658
Doshi Diagnostics
4,887,500 Term Loan, maturing May 15, 2005 4,887,500
Fountain View
13,676,471 Term Loan, maturing March 31, 2004 13,676,471
Genesis Health Ventures, Inc.(2)
2,766,313 Term Loan, maturing September 30, 2003 2,351,366
Healthcare Direct
3,243,300 Term Loan, maturing August 1, 2004 3,243,300
4,018,000 Term Loan, maturing August 1, 2006 4,018,000
Magellan Health Services
1,277,088 Term Loan, maturing February 28, 2005 1,117,452
1,277,088 Term Loan, maturing February 28, 2006 1,117,452
Mellon Financial Services Corp IV(2)
4,400,754 Lease, maturing September 30, 2004 3,740,641
Paragon Health Network, Inc.(2)
14,654,474 Term Loan, maturing April 30, 2005(3) 8,792,684
8,767,570 Term Loan, maturing March 31, 2006(3) 5,260,542
See Accompanying Notes to Financial Statements
17
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Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
HEALTHCARE, EDUCATION AND CHILDCARE (CONTINUED)
The Brown Schools (Healthcare America)
$10,156,250 Term Loan, maturing June 30, 2004 $ 10,156,250
4,062,500 Term Loan, maturing June 30, 2005 4,062,500
The Multicare Companies, Inc.(2)
3,312,183 Term Loan, maturing September 30, 2003(3) 2,815,356
Vencor Inc.(2)
13,134,063 Term Loan, maturing May 5, 2005(3) 11,163,954
Vision Twenty-One
2,898,018 Term Loan, maturing June 30, 2005 2,898,018
------------
119,200,353
------------
HOME AND OFFICE FURNISHINGS, HOUSEWARES, AND DURABLE CONSUMER PRODUCTS: 2.8%
American Blind & Wallpaper
722,983 Term Loan, maturing December 29, 2005 722,983
Buhrmann NV
5,839,370 Term Loan, maturing December 26, 2007 5,858,138
Desa
8,315,000 Term Loan, maturing November 26, 2004 8,086,338
Identity Group, Inc.
4,950,000 Term Loan, maturing May 7, 2007 4,950,000
Imperial Home Decor Group(2)
2,490,579 Revolver, maturing March 13, 2005(3) 871,703
5,969,469 Term Loan, maturing March 13, 2005(3) 2,089,314
1,492,367 Term Loan, maturing March 13, 2006(3) 522,329
Juno Lighting
5,283,840 Term Loan, maturing November 30, 2006 5,272,284
U.S. Office Products
7,995,545 Term Loan, maturing June 9, 2006 5,045,189
------------
33,418,278
------------
HOTELS, MOTELS, INNS AND GAMING: 7.1%
Aladdin Gaming LLC
3,000,000 Term Loan, maturing August 26, 2006 2,873,751
4,500,000 Term Loan, maturing August 26, 2008 4,310,627
Extended Stay America, Inc.
9,950,000 Term Loan, maturing December 31, 2003 9,894,031
5,500,000 Term Loan, maturing June 30, 2007 5,522,347
Felcor Lodging Trust
2,992,000 Term Loan, maturing March 31, 2004 2,985,457
Horseshoe Gaming Holding Corporation
2,976,000 Term Loan, maturing September 30, 2006 2,985,300
Meristar Hospitality Corp.
11,491,000 Term Loan, maturing July 31, 2003 11,440,727
Starwood Hotels & Resorts
11,500,000 Term Loan, maturing February 23, 2003 11,528,750
Strategic Hotel Capital, Inc.
9,925,000 Term Loan, maturing November 9, 2004 9,966,357
See Accompanying Notes to Financial Statements
18
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
HOTELS, MOTELS, INNS AND GAMING (CONTINUED)
Wyndham International
$ 5,000,000 IRL, maturing June 30, 2004 $ 4,990,625
18,500,000 Term Loan, maturing June 30, 2006 18,210,938
------------
$ 84,708,910
------------
INSURANCE: 0.9%
TRG Holdings Corp.
967,500 Term Loan, maturing January 7, 2003 962,662
USI Holdings
9,700,000 Term Loan, maturing July 17, 2004 9,669,688
------------
10,632,350
------------
LEISURE, AMUSEMENT, MOTION PICTURES AND ENTERTAINMENT: 6.9%
AMFAC Parks & Resorts, Inc.
3,675,000 Term Loan, maturing September 4, 2004 3,626,766
3,675,000 Term Loan, maturing September 30, 2004 3,626,766
Fitness Holdings Worldwide
9,399,750 Term Loan, maturing November 1, 2006 9,242,304
8,403,750 Term Loan, maturing November 1, 2007 8,262,987
Four Media Co.
9,750,000 Term Loan, maturing September 10, 2004 9,725,625
Icon Health & Fitness, Inc.
5,146,563 Term Loan, maturing March 1, 2005 5,146,563
4,931,250 Term Loan, maturing November 29, 2004 4,931,250
4,000,000 Term Loan, maturing August 31, 2004 4,000,000
Metro-Goldwyn-Mayer
10,000,000 Term Loan, maturing March 31, 2005 9,795,830
9,000,000 Term Loan, maturing March 31, 2006 8,929,125
Panavision, Inc.
14,226,351 Term Loan, maturing March 10, 2005 14,226,351
------------
81,513,567
------------
MACHINERY: 1.3%
Alliance Laundry Systems
5,000,000 Term Loan, maturing May 1, 2005 4,987,500
Clearing Niagara(2)
8,312,732 Term Loan, maturing October 18, 2004(3) 6,234,549
Morris Material Handling(2)
4,658,193 Term Loan, maturing March 31, 2005 4,425,283
-----------
15,647,332
-----------
MINING, STEEL, IRON AND NON-PRECIOUS METALS: 0.6%
National Refractories Co.
2,916,667 Term Loan, maturing September 30, 2001 2,916,667
P&L Coal
5,000,000 Term Loan, maturing June 30, 2006 4,992,190
------------
7,908,857
------------
See Accompanying Notes to Financial Statements
19
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
NORTH AMERICAN CABLE: 3.2%
CC VI Operating Co. LLC
$ 5,000,000 Term Loan, maturing November 1, 2008 $ 4,998,750
CC VIII Operating LLC
2,500,000 Term Loan, maturing February 2, 2008 2,502,084
Century Cable Holdings LLC
8,000,000 Term Loan, maturing June 30, 2009 8,012,000
Charter Communications
16,500,000 Term Loan, maturing March 18, 2008 16,446,375
6,556,250 Term Loan, maturing March 17, 2008 6,533,028
------------
38,492,235
------------
OIL AND GAS: 1.5%
Key Energy Group, Inc.
1,640,667 Revolver, maturing October 26, 2004 1,585,294
5,410,926 Term Loan, maturing October 26, 2003 5,423,610
Perf-O-Log
1,462,500 Term Loan, maturing August 11, 2003 1,433,250
3,890,000 Term Loan, maturing August 11, 2003 3,812,200
2,443,750 Term Loan, maturing August 11, 2004 2,394,875
2,992,469 Term Loan, maturing June 30, 2005 2,947,582
------------
17,596,811
------------
OTHER TELECOMMUNICATIONS: 1.4%
Cincinnati Bell Inc.
10,000,000 Term Loan, maturing January 31, 2006 10,020,000
Pacific Coin
1,758,933 Term Loan, maturing December 31, 2002 1,319,199
6,492,153 Term Loan, maturing December 31, 2004 4,869,115
------------
16,208,314
------------
PERSONAL AND NONDURABLE CONSUMER PRODUCTS: 3.2%
AM Cosmetics
2,281,441 Revolver, maturing May 30, 2004 2,281,441
1,305,151 Term Loan, maturing June 30, 2003 1,305,151
2,610,303 Term Loan, maturing December 31, 2004 2,610,303
Amscan Holdings
9,718,613 Term Loan, maturing December 31, 2004 8,941,124
Centis, Inc.
3,922,222 Term Loan, maturing September 30, 2005 3,922,222
3,438,750 Term Loan, maturing September 30, 2006 3,438,750
Medtech Products, Inc.
7,375,468 Term Loan, maturing October 15, 2002 7,227,959
Norwood Promotional Products
3,152,205 Term Loan, maturing May 12, 2006 3,134,474
2,809,412 Term Loan, maturing November 30, 2006 2,793,609
Paint Sundry Brands
1,101,913 Term Loan, maturing August 11, 2005 1,085,384
1,079,199 Term Loan, maturing August 11, 2006 1,063,011
------------
37,803,428
------------
See Accompanying Notes to Financial Statements
20
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
PERSONAL, FOOD & Miscellaneous: 4.1%
Boston Chicken Inc.(2)
$25,617,308 Lease, maturing October 17, 1998(3) $ 8,517,755
2,946,126 Revolver, maturing October 17, 1998(3) 979,587
3,752,645 Revolver, maturing December 1, 1999(3) 1,247,755
Brickman Group Ltd.
4,729,762 Term Loan, maturing December 31, 2005 4,706,112
Coinmach Laundry Corp.
8,736,006 Term Loan, maturing June 30, 2005 8,693,689
Otis Spunkmeyer
4,590,051 Term Loan, maturing December 31, 2005 4,564,232
Papa Gino's Inc.
2,195,166 Term Loan, maturing August 31, 2004 2,195,166
2,983,817 Term Loan, maturing February 19, 2002 2,983,817
4,482,493 Term Loan, maturing February 19, 2004 14,482,493
------------
48,370,606
------------
PRINTING AND PUBLISHING: 3.0%
Big Flower Press, Inc.
4,000,000 Term Loan, maturing December 7, 2008 4,000,000
Mail-Well I Corp
5,000,000 Term Loan, maturing February 22, 2007 5,006,250
Von Hoffman Press, Inc.
3,264,286 Term Loan, maturing May 22, 2004 3,230,624
10,607,143 Term Loan, maturing May 22, 2005 10,497,763
Weider Publications, Inc.
9,800,000 Term Loan, maturing September 18, 2005 9,800,000
Ziff-Davis
2,911,314 Term Loan, maturing March 31, 2007 2,917,378
------------
35,452,015
------------
RADIO AND TELEVISION BROADCASTING: 2.3%
Benedek Broadcasting Corporation
6,000,000 Term Loan, maturing November 20, 2007 5,981,250
Susquehanna Media
5,000,000 Term Loan, maturing June 30, 2008 4,970,315
Telemundo
16,872,500 Term Loan, maturing December 28, 2006 16,745,956
------------
27,697,521
------------
RETAIL STORES: 2.3%
Murray's Discount Auto Stores, Inc.
13,553,924 Term Loan, maturing June 30, 2003 13,553,924
Peebles, Inc.
2,669,684 Term Loan, maturing April 30, 2001 2,649,662
11,630,657 Term Loan, maturing April 30, 2002 11,587,042
------------
27,790,628
------------
SATELLITE: 0.2%
Pegasus Media & Communications
2,000,000 Term Loan, maturing April 30, 2005 2,006,666
------------
2,006,666
------------
See Accompanying Notes to Financial Statements
21
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
TELECOMMUNICATION EQUIPMENT: 1.5%
Crown Castle Operating Company
$ 5,000,000 Term Loan, maturing March 18, 2008 $ 5,014,235
Pinnacle Towers, Inc.
6,000,000 Term Loan, maturing June 30, 2007 5,990,628
Tripoint Global Communications, Inc.
6,532,454 Term Loan, maturing May 28, 2006 6,450,799
--------------
17,455,662
--------------
TEXTILES AND LEATHER: 4.4%
Accessory Network
9,172,314 Term Loan, maturing August 13, 2005 9,103,522
Galey & Lord
8,318,537 Term Loan, maturing March 23, 2005 7,341,109
5,901,056 Term Loan, maturing March 23, 2006 5,207,682
Humphrey's Inc.
6,650,000 Term Loan, maturing November 15, 2003 6,317,500
Malden Mills
9,925,000 Term Loan, maturing October 28, 2006 9,925,000
Scovill Fastners Inc.
4,553,571 Term Loan, maturing November 26, 2003 4,553,570
Tartan Textile Services
9,802,275 Term Loan,maturing May 13, 2005 9,728,758
--------------
52,177,141
--------------
Total Senior Loans--135.9%
(Cost $1,674,205,868) $1,614,012,984
--------------
See Accompanying Notes to Financial Statements
22
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
OTHER CORPORATE DEBT
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION VALUE
---------------- ---------------------------- -----
AUTOMOBILE: 0.5%
Capital Tool & Design Ltg.
$ 6,000,000 Subordinated Note, maturing July 19, 2003 $ 6,000,000
-----------
6,000,000
-----------
BUILDING & Real Estate: 0.8%
National Golf Operating Partnership
9,900,000 Term Loan, maturing July 22, 2004 9,825,750
-----------
9,825,750
-----------
FINANCE: 0.9%
Value Asset Management, Inc.
10,000,000 Sr. Sub Bridge, maturing April 28, 2003 10,000,000
-----------
10,000,000
-----------
OIL AND GAS: 0.7%
Premcor Refining Inc.
9,000,000 Floating Rate Note, maturing
November 15, 2004 8,550,000
-----------
8,550,000
-----------
PERSONAL & Nondurable Consumer Products: 0.5%
AM Cosmetics
2,903,930 Senior Sub, maturing May 30, 2007(3) 2,903,930
Paint Sundry Brands
2,875,000 Subordinated Note, maturing August 11, 2008 2,645,000
-----------
5,548,930
-----------
TOTAL OTHER CORPORATE DEBT-- 3.4%
(COST $ 40,286,965) $39,924,680
-----------
See Accompanying Notes to Financial Statements
23
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
EQUITY SECURITIES
SHARES
------
Apparel Products: 0.0%
13,294 Butterick Company, Inc.@(R)--Common $ 22,364
-----------
Electronics: 0.1%
149,645 Decision One Corporation@--Common 1,197,160
-----------
Diversified/Conglomerate Services: 0.0%
60,056 Staff Leasing, Inc.@--Common 240,224
-----------
Home and Office Furnishings: 0.1%
80,400 American Blind and Wallpaper, Inc.@(R)--Common 1,045,200
-----------
Personal and Nondurable Consumer Products: 0.00%
37,197 AM Cosmetics Corp.--Common@ --
-----------
Restaurants: 0.6%
413,980 America's Favorite Chicken Co.--Common@(R) 7,203,165
-----------
Textiles and Leather: 0.0%
127,306 Dan River, Inc.--Common@ 564,920
-----------
Total Equity Securities--0.8%
(Cost $1,637,196) $10,273,033
-----------
STOCK PURCHASE WARRANTS AND OTHER SECURITIES
SHARES
------
48,930 Autotote Systems, Inc., Warrant representing 48,930
Common shares, Expires 10/30/03@(R) $ 44,275
1 Autotote Systems, Inc., Option representing 0.248%
Common shares issued and outstanding @(R) --
10,000 Casden Properties Operation, 10,000 shares of junior
Cumulative Preferred partnership Units(R) 250,000
80,634 Capital Tool & Design, Warrants reprsenting 19,000
Common shares@(R) 256,658
19,000 Covenant Care, Inc., Warrants representing 19,000
Common shares@(R) 37,452
2,564 Em Solutions, Warrant representing 2,564 Common
shares, Expires 09/01/05@ --
48,930 Murray's Discount, Warrants representing 5% equity
stakes on a fully diluted basis@(R) 4
--------
TOTAL STOCK PURCHASED WARRANTS AND OTHER
SECURITIES--0.1% (COST $0) $588,389
--------
TOTAL INVESTMENTS (COST $1,716,130,029)(5) 140.2% $1,664,799,086
LIABILITES IN EXCESS OF CASH AND OTHER
ASSETS--NET (40.2)% (477,148,911)
----- --------------
NET ASSETS 100.0% $1,187,650,175
===== ==============
See Accompanying Notes to Financial Statements
24
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
----------
@ Non-income producing security.
(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 7 of the U.S. Federal
bankruptcy code.
(2) The borrower filed for protection under Chapter 11 of the U.S. Federal
bankruptcy code.
(3) Loan is on non-accrual basis.
(4) The borrower filed for protection under the Canadian Bankruptcy and
Insolvency Act.
(5) For federal income tax purposes, which is the same for financial reporting
purposes, cost of investments is $1,716,130,029 and net unrealized
depreciation consists of the following:
Gross Unrealized Appreciation $ 14,466,201
Gross Unrealized Depreciation (65,797,144)
------------
Net Unrealized Depreciation $(51,330,943)
============
See Accompanying Notes to Financial Statements
25
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
ASSETS:
Cash $ 975,433
Investments in securities at value (Cost $1,716,130,029) 1,664,799,086
Receivables:
Interest 21,051,099
Fund shares sold 245,703
Other 27,658
Prepaid expenses 454,141
Prepaid arrangement fees on notes payable 533,870
---------------
Total assets 1,688,086,990
---------------
LIABILITIES:
Notes payable 493,000,000
Deferred arrangement fees on senior loans 1,606,619
Accrued interest payable 2,767,229
Accrued expenses 3,062,967
---------------
Total liabilities 500,436,815
---------------
NET ASSETS (equivalent to $8.70 per share, based on
136,510,787 shares of beneficial interest authorized
and outstanding, no par value) $ 1,187,650,175
===============
Net Assets Consist of:
Paid in capital $ 1,290,372,077
Undistributed net investment income 11,307,111
Accumulated net realized loss on investments (62,698,070)
Net unrealized depreciation of investments (51,330,943)
---------------
Net assets $ 1,187,650,175
===============
See Accompanying Notes to Financial Statements.
26
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Six Months Ended August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 83,725,095
Arrangement fees earned 1,006,359
Dividends 22,500
Other 2,140,138
------------
Total investment income 86,894,092
------------
EXPENSES:
Interest 17,919,283
Investment management fees 6,969,473
Administration fees 1,811,143
Miscellaneous expense 599,729
Transfer agent and registrar fees 277,753
Reports to shareholders 202,440
Revolving credit facility fees 176,818
Professional fees 148,424
Custodian fees 92,000
Recordkeeping and pricing fees 36,800
Insurance expense 20,307
Trustees' fees 15,088
------------
Total expenses 28,269,258
------------
Net investment income 58,624,834
------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized gain on investments 9,801,537
Change in unrealized depreciation of investments (43,033,077)
------------
Net loss on investments (33,231,540)
------------
Net increase in net assets resulting from operations $ 25,393,294
============
See Accompanying Notes to Financial Statements.
27
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
August 31, Year Ended
2000 February 29,
(Unaudited) 2000
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 58,624,834 $ 106,494,015
Net realized gain (loss) on investments 9,801,537 (37,913,867)
Change in unrealized depreciation
on investments (43,033,077) (2,330,185)
--------------- ---------------
Net increase in net assets resulting from operations 25,393,294 66,249,963
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (59,249,308) (104,450,361)
CAPITAL SHARE TRANSACTIONS:
Issuance from dividend reinvestment 3,501,132 9,369,771
Sales of shares in connection with shelf offerings 665,949 43,604,392
--------------- ---------------
Net increase from capital share transactions 4,167,081 52,974,163
--------------- ---------------
Net increase (decrease) in net assets (29,688,933) 14,773,765
NET ASSETS:
Beginning of period 1,217,339,108 1,202,565,343
--------------- ---------------
End of period (including undistributed net investment
income of $11,307,111 and $11,931,585, respectively) $ 1,187,650,175 $ 1,217,339,108
=============== ===============
SUMMARY OF CAPITAL SHARE TRANSACTIONS:
Shares issued in payment of distributions from net
investment income 399,173 1,031,864
Shares sold in connection with Shelf offerings 75,453 4,798,146
--------------- ---------------
Net increase in shares outstanding 474,626 5,830,010
=============== ===============
</TABLE>
See Accompanying Notes to Financial Statements.
28
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Six Months Ended August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 82,462,372
Dividends received 22,500
Facility fees paid (56,985)
Arrangement fee received 613,153
Other income received 2,175,385
Interest paid (18,291,638)
Other operating expenses paid (9,611,624)
Purchases of portfolio securities (490,545,501)
Proceeds from disposition of portfolio securities 482,462,482
-------------
Net cash provided by operating activities 49,230,144
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (55,748,176)
Overdraft financing (1,926,781)
Proceeds from share offerings 420,246
Loan advance 9,000,000
-------------
Net cash flows used for financing activities (48,254,711)
-------------
Net change in cash 975,433
Cash at beginning of period --
-------------
Cash at end of period $ 975,433
=============
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 $ 25,393,294
-------------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Decrease in investments in securities 25,291,374
Increase in dividends and interest receivable (1,262,723)
Decrease in other assets 17,371
Decrease in prepaid arrangement fees on notes payable 119,833
Increase in prepaid expenses (124,977)
Decrease in deferred arrangement fees on senior loans (393,206)
Decrease in accrued interest payable (372,355)
Increase in accrued expenses 561,533
-------------
Total adjustments 23,836,850
-------------
Net cash provided by operating activities $ 49,230,144
=============
See Accompanying Notes to Financial Statements.
29
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
AUGUST 31, 2000 -----------------------------------------------------------------------------
(UNAUDITED) 2000 1999 (7) 1998 (7) 1997(7) 1996(6) 1995
----------- ---------- ---------- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $ 8.95 $ 9.24 $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02
Net investment income 0.43 0.79 0.79 0.87 0.82 0.89 0.74
Net realized and unrealized
gain (loss) on investments (0.24) (0.30) (0.10) (0.13) (0.02) (0.08) 0.07
---------- ---------- ---------- ---------- ---------- -------- -------
Increase in net asset value
from investment operations 0.19 0.49 0.69 0.74 0.80 0.81 0.81
Distributions from net
investment income (0.44) (0.78) (0.82) (0.85) (0.82) (0.86) (0.73)
Increase in net asset value
from share offerings -- -- 0.03 -- -- -- --
Reduction in net asset value
from rights offering -- -- -- -- (0.14) -- (0.44)
Increase in net asset value
from repurchase of capital
stock -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- -------- --------
Net asset value, end of period $ 8.70 $ 8.95 $ 9.24 $ 9.34 $ 9.45 $ 9.61 $ 9.66
========== ========== ========== ========== ========== ======== ========
Closing market price at end
of period $ 8.75 $ 8.25 $ 9.56 $ 10.31 $ 10.00 $ 9.50 $ 8.75
TOTAL RETURN
Total investment return at
closing market price(3) 11.58% (5.88)% 1.11% 12.70% 15.04%(5) 19.19% 3.27%(5)
Total investment return at
net asset value(4) 2.26% 5.67% 7.86% 8.01% 8.06%(5) 9.21% 5.24%(5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's) $1,187,650 $1,217,339 $1,202,565 $1,034,403 $1,031,089 $862,938 $867,083
Average borrowings (000's) $ 529,326 $ 524,019 $ 490,978 $ 346,110 $ 131,773 $ -- $ --
Ratios to average net assets
plus borrowings:
Expenses (before interest
and other fees related to
revolving credit facility) 1.17%(1) 1.00%(8) 1.05%(8) 1.04% 1.13% -- --
Expenses 3.25%(1) 2.79%(8) 2.86%(8) 2.65% 1.92% -- --
Net investment income 6.72%(1) 6.12% 6.00% 6.91% 7.59% -- --
Ratios to average net assets:
Expenses (before interest
and other fees related to
revolving credit facility) 1.69%(1) 1.43%(8) 1.50%(8) 1.39% 1.29% -- --
Expenses 4.68%(1) 4.00%(8) 4.10%(8) 3.54% 2.20% 1.23% 1.30%
Net investment income 9.70%(1) 8.77% 8.60% 9.23% 8.67% 9.23% 7.59%
Portfolio turnover rate 28% 71% 68% 90% 82% 88% 108%
Shares outstanding at end
of period (000's) 136,511 136,036 130,206 110,764 109,140 89,794 89,794
</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.
30
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Continued)
--------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
-------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------
$ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00 $ 10.00
0.60 0.60 0.76 0.98 1.06 0.72
(0.05) 0.01 (0.02) (0.05) -- --
-------- -------- -------- ---------- ---------- --------
0.55 0.61 0.74 0.93 1.06 0.72
(0.60) (0.57) (0.75) (0.96) (1.06) (0.72)
-------- -------- -------- ---------- ---------- --------
-------- -------- -------- ---------- ---------- --------
0.02 0.05 -- -- -- --
-------- -------- -------- ---------- ---------- --------
$ 10.02 $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00
======== ======== ======== ========== ========== ========
$ 9.25 $ 9.13 -- -- -- --
8.06% 10.89% -- -- -- --
6.28% 7.29% 7.71% 9.74% 11.13% 7.35%
$719,979 $738,810 $874,104 $1,158,224 $1,036,470 $252,998
$ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
1.31% 1.42% 1.42%(2) 1.38% 1.46%(2) 1.18%(1)(2)
6.04% 5.88% 7.62%(2) 9.71% 10.32%(2) 9.68%(1)(2)
87% 81% 53% 55% 100% 49%(1)
71,835 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 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.
31
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 2000 (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. On a daily basis, the Trust uses
market quotes to value its senior loans holdings when the Trust believes
that multiple and reliable market quotes are available and reflect current
value. Senior securities that cannot be valued based on market quotes, are
valued using the Trust's valuation procedures, to ascertain the current
value of a loan based on fundemental analysis. 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 29, 2000, the Trust had capital loss carryforwards for federal
income tax purposes of approximately $66,511,648 which are scheduled to
expire through February 28, 2008.
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
32
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
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. No such fees are recognized on loans which have been placed on
non-accrual status.
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 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 for items such as the treatment of
short term capital gains. These "book/tax" differences are either
considered temporary or permanent in nature. 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. During the year
ended February 29, 2000 the Fund reclassified $1,830,561 from paid in
capital to accumulated net realized loss on investments, to reflect the
treatment of permanent book/tax differences.
E. Dividend Reinvestments. Pursuant to the Shareholder Investment Program
(formerly known as the Automatic Dividend Reinvestment Plan), DST Systems,
Inc., the Plan Agent, purchases, from time to time, shares of beneficial
interest of the Trust on the open market to satisfy dividend reinvestments.
Such shares are purchased only when the closing sale or bid price plus
commission is less than the net asset value per share of the stock on the
valuation date. If the market price plus commissions is equal to or exceeds
the net asset value, new shares are issued at the greater of (i) net asset
value or (ii) the market price of the shares during the pricing period,
minus a discount of 5%.
F. Use of Estimates. Management of the Trust has made certain estimates and
assumptions relating to the reporting of assets, liabilities, revenues,
expenses and contingencies to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from these estimates.
G. Share Offerings. During the year ended February 28, 1999, the Trust began
issuing shares under various shelf registration statements, whereby the net
proceeds received by the Trust from share sales may not be less than the
greater of (i) the NAV per share or (ii) 94% of the average daily market
price over the relevant pricing period.
NOTE 2 -- INVESTMENTS
For the six months ended August 31, 2000, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term notes,
totaled $490,545,501 and $482,462,482, respectively. At August 31, 2000, the
Trust held senior loans valued at $1,614,012,984 representing 97.0% of its total
investments. The market value of these securities can only be established by
negotiation between parties in a sales transaction. Due to the uncertainty
inherent in the valuation process, the fair values as determined may materially
differ from the market values that would have been used had a ready market for
these securities existed.
The senior loans acquired by the Trust may take the form of a direct co-lending
relationship with the corporate issuer, an assignment of a co-lender's interest
in a loan, or a participation interest in a
33
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
co-lender's interest in a loan. The lead lender in a typical corporate loan
syndicate administers the loan and monitors collateral. In the event that the
lead lender becomes insolvent, enters FDIC receivership or, if not FDIC insured,
enters into bankruptcy, the Trust may incur certain costs and delays in
realizing payment, or may suffer a loss of principal and/or interest.
Additionally, certain situations may arise where the Trust acquires a
participation in a co-lender's interest in a loan and the Trust does not have
privity with or direct recourse against the corporate issuer. Accordingly, the
Trust may incur additional credit risk as a participant because it must assume
the risk of insolvency or bankruptcy of the co-lender from which the
participation was acquired. Common and preferred stocks, and stock purchase
warrants held in the portfolio were acquired in conjunction with senior loans
held by the Trust. Certain of these stocks and warrants are restricted and may
not be publicly sold without registration under the '33 Act, or without an
exemption under the '33 Act. In some cases, these restrictions expire after a
designated 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 11/06/92 $ 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 $9,099,342 was 0.77% of net assets at August 31, 2000) $ 1
====
</TABLE>
NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
On July 26, 2000, ReliaStar Financial Corp. (NYSE:RLR), the indirect parent
company of Pilgrim Investments, Inc., Adviser to the Funds, and Pilgrim
Securities, Inc., Distributor to the Funds, was acquired by ING Groep N.V.
(NYSE:ING). ING Groep N.V. is a global financial institution active in the
field of insurance, banking, and asset management in more than 60 countries,
with almost 90,000 employees.
The Trust has entered into an Investment Management Agreement with ING Pilgrim
Investments, Inc. (the "Manager") a wholly-owned subsidiary of ING 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.
The Trust has also entered into an Administration Agreement with ING Pilgrim
Investments, Inc. to provide administrative services and also to furnish
facilities. Prior to May 1, 2000 the Administration Agreement compensated 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. Effective May 1, 2000, the Administrator is compensated with a
fee, computed daily and payable monthly, at an annual rate of 0.25% of the
Trust's average daily net assets plus the proceeds of any outstanding
borrowings.
34
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
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 $620 million
from a syndicate of major financial institutions maturing July 15, 2003.
Borrowing rates under these agreements are based on a fixed spread over LIBOR,
the federal funds rate, or a commercial paper based rate. Prepaid arrangement
fees for any unborrowed amounts are amortized over the term of the agreements.
The amount of borrowings outstanding at August 31, 2000, was $493 million, at an
average interest rate of 7.1%, which represented 29.2% of total assets. Average
borrowings for the six months ended August 31, 2000 were $529,326,087 and the
average annualized interest rate was 7.2%.
As of August 31, 2000, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
Alliance Data Systems $ 803,571 Key Energy Group $ 9,059,333
AM Cosmetics 11,248 Meditrust Corp. 7,679,642
Breed Technologies 42,611 Murray's Discount Auto Stores 1,700,000
Crown Paper Co. 2,125,000 Schwegmann Giant Super Market 1,488,400
Huntsman Corporation 985,104 -----------
$23,894,909
===========
NOTE 5 -- RIGHTS AND OTHER OFFERINGS
On October 18, 1996, the Trust issued to its shareholders non-transferable
rights which entitled the holders to subscribe for 18,122,963 shares of the
Trust's common stock at the rate of one share of common stock for each five
rights held. On November 12, 1996, the offering expired and was fully
subscribed. The Trust issued 18,122,963 shares of its common stock to exercising
rights holders at a subscription price of $9.09 . Offering costs of $6,972,203
were charged against the offering proceeds.
On December 27, 1994, the Trust issued to its shareholders transferable rights
which entitled the holders to subscribe for 17,958,766 shares of the Trust's
common stock at the rate of one share of common stock for each four rights held.
On January 27, 1995, the offering expired and was fully subscribed. The Trust
issued 17,958,766 shares of its common stock to exercising rights holders at a
subscription price of $8.12. Offering costs of $4,470,955 were charged against
the offering proceeds.
As of August 31, 2000, share offerings pursuant to shelf registrations were 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 19,258,212
3/04/99 5,000,000 3,241,644
NOTE 6 -- CUSTODIAL AGREEMENT
State Street Bank, Kansas City ("SSBKC") (formerly known as IFTC) serves as the
Trust's custodian and recordkeeper. Custody fees paid to SSBKC are reduced by
earnings credits based on the cash balances held by SSBKC for the Trust.
There were no earning credits for the six months ended August 31, 2000.
35
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
NOTE 7 -- AFFILIATED TRANSACTIONS
During the six months ended August 31, 2000, the Trust purchased and sold
holdings in senior loans from/to affiliated funds managed by the Manager at
prices determined by the Manager to represent market prices. The cost of
purchased loans was $24,218,893 and the proceeds and cost of sold loans were
$22,952,891 and $23,208,437, respectively, excluding any benefit to the Trust
from the recognition of deferred arrangement fees.
NOTE 8 -- SUBORDINATED AND UNCOLLATERALIZED LOANS
The Trust may acquire a subordinated loan only if, at the time of acquisition,
it acquires or holds a Senior Loan from the same borrower. The primary risk
arising from a holder's subordination is the potential loss in the event of
default by the issuer of the loans. The Trust may invest up to 5% of its total
assets, measured at the time of investment, in subordinated and uncollateralized
loans. As of August 31, 2000, the Trust held 2.2% of its total assets in
subordinated and uncollateralized loans.
NOTE 9 -- SUBSEQUENT EVENTS
Subsequent to August 31, 2000, the Trust paid the following dividends from net
investment income:
PER SHARE AMOUNT DECLARATION DATE RECORD DATE PAYABLE DATE
---------------- ---------------- ----------- ------------
$0.073 08/31/2000 09/11/2000 09/22/2000
0.070 09/29/2000 10/10/2000 10/23/2000
Through August 31st and after that date, the Trust has increased the degree to
which it uses market quotations to value its Senior Loan holdings. 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. Other
senior loans may be valued on the basis of their "fair value" under the
procedures described in Note 1(A).
On October 23, 2000, the Trust filed a registration statement with the SEC
pursuant to which the Trust expects to offer 3,600 Series M Preferred Shares,
3,600 Series W Preferred Shares and 3,600 Series F Preferred Shares, each at a
purchase price of $25,000 per share. The Trust expects to sell such Preferred
Shares on or about November 2, 2000. In addition, subject to market conditions,
the Trust expects to offer within 30 days thereafter up to 3,600 shares each of
Series T Preferred Shares and Series Th Preferred Shares, each at a purchase
price of $25,000 per share.
Management's Additional Operating Information (Unaudited)
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
36
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of August 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
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.
37
<PAGE>
Pilgrim Prime Rate Trust
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FUND ADVISORS AND AGENTS
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INVESTMENT MANAGER INSTITUTIONAL INVESTORS AND ANALYSTS
ING Pilgrim Investments, Inc. Call Pilgrim Prime Rate Trust
7337 E. Doubletree Ranch Road 1-800-336-3436, Extension 2214
Scottsdale, Arizona 85258-2034
ADMINISTRATOR TRANSFER AGENT
ING Pilgrim Group, Inc. DST Systems, Inc.
7337 E. Doubletree Ranch Road P.O. Box 419368
Scottsdale, Arizona 85258-2034 Kansas City, Missouri 64141
1-800-992-0180
INDEPENDENT AUDITORS CUSTODIAN
KPMG LLP State Street Bank Kansas City
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 ING Pilgrim Group, Inc.
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
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.
38
<PAGE>
PILGRIM(R)
---------------------------
FUNDS FOR SERIOUS INVESTORS
U.S. EQUITY FUNDS
Pilgrim MagnaCap
Pilgrim Growth and Income
Pilgrim LargeCap Leaders
Pilgrim Research Enhanced Index
Pilgrim Growth Opportunities
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 Global Corporate Growth
Pilgrim International Value
Pilgrim International
Pilgrim International Core Growth
Pilgrim International SmallCap Growth
Pilgrim Emerging Markets Value
Pilgrim Emerging Countries
Pilgrim Worldwide Emerging Countries
Pilgrim Global Technology
Pilgrim Asia-Pacific Equity
Pilgrim SmallCap Asia Growth
Pilgrim Troika Dialog Russia
PRECIOUS METAL FUNDS
Pilgrim Gold
Pilgrim Silver
INTERNATIONAL INCOME FUND
Pilgrim Global Income
INCOME FUNDS
Pilgrim Government Securities Income
Pilgrim GNMA Income
Pilgrim Strategic Income
Pilgrim High Yield
Pilgrim High Yield II
Pilgrim High Total Return
Pilgrim High Total Return II
Pilgrim Money Market
Lexington Money Market Trust
EQUITY & INCOME FUNDS
Pilgrim Balanced
Pilgrim Convertible
Q2------------------------------------------------------------------------------
Prospectuses containing more infomration regarding the funds, including charges
and expenses, may be obtained by calling Pilgrim Securities, Inc., Distributor
at 1-800-334-3444. Please read the prospectus carefully before you invest or
send money.
PRT2Q0800-102700
