PILGRIM(R)
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FUNDS FOR SERIOUS INVESTORS
PRIME RATE TRUST
First Quarter Report
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May 31, 2000
First Quarter Report Q1
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Pilgrim Prime Rate Trust
FIRST QUARTER REPORT
May 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 ................................. 22
Statement of Operations ............................................. 23
Statements of Changes in Net Assets ................................. 24
Statement of Cash Flows ............................................. 25
Financial Highlights ................................................ 26
Notes to Financial Statements ....................................... 28
Fund Advisors and Agents ............................................ 34
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1
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Pilgrim Prime Rate Trust
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CHAIRMAN'S MESSAGE
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Dear Shareholder:
We are pleased to present the First Quarter 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 three months results a reflection of the Pilgrim
Investment, 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
Pilgrim Group, Inc.
June 8, 2000
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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Dear Shareholders:
The objective of Pilgrim Prime Rate Trust (the "Trust") is to deliver a high
current yield consistent with the preservation of capital. During the fiscal
quarter ended, May 31, 2000, the Trust paid its 145th consecutive dividend.
Based on the $0.223 of dividends declared during the quarter, and the average
month-end net asset value ("NAV") per share of $8.90, the annualized
distribution rate was 9.94%(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 dominated 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 based on LIBOR or the Prime Rate and reset every thirty
to ninety days. Consequently, the Trust's investments 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 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 limits the adverse effect of loan defaults on
performance.
THE LOAN MARKET
Market conditions for leveraged loans and income-oriented investments in general
remained challenging during the first quarter of 2000. Although the robust U.S.
economy has provided what is generally considered an ideal backdrop, the market
has continued to struggle with a combination of a rise in default rates (on both
leveraged loans and high yield bonds) and rising interest rates, which has
significantly slowed activity in the closely-linked high yield bond market.
Increased volatility not withstanding, new issuance volume totaled $75.5 billion
for the quarter ended March 31st, up over 40% from the same period in 1999. As
in recent quarters, volume was paced by the Telecommunications sector (24%
through February), followed by Industrials (19%) and Miscellaneous Services
(16%).
To keep the domestic economy from overheating and inflation in check, the
Federal Reserve has raised the Federal Funds Rate a total of six times since
June of last year (to 6.50% currently, from 4.75%), the latest round by 50 basis
points (.50%). Although there are signs their anti-inflation campaign is
beginning to take hold, it could be some time before Fed officials become
convinced that growth has sufficiently slowed. While an upward trend in interest
rates is generally beneficial for yields on bank debt, the rise in corporate
defaults has negatively impacted prices for certain loans.
Though still relatively illiquid when compared to other debt markets, the
secondary market for leveraged loans has grown more liquid in recent years. As
noted in our prior report, the Trust now uses market quotes to value its
investments when the Trust believes that multiple and reliable market quotes are
available daily and reflect current value. Investments that can not be valued
based on market quotes will continue to be valued using the Trust's valuation
procedures, which ascertain the current value of a loan based on fundamental
analysis. As of May 31st, approximately 23% of the portfolio was valued using
daily market quotes.
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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PERFORMANCE OF THE TRUST
For the quarter ended May 31, 2000, the Trust:
Reported increased distribution rates. The annualized distribution rates, based
on the May 2000 dividend and month-end NAV, was 9.96%, up from 9.45% and 8.50%
at February 29th and November 30th, respectively. This is consistent with rising
short-term interest rates and reflects the attractive reset feature of
floating-rate loans.
The Trust's annualized market yield based on the May 2000 dividend was 10.16%,
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 $0.223 of dividends
declared for the quarter, (up from $0.203 for the prior calendar quarter), the
annualized quarterly distribution rate based on average NAV exceeded the average
60 day LIBOR rate for the quarter by 3.55%. This yield also exceeded the average
Prime Rate for the quarter by approximately 0.77%.
Maintained a high level of diversification. At the end of the quarter, the Trust
managed senior loans from 185 separate borrowers, with an average investment
size of $9.2 million. These loans were diversified across 31 industry sectors,
the largest of which was Telecommunications (wired and wireless, and equipment
manufacturers), which represented approximately 13.5% of total assets. The
single largest issuer exposure within this sector was roughly 3.2% of total
assets.
Maintained an adequate supply of new investments. The Trust booked 12 new
investments during the quarter, sponsored by several different loan syndication
sources. The average fixed spread over LIBOR for these new loans is 3.2%.
Notable assets added to the portfolio include: American Tower Corporation,
Pegasus Media & Communications, Inc., Voicestream Wireless, Isle of Capri and
American Cellular Corporation.
Utilized leverage to improve performance. As of May 31st, the Trust had $532
million outstanding on its leveraging facilities, representing 30.4% of total
assets. The average cost of leverage during the quarter was 6.56%, versus the
weighted average spread of portfolio investments for the quarter of 9.78%.
Reduced the level of non-performing assets. As of May 31st, total non-performing
assets as a percentage of total assets (market value) improved to 3.8% from 4.7%
at the end of the prior calendar quarter. Although above historical experience,
this compares favorably to the experience of the overall leveraged loan market
through March 31st (5.2% annualized, as reported by Portfolio Management Data
LLC). The decline in NAV during the quarter from $8.95 to $8.87 was due largely
to unrealized losses on assets which remain part of the portfolio. A portion of
such losses have resulted not from fundamental credit impairment but from supply
/ demand imbalances and the resultant downward pressure on secondary market
prices. Some unrealized losses may be recoverable since the sale or resolution
of these assets could provide the Trust with proceeds in excess of its adjusted
basis.
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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 /s/ Daniel A. Norman
Jeffrey A. Bakalar Daniel A. Norman
Senior Vice President Senior Vice President
Co-Senior Portfolio Manager Co-Senior Portfolio Manager
Pilgrim Prime Rate Trust
June 21, 2000
5
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Pilgrim Prime Rate Trust
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SHAREHOLDER LETTER FOOTNOTES
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(1) The distribution rate is calculated by annualizing 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.
Performance data represents past performance and is no guarantee of future
results. Investment return and principal value of an investment in the Trust
will fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This letter contains statements that may be "forward-looking statements". Actual
results could differ materially from those projected in the "forward-looking
statements".
The views expressed in this letter reflect those of the portfolio manager, only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
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Pilgrim Prime Rate Trust
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STATISTICS AND PERFORMANCE as of May 31, 2000
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PORTFOLIO CHARACTERISTICS
Net Assets $ 1,206,461,881
Assets Invested in Senior Loans* $ 1,694,563,981
Total Number of Senior Loans 185
Average Amount Outstanding per Loan $ 9,159,805
Total Number of Industries 31
Average Loan Amount per Industry $ 54,663,354
Portfolio Turnover Rate (YTD) 13%
Weighted Average Days to Interest Rate Reset 29 days
Average Loan Maturity 59 months
Average Age of Loans Held in Portfolio 11 months
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* Includes loans and other debt received through restructures
TOP TEN INDUSTRIES AS A % OF
NET ASSETS TOTAL ASSETS
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Telecommunications 19.6% 13.5%
Buildings and Real Estate 8.2% 5.7%
Containers, Packaging and Glass 7.4% 5.1%
Ecological 6.9% 4.7%
Electronics 6.8% 4.7%
Residential/Long Term Care and Hospitals 6.3% 4.3%
Leisure, Amusement, Motion Pictures and Entertainment 5.7% 3.9%
Textiles and Leather 5.7% 3.9%
Hotels, Motels, Inns and Gaming 5.5% 3.8%
Broadcasting 5.4% 3.8%
TOP 10 SENIOR LOANS AS A % OF
NET ASSETS TOTAL ASSETS
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Allied Waste Industries 5.7% 3.9%
Voicestream Wireless 4.7% 3.2%
Nextel Finance Corp. 3.4% 2.4%
Mafco Finance Corp. 2.9% 2.0%
Ventas Realty Partnership, Inc. 2.1% 1.4%
Wyndham International 1.9% 1.3%
Pathmark Stores, Inc. 1.7% 1.2%
Papa Gino's Inc. 1.7% 1.2%
Metro-Goldwyn-Mayer 1.6% 1.1%
Community Health Systems 1.6% 1.1%
7
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Pilgrim Prime Rate Trust
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STATISTICS AND PERFORMANCE as of May 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>
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%
August 31, 1999 7.75% 8.74% 8.43% 8.66% 8.33%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
--- ---
1 Year 6.90% 0.29%
3 Years 7.13% 4.29%
5 Years 7.57% 8.56%
10 Years 7.74% N/A
Since Trust Inception (F,H) 8.15% N/A
Since Initial Trading on NYSE (G) N/A 7.90%
Assumes rights were exercised and excludes sales charges and commissions (C,D,E)
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO
GUARANTEE OF FUTURE RESULTS.
See performance footnotes on page 9
8
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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.
9
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Pilgrim Prime Rate Trust
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ADDITIONAL NOTES AND INFORMATION
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SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program", formerly known
as the Dividend Reinvestment and Cash Purchase Plan) which allows shareholders a
simple way to reinvest dividends and capital gains distributions, if any, in
additional shares of the Trust. The Program also offers Trust shareholders the
ability to make optional cash investments in any amount from $100 to $5,000 on a
monthly basis. Amounts in excess of $5,000 require prior approval of the Trust.
DST Systems, Inc., the Trust's Transfer Agent, is the Administrator for the
Program.
For dividend reinvestment purposes, the Administrator will purchase shares of
the Trust on the open market when the market price plus estimated commissions is
less than the net asset value on the valuation date. The Trust may issue new
shares when the market price plus estimated commissions is equal to or exceeds
the net asset value on the valuation date. New shares may be issued at the
greater of (i) net asset value or (ii) the market price of the shares during the
pricing period, minus a discount of 5%.
For optional cash investments, shares will be purchased on the open market by
the Administrator when the market price plus estimated commissions is less than
the net asset value on the valuation date. New shares may be issued by the Trust
when the market price plus estimated commissions is equal to or exceeds the net
asset value on the valuation date.
There is no charge to participate in the Program. Participants may elect to
discontinue participation in the Program at any time. Participants will share,
on a pro-rata basis, in the fees or expenses of any shares acquired in the open
market.
Participation in the Program is not automatic. If you would like to receive more
information about the Program or if you desire to participate, please contact
your broker or our Shareholder Services Department at (800) 992-0180.
KEY FINANCIAL DATES -- Calendar 2000 Dividends:
DECLARATION DATE EX-DATE PAYABLE DATE
---------------- ------- ------------
January 31 February 8 February 23
February 29 March 8 March 22
March 31 April 6 April 24
April 28 May 8 May 22
May 31 June 8 June 22
June 30 July 6 July 24
July 31 August 8 August 22
August 31 September 7 September 22
September 29 October 6 October 23
October 31 November 8 November 22
November 30 December 7 December 22
December 19 December 27 January 11, 2001
RECORD DATE WILL BE TWO BUSINESS DAYS AFTER EACH EX-DATE. THESE DATES ARE
SUBJECT TO CHANGE.
STOCK DATA
The Trust's shares are traded on the New York Stock Exchange (Symbol: PPR).
Effective November 16, 1998 the Trust's name changed to Pilgrim Prime Rate Trust
and its cusip number became 72146W 10 3. Prior to November 16, 1998 the Trust's
name was Pilgrim America Prime Rate Trust and its cusip number was 720906 10 6.
The Trust's NAV and market price are published daily under the "Closed-End
Funds" feature in Barron's, The New York Times, The Wall Street Journal and many
other regional and national publications.
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Pilgrim Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
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SENIOR LOANS*
(Dollar weighted portfolio interest reset period is 29 days)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
AEROSPACE AND DEFENSE: 5.4%
$ 14,738 Avborne, Inc. Term B 06/30/03 $14,737,500
8,702 Erickson Air-Crane Co. Term B 12/31/04 8,441,064
8,706 New Piper Aircraft, Inc. Term 04/15/05 8,705,724
6,360 Piedmont Aviation Services Term B 07/23/06 6,359,840
6,360 Piedmont Aviation Services Term C 07/23/07 6,359,840
2,477 Stellex Industries, Inc. Term B 09/30/06 2,477,273
3,390 Technetics Corp. Term 06/20/02 3,389,769
14,933 Transtar Metals, Inc. Term B 01/20/06 14,541,044
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65,012,054
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AUTOMOBILE: 5.3%
4,962 Autosystems Manufacturing, Inc. Term B 05/31/04 4,367,000
4,963 Autosystems Manufacturing, Inc. Term C 05/31/05 4,367,000
2,865 Breed Technologies, Inc. (2) Term 12/31/00 1,694,054
3,974 Breed Technologies, Inc. (2)(3) Revolver 04/18/04 2,349,361
2,975 Breed Technologies, Inc. (2)(3) Term A 04/18/04 1,758,923
9,800 Cambridge Industries, Inc. Term B 06/30/05 9,310,000
9,306 Capital Tool & Design Ltd. Term B 07/19/03 9,305,504
8,767 Global Metal Technologies, Inc. Term B 03/12/05 8,767,420
10,935 Safelite Glass Corp. Term B 12/23/04 9,294,819
10,935 Safelite Glass Corp. Term C 12/23/05 9,294,819
3,308 Venture Holdings Term B 04/05/05 3,279,386
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63,788,286
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BEVERAGE, FOOD AND TOBACCO: 3.1%
2,833 Edward's Baking Co. Term A 09/30/03 2,691,666
3,292 Edward's Baking Co. Term B 09/30/05 3,127,083
3,292 Edward's Baking Co. Term C 09/30/05 3,127,084
13,633 Empire Kosher Poultry, Inc. Term B 07/31/04 13,632,500
5,535 Imperial Sugar Corp. Term A 12/31/03 5,534,523
5,225 Imperial Sugar Corp. Term B 12/31/05 5,224,558
4,602 Otis Spunkmeyer, Inc. Term B 12/31/05 4,601,701
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37,939,115
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</TABLE>
See Accompanying Notes to Financial Statements
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PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
BROADCASTING: 5.4%
$ 8,000 Adelphia Communications Corp. Term B 06/30/09 $ 8,037,144
5,000 CC VI Operating Co, LLC Term B 11/01/08 4,998,045
2,500 CC VIII Operating, LLC Term B 02/02/08 2,503,125
15,500 Charter Communications, Inc. Term B 03/18/08 15,455,717
1,610 Liberman Broadcasting, Inc. Revolver 03/31/05 1,609,600
7,600 Liberman Broadcasting, Inc. Term B 09/30/05 7,600,000
5,000 Susquehanna Media Co. Term B 06/30/08 4,992,710
16,915 Telemundo Group Term B 12/28/06 16,915,000
3,620 Z Spanish Term 08/24/00 3,620,000
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65,731,341
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BUILDINGS AND REAL ESTATE: 8.2%
6,000 Dayton Superior Corp. Term 09/29/05 5,988,750
5,829 Juno Lighting, Inc. Term B 11/30/06 5,816,737
7,701 Kevco, Inc. Term B 02/02/05 7,701,110
8,308 Meditrust Corp. Revolver 07/15/01 8,308,406
6,500 Meditrust Corp. Term D 07/15/01 6,500,000
9,900 National Golf Operating Partnership Term B 07/22/04 9,900,000
4,963 Prison Realty Trust, Inc. Term C 12/31/02 4,928,383
11,177 Tree Island Industries Term B 03/31/03 11,176,835
6,187 US Aggregates, Inc. Term B 03/31/06 6,187,145
7,458 Vantas, Inc. Term B 09/04/09 7,458,275
1,043 Ventas, Inc. Term A 12/31/02 1,043,142
522 Ventas, Inc. Term B 12/31/05 521,570
23,621 Ventas, Inc. Term C 12/31/07 23,620,873
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99,151,226
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CARGO TRANSPORT: 2.1%
1,743 American Commercial Lines, LLC Term B 06/30/06 1,726,348
2,500 American Commercial Lines, LLC Term C 06/30/07 2,476,202
2,709 Evergreen International Aviation, Inc. Term 05/31/02 2,698,848
909 Evergreen International Aviation, Inc. Term B 05/31/02 905,659
385 Evergreen International Aviation, Inc. Term B-1 05/07/03 383,815
9,000 Gemini Air Cargo, Inc. Term 08/12/05 8,966,250
8,932 Omnitrax, Inc. Term 05/12/05 8,931,818
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26,088,940
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CHEMICALS, PLASTICS AND RUBBER: 4.9%
9,708 Acadia Elastomers Corp. Term 02/17/04 9,708,029
11,085 Cedar Chemical Corp. Term B 10/30/03 11,085,230
14,888 Euro United Corp. (3)(4) Term B 05/31/01 7,443,750
5,889 Foam Fabrics Inc. Term A 03/05/05 5,889,180
3,323 Foamex, L.P. Term B 06/30/05 3,260,592
3,021 Foamex, L.P. Term C 06/30/06 2,964,184
996 Huntsman Corp. Revolver 12/31/02 996,167
260 Huntsman Corp. Term A 12/31/02 258,421
7,000 Huntsman Corp. Term C 12/31/05 7,002,191
4,963 Identity Group, Inc. Term B 05/07/07 4,962,500
828 Lyondell Petrochemical Company Term B 06/30/05 837,043
4,425 NEN Life Sciences, Inc. Term B 12/31/04 4,424,694
-----------
58,831,981
-----------
</TABLE>
See Accompanying Notes to Financial Statements
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PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
CONTAINERS, PACKAGING AND GLASS: 7.4%
$ 8,932 Blue Ridge Paper Products, Inc. Term B 05/14/06 $ 8,932,392
1,675 Crown Paper Co. (2) Revolver 09/14/01 1,675,000
8,171 Crown Paper Co. (2) Term B 08/22/03 8,170,661
7,770 Gaylord Container Corporation Term 06/19/03 7,770,000
16,550 Eastern Pulp & Paper Corp. Term 08/31/04 16,549,998
440 Eastern Pulp & Paper Corp. Term A 12/31/00 440,198
4,975 Impaxx, Inc. Term C 12/31/05 4,975,000
2,481 Nexpak Corp. Term B 12/31/05 2,481,191
2,481 Nexpak Corp. Term C 12/31/06 2,481,191
9,825 Pretium Packaging, LLC Term B 07/29/06 9,825,020
5,498 RIC Holdings, Inc. Term A 02/28/03 5,441,640
4,197 RIC Holdings, Inc. Term B 02/28/04 4,208,779
1,503 RIC Holdings, Inc. Term C 08/31/04 1,507,070
14,400 Stone Container Corp. Term F 12/31/06 14,418,000
-----------
88,876,140
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DIVERSIFIED/CONGLOMERATE MANUFACTURING: 3.1%
9,900 Allied Digital Technologies Corp. Term B 12/31/05 7,920,000
6,710 General Cable Corp. Term B 05/24/07 6,688,140
3,970 Holmes Products Corp. Term B 02/15/07 3,915,413
1,500 Mueller Group, Inc. Term B 04/28/08 1,503,046
1,500 Mueller Group, Inc. Term C 08/16/06 1,503,046
3,000 Mueller Group, Inc. Term D 08/16/07 3,000,000
5,683 Private Business, Inc. Term B 08/19/06 5,683,099
6,948 United Pet Group Term B 03/31/06 6,947,500
-----------
37,160,244
-----------
DIVERSIFIED/CONGLOMERATE SERVICES: 4.6%
4,963 Barjan Products, LLC Term B 05/31/06 4,962,500
2,743 Enterprise Profit Solutions Corp. Term 06/14/01 2,742,857
30,635 Mafco Financial Corp. Term A 08/31/00 30,634,615
4,694 Mafco Financial Corp. Revolver 08/31/00 4,693,500
9,950 Outsourcing Solutions, Inc. Term B 06/01/06 9,934,458
1,241 URS Corp. Term B 06/09/06 1,240,625
1,241 URS Corp. Term C 06/09/07 1,240,625
-----------
55,449,180
-----------
ECOLOGICAL: 6.9%
5,000 Allied Waste Industries, Inc. Term A 07/12/05 4,775,000
30,455 Allied Waste Industries, Inc. Term B 07/12/06 29,150,086
36,545 Allied Waste Industries, Inc. Term C 07/12/07 34,984,671
4,800 Clean Harbors, Inc. Term 05/08/01 4,800,000
9,150 Rumpke Consolidate Companies, Inc. Term A 09/26/02 9,150,000
-----------
82,859,757
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</TABLE>
See Accompanying Notes to Financial Statements
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Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
EDUCATION & Childcare: 1.9%
$ 9,211 Children's Discovery Centers
of America, Inc. Term 08/10/04 $ 9,210,938
10,156 The Brown Schools, Inc. Term B 06/30/04 10,156,250
4,063 The Brown Schools, Inc. Term C 06/30/05 4,062,500
-----------
23,429,688
-----------
ELECTRONICS: 6.8%
1,768 Chatham Technologies, Inc. Term 06/02/04 1,511,220
1,510 Chatham Technologies, Inc. Revolver 06/02/04 1,291,012
816 Chatham Technologies, Inc. Term A 06/02/04 697,621
469 Decision One Corp. (2)(3) Revolver 08/31/03 234,643
2,649 Decision One Corp. (2)(3) Term A 08/31/03 1,324,408
7,250 Decision One Corp. (2)(3) Term B 08/31/05 3,625,095
1,461 Decision One Corp. (2)(3) Term C 08/31/05 730,657
5,670 Dynamic Details Silicon, Inc. Term B 04/22/05 5,670,150
11,500 Dynatech Corporation Term B 09/30/07 11,461,671
4,201 Electro Mechanical Solutions, Inc. Term B 06/30/04 3,990,614
5,348 Intri-Plex Technologies, Inc. Term 09/30/02 4,278,261
7,000 Knowles Electronics, Inc. Term B 06/29/07 6,953,331
9,000 Mitel Corporation Term B 06/02/04 8,999,972
6,250 Rural Cellular Corp Term B 10/03/08 6,259,374
6,250 Rural Cellular Corp Term C 04/03/09 6,259,374
9,008 Sarcom, Inc. Term 11/20/02 9,007,937
2,510 Semiconductor Components Industries, LLC Term B 08/04/06 2,531,738
2,703 Semiconductor Components Industries, LLC Term C 08/04/07 2,726,656
4,930 Stonebridge Technologies, Inc. Term 07/27/05 4,929,688
-----------
82,483,422
-----------
FINANCE: 4.3%
250 Alliance Data Systems Corp. Revolver 03/04/06 250,000
837 Alliance Data Systems Corp. Term A 03/04/06 837,053
14,700 Alliance Data Systems Corp. Term B 10/31/05 14,700,000
1,838 Alliance Data Systems Corp. Term 03/04/06 1,837,678
6,742 Bridge Information Systems, Inc. Term B 05/29/05 6,741,573
1,931 Bridge Information Systems, Inc. Lease 4 04/01/01 1,930,875
3,738 Bridge Information Systems, Inc. Lease 6 04/01/01 3,737,584
5,779 National Partnership Investments Corp. Term 06/30/01 5,779,137
2,967 Rent -A-Center, Inc. Term B 01/31/06 2,955,784
3,978 Rent -A-Center, Inc. Term C 01/31/07 3,962,624
5,000 United Rental, Inc. Term C 06/30/05 4,973,440
3,833 Value Asset Management, Inc. Term B 04/28/03 3,833,333
-----------
51,539,081
-----------
</TABLE>
See Accompanying Notes to Financial Statements
14
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
GROCERY: 2.1%
$ 5,000 Grand Union Capital Corporation Term 08/17/03 $ 4,940,625
2,777 Pathmark Stores, Inc. Revolver 06/15/01 2,683,141
3,640 Pathmark Stores, Inc. Term A 06/15/01 3,639,850
13,953 Pathmark Stores, Inc. Term B 12/15/01 13,953,070
506 Schwegmann Giant Supermarket (1)(3) Term B 07/30/02 303,668
-----------
25,520,354
-----------
HOME AND OFFICE FURNISHINGS, HOUSEWARES
AND DURABLE CONSUMER PRODUCTS: 3.2%
723 American Blind and Wallpaper, Inc. Term 12/29/05 722,983
8,560 Desa International, Inc. Term B 11/26/04 8,477,970
4,966 ICON Health & Fitness Co. Term B 11/29/04 4,965,625
5,091 ICON Health & Fitness Co. Term C 03/01/05 5,090,607
4,250 ICON Health & Fitness Co. Term 08/31/04 4,250,000
3,933 Centis, Inc. Term B 09/30/05 3,933,334
3,448 Centis, Inc. Term C 09/30/06 3,447,500
3,818 Imperial Home Decor Group, Inc. (2)(3) Term B 03/13/05 2,863,845
1,492 Imperial Home Decor Group, Inc. (2)(3) Term C 03/13/06 1,119,275
2,151 Imperial Home Decor Group, Inc. (2)(3) Term A 03/13/05 1,613,257
2,492 Imperial Home Decor Group, Inc. (2)(3) Revolver 03/13/05 1,867,935
-----------
38,352,331
-----------
HOTELS, MOTELS, INNS AND GAMING: 5.5%
3,000 Aladdin Gaming, LLC Term B 02/28/06 3,000,000
4,500 Aladdin Gaming, LLC Term C 02/28/06 4,500,000
4,950 Extended Stay America, Inc. Term B 12/31/03 4,919,063
2,992 Felcor Lodging Trust, Inc. Term B 03/31/04 2,979,532
2,985 Horseshoe Gaming Holdings Corp. Term B 09/30/06 2,996,194
5,607 Pebble Beach Co. Term B 07/30/06 5,630,930
9,975 Station Casinos, Inc. Term 12/31/05 9,975,000
9,950 Strategic Hotel Capital, Inc. Term B 11/09/04 10,005,968
5,000 Wyndham International, Inc. Term 06/30/04 4,917,970
18,500 Wyndham International, Inc. Term 06/30/06 17,898,750
-----------
66,823,407
-----------
Insurance: 0.9%
1,605 TRG Holdings Corp. Term 01/07/03 1,605,000
9,800 USI Holdings Corp. Term 09/17/04 9,800,000
-----------
11,405,000
-----------
</TABLE>
See Accompanying Notes to Financial Statements
15
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
LEISURE, AMUSEMENT, MOTION PICTURES AND
ENTERTAINMENT: 5.7%
$ 3,675 AMFAC Resorts, Inc. Term B 09/04/04 $ 3,647,438
3,675 AMFAC Resorts, Inc. Term C 09/30/04 3,647,437
9,419 Fitness Holdings, Inc. Term B 11/01/06 9,371,532
8,421 Fitness Holdings, Inc. Term C 11/01/07 8,375,895
9,775 Four Media Co. Term B 09/10/04 9,775,000
10,000 Metro-Goldwyn-Mayer, Inc. Term A 03/31/05 9,820,830
9,000 Metro-Goldwyn-Mayer, Inc. Term B 03/31/06 8,935,875
14,900 Panavision, Inc. Term B 06/05/05 14,900,000
-----------
68,474,007
-----------
MACHINERY (NONAGRICULTURE,
NONCONSTRUCTION, NONELECTRONIC): 2.6%
5,000 Alliance Laundry Systems, LLC Term B 05/01/05 5,000,000
14,888 Anthony Crane, L.P. Term B 07/20/06 14,887,500
8,313 Clearing - Niagara, Inc. (2)(3) Term 10/18/04 6,234,549
4,658 Morris Material Handling, Inc. Term B 03/31/05 4,658,193
-----------
30,780,242
-----------
MEDICAL SERVICES & Products: 3.2%
1,430 Caremark, Rx, Inc. Term A 06/09/01 1,430,179
767 Caremark, Rx, Inc. Term B 06/09/01 767,231
9,800 Compdent Corp. Term B 06/30/06 9,800,000
3,308 Concentra Managed Care, Inc. Term B 06/30/06 3,308,333
1,654 Concentra Managed Care, Inc. Term C 06/30/07 1,654,167
3,213 Dade Behring, Inc. Term B 06/30/06 3,194,507
3,213 Dade Behring, Inc. Term C 06/30/07 3,194,507
4,887 Doshi Diagnostics Imaging Service Term 05/15/05 4,887,500
3,336 Healthcare Direct, Inc. Term A 08/01/04 3,335,550
4,028 Healthcare Direct, Inc. Term B 08/01/06 4,028,250
2,898 Vision Twenty-One, Inc. Term C 06/30/05 2,898,018
-----------
38,498,242
-----------
MINING, STEEL, IRON AND NONPRECIOUS
METALS: 0.3%
3,333 National Refractories, Inc. Term C 09/30/01 3,333,333
-----------
3,333,333
-----------
</TABLE>
See Accompanying Notes to Financial Statements
16
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
OIL AND GAS: 2.8%
$ 5,454 Key Energy Group, Inc. Term B 10/26/04 $ 5,467,431
1,687 Key Energy Group, Inc. Term A 10/26/03 1,686,604
6,634 Key Energy Group, Inc. Revolver 10/26/03 6,459,858
1,466 Perf-O-Log, Inc. Term A 08/11/03 1,466,250
3,900 Perf-O-Log, Inc. Term B 08/11/03 3,900,000
2,450 Perf-O-Log, Inc. Term C 08/11/04 2,450,000
3,000 Perf-O-Log, Inc. Term F 06/30/05 3,000,000
9,000 Premcor, Inc. FRN (A) 11/15/04 9,000,000
-----------
33,430,143
-----------
PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 3.9%
21,800 Boston Chicken, Inc. (2)(3) Lease C 10/17/98 10,899,999
2,367 Boston Chicken, Inc. (2)(3) Revolver A 10/17/98 1,183,449
3,015 Boston Chicken, Inc. (2)(3) Revolver B 12/01/99 1,507,425
4,751 Brickman Group, Inc. Term B 12/31/05 4,750,752
8,758 Coinmach Laundry Corp. Term B 06/30/05 8,736,453
2,242 Papa Gino's, Inc. Term A-2 08/31/04 2,242,401
3,376 Papa Gino's, Inc. Term A 02/19/02 3,376,034
14,530 Papa Gino's, Inc. Term B 02/19/04 14,529,616
-----------
47,226,129
-----------
PERSONAL AND NONDURABLE CONSUMER PRODUCTS: 3.3%
2,121 AM Cosmetics Corp. Revolver 05/30/04 2,121,238
1,305 AM Cosmetics Corp. Term A 06/30/03 1,305,151
2,610 AM Cosmetics Corp. Term B 12/31/04 2,610,303
1,921 American Safety Razor Term A 04/30/05 1,920,800
9,744 Amscan Holdings Axel (B) 12/31/04 9,743,532
5,971 Buhrmann NV Term B 10/26/07 5,983,285
8,315 Medtech Products, Inc. Term B 10/15/02 8,314,642
3,163 Norwood Promotional Products, Inc. Term B 05/12/06 3,160,817
2,816 Norwood Promotional Products, Inc. Term C 11/30/06 2,814,711
1,102 Paint Sundry Brands, LLC Term B 08/11/05 1,101,913
1,079 Paint Sundry Brands, LLC Term C 08/11/06 1,079,199
-----------
40,155,591
-----------
PERSONAL TRANSPORTATION: 0.8%
9,820 Neoplan USA Corporation Term B 05/29/05 9,819,990
-----------
9,819,990
-----------
PRINTING AND PUBLISHING: 2.3%
3,273 Von Hoffman Press, Inc. Term B 05/22/04 3,273,214
10,635 Von Hoffman Press, Inc. Term C 05/22/05 10,634,822
9,825 Weider Publications, Inc. Term 09/18/05 9,825,000
3,500 Ziff Davis, Inc. Term B 03/31/07 3,500,728
-----------
27,233,764
-----------
</TABLE>
See Accompanying Notes to Financial Statements
17
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
RESIDENTIAL LONG-TERM CARE & HOSPITALS: 6.3%
$ 6,218 Community Health Systems, Inc. Term B 12/31/03 $ 6,176,525
6,218 Community Health Systems, Inc. Term C 12/31/04 6,177,631
6,395 Community Health Systems, Inc. Term D 12/31/05 6,357,032
6,000 Covenant Care California, Inc. Term 04/30/01 6,000,000
14,118 Fountain View, Inc. Term B 03/31/04 14,117,647
2,766 Genesis Health Ventures, Inc. Term A 09/30/03 2,351,366
1,281 Magellan Health Services, Inc. Term B 02/28/05 1,280,989
1,281 Magellan Health Services, Inc. Term C 02/28/06 1,280,989
4,401 Mellon Financial Services Corp. Lease (C) 09/30/04 3,740,641
14,697 Paragon Health Network, Inc. (2)(3) Term B 04/30/05 8,818,018
8,793 Paragon Health Network, Inc. (2)(3) Term C 03/31/06 5,275,699
3,489 The Multicare Companies, Inc. Term A 09/30/03 2,965,716
13,134 Vencor, Inc. (2)(3) Term B 05/05/05 11,163,954
-----------
75,706,207
-----------
RETAIL/APPAREL: 2.9%
5,000 Josten, Inc. Term B 12/31/00 5,026,040
13,603 Murray's Discount Auto Stores, Inc. Term 06/30/03 13,602,539
3,208 Peebles, Inc. Term A 04/30/01 3,208,626
12,742 Peebles, Inc. Term B 04/30/02 12,741,960
-----------
34,579,165
-----------
TELECOMMUNICATIONS: 19.6%
2,500 American Tower, LP Term B 12/31/07 2,510,590
6,767 American Celluar Corporation Term B 12/29/00 6,767,269
7,733 American Celluar Corporation Term C 12/29/00 7,734,022
5,000 Arch Communications, Inc. Term C 06/30/06 4,781,250
5,000 Crown Castle Operating Co. Term B 03/18/08 5,008,335
10,000 Dobson Communications Corp. Term B 03/31/08 10,000,000
10,000 Independent Wireless One Corporation Term B 06/20/08 10,000,000
6,500 McLeod USA Corp. Term B 05/31/08 6,500,000
2,801 Microcell Connexions Inc. Term B 03/17/06 2,794,662
3,000 Microcell Connexions Inc. Term E 03/17/06 2,998,125
8,855 Nextel Communications Inc. Lease 03/15/06 8,854,550
6,500 Nextel Finance Co. Term B 06/30/08 6,540,898
6,500 Nextel Finance Co. Term C 12/31/08 6,540,898
28,500 Nextel Finance Co. Term D 06/30/08 28,355,733
1,924 Pacific Coin Term A 12/31/02 1,442,864
6,492 Pacific Coin Term B 12/31/04 4,869,114
14,905 Paging Network, Inc. Revolver 12/31/04 14,905,000
2,000 Pegasus Media & Communications, Inc. Term B 04/30/05 1,995,416
</TABLE>
See Accompanying Notes to Financial Statements
18
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
$ 6,000 Pinnacle Towers, Inc. Term B 06/30/07 $ 5,986,878
9,958 Teletouch Communications, Inc. Term B 11/30/04 9,958,333
10,000 Teligent, Inc. Term 07/01/02 10,000,000
6,727 Tripoint Global Communications, Inc. Term B 05/28/06 6,726,523
11,970 TSR Wireless, LLC Term 06/30/05 11,970,000
22,500 Voicestream Wireless Corp. Term B 02/25/09 22,286,498
35,000 Voicestream Wireless Corp. Term A 02/25/08 34,100,010
3,000 Western Wireless Term B 09/30/08 3,001,875
-------------
236,628,843
-------------
TEXTILES AND LEATHER: 5.7%
9,196 Accessory Network Group, Inc. Term B 08/13/05 9,195,713
8,341 Galey & Lord, Inc. Term B 03/23/05 8,340,615
5,917 Galey & Lord, Inc. Term C 03/23/06 5,916,718
3,953 Harriet & Henderson Yarns, Inc. Term A 06/12/00 3,953,158
393 Harriet & Henderson Yarns, Inc. Term C 01/20/04 392,773
6,629 Humphreys, Inc. Term B 11/15/03 6,297,228
9,950 Malden Mills Industries, Inc. Term B 10/28/06 9,950,000
4,554 Scovill Fasteners Inc. Term 11/26/03 4,553,571
8,403 Targus Group International, Inc. Term B 01/05/05 8,403,191
1,427 Targus Group International, Inc. Term C 01/05/05 1,427,294
9,827 Tartan Textile Services, Inc. Term B 05/13/05 9,826,517
-------------
68,256,778
-------------
Total Senior Loans -- 140.5% 1,694,563,981
-------------
(Cost $1,725,963,183)
</TABLE>
See Accompanying Notes to Financial Statements
19
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
OTHER CORPORATE DEBT
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT LOAN STATED
(000'S) INDUSTRY/BORROWER TYPE MATURITY VALUE
------- ----------------- ---- -------- -----
<S> <C> <C> <C> <C>
AUTOMOBILE: 0.5%
$ 6,000 Capital Tool & Design Senior Sub 07/26/03 $ 6,000,000
-----------
6,000,000
-----------
FINANCE: 0.8%
10,000 Value Asset Management, Inc. Senior Sub 08/31/05 10,000,000
-----------
10,000,000
-----------
PERSONAL AND NONDURABLE CONSUMER PRODUCTS: 0.5%
2,833 AM Cosmetics Corp. Senior Sub 05/30/07 2,833,103
2,875 Paint Sundry Brands, LLC Senior Sub 08/11/08 2,875,000
-----------
5,708,103
-----------
Total Other Corporate Debt -- 1.8% 21,708,103
-----------
(Cost $18,875,000)
EQUITY SECURITIES
SHARES
------
Apparel Products: 0.0%
13,294 Butterick Company, Inc.@(R) -- common $ 22,364
-----------
Diversified/Conglomerate Services: 0.0%
60,056 Staff Leasing, Inc.@(R) -- common 213,950
-----------
Home and Office Furnishings: 0.1%
80,400 American Blind and Wallpaper, Inc.@(R) -- common 1,045,200
-----------
Personal and Nondurable Consumer Products: 0.0%
37,197 AM Cosmetics Corp.@ -- common plus warrants 385,617
-----------
Restaurants: 0.5%
413,980 America's Favorite Chicken Co. -- common@(R) 7,203,164
-----------
Textiles and Leather: 0.1%
127,306 Dan River, Inc. -- common@ 628,573
-----------
Total Equity Securities -- 0.7% 9,498,868
-----------
(Cost $1,637,196)
</TABLE>
See Accompanying Notes to Financial Statements
20
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
STOCK PURCHASE WARRANTS AND OTHER SECURITIES
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C> <C>
1 Autotote Systems, Inc., Warrant representing 48,930 common
shares, Expires 10/30/03@(R) $ 85,614
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 representing 80,634 common
shares@(R) 256,658
19,000 Covenant Care, Inc., Warrants representing 19,000 common
shares@(R) 37,452
449 Murray's Discount, Warrants representing 5% equity stakes on a
fully diluted basis@(R) 4
--------------
Total Stock Purchase Warrants and Other Securities -- 0.1% 629,728
--------------
(Cost $0)
TOTAL INVESTMENTS (COST $1,746,475,379) (5) 143.1% $1,726,400,680
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS -- NET -43.1% (519,938,799)
------ --------------
NET ASSETS 100.0% $1,206,461,881
====== ==============
</TABLE>
----------
@ Non-income producing security.
(A) Floating Rate Note
(B) Axel describes an amortizing extended Term Loan with limited call
protection.
(C) Synthetic Loan facility.
(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 and is in the process of developing a plan of liquidation.
(2) The borrower filed for protection under Chapter 11 of the U.S. Federal
bankruptcy code and is in the process of developing a plan of
reorganization.
(3) Loan is on non-accrual basis.
(4) The borrower filed for protection under the Canadian Bankruptcy and
Insolvency Act and is in the process of developing a plan of
reorganization.
(5) For federal income tax purposes, which is the same for financial reporting
purposes, cost of investments is $1,746,475,379 and net unrealized
depreciation consists of the following:
Gross Unrealized Appreciation $ 18,853,681
Gross Unrealized Depreciation (38,928,380)
--------------
Net Unrealized Depreciation $ (20,074,699)
==============
See Accompanying Notes to Financial Statements
21
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
ASSETS:
Investments in securities at value (Cost $1,746,475,379) $ 1,726,400,680
Receivables:
Interest 20,578,263
Other 37,128
Prepaid expenses 286,070
Prepaid arrangement fees on notes payable 593,786
---------------
Total assets 1,747,895,927
---------------
LIABILITIES:
Notes payable 532,000,000
Overdraft payable to custodian 1,160,067
Deferred arrangement fees on senior loans 1,794,713
Accrued interest payable 3,386,753
Accrued expenses 3,092,513
---------------
Total liabilities 541,434,046
---------------
NET ASSETS (equivalent to $8.87 per share,
based on 136,036,161 shares of beneficial
interest authorized and outstanding, no par value) $ 1,206,461,881
===============
Net Assets Consist of:
Paid in capital $ 1,286,204,996
Undistributed net investment income 10,946,081
Accumulated net realized loss on investments (70,614,497)
Net unrealized depreciation of investments (20,074,699)
---------------
Net assets $ 1,206,461,881
===============
See Accompanying Notes to Financial Statements.
22
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Three Months Ended May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 39,988,973
Arrangement fees earned 585,209
Dividends 7,500
Other 1,437,488
------------
Total investment income 42,019,170
------------
EXPENSES:
Interest 8,497,777
Investment management fees 3,486,792
Administration fees 722,975
Professional fees 547,633
Custodian fees 119,600
Revolving credit facility fees 110,926
Transfer agent and registrar fees 101,220
Reports to shareholders 75,148
Miscellaneous expense 46,000
Recordkeeping and pricing fees 18,400
Trustees' fees 7,545
------------
Total expenses 13,734,016
------------
Net investment income 28,285,154
------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized gain on investments 1,885,110
Change in unrealized depreciation of investments (11,776,832)
------------
Net loss on investments (9,891,722)
------------
Net increase in net assets resulting from operations $ 18,393,432
============
See Accompanying Notes to Financial Statements.
23
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MAY 31, YEAR ENDED
2000 FEBRUARY 29,
(UNAUDITED) 2000
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 28,285,154 $ 106,494,015
Net realized gain (loss) on investments 1,885,110 (37,913,867)
Change in unrealized depreciation
on investments (11,776,832) (2,330,185)
--------------- ---------------
Net increase in net assets resulting from operations 18,393,432 66,249,963
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (29,270,659) (104,450,361)
CAPITAL SHARE TRANSACTIONS:
Issuance from dividend reinvestment -- 9,369,771
Sales of shares in connection with shelf offerings -- 43,604,392
--------------- ---------------
Net increase from capital share transactions -- 52,974,163
--------------- ---------------
Net (decrease) increase in net assets (10,877,227) 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 $10,946,081 and $11,931,585, respectively) $ 1,206,461,881 $ 1,217,339,108
=============== ===============
SUMMARY OF CAPITAL SHARE TRANSACTIONS:
Shares issued in payment of distributions from net
investment income -- 1,031,864
Shares sold in connection with Shelf offerings -- 4,798,146
--------------- ---------------
Net increase in shares outstanding -- 5,830,010
=============== ===============
</TABLE>
See Accompanying Notes to Financial Statements.
24
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Three Months Ended May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
INCREASE (DECREASE) in Cash
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 39,199,086
Dividends received 7,500
Facility fees paid (51,009)
Arrangement fee received 380,097
Other income received 1,445,390
Interest paid (8,250,608)
Other operating expenses paid (4,534,234)
Purchases of portfolio securities (262,918,815)
Proceeds from disposition of portfolio securities 215,578,449
-------------
Net cash used for operating activities (19,144,144)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (28,089,142)
Overdraft financing (766,714)
Loan advance 48,000,000)
-------------
Net cash flows provided by financing activities 19,144,144
-------------
Net change in cash --
Cash at beginning of period --
-------------
Cash at end of period $ --
=============
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 18,393,432
-------------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Increase in investments in securities (36,310,220)
Increase in dividends and interest receivable (789,887)
Decrease in other assets 7,902
Decrease in prepaid arrangement fees on notes payable 59,917
Increase in prepaid expenses 43,094
Increase in deferred arrangement fees on senior loans 205,112
Decrease in accrued interest payable (247,169)
Decrease in accrued expenses (506,325)
-------------
Total adjustments (37,537,576)
-------------
Net cash used for operating activities $ (19,144,144)
=============
See Accompanying Notes to Financial Statements.
25
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
MAY 31, 2000 -------------------------------------------
(UNAUDITED) 2000 1999(7) 1998(7) 1997(7) 1996(6) 1995
----------- ---- ------- ------- ------- ------- ----
<S> <C> <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 0.21 0.79 0.79 0.87 0.82 0.89 0.74
Net realized and unrealized gain
(loss) on investments (0.07) (0.30) (0.10) (0.13) (0.02) (0.08) 0.07
---------- ---------- ---------- ---------- ---------- -------- --------
Increase in net asset value from
investment operations 0.14 0.49 0.69 0.74 0.80 0.81 0.81
Distributions from net investment
income (0.22) (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 $ 8.87 $ 8.95 $ 9.24 $ 9.34 $ 9.45 $ 9.61 $ 9.66
========== ========== ========== ========== ========== ======== ========
Closing market price at end of
period $ 8.69 $ 8.67 $ 9.56 $ 10.31 $ 10.00 $ 9.50 $ 8.75
Total Return
Total investment return at
closing market price(3) 1.69% (5.88)% 1.11% 12.70% 15.04%(5) 19.19% 3.27%
Total investment return at net
asset value(4) 8.05% 5.67% 7.86% 8.01% 8.06%(5) 9.21% 5.24%
Ratios/Supplemental Data
Net assets, end of period (000's) $1,206,462 $1,217,339 $1,202,565 $1,034,403 $1,031,089 $862,938 $867,083
Average borrowings (000's) $ 519,946 $ 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) 1.19%(1) 1.00%(8) 1.05% 1.04% 1.13% -- --
Expenses 3.13%(1) 2.79%(8) 2.86% 2.65% 1.92% -- --
Net investment income 6.51%(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) 1.67%(1) 1.43%(8) 1.50%(8) 1.39% 1.29% -- --
Expenses 4.52%(1) 4.00%(8) 4.10%(8) 3.54% 2.20% 1.23% 1.30%
Net investment income 9.28%(1) 8.77% 8.60% 9.23% 8.67% 9.23% 7.59%
Portfolio turnover rate 13% 71% 68% 90% 82% 88% 108%
Shares outstanding at end of
period (000's) 136,036 136,036 130,206 110,764 109,140 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.
26
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
---------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
--------- --------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 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
</TABLE>
----------
(4) Total investment return at net asset value has been calculated assuming a
purchase at net asset value at the beginning of each period and a sale at
net asset value at the end of each period and assumes reinvestment of
dividends and capital gain distributions in accordance with the provisions
of the dividend reinvestment plan. This calculation differs from total
investment return because it excludes the effects of changes in the market
values of the Trust's shares. Total returns for less than one year are not
annualized.
(5) Calculation of total return excludes the effects of the per share dilution
resulting from the rights offering as the total account value of a fully
subscribed shareholder was minimally impacted.
(6) Pilgrim 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.
27
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 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 senior loans are generally applied as a reduction
28
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
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 three months ended May 31, 2000, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term notes,
totaled $262,918,815 and $224,871,044, respectively. At May 31, 2000, the Trust
held senior loans valued at $1,694,563,981 representing 98.2% of its total
investments. The market value of these securities can only be established by
negotiation between parties in a sales transaction. Due to the uncertainty
inherent in the valuation process, the fair values as determined may materially
differ from the market values that would have been used had a ready market for
these securities existed.
The senior loans acquired by the Trust may take the form of a direct co-lending
relationship with the corporate issuer, an assignment of a co-lender's interest
in a loan, or a participation interest in a co-lender's interest in a loan. The
29
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
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:
DATE OF COST OR
ACQUISITION ASSIGNED BASIS
----------- --------------
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 $8,900,456
was 0.74% of net assets at May 31, 2000) $ 1
====
NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The Trust has entered into an Investment Management Agreement with Pilgrim
Investments, Inc. (the "Manager") a wholly-owned subsidiary of Pilgrim Group,
Inc. ("PG"), to provide advisory and management services. The Investment
Management Agreement compensates the Manager with a fee, computed daily and
payable monthly, at an annual rate of 0.80% of the Trust's average daily net
assets plus borrowings.
The Trust has also entered into an Administration Agreement with 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.
NOTE 4 -- COMMITMENTS
The Trust has entered into both a 364 day and a five year revolving credit
agreement, collateralized by assets of the Trust, to borrow up to $630 million
from a syndicate of major financial institutions maturing July 15, 2003.
Borrowing rates under these agreements are based on a fixed spread over LIBOR,
the federal funds rate, or a commercial paper based rate. Prepaid arrangement
30
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
fees for any unborrowed amounts are amortized over the term of the agreements.
The amount of borrowings outstanding at May 31, 2000, was $532 million, at an
average interest rate of 6.6%, which represented 30.4% of total assets. Average
borrowings for the three months ended May 31, 2000 were $519,945,652 and the
average annualized interest rate was 6.5%.
As of May 31, 2000, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
Alliance Data Systems $ 1,535,714 Liberman Broadcasting, Inc. $ 123,750
AM Cosmetics 15,422 Mafco Finance Co. 758,423
Breed Technologies 42,611 Meditrust Corp. 6,691,593
Crown Paper Co. 3,325,000 Murray's Discount Auto Stores 1,700,000
Decisione One Corp. 59,000 Pathmark Stores Inc. 2,512,397
Huntsman Corporation 2,886,810 Schwegmann Giant Super Market 1,488,400
Key Energy Group 4,066,000 -----------
$25,205,120
===========
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 May 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 19,325,222
3/04/99 5,000,000 3,241,644
During the quarter ended May 31, 2000, there were no shelf offerings
transactions.
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 quarter ended May 31, 2000.
NOTE 7 -- AFFILIATED TRANSACTIONS
During the three months ended May 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 $5,738,143 and the proceeds and cost of sold loans were
$18,168,516 and $18,208,437, respectively, excluding any benefit to the Trust
from the recognition of deferred arrangement fees.
31
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
NOTE 8 -- SUBORDINATED AND UNCOLLATERALIZED LOANS
The Trust may acquire a subordinated loan only if, at the time of acquisition,
it acquires or holds a Senior Loan from the same borrower. The primary risk
arising from a holder's subordination is the potential loss in the event of
default by the issuer of the loans. The Trust may invest up to 5% of its total
assets, measured at the time of investment, in subordinated and uncollateralized
loans. As of May 31, 2000, the Trust held 2.2% of its total assets in
subordinated and uncollateralized loans.
NOTE 9 -- SUBSEQUENT EVENTS
Subsequent to May 31, 2000, the Trust paid the following dividends from net
investment income:
PER SHARE AMOUNT DECLARATION DATE RECORD DATE PAYABLE DATE
---------------- ---------------- ----------- ------------
$0.075 05/31/2000 06/12/2000 06/22/2000
0.072 06/30/2000 07/10/2000 07/24/2000
On May 1, 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, entered into an agreement under
which it will be 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.
Completion of the acquisition is contingent upon, among other things, approval
by the Directors/Trustees of the Pilgrim Funds and certain shareholder and
regulatory approvals. The closing of the acquisition is expected to occur during
the third quarter of 2000.
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 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.
32
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of May 31, 2000 (Unaudited)
--------------------------------------------------------------------------------
The Trust's Manager considered the evolving nature of the syndicated loan market
and the potential benefits to the Trust and its shareholders of revising the
restriction to permit the Trust to invest in loans other than Senior Loans and
the increase in the number of attractive investment opportunities available to
the Trust due to the change.
REPURCHASE OF SECURITIES BY CLOSED-END COMPANIES
In accordance with Section 23(c) of the Investment Company Act of 1940, and Rule
23c-1 under the Investment Company Act of 1940, the Trust may from time to time
purchase shares of beneficial interest of the Trust in the open market, in
privately negotiated transactions and/or purchase shares to correct erroneous
transactions.
SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program") which enables
investors to conveniently add to their holdings at reduced costs. Should you
desire further information concerning this Program, please contact the
Shareholder Servicing Agent at (800) 992-0180.
33
<PAGE>
Pilgrim Prime Rate Trust
--------------------------------------------------------------------------------
FUND ADVISORS AND AGENTS
--------------------------------------------------------------------------------
INVESTMENT MANAGER INSTITUTIONAL INVESTORS AND ANALYSTS
Pilgrim Investments, Inc. Call Pilgrim Prime Rate Trust
Two Renaissance Square 1-800-336-3436, Extension 8256
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004-4424
ADMINISTRATOR TRANSFER AGENT
Pilgrim Group, Inc. DST Systems, Inc.
Two Renaissance Square P.O. Box 419368
40 North Central Avenue Kansas City, Missouri 64141
Suite 1200
Phoenix, Arizona 85004-4424
1-800-992-0180
INDEPENDENT AUDITORS CUSTODIAN
KPMG LLP State Street Bank 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 Pilgrim Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
TOLL-FREE SHAREHOLDER INFORMATION
Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for
account or other information, at 1-800-992-0180.
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PILGRIM(R)
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FUNDS FOR SERIOUS INVESTORS
U.S. EQUITY FUNDS
Pilgrim MagnaCap
Pilgrim LargeCap Leaders
Pilgrim Research Enhanced Index
Pilgrim Growth Opportunities
Pilgrim Growth Fund
Pilgrim LargeCap Growth
Pilgrim MidCap Value
Pilgrim MidCap Opportunities
Pilgrim MidCap Growth
Pilgrim Growth + Value
Pilgrim SmallCap Opportunities
Pilgrim SmallCap Growth
Pilgrim Bank and Thrift
INTERNATIONAL EQUITY FUNDS
Pilgrim Worldwide Growth
Pilgrim International Value
Pilgrim International Core Growth
Pilgrim International SmallCap Growth
Pilgrim Emerging Markets Value
Pilgrim Emerging Countries
Pilgrim Asia-Pacific Equity
INCOME FUNDS
Pilgrim Government Securities Income
Pilgrim Strategic Income
Pilgrim High Yield
Pilgrim High Yield II
Pilgrim High Total Return
Pilgrim High Total Return II
Pilgrim Money Market
EQUITY & INCOME FUNDS
Pilgrim Balanced
Pilgrim Convertible
Prospectuses containing more infomration regarding the funds, including
Q1 charge 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.
PRT1Q0500-072800
