PILGRIM(SM)
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FUNDS FOR SERIOUS INVESTORS
PRIME RATE TRUST
Annual Report
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February 29, 2000
Annual Report
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Pilgrim Prime Rate Trust
ANNUAL REPORT
February 29, 2000
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Table of Contents
Chairman's Message.......................................................... 2
Letter to Shareholders...................................................... 3
Statistics and Performance.................................................. 6
Performance Footnotes....................................................... 8
Additional Notes and Information............................................ 9
Portfolio of Investments.................................................... 10
Statement of Assets and Liabilities......................................... 20
Statement of Operations..................................................... 21
Statements of Changes in Net Assets......................................... 22
Statement of Cash Flows..................................................... 23
Financial Highlights........................................................ 24
Notes to Financial Statements............................................... 26
Report of Independent Auditors.............................................. 31
Tax Information............................................................. 32
Fund Advisors and Agents.................................................... 33
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Pilgrim Prime Rate Trust
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CHAIRMAN'S MESSAGE
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Dear Shareholder:
We are pleased to present the Annual Report for Pilgrim Prime Rate Trust (the
"Trust").
On the following pages, the Portfolio Manager will discuss the Trust's
milestones and performance, as well as recent market developments. A leader in
its class, the Trust has continued to increase shareholder value through strong
management and innovative approaches.
We believe you will find the twelve-month results a reflection of Pilgrim's
philosophy to provide core holdings which seek to meet the three key needs of
the serious investor:
1. Preservation of capital
2. Participation in rising markets
3. Outperformance in falling markets
Thank you for selecting Pilgrim Prime Rate Trust. We appreciate the confidence
you have placed in us in serving your investment needs.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim Group, Inc.
April 5, 2000
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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Dear Shareholders:
The objective of Pilgrim Prime Rate Trust (the "Trust") is to deliver a high
current yield consistent with the preservation of capital. During the most
recent fiscal year the Trust has paid it's 142nd consecutive dividend while
month-end calculations of net asset value ("NAV") have ranged between $9.28 and
$8.91. Based on the $0.792 of dividends declared during the year, and the
average month-end net asset value ("NAV") per share, the annualized distribution
rate was 8.73%.(1) Beginning in June 1999, the Federal Reserve has raised the
Federal Funds Rate five times in .25% increments, from 4.75% to 6.00% at the
March 2000 meeting. The Federal Reserve is attempting to slow U.S. economic
growth and avoid a rise of inflation. The Trust maintains ultra-short duration
investments with weighted average interest rate resets of 31 days at year-end.
THE TRUST
The Trust holds a diversified portfolio of leveraged loans made to American and
Canadian corporations. All loans are made in US dollars. The Trust buys these
loans from large banks and financial institutions. The loans typically mature
between seven and ten years but are generally repaid within five years. Interest
rates on the loans are based on LIBOR or Prime Rate and reset every thirty to
ninety days. Consequently, the Trust's investments exhibit lower price
volatility than corporate bonds, whose prices fluctuate in response to changes
in interest rates.
THE LOAN MARKET
The leveraged loan market grew to $320 billion in calendar 1999 and continued to
grow in 2000. This represents a 17% increase; up from $273 billion in 1998.
The leveraged loan market has grown more liquid in recent years. The market is
still considered relatively illiquid however. In response to this increased
liquidity the Trust and other closed-end funds investing in leveraged loans have
recently announced revised valuation procedures. On a daily basis, the Trust now
uses market quotes to value its senior loans when the Trust believes that
multiple and reliable market quotes are available and reflect current value.
Senior Loans 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 year-end, more than 25% of the
portfolio was valued using daily market quotes.
We expect liquidity in the leveraged loan market will continue to improve as
more investors enter the market.
PERFORMANCE OF THE TRUST
FOR THE YEAR ENDED FEBRUARY 29, 2000, THE TRUST:
INCREASED QUARTER-END DISTRIBUTION RATES. The average annualized distribution
rates based on net asset value have increased quarter over quarter consistent
with rising short-term interest rates.
February 29, 2000 9.13%
November 30, 1999 8.68%
August 31, 1999 8.66%
May 31, 1999 8.47%
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Pilgrim Prime Rate Trust
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LETTER TO SHAREHOLDERS
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The Trust's annualized market yield based on the February 2000 dividend was
10.25%. This represents an attractive yield advantage over many others variable
and fixed income investment products.
DURING THE QUARTER ENDED FEBRUARY 29, 2000, THE TRUST:
PAID A RELATIVELY HIGH LEVEL OF CURRENT INCOME. Based on the $0.203 of dividends
declared for the quarter, the annualized distribution rate based on NAV of 9.13%
exceeded average 60 day LIBOR rates for the quarter by 3.16%. This yield also
exceeded the average Prime Rate for the quarter of 8.57% by 0.60%.
MAINTAINED A HIGH LEVEL OF DIVERSIFICATION. The Trust managed 179 senior loans
with an average investment size of $9.3 million at the end of the quarter. These
loans represented 31 industry sectors, 16 of which individually accounted for no
more than 3% of total assets. At the end of the quarter, the Trust's largest
industry sector was Telecommunications, which represented 9.6% of total assets.
ADDED 14 NEW SENIOR LOAN INVESTMENTS. The Trust's transaction sources allowed it
to approve new investments sponsored by 7 different loan syndication sources.
The average LIBOR spread for these new loans is 3.10%. The weighted average
spread across the portfolio was 3.30% at February 29th. Notable assets added to
the portfolio include: Voicestream Wireless, Tripoint Global Communications,
Synthetic Industries and American Cellular Corp.
Utilized leverage to improve performance. As of February 29th the Trust had $484
million outstanding on its leveraging facilities. That represented 28.3% of
total assets. The average cost of leverage during the quarter was 6.49% versus
the weighted average spread of portfolio investments for the quarter of 9.53%.
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
February 29, 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 dividing the total distributions of
$0.792 per share by the average month-end net asset value (in the case of
NAV) or the average month-end NYSE composite closing price (in the case of
market). The distribution rate is based solely on the actual dividends and
distributions, which are made at the discretion of management. The
distribution rate may or may not include all investment income and
ordinarily will not include capital gains or losses, if any.
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 February 29, 2000
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PORTFOLIO CHARACTERISTICS
Net Assets $1,217,339,108
Assets Invested in Senior Loans* $1,659,514,502
Total Number of Senior Loans 179
Average Amount Outstanding per Loan $9,271,031
Total Number of Industries 31
Average Loan Amount per Industry $53,532,726
Portfolio Turnover Rate (YTD) 71%
Weighted Average Days to Interest Rate Reset 31 days
Average Loan Maturity 57 months
Average Age of Loans Held in Portfolio 11 months
* Includes loans and other debt received through restructures
TOP TEN INDUSTRIES AS A % OF
NET ASSETS TOTAL ASSETS
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Telecommunications 13.5% 9.6%
Buildings and Real Estate 8.3% 5.9%
Chemicals, Plastics and Rubber 8.2% 5.8%
Containers, Packaging and Glass 6.4% 4.5%
Residential/Long Term Care and Hospitals 6.3% 4.4%
Leisure, Amusement, Motion Pictures and Entertainment 6.1% 4.3%
Ecological 5.9% 4.2%
Electronics 5.8% 4.1%
Textiles and Leather 5.6% 4.0%
Hotels, Motels, Inns and Gaming 5.5% 3.9%
TOP 10 SENIOR LOANS AS A % OF
NET ASSETS TOTAL ASSETS
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Allied Waste Industries 4.8% 3.4%
Mafco Finance Corp. 2.8% 2.0%
Nextel Finance Corp. 2.7% 1.9%
Lyondell Petrochemical Co. 2.7% 1.9%
Ventas Inc. 2.1% 1.5%
Wyndham International 1.9% 1.3%
Voicestream Wireless 1.8% 1.3%
Boston Chicken 1.8% 1.3%
Papa Gino's Inc. 1.7% 1.2%
Pathmark Stores, Inc. 1.6% 1.2%
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Pilgrim Prime Rate Trust
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STATISTICS AND PERFORMANCE as of February 29, 2000
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YIELDS AND DISTRIBUTION RATES
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
- ------------- ---- ------- ------- ------------- -------------
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%
May 31, 1999 7.75% 8.78% 8.40% 8.47% 8.20%
AVERAGE ANNUAL TOTAL RETURNS
NAV MKT
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1 Year 5.67% -5.88%
3 Years 7.18% 2.36%
5 Years 7.74% 8.00%
10 Years 7.80% N/A
Since Trust Inception F,H 8.18% N/A
Since Initial Trading on NYSE G N/A 7.95%
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 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 each monthly dividend,
then averaging the annualized dividends declared for each month during the
quarter and dividing the resulting average annualized dividend amount by
the Trust's average net asset value (in the case of NAV) or the NYSE
Composite closing price (in the case of Market) at the end of the period.
(C) Calculation of total return assumes a hypothetical initial investment at
the net asset value (in the case of NAV) or the NYSE Composite closing
price (in the case of Market) on the last business day before the first day
of the stated period, with all dividends and distributions reinvested at
the actual reinvestment price.
(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
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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 February 29, 2000
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SENIOR LOANS*
(Dollar weighted portfolio interest reset period is 31 days)
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- --------- -------------------------------------------------------------- -------- -------- --------------
<S> <C> <C> <C> <C>
AEROSPACE AND DEFENSE: 5.4%
$ 14,775 Avborne (aircraft maintenance) Term B 06/30/03 $ 14,775,000
8,725 Erickson Air-Crane Co. (heavy lift helicopters) Term B 12/31/04 8,462,889
8,728 New Piper Aircraft, Inc. (aircraft manufacturer) Term 04/15/05 8,727,876
6,360 Piedmont Aviation Services (airport facility operator) Term B 07/23/06 6,359,840
6,360 Piedmont Aviation Services Term C 07/23/07 6,359,840
2,483 Stellex Industries, Inc. (aerospace & defense parts mfg.) Term B 09/30/06 2,482,955
3,711 Technetics Corp. (aircraft engine components) Term 06/20/02 3,711,426
14,946 Transtar Metals, Inc. (aluminum distribution) Term B 01/20/06 14,591,451
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65,471,277
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AUTOMOBILE: 5.2%
4,963 Autosystems Manufacturing, Inc. (automotive lighting) 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 (airbags/seatbelts)(2) Term 12/31/00 1,694,054
3,974 Breed Technologies(2)(3) Revolver 04/18/04 2,349,361
2,975 Breed Technologies(2)(3) Term A 04/18/04 1,758,923
9,800 Cambridge Industries, Inc. (automotive plastics) Term B 06/30/05 9,310,000
9,320 Capital Tool & Design (brake backing plates) Term B 07/19/03 9,320,369
8,767 Global Metal Technologies, Inc. (automotive parts) Term B 03/12/05 8,767,420
10,962 Safelite Glass Corp. (automobile windshield replacement) Term B 12/23/04 9,318,232
10,962 Safelite Glass Corp. Term C 12/23/05 9,318,232
3,317 Venture Holdings (automotive plastics) Term B 04/05/05 3,316,667
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63,887,258
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BEVERAGE, FOOD AND TOBACCO: 3.2%
2,833 Edward's Baking Co. (food service bakery) 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 3,127,083
13,650 Empire Kosher Poultry (kosher chicken and poultry) Term B 07/31/04 13,650,000
6,001 Imperial Sugar Corp. (sugar producer) Term A 12/31/03 6,001,367
5,590 Imperial Sugar Corp. Term B 12/31/05 5,589,561
4,613 Otis Spunkmeyer (baked goods) Term B 12/31/05 4,613,350
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38,800,110
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BROADCASTING: 3.8%
4,000 Charter Communications Cable Telecom (cable television) Term B 03/17/08 4,007,916
5,000 Charter Communications Operating, LLC CCVI
(cable television) Term B 11/01/08 5,019,140
2,500 Charter Communications Operating, LLC CCVIII
(cable television) Term B 02/02/08 2,511,328
1,610 Liberman Broadcasting, Inc. (radio/TV broadcasting) Revolver 03/31/05 1,609,600
7,680 Liberman Broadcasting, Inc. Term B 09/30/05 7,680,000
5,000 Susquehanna Media (radio broadcasting) Term B 06/30/08 4,995,625
16,957 Telemundo (television broadcasting) Term B 12/28/06 16,957,500
3,620 Z Spanish (radio broadcasting) Term 05/26/00 3,620,000
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46,401,109
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</TABLE>
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Pilgrim Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of February 29, 2000
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<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ---------- ------------------------------------------------------------ ---------- -------- --------------
<S> <C> <C> <C> <C>
BUILDINGS AND REAL ESTATE: 8.3%
$ 6,000 Dayton Superior Corp. (concrete/masonry accessories) Term 09/29/05 $ 5,997,498
6,002 Juno Lighting (access / track lighting) Term B 11/30/06 6,000,012
7,721 Kevco, Inc. (manufactured home components) Term B 02/02/05 7,721,110
9,790 Meditrust Corp. (real estate investment trust) Revolver 07/15/01 9,789,950
6,500 Meditrust Corp. Term D 07/15/01 6,500,000
10,000 National Golf Operating Partnership (golf course REIT) Term B 07/22/04 10,000,000
4,975 Prison Realty (owner / operator of prison facilities) Term C 12/31/02 4,981,219
11,233 Tree Island Industries (nail and wire products) Term B 03/31/03 11,233,000
6,187 US Aggregates (aggregate, asphalt, concrete manufacturer) Term B 03/31/06 6,187,143
7,479 Vantas, Inc. (executive office suite provider) Term B 09/04/09 7,479,138
1,043 Ventas, Inc. (real estate investment trust) Term A 12/31/02 1,043,142
522 Ventas, Inc. Term B 12/31/05 521,571
23,621 Ventas, Inc. Term C 12/31/07 23,620,873
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101,074,656
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CARGO TRANSPORT: 2.6%
1,779 American Commercial Lines (dry cargo carrier) Term B 06/30/06 1,761,911
2,552 American Commercial Lines Term C 06/30/07 2,527,211
2,709 Evergreen International Aviation, Inc. (air cargo carrier) Term 05/31/02 2,699,411
1,024 Evergreen International Aviation, Inc. Term B 05/31/02 1,020,063
385 Evergreen International Aviation, Inc. Term B-1 05/07/03 383,895
9,000 Gemini Air Cargo (air cargo carrier) Term 08/12/05 9,000,000
4,987 Havco Wood Products, Inc. (tractor trailer flooring) Term B 09/30/06 4,987,500
8,955 Omnitrax, Inc. (rail operator) Term 05/12/05 8,954,545
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31,334,536
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CHEMICALS, PLASTICS AND RUBBER: 8.2%
9,745 Acadia Elastomers Corp. (rubber/plastic seals & pistons) Term 02/17/04 9,744,526
11,114 Cedar Chemical Corp. (specialty chemicals) Term B 10/30/03 11,113,503
14,888 Euro United Corp. (plastic products)(3)(4) Term B 05/31/01 11,910,000
6,750 Foam Fabricator Inc. (styrofoam products) Term A 03/05/05 6,750,000
3,509 Foamex, L.P. (polyurethane foam) Term B 06/30/05 3,508,885
3,190 Foamex, L.P. Term C 06/30/06 3,189,896
2,428 Huntsman Corp. (industrial chemicals) Revolver 12/31/02 2,428,158
476 Huntsman Corp. Term A 12/31/02 472,786
4,975 Identity Group, Inc. (rubber product manufacturer) Term B 05/07/07 4,975,000
30,381 Lyondell Petrochemical Company (petrochemicals) Term A 06/30/03 30,434,052
2,784 Lyondell Petrochemical Company Term B 06/30/05 2,816,186
4,592 NEN Life Sciences Products (biochemicals) Term B 12/31/04 4,591,837
3,500 Synthetic Industries (industrial chemicals) Term B 12/14/07 3,527,346
4,611 Texas Petrochemical Corp. (industrial petrochemicals) Term B 06/30/04 4,611,111
--------------
100,073,286
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</TABLE>
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Pilgrim Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of February 29, 2000
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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: 6.4%
$8,955 Blue Ridge Paper Products (paper producer) Term B 05/14/06 $ 8,954,928
8,171 Crown Paper Co. (paper and pulp manufacturer) Term B 08/22/03 8,170,661
17,770 Gaylord Container Corporation (corrugated containers) Term 06/19/03 17,770,000
5,000 Impaxx Inc. (industrial labeling / packaging) Term C 12/31/05 5,000,000
16,837 Lincoln Pulp & Eastern Fine (specialty paper) Term 08/31/04 16,837,497
528 Lincoln Pulp & Eastern Fine Term A 12/31/00 527,699
2,487 Mediapak Corporation (media packaging) Term B 12/31/05 2,487,441
2,487 Mediapak Corporation Term C 12/31/06 2,487,441
9,850 Pretium Packaging LLC (plastic packaging) Term B 07/29/06 9,850,020
5,498 RIC Holdings Inc. (Riverwood) (paper and pulp company) Term A 02/28/03 5,485,022
--------------
77,570,709
--------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 2.8%
9,900 Allied Digital Technologies Corp. (multimedia manufacturer) Term B 12/31/05 9,900,000
6,710 General Cable Corp. (copper cable manufacturer) Term B 05/24/07 6,707,358
3,980 Holmes Products Corp. (consumer products manufacturer) Term B 02/15/07 3,980,000
5,836 Private Business, Inc. (software manufacturer) Term B 08/19/06 5,836,403
6,965 United Pet Group (pet supplies manufacturer) Term B 03/31/06 6,965,000
--------------
33,388,761
--------------
DIVERSIFIED/CONGLOMERATE SERVICES: 4.5%
4,975 Barjan Products (distributor to truck stops) Term B 05/31/06 4,975,000
2,807 Enterprise Profit Solutions Corp. (business services
outsourcing) Term 06/14/01 2,807,143
30,635 Mafco Financial Corp. (diversified services and
entertainment) Term A 04/16/00 30,634,615
3,938 Mafco Financial Corp. Revolver 04/16/00 3,937,500
9,975 Outsourcing Solutions (accounts receivable management) Term B 06/01/06 9,957,853
1,244 URS Corp. (consulting company) Term B 06/09/06 1,243,750
1,244 URS Corp. Term C 06/09/07 1,243,750
--------------
54,799,611
--------------
ECOLOGICAL: 5.9%
27,273 Allied Waste (waste management) Term B 07/12/06 26,379,818
32,727 Allied Waste Term C 07/12/07 31,676,236
5,100 Clean Harbors, Inc. (environmental services) Term 05/08/01 5,100,000
9,263 Rumpke (waste management) Term A 09/26/02 9,262,500
--------------
72,418,554
--------------
EDUCATION & CHILDCARE: 1.9%
9,234 Children's Discovery Centers (daycare and education) Term 08/10/04 9,234,375
10,156 The Brown Schools (behavioral healthcare services) Term B 06/30/04 10,156,250
4,063 The Brown Schools Term C 06/30/05 4,062,500
--------------
23,453,125
--------------
</TABLE>
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Pilgrim Prime Rate Trust
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PORTFOLIO OF INVESTMENTS as of February 29, 2000
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<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ---------- ------------------------------------------------------------ ---------- -------- --------------
<S> <C> <C> <C> <C>
ELECTRONICS: 5.8%
$ 469 Decision One Corp. (computer equipment/services)(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
9,453 Dynamic Details Silicon, Inc. (circuit board manufacturer) Term B 04/22/05 9,452,960
4,323 Electro Mechanical Solutions (computer enclosure
manufactuer) Term B 06/30/04 4,106,920
5,348 Intri-Plex Technologies, Inc. (disk drive component
manufacturer) Term 09/30/02 4,278,261
7,000 Knowles Electronics (transducers manufacturer) Term B 06/29/07 6,970,831
9,000 Mitel Corporation (semiconductor manufacturer) Term B 06/02/04 8,999,972
9,008 Sarcom, Inc. (systems integration) Term 11/20/02 9,007,937
2,889 Semiconductor Components (semiconductors) Term B 08/04/06 2,918,588
3,111 Semiconductor Components Term C 08/04/07 3,143,290
7,453 Stonebridge Technologies, Inc. (enterprise computing
systems/services) Term 07/27/05 7,453,125
8,293 Viasystems Group, Inc. (electronic equipment) Term C 06/30/05 8,292,869
--------------
70,539,556
--------------
FINANCE: 5.0%
837 Alliance Data Systems (financial services) Term A 03/04/06 837,058
14,700 Alliance Data Systems Term B 10/31/05 14,700,000
2,149 Alliance Data Systems Term 03/04/06 2,149,295
6,762 Bridge Information Systems (news services) Term B 05/29/05 6,761,573
2,097 Bridge Information Systems Lease-4 04/01/01 2,097,798
4,039 Bridge Information Systems Lease-6 04/01/01 4,038,983
5,794 National Partnership Investments Corp. (asset management) Term 06/30/01 5,793,725
5,141 Rent -A-Center, Inc. (home appliances rental company) Term B 01/31/06 5,106,028
6,888 Rent -A-Center, Inc. Term C 01/31/07 6,840,640
9,000 United Rental, Inc. (equipment leasing) Term C 06/30/06 8,978,955
3,833 Value Asset Management, Inc. (money management) Term B 04/28/03 3,833,333
--------------
61,137,388
--------------
GROCERY: 2.1%
5,000 Grand Union Capital Corporation (retail grocery) Term 08/17/03 4,983,335
1,983 Pathmark Stores, Inc. (retail grocery) Revolver 06/15/01 1,983,471
4,115 Pathmark Stores, Inc. Term A 06/15/01 4,114,613
13,969 Pathmark Stores, Inc. Term B 12/15/01 13,968,766
506 Schwegmann Giant Supermarket (retail grocery)(1)(3) Term B 07/30/02 303,668
--------------
25,353,853
--------------
</TABLE>
13
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ---------- --------------------------------------------------------- ---------- -------- --------------
<S> <C> <C> <C> <C>
HOME AND OFFICE FURNISHINGS, HOUSEWARES AND
DURABLE CONSUMER PRODUCTS: 2.6%
$723 American Blind and Wallpaper (furniture and home
furnishings) Term 12/29/05 $ 722,983
8,560 Desa International (heaters and fireplaces) Term B 11/26/04 8,479,750
4,983 ICON Health & Fitness Co. (exercise equipment) Term B 11/29/04 4,982,813
5,036 ICON Health & Fitness Co. Term C 03/01/05 5,036,048
4,750 ICON Health & Fitness Co. Term 08/31/04 4,750,000
2,151 Imperial Home Decor Group(wall covering)(2)(3) Term A 03/13/05 1,613,257
3,818 Imperial Home Decor Group(2)(3) Term B 03/13/05 2,863,845
1,492 Imperial Home Decor Group(2)(3) Term C 03/13/06 1,119,275
2,492 Imperial Home Decor Group(2)(3) Revolver 03/13/05 1,867,935
--------------
31,435,906
--------------
HOTELS, MOTELS, INNS AND GAMING: 5.5%
3,000 Aladdin Gaming, LLC (hotel casino) Term B 02/28/06 3,000,000
4,500 Aladdin Gaming, LLC Term C 02/28/06 4,500,000
4,950 Extended Stay America (long-term hotels) Term B 12/31/03 4,920,612
3,000 Felcor Lodging Trust (hotel/lodging) Term B 03/31/04 3,000,000
2,992 Horseshoe Gaming Holdings (hotel casino) Term B 09/30/06 3,006,529
5,989 Pebble Beach Co. (golf resorts) Term B 07/30/06 6,017,791
10,000 Station Casinos, Inc. (hotel casino) Term 12/31/05 10,000,000
9,975 Strategic Hotel Capital, Inc. (hotel/lodging) Term B 11/09/04 10,012,406
5,000 Wyndham Int'l. (hotel owner operator) Term 06/30/04 4,935,155
18,500 Wyndham Int'l. Term 06/30/06 18,040,386
--------------
67,432,879
--------------
INSURANCE: 1.0%
2,235 TRG Holdings Corp. (insurance run-off) Term 01/07/03 2,235,000
9,900 USI Holdings (insurance brokerage) Term 09/17/04 9,900,000
--------------
12,135,000
--------------
LEISURE, AMUSEMENT, MOTION PICTURES
AND ENTERTAINMENT: 6.1%
3,675 AMFAC Parks and Resorts (park services operator) Term B 09/04/04 3,647,438
3,675 AMFAC Parks and Resorts Term C 09/30/04 3,647,438
9,437 Fitness Holdings Worldwide (owner/operator of fitness
centers) Term B 11/01/06 9,429,535
8,437 Fitness Holdings Worldwide Term C 11/01/07 8,425,637
9,800 Four Media Co. (film services) Term B 09/10/04 9,800,000
10,000 Metro-Goldwyn-Mayer (Media and broadcast) Term A 03/31/05 9,820,830
9,000 Metro-Goldwyn-Mayer Term B 03/31/06 8,908,596
14,925 Panavision, Inc. (movie cameras) Term B 06/05/05 14,925,000
5,000 SFX Entertainment (concert promotion / venue operation) Term B 06/30/06 5,003,125
--------------
73,607,599
--------------
</TABLE>
14
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ---------- ------------------------------------------------------------ ------------ -------- --------------
<S> <C> <C> <C> <C>
MACHINERY (NONAGRICULTURE, NONCONSTRUCTION,
NONELECTRONIC): 2.5%
$ 5,000 Alliance Laundry Systems (commercial laundry equipment) Term B 05/01/05 $ 5,000,000
14,925 Anthony Crane (equipment rental) Term B 07/20/06 14,925,000
8,313 Clearing-Niagara (metal stamping press manufacturer)(2)(3) Term 10/18/04 6,234,549
4,671 Morris Material Handling (industrial cranes) Term B 03/31/05 4,670,693
--------------
30,830,242
--------------
MEDICAL SERVICES & PRODUCTS: 3.7%
1,959 Caremark, Rx (physician practice management) Term A 06/09/01 1,959,443
956 Caremark, Rx Term B 06/09/01 955,641
10,000 Compdent Corp. (dental benefits provider) Term B 06/30/06 10,000,000
3,317 Concentra Operating Company, Inc.
(occupational health management) Term B 06/30/06 3,316,667
1,658 Concentra Operating Company, Inc. Term C 06/30/07 1,658,333
5,721 Dade Behring (medical diagnostic equipment) Term B 06/30/06 5,736,743
5,721 Dade Behring Term C 06/30/07 5,736,743
4,887 Doshi Diagnostics Imaging Service (radiology and medical
testing) Term 05/15/05 4,887,500
3,428 Healthcare Direct, Inc. (medical device retailer) Term A 08/01/04 3,427,800
4,038 Healthcare Direct, Inc. Term B 08/01/06 4,038,500
2,898 Vision Twenty-One, Inc. (eye care physician practice
management) Term C 06/30/05 2,898,018
--------------
44,615,388
--------------
MINING, STEEL, IRON AND NONPRECIOUS METALS: 0.3%
3,750 National Refractories, Inc. (kiln lining materials) Term C 09/30/01 3,750,000
--------------
3,750,000
--------------
OIL AND GAS: 3.9%
9,000 Clark Refining and Marketing (petroleum refining/
distribution) Term 11/15/04 9,000,000
12,967 Key Energy Group, Inc. (oil field services) Term B 10/26/04 12,991,814
7,276 Key Energy Group, Inc. Revolver 10/26/03 7,066,815
Delayed
1,470 Perf-O-Log (oil field services) Term (B) 08/11/03 1,470,000
3,910 Perf-O-Log Term B 08/11/03 3,910,000
2,456 Perf-O-Log Term C 08/11/04 2,456,250
11,092 Plains Scurlock LP (oil pipeline) Term B 06/29/04 11,091,627
--------------
47,986,506
--------------
PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 4.7%
35,275 Boston Chicken, Inc. (quick service restaurant)(2)(3) Lease C 10/17/98 17,637,494
4,223 Boston Chicken, Inc.(2)(3) Revolver A 10/17/98 2,111,555
5,379 Boston Chicken, Inc.(2)(3) Revolver B 12/01/99 2,689,605
4,761 Brickman Group, Inc. (landscaping) Term B 12/31/05 4,760,968
8,781 Coinmach Laundry Corp. (commercial/industrial laundry) Term B 06/30/05 8,780,692
2,290 Papa Gino's, Inc. (quick service restaurants) Term A-2 08/31/04 2,289,636
3,768 Papa Gino's, Inc. Term A 02/19/02 3,768,250
14,577 Papa Gino's, Inc. Term B 02/19/04 14,576,739
--------------
56,614,939
--------------
</TABLE>
15
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- ---------- -------------------------------------------------------------- ---------- -------- --------------
<S> <C> <C> <C> <C>
PERSONAL AND NONDURABLE CONSUMER PRODUCTS: 3.1%
$1,468 AM Cosmetics (cosmetics and skin care products) Revolver 05/30/04 $ 1,468,396
1,305 AM Cosmetics Term A 06/30/03 1,305,151
2,610 AM Cosmetics Term B 12/31/04 2,610,303
1,960 American Safety Razor (consumer products) Term A 04/30/05 1,960,000
6,250 Buhrmann NV (office products distribution) Term B 10/26/07 6,299,219
3,944 Centis (office and legal supplies) Term B 09/30/05 3,944,444
3,456 Centis Term C 09/30/06 3,456,250
8,440 Medtech Products (non-prescription consumer medications) Term B 10/15/02 8,439,642
3,170 Norwood Promotional Products (licensed products) Term B 05/12/06 3,173,815
2,824 Norwood Promotional Products Term C 11/30/06 2,827,059
1,128 Paint Sundry Brands, LLC (paint brushes & accessories) Term B 08/11/05 1,127,549
1,104 Paint Sundry Brands, LLC Term C 08/11/06 1,104,305
--------------
37,716,133
--------------
PERSONAL TRANSPORTATION: 0.8%
9,846 Neoplan USA Corporation (transit bus manufacturer) Term B 05/29/05 9,845,704
--------------
9,845,704
--------------
PRINTING AND PUBLISHING: 2.0%
3,282 Von Hoffman Press, Inc. (textbook manufacturer) Term B 05/22/04 3,282,143
10,662 Von Hoffman Press, Inc. Term C 05/22/05 10,662,500
9,850 Weider Publications, Inc. (magazine publications) Term 09/18/05 9,850,000
--------------
23,794,643
--------------
RESIDENTIAL LONG-TERM CARE & HOSPITALS: 6.3%
6,243 Community Health Systems (accute care hospitals) Term B 12/31/03 6,210,131
6,243 Community Health Systems Term C 12/31/04 6,212,728
6,429 Community Health Systems Term D 12/31/05 6,399,662
6,000 Covenant Care California, Inc. (long-term healthcare) Term 04/30/01 6,000,000
14,338 Fountain View, Inc. (long-term healthcare) Term B 03/31/04 14,338,235
4,401 Mellon Financial Services Corp. #4 (long-term care) Lease(C) 09/30/04 3,740,641
2,766 Genesis Health Ventures, Inc. (elderly healthcare & support) Term A 09/30/03 2,351,366
3,489 Genesis Multicare Co. (elderly healthcare & support) Term A 09/30/03 2,965,716
1,285 Magellan Health Services (managed behavioral care) Term B 02/28/05 1,284,891
1,285 Magellan Health Services Term C 02/28/06 1,284,891
14,705 Paragon Health Network, Inc.(2)(3) Term B 04/30/05 9,558,572
8,798 Paragon Health Network, Inc.(2)(3) Term C 03/31/06 5,718,762
13,134 Vencor, Inc. (long-term healthcare)(2)(3) Term B 05/05/05 11,163,954
--------------
77,229,549
--------------
RETAIL STORES: 3.6%
9,849 Amscan Holdings, Inc. (party goods) Axel(A) 12/31/04 9,849,246
3,652 CSK Auto, Inc. (auto parts retailer) Term B 10/31/03 3,642,870
666 Murray's Discount Auto Stores (auto parts retailer) Revolver 01/26/06 665,833
13,651 Murray's Discount Auto Stores Term 06/30/03 13,651,155
3,476 Peebles, Inc. (department store chain) Term A 04/30/01 3,476,012
12,774 Peebles, Inc. Term B 04/30/02 12,774,465
--------------
44,059,581
--------------
</TABLE>
16
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- --------- -------------------------------------------------------------- -------- -------- --------------
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS: 13.5%
$ 8,167 American Celluar Corporation (rural cellular phone operator) Term B 12/29/00 $ 8,166,667
9,333 American Celluar Corporation Term C 12/29/00 9,333,333
2,500 American Tower LP (telecommunication towers) Term B 12/31/07 2,518,555
4,950 ICG Communications, Inc. (telecom / CLEC) Term B 03/31/06 4,950,000
2,801 Microcell Connexions Inc. (wireless communications) Term B 03/17/06 2,802,538
8,000 Microcell Connexions Inc. Term E 03/17/06 8,017,504
9,536 Nextel Communications Inc. (wireless communications) Lease 03/15/06 9,536,207
16,500 Nextel Finance Co. (wireless communications) Term B 06/30/08 16,718,939
16,500 Nextel Finance Co. Term C 12/31/08 16,718,939
2,109 Pacific Coin (pay phone operator) Term A 12/31/02 2,003,175
6,615 Pacific Coin Term B 12/31/04 6,284,250
7,450 Paging Network, Inc. (wireless messaging) Revolver 12/31/04 7,450,000
2,000 Pegasus Media & Communications (cable distributor) Term B 04/30/05 2,005,835
6,000 Pinnacle Towers, Inc. (telecommunication towers) Term B 06/30/07 6,000,000
9,958 Teletouch Communications (wireless messaging) Term B 11/30/04 9,958,333
10,000 Teligent, Inc. (facility-based wireless communications) Term 07/01/02 10,000,000
7,045 Tripoint Global Communications (antenna manufacturer) Term B 05/28/06 7,045,320
12,000 TSR Wireless, LLC (wireless messaging) Term 06/30/05 12,000,000
22,500 Voicestream Wireless (personal communications services) Term B 02/25/09 22,500,000
--------------
164,009,595
--------------
TEXTILES AND LEATHER: 5.6%
9,219 Accessory Network Group (personal/clothing accessories) Term B 08/13/05 9,219,112
8,363 Galey & Lord (textile manufacturer) Term B 03/23/05 8,362,693
5,932 Galey & Lord Term C 03/23/06 5,932,380
4,268 Harriet & Henderson (yarn manufacturer) Term A 06/12/00 4,268,158
420 Harriet & Henderson Term C 01/20/04 419,553
6,650 Humphreys, Inc. (belts and personal leather goods) Term B 11/15/03 6,317,500
9,975 Malden Mills (textile/apparel manufacturer) Term B 10/28/06 9,975,000
4,554 Scovill Fasteners Inc. (metal/plastic fasteners) Term 11/26/03 4,553,571
8,421 Targus Group International, Inc. (computer luggage) Term B 01/05/05 8,421,032
1,427 Targus Group International, Inc. Term C 01/05/05 1,427,294
9,851 Tartan Textile Services (commercial linen supply) Term B 05/13/05 9,850,756
--------------
68,747,049
--------------
Total Senior Loans -- 136.3% 1,659,514,502
--------------
(Cost $1,677,876,130)
</TABLE>
17
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
OTHER CORPORATE DEBT
<TABLE>
<CAPTION>
Principal
Amount Loan Stated
(000's) Industry/Borrower Type Maturity Value
- --------- ------------------------------------------------------- -------- -------- -----------
<S> <C> <C> <C> <C>
AUTOMOBILE: 0.5%
6,000 Capital Tool & Design (brake backing plates) Sub. Note 07/26/03 $ 6,000,000
-----------
6,000,000
-----------
FINANCE: 0.8%
$10,000 Value Asset Management, Inc. (money management) Sr.Sub. Bridge 08/31/05 10,000,000
-----------
10,000,000
-----------
PERSONAL AND NONDURABLE CONSUMER PRODUCTS: 0.4%
2,764 AM Cosmetics (cosmetics and skin care products) Senior Sub 05/30/07 2,764,003
2,875 Paint Sundry Brands, LLC (paint brushes & accessories) Sub. Note 08/11/08 2,875,000
-----------
5,639,003
-----------
Total Other Corporate Debt -- 1.7% 21,639,003
-----------
(Cost $18,875,000)
COMMON STOCK AND PREFERRED STOCK
Shares
- ---------
APPAREL PRODUCTS: 0.0%
13,294 Butterick Company, Inc. (sewing aids)@(R) $ 17,653
-----------
DIVERSIFIED/CONGLOMERATE SERVICES: 0.0%
60,056 Staff Leasing, Inc. (employee leasing)@ 330,308
-----------
HOME AND OFFICE FURNISHINGS: 0.1%
80,400 American Blind and Wallpaper (furniture and home
furnishing)@(R) 1,045,200
-----------
PERSONAL AND NONDURABLE CONSUMER PRODUCTS: 0.0%
37,197 AM Cosmetics (cosmetics and skin care products)@ 385,617
-----------
RESTAURANTS: 0.5%
413,980 America's Favorite Chicken Co. -- common (quick service
restaurant chain)@(R) 5,733,623
-----------
TEXTILES AND LEATHER: 0.1%
127,306 Dan River, Inc. -- common (diversified textiles)@ 700,183
-----------
Total Common Stock and Preferred Stock -- 0.7% 8,212,584
-----------
(Cost $1,637,196)
</TABLE>
18
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
STOCK PURCHASE WARRANTS AND OTHER SECURITIES
<TABLE>
<CAPTION>
Shares
- --------
<S> <C> <C> <C>
1 Autotote Systems, Inc., Warrant representing 48,930 common
shares (designer and manufacturer of wagering equipment),
Expires 10/30/03@(R) $ 40,438
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 (Asset Management)(R) 250,000
80,634 Capital Tool & Design, Warrants representing 80,634 common
shares (brake backing plates)@(R) 256,658
19,000 Covenant Care, Inc., Warrants representing 19,000 common
shares (long-term healthcare facilities)@(R) 177,270
449 Murray's Discount, Warrants representing 5% equity stake on a
fully diluted basis (retail stores)@(R) 5
---------------
Total Stock Purchase Warrants and Other Securities -- 0.1% 724,371
---------------
(Cost $0)
Total Investments (Cost $1,698,388,326) (5) 138.8% $ 1,690,090,460
Liabilities in Excess of Cash and Other Assets -- Net (38.8)% (472,751,352)
-------- ---------------
Net Assets 100.0% $ 1,217,339,108
===============
</TABLE>
- ----------
@ Non-income producing security.
(A) Axel describes an amortizing extended term loan with limited call
protection.
(B) Term Loan not fully drawn.
(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 $1,698,388,326 and net unrealized
depreciation consists of the following:
Gross Unrealized Appreciation $ 18,798,813
Gross Unrealized Depreciation (27,096,679)
-------------
Net Unrealized Depreciation $ (8,297,866)
=============
19
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of February 29, 2000
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities at value (Cost $1,698,388,326) $ 1,690,090,460
Receivables:
Interest 19,788,376
Other 45,029
Prepaid expenses 329,164
Prepaid arrangement fees on notes payable 653,703
---------------
Total assets 1,710,906,732
---------------
LIABILITIES:
Notes payable 484,000,000
Overdraft payable to custodian 1,926,781
Deferred arrangement fees on senior loans 1,999,825
Accrued interest payable 3,139,584
Payable to affiliates 251,677
Accrued expenses 2,249,757
---------------
Total liabilities 493,567,624
---------------
NET ASSETS (equivalent to $8.95 per share, based
on 136,036,161 shares of beneficial interest
authorized and outstanding, no par value) $ 1,217,339,108
===============
Net Assets Consist of:
Paid in capital $ 1,286,204,996
Undistributed net investment income 11,931,585
Accumulated net realized loss on investments (72,499,607)
Net unrealized depreciation of investments (8,297,866)
---------------
Net assets $ 1,217,339,108
===============
See Accompanying Notes to Financial Statements.
20
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Year Ended February 29, 2000
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 148,319,651
Arrangement fees earned 3,650,648
Dividends 22,500
Other 2,711,289
-------------
Total investment income 154,704,088
-------------
EXPENSES:
Interest 30,490,836
Investment management fees 13,076,669
Administration fees 2,139,091
Revolving credit facility fees 582,010
Professional fees 393,818
Reports to shareholders 383,919
Transfer agent and registrar fees 378,922
Custodian fees 362,732
Recordkeeping and pricing fees 228,839
Miscellaneous expense 94,574
Trustees' fees 64,898
Insurance expense 24,202
-------------
Total expenses 48,220,510
Less: Earnings credits (10,437)
-------------
Net expenses 48,210,073
-------------
Net investment income 106,494,015
-------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized loss on investments (37,913,867)
Change in unrealized depreciation of investments (2,330,185)
-------------
Net loss on investments (40,244,052)
-------------
Net increase in net assets resulting from operations $ 66,249,963
=============
See Accompanying Notes to Financial Statements.
21
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
February 29, February 28,
2000 1999
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 106,494,015 $ 97,381,273
Net realized loss on investments (37,913,867) (6,313,758)
Change in unrealized depreciation on investments (2,330,185) (7,547,808)
--------------- ---------------
Net increase in net assets resulting from operations 66,249,963 83,519,707
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (104,450,361) (99,153,106)
CAPITAL SHARE TRANSACTIONS:
Issuance from dividend reinvestment 9,369,771 14,460,902
Sale of shares in connection with Shelf offerings 43,604,392 169,335,030
--------------- ---------------
Net increase from capital share transactions 52,974,163 183,795,932
--------------- ---------------
Total increase in net assets 14,773,765 168,162,533
NET ASSETS:
Beginning of year 1,202,565,343 1,034,402,810
--------------- ---------------
End of year (including undistributed net investment income
of $11,931,585 and $9,887,931, respectively) $ 1,217,339,108 $ 1,202,565,343
=============== ===============
SUMMARY OF CAPITAL SHARE TRANSACTIONS:
Shares issued in payment of distributions from net
investment income 1,031,864 1,537,475
Shares sold in connection with Shelf offerings 4,798,146 17,904,188
--------------- ---------------
Net increase in shares outstanding 5,830,010 19,441,663
=============== ===============
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS for the Year Ended February 29, 2000
- --------------------------------------------------------------------------------
INCREASE (DECREASE) in Cash
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 144,839,630
Dividends received 22,500
Facility fees paid (894,461)
Arrangement fee received 2,569,463
Other income received 2,766,607
Interest paid (29,876,126)
Other operating expenses paid (15,374,684)
Purchases of portfolio securities (1,224,017,803)
Proceeds from disposition of portfolio securities 1,220,401,356
---------------
Net cash provided by operating activities 100,436,482
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (95,080,590)
Overdraft financing 1,039,716
Proceeds from share offerings 43,604,392
Loan advance (50,000,000)
---------------
Net cash flows used in financing activities (100,436,482)
---------------
Net change in cash --
Cash at beginning of year --
---------------
Cash at end of year $ --
===============
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 $ 66,249,963
---------------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Decrease in investments in securities 36,627,605
Increase in interest receivable (3,480,021)
Decrease in other assets 55,318
Increase in prepaid arrangement fees on notes payable (312,451)
Decrease in prepaid expenses 487,496
Decrease in deferred arrangement fees on senior loans (1,081,185)
Increase in accrued interest payable 614,710
Increase in payable to affiliates 251,677
Increase in accrued expenses 1,023,370
---------------
Total adjustments 34,186,519
---------------
Net cash provided by operating activities $ 100,436,482
===============
See Accompanying Notes to Financial Statements.
23
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended February 28 or February 29,
-------------------------------------------------------------------------------------
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 $ 9.24 $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02
Net investment income 0.79 0.79 0.87 0.82 0.89 0.74
Net realized and unrealized gain
(loss) on investments (0.30) (0.10) (0.13) (0.02) (0.08) 0.07
---------- ---------- ---------- ---------- -------- --------
Increase in net asset value from
investment operations 0.49 0.69 0.74 0.80 0.81 0.81
Distributions from net investment
income (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 $ 8.95 $ 9.24 $ 9.34 $ 9.45 $ 9.61 $ 9.66
========== ========== ========== ========== ======== ========
Closing market price at end of
period $ 8.25 $ 9.56 $ 10.31 $ 10.00 $ 9.50 $ 8.75
TOTAL RETURN
Total investment return at closing
market price(3) (5.88)% 1.11% 12.70% 15.04%(5) 19.19% 3.27%(5)
Total investment return at net
asset value(4) 5.67% 7.86% 8.01% 8.06%(5) 9.21% 5.24%(5)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $1,217,339 $1,202,565 $1,034,403 $1,031,089 $862,938 $867,083
Average borrowings (000's) $ 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) 1.00%(8) 1.05%(8) 1.04% 1.13% -- --
Expenses 2.79%(8) 2.86%(8) 2.65% 1.92% -- --
Net investment income 6.12%(8) 6.00% 6.91% 7.59% -- --
Ratios to average net assets:
Expenses (before interest and
other fees related to revolving
credit facility) 1.43%(8) 1.50%(8) 1.39% 1.29% -- --
Expenses 4.00%(8) 4.10%(8) 3.54% 2.20% 1.23% 1.30%
Net investment income 8.77%(8) 8.60% 9.23% 8.67% 9.23% 7.59%
Portfolio turnover rate 71% 68% 90% 82% 88% 108%
Shares outstanding at end of
period (000's) 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.
24
<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.
25
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
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 January 31, 2000, a new
valuation policy went into effect. On a daily basis, the Trust will use
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,
continue to be valued using the Trust's valuation procedures, which
ascertain the current value of a loan based on fundemental analysis. Senior
loans are valued at fair value in the absence of readily ascertainable
market values. Fair value is determined by Pilgrim Investments, Inc. (the
"Manager") under procedures established and monitored by the Trust's Board
of Trustees. In valuing a loan, the Manager will consider, among other
factors: (i) the creditworthiness of the corporate issuer and any
interpositioned bank; (ii) the current interest rate, period until next
interest rate reset and maturity date of the senior corporate loan; (iii)
recent market prices for similar loans, if any; and (iv) recent prices in
the market for instruments with similar quality, rate, period until next
interest rate reset, maturity, terms and conditions. The Manager may also
consider prices or quotations, if any, provided by banks, dealers or
pricing services which may represent the prices at which secondary market
transactions in the loans held by the Trust have or could have occurred.
However, because the secondary market in senior loans has not yet fully
developed, the Manager will not rely solely on such prices or quotations.
Securities for which the primary market is a national securities exchange
or the NASDAQ National Market System are stated at the last reported sale
price on the day of valuation. Debt and equity securities traded in the
over-the-counter market and listed securities for which no sale was
reported on that date are valued at the mean between the last reported bid
and asked price. Securities other than senior loans for which reliable
quotations are not readily available and all other assets will be valued at
their respective fair values as determined in good faith by, or under
procedures established by, the Board of Trustees of the Trust. Investments
in securities maturing in less than 60 days are valued at amortized cost,
which, when combined with accrued interest, approximates market value.
B. FEDERAL INCOME TAXES. It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no federal income tax provision is
required.
At February 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
to the recorded investment of the loan. Senior loans are returned to
26
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
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 year ended February 29, 2000, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term notes,
totaled $1,224,017,803 and $1,219,424,272, respectively. At February 29, 2000,
the Trust held senior loans valued at $1,659,514,502 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
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
27
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
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 $7,520,847 was 0.62% of net assets at February 29, 2000) $ 1
====
</TABLE>
NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
The Trust has entered into an Investment Management Agreement with Pilgrim
Investments, Inc. (the "Manager") a wholly-owned subsidiary of Pilgrim Group,
Inc. ("PG"), to provide advisory and management services. The Investment
Management Agreement compensates the Manager with a fee, computed daily and
payable monthly, at an annual rate of 0.80% of the Trust's average daily net
assets plus borrowings. Prior to August 6, 1998, the Investment Management
Agreement compensated the Manager at an annual rate of 0.85% of the Trust's
average daily net assets plus borrowings up to $700 million; 0.75% of the
average daily net assets plus borrowings of $700 million to $800 million; and
0.65% of average daily net assets plus borrowings in excess of $800 million.
The Manager reduced its fee for a period of three years from the Expiration Date
of the November 12, 1996 Rights Offering to 0.60% of the average daily net
assets, plus the proceeds of any outstanding borrowings, over $1.15 billion. As
of November 11, 1999, the management reduction fee agreement expired and
currently the Manager is compensated at an annual rate of 0.80% of the Trust's
average daily net assets plus the proceeds of any outstanding borrowings.
The Trust has also entered into an Administration Agreement with Pilgrim
Investments, Inc. to provide administrative services and also to furnish
facilities. The Administration Agreement compensates the Administrator with a
fee, computed daily and payable monthly, at an annual rate of 0.15% of the
Trust's average daily net assets plus borrowings up to $800 million; and 0.10%
of the average daily net assets plus borrowings in excess of $800 million.
NOTE 4 -- COMMITMENTS
The Trust has entered into both a 364 day and a five year revolving credit
agreement, collateralized by assets of the Trust, to borrow up to $630 million
from a syndicate of major financial institutions maturing July 15, 2003.
Borrowing rates under these agreements are based on a fixed spread over LIBOR,
28
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
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 February 29, 2000, was $484 million, at
a weighted average interest rate of 6.2%, which represented 28.4% of net assets
plus borrowings. Average borrowings for the year ended February 29, 2000 were
$524,019,126 and the average annualized interest rate was 5.9%.
As of February 29, 2000, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
Alliance Data Systems $ 1,785,714
AM Cosmetics 163,043
Breed Technologies 186,322
Decisione One Corp. 59,000
Huntsman Corporation 1,454,820
Key Energy Group 3,424,000
Liberman Broadcasting, Inc. 190,400
Mafco Finance Co. 1,514,422
Meditrust Corp. 5,210,050
Murray's Discount Auto Stores 1,334,167
Paging Network 2,550,000
Papa Gino's Inc. 47,235
Pathmark Stores Inc. 3,283,824
Schwegmann Giant Super Market 1,488,400
-----------
$22,691,397
===========
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 February 29, 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 year ended February 29, 2000, expenses related to the offerings, in
the amount of $282,921, were charged against the proceeds received upon issuance
of the shares. In addition, Pilgrim Securities, Inc. a registered broker dealer
and affiliate of the Trust earned $202,141 in commissions from the issuance of
shares under the shelf offerings during the year ended February 29, 2000.
NOTE 6 -- CUSTODIAL EARNINGS CREDITS
State Street Bank, Kansas City ("SSBKC") 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. For the year ended February
29, 2000, the Trust received $10,437 in earnings credits from SSBKC.
NOTE 7 -- AFFILIATED TRANSACTIONS
During the year ended February 29, 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 $33,352,962 and the proceeds and cost of sold loans were $102,266,473
and $102,425,352, respectively, excluding any benefit to the Trust from the
recognition of deferred arrangement fees.
29
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of February 29, 2000
- --------------------------------------------------------------------------------
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 February 29, 2000, the Trust held 2.1% of its total assets in
subordinated and uncollateralized loans.
NOTE 9 -- SUBSEQUENT EVENTS
Subsequent to February 29, 2000, the Trust paid the following dividends from net
investment income:
Per Share Amount Declaration Date Record Date Payable Date
---------------- ---------------- ----------- ------------
$0.067 02/29/2000 03/10/2000 03/22/2000
0.073 03/31/2000 04/10/2000 04/24/2000
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.
The Trust's Manager considered the evolving nature of the syndicated loan market
and the potential benefits to the Trust and its shareholders of revising the
restriction to permit the Trust to invest in loans other than Senior Loans and
the increase in the number of attractive investment opportunities available to
the Trust due to the change.
REPURCHASE OF SECURITIES BY CLOSED-END COMPANIES
In accordance with Section 23(c) of the Investment Company Act of 1940, and Rule
23c-1 under the Investment Company Act of 1940, the Trust may from time to time
purchase shares of beneficial interest of the Trust in the open market, in
privately negotiated transactions and/or purchase shares to correct erroneous
transactions.
SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program") which enables
investors to conveniently add to their holdings at reduced costs. Should you
desire further information concerning this Program, please contact the
Shareholder Servicing Agent at (800) 992-0180.
30
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and the Board of Trustees
Pilgrim Prime Rate Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Pilgrim Prime Rate Trust (the "Trust") as of
February 29, 2000, and the related statements of operations and cash flows for
the year then ended, and the statements of changes in net assets for each of the
years in the two-year period ended February 29, 2000 and the financial
highlights for each of the years in the five-year period ended February 29,
2000. These financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. For all
periods ending prior to March 1, 1995, the financial highlights were audited by
other auditors whose report thereon dated March 16, 1995, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of February 29, 2000, by examination and other procedures we
considered necessary. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the 2000 through 1996 financial statements and financial
highlights referred to above present fairly, in all material respects, the
financial position of Pilgrim Prime Rate Trust as of February 29, 2000, and the
results of its operations and its cash flows for the year then ended, and the
changes in its net assets for each of the years in the two-year period ended
February 29, 2000 and the financial highlights for each of the years in the
five-year period ended February 29, 2000, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Los Angeles, California
March 31, 2000
31
<PAGE>
Pilgrim Prime Rate Trust
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
The Trust is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise within 60 days of the Trust's fiscal year end (February 29,
2000) as to the federal tax status of distributions received by the Trust's
shareholders. Accordingly, the Trust is hereby advising you that the following
dividends were paid during the fiscal year ended February 29, 2000:
Per Share
Type of Dividend Amount Ex-Dividend Date Payable Date
---------------- -------- ---------------- ------------
Ordinary Income $0.0590 03/08/99 03/22/99
$0.0660 04/08/99 04/22/99
$0.0630 05/06/99 05/24/99
$0.0660 06/08/99 06/22/99
$0.0640 07/08/99 07/22/99
$0.0670 08/06/99 08/23/99
$0.0670 09/08/99 09/22/99
$0.0650 10/06/99 10/22/99
$0.0680 11/08/99 11/22/99
$0.0630 12/08/99 12/22/99
$0.0670 12/28/99 01/13/00
$0.0690 02/08/00 02/23/00
-------
Total $0.7840
=======
Corporate shareholders are generally entitled to take the dividend received
deduction on the portion of the Trust's dividend distributions that qualify
under tax law. The percentage of the Trust's fiscal year 2000 net investment
income dividends that qualify for the corporate dividends received deductions is
0%.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Trust. In January 2000, you
should have received an IRS Form 1099 DIV regarding the federal tax status of
the dividends and distributions received by you in calendar year 1999.
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Pilgrim Prime Rate Trust
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FUND ADVISORS AND AGENTS
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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(SM)
---------------------------
FUNDS FOR SERIOUS INVESTORS
U.S. EQUITY FUNDS
Pilgrim MagnaCap
Pilgrim LargeCap Leaders
Pilgrim Research Enhanced Index
Pilgrim Growth Opportunities
Pilgrim Growth Fund
Pilgrim LargeCap Growth
Pilgrim MidCap Value
Pilgrim MidCap Opportunities
Pilgrim MidCap Growth
Pilgrim Growth + Value
Pilgrim SmallCap Opportunities
Pilgrim SmallCap Growth
Pilgrim Bank and Thrift
INTERNATIONAL EQUITY FUNDS
Pilgrim Worldwide Growth
Pilgrim International Value
Pilgrim International Core Growth
Pilgrim International SmallCap Growth
Pilgrim Emerging Markets Value
Pilgrim Emerging Countries
Pilgrim Asia-Pacific Equity
INCOME FUNDS
Pilgrim Government Securities Income
Pilgrim 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
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.
PRANN 0200-042400
