Pilgrim America Prime Rate Trust
FIRST QUARTER REPORT
May 31, 1996
<PAGE>
Pilgrim America Prime Rate Trust
FIRST QUARTER REPORT
May 31, 1996
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Table of Contents
Letter to Shareholders.................................... 2
Shareholder Letter Footnotes.............................. 5
Statistics and Performance................................ 6
Performance Footnotes..................................... 8
Additional Notes and Information.......................... 9
Portfolio of Investments.................................. 12
Fund Advisor and Agents................................... 21
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Pilgrim America Prime Rate Trust
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LETTER TO SHAREHOLDERS
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Dear Fellow Shareholders:
During the first quarter ended May 31, 1996, Pilgrim America Prime Rate Trust
(the "Trust") continued to meet its objective of generating a high level of
current income while preserving capital.
PERFORMANCE
Distributions to shareholders during the quarter totaled $.20 per share,
providing a distribution rate of 8.39% based on the average dividend adjusted
month end NAV and 8.32% based on the average month end market price of the
Trust's common stock.(1) This compares favorably with the prime lending rate of
large commercial banks for their best customers which was 8.25% during the
quarter.
The Trust maintained its strong performance position in relation to its peers as
measured by Lipper Analytical Services, Inc. The Trust ranks first as measured
by NAV total return for the one, three and five year measurement periods ended
May 31, 1996. The Trust was rated among a total of seven, six and five funds for
the one, three and five year periods, respectively.(2)
For the three and five year periods ended May 31, 1996, the Trust had a five
star and a four star Morningstar risk-adjusted performance rating, respectively,
when rated among 87 and 63 taxable bond funds. The Trust's overall rating
through May 31, 1996 is four stars. Morningstar ranks funds' risk on a
percentile scale of 1 (lowest) to 100 (highest). The Trust's risk scores for the
three and five year periods place the Trust among the top 1% out of 30 and 25
Corporate Bond - General funds and the entire universe of 469 and 305 closed-end
funds as of May 31, 1996.(3)
FIRST QUARTER HIGHLIGHTS
On May 2, 1996, Trust shareholders approved the recommendation of management and
the Trustees to borrow up to 33 1/3% of net assets, including borrowings,
primarily to acquire additional income producing investments. On May 10, 1996,
the Trust entered into an agreement to borrow up to $215 million from a
syndicate of major banks led by Bank of America. Subsequently, the maximum
borrowing limit was increased to $255 million and, by agreement, it can be
increased further to $285 million. This four year revolving credit facility has
been designed to provide a spread on borrowings and
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Pilgrim America Prime Rate Trust
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LETTER TO SHAREHOLDERS
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approximate the other terms of the Trust's senior loan interests. The Trust's
borrowing rate under this loan agreement is .50% over LIBOR, or if lower, the
federal funds rate. The Trust also will pay a .125% fee for any amount
unborrowed. Management of the Trust does not intend to borrow unless it believes
that shareholders will receive a return which exceeds both the costs of
borrowing and the management fee to be paid to the portfolio manager for
managing the assets acquired with borrowing proceeds. The Trust expects to begin
borrowing under the new revolving loan agreement in June and gradually increase
borrowings to acquire additional senior loan interests during July and August as
appropriate opportunities arise. An additional benefit immediately available to
the Trust as a result of entering into the loan agreement is the ability to
substitute unused available borrowings in place of Trust assets previously set
aside in short term investments to satisfy unfunded credit commitments. These
previously set aside assets now can be productively invested in senior loan
interests.
During the period, declines and increases in the value of portfolio investments
and the Trust's strong secondary market performance combined to result in no
change in the Trust's NAV. While the NAV remained stable, the market price of
the Trust's shares increased. At the beginning of the quarter, NAV was $9.61 and
the Trust's shares price was $9.375, a market discount of 2.45%. On May 31,
1996, NAV was $9.61 and the Trust's shares closed at $9.625, a premium of 0.16%.
The average market price discount of the Trust's shares compared to NAV was a
low 1/2 of 1% during the quarter. We believe the narrowing of the market
discount is attributable, in part, to the growing confidence of financial
planners, brokers and shareholders in the stable credit quality of senior loan
interests generally. Also, increased retail interest in the Trust and similar
funds has provided strong market support for Trust shares.
Among the Trust's new commitments are Ralph's Grocery Company, Simmons Company,
Packard Bell Electronics, Inc. Glenoit Mills, Inc., and Softworld Services.
During the quarter, sales or repayments included Mary Kay Cosmetics, Inc. VSI
Corp., Silgan Corp., and Crown Paper Co.
Non-performing senior loans amounted to 1.93% of net assets at May 31, 1996,
compared to 1.58% at February 29, 1996. Trust borrowers generally are meeting
their operating and financial objectives and as a result management believes
that credit quality of the Trust's assets is satisfactory. Management will
continue to vigorously work to reduce non-performing senior loan interests.
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Pilgrim America Prime Rate Trust
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LETTER TO SHAREHOLDERS
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OUTLOOK
The outlook for interest rates continues to be relatively stable. It is our
belief based on the continued moderate strength of the economy, high capacity
utilization rates, firm commodity prices and relatively low unemployment, that
any movement in interest rates over the next few month is likely to be upward.
The interest rates on the Trust's senior loan interests will adjust as short
term rates change. Although the Trust's yield will change periodically, the
value of the Trust's assets generally will be unaffected as a result of interest
rate changes.
The supply of senior loan interests has remained relatively constant.
Competition from a growing number of new investors, however, has continued to
put downward pressure on yields.
The entire Trust management team is grateful to you for your support. As always,
we look forward to your comments and questions.
Sincerely,
/s/ Howard Tiffen
Howard Tiffen
Senior Vice President and
Senior Portfolio Manager
Pilgrim America Investments, Inc.
June 11, 1996
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SHAREHOLDER LETTER FOOTNOTES
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(1) The distribution rate is calculated by annualizing the dividends declared
in each month and dividing the resulting annualized dividend amount by the
Trust's net asset value or the NYSE closing price, as applicable at the end
of the period.
(2) Lipper Analytical Services, Inc. ranked the Trust for total return, without
deducting sales charges and assuming reinvestment of all dividends and
capital gains distributions.
(3) Morningstar's taxable bond fund category includes Corporate Bond-General,
Government Bond, International Bond and Multisector Bond funds. On
Morningstar's risk-adjusted performance rating system, funds falling into
the top 10% of all funds within their category are awarded five stars and
funds in the next 22.5% receive four stars. Morningstar ratings are
calculated from the fund's three, five and ten-year returns (with fee
adjustment) in excess of 90-day Treasury bill returns, and a risk factor
that reflects fund performance below 90-day Treasury bill returns. The
ratings are subject to change every month. Morningstar ranks funds within
the Corporate Bond - General category and the closed end universe for risk
for the three, five and ten year periods based upon their downside
volatility compared to a 90-day Treasury bill.
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.
The views expressed in this report reflect those of the portfolio manager,
only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions.
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STATISTICS AND PERFORMANCE as of May 31, 1996
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PORTFOLIO CHARACTERISTICS
Net Assets $864,424,625
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Assets Invested in Senior Loan Interests $843,182,432*
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Total Number of Senior Loan Interests 92
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Average Amount Outstanding per Loan $9,165,026
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Total Number of Industries 28
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Quarterly Portfolio Turnover Rate 23.51%
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Average Loan Amount per Industry $30,113,658
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Weighted Average Days to Interest Rate Reset 39 days
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Average Loan Maturity 64 months
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Average Age of Loans Held in Portfolio 12 months
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*Includes loans and other debt received through restructures
TOP 10 INDUSTRIES AS A TOP 10 SENIOR
% OF NET ASSETS LOAN INTERESTS HOLDINGS
AS A % OF NET ASSETS
Diversified Manufacturing 11.2% Riverwood International Corp. 3.5%
Food Stores 6.8% Aviall, Inc. 2.8%
Media/Broadcast 6.7% Pullman Company 2.5%
Paper Products 6.3% Sky Chef's International, Inc. 2.3%
Aerospace Products & Services 6.2% Graco Children's Products, Inc. 2.3%
Electronic Equipment 4.9% Liberty House, Inc. 2.3%
Industrial Equipment 4.6% MTF Acquisition Corp. 2.3%
Industrial Services 4.6% Titanium Metals, Inc. 2.3%
Metal Products 4.4% ICON Health & Fitness Co. 2.0%
Industrial Chemicals 3.3% Star Markets Co., Inc. 1.9%
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Pilgrim America Prime Rate Trust
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STATISTICS AND PERFORMANCE as of May 31, 1996
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DISTRIBUTION RATES
The following table sets forth the Trust's monthly dividend performance which is
summarized quarterly.
<TABLE>
<CAPTION>
SEC 30-Day SEC 30-Day Annualized Annualized
Prime Yield at Yield at Distribution Distribution
Quarter-ended Rate NAV(A) MKT(A) Rate at NAV(B) Rate at MKT(B)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
August 31, 1995 8.75% 10.01% 10.61% 8.92% 9.45%
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November 30, 1995 8.75% 9.17% 9.59% 9.02% 9.43%
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February 29, 1996 8.25% 8.08% 8.17% 8.47% 8.57%
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May 31, 1996 8.25% 8.26% 8.24% 8.45% 8.44%
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</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
(assuming rights were exercised and excluding sales charge and commission)(C,D)
NAV MKT
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Year to Date 3.18% 5.60%
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1 Year 8.79% 17.06%
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3 Years 8.14% 10.06%
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5 Years 7.75%(G) N/A
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Since Trust Inception(E) 8.58%(G) N/A
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Since Initial Trading on NYSE(F) N/A 10.82%
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See performance footnotes on page 8
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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 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 the dividends declared
in each month and dividing the resulting annualized dividend amount by the
Trust's net asset value (in the case of NAV) or the NYSE 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 closing price (in the
case of Market) on the last business day before the first day of the stated
period, with all dividends and distributions reinvested at the actual
reinvestment price. The Trust's average annual total returns on an NAV
basis assuming rights were exercised with a 3% sales charge through May 31,
1996 were 7.09% and 8.17% for the five-year and since inception periods,
respectively. The average annual total returns based on market price
assuming rights were exercised with a brokerage commission are not
presented.
(D) On December 27, 1994, the Trust issued to its shareholders transferable
rights which entitled the holders to subscribe for 17,958,766 shares of the
Trust's common stock at the rate of one share of common stock for each four
rights held. The offering was completed on January 27, 1995.
(E) Inception Date - May 12, 1988.
(F) Initial Trading on NYSE - March 9, 1992.
(G) 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 America Prime Rate Trust
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ADDITIONAL NOTES AND INFORMATION
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ANNUAL MEETING
A special meeting of shareholders was held at the offices of the Trust on May 2,
1996. A brief description of each matter voted upon as well as the voting
results are outlined below:
<TABLE>
<CAPTION>
Shares
Shares voted against Shares Broker
voted for or withheld abstained non-vote Total
--------- ----------- --------- -------- -----
I. Proposal for the election of Trustees:
<S> <C> <C> <C>
Mary A. Baldwin 53,657,033 292,252 -- -- 53,949,285
Al Burton 53,654,944 294,341 -- -- 53,949,285
Bruce S. Foerster 53,654,543 294,742 -- -- 53,949,285
Jock Patton 53,655,383 293,902 -- -- 53,949,285
Robert W. Stallings 53,657,233 292,052 -- -- 53,949,285
II. Approval of an amendment to the Trust's fundamental investment policies to expand its ability
to engage in borrowing transactions to the extent permitted under the Investment Company Act
of 1940, as amended:
39,452,612 4,345,127 3,641,723 6,509,823 53,949,285
III. Approval of an amendment to the Investment Management Agreement between the Trust and its
Investment Manager to provide that the Trust pay the Investment Manager at the current rate
schedule based on an expanded base of assets - the Trust's average daily net assets plus the
proceeds of any outstanding borrowings:
37,500,301 5,903,416 4,035,745 6,509,823 53,949,285
IV. Ratification of KPMG Peat Marwick LLP as independent auditors for the Trust for the fiscal
year ending February 28, 1997:
50,669,305 622,761 2,657,219 -- 53,949,285
V. Approval to transact such other business as may properly come before the special meeting of
shareholders or any adjournments thereof:
49,034,353 1,336,844 3,578,088 -- 53,949,285
</TABLE>
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Pilgrim America Prime Rate Trust
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ADDITIONAL NOTES AND INFORMATION
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WRITTEN REQUESTS
Please mail all account inquiries and other comments to:
Pilgrim America Prime Rate Trust Account Services
c/o Pilgrim America 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
information or other information, at 1-800-331-1080.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Trust shareholders are paid distributions in cash unless they elect to reinvest
the payments in additional shares of the Trust, at reduced brokerage
commissions, pursuant to the Dividend Reinvestment and Cash Purchase Plan. This
Plan also allows shareholders to make periodic cash purchases. For a copy of the
Plan, or for more information, contact our Shareholder Service Department at
1-800-331-1080.
STOCK DATA
The Trust's shares are traded on the New York Stock Exchange (Symbol: PPR). The
Trust's name changed to Pilgrim America Prime Rate Trust and its cusip number
changed to 720906 10 6 effective April 12, 1996. The Trust's NAV and market
price are published weekly 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 America Prime Rate Trust
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ADDITIONAL NOTES AND INFORMATION
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KEY FINANCIAL DATES - Calendar 1996 Dividends
DECLARATION DATE EX-DATE PAYABLE DATE
January 31 February 8 February 23
February 29 March 7 March 21
March 29 April 3 April 18
April 30 May 8 May 22
May 31 June 6 June 20
June 28 July 3 July 18
July 31 August 8 August 22
August 30 September 5 September 19
September 30 October 8 October 23
October 31 November 7 November 22
November 29 December 5 December 19
December 20 December 27 January 13, 1997
Record date will be two business days after each Ex-Date.
These dates are subject to change.
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PORTFOLIO OF INVESTMENTS as of May 31, 1996 (Unaudited)
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<TABLE>
<CAPTION>
SENIOR LOAN INTERESTS: 97.5%*
Principal
Amount Value
- --------- -----
(Dollar weighted portfolio interest reset period is 39 days)
<S> <C> <C>
Aerospace Products & Services: 6.2%
Aviall, Inc. (aircraft parts distributor)
$24,110,909 Term Loan B, maturing November 2000 $24,110,909
Dallas Airmotive, Inc. (aircraft engine maintenance)
8,000,000 Term Loan B, maturing March 2001 8,000,000
Grimes Aerospace Corp. (aerospace products)
2,477,291 Revolver, maturing December 1999 2,440,131
14,083,026 Term Loan, maturing December 1999 13,871,781
Gulfstream Delaware Corp. (aircraft manufacturer)
5,000,000 Term Loan, maturing March 1998 5,000,000
------------
53,422,821
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Apparel Products: 2.0%
Butterick Pattern Co. (sewing aids)
1,077,706 (1) Term Loan, matured May 1996 646,624
Humphreys, Inc. (belts and personal leather goods)
6,965,000 Term Loan B, maturing November 2003 6,965,000
Scovill Fasteners (metal fasteners for apparel products)
9,958,303 Term Loan B, maturing January 2003 9,958,303
------------
17,569,927
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Communications: 1.2%
Shared Technologies, Inc. (communication services)
10,000,000 Term Loan B, maturing March 2003 10,000,000
------------
Construction Products and Services: 2.9%
MTF Acquisition Corp. (paint and coating products)
19,500,000 Term Loan, maturing November 2002 19,500,000
The Presley Companies (homebuilder)
4,000,000 Revolver, maturing May 1997 4,000,000
United Building Materials, Inc. (stone and concrete products)
1,986,693 Term Loan, maturing December 1999 1,937,026
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25,437,026
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Container Products: 1.2%
Reid Plastics, Inc. (plastic bottle manufacturer)
10,000,000 Term Loan B, maturing January 2002 10,000,000
------------
Diversified Manufacturing: 11.2%
Cambridge Industries, Inc. (automotive plastics)
5,701,997 Term Loan B, maturing May 2002 5,701,997
</TABLE>
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PORTFOLIO OF INVESTMENTS as of May 31, 1996 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount Value
- --------- -----
<S> <C> <C>
Diversified Manufacturing (continued)
Cambridge Industries, Inc. (continued)
$6,414,682 Term Loan C, maturing November 2003 $6,414,682
2,850,985 Term Loan D, maturing May 2004 2,850,985
Graco Children's Products, Inc. (juvenile products)
19,850,000 Term Loan B, maturing June 2003 19,850,000
The Hawk Group (metal products and fabrication)
13,994,250 Term Loan B, maturing June 2002 13,994,250
KDI Corp. (defense and leisure products)
521,042 @(2) Term Loan A, maturing December 1996 325,652
13,187 @(2) Term Loan B, maturing December 1996 13,187
Pullman Company (transportation, industrial products)
3,994,719 Revolver, maturing December 1999 3,994,719
15,430,642 Term Loan A, maturing December 1999 15,430,642
2,580,600 Term Loan B, maturing December 1999 2,580,600
Rowe International, Inc. (vending machine, jukebox and currency changer)
900,000 Revolver, maturing December 1996 900,000
7,375,000 Term Loan C, maturing December 1996 6,121,250
Spalding & Evenflo Companies, Inc. (sporting goods, juvenile products)
7,955,056 Term Loan B, maturing October 2002 7,955,056
Worldwide Sports & Recreation Corp. (optics, airguns & sports products)
10,977,600 Term Loan B, maturing March 2001 10,703,160
------------
96,836,180
------------
Diversified Services/Entertainment: 2.9%
AMF Group (bowling centers and equipment)
7,169,811 Term Loan A, maturing May 2003 7,241,509
2,830,189 Term Loan B, maturing May 2004 2,858,491
Bankers Systems, Inc, (compliance services to banking industry)
6,912,500 Term Loan B, maturing November 2002 6,912,500
Staff Capital, L.P. (payroll and human resource services)
8,280,000 Term Loan, maturing December 1999 8,280,000
------------
25,292,500
------------
Electrical Equipment: 1.1%
Merkle-Korff Industries (custom industrial electric motors)
9,930,556 Term Loan B, maturing March 2003 9,930,556
------------
Electronic Equipment: 4.9%
Details, Inc. (prototype circuit boards)
7,000,000 Term Loan A, maturing February 2001 7,000,000
</TABLE>
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PORTFOLIO OF INVESTMENTS as of May 31, 1996 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount Value
- --------- -----
<S> <C> <C>
Electronic Equipment (continued)
Dictaphone Acquisition, Inc. (dictation and recording equipment)
$12,500,000 Term Loan B, maturing June 2002 $12,500,000
Elgar Electronics (electronic testing equipment)
5,000,000 Term Loan B, maturing March 2003 5,000,000
Intesys Technologies, Inc. (contract engineering and manufacturing)
8,780,488 Term Loan B, maturing December 2001 8,780,488
K-Tec Holdings (telephone and communications equipment)
3,485,634 Term Loan B, maturing March 2004 3,485,634
3,983,824 Term Loan C, maturing March 2004 3,983,824
Packard Bell Electronics, Inc. (personal computer manufacturer)
1,507,691 Revolver, maturing April 1997 1,507,691
------------
42,257,637
------------
Food/Tobacco Products and Services: 1.6%
Bumble Bee Seafoods, Inc. (canned seafood)
2,562,500 Term Loan A, maturing July 1996 2,562,500
3,750,000 Term Loan B, maturing July 1996 3,750,000
Edward's Baking Co. (food service bakery)
4,488,750 Term Loan B, maturing September 2002 4,488,750
Liggett Group Inc. (tobacco products)
2,500,000 Revolver, maturing March 1997 2,500,000
Tom's Foods, Inc. (snack foods)
2,162,262 (1) Term Loan, maturing December 1998 864,905
------------
14,166,155
------------
Food Distribution: 1.2%
Rykoff-Sexton (food distributor)
6,756,757 Term Loan B, maturing October 2002 6,756,757
3,243,243 Term Loan C, maturing October 2002 3,243,243
------------
10,000,000
------------
Food Stores: 6.8%
Dominick's Finer Foods, Inc. (Chicago area supermarkets)
6,218,074 Term Loan C, maturing March 2003 6,233,619
6,218,074 Term Loan D, maturing September 2003 6,233,619
New Almac's Inc. (formerly Almac's, Rhode Island supermarkets)
1,000,000 @(3) Senior Unsecured Note, maturing August 1997 390,000
40,313 @(3) Senior Unsecured Note, maturing August 1997 15,722
Ralph's Grocery Co. (Southern California supermarkets)
4,984,323 Term Loan B, maturing June 2002 4,998,176
4,987,266 Term Loan C, maturing June 2003 5,001,126
4,986,838 Term Loan D, maturing February 2004 5,000,698
</TABLE>
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PORTFOLIO OF INVESTMENTS as of May 31, 1996 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount Value
- --------- -----
<S> <C> <C>
Food Stores (continued)
Smith's Food & Drug Co. (western states supermarkets)
$5,000,000 Term Loan B, maturing November 2003 $5,000,000
5,000,000 Term Loan C, maturing November 2004 5,000,000
5,000,000 Term Loan D, maturing August 2005 5,000,000
Star Markets Co., Inc. (Boston area supermarktes)
16,332,895 Term Loan B, maturing December 2001 16,332,895
------------
59,205,855
------------
Furniture & Garden Products: 1.2%
Interco (furniture)
2,975,000 Term Loan B, maturing March 2003 2,975,000
Simmons Company (mattress manufacturer)
7,000,000 Term Loan B, maturing March 2003 7,000,000
------------
9,975,000
------------
General Merchandise Retailing: 3.2%
Liberty House, Inc. (Hawaiian department store chain)
19,850,000 Term Loan B, maturing June 2002 19,850,000
Saks and Company (general merchandise retailer)
1,413,481 Term Loan A. maturing June 1998 1,413,481
4,205,313 Term Loan B, maturing June 2000 4,205,313
2,182,887 Term Loan B3, maturing June 2000 2,182,887
------------
27,651,681
------------
Health Care Services: 2.8%
Covenant Care, Inc, (long-term healthcare facilities)
4,865,385 Term Loan, maturing June 1999 4,865,385
568,980 Bridge Loan, maturing March 1997 568,980
H.E.C. Investments, Inc. (health club operator)
7,000,000 Term Loan B, maturing December 2000 7,000,000
Medical Specialities (home healthcare equipment leasing)
2,933,824 Term Loan A, maturing December 2001 2,933,824
5,486,250 Term Loan B, maturing December 2001 5,486,250
Mediq/PRN Life Support Inc. (hospital equipment leasing)
3,501,149 Term Loan, maturing September 1998 3,501,149
------------
24,355,588
------------
Health & Beauty Products: 3.2%
ICON Health & Fitness Co. (exercise equipment)
17,437,500 Term Loan B, maturing November 2001 17,437,500
Revlon Inc. (cosmetics manufacturer)
10,000,000 Term Loan, maturing March 1999 10,000,000
------------
27,437,500
------------
</TABLE>
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PORTFOLIO OF INVESTMENTS as of May 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- --------- -----
<S> <C> <C>
Industrial Chemicals: 3.3%
Cedar Chemical Corp. (specialized chemicals)
$9,250,000 Term Loan B, maturing October 2003 $9,250,000
Fiberite, Inc. (plastic composite manufacturer)
8,967,857 Term Loan B, maturing December 2001 8,967,857
National Propane Inc. (propane distribution)
9,916,667 Term Loan B, maturing June 2002 9,916,667
------------
28,134,524
------------
Industrial Equipment: 4.6%
Calmar (non-aerosol fluid dispensing systems)
2,842,857 Term Loan A, maturing September 2003 2,842,857
2,132,143 Term Loan B, maturing March 2004 2,132,143
Graphic Controls Corp, (industrial and medical charts)
9,979,439 Term Loan B, maturing September 2003 9,979,439
Intermetro Industries Inc. (storage and material transport products)
4,061,285 Term Loan B, maturing June 2001 4,061,285
457,212 Term Loan C, maturing December 2002 457,212
Jackson Products, Inc. (industrial safety equipment manufacturer)
4,973,913 Term Loan B, maturing September 2002 4,973,913
4,975,000 Term Loan C, maturing September 2003 4,975,000
Newflo Corporation (pump and valve manufacturer)
717,240 Term Loan, maturing February 1998 717,240
Schrader, Inc. (fluid/air control valve manufacturer)
9,964,286 Term Loan B, maturing November 2002 9,964,286
------------
40,103,375
------------
Industrial Services: 2.8%
Clean Harbors, (environmental services)
14,500,000 Term Loan, maturing May 2000 14,500,000
Primeco, Inc. (equipment rental)
9,920,000 Term Loan maturing December 2000 9,920,000
------------
24,420,000
------------
Media/Broadcast: 6.7%
Eller Media Company (outdoor advertising)
7,250,000 Term Loan B, maturing December 2003 7,250,000
Frontier Vision (cable television)
10,000,000 Term Loan B, maturing June 2005 10,000,000
Maryland Cable (cable television)
4,963,526 Term Loan A, maturing December 2002 4,963,526
7,788,206 Term Loan B, maturing December 2002 7,788,206
</TABLE>
Pilgrim America Funds
16
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- --------- -----
<S> <C> <C>
Media/Broadcast (continued)
Metro-Goldwyn-Mayer, Inc. (film library)
$10,000,000 Term Loan, maturing April 1997 $10,000,000
Orion Pictures Corp, (motion picture distributor)
7,911,111 Term Loan, maturing December 2000 7,911,111
Phoenix Associates Inc. (cable television)
9,916,667 Term Loan B, maturing December 1999 9,916,667
------------
57,829,510
------------
Metal Products: 4.4%
GS Technologies (metal products fabricator)
9,950,000 Term Loan, maturing September 2002 9,950,000
National Refractories Inc. (kiln lining materials)
800,000 Term Loan A, maturing September 1999 800,000
5,000,000 Term Loan B, maturing September 1999 5,000,000
Titanium Metals, Inc. (metal smelter)
9,500,000 Term Loan A, maturing December 1996 9,500,000
10,000,000 Term Loan B, maturing December 1996 10,000,000
Triangle Wire and Cable Inc. (metal products fabricator)
3,250,000 Revolver, maturing April 1997 3,250,000
------------
38,500,000
------------
Miscellaneous Companies: 2.7%
Cobblestone Golf Group, Inc. (golf course owner/operator)
10,022,221 Term Loan, maturing September 2001 10,022,221
Dade International (medical testing equipment manufacturer)
4,254,545 Term Loan B, maturing December 2002 4,254,545
5,254,545 Term Loan C, maturing December 2003 4,254,545
4,490,910 Term Loan D, maturing December 2004 4,490,910
General Acquatics, Inc. (swimming pool manufacturer)
263,291 Term Loan, maturing June 2000 263,291
------------
23,285,512
------------
Paper Products: 6.3%
Ampad Corp. (office supplies)
6,500,000 Term Loan B, maturing October 2002 6,500,000
4,500,000 Term Loan C, maturing October 2003 4,500,000
4,000,000 Term Loan D, maturing April 2004 4,000,000
Mail-Well Corp, (envelopes and specialty printing)
7,027,704 Term Loan B, maturing July 2003 7,027,704
Riverwood (packaging and paper products)
5,000,000 Term Loan A, maturing February 2003 5,000,000
17,857,143 Term Loan B, maturing February 2004 17,857,143
</TABLE>
Pilgrim America Funds
17
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- --------- -----
<S> <C> <C>
Paper Products (continued)
Riverwood (continued)
$7,142,857 Term Loan C, maturing August 2004 $7,142,857
Supremex, Inc. (Canadian envelope manufacturer)
2,850,683 Term Loan B, maturing July 2003 2,850,683
------------
54,878,387
------------
Publishing and Information Services: 3.2%
NBC Acquisition (wholesale and retail textbooks)
7,480,000 Term Loan B, maturing August 2003 7,480,000
Pierce Leahy Corp. (document storage)
3,000,000 Term Loan B, maturing September 2002 3,000,000
7,000,000 Term Loan C, maturing September 2003 7,000,000
Softworld Services (software fulfillment services)
5,000,000 Term Loan A, maturing June 2000 5,000,000
5,000,000 Term Loan B, maturing June 2001 5,000,000
------------
27,480,000
------------
Restaurants: 2.6%
America's Favorite Chicken Co. (food service franchisor)
12,884,853 Term Loan B, maturing November 1998 12,884,853
Friendly's Ice Cream Company (Northeastern restaurant chain)
581,489 Revolver, maturing May 1998 505,895
5,212,343 Term Loan, maturing May 1998 4,534,738
Long John Silvers Inc. (quick service seafood restaurant chain)
4,195,100 Term Loan B, maturing September 1997 4,195,100
176,693 Term Loan (PIK Note), maturing September 1997 176,693
------------
22,297,279
------------
Specialty Retailing: 3.2%
American Blind & Wallpaper (home furnishings retailer)
851,023 Term Loan, maturing June 1996 851,023
Camelot Music, Inc, (music stores)
4,844,340 (1) Term Loan B, maturing February 2002 3,148,821
Color Tile, Inc. (home improvement retailer)
11,937,673 (3) Term Loan A, maturing December 1998 5,461,867
8,034,885 (3) Term Loan C. maturing December 1998 6,186,861
634,478 (3) Revolver, maturing December 1996 634,478
M & H Drugs, Inc. (Midwestern retail drugstores)
2,484,184 Term Loan, maturing December 1997 2,422,080
Murray's Discount Auto Parts (auto parts retailer)
8,846,918 Term Loan B, maturing September 2001 8,846,918
------------
27,552,048
------------
</TABLE>
Pilgrim America Funds
18
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
- --------- -----
<S> <C> <C>
Textile & Leather Products: 1.2%
Glenoit Mills, Inc. (specialty and decorative fabrics)
$10,000,000 Term Loan B, maturing March 2003 $10,000,000
------------
Transportation: 2.9%
Cruise Ship L.L.C. (cruise ship operator)
5,250,000 Term Loan maturing July 2001 5,250,000
Sky Chef's International, Inc. (airline food service)
19,695,576 Term Loan B, maturing September 2001 19,695,576
217,795 Term Loan C, maturing September 2003 217,795
------------
25,163,371
------------
Total Senior Loan Interests (Cost $852,341,106) 843,182,432
------------
OTHER CORPORATE DEBT: 0.0%
Food Stores: 0.0%
1,110,798 @(3) New Almac's Inc. (formerly Almac's, Rhode Island supermarkets)
Senior Subordinated Note, December 2004 --
------------
Total Other Corporate Debt (Cost $848,197) --
------------
COMMON STOCK AND PREFERRED STOCK: 1.0%
Shares
- ------
Diversified Manufacturing: 0.0%
2,633 @(2) KDI Corp.-- common (defense and leisure products) --
------------
Electronic Equipment: 0.2%
164,951 @(R) MICOM Communications Corp.-- common (wide area network products) 1,938,174
------------
Miscellaneous Companies: 0.0%
26,121 @(R) General Acquatics, Inc.-- common (swimming pool manufacturer) 156,700
------------
Restaurants: 0.5%
413,980 @(R) America's Favorite Chicken Co.-- common (quick service restaurant chain) 1,373,141
24,848 (R) America's Favorite Chicken Co.-- preferred (quick service restaurant chain) 2,484,800
17,664 @ Flagstar, Inc.-- common (family restaurants, institutional
food service companies) 61,824
------------
3,919,765
------------
Textiles: 0.3%
12,764 @(R) Dan River (Braelan) Corp.-- common (diversified textiles) 2,288,045
------------
Total Common Stock and Preferred Stock (Cost $4,462,495) 8,302,684
------------
</TABLE>
Pilgrim America Funds
19
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of May 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCK PURCHASE WARRANTS AND OTHER SECURITIES: 0.1%
Shares Value
- ------ -----
<S> <C> <C>
1 @(R) Autotote Systems, Inc., Warrant representing 48,930 common shares
(designer and manufacturer of wagering equipment), Expires 10/30/03 $78,924
19,000 @(R) Covenant Care, Inc., Warrants representing 19,000 common shares
(long-term healthcare facilities) 17,000
1 @(R) Cruise Ship, L.L.C., Warrant representing 4,105 voting shares
(cruise ship operator) 129,446
1 @(R) Cruise Ship, L.L.C., Warrant representing 4,666 non-voting shares
(cruise ship operator) 147,136
26,606 @(R)(2) KDI Corp., Units of Trust (defense and leisure products) --
1 @(R) Staff Capital, L.P., Warrant to purchase 0.5% of the Common Limited
Partnership Units (payroll and human resource services), Expires 11/05/03 614,789
1 @(R) Staff Capital, L.P., Warrant to purchase 0.5% of the Preferred Limited
Partnership Units (payroll and human resource services), Expires 11/05/03 61,000
45,000 @(R)(3) Victory Holding Corp., Warrants representing 45,000 common shares
(Rhode Island supermarkets), Expires 12/01/01 --
------------
Total Stock Purchase Warrants and Other Securities (Cost $61,100) 1,048,295
------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS: 1.1%
Principal
Amount Value
- --------- -----
<S> <C> <C> <C>
U.S. Agency Discount Notes: 1.1%
$9,680,000 Federal Home Loan Mortgage Corporation, 5.35%, Due 06/03/96 9,677,123
------------
Total Short-Term Investments (Cost $9,677,123) 9,677,123
------------
Total Investments (Cost $867,390,021) 99.7% 862,210,534
Cash and Other Assets in Excess of Liabilities - Net 0.3 2,214,091
----- ------------
Total Net Assets 100.0% $864,424,625
===== ============
</TABLE>
- ----------------------------
@ Non-income producing security
(R) Restricted security
* Senior loan interests, while exempt from registration under the Securities
Act of 1933, contain certain restrictions on resale and cannot be sold
publicly. These senior loan interests 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 is restructuring and interest is being recognized as cash
payments are received.
(2) 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.
(3) 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.
Pilgrim America Funds
20
<PAGE>
Pilgrim America Prime Rate Trust
- --------------------------------------------------------------------------------
FUND ADVISOR AND AGENTS
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
Pilgrim America Investments, Inc.
Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, AZ 85004-4424
SHAREHOLDER SERVICING AGENT
Pilgrim America Group, Inc.
Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, AZ 85004-4424
1-800-331-1080
INSTITUTIONAL INVESTORS AND ANALYSTS
Call 1-800-336-3436
Ext. 8256
TRANSFER AGENT
Investors Fiduciary Trust Company
c/o DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141
Pilgrim America Funds
21
<PAGE>
Pilgrim America Funds
Masters Series
--------------
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
Elite Series
------------
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
Pilgrim America
Funds
"Our goal is for every investor to have a successful investment experience."
Prospectuses containing more complete information regarding the funds, including
charges and expenses, may be obtained by calling Pilgrim America Securities,
Inc. Distributor at 1-800-334-3444. Please read the prospectuses carefully
before you invest or send money.
