-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lehj4dnDOW/jX+rSZ8KwxFAsQs+KjzWSUKzpQoYLtbGP7PHc0w4v0c7EcWaBwj+g gUf2/5t7wiRvIBoGHQwUaw== 0000950147-98-000058.txt : 19980202 0000950147-98-000058.hdr.sgml : 19980202 ACCESSION NUMBER: 0000950147-98-000058 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980130 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM AMERICA PRIME RATE TRUST CENTRAL INDEX KEY: 0000826020 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 956874587 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: SEC FILE NUMBER: 811-05410 FILM NUMBER: 98517851 BUSINESS ADDRESS: STREET 1: TWO RENAISSANCE SQ STREET 2: 40 N CENTRAL STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 BUSINESS PHONE: 6024178100 MAIL ADDRESS: STREET 1: TWO RENAISSANCE SQ STREET 2: 40 N CENTRAL STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM PRIME RATE TRUST DATE OF NAME CHANGE: 19920703 N-30B-2 1 QUARTER REPORT Pilgrim America Prime Rate Trust THIRD QUARTER REPORT NOVEMBER 30, 1997 Pilgrim America Prime Rate Trust THIRD QUARTER REPORT NOVEMBER 30, 1997 Table of Contents Letter to Shareholders .................................................... 1 Shareholder Letter Footnotes .............................................. 5 Statistics and Performance ................................................ 6 Performance Footnotes ..................................................... 8 Additional Notes and Information .......................................... 9 Portfolio of Investments .................................................. 10 Statement of Assets and Liabilities ....................................... 18 Statement of Operations ................................................... 19 Statements of Changes in Net Assets ....................................... 20 Statement of Cash Flows ................................................... 21 Financial Highlights ...................................................... 22 Notes to Financial Statements ............................................. 24 Fund Advisor and Agents ................................................... 29 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- Letter to Shareholders - -------------------------------------------------------------------------------- Dear Fellow Shareholders: During the quarter ended November 30, 1997, Pilgrim America Prime Rate Trust (the "Trust") paid it's 114th consecutive monthly dividend while maintaining its net asset value ("NAV") between $9.42 and $9.33. Hence, the Trust has continued to achieve its objective of providing a high current yield consistent with the preservation of capital. Based on market price and NAV, the Trust's distribution rate for the quarter was equivalent to 8.08% and 8.82%, respectively(1). The Prime Rate remained at 8.50% throughout the period, while 60-day LIBOR, an index of the rate of interest at which banks will lend money to one another, averaged 5.67%.(2) Market Place The active market for syndicated corporate loans through August, 1997 continued during the quarter. Through November 15, 1997, primary deals in the market from which we draw assets had a value of $119.8 billion. This compares with $104.2 billion in transactions during the comparable period in 1996. Much of the activity in the most recent period arose in the Healthcare sector. The growth of managed care, and continued reforms in public sector reimbursement programs have spawned a large number of consolidations and realignments of health care businesses. Generally, these have been designed to achieve large operations which will derive economies of scale and thus lower costs. They have also focused to various degrees on growth in skilled medical care outside the traditional acute care hospital setting. Finally, the trend towards enlarged facilities for North America's aging population has led to significant amounts of capital being directed towards nursing homes. Other recently active sectors include Automotive, where consolidation of suppliers to the big manufacturers continues; Telecommunications, where companies have continued to develop wireless and satellite capacity; Computers and Electronics; and Retail Food and Drug, which is another industry in which large scale operations are seen as an important way to lower costs and remain competitive. The presentation of industry concentrations in our Portfolio of Investments shows each industry total as a percentage of net assets. Total Senior Loans are therefore shown as 134.9% of net assets. The difference is represented by the extent to which the Trust uses leverage for investment purposes. The Trust Indenture requires that investments in any industry do not exceed 25% of total assets. We generally manage risks as 1 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- Letter to Shareholders - -------------------------------------------------------------------------------- percentages of total assets. For this reason we set out below industry concentrations for the Trust's 10 largest sectors as percentages of net assets and as percentages of total assets. TOP 10 INDUSTRIES AS A % OF NET ASSETS TOTAL ASSETS ---------- ------------ Health, Education & Childcare 18.8% 13.7% Chemicals, Plastics & Rubber 9.9% 7.2% Electronics 9.4% 6.8% Aerospace and Defense 8.4% 6.1% Beverage, Food & Tobacco 8.1% 5.9% Automotive 7.0% 5.1% Retail Stores 6.3% 4.6% Printing and Publishing 5.5% 4.0% Broadcasting 5.2% 3.8% Buildings and Real Estate 5.2% 3.7% We will examine sector concentrations and industry risks in more detail in the Trust's Annual Report in February. During this quarter, however, the news which has dominated all markets has been the progressive revaluation of the Asian markets. How has this affected the Trust? First, worries about Asia introduced higher levels of volatility into both equity and corporate bond markets, hence, the return required by investors in general rose during this quarter. The equity markets have recovered some of their poise, but both equity and fixed income markets have become more discriminating in applying risk premiums to specific companies as they report more varied results. Similarly, the risk premiums earned on senior loans have begun to rise. There is a lag between price changes occurring in the secondary market and similar changes in the primary market in which we raise the majority of the Trust's assets. How far these risk premiums will rise depends on future changes in economic fundamentals and the mood of the market. For the time being, however, we saw, during November, the low watermark in margins offered on senior loans. 2 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- Letter to Shareholders - -------------------------------------------------------------------------------- More specifically, we have examined the Trust's portfolio to ensure that we are monitoring risks which may alter as a result of events in Asia. Many North American companies had expected considerable growth in their businesses as they participated in Asia's comparatively robust growth. The combination of Asian currency devaluations, financial sector restructuring, tight monetary policy and fiscal conservatism being rolled out across East Asia will result in diminished demand for imports into those countries, less disposable income and highly competitive exports from Korea, Malaysia and Indonesia of goods with a significant percentage of indigenous content. Provided no dramatic political repercussions follow, most analysts believe that the restructuring of Asian economies will take two to four years. During this period, North American exporters are likely to see a decline in volumes and some reduction in profit margins. Companies which sell goods and services in the Americas, will now have to compete with relatively inexpensive imports from Asia. This will apply downward pressure on prices of some goods and some shrinkage in corporate profits. Overall, trade in Asia is unlikely to continue to grow at the rates seen in the last 10 years. While on a macro economic level the effect is expected by most analysts to be minimal, we believe that the short term profitability and financial strength of companies in some segments may be compromised. We have paid particular attention to those portfolio companies which derive a significant proportion of their revenue from Asia, those whose plans involve a large commitment of resources there and firms which will have to compete against considerably cheaper, Asian-sourced products. This analysis has led us to reduce or avoid further exposure to wood products, air cargo, commodity steel and clothing. We will continue to monitor developments in Asia carefully. It should be remembered that unlike the equity of companies directly involved in Asia, which will tend to fluctuate in value as market conditions change in Asia, the intrinsic value of senior loans is very unlikely to be altered if the obligor's business has significant non-Asian components and the underlying value of the Trust's collateral is independent of economic variables in Asia. The other result of the relative market instability caused by Asia's adjustments has been a moderation in the amount of capital available to some institutional investors in the senior loan market. It is too early to judge the extent of this change, but if it were sustained, pricing on investments made by the Trust should improve as demand for senior loan investments declines. 3 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- Letter to Shareholders - -------------------------------------------------------------------------------- Asset Quality Last quarter we reported an improving trend in the percentage of non-performing assets in the portfolio. On September 30th, non-performing loans represented 1.27% of net assets and 0.96% of total assets. On November 30th, the comparable percentages were 0.37% and 0.27%, respectively. Portfolio Changes Since August 1997, new investments have included Goodman Manufacturing Company, L.P., Sun Healthcare, Panolam Industries and Extendicare Health Services, Inc., while sales and full repayments have included Ameriserve Food Distribution, Carson Products Co., Continental Airlines, International Home Foods, IRI International Co. and Mettler-Toledo. Outlook With the possible exception of the effect of developments in Asia on individual companies, we do not foresee any significant changes in broad issues affecting our market. The re-alignment of supply and demand described earlier seems likely to apply modest upward pressure to returns which may help to moderate recent downward pressure on net investment income and consequent marginal pressure on dividends. Thank you for your continued interest in the Trust. We welcome your comments and questions. /s/ Howard Tiffen /s/ Robert W. Stallings Howard Tiffen Robert W. Stallings President, COO, and Chairman and CEO Senior Portfolio Manager Pilgrim America Investments, Inc. Pilgrim America Prime Rate Trust January 16, 1998 January 16, 1998 4 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- Letter to Shareholders - -------------------------------------------------------------------------------- (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 NYSE Composite closing price, as applicable at the end of the period. 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. (2) Source: Bloomberg Financial Markets. LIBOR is the London Inter-Bank Offered Rate and is the benchmark for determining the interest paid on more than 90% of the senior loans in the Trust's portfolio. 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. 5 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- Statistics and Performance as of November 30, 1997 - -------------------------------------------------------------------------------- Portfolio Characteristics Net Assets $1,037,186,845 Assets Invested in Senior Loans $1,398,930,957 Total Number of Senior Loans 138 Average Amount Outstanding per Loan $ 10,137,181 Total Number of Industries 28 Year to Date Portfolio Turnover Rate 64% Average Loan Amount per Industry $ 49,961,820 Weighted Average Days to Interest Rate Reset 42 days Average Loan Maturity 67 months Average Age of Loans Held in Portfolio 11 months TOP 10 INDUSTRIES AS A % OF NET ASSETS TOTAL ASSETS ---------- ------------ Health, Education & Childcare 18.8% 13.7% Chemicals, Plastics & Rubber 9.9% 7.2% Electronics 9.4% 6.8% Aerospace and Defense 8.4% 6.1% Beverage, Food & Tobacco 8.1% 5.9% Automotive 7.0% 5.1% Retail Stores 6.3% 4.6% Printing and Publishing 5.5% 4.0% Broadcasting 5.2% 3.8% Buildings and Real Estate 5.2% 3.7% TOP 10 SENIOR LOANS AS A % OF NET ASSETS TOTAL ASSETS ---------- ------------ MAFCO Financial Corp. 2.9% 2.1% Community Health Systems 2.4% 1.7% Favorite Brands International 2.3% 1.7% Huntsman Chemical 2.2% 1.6% Dade International 2.2% 1.5% Liberty House, Inc. 2.1% 1.5% Papa Gino's, Inc. 2.1% 1.5% 24-Hour Fitness,Inc 2.0% 1.5% Paragon Health Network 1.9% 1.4% Sun Healthcare 1.9% 1.4% 6 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- Statistics and Performance as of November 30, 1997 - -------------------------------------------------------------------------------- DISTRIBUTION RATES 30-Day 30-Day Annualized Annualized Prime Yield at Yield at Distribution Distribution Quarter-ended Rate NAV(A,D) MKT(A,D) Rate at NAV(B,D) Rate at MKT(B,D) - -------------------------------------------------------------------------------- November 30, 1997 8.50% 9.93% 9.08% 8.82% 8.08% August 31, 1997 8.50% 8.58% 7.95% 8.82% 8.19% May 31, 1997 8.50% 9.72% 9.15% 8.74% 8.23% February 28, 1997 8.25% 8.44% 7.97% 8.69% 8.22% This table sets forth the Trust's monthly dividend performance which is summarized quarterly. AVERAGE ANNUAL TOTAL RETURNS NAV MKT - -------------------------------------------------------------------------------- Year to Date 7.57% 12.97% 1 Year 8.35% 19.22% 3 Years 8.44% 12.05% 5 Years 8.01% 11.14% Since Trust Inception(G,I) 8.48% N/A Since Initial Trading on NYSEH N/A 11.62% Assumes rights were exercised and excludes sales charges and commissions.(C,D,E,F) See performance footnotes on page 8 7 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PERFORMANCE FOOTNOTES - -------------------------------------------------------------------------------- (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 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 Composite closing price (in the case of Market) at the end of the period. (C) Calculation of total returns 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. The Trust's average annual total returns on an NAV basis with a 3% sales charge and assuming rights were exercised through November 30, 1997 were 7.35% and 8.14% 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) As part of the 1996 rights offering (see F), the Investment Manager has voluntarily reduced its management fee for the period from November 1996 through November 1999. (E) 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 charges against the offering proceeds. (F) 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. (G) Inception date - May 12, 1988. (H) Initial trading on NYSE - March 9, 1992. (I) Reflects a 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. 8 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- ADDITIONAL NOTES AND INFORMATION - -------------------------------------------------------------------------------- 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. KEY FINANCIAL DATES - Calendar 1998 Dividends: DECLARATION DATE EX-DATE PAYABLE DATE January 30 February 6 February 24 February 27 March 6 March 23 March 31 April 8 April 22 April 30 May 7 May 22 May 29 June 8 June 22 June 30 July 8 July 22 July 31 August 6 August 24 August 31 September 8 September 22 September 30 October 8 October 22 October 30 November 6 November 23 November 30 December 8 December 22 December 21 December 29 January 13, 1999 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). 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. 9 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited) - -------------------------------------------------------------------------------- SENIOR LOANS* (Dollar weighted portfolio interest reset period is 42 days)
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Aerospace and Defense: 8.4% $ 5,060 Aerostructures Corp. (airframe and component manufacturer) Term B 09/30/03 $ 5,060,000 1,840 Aerostructures Corp. Term C 09/30/04 1,840,000 14,850 Banner Aerospace (aerospace fasteners) Term B 07/01/03 14,850,000 8,955 Erickson Air-Crane Co. (heavy lift helicopters) Term B 12/31/04 8,955,000 3,885 Fairchild Holdings Corp. (aerospace fasteners) Term 07/28/00 3,884,921 1,379 Fairchild Holdings Corp. Revolver 07/28/00 1,379,365 10,875 K&F Industries, Inc. (aircraft brakes) Term B 10/15/05 10,875,000 4,860 Mag Aerospace Industries (aircraft component supplier) Term B 06/15/03 4,859,750 6,530 Technetics Corp. (aircraft engine components) Term 06/20/02 6,530,303 14,355 Tri Star/Odyssey, Inc. (aerospace hardware distributor) Term 09/30/03 14,355,000 7,533 United Defense (defense contractor) Term B 10/02/05 7,532,609 7,317 United Defense Term C 10/08/05 7,317,391 ------------- 87,439,339 ------------- Automotive: 7.0% 15,000 American Axel & Manufacturing (car/truck axel manufacturing) Term B 04/30/06 15,000,000 17,000 Breed Technologies, Inc. (airbags/seatbelts) Term 10/30/98 17,000,000 10,000 Cambridge Industries, Inc. (automotive plastics) Term B 05/17/02 10,000,000 9,457 Capital Tool & Design (brake backing plates) Term B 07/19/03 9,457,199 4,216 Hayes Wheels International (automotive wheels) Term B 07/31/03 4,216,000 3,415 Hayes Wheels International Term C 07/31/04 3,415,111 4,000 Safelite Glass Corp. (automobile windshield replacement) Term B 12/20/04 4,000,000 9,760 Schrader, Inc. (fluid/air control valve manufacturer) Term B 11/30/02 9,759,718 ------------- 72,848,028 ------------- Beverage, Food and Tobacco: 8.1% 8,100 Del Monte Corp. (food manufacturing and distribution) Term B 03/31/05 8,100,000 2,726 Edward's Baking Co. (food service bakery) Term A 09/30/03 2,725,910 3,333 Edward's Baking Co. Term B 09/30/05 3,333,333 3,333 Edward's Baking Co. Term C 09/30/05 3,333,334 13,965 Empire Kosher Poultry (kosher chicken and poultry) Term B 07/31/04 13,965,000 20,749 Favorite Brands International (confectionary manufacturer) Term B 08/01/04 20,749,282 3,404 Favorite Brands International Term C 02/01/05 3,403,785 8,728 Snapple Beverage Co. (soft drink manufacturer) Term B 06/01/04 8,728,125 8,728 Snapple Beverage Co. Term C 06/01/05 8,728,125 7,030 Van De Kamp's (frozen foods) Term B 04/30/03 7,029,687 4,411 Van De Kamp's Term C 09/30/03 4,410,601 ------------- 84,507,182 ------------- Broadcasting: 5.2% 3,741 Benedek Broadcasting Television Corp. (broadcasting) Axel A (A) 12/05/02 3,741,192 4,181 Benedek Broadcasting Television Corp. Axel B (A) 12/05/02 4,180,796 3,486 Cable Plus Company, L.P. (private cable television) Revolver 12/31/04 3,485,714 5,124 Classic Cable (rural cable system operator) Term B 06/30/05 5,124,179 889 Classic Cable Revolver 06/30/03 889,042 7,463 Entravision (Spanish broadcast television) Term B 12/31/04 7,462,500
See Accompanying Notes to Financial Statements 10 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Broadcasting (continued) $ 8,944 FrontierVision (cable television) Term B 06/30/05 $ 8,944,444 10,000 Intermedia Partners IV (cable television) Term 01/01/05 10,000,000 9,817 Phoenix Associates, Inc. (cable television) Term B 12/31/99 9,816,667 ------------- 53,644,534 ------------- Buildings and Real Estate: 5.2% 6,000 Dayton Superior (concrete/masonry accessories) Term 09/29/05 6,000,000 11,000 Falcon Building Products (building products) Term B 06/30/05 11,000,000 8,750 Goodman Manufacturing Company L.P. (air conditioning (manufacturer) Term B 09/30/04 8,750,000 8,750 Goodman Manufacturing Company L.P. Term C 09/30/05 8,750,000 4,000 The Presley Companies (homebuilder) Revolver 05/20/98 4,000,000 13,965 Tree Island Industries (nail and wire products) Term B 03/31/03 13,965,000 964 United Building Materials, Inc. (stone and concrete products)(1) Term 04/30/96 964,211 ------------- 53,429,211 ------------- Cargo Transport: 3.4% 20,000 Atlas Freighter Leasing (air cargo carrier) Term 05/29/04 20,000,000 14,937 Evergreen International (air cargo carrier) Term B 05/07/03 14,937,002 ------------- 34,937,002 ------------- Chemicals, Plastics and Rubber: 9.9% 4,776 Behr Process Corp. (paint manufacturer) Term B 03/31/04 4,776,000 3,184 Behr Process Corp. Term C 03/31/05 3,184,000 11,368 Cedar Chemical Corp. (specialty chemicals) Term B 10/30/03 11,367,962 4,703 Foamex, L.P. (polyurethane foam) Term B 06/30/05 4,702,500 4,275 Foamex, L.P. Term C 06/30/06 4,275,000 4,792 GEO Specialty Chemicals (specialty chemicals) Term A 09/25/02 4,791,667 9,950 GEO Specialty Chemicals Term B 03/25/04 9,950,000 15,000 Huntsman Chemical (specialty chemicals) Term A 03/15/07 15,000,000 3,929 Huntsman Chemical Term B 03/15/04 3,928,571 3,929 Huntsman Chemical Term C 03/15/05 3,928,571 3,000 Huntsman Corp. (industrial chemicals) Term A 12/31/02 3,000,000 4,004 Huntsman Corp. Term B 12/31/05 4,004,382 2,738 Huntsman Corp. Revolver 12/31/02 2,737,500 8,780 Intesys Technologies, Inc. (contract engineering and manufacturing) Term B 12/31/01 8,780,488 7,143 NEN Life Sciences Products (biochemicals) Term B 12/31/04 7,142,857 6,500 Sunbelt Manufacturing LLC (plastics manufacturer) Term B 09/30/04 6,500,000 4,862 Texas Petrochemical Corp. (industrial chemicals) Term B 06/30/04 4,861,503 ------------- 102,931,001 ------------- Containers, Packaging and Glass: 1.4% 2,800 Calmar, Inc. (non-aerosol fluid dispensing systems) Axel A (A) 09/15/03 2,800,000 2,100 Calmar, Inc. Axel B (A) 03/15/04 2,100,000 5,713 RIC Holdings, Inc. (packaging and paper products) Term B 02/27/04 5,712,580 4,263 RIC Holdings, Inc. Term C 08/31/04 4,262,697 ------------- 14,875,277 --------------
See Accompanying Notes to Financial Statements 11 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Diversified/Conglomerate Manufacturing: 1.8% $ 7,000 Desa International (specialty equipment manufacturing) Term 08/31/01 $ 7,000,000 4,896 Jackson Products, Inc. Term B 09/01/02 4,895,653 (industrial safety equipment manufacturer) 4,900 Jackson Products, Inc. Term C 09/01/03 4,900,000 1,337 Jackson Products, Inc. Term D 09/01/03 1,336,500 276 @ KDI Corp. (liquidating trust) (2) Term A 12/31/96 16,791 13 @ KDI Corp. (2) Term B 12/31/96 13,187 ------------- 18,162,131 ------------- Diversified/Conglomerate Services: 4.1% 30,000 MAFCO Financial Corp. Term 03/20/99 30,000,000 (diversified services and entertainment) 200 MAFCO Financial Corp. Revolver 03/20/99 200,000 12,817 Outsourcing Solutions (accounts receivable management) Term B 11/06/03 12,816,901 ------------- 43,016,901 ------------- Ecological: 1.6% 6,361 Clean Harbors (environmental services) Term 05/08/00 6,360,698 4,988 Laidlaw Environmental Services, Inc. (waste management) Term B 05/15/04 4,987,500 4,988 Laidlaw Environmental Services, Inc. Term C 05/15/05 4,987,500 ------------- 16,335,698 ------------- Electronics: 9.4% 5,676 Anacomp, Inc. (document storage and imaging) Term 02/28/01 5,676,466 7,450 Celestica (diversified electronic device manufacturer) Term B 06/30/03 7,450,000 11,875 Dictaphone Acquisition, Inc. Term B 06/30/02 11,875,000 (dictation and recording equipment) 5,000 Dictaphone Acquisition, Inc. Term C 06/30/03 5,000,000 3,576 Elgar Electronics (electronic testing equipment) Term B 03/31/03 3,575,734 7,375 Fairchild Semiconductor Corp. (electronic equipment) Term B 03/11/03 7,375,000 6,000 Intri-Plex Technologies, Inc. Term 09/30/02 6,000,000 (disk drive component manufacturer) 9,714 OK Industries (circuit board manufacturing systems) Term 10/31/02 9,714,286 9,925 Phase Metrics, Inc. (computer testing equipment) Term A 11/30/01 9,925,000 14,550 PSC Incorporated (scanning equipment) Term B 06/28/02 14,550,000 10,000 Sarcom Inc. (systems integration) Term 11/20/02 10,000,000 6,000 Telex Communications Group (electronic equipment) Term B 11/06/04 6,000,000 ------------- 97,141,486 ------------- Finance: 0.8% 8,000 National Partnership Investments Corp. (asset management) Term 06/30/01 8,000,000 ------------- Grocery: 5.1% 5,000 Bruno's, Inc. (food retailer) Term B 04/15/05 4,200,000 1,934 Pathmark Stores, Inc. (northeastern states supermarkets) Term A 06/15/01 1,933,885 10,216 Pathmark Stores, Inc. Term B 12/15/01 10,215,909 529 Pathmark Stores, Inc. Revolver 06/15/01 528,926 5,883 Ralph's Grocery Company (supermarket) Term A 02/15/03 5,882,667 14,925 Schwegmann Giant Supermarket (Louisiana supermarkets) Term B 01/31/04 14,925,000 11,282 Star Markets Co., Inc. (Boston area supermarkets) Term B 12/31/01 11,281,694 3,500 Star Markets Co., Inc. Term C 12/31/03 3,500,000 ------------- 52,468,081 -------------
See Accompanying Notes to Financial Statements 12 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Healthcare, Education and Childcare: 18.8% $ 4,123 Alaris Medical Systems (infusion pumps) Term B 11/30/03 $ 4,123,350 4,123 Alaris Medical Systems Term C 11/30/04 4,123,350 3,881 Alaris Medical Systems Term D 05/31/05 3,880,800 9,007 Community Health Systems (hospitals) Term B 12/31/03 9,006,849 9,007 Community Health Systems Term C 12/31/04 9,006,849 6,781 Community Health Systems Term D 12/31/05 6,780,822 6,000 Covenant Care, Inc. (nursing homes) Term 06/30/99 6,000,000 5,101 Dade International (medical testing equipment manufacturer) Term B 12/31/02 5,101,436 5,101 Dade International Term C 12/31/03 5,101,436 12,304 Dade International Term D 12/31/04 12,304,128 14,000 Extendicare Health Services, Inc. (long-term care facility operator) Term B 12/31/04 14,000,000 7,481 Fountain View (nursing homes) Term B 09/30/04 7,481,250 7,729 Genesis Corp. (elderly healthcare and support) Term B 06/01/04 7,729,167 5,521 Genesis Corp. Term C 06/01/05 5,520,833 9,818 Graphic Controls Corp. (industrial and medical charts) Term B 09/28/03 9,818,220 2,808 Hanger Orthopedics Group (orthopedic and prosthetic services) Term B 12/31/01 2,807,852 12,500 Healthcare America, Inc. (youth psychiatric care) Term B 06/30/04 12,500,000 9,880 Mediq/PRN Life Support, Inc. (hospital equipment leasing) Term 09/28/98 9,879,577 4,988 Packard Bioscience Co. (analytical instrument manufacturer) Term B 03/13/03 4,987,500 10,000 Paragon Health Network (nursing homes) Term B 03/31/05 10,000,000 10,000 Paragon Health Network Term C 03/31/06 10,000,000 5,000 Prime Medical Supplies (lithotripter services) Term B 04/30/03 5,000,000 10,000 SMT Health (mobile MRI systems) Term 08/31/03 10,000,000 10,000 Sun Healthcare (nursing homes) Term B 12/31/97 10,000,000 10,000 Sun Healthcare Term C 12/31/97 10,000,000 ------------- 195,153,419 ------------- Home and Office Furnishings, Housewares and Durable Consumer Products: 3.3% 16,941 ICON Health & Fitness Co. (exercise equipment) Term B 11/14/01 16,941,328 1,553 Panolam Industries (design and manufacture wood paneling) Term A 01/31/03 1,552,500 8,558 Panolam Industries Term B 01/31/03 8,557,500 4,890 Panolam Industries Term C 01/31/03 4,890,000 2,000 Panolam Industries Term D 01/31/03 2,000,000 ------------- 33,941,328 ------------- Hotels, Motels, Inns and Gaming: 4.0% 3,125 Capstar Hotel Co. (hotel management and ownership) Term 06/30/04 3,125,000 5,971 Doubletree Corp. (hotel management) Term B 05/08/04 5,970,694 6,987 Interstate Hotels Corp. (hotel management and ownership) Term C 06/25/04 6,987,037 8,062 Palace Stations (gaming) Revolver 09/30/00 8,062,006 11,460 Sunset Station Hotel and Casino, Inc. (gaming) Term 09/30/00 11,459,773 6,360 Sunset Station Hotel and Casino, Inc. Term 09/30/00 6,360,227 ------------- 41,964,737 -------------
See Accompanying Notes to Financial Statements 13 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Insurance: 0.7% $ 7,500 TRG Holdings Corp. (insurance run-off) Term 01/31/03 $ 7,500,000 ------------- Leisure, Amusement, Motion Pictures and Entertainment: 4.8% 7,075 AMF Group (bowling centers and equipment) Term A (A) 05/01/03 7,146,226 4,416 AMF Group Term B (A) 05/01/04 4,460,372 10,000 Metro-Goldwyn-Mayer, Inc. (film library) Term B 10/10/03 10,000,000 19,000 24-Hour Fitness, Inc. (health club operator) Term 05/31/00 19,000,000 2,019 24-Hour Fitness, Inc. Revolver 05/31/00 2,019,204 7,157 Worldwide Sports & Recreation Corp. (optics, sports products) Term B 03/31/01 6,977,665 ------------- 49,603,467 ------------- Machinery (Nonagriculture, Nonconstruction, Nonelectronic): 1.7% 7,789 Clearing - Niagra (metal stamping press manufacturer) Term 10/18/04 7,789,474 9,592 Columbus McKinnon (industrial lifts and hoists) Term B 03/01/04 9,591,807 ------------- 17,381,281 ------------- Mining, Steel, Iron and Nonprecious Metals: 3.3% 5,955 Cable Systems International (cable wire manufacturer) Term B 10/04/02 5,955,000 3,462 Centennial Resources (coal mining) Term A 03/31/02 3,461,539 8,558 Centennial Resources Term B 03/31/04 8,557,692 9,800 GS Technologies (metal products) Term 09/30/02 9,800,000 1,023 National Refractories, Inc. (kiln lining materials) Term B 09/30/99 1,023,227 4,980 National Refractories, Inc. Term C 09/30/99 4,979,726 ------------- 33,777,184 ------------- Oil & Gas: 0.4% 1,091 Perf-O-Log (oil field services) Term 08/11/03 1,090,910 2,909 Perf-O-Log Term B 08/11/03 2,909,090 ------------- 4,000,000 ------------- Personal, Food and Miscellaneous Services: 5.1% 14,813 Boston Chicken, Inc. (quick service restaurant chain) Term C 12/12/01 14,812,500 10,782 Coinmach Corp. (commercial laundry operator) Term B 06/08/04 10,782,122 2,604 Denamerica Corp. (quick service restaurant franchisee) Term 12/31/01 2,604,303 2,563 Long John Silvers, Inc. (quick service seafood restaurant chain) Term B 09/30/02 2,435,058 6,204 Papa Gino's, Inc. (quick service restaurants) Term A 02/19/02 6,204,348 15,112 Papa Gino's, Inc. Term B 02/19/04 15,111,946 4,357 @ Softworld Services (software fulfillment services) Term A 06/30/00 522,840 4,357 @ Softworld Services Term B 06/30/01 522,840 ------------- 52,995,957 ------------- Personal and Nondurable Consumer Products (Manufacturing Only): 4.5% 1,250 AM Cosmetics (cosmetics and skin care products) Term A 06/30/03 1,250,000 8,731 AM Cosmetics Term B 12/31/04 8,731,250 4,294 Duo-Tang, Inc. (report cover manufacturer) Term A 12/31/02 4,293,648 5,342 Duo-Tang, Inc. Term B 12/31/02 5,341,666
See Accompanying Notes to Financial Statements 14 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Personal and Nondurable Consumer Products (Manufacturing Only)(continued) $11,313 Eye Care Centers, Inc. (retail eye care products and services) Term 09/26/02 $ 11,312,500 10,000 Medtech Products, Inc. (non-prescription consumer medications) Term B 10/15/02 10,000,000 2,750 Rayovac Corp. (battery manufacturer) Term B 09/30/03 2,750,000 2,750 Rayovac Corp. Term C 09/30/04 2,750,000 ------------- 46,429,064 ------------- Printing and Publishing: 5.5% 6,825 Bankers Systems, Inc. (compliance services to banking industry) Term B 11/01/02 6,825,000 19,896 Eastern Pulp & Paper (specialty paper) Term 08/31/04 19,895,833 2,096 Jefferson Smurfit Corp. (linerboard/paper products) Term A 04/30/01 2,096,290 1,899 Jefferson Smurfit Corp. Revolver 04/01/01 1,899,308 3,634 St. Laurent Paper Products (linerboard manufacturer) Term B 05/31/03 3,634,021 13,866 St. Laurent Paper Products Term C 05/31/04 3,865,979 12,313 Stone Container (paper products) Term D 10/01/03 12,312,500 3,363 Von Hoffman Press, Inc. (textbook manufacturer) Term B 05/29/04 3,362,500 3,363 Von Hoffman Press, Inc. Term C 05/29/05 3,362,500 ------------- 57,253,931 ------------- Retail Stores: 6.3% 6,916 @ Color Tile, Inc. (home improvement retailer)(3) Term D 12/31/98 2,766,311 1,352 Color Tile, Inc. (D.I.P.) (3) Revolver 12/30/97 1,352,066 3,083 Liberty House, Inc. (Hawaii department store chain) Term A 06/30/01 3,082,927 18,950 Liberty House, Inc. Term B 06/30/02 18,950,000 12,452 Murray's Discount Auto Parts (auto parts retailer) Term 06/30/03 12,451,923 7,400 NBC Acquisition (wholesale and retail textbooks) Term 08/31/03 7,400,000 5,941 Peebles, Inc. (department store chain) Term A 04/30/01 5,941,375 7,794 Peebles, Inc. Term B 04/30/02 7,793,641 5,981 TravelCenters of America (road transport service centers) Term B 03/27/05 5,981,250 ------------- 65,719,493 ------------- Telecommunications: 2.9% 8,920 Clarity Telecommunications (telecommunications service) Term B 07/01/03 8,920,000 1,873 Nextel Finance Co. (personal communications services) Term C 06/30/03 1,872,659 9,571 Shared Technologies, Inc. (communication services) Term B 03/31/03 9,571,429 10,000 Teletouch Communications (rural paging services) Term A 11/30/03 10,000,000 ------------- 30,364,088 ------------- Textiles and Leather: 2.2% 6,708 Harriet & Henderson (yarn manufacturer) Term A 06/12/00 6,708,237 6,860 Humphreys, Inc. (belts and personal leather goods) Term B 11/15/03 6,860,000 5,478 Targus Group, Int'l. (computer luggage manufacturer) Term A 01/18/02 5,477,707 4,065 Targus Group, Int'l. Term B 01/18/03 4,065,193 ------------- 23,111,137 ------------- Total Senior Loans - 134.9% 1,398,930,957 ------------- (Cost $1,411,424,325)
See Accompanying Notes to Financial Statements 15 Pilgrim America Prime Rate Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited) - --------------------------------------------------------------------------------
OTHER CORPORATE DEBT Loan Stated Shares Type Maturity Value - ------ ---- -------- ----- Automotive: 0.6% 6,000 Capital Tool & Design (brake backing plates) Sub. 07/26/03 $ 6,000,000 Note -------------- Total Other Corporate Debt - 0.6% 6,000,000 -------------- (Cost $6,000,000) COMMON STOCK AND PREFERRED STOCK Apparel Products: 0.0% 13,924 @ Butterick Company, Inc. (sewing aids) 12,557 -------------- Diversified/Conglomerate Manufacturing: 0.0% 2,632 @ KDI Corp.--common (defense and leisure products) (2) -- -------------- Restaurants: 0.3% 413,980 @ America's Favorite Chicken Co.--common (quick service restaurant chain) (R) 3,645,645 17,664 @ Flagstar, Inc.--common (family restaurants, institutional food service companies) 530 -------------- 3,646,175 -------------- Textiles and Leather: 0.2% 127,306 @ Dan River (Braelan) Corp.--common (diversified textiles) (R) 1,718,631 -------------- Total Common Stock and Preferred Stock - 0.5% 5,377,363 -------------- (Cost $1,471,624)
STOCK PURCHASE WARRANTS AND OTHER SECURITIES 1 @ Autotote Systems, Inc., Warrant representing 48,930 common shares (designer and manufacturer of wagering equipment), Expires 10/30/03 (R) 35,474 1 @ Autotote Systems, Inc., Option representing 0.248% common shares issued and outstanding (R) -- 80,634 @ Capital Tool & Design, Warrants representing 80,634 common shares (brake backing plates) (R) 143,529 19,000 @ Covenant Care, Inc., Warrants representing 19,000 common shares (nursing homes) (R) 285,000 26,606 @ KDI Corp. Units of Trust (liquidating trust) (R)(2) -- 106,902 @ Staff Leasing, Inc. (employee leasing)(R) 2,140,713 -------------- Total Stock Purchase Warrants and Other Securities - 0.2% 2,604,716 -------------- (Cost $61,100) Total Investments (Cost $1,418,957,049) (5) 136.2% $1,412,913,036 Liabilities in Excess of Cash and Other Assets-Net (36.2) (375,726,191) ----- -------------- Net Assets 100.0% $1,037,186,845 ===== ==============
See Accompanying Notes to Financial Statements 16 Pilgrim America Prime Rate Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1997 (Unaudited) - -------------------------------------------------------------------------------- - ---------------- @ Non-income producing security (A) Axel describes an amortizing extended term loan with limited call protection. (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 has entered into a forebearance agreement pending sale of the company or refinance of this debt. (2) The borrower filed for protection under Chapter 7 of the U.S. Federal bankruptcy code and has converted to a liquidating trust. (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. (4) For Federal income tax purposes, which is the same for financial reporting purposes, cost of investments is $1,418,957,049 and net unrealized depreciation consists of the following: Gross Unrealized Appreciation $ 7,951,302 Gross Unrealized Depreciation (13,995,315) ------------- Net Unrealized Depreciation $ (6,044,013) ============= See Accompanying Notes to Financial Statements 17 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES as of November 30, 1997 (Unaudited) - -------------------------------------------------------------------------------- ASSETS: Cash $ 1,481,681 Investments in securities at value (Cost $1,418,957,049) 1,412,913,036 Receivables: Interest 14,302,950 Other 129,422 Prepaid arrangement fees on notes payable 471,951 Prepaid expenses 223,766 -------------- Total assets 1,429,522,806 -------------- LIABILITIES: Notes payable 386,000,000 Deferred arrangement fees on senior loans 4,471,637 Accrued interest payable 1,470,105 Accrued expenses 394,219 -------------- Total liabilities 392,335,961 -------------- NET ASSETS (equivalent to $9.40 per share, based on 110,320,982 shares of beneficial interest authorized and outstanding, no par value) $1,037,186,845 ============== Net Assets Consist of: Paid-in capital $1,047,106,395 Undistributed net investment income 14,797,295 Accumulated net realized loss on investments (18,672,832) Net unrealized depreciation of investments (6,044,013) -------------- Net assets $1,037,186,845 ==============
See Accompanying Notes to Financial Statements 18 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS for the Nine Months Ended November 30, 1997 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $ 90,878,578 Arrangement fees earned 5,083,731 Other 2,563,830 ------------ Total investment income 98,526,139 ------------ EXPENSES: Interest 15,334,652 Investment management fees 7,712,724 Administration fees 1,328,907 Revolving credit facility fees 689,134 Transfer agent and registrar fees 312,146 Recordkeeping and pricing fees 158,477 Reports to shareholders 249,211 Miscellaneous expense 174,655 Custodian fees 232,141 Professional fees 132,099 Trustees' fees 58,000 Insurance expense 42,229 ------------ Total expenses 26,424,375 Less: Earnings credits (1,782) ------------ Net expenses 26,422,593 ------------ Net investment income 72,103,546 ------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS: Net realized loss on investments (7,238,544) Change in unrealized depreciation of investments (2,304,656) ------------ Net loss on investments (9,543,200) ------------ Net increase in net assets resulting from operations $ 62,560,346 ============ See Accompanying Notes to Financial Statements 19 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Nine Months Ended Year November 30, Ended 1997 February 28, (Unaudited) 1997 -------------- -------------- INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 72,103,546 $ 78,947,910 Net realized loss on investments (7,238,544) (3,523,769) Change in unrealized appreciation (depreciation) of investments (2,304,656) 974,085 -------------- -------------- Net increase in net assets resulting from operations 62,560,346 76,398,226 DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income (67,723,777) (77,640,968) CAPITAL SHARE TRANSACTIONS: Issuance from dividend reinvestment 11,260,937 11,628,959 Net increase in net assets derived from the sale of shares in connection with rights offering -- 157,765,531 -------------- -------------- Net increase in capital share transactions 11,260,937 169,394,490 Total increase in net assets 6,097,506 168,151,748 NET ASSETS: Beginning of period 1,031,089,339 862,937,591 -------------- -------------- End of period (including undistributed net investment income of $14,797,295 and $10,417,526, respectively) $1,037,186,845 $1,031,089,339 ============== ============== SUMMARY OF CAPITAL SHARE TRANSACTIONS: Shares issued in payment of distributions from net investment income 1,181,153 1,011,738 Shares sold in connection with Rights Offering -- 18,122,963 -------------- -------------- Net increase in shares outstanding 1,181,153 19,134,701 ============== ==============
See Accompanying Notes to Financial Statements 20 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF CASH FLOWS for the Nine Months Ended November 30, 1997 (Unaudited) - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH Cash Flows From Operating Activities: Interest received $ 89,032,625 Facility fees received 2,819,537 Commitment fees received 188,549 Other income received 2,838,623 Interest paid (15,308,879) Other operating expenses paid (11,011,815) Purchases of short-term investments (8,000,000) Purchases of portfolio securities (994,452,928) Proceeds from disposition of portfolio securities 873,179,595 ------------ Net cash used for operating activities (60,714,693) ------------ Cash Flows From Financing Activities: Dividends paid (56,803,626) Overdraft financing -- Loan advance 119,000,000 ------------ Net cash provided by financing activities 62,196,374 ------------ Net increase in cash 1,481,681 Cash at beginning of year -- ------------ Cash at end of period $ 1,481,681 ------------ 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 62,560,346 ------------ Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: Increase in investments in securities (119,280,425) Increase in dividends and interest receivable (2,557,844) Decrease in other assets 94,002 Decrease in prepaid arrangement fees on notes payable 229,620 Increase in prepaid expenses (178,348) Decrease in deferred arrangement fees on senior loans (1,603,883) Increase in accrued interest payable 412,604 Decrease in accrued expenses (390,765) ------------ Total adjustments (123,275,039) ------------ Net cash used for operating activities $(60,714,693) ============
See Accompanying Notes to Financial Statements 21 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Nine Months Ended November 30, Years Ended February 28 or February 29, 1997 ---------------------------------------------------- (Unaudited) 1997(7) 1996(6) 1995 1994 ---------- -------- -------- -------- -------- Per Share Operating Performance Net asset value, beginning of period $ 9.45 $ 9.61 $ 9.66 $ 10.02 $ 10.05 Net investment income 0.66 0.82 0.89 0.74 0.60 Net realized and unrealized gain (loss) on investments (0.09) ( 0.02) (0.08) 0.07 (0.05) ---------- -------- -------- -------- -------- Increase in net asset value from investment operations 0.57 0.80 0.81 0.81 0.55 Distributions from net investment income (0.62) ( 0.82) (0.86) (0.73) (0.60) Reduction in net asset value from rights offering -- ( 0.14) -- (0.44) -- Increase in net asset value from repurchase of capital stock -- -- -- -- 0.02 ---------- -------- -------- -------- -------- Net asset value, end of period $ 9.40 $ 9.45 $ 9.61 $ 9.66 $ 10.02 ========== ======== ======== ======== ======== Closing market price at end of period $ 10.25 $ 10.00 $ 9.50 $ 8.75 $ 9.25 Total Return Total investment return at closing market price(3) 9.33% 15.04%(5) 19.19% 3.27%(5) 8.06% Total investment return at closing net asset value(4) 5.99% 8.06%(5) 9.21% 5.24%(5) 6.28% Ratios/Supplemental Data Net assets, end of period (000's) $1,037,187 $1,031,089 $862,938 $867,083 $719,979 Average borrowings (000's) $ 332,942 $131,773 $ -- $ -- $ -- Ratios to average net assets plus borrowing: Expenses (before interest and other fees related to revolving credit facility) 1.01%(1) 1.13% -- -- -- Expenses 2.56%(1) 1.92% 1.23% 1.30% 1.31% Net investment income 7.02%(1) 7.59% 9.23% 7.59% 6.04% Portfolio turnover rate 64% 82% 88% 108% 87% Shares outstanding at end of period (000's) 110,321 109,140 89,794 89,794 71,835
- ------------ (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 22 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
Years Ended February 28 or February 29, ------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- $ 9.96 $ 9.97 $ 10.00 $ 10.00 $ 10.00 0.60 0.76 0.98 1.06 0.72 0.01 (0.02) ( 0.05) -- -- --------- -------- ---------- --------- -------- 0.61 0.74 0.93 1.06 0.72 (0.57) (0.75) (0.96) (1.06) (0.72) -- -- -- -- -- 0.05 -- -- -- -- --------- -------- ---------- ---------- -------- $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00 ========= ======== ========== ========== ======== $ 9.13 $ -- $ -- $ -- $ -- 10.89% -- -- -- -- 7.29% 7.71% 9.74% 11.13% 7.35% $738,810 $874,104 $1,158,224 $1,036,470 $252,998 $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- 1.42% 1.42%(2) 1.38% 1.46%(2) 1.18%(1)(2) 5.88% 7.62%(2) 9.71% 10.32%(2) 9.68%(1)(2) 81% 53% 55% 100% 49%(1) 73,544 87,782 116,022 103,660 25,294
- ------------ (4) Total investment return at net asset value has been calculated assuming a purchase at net asset value at the beginning of each period and a sale at net asset value at the end of each period and assumes reinvestment of dividends and capital gain distributions in accordance with the provisions of the dividend reinvestment plan. This calculation differs from total investment return because it excludes the effects of changes in the market values of the Trust's shares. Total returns for less than one year are not annualized. (5) Calculation of total return excludes the effects of the per share dilution resulting from the rights offering as the total account value of a fully subscribed shareholder was minimally impacted. (6) Pilgrim America 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 has 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. See Accompanying Notes to Financial Statements 23 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30,1997 (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES Pilgrim America Prime Rate Trust (the "Trust", formerly Pilgrim Prime Rate Trust) is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end, management investment 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. Security Valuation. Senior loans are valued at fair value in the absence of readily ascertainable market values. Fair value is determined by Pilgrim America 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. Due to the timing of dividend distributions and the differences in accounting for income and realized gains (losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains (losses) were recorded by the Trust. The differences between the income or gains distributed on a book versus tax basis, if any, are shown as excess distributions of net investment income and net realized gain on sales of investments in the accompanying Statements of Changes in Net Assets. At February 28, 1997, the Trust had a capital loss carryforward for federal income tax purposes of approximately $7,196,156 which is scheduled to expire through February 28, 2005. The Board of Trustees intends to offset net capital gains with capital loss carryforwards until each carryforward has been fully utilized or expires. In addition, no capital gain distributions shall be made until the capital loss carryforward has been fully utilized or expires. 24 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30,1997 (Unaudited) - -------------------------------------------------------------------------------- C. Security Transactions and Revenue Recognition. Security transactions are accounted for on trade date. 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, and dividend income is recorded on the ex-dividend date. 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 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. 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 at least 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. These "book/tax" differences are either considered temporary or permanent in nature. Key differences are the treatment of short-term capital gains and other temporary differences. 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. E. Dividend Reinvestments. Pursuant to the Automatic Dividend Reinvestment Plan, Investors Fiduciary Trust Co., the Plan Agent, may purchase, from time to time, shares of beneficial interest of the Trust on the open market to satisfy dividend reinvestments. Such shares will be purchased only when the closing sale or bid price plus commission is less than the net asset value per share of the stock. If the market price plus commissions is equal to or exceeds the net asset value, new shares valued at the net asset value most recently calculated will be issued. F. Use of Estimates. Management of the Trust has made certain estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. NOTE 2 -- INVESTMENTS For the nine months ended November 30, 1997, the cost of purchases and the proceeds from principal repayment and sales of investments, excluding short-term notes, totaled $994,452,928 and $ 873,179,595, respectively. At November 30, 1997, the Trust held senior loans valued at $1,398,930,957 representing 99.0% of its total investments. The market value of these securities can only be established by negotiation between parties in a sales transaction. Due to the uncertainty inherent in the valuation process, the fair values as determined may materially differ from the market values that would have been used had a ready market for these securities existed. 25 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30,1997 (Unaudited) - -------------------------------------------------------------------------------- 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 principal and/or interest. Additionally, certain situations may arise where the Trust acquires a participation in a co-lender's interest in a loan and the Trust does not have privity with or direct recourse against the corporate issuer. Accordingly, the Trust may incur additional credit risk as a participant because it must assume the risk of insolvency or bankruptcy of the co-lender from which the participation was acquired. Common and preferred stocks, and stock purchase warrants held in the portfolio were acquired in conjunction with senior loans held by the Trust. Certain of these stocks and warrants are restricted and may not be publicly sold without registration under the '33 Act, or without an exemption under the '33 Act. In some cases, these restrictions expire after a designated period of time after issuance of the stock or warrant. These restricted securities are valued at fair value as determined by the Board of Trustees by considering quality, dividend rate, and marketability of the securities compared to similar issues. In order to assist in the determination of fair value, the Trust will obtain quotes from dealers who periodically trade in such securities where such quotes are available. Dates of acquisition and cost or assigned basis of restricted securities are as follows:
Date of Cost or Acquisition Assigned Basis ----------- -------------- America's Favorite Chicken Co. -- Common 11/05/92 $ 1 Autotote Systems, Inc. -- Option 11/11/92 -- Autotote Systems, Inc. -- Warrant 11/11/92 -- Capital Tool & Design -- Warrants 07/26/96 -- Covenant Care, Inc. -- Warrants 12/22/95 -- Dan River, Inc. -- Common 09/15/91 1,217,260 KDI Corp. Units of Trust 09/19/95 -- Staff Leasing, Inc. 09/01/95 61,100 ---------- Total restricted securities excluding senior loans (market value of $7,968,992 was 0.77% of net assets at November 30, 1997) $1,278,361 ==========
NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT The Trust has entered into an Investment Management Agreement with Pilgrim America Investments, Inc. (the "Manager") a wholly-owned subsidiary of Pilgrim America Group, Inc. ("PAG"), 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 0.85% 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 to $800 million; and 0.65% of the average daily net assets plus borrowings in excess of $800 million. The Manager has agreed to reduce its fee for a period of three years from the Expiration Date of the November 12, 1996 Rights Offering (See Note 5) to 0.60% of the average daily net assets, plus the proceeds of any outstanding borrowings, over $1.15 billion. The Trust has also entered into an Administration Agreement with PAG 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. 26 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30,1997 (Unaudited) - -------------------------------------------------------------------------------- NOTE 4 -- COMMITMENTS The Trust has entered into both a 364 day and a four year revolving credit agreement to borrow up to $515 million from a syndicate of major banks maturing June 25, 1998 and May 2, 2000, respectively. Borrowing rates under these agreements are based on a fixed spread over LIBOR or the federal funds rate. The Trust also pays an unused arrangement fee for any unborrowed amount amortized over 364 days and four years, respectively. The amount of borrowings outstanding at November 30, 1997, was $386.0 million at a weighted average interest rate of 6.2%, which represented 27.1% of net assets plus borrowings. Average borrowings for the nine months ended November 30, 1997, were $332,942,101 and the average annualized interest rate was 6.1%. As of November 30, 1997, the Trust had unfunded loan commitments pursuant to the terms of the following loan participation agreements: Cable Plus Company, L.P. $ 6,514,286 Nextel Finance Co. $ 7,902,622 Capstar Hotel Co. 3,125,000 Palace Stations 3,529,367 Classic Cable 39,702 Papa Gino's, Inc. 3,178,808 Edward's Baking Co. 607,423 Pathmark Stores 4,760,331 Fairchild Holdings 2,985,715 The Presley Companies 2,000,000 Huntsman Corp. 3,262,500 Viasystems 7,500,000 Jefferson Smurfit Corp. 7,003,697 24-Hour Fitness, Inc. 860,796 MAFCO Financial Corp 9,800,000 ----------- $63,070,247 =========== NOTE 5 -- RIGHTS OFFERINGS On October 18, 1996, the Trust issued to its shareholders 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 non-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. NOTE 6 -- CUSTODIAL AGREEMENT Investors Fiduciary Trust Company ("IFTC") serves as the Trust's custodian and recordkeeper. Custody fees paid to IFTC are reduced by earnings credits based on the cash balances held by IFTC for the Trust. For the nine months ended November 30, 1997, the Trust received earnings credits of $1,782. NOTE 7 -- SUBSEQUENT EVENT Subsequent to November 30 1997, the Trust declared a dividend from net investment income of $0.09875 payable on January 13, 1998 to shareholders of record on December 31, 1997. 27 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30,1997 (Unaudited) - -------------------------------------------------------------------------------- Management's Additional Operating Information --------------------------------------------- APPROVAL OF CHANGES IN INVESTMENT POLICIES At the Annual Meeting of Trust Shareholders, held August 30, 1994, shareholders approved changes in the Trust's fundamental investment policies which make available certain additional investment opportunities to the Trust, including the purchase (i) of U.S. dollar denominated senior corporate loans made to companies headquartered in Canada or U.S. Territories or Possessions; (ii) subject to certain limitations, loans in excess of 10% of an issue of senior bank debt of a corporate borrower; and (iii) with up to 5% of the Trust's assets, loans in tranches of senior collateralized corporate loans that are subordinated in some manner as to the payment of interest and/or principal. At a special meeting held May 2, 1996, Trust Shareholders approved an amendment to the Trust's fundamental investment policies to expand its ability to engage in borrowing transactions up to 33.33% of net assets including borrowings, primarily to acquire additional income producing investments. The Trust's Manager believes that these changes in the Trust's investment policies will increase the number of loan offerings which the Trust may consider acquiring. Furthermore, the Manager also believes that these changes are fully consistent with the Trust's overall investment philosophy of purchasing senior collateralized corporate loans. 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. DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN The Trust offers a Dividend Reinvestment and Cash Purchase Plan (the "Plan") which enables investors to conveniently add to their holdings at reduced costs. Should you desire further information concerning this Plan, please contact the Shareholder Servicing Agent at (800) 331-1080. 28 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- FUND ADVISORS AND AGENTS - -------------------------------------------------------------------------------- INVESTMENT MANAGER INSTITUTIONAL INVESTORS AND ANALYSTS Pilgrim America Investments, Inc. Call Pilgrim America Prime Rate Trust Two Renaissance Square 1-800-336-3436, Extension 8256 40 North Central Avenue Suite 1200 Phoenix, AZ85004-4424 SHAREHOLDER SERVICING AGENT TRANSFER AGENT Pilgrim America Group, Inc. DST Systems, Inc. Two Renaissance Square P.O. Box 419368 40 North Central Avenue Kansas City, Missouri 64141 Suite 1200 Phoenix, AZ85004-4424 1-800-331-1080 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, AZ 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 1-800-331-1080. 29 Pilgrim America Funds Pilgrim America Masters Asia-Pacific Equity Fund Pilgrim America Masters MidCap Value Fund Pilgrim America Masters LargeCap Value Fund Pilgrim America Bank and Thrift Fund 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. 13-SS-121997 01XX98 -----END PRIVACY-ENHANCED MESSAGE-----