-----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, COhcRyXrM+aiPD1nRjZUEe6GmteJEb3JxkW588+LLekIzJcLazS96Fi/WF6ZS24i Te89Mm9agTtwqsN7tiosCw== 0000950147-98-000579.txt : 19980804 0000950147-98-000579.hdr.sgml : 19980804 ACCESSION NUMBER: 0000950147-98-000579 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980803 SROS: NONE 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-30D SEC ACT: SEC FILE NUMBER: 811-05410 FILM NUMBER: 98676308 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-30D 1 FORM N-30D Pilgrim America Prime Rate Trust FIRST QUARTER REPORT MAY 31, 1998 Pilgrim America Prime Rate Trust FIRST QUARTER REPORT May 31, 1998 -------- Table of Contents Chairman's Message .......................... 2 Letter to Shareholders ...................... 3 Shareholder Letter Footnotes ................ 6 Statistics and Performance .................. 7 Performance Footnotes ....................... 9 Additional Notes and Information ............ 10 Portfolio of Investments .................... 11 Statement of Assets and Liabilities ......... 20 Statement of Operations ..................... 21 Statements of Changes in Net Assets ......... 22 Statement of Cash Flows ..................... 23 Financial Highlights ........................ 24 Notes to Financial Statements ............... 26 Fund Advisors and Agents .................... 33 -------- Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- CHAIRMAN'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to present the First Quarter Report for Pilgrim America Prime Rate Trust (the "Trust"). On the following pages, the Portfolio Manager will discuss the Trust's milestones and performance, as well as recent market developments. A leader in its class, the Trust has continued to increase shareholder value through strong management and innovative approaches. We believe you will find this quarter's results a reflection of Pilgrim America's philosophy to provide core holdings which seek to meet the three key needs of the serious investor: 1. Preservation of capital 2. Participation in rising markets 3. Outperformance in falling markets Thank you for selecting Pilgrim America Prime Rate Trust. We appreciate the confidence you have placed in us in serving your investment needs. Sincerely, /s/ Robert W. Stallings Robert W. Stallings Chairman and Chief Executive Officer Pilgrim America Group, Inc. July 16, 1998 2 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- Dear Fellow Shareholders, For the quarter ended May 31, 1998, Pilgrim America Prime Rate Trust (the "Trust") continued to be ranked first in the Loan Participation Fund category established by Lipper Analytical Services, Inc. ("Lipper"). For the one, three, five and ten year periods ended May 31, 1998, the Trust ranked first among eight, six, five and one funds, respectively(1). Dividends declared during the quarter totaled $0.209 which, based on quarter ending net asset value ("NAV") equated to a rate of 8.86% per annum. During the period the Prime Rate was 8.50% and 60-day LIBOR averaged 5.618%. The Trust's dividend adjusted month-end NAV during the quarter ranged between $9.27 and $9.29. Thus, the Trust accomplished its objectives of delivering a high current yield consistent with the preservation of capital. Market Place Merger and acquisition activity has continued at a high level for most of the past twelve months. Consequently, the past quarter has produced a large number of new transactions for the Trust to consider as potential investments. Continued robust supply has been more than matched by new institutional investors entering the market. At this time last year, we highlighted the development of Collateralized Loan Obligations. These structured vehicles continue to be a factor. We have also witnessed the advent of several new funds and other marketing strategies which facilitate the more rapid growth of existing funds in the senior floating rate asset class. Alternatively, the continued amalgamation of North American banks and the retreat by foreign banks from the U.S. corporate finance market has mitigated the impact that increased demand might otherwise have produced. The result has been gradual reductions in spreads. At the margin, returns have fallen by about 30 basis points. This decline does not flow immediately to shareholders as lower investment income since only part of the Trust's portfolio turns over in a given period. We estimate re-pricing as a result of turnover to affect about 30% of the portfolio each year. Asset Quality We continue to focus on asset quality. Credit risk is the critical factor determining NAV stability. The distinguishing characteristic of Senior Floating Rate Loans compared to other forms of comparable debt is the rates of recovery experienced in the event of default. Defaults are an inevitable consequence of making loans. The Trust has and will suffer defaults. As of May 31, 1998, non-performing assets 3 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- represented 0.82% of total assets compared to 0.97% as of February 28, 1998. Historically, recoveries have been more than double the recoveries found in more junior parts of the capital structure. We pass on to the market regular information on the level of non-performing assets in the portfolio as an indicator of potential losses. The asset values set out in the Portfolio of Investments give management's view of likely recoveries. Generally, we have seen no major deterioration in credit quality, but there has been some isolated evidence of stress, such as Boston Chicken, Inc., Centennial Resources and Clarity Telecommunications. It is possible that one or more of these investments may become non-performing. As we have pointed out before, the diversification practiced by the Trust seeks to ensure that the impact of non-performance would not be measurable in income terms. Of course, there can be no guarantees. Historically, high eventual recovery rates have allowed investors in the senior floating rate asset class to achieve relatively high returns even on defaulted transactions. To further illustrate diversification, the following chart compares the Trust's ten largest industries as a % of total senior loans at May 31, 1998, to the same industries of the primary market, for new transactions during the current quarter. TOP TEN INDUSTRIES Industry % Portfolio % Primary Market -------- ----------- ---------------- Healthcare, Education & Childcare ........... 12.5 15.3 Media* ...................................... 9.6 6.8 Beverage, Food & Tobacco .................... 7.1 4.0 Automobile .................................. 6.6 6.7 Buildings & Real Estate ..................... 6.3 1.5 Telecommunications .......................... 5.7 8.5 Personal, Food & Miscellaneous Services ..... 5.5 1.7 Chemicals, Plastics & Rubber ................ 4.8 6.7 Electronics ................................. 4.1 6.0 Diversified/Conglomerate Services ........... 3.5 1.7 - ------------ * Includes the broadcast, and printing and publishing industries to more closely resemble the syndicate loan market. 4 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- Portfolio Changes During the quarter new investments have included New Piper Aircraft, Federal Mogul, Capstar Radio Broadcasting, and Purina Mills, Inc. Transactions sold or repaid include American Axle & Manufacturing, Amscan Holdings, Behr Process Corp., Intesys Technologies, Inc., Koppers Industries, Inc., PSC Incorporated and Telex Communications Group. Outlook We expect spreads and fees earned on investments to continue to be soft, although we believe that we may have reached a low point for the time being. We expect to be able to maintain investment income by remaining fully leveraged and by marginally lowering the cost of borrowing by the Trust. This latter benefit will be experienced at least in part during the quarter ending August 31, 1998. We believe the prospects for a change in short-term interest rates are mixed. Inflation remains subdued and Asia's woes have rippled into the North American economies. Asia has clearly slowed growth rates for many American and Canadian companies. Asia has also delivered somewhat lower raw materials prices to several businesses. As a result, a rise in interest rates is unlikely in the near term. It is also too early to forecast a slowing of the economy sufficiently great to persuade the Federal Reserve to ease monetary policy. Please contact us with your questions and comments. Yours sincerely, /s/ Howard Tiffen Howard Tiffen President Chief Operating Officer Senior Portfolio Manager Pilgrim America Prime Rate Trust 5 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- SHAREHOLDER LETTER FOOTNOTES - -------------------------------------------------------------------------------- (1) Lipper ranked the Trust for total return, without deducting sales charges and assuming reinvestment of all dividends and capital gains distributions but not reflecting the January 1995 and November 1996 rights offerings. The Trust's expenses were partially waived for the fiscal year ended February 29, 1992. As part of the rights offering, the Investment Manager has voluntarily reduced its management fee for the period from November 1996 through November 1999. For the one, three, five and ten-year periods ended June 30, 1998, Lipper ranked the Trust first among eight, six, five and one funds, respectively. 6 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- STATISTICS AND PERFORMANCE as of May 31, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PORTFOLIO CHARACTERISTICS Net Assets $1,101,574,674 --------------------------------------------------------------- Assets Invested in Senior Loans $1,486,495,714 --------------------------------------------------------------- Total Number of Senior Loans 140 --------------------------------------------------------------- Average Amount Outstanding per Loan $ 10,617,827 --------------------------------------------------------------- Total Number of Industries 29 --------------------------------------------------------------- Portfolio Turnover Rate 28% --------------------------------------------------------------- Average Loan Amount per Industry $ 51,258,473 --------------------------------------------------------------- Weighted Average Days to Interest Rate Reset 43 days --------------------------------------------------------------- Average Loan Maturity 69 months --------------------------------------------------------------- Average Age of Loans Held in Portfolio 10 months --------------------------------------------------------------- * Includes loans and other debt received through restructures - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TOP 10 INDUSTRIES AS A % OF NET ASSETS TOTAL ASSETS Healthcare, Education and Childcare 16.8% 11.9% Beverage, Food and Tobacco 9.5% 6.7% Automobile 8.9% 6.3% Buildings & Real Estate 8.4% 6.0% Broadcasting 8.1% 5.7% Telecommunications 7.7% 5.5% Personal, Food and Misc. Services 7.5% 5.3% Chemicals, Plastics and Rubber 6.4% 4.5% Electronics 5.5% 3.9% Printing and Publishing 4.8% 3.4% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TOP 10 SENIOR LOANS AS A % OF NET ASSETS TOTAL ASSETS Laidlaw Environmental Services, Inc. 3.6% 2.6% MAFCO Financial Corp. 3.3% 2.4% Integrated Health Services 2.7% 1.9% Nextel Finance Co. 2.4% 1.7% Community Health Systems 2.2% 1.6% Federal Mogul 2.2% 1.5% Ventas, Inc. 2.1% 1.5% Papa Gino's, Inc. 1.9% 1.3% 24-Hour Fitness, Inc. 1.8% 1.3% Florida Panthers Holdings 1.8% 1.3% - -------------------------------------------------------------------------------- 7 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- STATISTICS AND PERFORMANCE as of May 31, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DISTRIBUTION RATES*
SEC 30-Day SEC 30-Day Annualized Annualized Prime Yield at Yield at Distribution Distribution Quarter-ended Rate NAV A,D MKT A,D Rate at NAV C,D Rate at MKT C,D - --------------------------------------------------------------------------------------------------- May 31, 1998 8.50% 9.67% 8.82% 8.86% 8.09% - --------------------------------------------------------------------------------------------------- February 28, 1998* 8.50% 8.60% 7.77% 8.75% 7.92% - --------------------------------------------------------------------------------------------------- November 30, 1997 8.50% 9.72% 9.15% 8.82% 8.08% - --------------------------------------------------------------------------------------------------- August 31, 1997 8.50% 8.58% 7.95% 8.82% 8.19% - ---------------------------------------------------------------------------------------------------
This table sets forth the Trust's monthly dividend performance which is summarized quarterly. * Distribution Rates exclude the special dividend of $0.02875/share declared December 19, 1997. Including the special dividend results in a distribution rate @ NAV of 10.00%, and a distribution rate @ MKT of 9.05%. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS NAV MKT ------------------------------------------------------------------------ 1 Year 8.54% 11.97% ------------------------------------------------------------------------ 3 Years 8.37% 14.20% ------------------------------------------------------------------------ 5 Years 8.15% 11.14% ------------------------------------------------------------------------ 10 Years 8.55% N/A ------------------------------------------------------------------------ Since Trust Inception G,I 8.50% N/A ------------------------------------------------------------------------ Since Initial Trading on NYSE H N/A 11.45% ------------------------------------------------------------------------ Assumes rights were exercised and excludes sales charges and commissions C,D,E,F - -------------------------------------------------------------------------------- Performance data represents past performance and is no guarantee of future results. See performance footnotes on page 9. 8 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 dividend declared 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 return assumes a hypothetical initial investment at the net asset value (in the case of NAV) or the NYSE Composite closing price (in the case of Market) on the last business day before the first day of the stated period, with all dividends and distributions reinvested at the actual reinvestment price. The Trust's average annual returns on an NAV basis and assuming rights were exercised through May 31, 1998 were 8.54% and 8.15% for the one and five year periods, respectively. The Trust's average annual total return on an NAV basis with a 3% sales charge and assuming rights were exercised through May 31, 1998, was 8.22% for the ten-year period. 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 rights offering, 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. The offering was completed on January 27, 1995. (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 $5,926,209 were charged against the offering proceeds. (G) Inception Date -- May 12, 1988. (H) Initial Trading on NYSE -- March 9, 1992. (I) Reflects Partial Waiver of Fees. Performance data represents past performance and is no guarantee of future results. Investment return and principal value of an investment in the Trust will fluctuate. Shares, when sold, may be worth more or less than their original cost. 9 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- ADDITIONAL NOTES AND INFORMATION - -------------------------------------------------------------------------------- SHAREHOLDER INVESTMENT PROGRAM The Trust offers a Shareholder Investment Program (the "Program", formerly known as the Dividend Reinvestment and Cash Purchase Plan) which allows shareholders a simple way to reinvest dividends and capital gains distributions, if any, in additional shares of the Trust. The Program also offers Trust shareholders the ability to make optional cash investments in any amount from $100 to $5,000 on a monthly basis. Amounts in excess of $5,000 require prior approval of the Trust. DST Systems, Inc., the Trust's Transfer Agent, is the Administrator for the Program. For dividend reinvestment purposes, the Administrator will purchase shares of the Trust on the open market when the market price plus estimated commissions is less than the net asset value on the valuation date. The Trust may issue new shares when the market price plus estimated commissions is equal to or exceeds the net asset value on the valuation date. New shares may be issued at the greater of (i) net asset value or (ii) the market price of the shares during the pricing period, minus a discount of 5%. For optional cash investments, shares will be purchased on the open market by the Administrator when the market price plus estimated commissions is less than the net asset value on the valuation date. New shares may be issued by the Trust when the market price plus estimated commissions is equal to or exceeds the net asset value on the valuation date. There is no charge to participate in the Program. Participants may elect to discontinue participation in the Program at any time. Participants will share, on a pro-rata basis, in the fees or expenses of any shares acquired in the open market. Participation in the Program is not automatic. If you would like to receive more information about the Program or if you desire to participate, please contact your broker or our Shareholder Services Department at (800) 992-0180. KEY FINANCIAL DATES -- Calendar 1998 Dividends: DECLARATION DATE EX-DATE PAYABLE DATE January 30 February 6 February 24 February 27 March 6 March 23 March 26 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. 10 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of May 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- SENIOR LOANS* (Dollar weighted portfolio interest reset period is 43 days)
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Aerospace and Defense: 3.1% $ 8,910 Erickson Air-Crane Co. (heavy lift helicopters) Term B 12/31/04 $ 8,910,000 10,000 New Piper Aircraft (aircraft manufacturer) Term 04/15/05 10,000,000 6,015 Technetics Corp. (aircraft engine components) Term 06/20/02 6,015,152 9,355 Tri Star/Odyssey, Inc. (aerospace hardware distributor) Term 09/30/03 9,355,000 ----------- 34,280,152 ----------- Automobile: 8.9% 15,000 Breed Technologies (airbags/seatbelts) Term B 04/27/06 15,000,000 9,975 Cambridge Industries, Inc. (automotive plastics) Term B 06/30/05 9,975,000 9,426 Capital Tool & Design (brake backing plates) Term B 07/19/03 9,425,944 9,193 Federal Mogul (automotive parts) Term 06/30/99 9,192,784 14,907 Federal Mogul Term 12/31/05 14,907,216 10,000 Global Metal Technologies (automotive parts) Term B 03/12/05 10,000,000 2,757 Hayes Wheels International (automotive wheels) Term B 07/31/04 2,757,405 2,230 Hayes Wheels International Term C 07/31/05 2,230,127 12,500 Keystone Automotive (automotive aftermarket specialty parts) Term B 03/31/04 12,500,000 6,250 Safelite Glass Corp. (automobile windshield replacement) Term B 12/23/04 6,250,000 6,250 Safelite Glass Corp. Term C 12/23/05 6,250,000 ----------- 98,488,476 ----------- Beverage, Food and Tobacco: 9.5% 6,950 Arrowhead Mills, Inc. (natural foods) Term B 10/31/04 6,950,000 3,625 Aurora Foods (pancake mixes, syrups) Term B 12/31/05 3,625,000 3,625 Aurora Foods Term C 06/30/06 3,625,000 2,025 Del Monte Corp. (food manufacturing and distribution) Term B 03/31/05 2,025,000 8,080 Del Monte Corp. Term B 03/31/05 8,080,190 2,593 Edward's Baking Co. (food service bakery) Term A 09/30/03 2,592,577 3,317 Edward's Baking Co. Term B 09/30/05 3,316,667 3,317 Edward's Baking Co. Term C 09/30/05 3,316,667 13,895 Empire Kosher Poultry (kosher chicken and poultry) Term B 07/31/04 13,895,000 12,500 Favorite Brands International (confectionary manufacturer) Term B 05/19/05 12,500,000 9,477 Imperial Holly Corp. (sugar producer) Term A 12/31/05 9,476,635 8,280 Imperial Holly Corp. Term B 12/31/05 8,280,079 8,603 Snapple Beverage Co. (soft drink manufacturer) Term B 06/01/04 8,603,233 8,603 Snapple Beverage Co. Term C 06/01/05 8,603,233 6,088 Van De Kamp's (frozen foods) Term B 04/30/03 6,088,299 3,825 Van De Kamp's Term C 09/30/03 3,824,924 ----------- 104,802,504 -----------
See Accompanying Notes to Financial Statements. 11 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of May 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Broadcasting: 8.1% $ 10,163 Benedek Broadcasting Television Corp. (broadcasting) Axel A (A) 12/31/04 $10,162,679 4,759 Benedek Broadcasting Television Corp. Axel B (A) 12/31/04 4,759,310 5,000 Capstar Radio Broadcasting (radio broadcasting) Term B 05/29/05 5,000,000 903 Classic Cable (rural cable system operator) Revolver 06/30/05 902,534 1,701 Classic Cable Term A 03/31/05 1,700,973 15,273 Classic Cable Term B 06/30/03 15,273,476 7,463 Entravision (Spanish broadcast television) Term B 12/31/04 7,462,500 10,000 FrontierVision (cable television) Term B 03/31/06 10,000,000 10,000 Intermedia Partners IV (cable television) Term 01/01/05 10,000,000 5,000 Intermedia Partners VI (cable television) Hybrid 03/23/08 5,000,000 1,776 Liberman Broadcasting, Inc. (broadcasting) Revolver 03/31/05 1,776,000 8,000 Liberman Broadcasting, Inc. Term B 09/30/05 8,000,000 9,250 Retlaw Broadcasting, LLC (television stations) Term B 04/30/06 9,250,000 ----------- 89,287,472 ----------- Buildings and Real Estate: 8.4% 6,000 Dayton Superior (concrete/masonry accessories) Term 09/29/05 6,000,000 10,969 Falcon Building Products (building products) Term B 06/30/05 10,968,571 3,584 Goodman Manufacturing Co., L.P. (air conditioning manufacturer) Term B 09/30/04 3,583,630 3,584 Goodman Manufacturing Co., L.P. Term C 09/30/05 3,583,630 6,600 Home Decor Group (home accessories) Term B 03/12/04 6,600,000 3,400 Home Decor Group Term C 03/12/05 3,400,000 7,980 Kevco, Inc. (manufactured home components) Term B 02/02/05 7,980,000 4,000 The Presley Companies (homebuilder) Revolver 05/30/98 4,000,000 13,895 Tree Island Industries (nail and wire products) Term B 03/31/03 13,895,000 794 United Building Materials, Inc. (stone and concrete products)(1) Term 12/31/99 794,153 23,333 Ventas, Inc. (real estate investment trust) Term D 05/05/03 23,333,333 4,040 Werner Holding Co. (ladders) Term B 11/30/04 4,039,875 4,938 Werner Holding Co. Term C 11/30/05 4,937,625 ----------- 93,115,817 ----------- Cargo Transport: 3.3% 12,058 Atlas Freighter Leasing (air cargo carrier) Term 05/29/04 12,057,835 4,732 Evergreen International (air cargo carrier) Term B 05/31/03 4,731,993 10,000 Omnitrax, Inc. (rail operator) Term 05/12/05 10,000,000 4,620 Oshkosh Trucking (specialized truck manufacturer) Term B 03/01/04 4,620,000 4,620 Oshkosh Trucking Term C 03/01/04 4,620,000 ----------- 36,029,828 -----------
See Accompanying Notes to Financial Statements. 12 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of May 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Chemicals, Plastics and Rubber: 6.4% $ 10,000 Acadia Elastomers Corp. (specialty chemicals) Term 03/21/04 $10,000,000 11,311 Cedar Chemical Corp. (specialty chemicals) Term B 10/30/03 11,311,415 3,572 Foamex, L.P. (polyurethane foam) Term B 06/30/05 3,571,865 3,247 Foamex, L.P. Term C 06/30/06 3,247,150 4,583 GEO Specialty Chemicals (specialty chemicals) Term A 09/25/02 4,583,333 9,900 GEO Specialty Chemicals Term B 03/25/04 9,900,000 1,944 Huntsman Chemical (specialty chemicals) Term B 03/15/04 1,944,286 1,944 Huntsman Chemical Term C 03/15/04 1,944,286 2,138 Huntsman Corp. (industrial chemicals) Revolver 12/31/02 2,137,609 684 Huntsman Corp. Term A 12/31/02 683,823 5,000 Huntsman Corp. Term B 12/31/05 5,000,000 5,102 NEN Life Sciences Products (biochemicals) Term B 12/31/04 5,102,041 6,500 Sunbelt Manufacturing LLC (plastics manufacturer) Term B 09/30/04 6,500,000 4,807 Texas Petrochemical Corp. (industrial chemicals) Term B 06/30/04 4,806,732 ----------- 70,732,540 ----------- Containers, Packaging and Glass: 0.4% 2,786 Calmar, Inc. (non-aerosol fluid dispensing systems) Term A 09/15/03 2,785,714 2,089 Calmar, Inc. Term B 03/15/04 2,089,286 ----------- 4,875,000 ----------- Diversified/Conglomerate Manufacturing: 0.0% 276 @ KDI Corp. (defense and leisure products) (2) Term A N/A 16,791 13 @ KDI Corp. (2) Term B N/A 13,187 ----------- 29,978 ----------- Diversified/Conglomerate Services: 4.8% 36,750 MAFCO Financial Corp. (diversified services and entertainment) Term A 04/16/00 36,750,000 8,814 Outsourcing Solutions (accounts receivable management) Term B 11/06/03 8,813,641 6,918 Outsourcing Solutions Term C 10/15/04 6,918,087 ----------- 52,481,728 ----------- Ecological: 4.5% 4,861 Clean Harbors (environmental services) Term 05/08/00 4,860,698 20,000 Laidlaw Environmental Services, Inc. (waste management) Term B 04/03/05 20,000,000 20,000 Laidlaw Environmental Services, Inc. Term C 04/03/06 20,000,000 4,875 Rumpke (waste management) Term 09/25/02 4,875,000 ----------- 49,735,698 -----------
See Accompanying Notes to Financial Statements. 13 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of May 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Electronics: 5.5% $ 5,676 Anacomp, Inc. (document storage and imaging) Term 02/28/01 $5,676,466 7,406 Celestica (diversified electronic device manufacturer) Term B 06/30/03 7,406,250 7,000 Details, Inc. (circuit board manufacturer) Term B 10/27/04 7,000,000 5,000 Dictaphone Acquisition, Inc. (dictation and recording equipment) Term C 06/30/03 5,000,000 10,294 Fairchild Semiconductor Corp. (electronic equipment) Term C 03/11/03 10,293,781 5,674 Intri-Plex Technologies, Inc. (disk drive component manufacturer) Term 09/30/02 5,673,913 9,357 OK Industries, Inc. (circuit board manufacturing systems) Term 10/31/02 9,357,143 9,841 Sarcom, Inc. (systems integration) Term 11/20/02 9,841,270 ---------- 60,248,823 ---------- Farming and Agriculture: 0.8% 9,000 Purina Mills, Inc. (food products) Term 03/10/07 9,000,000 ---------- Finance: 3.5% 8,000 Bridge Information Systems (news services) Term B 05/29/05 8,000,000 7,467 National Partnership Investments Corp. (asset management) Term 06/30/01 7,466,667 8,069 Neff Corp. (equipment rental) Revolver 05/01/03 8,069,017 10,000 Value Asset Management, Inc. (money management) Sub. Term 04/28/99 10,000,000 5,000 Value Asset Management, Inc. Term B 04/28/03 5,000,000 ---------- 38,535,684 ---------- Grocery: 2.6% 16,797 Schwegmann Giant Supermarket (Louisiana supermarkets) Term B 01/31/04 16,797,216 9,316 Star Markets Co., Inc. (Boston area supermarkets) Term B 12/31/02 9,316,040 2,890 Star Markets Co., Inc. Term C 12/31/03 2,889,885 ---------- 29,003,141 ---------- Healthcare, Education and Childcare: 16.8% 4,103 Alaris Medical Systems (infusion pumps) Term B 11/30/03 4,102,525 4,103 Alaris Medical Systems Term C 11/30/04 4,102,525 3,861 Alaris Medical Systems Term D 05/31/05 3,861,200 1,995 Alliance Imaging, Inc. (diagnostic services) Term A 12/18/03 1,995,000 9,476 Alliance Imaging, Inc. Term C 08/09/04 9,476,250 8,938 Community Health Systems (hospitals) Term B 12/31/03 8,938,356 8,938 Community Health Systems Term C 12/31/04 8,938,356 6,712 Community Health Systems Term D 12/31/05 6,712,329 6,000 Covenant Care, Inc. (long-term healthcare facilities) Term 06/30/99 6,000,000 2,926 Dade International (medical testing equipment manufacturer) Term B 12/31/04 2,925,857 2,926 Dade International Term C 12/31/04 2,925,857 10,009 Dade International Term D 12/31/04 10,009,298 9,770 Graphic Controls Corp. (industrial and medical charts) Term B 09/28/03 9,769,855
See Accompanying Notes to Financial Statements. 14 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of May 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Healthcare, Education and Childcare (continued) $ 2,762 Hanger Orthopedics Group (orthopedic and prosthetic services) Term B 12/31/01 $ 2,761,612 12,500 Healthcare America, Inc. (youth psychiatric care) Term B 06/30/04 12,500,000 10,000 Integrated Health Services (long-term subacute care) Term B 09/30/04 10,000,000 20,000 Integrated Health Services Term C 12/31/05 20,000,000 6,250 Magellan Health Services (managed behavioral care) Term B 02/12/05 6,250,000 6,250 Magellan Health Services Term C 02/12/06 6,250,000 5,000 Paragon Health Network, Inc. (nursing homes) Term B 03/31/05 5,000,000 5,000 Paragon Health Network, Inc. Term C 03/31/06 5,000,000 9,950 SMT Health (mobile MRI systems) Term 08/31/03 9,950,000 5,593 Sun Healthcare (nursing homes) Term B 10/01/04 5,592,526 5,593 Sun Healthcare Term C 10/01/05 5,592,526 16,667 Vencor, Inc. (long-term care facility operator) Term A 05/05/05 16,666,667 ----------- 185,320,739 ----------- Home and Office Furnishings, Housewares and Durable Consumer Products: 4.3% 4,500 All Clad (pots and pans) Term A 03/18/04 4,500,000 3,000 All Clad Term C 03/18/05 3,000,000 6,965 Desa International (heaters and fireplaces) Term 11/26/04 6,965,000 15,802 ICON Health & Fitness Co. (exercise equipment) Term B 11/14/01 15,801,874 1,436 Panolam (design and manufacture wood paneling) Term A 01/31/03 1,436,063 8,515 Panolam Term B 01/31/03 8,514,713 4,866 Panolam Term C 01/31/03 4,865,550 2,000 Panolam Term D 01/31/03 2,000,000 ----------- 47,083,200 ----------- Hotels, Motels, Inns and Gaming: 1.7% 6,961 Interstate Hotels Corp. (hotel management and ownership) Term C 06/25/04 6,961,111 2,186 Palace Station (gaming) Revolver A 09/30/00 2,185,699 9,244 Palace Station Revolver B 09/30/00 9,244,433 ----------- 18,391,243 ----------- Insurance: 0.6% 6,338 TRG Holdings Corp. (insurance run-off) Term 01/31/03 6,337,500 ----------- Leisure, Amusement, Motion Pictures and Entertainment: 4.5% 3,750 AMFAC Parks and Resorts (park services operator) Term B 09/04/04 3,750,000 3,750 AMFAC Parks and Resorts Term C 09/30/04 3,750,000 20,000 Florida Panthers Holdings, Inc. (investment holding) Bridge 07/23/98 20,000,000 9,975 Four Media Co. (film services) Term B 09/10/04 9,975,000 5,000 SFX Entertainment (live entertainment management) Term 03/01/04 5,000,000 7,157 Worldwide Sports & Recreation Corp. (optics, sports products) Term B 03/31/01 6,977,665 ----------- 49,452,665 -----------
See Accompanying Notes to Financial Statements. 15 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of May 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Machinery (Nonagriculture, Nonconstruction, Nonelectronic): 0.7% $ 7,474 Clearing - Niagara (metal stamping press manufacturer) Term 10/18/04 $7,473,571 ---------- Mining, Steel, Iron and Nonprecious Metals: 3.2% 5,925 Cable Systems International (cable wire manufacturer) Term B 10/04/02 5,925,000 3,269 Centennial Resources (coal mining) Term A 03/31/02 3,105,769 8,510 Centennial Resources Term B 03/31/04 8,084,134 9,750 GS Technologies (metal products) Term 09/30/02 9,750,000 408 National Refractories, Inc. (kiln lining materials) Term B 09/30/99 407,771 3,270 National Refractories, Inc. Term C 09/30/99 3,269,726 5,000 Scovill Fasteners, Inc. (fasteners) Term A 11/26/03 5,000,000 ---------- 35,542,400 ---------- Oil and Gas: 1.8% 11,500 Cardinal Services, Inc. (oil field services) Term B 03/10/05 11,500,000 1,496 Perf-O-Log (oil field services) Term 08/11/03 1,496,250 3,980 Perf-O-Log Term B 08/11/03 3,980,000 2,500 Perf-O-Log Term C 08/11/04 2,500,000 ---------- 19,476,250 ---------- Personal, Food and Miscellaneous Services: 7.5% 14,678 Boston Chicken, Inc. (home meal replacement) Lease/ 12/12/01 14,678,222 Term C 4,992 Brickman Group, Inc. (landscaping) Term B 12/31/05 4,992,308 19,000 Coinmach Laundry Corp. (laundry) Term B 06/30/05 19,000,000 389 Denamerica Corp. (quick service restaurant franchisee) Term 12/31/01 388,702 2,546 Long John Silvers, Inc. (quick service seafood restaurant chain) Term B 09/30/02 2,290,963 5,827 Papa Gino's, Inc. (quick service restaurants) Term A 02/19/02 5,826,673 15,017 Papa Gino's, Inc. Term B 02/19/04 15,017,002 6,500 24-Hour Fitness, Inc. (health club operator) Term A 12/31/02 6,500,000 13,500 24-Hour Fitness, Inc. Term B 12/31/04 13,500,000 ---------- 82,193,870 ---------- Personal and Nondurable Consumer Products (Manufacturing Only): 2.6% 1,186 AM Cosmetics (cosmetics and skin care products) Term A 06/30/03 1,185,898 8,687 AM Cosmetics Term B 12/31/04 8,687,484 4,093 Duo-Tang, Inc. (report cover manufacturer) Term A 12/31/02 4,093,010 5,304 Duo-Tang, Inc. Term B 12/31/02 5,304,180 9,750 Medtech Products, Inc. (non-prescription consumer medications) Term B 10/15/02 9,750,000 ---------- 29,020,572 ----------
See Accompanying Notes to Financial Statements. 16 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of May 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- Printing and Publishing: 4.8% $ 6,738 Bankers Systems, Inc. (banking industry compliance services) Term B 11/01/02 $ 6,737,500 19,271 Eastern Pulp and Paper (specialty paper) Term 08/31/04 19,270,831 8,000 Jefferson Smurfit (pulp and paper products) Term B 03/23/06 8,000,000 12,250 Stone Container (pulp and paper products) Term D 10/01/03 12,250,000 3,345 Von Hoffman Press, Inc. (textbook manufacturer) Term B 05/29/04 3,344,643 3,345 Von Hoffman Press, Inc. Term C 05/29/05 3,344,643 ------------- 52,947,617 ------------- Retail Stores: 4.5% 6,916 @ Color Tile, Inc. (home improvement retailer) (3) Term D 12/31/98 2,005,576 11,898 Liberty House, Inc. (Hawaii department store chain) (4) Term B 06/30/02 10,708,291 12,356 Murray's Discount Auto Parts (auto parts retailer) Term 06/30/03 12,355,769 5,000 Nebraska Book Co. (wholesale and retail textbooks) Term B 04/30/04 5,000,000 5,347 Peebles, Inc. (department store chain) Term A 04/30/01 5,347,703 7,751 Peebles, Inc. Term B 04/30/02 7,750,897 5,963 TravelCenters of America (road transport service centers) Term B 03/27/05 5,962,500 ------------- 49,130,736 ------------- Telecommunications: 7.7% 8,827 Clarity Telecommunications (telecommunications service) Term B 07/01/03 8,827,053 8,120 Commnet (PCS services) Term A 09/30/05 8,120,000 1,173 Commnet Term B 09/18/06 1,172,903 2,323 Commnet Term C 03/18/07 2,322,920 6,504 Commnet Term D 09/18/07 6,504,177 26,500 Nextel Finance Co. (personal communications services) Term B 09/30/06 26,500,000 9,725 Omnipoint Communications, Inc. (PCS services) Term A 02/17/06 9,724,576 2,775 Omnipoint Communications, Inc. Term B 02/17/06 2,775,424 2,625 Pacific Coin (private pay phone operator) Term A 12/31/02 2,625,000 6,750 Pacific Coin Term B 12/31/04 6,750,000 10,000 Teletouch Communications (rural paging services) Term B 11/30/04 10,000,000 ------------- 85,322,053 ------------- Textiles and Leather: 4.4% 6,358 Harriet & Henderson (yarn manufacturer) Term A 06/12/00 6,358,243 6,825 Humphreys, Inc. (belts and personal leather goods) Term B 11/15/03 6,825,000 10,000 Polymer Group (polyolefin products manufacturer) Term B 01/31/06 10,000,000 12,830 Targus Group International, Inc. (luggage) Term B 01/05/05 12,830,357 2,143 Targus Group International, Inc. Term C 01/05/05 2,142,857 10,000 Tartan Textile Services (linen rental services) Term B 05/13/05 10,000,000 ------------- 48,156,457 ------------- Total Senior Loans -- 134.9% 1,486,495,714 ------------- (Cost $1,493,589,765)
See Accompanying Notes to Financial Statements. 17 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of May 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- OTHER CORPORATE DEBT
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value ------- ----------------- ---- -------- ----- Diversified/Conglomerate Manufacturing: 0.6% $6,000 Capital Tool & Design (brake backing plates) Sub. Note 07/26/03 $ 6,000,000 ------------- Total Other Corporate Debt -- 0.6% 6,000,000 ------------- (Cost $6,000,000)
COMMON STOCK AND PREFERRED STOCK
Shares Value - --------- ----------------- Apparel Products: 0.0% 13,294 @ Butterick Company, Inc. (sewing aids) 12,557 ------ Diversified/Conglomerate Manufacturing: 0.0% 2,633 @ KDI Corp. -- common (defense and leisure products) (2) -- ------ Diversified/Conglomerate Services: 0.1% 53,451 @ Staff Leasing, Inc. (employee leasing) 1,365,005 --------- Restaurants: 0.3% 413,980 @ America's Favorite Chicken Co. -- common (quick service restaurant chain) (R) 3,645,645 --------- Textiles and Leather: 0.2% 127,306 @ Dan River, Inc. -- common (diversified textiles) (R) 2,191,254 --------- Total Common Stock and Preferred Stock -- 0.6% 7,214,461 --------- (Cost $1,247,811)
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) 64,147 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 (long-term healthcare facilities) (R) 285,000 26,606 @ KDI Corp. Units of Trust (defense and leisure products) (R)(2) -- --------- Total Stock Purchase Warrants and Other Securities -- 0.1% 492,676 --------- (Cost $0) Total Investments (Cost $1,500,837,576) (5) 136.2% $1,500,202,851 Liabilities in Excess of Cash and Other Assets -- Net (36.2)% (398,628,177) ----- -------------- Net Assets 100.0% $1,101,574,674 ===== ==============
See Accompanying Notes to Financial Statements. 18 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of May 31, 1998 (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 is in the process 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. (4) The borrower is restructuring and interest is being recognized as cash payments are received. (5) For Federal income tax purposes, which is the same for financial reporting purposes, cost of investments is $1,500,837,576 and net unrealized depreciation consists of the following: Gross Unrealized Appreciation 6,459,326 Gross Unrealized Depreciation (7,094,051) ------------ Net Unrealized Depreciation $ (634,725) ============ See Accompanying Notes to Financial Statements. 19 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES as of May 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- ASSETS: Investments in securities at value (Cost $1,500,837,576) $ 1,500,202,851 Receivables: Fund shares sold 38,740,962 Securities sold 1,465,092 Interest 14,645,495 Other 84,740 Prepaid expenses 397,488 Prepaid arrangement fees on notes payable 360,053 --------------- Total assets 1,555,896,681 --------------- LIABILITIES: Notes payable 445,000,000 Overdraft payable to custodian 1,867,630 Deferred arrangement fees on senior loans 3,540,618 Accrued interest payable 2,967,776 Accrued expenses 945,983 --------------- Total liabilities 454,322,007 --------------- NET ASSETS (equivalent to $9.36 per share, based on 117,677,595 shares of beneficial interest authorized and outstanding, no par value) $ 1,101,574,674 =============== Net Assets Consist of: Paid-in capital $ 1,117,248,708 Undistributed net investment income 13,470,456 Accumulated net realized loss on investments (28,509,765) Net unrealized depreciation of investments (634,725) --------------- Net assets $ 1,101,574,674 ===============
See Accompanying Notes to Financial Statements. 20 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS for the Three Months Ended May 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $ 32,179,937 Arrangement fees earned 1,532,354 Other 780,993 ------------ Total investment income 34,493,284 ------------ EXPENSES: Interest 6,616,570 Investment management fees 2,762,026 Administration fees 473,787 Revolving credit facility fees 203,961 Miscellaneous expense 189,058 Transfer agent and registrar fees 155,683 Reports to shareholders 133,898 Custodian fees 93,812 Recordkeeping and pricing fees 61,802 Professional fees 48,274 Insurance expense 22,247 Trustees' fees 7,562 ------------ Total expenses 10,768,680 Less: Earnings credits -- ------------ Net expenses 10,768,680 ------------ Net investment income 23,724,604 ------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS: Net realized gain on investments 1,859,792 Change in unrealized depreciation of investments (2,214,851) ------------ Net loss on investments (355,059) ------------ Net increase in net assets resulting from operations $ 23,369,545 ============ See Accompanying Notes to Financial Statements. 21 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Three Months Ended May 31, Year Ended 1998 February 28, (Unaudited) 1998 -------------- -------------- INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 23,724,604 $ 95,217,224 Net realized gain (loss) on investments 1,859,792 (18,935,269) Change in unrealized appreciation (depreciation) on investments (2,214,851) 5,319,483 -------------- -------------- Net increase in net assets resulting from operations 23,369,545 81,601,438 DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income (22,180,862) (93,879,672) CAPITAL SHARE TRANSACTIONS: Issuance from dividend reinvestment 3,650,050 15,591,705 Share offerings (see NOTE 1) 62,333,131 -- -------------- -------------- Net increase from capital share transactions 65,983,181 15,591,705 Total increase in net assets 67,171,864 3,313,471 NET ASSETS: Beginning of period 1,034,402,810 1,031,089,339 -------------- -------------- End of period (including undistributed net investment income of $13,470,456 and $11,926,714, respectively) $1,101,574,674 $1,034,402,810 ============== ============== SUMMARY OF CAPITAL SHARE TRANSACTIONS: Shares issued in payment of distributions from net investment income 383,407 1,624,659 Shares sold in connection with share offerings (see NOTE 1) 6,529,700 -- -------------- -------------- Net increase in shares outstanding 6,913,107 1,624,659 ============== ==============
See Accompanying Notes to Financial Statements. 22 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF CASH FLOWS for the Three Months Ended May 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH Cash Flows From Operating Activities: Interest received $ 30,960,217 Facility fees received 1,667,919 Commitment fees received 104,924 Other income received 794,028 Interest paid (5,308,061) Other operating expenses paid (3,834,732) Purchases of portfolio securities (545,015,163) Proceeds from disposition of portfolio securities 411,301,770 ------------- Net cash used for operating activities (109,329,098) ------------- Cash Flows From Financing Activities: Dividends paid (18,530,823) Proceeds from share offerings 29,009,664 Overdraft financing (4,149,743) Loan advance 103,000,000 ------------- Net cash provided by financing activities 109,329,098 ------------- Net change in cash -- Cash at beginning of year -- ------------- Cash at end of year $ -- ============= Reconciliation Of Net Increase In Net Assets Resulting From Operations To Net Cash Provided By Operating Activities: Net increase in net assets resulting from operations 23,369,545 ------------- Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: Increase in investments in securities (132,937,571) Increase in dividends and interest receivable (1,630,015) Decrease in other assets 43,749 Decrease in prepaid arrangement fees on notes payable 51,293 Decrease in prepaid expenses 15,939 Increase in deferred arrangement fees on senior loans 150,898 Increase in accrued interest payable 1,453,947 Increase in accrued expenses 153,117 ------------- Total adjustments (132,698,643) ------------- Net cash used for operating activities $(109,329,098) =============
See Accompanying Notes to Financial Statements. 23 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Three Months Ended Years Ended February 28 or February 29, May 31, 1998 ----------------------------------------------------------------------------- (Unaudited) 1998 1997(7) 1996(6) 1995 1994 ----------- ----------- ----------- ----------- ----------- ----------- Per Share Operating Performance Net asset value, beginning of period $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02 $ 10.05 Net investment income 0.21 0.87 0.82 0.89 0.74 0.60 Net realized and unrealized gain (loss) on investments 0.01 (0.13) (0.02) (0.08) 0.07 (0.05) ----------- ----------- ----------- ----------- ----------- ----------- Increase in net asset value from investment operations 0.22 0.74 0.80 0.81 0.81 0.55 Distributions from net investment income (0.20) (0.85) (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 $ 9.36 $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02 =========== =========== =========== =========== =========== =========== Closing market price at end of period $ 10.25 $ 10.31 $ 10.00 $ 9.50 $ 8.75 $ 9.25 Total Return Total investment return at closing market price(3) 1.50% 12.70% 15.04%(5) 19.19% 3.27%(5) 8.06% Total investment return at net asset value(4) 2.33% 8.01% 8.06%(5) 9.21% 5.24%(5) 6.28% Ratios/Supplemental Data Net assets, end of period (000's) $ 1,101,575 $ 1,034,403 $ 1,031,089 $ 862,938 $ 867,083 $ 719,979 Average borrowings (000's) $ 431,739 $ 346,110 $ 131,773 $ -- $ -- $ -- Ratios to average net assets plus borrowings: Expenses (before interest and other fees related to revolving credit facility) 1.07%(1) 1.04% 1.13% -- -- -- Expenses 2.91%(1) 2.65% 1.92% -- -- -- Net investment income 6.40%(1) 6.91% 7.59% -- -- -- Ratios to average net assets : Expenses (before interest and other fees related to revolving credit facility) 1.50%(1) 1.39% 1.29% -- -- -- Expenses 4.08%(1) 3.54% 2.20% 1.23% 1.30% 1.31% Net investment income 9.00%(1) 9.23% 8.67% 9.23% 7.59% 6.04% Portfolio turnover rate 28% 90% 82% 88% 108% 87% Shares outstanding at end of period (000's) 117,678 110,764 109,140 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. 24 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
Years Ended February 28 or February 29, ---------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 ------------ -------- ---------- --------- ---------- Per Share Operating Performance Net asset value, beginning of period $ 9.96 $ 9.97 $ 10.00 $ 10.00 $ 10.00 Net investment income 0.60 0.76 0.98 1.06 0.72 Net realized and unrealized gain (loss) on investments 0.01 (0.02) ( 0.05) -- -- ------------ -------- ---------- --------- ---------- Increase in net asset value from investment operations 0.61 0.74 0.93 1.06 0.72 Distributions from net investment income (0.57) (0.75) ( 0.96) ( 1.06) ( 0.72) Reduction in net asset value from rights offering -- -- -- -- -- Increase in net asset value from repurchase of capital stock 0.05 -- -- -- -- ------------ -------- ---------- --------- ---------- Net asset value, end of period $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00 ============ ======== ========== ========= ========== Closing market price at end of period $ 9.13 $ -- $ -- $ -- $ -- Total Return Total investment return at closing market price(3) 10.89% -- -- -- -- Total investment return at net asset value(4) 7.29% 7.71% 9.74% 11.13% 7.35% Ratios/Supplemental Data Net assets, end of period (000's) $ 738,810 $874,104 $1,158,224 $1,036,470 $ 252,998 Average borrowings (000's) $ -- $ -- $ -- $ -- $ -- Ratios to average net assets plus borrowings: Expenses (before interest and other fees related to revolving credit facility) -- -- -- -- -- Expenses -- -- -- -- -- Net investment income -- -- -- -- -- Ratios to average net assets : Expenses (before interest and other fees related to revolving credit facility) -- -- -- -- -- Expenses 1.42% 1.42%(2) 1.38% 1.46%(2) 1.18%(1)(2) Net investment income 5.88% 7.62%(2) 9.71% 10.32%(2) 9.68%(1)(2) Portfolio turnover rate 81% 53% 55% 100% 49%(1) Shares outstanding at end of period (000's) 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. 25 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of May 31, 1998 (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, investment management company. The Trust invests in senior loans which are exempt from registration under the Securities Act of 1933 (the "`33 Act") but contain certain restrictions on resale and cannot be sold publicly. These loans bear interest (unless otherwise noted) at rates that float periodically at a margin above the Prime Rate of a U.S. bank specified in the credit agreement, the London Inter-Bank Offered Rate ("LIBOR"), the certificate of deposit rate, or in some cases another base lending rate. The following is a summary of the significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A. 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. At February 28, 1998, the Trust had capital loss carryforwards for federal income tax purposes of approximately $19,738,326 which is scheduled to expire through February 28, 2006. The Board of Trustees intends to offset any future net capital gains with each capital loss carryforward until each carryforward has been fully utilized or expires. 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. 26 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of May 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- 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 Shareholder Investment Program (formerly known as the Automatic Dividend Reinvestment Plan), Investors Fiduciary Trust Co., the Plan Agent, purchased, from time to time, shares of beneficial interest of the Trust on the open market to satisfy dividend reinvestments. Such shares were purchased only when the closing sale or bid price plus commission was less than the net asset value per share of the stock on the valuation date. If the market price plus commissions was equal to or exceeded the net asset value, new shares may be issued at the greater of (i) net asset value or (ii) the market price of the shares during the pricing period, minus a discount of 5%. 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. G. Share Offerings. During the quarter ended May 31, 1998, the Trust began issuing shares under two separate shelf registration statements, whereby the net proceeds received by the Trust from share sales may not be less than the greater of (i) the NAV per share or (ii) 94% of the average daily market price over the relevant pricing period. NOTE 2 -- INVESTMENTS For the three months ended May 31, 1998, the cost of purchases and the proceeds from principal repayment and sales of investments, excluding short-term notes, totaled $544,945,889 and $411,301,770, respectively. At May 31, 1998, the Trust held senior loans valued at $1,486,495,714 representing 99.1% of its total investments. The market value of these securities can only be established by negotiation between parties in a sales transaction. Due to the uncertainty inherent in the valuation process, the fair values as determined may materially differ from the market values that would have been used had a ready market for these securities existed. The senior loans acquired by the Trust may take the form of a direct co-lending relationship with the corporate issuer, an assignment of a co-lender's interest in a loan, or a participation interest in a co-lender's interest in a loan. The lead lender in a typical corporate loan syndicate administers the loan and monitors collateral. In the event that the lead lender becomes insolvent, enters FDIC receivership or, if not FDIC insured, enters into bankruptcy, the Trust may incur certain costs and delays in realizing payment, or may suffer a loss of 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 27 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of May 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- 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 30,550 ---------- Total restricted securities excluding senior loans (market value of $7,694,580 was 0.70% of net assets at May 31, 1998) $1,247,811 ==========
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. On May 2, 1998, the Board of Trustees approved an amendment to the Trust's investment management agreement with the Manager that changes the investment management fee to a rate of 0.80% of the average daily net assets of the Trust plus the proceeds of any outstanding borrowings. The amendment will not be effective until approved by a majority of the shareholders of the Trust. The amendment will be submitted to shareholders for their approval at the Trust's annual shareholders meeting currently scheduled for August 6, 1998. 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. 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 May 2, 2000. 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 May 31, 1998, was $445.0 million at a weighted average interest rate of 6.1%, which represented 28.8% of net assets plus borrowings. Average borrowings for the three months ended May 31, 1998, were $431,739,130 and the average annualized interest rate was 6.1%. 28 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of May 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- As of May 31, 1998, the Trust had unfunded loan commitments pursuant to the terms of the following loan participation agreements: Classic Cable $ 3,352 Edward's Baking Co. 607,423 Huntsman Corp. 1,182,949 Liberman Broadcasting, Inc. 224,000 Liberty House, Inc. 4,066,582 Neff Corp. $ 1,861,752 Palace Station 394,143 Papa Gino's, Inc. 3,178,808 The Presley Companies 2,000,000 ----------- $13,519,009 =========== 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. NOTE 7 -- AFFILIATED TRANSACTIONS During the quarter ended May 31, 1998, the Trust sold certain holdings in senior loans to an affiliated fund managed by the Manager at prices determined by the Manager to represent market prices. The proceeds and cost of such loans were $20,022,920 and $20,000,000, respectively, excluding any benefit to the Trust from the recognition of deferred arrangement fees. NOTE 8 -- SUBSEQUENT EVENTS Subsequent to May 31, 1998, the Trust declared the following dividends from net investment income: Per Share Amount Payable Date Record Date ---------------- ------------ ----------- $ 0.0710 06/22/98 06/10/98 $ 0.0680 07/22/98 07/10/98 29 Pilgrim America Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of May 31, 1998 (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. SHAREHOLDER INVESTMENT PROGRAM The Trust offers a Shareholder Investment Program (the "Program") which enables investors to conveniently add to their holdings at reduced costs. Should you desire further information concerning this Program, please contact the Shareholder Servicing Agent at (800) 992-0180. 30 THIS PAGE INTENTIONALLY LEFT BLANK 31 THIS PAGE INTENTIONALLY LEFT BLANK 32 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, AZ 85004-4424 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, AZ 85004-4424 1-800-992-0180 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 or other information, at 1-800-992-0180. 33 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-070198-072998 -----END PRIVACY-ENHANCED MESSAGE-----