-----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, GdJ4zjs7KKGQkrhDDrD/ynbFHqYjoOhpUrKHyWSO8ok9ai3NLih9ezek+yCVWO2c C+BfW1NFxlAnSErXmT1fHQ== 0000950147-02-000149.txt : 20020414 0000950147-02-000149.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950147-02-000149 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011130 FILED AS OF DATE: 20020201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM PRIME RATE TRUST CENTRAL INDEX KEY: 0000826020 IRS NUMBER: 956874587 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05410 FILM NUMBER: 02524244 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 AMERICA PRIME RATE TRUST DATE OF NAME CHANGE: 19960518 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM PRIME RATE TRUST/ DATE OF NAME CHANGE: 19960518 N-30D 1 e-8028.txt 3RD QUARTER REPORT DATED 11/30/2001 Third Quarter Report November 30, 2001 Pilgrim Prime Rate Trust [GRAPHIC OF COLUMNS] [LOGO] ING PILGRIM Pilgrim Prime Rate Trust THIRD QUARTER REPORT November 30, 2001 ---------- Table of Contents Portfolio Managers' Report ....................................... 2 Statistics and Performance ....................................... 5 Performance Footnotes ............................................ 7 Additional Notes and Information ................................. 8 Portfolio of Investments ......................................... 9 Statement of Assets and Liabilities .............................. 28 Statement of Operations .......................................... 29 Statements of Changes in Net Assets .............................. 30 Statement of Cash Flows .......................................... 31 Financial Highlights ............................................. 32 Notes to Financial Statements .................................... 34 ---------- 1 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO MANAGERS' REPORT - -------------------------------------------------------------------------------- Dear Shareholders: Pilgrim Prime Rate Trust (the "Trust")1 invests in a diversified portfolio of non-investment grade senior floating rate loans made primarily to U.S. based corporations. During the fiscal quarter ended November 30, 2001, the Trust paid its 163rd consecutive dividend. PERFORMANCE OF THE TRUST Based on $0.14 of dividends declared during the period and the average month-end net asset value ("NAV") per share of $7.35, the annualized distribution rate was 7.48%2 for the quarter, down from 8.19% and 9.42% as of August 31, 2001 and May 31, 2001, respectively. As noted in our prior quarterly report, the decline in the annualized distribution rate is consistent with the unprecedented easing on the part of the Federal Reserve in order to stimulate an economy now officially in the midst of the first recession in roughly ten years. Notwithstanding, the Trust's annualized distribution rate based on the Trust's month-end NYSE composite closing price ("Market") for the quarter was 8.23%2, which continues to present an attractive yield advantage over many other variable and fixed income investment products. The Trust's total return (based on NAV) for the quarter was -3.06%, slightly below the Lipper Loan Participation Fund3 average of -2.13%. In the wake of the tragic events of September 11, the loan market, like virtually all other domestic financial markets, fell precipitously, resulting in the worst September and October on record. Particularly hard hit were indicative prices on credits issued by hotel operators, gaming concerns and other travel-related borrowers. Since that time, hotel operators have generally demonstrated consistent improvement in both average daily rates and occupancies. As a result, underlying loan prices have stabilized. We remain cautious but constructive on the sector, and comfortable with the fundamental credit and/or asset quality of the Trust's holdings in these industries. Nonetheless, over the latter part of the quarter, we were able to reduce overall sector exposure through a combination of selling into enhanced bids and a wave of refinancing activity (at par). As of quarter-end, Lodging accounted for 6.3% of the Trust's total assets, down from 7.0% as of August 31, 2001. There has also been a degree of movement in the Trust's top ten holdings, which at quarter-end, represented roughly 16.9% of total assets. The most significant increase in exposure was to Charter Communications Operating LLC "Charter", (Ba3/BBB-)4, the third largest cable television operator in the U.S. Charter, which became the Trust's second largest single position as of quarter end (2.3% of total assets), continues to successfully increase both its subscriber base and operating income through a combination of organic growth and acquistion. We were able to increase our position in Charter at compelling valuations. Exposure to Allied Waste Industries (`Ba3/BB'), the Trust's largest holding at the end of last fiscal quarter, was approximately halved during the quarter, as the company took advantage of historically low interest rates to refinance bank debt with public bonds. Nextel Finance Company (Ba2/BB-)4, a wholly owned subsidiary of Nextel Communications, replaced Allied Waste Industries as the Trust's largest holding (3.1% of total assets). Nextel continues to be a bellwether issuer in the loan market and has historically delivered solid operational and financial results, even in the face of an increasingly competitive telecommunications market. The Trust's overall diversity improved during the quarter. At the end of the period, the Trust had investments from 250 separate borrowers, up from 241 as of August 31, which represented 34 distinct industry classifications. The average investment size was approximatley $6.9 million (0.38% of total assets), versus $7.4 million at then end of the prior quarter. CURRENT LOAN MARKET CONDITIONS Unprecedented volatility was introduced into the loan market by way of the September 11th attacks. Significantly, despite declining 1.5% in September alone, the loan market fared much better than equities (the S&P 500 dropped 8.1%) and high yield bonds (the Merrill Lynch High Yield Master Index fell 6.4%)5. Once again, loans lived up to their billing as a less volatile financial asset 2 class, even under extraordinary circumstances. In November, the market rallied as investors searched for value among out-of-favor issues. Sentiment during the last two months of the year was also buoyed by the early success of U.S. war efforts in Afghanistan and the emergence of signs of an economic recovery. Supply/demand factors continue to play a dominant role when it comes to loan pricing dynamics. New loan issuance fell in the most recent quarter to what appears to be the lowest level since 1991. Scarcity typically leads to stronger bids for seasoned performing credits. Prices for several of the market's bellwether issues improved nicely near year-end as investors, forced to put idle cash to work, chose to purchase proven names. Looking ahead, the forward calendar, while building modestly, is still without meaningful depth and a clear theme. Demand, on the other hand, remains robust, albeit still selective. Given the low interest rate environment and improved prospects for economic growth, we are hopeful merger and acquisition activity, which truly drives new loan issuance, will substantially eclipse the meager levels of 2001. OUTLOOK There continues to be substantial uncertainty surrounding the duration and severity of the current economic recession. As we move into the New Year, we feel the long-term prospects for the domestic economy are reasonably good. The Federal Reserve's unquestioned resolve to stimulate the economy will likely revitalize business conditions, and thus financial markets, regardless of whether the federal government is successful in passing a relief package of its own. An improving economy and the potential for moderately rising short-term interest should provide a strong backdrop for solid performance on the part of loans. By definition, floating rate loans would provide an increasing yield once the Fed reverses course. Conversely, bond prices generally move in the opposite direction of interest rates, regardless of credit quality. Moreover, the difficult credit environment in which we've been operating over the last several quarters appears to be largely factored into loan prices. As such, we believe that the Fund is, at this point in time, reasonably well positioned from a risk/return standpoint. We thank you for your investment in Pilgrim Prime Rate Trust. /s/ Jeffrey A. Bakalar /s/ Daniel A. Norman Jeffrey A. Bakalar Daniel A. Norman Senior Vice President Senior Vice President Co-Senior Portfolio Manager Co-Senior Portfolio Manager Pilgrim Prime Rate Trust January 15, 2002 3 - -------------------------------------------------------------------------------- PORTFOLIO MANAGERS' FOOTNOTES - -------------------------------------------------------------------------------- 1. Effective March 1, 2002, this Trust's name will change to ING Prime Rate Trust. 2. The distribution rate is calculated by annualizing dividends declared during the quarter and dividing the resulting annualized dividend by the Trust's average month-end net asset value (in the case of NAV) or the average month-end NYSE Composite closing price (in the case of Market). The distribution rate is based solely on the actual dividends and distributions, which are made at the discretion of management. The distribution rate may or may not include all investment income and ordinarily will not include capital gains or losses, if any. 3. The Lipper Loan Participation Fund Average value is calculated using an equally weighted aggregative composite of the top 38, 13, 6 and 5 funds by net asset size for 1, 3, 5 and 10 years, respectively. The index is unmanaged and rebased quarterly. Index performance is a measure of the index's performance change between the first daily value of the quarter and the last day of the quarter when the index is rebased. 4. Credit quality refers to the Fund's underlying investments, not to the stability or safety of the Fund. 5. Standard & Poor's/LSTA (The Loan Syndications and Trading Association, Inc.) 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. Senior loans are subject to credit risks and the potential for non-payment of scheduled principal or interest payments, which may result in a reduction of the Trust's NAV. 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 managers only through the end of the period of the report as stated on the cover. The portfolio managers' views are subject to change at any time based on market and other conditions. INDEX DESCRIPTIONS The S&P 500 Index is a widely recognized index of 500 common stocks. The Merrill Lynch High Yield Master Index is comprised of 1,300 high yield bonds, intended to be representative of the high yield market as a whole. 4 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATISTICS AND PERFORMANCE as of November 30, 2001 - -------------------------------------------------------------------------------- PORTFOLIO CHARACTERISTICS Net Assets $1,451,435,147 Assets Invested in Senior Loans* $1,729,087,256 Total Number of Senior Loans 250 Average Amount Outstanding per Loan $ 6,916,349 Total Number of Industries 34 Average Loan Amount per Industry $ 50,855,508 Portfolio Turnover Rate (YTD) 45% Weighted Average Days to Interest Rate Reset 34 days Average Loan Maturity 53 months Average Age of Loans Held in Portfolio 15 months * Includes loans and other debt received through restructurings TOP TEN INDUSTRIES AS A PERCENTAGE OF: NET ASSETS TOTAL ASSETS ---------- ------------ Cellular Communications 7.9% 6.4% Lodging 7.8% 6.3% Healthcare, Education and Childcare 7.4% 5.9% Cable Television 7.0% 5.6% Containers, Packaging and Glass 6.7% 5.4% Chemicals, Plastics and Rubber 6.5% 5.2% Aerospace and Defense 5.6% 4.5% Gaming 4.5% 3.6% Leisure, Amusement, Motion Pictures and Entertainment 4.3% 3.5% Printing and Publishing 4.3% 3.4% TOP 10 SENIOR LOANS AS A PERCENTAGE OF: NET ASSETS TOTAL ASSETS ---------- ------------ Nextel Finance Co. 3.8% 3.1% Charter Communications Operating LLC 2.8% 2.3% Allied Waste Industries, Inc. 2.2% 1.7% Mandalay Resort Group 2.1% 1.7% Stone Container Corporation 2.0% 1.6% Broadwing Corporation 1.9% 1.5% Starwood Hotels & Resorts Worldwide, Inc. 1.7% 1.4% Wyndham International, Inc. 1.5% 1.2% SC International Services 1.4% 1.2% Ford Motor Credit Corp. 1.4% 1.2% 5 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATISTICS AND PERFORMANCE as of November 30, 2001 - -------------------------------------------------------------------------------- YIELDS AND DISTRIBUTION RATES Average Average (NAV) (MKT) Annualized Annualized Prime 30-Day SEC 30-Day SEC Distribution Distribution Quarter-ended Rate Yield A Yield A Rate at NAV B Rate at MKT B - ------------- ---- ------- ------- ------------- ------------- November 30, 2001 5.00% 8.33% 9.26% 7.48% 8.23% August 31, 2001 6.50% 10.49% 10.69% 8.19% 8.37% May 31, 2001 7.00% 11.20% 11.38% 9.42% 9.50% February 28, 2001 8.50% 12.56% 12.51% 10.29% 10.44% AVERAGE ANNUAL TOTAL RETURNS NAV MKT ----- ----- 1 Year -1.66% -4.20% 3 Years 1.40% -3.02% 5 Years 4.04% 2.07% 10 Years 5.85% N/A Since Trust Inception F,H 6.83% N/A Since Initial Trading on NYSE G N/A 5.21% Assumes rights were exercised and excludes sales charges and commissions (C,D,E) Performance data represents past performance and is no guarantee of future results. 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. See performance footnotes on page 7. 6 Pilgrim 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 each monthly dividend, then averaging the annualized dividends declared for each month during the quarter and dividing the resulting average annualized dividend amount by the Trust's average net asset value (in the case of NAV) or the NYSE Composite closing price (in the case of Market) at the end of the period. (C) Calculation of total return assumes a hypothetical initial investment at the net asset value (in the case of NAV) or the NYSE Composite closing price (in the case of Market) on the last business day before the first day of the stated period, with all dividends and distributions reinvested at the actual reinvestment price. (D) On December 27, 1994, the Trust issued to its shareholders transferable rights which entitled the holders to subscribe for 17,958,766 shares of the Trust's common stock at the rate of one share of common stock for each four rights held. On January 27, 1995, the offering expired and was fully subscribed. The Trust issued 17,958,766 shares of its common stock to exercising rights holders at a subscription price of $8.12. Offering costs of $4,470,955 were charged against the offering proceeds. (E) On October 18, 1996, the Trust issued to its shareholders non-transferable rights which entitled the holders to subscribe for 18,122,963 shares of the Trust's common stock at the rate of one share of common stock for each five rights held. On November 12, 1996, the offering expired and was fully subscribed. The Trust issued 18,122,963 shares of its common stock to exercising rights holders at a subscription price of $9.09. Offering costs of $6,972,203 were charged against the offering proceeds. (F) Inception Date -- May 12, 1988. (G) Initial Trading on NYSE -- March 9, 1992. (H) Reflects partial waiver of fees. 7 Pilgrim 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 2002 Dividends: DECLARATION DATE EX-DATE PAYABLE DATE ---------------- ------- ------------ January 31 February 7 February 25 February 28 March 7 March 22 March 28 April 8 April 22 April 30 May 8 May 22 May 31 June 6 June 24 June 28 July 8 July 22 July 31 August 8 August 22 August 30 September 6 September 23 September 30 October 8 October 22 October 31 November 7 November 22 November 29 December 6 December 23 December 20 December 27 January 13, 2003 Record date will be two business days after each Ex-Date. These dates are subject to change. STOCK DATA The Trust's shares are traded on the New York Stock Exchange (Symbol: PPR). Effective November 16, 1998 the Trust's name changed to Pilgrim Prime Rate Trust and its cusip number became 72146W 10 3. Prior to November 16, 1998 the Trust's name was Pilgrim America Prime Rate Trust and its cusip number was 720906 10 6. The Trust's NAV and market price are published daily under the "Closed-End Funds" feature in Barron's, The New York Times, The Wall Street Journal and many other regional and national publications. 8 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- Senior Loans*
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Aerospace and Defense: 5.6% The Aerostructures Corporation NR BB- $ 2,329,252 Term Loan, maturing May 9, 2003 $ 2,253,551 Alliant Techsystems, Inc. Ba2 BB- 2,985,000 Term Loan, maturing April 20, 2009 3,010,187 Avborne, Inc. NR NR 14,546,889 Term Loan, maturing June 30, 2003 14,328,686 DRS Technologies, Inc. Ba3 BB- 2,000,000 Term Loan, maturing September 30, 2008 2,011,250 Erickson Air-Crane Company NR NR 8,552,338 Term Loan, maturing December 31, 2004 8,179,564 New Piper Aircraft, Inc. NR NR 8,572,813 Term Loan, maturing April 15, 2005 8,465,653 Piedmont Aviation Services NR NR 6,269,868 Term Loan, maturing July 23, 2006 6,207,170 6,269,868 Term Loan, maturing July 23, 2007 6,207,170 Titan Corporation Ba3 BB- 3,456,140 Term Loan, maturing February 23, 2007 3,434,539 1,000,000 Term Loan, maturing January 31, 2007 993,750 Transdigm, Inc. B1 B+ 559,688 Term Loan, maturing May 31, 2006 530,538 1,430,313 Term Loan, maturing May 31, 2007 1,355,818 Transtar Metals, Inc. NR NR 14,866,071 Term Loan, maturing January 20, 2006(3) 13,019,192 United Defense Industries, Inc. B1 BB- 8,457,500 Term Loan, maturing August 13, 2009 8,464,105 Vought Aircraft Industries, Inc. Ba3 BB- 3,083,333 Term Loan, maturing August 14, 2007 2,931,094 -------------- 81,392,267 -------------- Automobile: 4.0% Breed Technologies NR NR 1,612,242 Term Loan, maturing December 20, 2004 1,380,483 Capital Tool & Design Ltd. NR NR 9,216,313 Term Loan, maturing July 19, 2003 8,939,824 Dura Automotive Systems, Inc. Ba3 BB- 3,865,190 Term Loan, maturing March 31, 2006 3,805,399 Exide Corp. B3 B- 5,229,463 Term Loan, maturing March 18, 2005 3,704,201 Ford Motor Credit Company A2 BBB+ 20,000,000 Floating Rate Note, maturing October 25, 2004 20,181,460 Hayes Lemmerz International, Inc. Caa2 B- 6,483,750 Term loan, maturing December 15, 2005 4,992,488 Metaldyne Corporation Ba3 BB- 3,629,674 Term Loan, maturing June 21, 2009 3,003,555 Safelite Glass Corporation B3 NR 6,076,492 Term Loan, maturing September 30, 2007 5,727,094 7,139,673 Term Loan, maturing September 30, 2007 6,729,142 -------------- 58,463,646 --------------
9 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Banking: 0.8% Outsourcing Solutions, Inc. B2 B+ $12,262,312 Term Loan, maturing June 1, 2006 $ 11,495,918 -------------- 11,495,918 -------------- Beverage, Food and Tobacco: 3.7% Aurora Foods, Inc. B2 B 4,211,216 Term Loan, maturing June 30, 2005 4,044,523 1,828,571 Revolving Loan, maturing June 30, 2005 1,670,287 Commonwealth Brands, Inc. Ba3 BB- 2,437,500 Term Loan, maturing January 20, 2005 2,433,693 Cott Corp. Ba3 BB- 1,930,000 Term Loan, maturing December 31, 2006 1,937,238 CP Kelco APS B1 B+ 5,232,963 Term Loan, maturing March 28, 2008 4,866,656 1,748,704 Term Loan, maturing September 28, 2008 1,626,295 Empire Kosher Poultry, Inc. NR NR 13,545,000 Term Loan, maturing July 31, 2004(3) 8,262,450 Flower Foods, Inc. Ba2 BBB- 2,493,750 Term Loan, maturing March 26, 2007 2,502,478 Imperial Sugar Company NR NR 2,526,343 Term Loan, maturing December 31, 2003 2,046,338 2,437,129 Term Loan, maturing December 31, 2005 1,974,074 Interstate Bakeries Ba1 BBB- 2,992,500 Term Loan, maturing July 19, 2007 3,002,474 Mafco Worldwide Corporation B1 B 3,777,778 Term Loan, maturing April 19, 2006 3,730,556 New World Coffee-Manhattan Bagel, Inc. B3 B- 4,000,000 Senior Secured Note, maturing June 15, 2003 3,815,000 Nutrasweet Acquisition Corporation Ba3 NR 1,124,865 Term Loan, maturing May 31, 2007 1,122,990 Pabst Brewing Company Caa1 CCC 3,919,354 Term Loan, maturing April 30, 2003 3,292,257 Suiza Food Dairy Group LP Ba2 BB+ 5,157,071 Term Loan, maturing January 4, 2005 5,157,071 1,641,185 Term Loan, maturing January 4, 2005 1,635,544 1,048,535 Revolving Loan, maturing January 4, 2005 1,042,965 -------------- 54,162,889 -------------- Building and Real Estate: 3.6% Corrections Corporation of America B3 B 7,030,071 Term Loan, maturing December 31, 2002 6,942,195 HQ Global Workplaces NR NR 3,865,243 Term Loan, maturing September 4, 2009 3,092,194 Kevco, Inc.(2) NR D 1,229,178 Term Loan, maturing February 2, 2005(3) 890,602 National Golf Operating Partnership NR NR 9,800,000 Term Loan, maturing July 22, 2004 9,359,000
10 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Building and Real Estate (continued) Rodamco North America Baa3 BBB- $ 1,331,974 Term Loan, matruring November 8, 2002 $ 1,318,654 8,086,938 Term Loan, matruring November 8, 2002 7,995,960 US Aggregates, Inc. NR NR 5,118,865 Term Loan, maturing March 31, 2006(3) 3,967,120 684,794 Term Loan, maturing September 30, 2001 684,794 Ventas Realty Limited Partnership NR NR 649,407 Term Loan, maturing December 31, 2002 643,454 2,857,237 Term Loan, maturing December 31, 2005 2,831,045 15,073,116 Term Loan, maturing December 31, 2007 14,966,353 -------------- 52,691,371 -------------- Cable Television: 7.0% CC VI Operating Company LLC Ba3 BB 5,000,000 Term Loan, maturing November 1, 2008 4,900,000 CC VIII Operating LLC Ba3 BB+ 4,500,000 Term Loan, maturing February 2, 2008 4,414,500 Century Cable Holdings LLC Ba3 BB 8,000,000 Term Loan, maturing June 30, 2009 7,883,216 5,000,000 Term Loan, maturing December 31, 2009 4,930,625 Charter Communications Operating LLC Ba3 BB 18,500,000 Term Loan, maturing March 17, 2008 18,147,353 23,056,250 Term Loan, maturing March 18, 2008 22,597,177 Insight Midwest LP Ba3 BB+ 14,500,000 Term Loan, maturing December 31, 2009 14,478,250 Lodgenet Entertainment Ba3 B+ 1,000,000 Term Loan, maturing June 30, 2006 962,500 Mediacom Communications Ba3 BB+ 13,500,000 Term Loan, maturing September 30, 2010 13,432,500 Olympus Cable Holdings, LLC Ba3 BB 10,000,000 Term Loan, maturing Septermber 30, 2010 9,848,210 -------------- 101,594,331 -------------- Cargo Transport: 3.2% American Commercial Lines B1 BB- 1,459,161 Term Loan, maturing June 30, 2006 1,304,125 2,092,959 Term Loan, maturing June 30, 2007 1,870,582 Evergreen International Aviation, Inc. Ba2 B+ 197,898 Term Loan, maturing May 31, 2002 180,087 2,249,114 Term Loan, maturing May 7, 2003 2,046,694 346,546 Term Loan, maturing May 7, 2003 315,357 Gemini Air Cargo, Inc. B1 B- 4,043,330 Term Loan, maturing August 12, 2005 2,577,623 Interpool Acquisitions LLC Ba1 BBB 15,820,066 Term Loan, maturing October 20, 2002 15,839,841 Neoplan USA Corporation NR NR 9,665,705 Term Loan, maturing May 29, 2005 9,665,705 Omnitrax, Inc. NR NR 4,843,219 Term Loan, maturing May 12, 2005 4,831,111
11 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Cargo Transport (continued) Oshkosh Truck Corporation Ba1 BB+ $ 2,992,500 Term Loan, maturing January 31, 2007 $ 3,006,215 Rail America, Inc. Ba3 BB- 1,248,241 Term Loan, maturing December 31, 2005 1,231,858 456,001 Term Loan, maturing December 31, 2006 457,854 188,523 Revolving Loan, maturing December 31, 2005 184,988 Transportation Manufacturing Operations B2 B 3,000,000 Term Loan, maturing June 16, 2006 2,302,500 -------------- 45,814,540 -------------- Cellular Communications: 7.9% Airgate PCS, Inc. B2 B- 967,427 Term Loan, maturing June 6, 2007 950,497 5,861,889 Term Loan, maturing September 30, 2008 5,759,306 American Cellular Corp. Ba3 BB- 3,190,338 Term loan, maturing March 31, 2008 3,136,137 5,565,101 Term loan, maturing March 31, 2009 5,470,555 Independent Wireless One Corporation B2 B- 10,000,000 Term Loan, maturing June 20, 2008 9,650,487 Nextel Communications, Inc. Ba2 BB- 6,611,043 Term Loan, maturing March 15, 2006 6,594,515 Nextel Finance Co. Ba2 BB- 50,500,000 Term Loan, maturing March 31, 2009 46,207,500 4,750,000 Term Loan, maturing December 31, 2008 4,441,250 4,750,000 Term Loan, maturing June 30, 2008 4,441,250 Rural Cellular Corporation B1 B+ 5,923,721 Term Loan, maturing October 3, 2008 5,742,307 5,923,721 Term Loan, maturing April 3, 2009 5,742,307 Western Wireless Corp. Ba2 BB 8,000,000 Term Loan, maturing March 31, 2008 7,806,664 8,000,000 Term Loan, maturing September 30, 2008 7,881,664 1,600,000 Revolving Loan, maturing March 31, 2008 1,564,000 -------------- 115,388,439 -------------- Chemicals, Plastics and Rubber: 6.5% Acadia Elasotmers Corporation NR NR 9,489,051 Term Loan, maturing February 17, 2004 8,789,755 Cedar Chemical Corporation NR NR 10,943,864 Term Loan, maturing October 30, 2003 5,471,932 Equistar Chemicals LP Baa3 BBB 5,000,000 Term Loan, maturing September 1, 2007 4,983,750 Euro United Corporation(4) NR NR 14,887,500 Term Loan, maturing May 31, 2001(3) 7,443,750 Foam Fabricators, Inc. NR NR 4,201,680 Term Loan, maturing March 5, 2005 4,191,176 Foamex L.P. B3 B 3,271,643 Term Loan, maturing June 30, 2005 2,977,195 2,974,231 Term Loan, maturing June 30, 2006 2,706,550 GEO Specialty Chemicals B1 B+ 3,000,000 Term Loan, maturing March 25, 2004 2,850,000
12 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Chemicals, Plastics and Rubber (continued) Hercules, Inc. Ba1 BB $14,887,293 Term Loan, maturing November 15, 2005 $ 14,591,219 1,985,000 Term Loan, maturing October 15, 2003 1,943,646 Huntsman Corporation Caa2 CCC+ 5,099,524 Revolving Loan, maturing February 7, 2003 3,059,714 260,155 Term Loan, maturing December 31, 2002 156,093 7,000,000 Term Loan, maturing December 31, 2005 4,200,000 Huntsman International LLC Ba3 B+ 1,612,264 Term Loan, maturing June 30, 2005 1,518,216 3,158,023 Term Loan, maturing June 30, 2007 3,063,282 3,158,023 Term Loan, maturing June 30, 2008 3,063,282 Lyondell Chemical Company Ba3 BB 461,937 Term Loan, maturing June 30, 2005 460,047 10,978,261 Term Loan, maturing June 30, 2006 11,005,707 Millennium America, Inc. Baa3 BBB- 2,000,000 Term Loan, maturing June 8, 2008 1,981,666 Noveon, Inc. B1 BB- 7,711,250 Term Loan, maturing August 28, 2008 7,629,318 OM Group, Inc. Ba3 BB 2,000,000 Term Loan, maturing April 1, 2007 1,993,250 -------------- 94,079,548 -------------- Containers, Packaging and Glass: 6.7% Blue Ridge Paper Products, Inc. B2 B+ 8,795,428 Term Loan, maturing May 14, 2006 8,795,428 Eastern Pulp & Paper Corporation(2) NR NR 14,995,552 Term Loan, maturing August 31, 2004 12,983,258 153,800 Term Loan, maturing December 31, 2004 153,542 Greif Bros. Corp. Ba3 BB 2,630,518 Term Loan, maturing April 3, 2002 2,620,106 2,352,187 Term Loan, maturing March 1, 2008 2,349,835 Impaxx, Inc. NR NR 4,825,000 Term Loan, maturing December 31, 2005 4,807,442 Jefferson Smurfit Ba3 B+ 3,000,000 Term Loan, maturing March 27, 2007 2,988,750 Nexpak Corporation B1 B+ 2,301,288 Term Loan, maturing December 31, 2005 1,783,498 2,301,288 Term Loan, maturing December 31, 2006 1,783,498 Norske Skog Canada Ltd. Ba1 BB+ 997,500 Term Loan, maturing August 14, 2007 999,994 Packaging Corporation of America Baa3 BBB- 1,700,669 Term Loan, maturing June 29, 2006 1,697,834 Pliant Corporation B2 B+ 2,946,429 Term Loan, maturing May 15, 2008 2,832,254 Potlatch Corporation Baa2 BBB- 2,992,500 Term Loan, maturing July 9, 2005 3,002,474 Riverwood International Corp. B1 B+ 17,000,000 Term Loan, maturing December 31, 2006 17,049,589 953,333 Revolving Loan, maturing December 31, 2006 930,692
13 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Containers, Packaging and Glass (continued) Stone Container Corporation Ba3 B+ $12,671,148 Term Loan, maturing December 31, 2005 $ 12,632,869 17,068,574 Term Loan, maturing December 31, 2006 16,959,762 Tekni-Plex, Inc. B1 B+ 2,962,500 Term Loan, maturing June 21, 2006 2,848,938 -------------- 97,219,763 -------------- Data and Internet Services: 1.7% Arch Communications, Inc. Caa1 CC 8,814,739 Term Loan, maturing December 31, 2004(3) 1,498,506 ICG Communictions, Inc. Caa3 D 6,995,226 Term Loan, maturing March 31, 2006 6,820,345 McLeod USA Corp. B2 B 11,195,000 Term Loan, maturing May 30, 2008 7,658,022 Teletouch Communications NR NR 9,896,064 Term Loan, maturing November 30, 2004(3) 4,651,150 Teligent, Inc.(2) NR NR 5,000,000 Term Loan, maturing July 1, 2002(3) 170,835 TSR Wireless LLC(1) NR NR 11,970,000 Term Loan, maturing June 30, 2005(3) 718,200 360 Networks, Inc.(2) Caa3 D 5,000,000 Term Loan, maturing September 30, 2007(3) 1,150,000 7,500,000 Term Loan, maturing December 31, 2007(3) 1,734,375 -------------- 24,401,433 -------------- Diversified / Conglomerate Manufacturing: 2.6% Allied Digital Technologies Corporation(2) NR NR 8,498,223 Term Loan, maturing December 31, 2005(3) 709,733 Barjan Products LLC NR NR 4,875,750 Term Loan, maturing May 31, 2006 4,656,341 Dresser, Inc. Ba3 BB- 5,972,500 Term Loan, maturing April 10, 2009 6,020,280 General Cable Corporation Ba3 BB+ 3,725,589 Term Loan, maturing May 24, 2007 3,595,193 Manitowoc Company, Inc. Ba2 BB 1,995,000 Term Loan, maturing May 9, 2007 2,007,718 Mueller Group, Inc. B1 B+ 3,000,000 Term Loan, maturing August 16, 2007 2,940,000 SPX Corporation Ba2 BB+ 4,962,520 Term Loan, maturing December 31, 2007 4,943,290 7,447,619 Term Loan, maturing September 30, 2004 7,363,833 United Pet Group, Inc. NR NR 6,230,331 Term Loan, maturing March 31, 2006 6,225,978 -------------- 38,462,366 --------------
14 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Diversified / Conglomerate Service: 1.9% Enterprise Profit Solutions Corporation NR NR $ 1,548,033 Term Loan, maturing June 14, 2001(3) $ 30,961 Mafco Finance Corporation NR NR 10,894,218 Term Loan, maturing June 20, 2002 10,723,996 Private Business NR NR 3,968,167 Term Loan, maturing August 19, 2006 3,928,485 URS Corporation Ba3 BB 10,780,855 Term Loan, maturing June 9, 2005 10,511,334 1,221,875 Term Loan, maturing June 9, 2006 1,206,602 1,221,875 Term Loan, maturing June 9, 2007 1,206,602 -------------- 27,607,980 -------------- Ecological: 3.0% Allied Waste Industries, Inc. NA Ba3 BB 4,132,529 Term Loan, maturing July 12, 2005 4,036,596 12,565,881 Term Loan, maturing July 12, 2006 12,451,770 15,079,057 Term Loan, maturing July 12, 2007 14,942,124 American Ref-Fuel Company LLC Baa2 BBB 4,000,000 Term Loan, maturing April 30, 2005 3,970,000 Rumpke Consolidated Company NR NR 7,600,000 Term Loan, maturing September 26, 2002 7,563,900 -------------- 42,964,390 -------------- Electronics: 2.7% Acterna LLC Ba3 B 11,229,412 Term Loan, maturing September 30, 2007 8,702,794 Decision One Corporation Caa3 NR 11,037,214 Term Loan, maturing April 18, 2005 8,553,841 2,188,647 Term Loan, maturing April 18, 2005 1,696,201 Electro Mechanical Solutions(2) B1 B+ 4,248,085 Term Loan, maturing June 30, 2004(3) 1,699,234 Insilco Technologies, Inc. B2 B 4,950,005 Term Loan, maturing August 25, 2007 2,970,003 Intri-Plex Technologies, Inc. NR NR 5,347,826 Term Loan, maturing September 30, 2002 2,673,913 Knowles Electronics, Inc. B1 B+ 3,430,132 Term Loan, maturing June 29, 2007 3,172,872 ON Semiconductor Corporation B1 B+ 1,303,107 Term Loan, maturing August 4, 2006 1,000,678 1,403,538 Term Loan, maturing August 4, 2007 1,077,801 Sarcom, Inc. NR NR 8,993,645 Term Loan, maturing November 20, 2002(3) 7,374,789 -------------- 38,922,126 -------------- Finance: 3.1% Alliance Data Systems Corporation B1 B+ 14,100,000 Term Loan, maturing July 25, 2005 13,869,718 725,446 Term Loan, maturing July 25, 2003 706,103
15 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Finance (continued) Anthony Crane Rental L.P. B2 B+ $14,662,500 Term Loan, maturing July 20, 2006 $ 11,839,969 Bridge Information Systems(2) NR NR 5,843,952 Term Loan, maturing May 29, 2005(3) 3,287,223 2,693,225 Term Loan, maturing April 1, 2001(3) 2,127,648 1,365,577 Term Loan, maturing April 1, 2001(3) 1,078,806 Rent-A-Center, Inc. Ba2 BB- 3,879,463 Term Loan, maturing January 31, 2006 3,822,485 5,009,109 Term Loan, maturing January 31, 2007 4,941,802 1,882,666 Term Loan, maturing December 31, 2007 1,870,899 Value Asset Management, Inc. B1 NR 2,166,667 Term Loan, maturing April 28, 2003 2,150,417 -------------- 45,695,070 -------------- Gaming: 4.5% Aladdin Gaming LLC(2) Caa1 CCC- 2,968,421 Term Loan, maturing August 26, 2006(3) 2,178,079 4,455,000 Term Loan, maturing February 26, 2008(3) 3,268,856 Alliance Gaming Corporation B1 B+ 5,000,000 Term Loan, maturing December 31, 2006 4,978,125 Ameristar Casinos, Inc. Ba3 B+ 2,261,021 Term Loan, maturing December 21, 2006 2,263,847 1,938,018 Term Loan, maturing December 21, 2007 1,940,441 Argosy Gaming Ba2 BB 4,488,750 Term Loan, maturing July 31, 2007 4,512,599 Mandalay Resort Group Ba1 BB+ 17,000,000 Term Loan, maturing July 26, 2006 16,915,000 13,000,000 Term Loan, maturing August 22, 2006 12,975,625 Penn National Gaming, Inc. Ba3 B+ 4,937,500 Term Loan, matuing August 8, 2006 4,931,328 Resort at Summerlin, Inc.(2) NR NR 3,950,667 Revolving Loan (DIP), maturing September 30, 2001 3,950,667 Scientific Games Corporation B1 B+ 4,950,000 Term Loan, maturing August 23, 2007 4,925,250 Station Casinos, Inc. Ba1 BB+ 2,363,756 Revolving Loan, maturing September 30, 2003 2,304,662 -------------- 65,144,479 -------------- Grocery: 0.3% Grand Union Capital Corporation(2) NR NR 1,008,393 Term Loan, maturing August 17, 2003(3) 15,126 Winn-Dixie Stores, Inc. Baa3 BBB 3,980,000 Term Loan, maturing March 29, 2007 3,980,828 -------------- 3,995,954 --------------
16 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Healthcare, Education and Childcare: 7.4% Advance PCS Ba3 BB $ 2,227,294 Term Loan, maturing October 2, 2007 $ 2,232,862 Alliance Imaging, Inc. B1 B+ 1,419,847 Term Loan, October 2, 2006 1,395,000 1,302,985 Term Loan, October 2, 2007 1,308,279 4,623,838 Term Loan, October 2, 2008 4,642,625 Alpharma, Inc. B1 BB- 4,000,000 Term Loan, maturing October 5, 2008 3,955,000 Apria Healthcare Ba1 BBB- 5,000,000 Term Loan, maturing August 28, 2007 4,995,835 Caremark, RX Ba3 BB 2,985,000 Term Loan, maturing March 15, 2006 3,011,740 Community Health Systems, Inc. Ba3 B+ 2,125,428 Term Loan, maturing December 31, 2003 2,132,567 2,125,428 Term Loan, maturing December 31, 2004 2,133,564 1,306,644 Term Loan, maturing December 31, 2005 1,313,688 Concentra Operating Corporation B1 B+ 3,258,333 Term Loan, maturing June 30, 2006 3,255,280 1,629,167 Term Loan, maturing June 30, 2007 1,627,640 Covenant Care California NR NR 5,900,656 Term Loan, maturing June 30, 2003 5,797,395 Express Scripts, Inc. Ba2 BB+ 2,164,404 Term Loan, maturing March 31, 2005 2,150,876 Fountain View, Inc.(2) B2 CC 12,352,941 Term Loan, maturing March 31, 2004 11,669,402 Genesis Health Ventures, Inc. Ba3 BB- 2,260,274 Term Loan, maturing September 30, 2004 2,265,925 217,466 Term Loan, maturing March 28, 2007 218,009 1,555,582 Floating Rate Note, maturing April 2, 2007 1,555,582 HCA-The Healthcare Company Ba1 BB+ 10,285,714 Term Loan, maturing May 30, 2006 10,160,362 Healthcare Direct, Inc. NR NR 1,865,109 Term Loan, maturing August 1, 2004 1,830,201 3,966,750 Term Loan, maturing August 1, 2006 3,915,956 Kinetic Concepts, Inc. Ba3 B 3,990,000 Term Loan, maturing March 31, 2006 3,993,743 Magellan Health Services, Inc. B1 B+ 1,991,697 Term Loan, maturing February 28, 2005 1,992,195 1,991,697 Term Loan, maturing February 28, 2006 1,992,195 Medpointe, Inc. B1 B+ 3,000,000 Term Loan, maturing September 28, 2008 2,985,000 Paragon Health Network, Inc.(2) NR NR 4,433,302 Term Loan, maturing April 30, 2005(3) 3,067,845 3,630,168 Term Loan, maturing March 31, 2006(3) 2,512,076 Stryker Corporation Baa2 BBB+ 627,315.08 Term Loan, maturing December 4, 2005 628,981 Sybron Dental Specialties, Inc. Ba3 BB- 1,236,824 Term Loan, maturing December 1, 2007 1,239,916 1,240,625 Term Loan, maturing December 1, 2007 1,243,727
17 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Healthcare, Education and Childcare (continued) The Brown Schools (Healthcare America) NR NR $11,453,904 Term Loan, maturing June 30, 2003 $ 10,969,476 Triad Hospitals, Inc. Ba3 B+ 2,000,000 Term Loan, maturing October 27, 2008 2,017,876 Veterinary Centers of America B1 B+ 1,495,268 Term Loan, maturing September 30, 2008 1,490,595 Vision Twenty-One NR NR 2,898,018 Term Loan, maturing October 31, 2002 1,449,009 -------------- 107,150,422 -------------- Home and Office Furnishings, Housewares, and Durable Consumer Products: 2.3% American Blind & Wallpaper Factory, Inc. NR NR 722,983 Term Loan, maturing December 29, 2005 722,983 Buhrmann NV Ba3 BB- 3,344,968 Term Loan, maturing October 26, 2005 3,208,383 4,274,565 Term Loan, maturing October 26, 2007 4,078,204 Desa International, Inc. B2 B- 7,261,218 Term Loan, maturing November 26, 2004 5,518,526 Holmes Products Corporation B2 B 3,847,412 Term Loan, maturing February 15, 2007 2,645,096 Icon Health & Fitness, Inc. NR NR 3,000,000 Term Loan, maturing August 31, 2004 2,973,750 4,862,500 Term Loan, maturing November 29, 2004 4,838,188 5,435,002 Term Loan, maturing March 1, 2005 5,353,477 Identity Group, Inc. B2 B+ 4,525,000 Term Loan, maturing May 7, 2007 3,669,021 Imperial Home Decor Group, Inc. NR NR 833,725 Term Loan, maturing April 4, 2006 758,689 -------------- 33,766,317 -------------- Insurance: 0.9% USI Holdings Corporation B1 B+ 9,200,000 Term Loan, maturing September 17, 2004 9,154,000 White Mountains Baa2 BBB+ 4,500,000 Term Loan, maturing March 31, 2007 4,491,563 -------------- 13,645,563 -------------- Leisure, Amusement, Motion Pictures and Entertainment: 4.3% Amfac Parks & Resorts, Inc. NR NR 3,551,476 Term Loan, maturing September 4, 2004 3,396,099 3,551,476 Term Loan, maturing September 30, 2004 3,396,099 Edwards Megaplex Holdings, Inc. NR NR 3,342,175 Term Loan, maturing December 26, 2005 3,258,621 Fitness Holdings Worldwide, Inc. B1 B 9,305,375 Term Loan, maturing November 1, 2006 8,343,823 8,319,375 Term Loan, maturing November 1, 2007 7,459,709
18 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Leisure, Amusement, Motion Pictures and Entertainment (continued) Metro-Goldwyn-Mayer Ba3 BB- $ 8,181,250 Term Loan, maturing March 31, 2005 $ 8,051,716 7,481,250 Term Loan, maturing March 31, 2006 7,406,438 Panavision, Inc. B2 B+ 14,112,162 Term Loan, maturing March 10, 2005 12,395,636 Premier Parks, Inc. Ba2 BB- 3,000,000 Term Loan, maturing November 5, 2004 3,003,375 United Artists Theatre Company B3 B- 6,379,557 Term Loan, maturing January 24, 2005 6,182,856 -------------- 62,894,372 -------------- Lodging: 7.8% Extended Stay America, Inc. Ba3 BB- 17,000,000 Term Loan, maturing July 30, 2007 16,881,000 Host Marriot Corporation Ba2 BB 4,709,677 Term loan, maturing August 5, 2003 4,639,032 KSL Recreation Group, Inc. Ba3 B+ 1,529,544 Term Loan, maturing April 30, 2005 1,483,658 1,529,544 Term Loan, maturing April 30, 2006 1,486,207 9,166,667 Term Loan, maturing December 21, 2006 8,938,930 Lodgian Financing Corporation Ca CC 17,071,616 Term Loan, maturing September 15, 2006 14,638,911 Meristar Hospitality Corporation Ba3 BB- 8,193,477 Term Loan, maturing July 31, 2003 7,770,145 Meristar Investment Partners, L.P. Ba3 B+ 2,500,000 Term Loan, maturing March 31, 2002 2,375,000 7,226,633 Term Loan, maturing March 31, 2004 6,865,301 Starwood Hotels & Resorts Worldwide, Inc. Ba1 BBB- 20,000,000 Term Loan, maturing February 23, 2003 19,775,000 5,750,000 Term Loan, maturing February 23, 2003 5,702,563 Wyndham International, Inc. B1 B+ 7,728,891 Term Loan, maturing June 30, 2004 6,178,282 19,909,292 Term Loan, maturing June 30, 2006 16,226,073 -------------- 112,960,102 -------------- Machinery: 0.9% Alliance Laundry Systems LLC B1 B 10,454,949 Term Loan, maturing May 1, 2005 9,461,729 Morris Material Handling, Inc. NR NR 264,491 Term Loan, maturing September 28, 2004 251,266 Vutek, Inc. B1 NR 603,651 Term Loan, maturing December 30, 2007 601,388 1,394,108 Term Loan, maturing December 30, 2007 1,380,167 1,756,895 Term Loan, maturing December 30, 2007 1,739,326 -------------- 13,433,876 -------------- Mining, Steel, Iron and Non-Precious Metals: 0.1% National Refractories Co. NR NR 1,250,000 Term Loan, maturing March 31, 2002(3) 1,220,166 -------------- 1,220,166 --------------
19 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Oil and Gas: 1.5% Key Energy Group, Inc. Ba2 BB- $ 5,350,000 Revolving Loan, maturing October 26, 2003 $ 5,162,750 Plains Resources, Inc. Ba1 BB 3,500,000 Term Loan, maturing May 1, 2006 3,503,283 PMC Company Ba1 BB 3,000,000 Term Loan, maturing May 1, 2006 3,015,000 Tesoro Petroleum Corp. Ba2 BBB- 6,000,000 Term Loan, maturing December 31, 2007 6,006,000 W-H Energy Services B1 B 3,482,500 Term Loan, maturing April 16, 2007 3,473,794 -------------- 21,160,827 -------------- Other Telecommunications: 2.6% Broadwing Corporation Ba1 BB+ 17,500,000 Term Loan, maturing November 9, 2004 16,351,562 10,000,000 Term Loan, maturing January 31, 2006 9,492,860 1,000,000 Term Loan, maturing June 29, 2007 951,667 Infonet Services Corporation Ba3 BB 4,937,500 Term Loan, maturing June 30, 2006 4,931,328 Pacific Coin NR NR 3,983,915 Term Loan, maturing October 31, 2007 3,904,237 2,892,734 Term Loan, maturing December 31, 2007(3) 1,735,640 -------------- 37,367,294 -------------- Personal and Nondurable Consumer Products: 2.7% AM Cosmetics Corp. NR NR 1,305,151 Term Loan, maturing June 30, 2003(3) 1,109,378 2,292,689 Revolving Loan, maturing May 30, 2004(3) 1,948,786 2,610,303 Term Loan, maturing December 31, 2004(3) 2,218,758 Amscan Holdings, Inc. B1 B+ 9,594,015 Term Loan, maturing December 31, 2004 8,826,494 Armkel LLC Ba3 B+ 2,000,000 Term Loan, maturing March 27, 2009 2,008,334 Centis, Inc. NR NR 3,900,000 Term Loan, maturing September 30, 2005(3) 1,950,000 3,421,250 Term Loan, maturing September 30, 2006(3) 1,710,625 Church & Dwight Co. Ba2 BB 2,000,000 Term Loan, maturing September 15, 2007 2,010,000 Jostens, Inc. B1 BB- 3,868,689 Term Loan, maturing May 31, 2006 3,778,421 1,473,381 Term Loan, maturing May 31, 2008 1,460,753 Norwood Promotional Products, Inc. B2 NR 4,983,547 Term Loan, maturing May 12, 2006(3) 3,563,236 4,456,877 Term Loan, maturing November 30, 2006(3) 3,186,667 Paint Sundry Brands LLC B1 B+ 977,360 Term Loan, maturing August 11, 2005 913,832 957,213 Term Loan, maturing August 11, 2006 918,924 Playtex Products, Inc. Ba2 BB- 2,495,625 Term Loan, maturing May 23, 2009 2,513,953 U.S. Office Products Company(2) NR NR 3,531,068 Term Loan, maturing June 9, 2006(3) 157,974 -------------- 38,276,135 --------------
20 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Personal, Food & Miscellaneous: 2.9% Coinmach Laundry Corporation B1 BB- $ 5,599,549 Revolving Loan, maturing May 5, 2005 $ 5,515,555 4,284,227 Term Loan, maturing June 30, 2005 4,275,526 Otis Spunkmaeyer, Inc. NR NR 4,405,723 Term Loan, maturing December 31, 2005 4,141,380 Papa Gino's, Inc. NR NR 2,250,000 Term Loan, maturing August 31, 2004 2,209,437 5,250,000 Term Loan, maturing August 31, 2004 5,193,376 SC International Services Baa1 BBB- 582,569 Term Loan, maturing March 1, 2007 473,337 24,804,543 Term Loan, maturing March 1, 2007 20,156,816 -------------- 41,965,427 -------------- Printing and Publishing: 4.3% Adams Outdoor Advertising Ltd. B1 B+ 2,000,000 Term Loan, maturing February 8, 2008 2,005,000 Advanstar Communications, Inc. B1 B+ 14,056,000 Term Loan, maturing April 11, 2007 12,525,260 3,782,857 Term Loan, maturing October 11, 2007 3,355,708 Canwest Media, Inc. Ba3 BB- 4,265,264 Term Loan, maturing May 15, 2008 4,258,866 4,568,118 Term Loan, maturing May 15, 2009 4,561,266 Lamar Advertising Company Ba2 BB- 2,250,000 Revolving Loan, maturing March 1, 2006 2,209,219 6,115,625 Term Loan, maturing March 1, 2006 6,020,068 Mail-Well I Corp Ba3 BB 2,874,496 Term Loan, maturing February 22, 2007 2,740,352 Primedia, Inc. B1 BB- 4,000,000 Term Loan, maturing June 30, 2009 3,530,000 Transwestern Publishing Ba3 B+ 2,992,500 Term Loan, maturing June 30, 2007 2,996,863 Vertis, Inc. B1 BB- 3,944,329 Term Loan, maturing December 7, 2008 3,362,540 Von Hoffman Press, Inc. B1 B+ 3,194,658 Term Loan, maturing May 22, 2004 3,106,805 10,387,509 Term Loan, maturing May 22, 2005 10,101,853 Ziff-Davis Media, Inc. Ba3 CCC 1,716,346 Term Loan, maturing March 31, 2007 1,247,569 -------------- 62,021,369 -------------- Radio and Television Broadcasting: 3.4% Benedek Broadcasting Corp. B2 CC 7,000,000 Term Loan, maturing November 20, 2007 6,238,750 Citadel Broadcasting Ba2 B+ 4,500,000 Term Loan, maturing April 2, 2009 4,474,688 Emmis Communications Corp. Ba2 B+ 15,862,941 Term Loan, maturing August 30, 2009 15,823,284 Gray Communications Systems Ba3 B+ 2,000,000 Term Loan, maturing September 30, 2009 1,975,626
21 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Radio and Television Broadcasting (continued) Paxson Communications Corp Ba3 BB $ 4,987,500 Term Loan, maturing June 30, 2006 $ 4,999,969 Pegasus Media & Communications, Inc. B1 B+ 5,960,000 Term Loan, maturing April 30, 2005 5,691,800 Sinclair Broadcasting Group Ba2 BB- 5,000,000 Term Loan, maturing December 31, 2009 4,993,750 Susquehanna Media Company Ba1 BB- 2,500,000 Term Loan, maturing June 30, 2008 2,487,500 Telemundo Group, Inc. B1 B+ 2,000,000 Term Loan, maturing June 1, 2008 2,001,250 -------------- 48,686,617 -------------- Retail Stores: 3.9% Advance Stores Co. Ba3 B+ 5,000,000 Term Loan, maturing April 15, 2006 4,962,500 CSK Auto, Inc. Ba3 BB- 6,144,940 Term Loan, maturing October 31, 2003 6,068,128 5,414,244 Term Loan, maturing October 31, 2003 5,346,566 Murray's Discount Auto Stores, Inc. NR NR 11,018,138 Term Loan, maturing June 30, 2003 10,724,122 Peebles, Inc. NR NR 981,234 Term Loan, maturing April 30, 2003 973,739 9,564,423 Term Loan, maturing April 30, 2004 9,474,165 Rite Aid Funding LLC B1 BB- 17,000,000 Term Loan, maturing July 31, 2005 16,872,500 Travel Centers of America, Inc. Ba3 BB 2,500,000 Term Loan, maturing November 14, 2008 2,495,833 -------------- 56,917,553 -------------- Telecommunication Equipment: 2.9% American Tower LP B1 BB- 11,916,667 Term Loan, maturing June 30, 2007 11,078,246 Crown Castle International Company Ba3 BB- 8,500,000 Term Loan, maturing March 18, 2008 8,262,527 Pinnacle Towers, Inc. B2 CCC+ 12,086,558 Term Loan, maturing June 30, 2007 10,092,276 Spectrasite Communications B1 B+ 8,500,000 Term Loan, maturing February 22, 2008 7,369,500 Tripoint Global Communications, Inc. NR NR 5,806,672 Term Loan, maturing May 28, 2006 5,734,089 -------------- 42,536,638 --------------
22 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Textiles and Leather: 2.4% Accessory Network Group, Inc. NR NR $ 8,240,246 Term Loan, maturing August 13, 2005 $ 6,594,875 Galey & Lord, Inc. Caa2 B 4,648,522 Term Loan, maturing March 23, 2005 3,317,883 3,297,599 Term Loan, maturing March 23, 2006 2,353,661 Humphrey's, Inc.(2) NR NR 6,024,372 Term Loan, maturing November 15, 2003(3) 24,700 Levi Strauss & Co Ba3 BB+ 178,571 Revolving Loan, maturing August 29, 2003 163,839 3,163,340 Term Loan, maturing August 29, 2003 3,009,127 Malden Mills Industries, Inc.(2) NR NR 9,340,635 Term Loan, maturing October 28, 2006(3) 5,137,349 Polymer Group B3 B- 4,779,769 Term Loan, maturing December 20, 2005 4,062,804 3,000,000 Term Loan, maturing December 20, 2006 2,529,000 Scovill Fasteners, Inc. Caa3 CCC- 4,107,143 Term Loan, maturing November 26, 2003 4,025,000 Targus Group International, Inc. Ba3 BB- 3,458,694 Term Loan, maturing December 20, 2006 3,363,580 William Carter Company Ba3 BB- 1,000,000 Term Loan, maturing August 15, 2008 1,006,250 -------------- 35,588,068 -------------- Total Senior Loans -- 119.1% (cost $1,909,212,132) 1,729,087,256 --------------
23 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- Other Corporate Debt
Bank Loan Principal Ratings+ Amount Borrower/Tranche Description Moody's S&P Value - ---------------------------------------------------------------------------------------------- Automobile: 0.3% Capital Tool & Design Ltd. NR NR $ 6,000,000 Subordinated Note, maturing July 26, 2003(3) $ 4,800,000 -------------- 4,800,000 -------------- Finance: 0.7% Value Asset Management, Inc. B2 NR 10,000,000 Sr. Sub Bridge, maturing August 31, 2005 9,925,000 -------------- 9,925,000 -------------- Healthcare, Education and Childcare: 0.0% Vision Twenty-One NR NR 368,022 Convertible Note, maturing October 31, 2003 37 -------------- 37 -------------- Home and Office Furnishings, Housewares, and Durable Consumer Products: 0.0% MP Holdings, Inc. NR NR 64,527 Subordinated Note, maturing March 14, 2007 61,301 -------------- 61,301 -------------- Oil and Gas: 0.5% Premcor Refining, Inc. Ba3 BB- 9,000,000 Floating Rate Note, maturing November 15, 2004 7,143,750 -------------- 7,143,750 -------------- Personal & Nondurable Consumer Products: 0.2% AM Cosmetics Corp. NR NR 3,127,215 Subordinated Note, maturing May 30, 2007 -- Paint Sundry Brands LLC B2 B+ 2,875,000 Subordinated Note, maturing August 11, 2008 2,371,875 -------------- 2,371,875 -------------- Textiles and Leather: 0.1% Tartan Textile Services NR NR 1,332,583 Subordinated Note, maturing April 1, 2011 1,265,954 -------------- 1,265,954 -------------- Total Other Corporate Debt: 1.8% (Cost $29,213,753) 25,567,917 --------------
24 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- Common Stock
Shares Value - ----------- -------------- Aerospace and Defense: 0.0% 11,130 Stellex Aerostructures, Inc.@(R) $ 275,767 -------------- Automobile: 0.7% 212,171 Breed Technology@(R) 2,989,489 660,808 Safelite Glass Corporation@(R) 6,528,783 44,605 Safelite Realty@(R) 1 -------------- 9,518,273 -------------- Diversified/Conglomerate Services: 0.0% 60,056 Staff Leasing, Inc.@ 102,095 -------------- Electronics: 0.1% 350,059 Decision One Corporation@(R) 1,501,753 -------------- Healthcare, Education and Childcare: 0.3% 190,605 Genesis Health Ventures@ 3,945,524 -------------- Home and Office Furnishings: 0.1% 80,400 American Blind and Wallpaper, Inc.@(R) 804 300,141 Imperial Home Decor Group@(R) 1,654,378 300,141 IHDG Realty@(R) 1 590 MP Holdings, Inc.@(R) 6 17,582 Soho Publishing@(R) 176 -------------- 1,655,365 -------------- Machinery: 0.1% 481,373 Morris Material Handling@(R) 1,771,453 -------------- Other Telecommunications: 0.0% 1,091 Pacific Coin, Inc.@(R) 1 -------------- Personal and Nondurable Consumer Products: 0.0% 37,197 AM Cosmetics Corp.@(R) -- -------------- Textiles and Leather: 0.0% 127,306 Dan River, Inc. -- common@ 72,564 -------------- Total Common Stocks: 1.3% (Cost $12,211,398) 18,842,795 --------------
25 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- Other Securities
Shares Value - ----------- -------------- 415 AM Cosmetics, Series E-1 Preferred Stock, exchangable for common shares on a 1-for-1 basis@(R) $ -- -------------- 1 Autotote Systems, Inc., Option representing 0.248% common shares issued and outstanding @(R) -- -------------- N/A Boston Chicken, Inc., residual interest in Boston Chicken Plan Trust@(R)(2) 8,490,005 -------------- 80,634 Capital Tool & Design, Warrants representing 19,000 common shares@(R) -- -------------- 10,000 Casden Properties Operation, 10,000 shares of Junior Cumulative Preferred Partnership Units(R) 250,000 -------------- 19,000 Covenant Care, Inc., Warrants representing 19,000 common shares@(R) -- -------------- 2,696 Electro Mechanical Solutions, Warrant representing 2,564 common shares, expires September 29, 2002@(R) -- -------------- 2,223 Genesis Health Ventures, Preferred Stock@ 238,972 -------------- 19,397 Holmes Product Corporation, Warrants@(R) -- -------------- 430 Murray's Discount Auto Stores Inc., Warrants representing 5% fully diluted common stock@(R), expires January 22, 2007 3,485,757 -------------- 4,000 New World Coffee Mahattan Bagel, Inc., Warrants@(R) 125,440 -------------- 48,930 Scientific Games Corp, Warrants representing Class B common stock, non-voting@(R) 196,176 -------------- 23,449 Tartan Textiles, Series D Preferred Stock(R) 2,227,655 -------------- 36,775 Tartan Textiles, Series E Preferred Stock(R) 2,333,852 -------------- N/A Crown Paper, Inc. -- Conversion rights representing Tembec common shares@(R)(2) 1,442,942 -------------- 243,778 Vision Twenty-One, Warrants representing 243,778 common shares@R 2,438 -------------- Total Other Securities: 1.3% (Cost $16,151,223) 18,793,237 -------------- Total Investments (Cost $1,966,788,506)(5) 123.5% $1,792,291,205 Liabilities in Excess of Cash and Other Assets--Net (23.5%) (340,856,058) ------ -------------- Net Assets 100.0% $1,451,435,147 ====== ==============
26 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 2001 - -------------------------------------------------------------------------------- - ---------- @ Non-income producing security. (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. DIP Debor in Possession Loan NR Not Rated + Bank Loans rated below Baa by Moody's Investors Services, Inc. or BBB by Standard & Poor's Group are considered to be below investment grade. (1) The borrower filed for protection under Chapter 7 of the U.S. Federal bankruptcy code. (2) The borrower filed for protection under Chapter 11 of the U.S. Federal bankruptcy code. (3) Loan is on non-accrual basis. (4) The borrower filed for protection under the Canadian Bankruptcy and Insolvency Act. (5) For federal income tax purposes, the cost of investments is $1,962,349,506 and net unrealized depreciation consists of the following: Gross Unrealized Appreciation $ 18,324,985 Gross Unrealized Depreciation (188,383,286) -------------- Net Unrealized Depreciation $ (170,058,301) ============== 27 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- ASSETS: Investments in securities at value (Cost $1,966,788,506) $ 1,792,291,205 Receivables: Interest 10,820,794 Other 142,926 Prepaid expenses 332,454 Prepaid arrangement fees on notes payable 341,754 --------------- Total assets 1,803,929,133 --------------- LIABILITIES: Notes payable 348,000,000 Overdraft payable to custodian 773,836 Deferred arrangement fees 427,055 Accrued interest payable 813,700 Accrued preferred shares dividend payable 84,055 Payable to affiliates 1,556,814 Accrued expenses 838,526 --------------- Total liabilities 352,493,986 --------------- NET ASSETS $ 1,451,435,147 =============== Net asset value per common share outstanding (net assets less preferred shares at liquidation value, divided by 136,972,914 common shares authorized and outstanding, no par value) $ 7.31 =============== Net Assets Consist of: Preferred shares, $25,000 stated value per share at liquidation value (18,000 shares authorized, issued and outstanding) $ 450,000,000 Paid in capital 1,287,956,481 Undistributed net investment income (Note 1.H.) 11,335,045 Accumulated net realized loss on investments (123,359,078) Net unrealized depreciation of investments (174,497,301) --------------- Net assets $ 1,451,435,147 ===============
See Accompanying Notes to Financial Statements. 28 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS for the Nine Months Ended November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $ 109,486,062 Arrangement fees earned 1,391,044 Dividends 16,508 Other 2,010,462 ------------- Total investment income 112,904,076 ------------- EXPENSES: Interest 12,881,084 Investment management fees 11,409,970 Administration fees 3,565,615 Preferred shares -- dividend disbursing agent fees 888,734 Transfer agent and registrar fees 353,413 Custodian fees 370,620 Shareholder reporting fees 258,821 Professional fees 300,089 Revolving credit facility fees 202,047 Registration fees 118,078 Fund accounting and pricing fees 202,849 Miscellaneous fees 48,454 Trustees' fees 43,865 Insurance expense 31,473 ------------- Total expenses 30,675,112 ------------- Net investment income 82,228,964 ------------- REALIZED AND UNREALIZED LOSS FROM INVESTMENTS: Net realized loss on investments (46,744,513) Net change in unrealized depreciation of investments (60,723,428) ------------- Net loss on investments (107,467,941) ------------- Net decrease in net assets resulting from operations $ (25,238,977) ============= See Accompanying Notes to Financial Statements. 29 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Nine Months Year Ended Ended November 30, February 28, 2001 (Unaudited) 2001 --------------- --------------- INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 82,228,964 $ 121,538,218 Net realized loss on investments (46,744,513) (4,909,435) Change in unrealized depreciation of investments (60,723,428) (101,823,007) --------------- --------------- Net increase (decrease) in net assets resulting from operations (25,238,977) 14,805,776 --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income: Common shares (68,469,942) (117,654,573) Preferred shares (13,109,025) (8,783,182) --------------- --------------- Decrease in net assets from distributions to shareholders (81,578,967) (126,437,755) --------------- --------------- CAPITAL SHARE TRANSACTIONS: Value of distributions reinvested 919,219 5,733,515 Proceeds from shares sold in connection with shelf offerings 87,513 1,236,107 Net proceeds from sales of preferred shares -- 444,755,346 Cost incurred in offering of preferred shares (185,738) -- --------------- --------------- Net increase in net assets from capital share transactions 820,994 451,724,968 --------------- --------------- Net increase (decrease) in net assets (105,996,950) 340,092,989 NET ASSETS: Beginning of period 1,557,432,097 1,217,339,108 --------------- --------------- End of period (including undistributed net investment income of $11,335,045 and $7,032,048, respectively) $ 1,451,435,147 $ 1,557,432,097 =============== =============== SUMMARY OF COMMON SHARE TRANSACTIONS: Shares issued in payment of distributions from net investment income 114,904 666,982 Shares sold in connection with shelf offerings 10,939 143,928 --------------- --------------- Net increase in common shares outstanding 125,843 810,910 =============== =============== SUMMARY OF PREFERRED SHARES SOLD: Series M -- 3,600 Series T -- 3,600 Series W -- 3,600 Series Th -- 3,600 Series F -- 3,600 --------------- --------------- Total preferred shares sold -- 18,000 =============== ===============
See Accompanying Notes to Financial Statements. 30 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF CASH FLOWS for the Nine Months Ended November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- INCREASE (DECREASE) in Cash Cash Flows From Operating Activities: Interest received $ 114,020,273 Dividends received 16,508 Facility fees paid (112,661) Arrangement fee received 770,128 Other income received 1,927,186 Interest paid (14,398,813) Other operating expenses paid (19,013,110) Purchases of portfolio securities (839,198,572) Proceeds from disposition of portfolio securities 995,571,974 ------------- Net cash provided by operating activities 239,582,913 ------------- Cash Flows From Financing Activities: Dividends paid (67,550,723) Cost incurred in offering of preferred shares (185,738) Overdraft financing 773,836 Dividends paid to preferred shareholders (13,193,080) Proceeds from common shares shelf offerings 87,513 Loan repayment (162,000,000) ------------- Net cash used by financing activities (242,068,192) ------------- Net change in cash (2,485,279) Cash at beginning of period 2,485,279 ------------- Cash at end of period $ -- ============= Reconciliation Of Net Decrease In Net Assets Resulting From Operations To Net Cash Provided By Operating Activities: Net decrease in net assets resulting from operations $ (25,238,977) ------------- Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided by operating activities: Decrease in investments in securities 260,198,363 Decrease in interest receivable 7,293,211 Increase in other assets (83,276) Decrease in prepaid arrangement fees on notes payable 89,386 Decrease in prepaid expenses 58,105 Decrease in deferred arrangement fees (620,916) Decrease in accrued interest payable (1,517,729) Decrease in payable to affiliates (62,859) Decrease in accrued expenses (532,395) ------------- Total adjustments 264,821,890 ------------- Net cash provided by operating activities $ 239,582,913 ============= See Accompanying Notes to Financial Statements. 31 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For a common share outstanding throughout the period
Nine Months Ended November 30, Years Ended February 28 or February 29, ------------------ ------------------------------------------- 2001 2001 2000 1999(8) ----------- ----------- ----------- ----------- (Unaudited) Per Share Operating Performance Net asset value, beginning of period $ 8.09 $ 8.95 $ 9.24 $ 9.34 Net investment income 0.58 0.88 0.79 0.79 Net realized and unrealized gain (loss) on investments (0.76) (0.78) (0.30) (0.10) ----------- ----------- ----------- ----------- Increase (decrease) in net asset value from investment operations (0.18) 0.10 0.49 0.69 Distributions to Common Shareholders from net investment income (0.50) (0.86) (0.78) (0.82) Distribution to Preferred Shareholders (0.10) (0.06) -- -- Increase in net asset value from share of- ferings -- -- -- 0.03 Reduction in net asset value from rights offering -- -- -- -- Increase in net asset value from repurchase of capital stock -- -- -- -- Reduction in net asset value from Preferred Shares offerings -- (0.04) -- -- ----------- ----------- ----------- ----------- Net asset value, end of period $ 7.31 $ 8.09 $ 8.95 $ 9.24 =========== =========== =========== =========== Closing market price at end of period $ 6.59 $ 8.12 $ 8.25 $ 9.56 Total Return(3) Total investment return at closing market price(4) (13.24)% 9.10% (5.88)% 1.11% Total investment return at net asset value(5) (3.34)% 0.19% 5.67% 7.86% Ratios/Supplemental Data Net Assets, end of period (000's) $ 1,451,435 $ 1,557,432 -- -- Net assets attributed to common shares end of period (000's) $ 1,001,435 $ 1,107,432 $ 1,217,339 $ 1,202,565 Preferred Rate Shares Aggregate amount outstanding (000's) $ 450,000 $ 450,000 -- -- Liquidation and market value Per Share $ 25,000 $ 25,000 -- -- Asset coverage Per Share** 225% 215% -- -- Average borrowings (000's) $ 389,345 $ 450,197 $ 524,019 $ 490,978 Ratios to average net assets including pre- ferred* Expenses (before interest and other fees related to revolving credit facility) 1.55%(1) 1.62% -- -- Expenses 2.71%(1) 3.97% -- -- Net investment income 7.26%(1)(A) 9.28% -- -- Ratios to average net assets plus borrow- ing applicable to common shares* Expenses (before interest and other fees related to revolving credit facility) 1.62%(1) 1.31% 1.00%(9) 1.05%(9) Expenses 2.83%(1) 3.21% 2.79%(9) 2.86%(9) Net investment income 7.57%(1)(B) 7.50% 6.12% 6.00% Ratios to average net assets applicable to common shares* Expenses (before interest and other fees related to revolving credit facility) 2.22%(1) 1.81% 1.43%(9) 1.50%(9) Expenses 3.86%(1) 4.45% 4.00%(9) 4.10%(9) Net investment income 10.37%(1)(C) 10.39% 8.77% 8.60% Portfolio turnover rate 45% 46% 71% 68% Shares outstanding at end of period (000's) 136,973 136,847 136,036 130,206 Years Ended February 28 or February 29, ----------------------------------------------------------- 1998(8) 1997(8) 1996(7) 1995 ----------- ----------- ----------- ----------- Per Share Operating Performance Net asset value, beginning of period $ 9.45 $ 9.61 $ 9.66 $ 10.02 Net investment income 0.87 0.82 0.89 0.74 Net realized and unrealized gain (loss) on investments (0.13) (0.02) (0.08) 0.07 ----------- ----------- ----------- ----------- Increase (decrease) in net asset value from investment operations 0.74 0.80 0.81 0.81 Distributions to Common Shareholders from net investment income (0.85) (0.82) (0.86) (0.73) Distribution to Preferred Shareholders -- -- -- -- Increase in net asset value from share of- ferings -- -- -- -- Reduction in net asset value from rights offering -- (0.14) -- (0.44) Increase in net asset value from repurchase of capital stock -- -- -- -- Reduction in net asset value from Preferred Shares offerings -- -- -- -- ----------- ----------- ----------- ----------- Net asset value, end of period $ 9.34 $ 9.45 $ 9.61 $ 9.66 =========== =========== =========== =========== Closing market price at end of period $ 10.31 $ 10.00 $ 9.50 $ 8.75 Total Return(3) Total investment return at closing market price(4) 12.70% 15.04%(6) 19.19% 3.27%(6) Total investment return at net asset value(5) 8.01% 8.06%(6) 9.21% 5.24%(6) Ratios/Supplemental Data Net Assets, end of period (000's) -- -- -- -- Net assets attributed to common shares end of period (000's) $ 1,034,403 $ 1,031,089 $ 862,938 $ 867,083 Preferred Rate Shares Aggregate amount outstanding (000's) -- -- -- -- Liquidation and market value Per Share -- -- -- -- Asset coverage Per Share** -- -- -- -- Average borrowings (000's) $ 346,110 $ 131,773 $ -- $ -- Ratios to average net assets including pre- ferred* Expenses (before interest and other fees related to revolving credit facility) -- -- -- -- Expenses -- -- -- -- Net investment income -- -- -- -- Ratios to average net assets plus borrow- ing applicable to common shares* Expenses (before interest and other fees related to revolving credit facility) 1.04% 1.13% -- -- Expenses 2.65% 1.92% -- -- Net investment income 6.91% 7.59% -- -- Ratios to average net assets applicable to common shares* Expenses (before interest and other fees related to revolving credit facility) 1.39% 1.29% -- -- Expenses 3.54% 2.20% 1.23% 1.30% Net investment income 9.23% 8.67% 9.23% 7.59% Portfolio turnover rate 90% 82% 88% 108% Shares outstanding at end of period (000's) 110,764 109,140 89,794 89,794
- ---------- (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 return calculations are attributable to common shareholders. (4) 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. (5) 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. (6) 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. 32 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
Years Ended February 28 or February 29, - ------------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 - ------------- ------------- ------------- ------------- ------------- ------------- $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00 $ 10.00 0.60 0.60 0.76 0.98 1.06 0.72 (0.05) 0.01 (0.02) (0.05) -- -- - ------------- ------------- ------------- ------------- ------------- ------------- 0.55 0.61 0.74 0.93 1.06 0.72 (0.60) (0.57) (0.75) (0.96) (1.06) (0.72) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 0.02 0.05 -- -- -- -- -- -- -- -- -- -- - ------------- ------------- ------------- ------------- ------------- ------------- $ 10.02 $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00 ============= ============= ============= ============= ============= ============= $ 9.25 $ 9.13 -- -- -- -- 8.06% 10.89% -- -- -- -- 6.28% 7.29% 7.71% 9.74% 11.13% 7.35% $ 719,979 $ 738,810 $ 874,104 $ 1,158,224 $ 1,036,470 $ 252,998 $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 1.31% 1.42% 1.42%(2) 1.38% 1.46%(2) 1.18%(1)(2) 6.04% 5.88% 7.62%(2) 9.71% 10.32%(2) 9.68%(1)(2) 87% 81% 53% 55% 100% 49%(1) 71,835 73,544 87,782 116,022 103,660 25,294
- ---------- (7) Pilgrim Investments, Inc., the Trust's investment manager, acquired certain assets of Pilgrim Management Corporation, the Trust's former investment manager, in a transaction that closed on April 7, 1995. (8) The Manager agreed to reduce its fee for a period of three years from the Expiration Date of the November 12, 1996 Rights Offering to 0.60% of the average daily net assets, plus the proceeds of any outstanding borrowings, over $1.15 billion. (9) Calculated on total expenses before impact of earnings credits. * Ratios do not reflect the effect of dividend payments to Preferred Shareholders but do include ongoing related expenses; income ratios reflect income earned on assets attributable to preferred shares. ** Asset coverage represents the total assets available for settlement of Preferred Stockholder's interest and notes payables in relation to the Preferred Shareholder interest and notes payable balance outstanding. The Preferred Shares were first offered November 2, 2000. (A) Had the Trust not amortized premiums and accreted discounts, the ratio of net investment income to average net assets including preferred shares would have been 7.02% for nine months ended November 30, 2001. (B) Had the Trust not amortized premiums and accreted discounts, the ratio of net investment income to average net assets plus borrowings applicable to common shares would have been 7.31% for the nine months ended November 30, 2001. (C) Had the Trust not amortized premiums and accreted discounts, the ratio of net investment income to average net assets applicable to common shares would have been 10.01% for the nine months ended November 30, 2001. 33 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES Pilgrim Prime Rate Trust (the "Trust"), is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end, investment management company. The Trust invests in senior loans which are exempt from registration under the Securities Act of 1933 (the "`33 Act") but contain certain restrictions on resale and cannot be sold publicly. These loans bear interest (unless otherwise noted) at rates that float periodically at a margin above the Prime Rate of a U.S. bank specified in the credit agreement, the London Inter-Bank Offered Rate ("LIBOR"), the certificate of deposit rate, or in some cases another base lending rate. The following is a summary of the significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America. A. Senior Loan and Other Security Valuation. Loans are normally valued at the mean of the means of one or more bid and asked quotations obtained from a pricing service or other sources believed to be reliable. Loans for which reliable quotations are not available may be valued with reference to another loan or a group of loans for which quotations are more readily available and whose characteristics are comparable to the loan being valued. Under this approach, the comparable loan or loans serve as a "proxy" for changes in value. The Trust has engaged an independent pricing service to provide quotations from dealers in loans and to calculate values under the "proxy" procedure described above. It is expected that most of the loans held by the Trust will be valued with reference to quotations from the independent pricing service or with reference to the "proxy" procedure described above. ING Pilgrim Investments, LLC ( the "Investment Manager") may believe that the price for a loan derived from market quotations or the "proxy" procedure described above is not reliable or accurate. Among other reasons, this may be the result of information about a particular loan or borrower known to the Investment Manager that the Investment Manager believes may not be known to the pricing service or reflected in a price quote. In this event, the loan is valued at fair value as determined in good faith under procedures established by the Trust's Board of Trustees and in accordance with the provisions of the 1940 Act. Under these procedures, fair value is determined by the Investment Manager and monitored by the Trust's Board of Trustees through its Valuation Committee. In fair valuing a loan, consideration is given to several factors, which may include, among others, the following: (i) the charactistics of and fundamental analytical data relating to the loan, including the cost, size, current interest rate, period until the next interest rate reset, maturity and base lending rate of the loan, the terms and conditions of the loan and any related agreements, and the position of the loan in the borrower's debt structure; (ii) the nature, adequacy and value of the collateral, including the Trust's rights, remedies and interests with respect to the collateral; (iii) the creditworthiness of the borrower and the cash flow coverage of outstanding principal and interest, based on an evaluation of its financial condition, financial statements and information about the borrower's business, cash flows, capital structure and future prospects; (iv) information relating to the market for the loan, including price quotations for, and trading in, the loan and interests in similar loans; (v) the reputation and financial condition of the agent for the loan and any intermediate participants in the loan; (vi) the borrower's management; and (vii) the general economic and market conditions affecting the fair value of the loan. 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 34 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- 60 days from the date of acquisition 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, 2001, the Trust had capital loss carryforwards for federal income tax purposes of approximately $76,611,257 which are scheduled to expire through February 28, 2009. The Board of Trustees intends to offset any future net capital gains with the capital loss carryforwards until each carryforward has been fully utilized or expires. C. Security Transactions and Revenue Recognition. Loans are booked on a settlement date basis and security transactions are accounted for on trade date (date the order to buy or sell is executed). Realized gains or losses are reported on the basis of identified cost of securities delivered. Interest income is recorded on an accrual basis at the then current interest rate of the loan. 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. For all loans acquired prior to March 1, 2001, arrangement fees, which represent non-refundable fees associated with the acquisition of loans, are deferred and recognized over the shorter of 2.5 years or the actual terms of the loan. For all loans, except revolving credit facilities, acquired subsequent to February 28, 2001, arrangement fees are treated as discounts and accreted as described in Note 1.H. Arrangement fees associated with revolving credit facilities acquired subsequent to February 28, 2001 are deferred and recognized over the shorter of 4 years or the actual term of the loan. No such fees are recognized on loans which have been placed on non-accrual status. D. Distributions to Shareholders. The Trust records distributions to its shareholders on the ex-date. Distributions from income are declared by the Trust on a monthly basis. Distributions from capital gains, if any, are declared on an annual basis. The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America for items such as the treatment of short term capital gains. These "book/tax" differences are either considered temporary or permanent in nature. To the extent that these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassifications. Distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as distributions in excess of net investment income and/or realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as a tax return of capital. During the year ended February 28, 2001 the Trust reclassified $794,477 from paid in capital to accumulated net realized loss on investments, to reflect the treatment of permanent book/tax differences. E. Dividend Reinvestments. Pursuant to the Shareholder Investment Program (formerly known as the Automatic Dividend Reinvestment Plan), DST Systems, Inc., the Plan Agent, purchases, from time to time, shares of beneficial interest of the Trust on the open market to satisfy dividend reinvestments. Such shares are purchased only when the closing sale or bid price plus commission is less than the net asset value per share of the stock on the valuation date. If the market price plus commissions is equal to or exceeds the net asset value, new shares are issued at the greater of (i) net asset value or (ii) the market price of the shares during the pricing period, minus a discount of 5%. 35 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- F. Use of Estimates. Management of the Trust has made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues, expenses and contingencies to prepare these financial statements in conformity with generally accepted accounting principles in the United States of America. Actual results could differ from these estimates. G. Share Offerings. During the year ended February 28, 1999, the Trust began issuing shares under various shelf registration statements, whereby the net proceeds received by the Trust from share sales may not be less than the greater of (i) the NAV per share or (ii) 94% of the average daily market price over the relevant pricing period. H. Change in Accounting Principle. In November 2000 the American Institute of Certified Public Accountants (the "AICPA") issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the "Guide"). Effective March 1, 2001, the Fund adopted the provisions of the Guide and began amortizing premiums and accreting discounts on debt securities. Prior to March 1, 2001, the Trust had not amortized premiums nor accreted discounts. The cumulative effect of this accounting change had no impact on total net assets of the Trust, but resulted in a $3,653,000 increase in the cost of securities and a corresponding $3,653,000 increase in net unrealized depreciation of investments, based on securities held by the Trust on March 1, 2001. The effect of this change during the nine months ended November 30, 2001, was to increase net investment income by $2,759,000, increase unrealized depreciation of investments by $786,000 and increase net realized loss on investments by $1,973,000. NOTE 2 -- INVESTMENTS For the nine months ended November 30, 2001, the cost of purchases and the proceeds from principal repayment and sales of investments, excluding short-term notes, totaled $839,198,572 and $995,571,974, respectively. At November 30, 2001, the Trust held senior loans valued at $1,729,087,256 representing 96.5% of its total investments. The market value of these assets is established as set forth in Note 1. 36 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 2001 (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 ----------- -------------- American Blind and Wallpaper, Inc. -- Common 01/12/99 -- AM Cosmetics Corp. -- Common 06/08/99 $ 385,610 AM Cosmetics Corp. -- Preferred Stock 06/02/99 -- Autotote Systems, Inc. -- Option 02/26/97 -- Boston Chicken--Residual interest in Boston Chicken Trust 12/26/00 8,619,050 Breed Technologies -- Common 12/27/00 3,343,665 Capital Tool & Design -- Warrants 07/26/96 -- Casden Properties Operation -- Preferred Partnership Units 12/31/98 -- Covenant Care, Inc. -- Warrants 12/22/95 -- Decision One Corporation -- Common 06/16/00 -- Electro Mechanical Solutions -- Warrants 06/20/00 -- Holmes Product Corporation -- Warrants 10/24/01 -- Imperial Home Decor Group -- Common 05/02/01 1,654,378 IHDG Realty -- Common 05/02/01 1 Morris Material Handling -- Common 01/10/01 3,009,059 MP Holdings, Inc. -- Common 03/14/01 6 New World Coffee Manhattan Bagel, Inc. -- Warrants 09/27/01 -- Murray's Discount Auto Stores, Inc. -- Warrants 02/16/99 -- Pacific Coin -- Common 07/09/01 1 Safelite Glass Corporation 09/12/00 -- Safelite Realty 09/12/00 -- Stellex Aerostructures, Inc. -- Common 10/17/01 275,767 Scientific Games Corp. -- Common 05/11/01 -- Soho Publishing, Inc. -- Common 03/14/01 176 Tartan Textiles, Series D Preferred Stock 07/17/01 2,227,655 Tartan Textiles, Series E Preferred Stock 07/17/01 2,333,852 Crown Paper, Inc. -- Conversion rights representing Tembec Common Shares 01/10/01 1,442,942 Vision Twenty-One -- Warrants 11/28/00 -- ----------- Total restricted securities excluding senior loans (market value of $36,018,266 was 2.5% of net assets at November 30, 2001) $23,292,162 ===========
37 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT The Trust has entered into an Investment Management Agreement with the Investment Manager, a wholly-owned subsidiary of ING Pilgrim Group, LLC (the "Administrator"), to provide advisory and management services. The Investment Management Agreement compensates the Investment Manager with a fee, computed daily and payable monthly, at an annual rate of 0.80% of the Trust's average daily net assets plus borrowings ("Managed Assets"). The Trust has also entered into an Administration Agreement with the Administrator to provide administrative services and also to furnish facilities. The Administrator is compensated with a fee, computed daily and payable monthly, at an annual rate of 0.25% of the Trust's average daily net assets plus borrowings. At November 30, 2001, the Trust had the following amounts recorded in payable to affiliates on the accompanying Statement of Assets and Liabilities: Accrued Investment Accrued Administrative Management Fees Fees Total --------------- ---- ----- $1,186,354 $370,460 $1,556,814 NOTE 4 -- COMMITMENTS The Trust has entered into both a 364 day and a five year revolving credit agreement, collateralized by assets of the Trust, to borrow up to $550 million from a syndicate of major financial institutions maturing July 15, 2003. Borrowing rates under these agreements are based on a fixed spread over LIBOR, the federal funds rate, or a commercial paper based rate. Prepaid arrangement fees for any unborrowed amounts are amortized over the term of the agreements. The amount of borrowings outstanding at November 30, 2001, was $348 million, at a weighted average interest rate of 2.6%. The amount of borrowings represented 19.3% of net assets plus borrowings at November 30, 2001. Average borrowings for the the nine months ended November 30, 2001 were $389,345,455 and the average annualized interest rate was 4.4%. As of November 30, 2001, the Trust had unfunded loan commitments pursuant to the terms of the following loan agreements: Airgate PCS $ 4,170,684 Alliance Data Systems 1,785,714 Aurora Foods 171,429 Coinmach Laundry Corp. 4,211,621 Doshi Diagnostic 1,287,031 Express Scripts, Inc. 3,092,006 Genesis Health Ventures Inc. 1,522,260 Insight Health 5,000,000 Huntsman Corporation 106,035 Key Energy Group, Inc. 1,783,333 Lamar Advertising 4,312,500 Levi Strauss & Co. 4,815,641 Murray's Discount Auto Stores, Inc. 1,699,998 Packaging Corporation of America 2,753,594 Rail America, Inc. 246,529 Resort at Summerlin 110,247 Riverwood International 4,381,668 Six Flags 10,000,000 Station Casinos 7,636,244 Suiza Fluid Dairy Group LP 6,291,209 URS Corporation 5,714,286 Western Wireless 8,400,000 ----------- $79,492,029 =========== NOTE 5 -- RIGHTS AND OTHER OFFERINGS On October 18, 1996, the Trust issued to its shareholders non-transferable rights which entitled the holders to subscribe for 18,122,963 shares of the Trust's common stock at the rate of one share of common stock for each five rights held. On November 12, 1996, the offering expired and was fully subscribed. The Trust issued 18,122,963 shares of its common stock to exercising rights holders at a subscription price of $9.09. Offering costs of $6,972,203 were charged against the offering proceeds. 38 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- On December 27, 1994, the Trust issued to its shareholders transferable rights which entitled the holders to subscribe for 17,958,766 shares of the Trust's common stock at the rate of one share of common stock for each four rights held. On January 27, 1995, the offering expired and was fully subscribed. The Trust issued 17,958,766 shares of its common stock to exercising rights holders at a subscription price of $8.12. Offering costs of $4,470,955 were charged against the offering proceeds. As of November 30, 2001, share offerings pursuant to shelf registrations were as follows: Registration Shares Shares Date Registered Remaining ---- ---------- --------- 6/11/98 15,000,000 -- 6/19/98 10,000,000 9,730,800 9/15/98 25,000,000 19,170,354 3/04/99 5,000,000 3,241,645 On November 2, 2000, the Trust issued 3,600 shares each of Series M, Series W and Series F Auction Rate Cumulative Preferred Shares, $.01 Par Value, $25,000 liquidation preference, for a total issuance of $270 million. Also, on November 16, 2000, the Trust issued 3,600 shares of Series T and Series Th Auction Rate Cumulative Preferred Shares, $.01 Par Value, $25,000, liquidation preference, for a total issuance of $180 million. All such Preferred Shares were outstanding as of February 28, 2001. Costs associated with the offering of approximately $5,430,392 were charged against the proceeds received upon issuance. The Trust used the net proceeds of the offering to partially pay down the then existing indebtedness. The Trust may reborrow amounts in the future to increase its use of leverage which will be consistent with the limitations imposed by the Investment Company Act of 1940. Preferred Shares pay dividends based on a rate set at auctions, normally held every 7 days. In the most instances dividends are also payable every 7 days, on the first business day following the end of the rate period. NOTE 6 -- CUSTODIAL AGREEMENT State Street Bank, Kansas City ("SSBKC") serves as the Trust's custodian and recordkeeper. Custody fees paid to SSBKC are reduced by earnings credits based on the cash balances held by SSBKC for the Trust. There were no earnings credits for the nine months ended November 30, 2001. NOTE 7 -- AFFILIATED TRANSACTIONS During the nine months ended November 30, 2001, the Trust purchased and sold holdings in senior loans from/to affiliated funds managed by the Investment Manager at prices determined by the Investment Manager to represent market prices. The cost of purchased loans was $21,791,365 and the proceeds and cost of sold loans were $60,835,305 and $61,375,625, respectively, excluding any benefit to the Trust from the recognition of deferred arrangement fees. NOTE 8 -- SUBORDINATED LOANS AND UNSECURED LOANS The primary risk arising from investing in subordinated loans or in unsecured loans is the potential loss in the event of default by the issuer of the loans. The Trust may acquire a subordinated loan only if, at the time of acquisition, it acquires or holds a Senior Loan from the same borrower. The Trust will acquire unsecured loans only where the Investment Manager believes, at the time of acqusition, that the Trust would have the right to payment upon default that is not subordinate to any other creditor. The Trust may invest up to 5% of its total assets, measured at the time of investment, in subordinated loans and unsecured loans. As of November 30, 2001, the Trust held 2.4% of its total assets in subordinated loans and unsecured loans. 39 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 2001 (Unaudited) - -------------------------------------------------------------------------------- NOTE 9 -- SUBSEQUENT EVENTS Subsequent to November 30, 2001, the Trust paid to Common Shareholders the following dividends from net investment income: Per Share Amount Declaration Date Record Date Payable Date ---------------- ---------------- ----------- ------------ $0.043 11/30/2001 12/10/2001 12/24/2001 $0.042 12/21/2001 12/31/2001 01/11/2002 Subsequent to November 30, 2001, the Trust paid to Preferred Shareholders the following dividends from net investment income:
Total Preferred Per Share Auction Record Payable Shares Amount Dates Dates Dates ------ ------ ----- ----- ----- Series M $68.64 12/03/01 to 01/14/02 12/10/01 to 01/21/02 12/11/01 to 01/22/02 Series T $68.00 12/04/01 to 01/15/02 12/11/01 to 01/22/02 12/12/01 to 01/23/02 Series W $67.72 12/05/01 to 01/16/02 12/12/01 to 01/23/02 12/13/01 to 01/24/02 Series Th $67.87 12/06/01 to 01/17/02 12/13/01 to 01/24/02 12/14/01 to 01/25/02 Series F $64.67 12/07/01 to 01/18/02 12/14/01 to 01/25/02 12/17/01 to 01/28/02
Management's Additional Operating Information (Unaudited) APPROVAL OF CHANGES IN INVESTMENT POLICIES At a Special Meeting of Trust Shareholders, held August 6, 1998, Shareholders approved changes in the Trust's fundamental investment policies which make available certain additional investment opportunities to the Trust, including (i) investing in loans in any form of business entity, as long as the loans otherwise meet the Trust's requirements regarding the quality of loans in which it may invest; (ii) the treatment of lease participations as Senior Loans which would constitute part of the 80% of the Trust's assets normally invested in Senior Loans; (iii) investing in all types of hybrid loans that meet credit standards established by the Investment Manager constituting part of the 20% of the Trust's assets that may be invested in Other Investments; (iv) the ability to invest up to 5% of its total assets in both subordinated loans and unsecured loans which would constitute part of the 20% of the Trust's assets that may be invested in Other Investments. Additionally, another policy change approved by the Board of Trustees of the Trust, which does not require shareholder approval, permits the Trust to accept guarantees and expanded forms of intangible assets as collateral, including copyrights, patent rights, franchise value, and trademarks. Another policy change approved by the Board, that does not require shareholder approval, provides that 80% of the Trust's gross assets, as opposed to 80% of its net assets, may normally be invested in Senior Loans. The Trust's Manager considered the evolving nature of the syndicated loan market and the potential benefits to the Trust and its shareholders of revising the restriction to permit the Trust to invest in loans other than Senior Loans and the increase in the number of attractive investment opportunities available to the Trust due to the change. REPURCHASE OF SECURITIES BY CLOSED-END COMPANIES In accordance with Section 23(c) of the Investment Company Act of 1940, and Rule 23c-1 under the Investment Company Act of 1940, the Trust may from time to time purchase shares of beneficial interest of the Trust in the open market, in privately negotiated transactions and/or purchase shares to correct erroneous transactions. SHAREHOLDER INVESTMENT PROGRAM The Trust offers a Shareholder Investment Program (the "Program") which enables investors to conveniently add to their holdings at reduced costs. Should you desire further information concerning this Program, please contact the Shareholder Servicing Agent at (800) 992-0180. 40 INVESTMENT MANAGER ING Pilgrim Investments, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258-2034 ADMINISTRATOR ING Pilgrim Group, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258-2034 1-800-992-0180 INSTITUTIONAL INVESTORS AND ANALYSTS Call Pilgrim Prime Rate Trust 1-800-336-3436, Extension 2217 DISTRIBUTOR ING Pilgrim Securities, Inc. 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258-2034 1-800-334-3444 TRANSFER AGENT DST Systems, Inc. P.O. Box 219368 Kansas City, Missouri 64141-9368 CUSTODIAN State Street Bank and Trust Company 801 Pennsylvania Avenue Kansas City, Missouri 64105 LEGAL COUNSEL Dechert 1775 Eye Street, N.W. Washington, D.C. 20006 INDEPENDENT AUDITORS KPMG LLP 355 South Grand Avenue Los Angeles, California 90071 WRITTEN REQUESTS Please mail all account inquiries and other comments to: Pilgrim Prime Rate Trust Account c/o ING Pilgrim Group, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258-2034 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 A prospectus containing more complete information regarding the Trust, including charges and expenses, may be obtained by calling ING Pilgrim Securities, Inc., Distributor, at 1-800-334-3444. Please read the prospectus carefully before you invest or send money. [LOGO] ING PILGRIM PRT3Q113001-012302 -----END PRIVACY-ENHANCED MESSAGE-----