-----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, B2YcrxMWAk7BhK3gyEj2Lz0PTB3Wdj8ppfvrUeBIrvbaAy7UZi5gjW0H7UYev6u1 dqiWVwJj1Fjt94yH8zxtQQ== 0000950147-99-000046.txt : 19990121 0000950147-99-000046.hdr.sgml : 19990121 ACCESSION NUMBER: 0000950147-99-000046 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM AMERICA PRIME RATE TRUST CENTRAL INDEX KEY: 0000826020 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 956874587 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05410 FILM NUMBER: 99508304 BUSINESS ADDRESS: STREET 1: TWO RENAISSANCE SQ STREET 2: 40 N CENTRAL STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 BUSINESS PHONE: 6024178100 MAIL ADDRESS: STREET 1: TWO RENAISSANCE SQ STREET 2: 40 N CENTRAL STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM PRIME RATE TRUST DATE OF NAME CHANGE: 19920703 N-30D 1 QUARTERLY REPORT FOR THE QTR ENDED 11/30/98 Pilgrim - ------- THE VALUE OF INVESTING P r i m e R a t e T r u s t Third Quarter Report - -------------------------------------------------------------------------------- November 30, 1998 Q3 Third Quarter Report ---------- Pilgrim Prime Rate Trust THIRD QUARTER REPORT November 30, 1998 -------- Table of Contents Chairman's Message ........................ 2 Letter to Shareholders .................... 3 Statistics and Performance ................ 7 Performance Footnotes ..................... 9 Additional Notes and Information .......... 10 Portfolio of Investments .................. 11 Statement of Assets and Liabilities ....... 20 Statement of Operations ................... 21 Statement of Changes in Net Assets ........ 22 Statement of Cash Flows ................... 23 Financial Highlights ...................... 24 Notes to Financial Statements ............. 26 Fund Advisors and Agents .................. 33 -------- Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- CHAIRMAN'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to present the Third Quarter Report for Pilgrim Prime Rate Trust (the "Trust"). On the following pages, the Portfolio Manager will discuss the Trust's milestones and performance, as well as recent market developments. A leader in its class, the Trust has continued to increase shareholder value through strong management and innovative approaches. We believe you will find the nine month results a reflection of Pilgrim's philosophy to provide core holdings which seek to meet the three key needs of the serious investor: 1. Preservation of capital 2. Participation in rising markets 3. Outperformance in falling markets Thank you for selecting Pilgrim Prime Rate Trust. We appreciate the confidence you have placed in us in serving your investment needs. Sincerely, /s/ Robert W. Stallings Robert W. Stallings Chairman and Chief Executive Officer Pilgrim Group, Inc. December 21, 1998 2 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- Dear Fellow Shareholders: On November 30, 1998, Pilgrim Prime Rate Trust (the "Trust") declared its 126th consecutive monthly dividend. For the quarter, month end net asset value ("NAV") varied between $9.29 and $9.27. Based on the period end market price and NAV, the Trust's distribution rate for the quarter was equivalent to 8.42% and 8.74% respectively.(1) The Prime Rate was lowered three times during the quarter to 8.25% on October 1, 1998, to 8.00% on October 16, 1998, and again to 7.75% on November 18, 1998 where it currently stands. Sixty-day Libor, an index of the rate of interest at which banks lend money to one another was 5.59% on September 1, 1998, 5.37% on November 30, 1998 and averaged 5.40% during the quarter.(2) THE TRUST The Trust invests primarily in secured loans made to large American and Canadian corporations. All investments are made in US dollars and bear interest at rates which adjust to current market conditions periodically. The Trust buys investments from large, sophisticated banks and financial institutions. These institutions typically administer the loans on the Trust's behalf. Investments usually have a final maturity between seven and ten years, but most are repaid within two to five years. Interest rates on most of the loans reset to current market indices every thirty to ninety days. Consequently, the Trust's investments exhibit very low price volatility unlike corporate bonds, whose prices fluctuate significantly in response to changes in interest rates. Other factors which contribute to the lower risk characteristics of the loan asset class include being senior claims against borrowers, pledge of collateral and covenants by borrowers to adhere to certain operating and financial standards. Additionally, the Trust maintains a highly diversified portfolio, which limits the adverse effect of loan defaults on the Trust's performance. The two to ten year lifecycle of senior loan investments suggests that investors should have a moderate to long term investment horizon when investing in the Trust. The Trust seeks to provide a high degree of principal stability relative to the traditional fixed income component of an appropriately diversified investment portfolio. MARKET PLACE All capital markets, including the primary market for senior, secured loans, slowed markedly in September and October. Bond and equity markets rebounded in November but the market for new senior loans remained relatively restrained and cautious. Prepayment and refinancing rates also decelerated as acquisition activities declined and alternative sources of capital became more limited. As a result, the Trust was able to remain fully invested during the quarter. 3 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- The Trust's investment income has remained relatively stable as lower interest rates triggered by the three reductions in Federal Fund rates during the quarter, have been partly offset by lower borrowing costs, higher profit margins on new and renegotiated portfolio investments and somewhat higher fee income. The continuation of lower short-term interest rates may eventually lead to somewhat lower dividends for Trust shareholders. However, as compared with alternative investments indexed to short term rates, we expect the Trust to continue to provide a relatively attractive yield. ASSET QUALITY On November 30th, non-performing loans were 1.03% of total assets and 1.50% of net assets. On August 31st, the corresponding percentages were 0.62% and 0.90%. Borrower and industry diversification remains a key defense against the effects of default. TOP 10 INDUSTRIES AS OF NOVEMBER 30, 1998 % OF TOTAL ASSETS Healthcare, Education & Childcare 11.46% Telecommunications 7.10% Chemicals, Plastics & Rubber 5.64% Broadcasting 5.58% Personal, Food and Misc. Services 5.28% Automobile 5.21% Containers, Packaging & Glass 4.87% Buildings & Real Estate 4.78% Electronics 3.60% Beverage, Food & Tobacco 3.58% The Trust's primary goal is to preserve capital. Management's careful attention to diversification and the low price volatility of senior loans helps the Trust to meet this goal. These same characteristics also limit the opportunities for generating capital gains. Occassionally, the Trust will accumulate relatively high concentrations in cyclical industries to benefit from unusually elevated returns available when a sector has been out of favor. Generally though, the Trust adopts a purely defensive approach to diversification. 4 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- OUTLOOK The eighteen-month period of exceptionally low margins in the senior secured loan market appeared to have ended in early September. By late November, however, interest rate spreads again began to moderate. We believe that the full impact of adverse conditions in many of America's international markets may still not have been felt in the United States. Until this has happened, we believe that we will remain in a period of greater risk deserving the continuation of higher credit spreads. As always, we welcome your questions and comments. /s/ Howard Tiffen Howard Tiffen President, COO, and Senior Portfolio Manager Pilgrim Prime Rate Trust December 3, 1998 5 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- SHAREHOLDER LETTER FOOTNOTES - -------------------------------------------------------------------------------- (1) The distribution rate is calculated by annualizing the dividends declared in each month and dividing the resulting annualized dividend amount by the Trust's net asset value or NYSE composite closing price, as applicable at the end of the period. The distribution rate is based solely on the actual dividends and distributions, which are made at the discretion of management. The distribution rate may or may not include all investment income and ordinarily will not include capital gains or losses, if any. (2) Source: Bloomberg Financial Markets. LIBOR is the London Inter-Bank Offered Rate and is the benchmark for determining the interest paid on more than 90% of the senior loans in the Trust's portfolio. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE TRUST WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. This letter contains statements that may be "forward-looking statements". Actual results could differ materially from those projected in the "forward-looking statements". The views expressed in this letter reflect those of the portfolio manager, only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 6 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATISTICS AND PERFORMANCE as of November 30, 1998 - -------------------------------------------------------------------------------- PORTFOLIO CHARACTERISTICS Net Assets $1,203,547,938 Assets Invested in Senior Loans* $1,708,720,498 Total Number of Senior Loans 168 Average Amount Outstanding per Loan $10,170,955 Total Number of Industries 30 Average Loan Amount per Industry $56,957,350 Portfolio Turnover Rate (YTD) 70% Weighted Average Days to Interest Rate Reset 46 days Average Loan Maturity 66 months Average Age of Loans Held in Portfolio 11 months * Includes loans and other debt received through restructures TOP 10 INDUSTRIES AS A % OF NET ASSETS TOTAL ASSETS Healthcare, Education and Childcare 16.8% 11.5% Telecommunications 10.4% 7.1% Chemicals, Plastics and Rubber 8.2% 5.6% Broadcasting 8.2% 5.6% Personal, Food and Miscellaneous Services 7.7% 5.3% Automobile 7.6% 5.2% Containers, Packaging and Glass 7.0% 4.9% Buildings and Real Estate 7.0% 4.8% Electronics 5.3% 3.6% Beverage, Food and Tobacco 5.2% 3.6% TOP 10 SENIOR LOANS AS A % OF NET ASSETS TOTAL ASSETS MAFCO Finance Corp. 3.7% 2.6% Community Health Systems 2.0% 1.4% Lyondell Petrochemical Company 1.9% 1.3% Ventas, Inc. 1.9% 1.3% Papa Gino's, Inc. 1.7% 1.2% 24-Hour Fitness, Inc. 1.7% 1.2% American Wireless Corporation 1.7% 1.2% Euro United Corp. 1.7% 1.2% Florida Panthers Holdings, Inc. 1.7% 1.2% Patriot American Hospitality 1.7% 1.2% 7 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATISTICS AND PERFORMANCE as of November 30, 1998 - -------------------------------------------------------------------------------- DISTRIBUTION RATES* (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, 1998 7.75% 9.02% 8.68% 8.74% 8.42% August 31, 1998 8.50% 8.46% 7.88% 8.81% 8.21% May 31, 1998 8.50% 9.67% 8.82% 8.86% 8.09% February 28, 1998* 8.50% 8.60% 7.77% 8.75% 7.92% This table sets forth the Trust's monthly dividend performance which is summarized quarterly. * Distribution Rates exclude the special dividend of $0.02875/share declared December 19, 1997. Including the special dividend results in a distribution rate @ NAV of 10.00%, and a distribution rate @ MKT of 9.05%. AVERAGE ANNUAL TOTAL RETURNS NAV MKT --- --- 1 Year 7.89% 2.62% 3 Years 7.90% 10.69% 5 Years 8.33% 9.00% 10 Years 8.42% N/A Since Trust Inception(F,H) 8.43% N/A Since Initial Trading on NYSE(G) N/A 10.24% Assumes rights were exercised and excludes sales charges and commissions(C,D,E) PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. See performance footnotes on page 9. 8 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 the dividend declared each month and dividing the resulting annualized dividend amount by the Trust's net asset value (in the case of NAV) or the NYSE Composite closing price (in the case of Market) at the end of the period. (C) Calculation of total return assumes a hypothetical initial investment at the net asset value (in the case of NAV) or the NYSE Composite closing price (in the case of Market) on the last business day before the first day of the stated period, with all dividends and distributions reinvested at the actual reinvestment price. The Trust's average annual returns on a market basis and assuming rights were exercised through November 30, 1998 were 2.62% and 9.00% for the one and five year periods, respectively. The Trust's average annual total return assuming an initial investment at NAV with a 3% sales charge and assuming an ending value at market and assuming rights were exercised through November 30, 1998, was 10.19% for the ten-year period. The average annual total re-turns based on market price assuming rights were exercised with a brokerage commission are not presented. (D) On December 27, 1994, the Trust issued to its shareholders transferable rights which entitled the holders to subscribe for 17,958,766 shares of the Trust's common stock at the rate of one share of common stock for each four rights held. The offering was completed on January 27, 1995. (E) On October 18, 1996, the Trust issued to its shareholders non-transferable rights which entitled the holders to subscribe for 18,122,963 shares of the Trust's common stock at the rate of one share of common stock for each five rights held. On November 12, 1996, the offering expired and was fully subscribed. The Trust issued 18,122,963 shares of its common stock to exercising rights holders at a subscription price of $9.09. Offering costs of $5,926,209 were charged against the offering proceeds. (F) Inception Date -- May 12, 1988. (G) Initial Trading on NYSE -- March 9, 1992. (H) Reflects Partial Waiver of Fees. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE TRUST WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 9 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 1999 DIVIDENDS: DECLARATION DATE EX-DATE PAYABLE DATE January 29 February 8 February 23 February 26 March 8 March 22 March 31 April 8 April 22 April 30 May 6 May 24 May 28 June 8 June 22 June 30 July 8 July 22 July 30 August 6 August 23 August 31 September 8 September 22 September 30 October 6 October 22 October 28 November 8 November 22 November 30 December 8 December 22 December 20 December 28 January 13, 2000 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. 10 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- SENIOR LOANS* (DOLLAR WEIGHTED PORTFOLIO INTEREST RESET PERIOD IS 46 DAYS)
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- AEROSPACE AND DEFENSE: 5.0% $ 8,865 Erickson Air Crane Co. (heavy lift helicopters) Term B 12/31/04 $ 8,421,750 9,952 New Piper Aircraft, Inc. (aircraft manufacturer) Term 04/15/05 9,952,273 14,962 Nortek Aviation Support, Inc. (aviation services company) Term B 06/30/05 14,962,500 6,500 Piedmont Aviation Services (airport facility operator) Term B 07/23/06 6,500,000 6,500 Piedmont Aviation Services Term C 07/23/07 6,500,000 5,146 Technetics Corp. (aircraft engine components) Term 06/20/02 5,146,511 9,261 Tri Star/Odyssey, Inc. (aerospace hardware distributor) Term 09/30/03 9,260,505 ----------- 60,743,539 ----------- AUTOMOBILE: 7.6% 4,963 Autosystems Manufacturing, Inc. (automotive lighting) Term B 05/31/04 4,863,250 4,963 Autosystems Manufacturing, Inc. Term C 05/31/05 4,863,250 14,438 Breed Technologies (airbags/seatbelts) Term B 04/27/06 14,437,870 9,925 Cambridge Industries, Inc. (automotive plastics) Term B 06/30/05 9,925,000 9,410 Capital Tool & Design (brake backing plates) Term B 07/19/03 9,410,319 13,232 Federal Mogul Corp. (automotive parts) Term B 12/31/05 13,231,843 9,987 Global Metal Technologies, Inc. (automotive parts) Term B 03/12/05 9,986,667 12,422 Keystone Companies (automotive aftermarket specialty parts) Term B 03/31/04 12,421,875 6,250 Safelite Glass Corp. (automobile windshield replacement) Term B 12/23/04 6,250,000 6,250 Safelite Glass Corp. Term C 12/23/05 6,250,000 ----------- 91,640,074 ----------- BANKING: 0.8% 10,000 Alliance Data Systems (financial data processing) Term B 10/31/05 10,000,000 ----------- 10,000,000 ----------- BEVERAGE, FOOD AND TOBACCO: 5.2% 10,013 Del Monte Corp. (food manufacturing and distribution) Term B 03/31/05 10,012,744 2,526 Edward's Baking Co. (food service bakery) Term A 09/30/03 2,525,910 3,308 Edward's Baking Co. Term B 09/30/05 3,308,333 3,308 Edward's Baking Co. Term C 09/30/05 3,308,334 13,825 Empire Kosher Poultry, Inc. (kosher chicken and poultry) Term B 07/31/04 13,825,000 12,458 Favorite Brands International (confectionery manufacturer) Term B 05/19/05 12,458,333 9,389 Imperial Holly Corp. (sugar producer) Term A 12/31/05 9,388,962 8,278 Imperial Holly Corp. Term B 12/31/05 8,278,107 ----------- 63,105,723 -----------
See Accompanying Notes to Financial Statements. 11 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- BROADCASTING: 8.2% $10,000 American Cable Entertainment (cable television) Term B 09/30/07 $10,000,000 5,000 Avalon Cable of Michigan, Inc. (cable television) Term B 11/06/06 5,000,000 10,031 Benedek Broadcasting Television Corp. (television broadcasting) Axel A (A) 12/31/04 10,030,696 4,724 Benedek Broadcasting Television Corp. Axel B (A) 12/31/04 4,724,125 2,368 Capstar Radio Broadcasting (radio broadcasting) Term A 09/24/99 2,368,421 4,975 Capstar Radio Broadcasting Term B 05/31/05 4,975,000 305 Capstar Radio Broadcasting Revolver 09/24/99 305,263 5,000 Classic Cable, Inc. (cable television) Term 10/31/07 5,000,000 10,000 FrontierVision (cable television) Term B 03/31/06 10,000,000 9,977 Intermedia Partners IV LP (cable television) Term 01/01/05 9,977,273 5,000 Intermedia Partners VI LP (cable television) Hybrid 03/23/08 5,000,000 1,680 Liberman Broadcasting, Inc. (broadcasting) Revolver 03/31/05 1,680,000 8,000 Liberman Broadcasting, Inc. Term B 09/30/05 8,000,000 9,250 Retlaw Broadcasting, LLC (television broadcasting) Term B 04/30/06 9,250,000 12,000 Telemundo Group, Inc. (Spanish broadcast television) Term B 12/28/06 12,000,000 ----------- 98,310,778 ----------- BUILDINGS AND REAL ESTATE: 7.0% 5,000 Alliance National, Inc. (temporary offices) Term B 09/04/05 5,000,000 6,000 Dayton Superior Corp. (concrete/masonry accessories) Term 09/29/05 6,000,000 10,937 Falcon Building Products (building products) Term B 06/30/05 10,937,143 6,600 Imperial Home Decor Group (home accessories) Term B 03/13/05 6,600,000 3,400 Imperial Home Decor Group Term C 03/13/06 3,400,000 7,940 Kevco, Inc. (manufactured home components) Term B 02/02/05 7,940,000 13,085 Tree Island Industries (nail and wire products) Term B 03/31/03 13,085,000 22,273 Ventas, Inc. (real estate investment trust) Term D 05/05/03 22,272,727 4,020 Werner Holding Co. (ladders) Term B 11/30/04 4,019,625 4,913 Werner Holding Co. Term C 11/30/05 4,912,875 ----------- 84,167,370 ----------- CARGO TRANSPORT: 3.5% 11,301 Atlas Freighter Leasing (air cargo carrier) Term 05/29/04 11,300,661 3,094 Evergreen International Aviation, Inc. (air cargo carrier) Term A 05/31/02 3,094,266 1,630 Evergreen International Aviation, Inc. Term B 05/31/02 1,629,634 8,800 Gemini Air Cargo, Inc. (air cargo carrier) Term A 12/12/02 8,800,000 9,977 Omnitrax, Inc. (rail operator) Term 05/12/05 9,977,273 3,740 Oshkosh Truck Corp (specialized truck manufacturer) Term B 03/31/05 3,740,000 3,740 Oshkosh Truck Corp Term C 03/31/06 3,740,000 ----------- 42,281,834 -----------
See Accompanying Notes to Financial Statements. 12 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- CHEMICALS, PLASTICS AND RUBBER: 8.2% $ 9,927 Acadia Elastomers Corp. (specialty chemicals) Term 03/21/04 $ 9,927,007 11,255 Cedar Chemical Corp. (specialty chemicals) Term B 10/30/03 11,254,869 20,000 Euro United Corp. (plastic products) Term B 05/31/01 20,000,000 3,554 Foamex, L.P. (polyurethane foam) Term B 06/30/05 3,553,871 3,231 Foamex, L.P. Term C 06/30/06 3,230,792 1,925 Huntsman Specialty Chemical (specialty chemicals) Term B 03/15/04 1,924,646 1,925 Huntsman Speciality Chemical Term C 03/15/04 1,924,646 2,490 Huntsman Corp. (industrial chemicals) Revolver 12/31/02 2,490,418 684 Huntsman Corp. Term A 12/31/02 683,823 4,950 Huntsman Corp. Term B 12/31/05 4,950,000 11,000 Lyondell Petrochemical Company (petrochemicals) Term A 07/23/03 11,000,000 12,000 Lyondell Petrochemical Company Term B 07/23/05 12,000,000 5,102 NEN Life Sciences Products (biochemicals) Term B 12/31/04 5,102,041 6,468 Sunbelt Manufacturing LLC (plastics manufacturer) Term B 09/30/04 6,467,500 4,752 Texas Petrochemical Corp. (industrial chemicals) Term B 06/30/04 4,751,961 ----------- 99,261,574 ----------- CONTAINERS, PACKAGING AND GLASS: 7.0% 4,809 Crown Paper Co. (papers and packaging) Term B 08/22/03 4,808,750 18,625 Eastern Pulp & Paper Corporation (specialty paper) Term 08/31/04 18,624,996 19,897 Gaylord Container Corporation (corrugated containers) Term 07/30/07 19,896,552 19,000 Jefferson Smurfit (pulp and paper products) Term B 03/23/06 19,000,000 9,975 Pretium Packaging LLC (plastic packaging) Term B 07/29/06 9,975,020 12,188 Stone Container (pulp and paper products) Term D 10/01/03 12,187,500 ----------- 84,492,818 ----------- DIVERSIFIED/CONGLOMERATE MANUFACTURING: 1.8% 276 @ KDI Corp. (defense and leisure products) (2) Term A N/A 16,791 13 @ KDI Corp. (2) Term B N/A 803 10,000 Private Business, Inc. (banking services & software) Term B 08/19/06 10,000,000 10,000 SPX Corporation (industrial components) Term B 10/06/06 10,000,000 1,133 Paint Sundry Brands, LLC (paint brushes & accessories) Term B 08/11/05 1,133,333 1,111 Paint Sundry Brands, LLC Term C 08/11/06 1,111,111 ----------- 22,262,038 ----------- DIVERSIFIED/CONGLOMERATE SERVICES: 5.0% 36,750 MAFCO Finance Corp. (diversified services and entertainment) Term A 04/16/00 36,750,000 7,403 MAFCO Finance Corp. Revolver 04/16/00 7,402,500 8,782 OSI Holdings Corp. (accounts receivable management) Term B 11/06/03 8,781,937 6,910 OSI Holdings Corp. Term C 10/15/04 6,910,390 ----------- 59,844,827 -----------
See Accompanying Notes to Financial Statements. 13 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- ------- ----- ECOLOGICAL: 1.5% $3,611 Clean Harbors, Inc. (environmental services) Term 05/08/00 $ 3,610,698 4,750 Rumpke (waste management) Term 09/25/02 4,750,000 4,498 Safety Kleen Services (waste management) Term B 03/10/05 4,497,790 4,498 Safety Kleen Services Term C 03/10/06 4,497,790 ----------- 17,356,278 ----------- ELECTRONICS: 5.3% 4,500 Dynamic Details, Inc. (circuit board manufacturer) Term B 04/22/05 4,500,000 5,000 Dictaphone Acquisition, Inc. (dictation and recording equipment) Term C 06/30/03 5,000,000 10,224 Fairchild Semiconductor Corp. (electronic equipment) Term C 03/11/03 10,224,228 5,478 Intri Plex Technologies, Inc. (disk drive component manufacturer) Term 09/30/02 5,478,261 9,516 Mitel Corporation (semiconductor manufacturing) Term B 06/02/04 9,516,031 9,000 OK Industries, Inc. (circuit board manufacturing systems) Term 10/31/02 9,000,000 9,683 Sarcom, Inc. (systems integration) Term 11/20/02 9,682,540 10,000 Stonebridge Technologies, Inc. (enterprise computing) Term 07/27/05 10,000,000 ----------- 63,401,060 ----------- FINANCE: 2.4% 18,000 Bridge Information Systems (news services) Term B 05/29/05 18,000,000 6,400 National Partnership Investments Corp. (asset management) Term 06/30/01 6,400,000 5,000 Value Asset Management, Inc. (money management) Term B 04/28/03 5,000,000 ----------- 29,400,000 ----------- GROCERY: 3.5% 1,983 Pathmark Stores, Inc. (mid atlantic supermarkets) Revolver 06/15/01 1,983,471 1,545 Pathmark Stores, Inc. Term A 06/15/01 1,544,819 9,054 Pathmark Stores, Inc. Term B 12/15/01 9,052,822 17,812 Schwegmann Giant Supermarket (Louisiana supermarkets) Term B 01/31/04 17,811,771 9,316 Star Markets Co., Inc. (Boston area supermarkets) Term B 12/31/02 9,316,039 2,890 Star Markets Co., Inc. Term C 12/31/03 2,889,885 ----------- 42,598,807 ----------- HEALTHCARE, EDUCATION AND CHILDCARE: 16.8% 4,092 Alaris Medical Systems (infusion pumps) Term B 11/30/03 4,092,113 4,092 Alaris Medical Systems Term C 11/30/04 4,092,113 3,851 Alaris Medical Systems Term D 05/31/05 3,851,464 1,985 Alliance Imaging, Inc. (diagnostic services) Term A 12/18/03 1,985,000 9,429 Alliance Imaging, Inc. Term B 08/09/04 9,428,750 6,250 Arterial Vascular Engineering (medical devices) Term B 08/31/04 6,250,000 17,500 The Brown Schools (behavioral care) Term C 06/30/05 17,500,000 9,328 Children's Discovery Centers (daycare and education) Revolver 08/10/05 9,328,125 8,904 Community Health Systems, Inc. (hospitals) Term B 12/31/03 8,904,110 8,904 Community Health Systems, Inc. Term C 12/31/04 8,904,110 6,678 Community Health Systems, Inc. Term D 12/31/05 6,678,082
See Accompanying Notes to Financial Statements. 14 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- HEALTHCARE, EDUCATION AND CHILDCARE (CONTINUED) $ 6,000 Covenant Care California, Inc. (long term healthcare facilities) Term 06/30/99 $ 6,000,000 2,000 Dade International, Inc. (medical testing equipment manufacturer) Term B 12/31/04 2,000,000 2,000 Dade International, Inc. Term C 12/31/04 2,000,000 2,000 Dade International, Inc. Term D 12/31/04 2,000,000 4,950 Doshi Diagnostic Imaging Service (radiology and medical testing) Term 05/15/05 4,950,000 15,000 Fountain View, Inc. (long term healthcare facilities) Term B 03/31/04 15,000,000 4,423 Genesis Eldercare Acquisition (long term healthcare facilities) Term B 09/30/04 4,423,212 3,844 Healthcare Direct, Inc. (medical device retailer) Term A 08/01/04 3,843,750 4,090 Healthcare Direct, Inc. Term B 08/01/06 4,089,750 10,000 Integrated Health Services (long term subacute care) Term B 09/30/04 10,000,000 3,750 Magellan Health Services (managed behavioral care) Term B 02/12/05 3,750,000 3,750 Magellan Health Services Term C 02/12/06 3,750,000 5,000 Mariner Post Acute Network (long term care) Term B 03/31/09 5,000,000 5,000 Mariner Post Acute Network Term C 03/31/06 5,000,000 5,353 Paracelsus Healthcare Corporation (for profit hospital chain) Term A 05/15/03 5,353,333 8,000 Paracelsus Healthcare Corporation Term B 06/15/04 8,000,000 4,988 Roberts Pharmaceutical Corp (pharmaceuticals) Term A 06/30/03 4,987,500 9,900 SMT Health (mobile MRI systems) Term 08/31/03 9,900,000 15,667 Vencor, Inc. (long term care facility operator) Term A 05/05/05 15,667,460 5,000 Vision Twenty One, Inc. (eyecare retailer) Term B 06/30/05 5,000,000 ------------ 201,728,872 ------------ HOME AND OFFICE FURNISHINGS, HOUSEWARES AND DURABLE CONSUMER PRODUCTS: 4.0% 4,500 All Clad (pots and pans) Term A 03/18/04 4,500,000 3,000 All Clad Term C 03/18/05 3,000,000 8,895 Desa International, Inc. (heaters and fireplaces) Term 11/26/04 8,895,000 15,739 ICON Health & Fitness Co. (exercise equipment) Term B 11/14/01 15,739,374 1,358 Panolam Industries, Ltd (synthetic wood paneling) Term A 01/31/03 1,358,439 8,435 Panolam Industries, Ltd Term B 01/31/03 8,434,977 4,820 Panolam Industries, Ltd Term C 01/31/03 4,819,987 1,900 Panolam Industries, Ltd Term D 01/31/03 1,900,009 ------------ 48,647,786 ------------ HOTELS, MOTELS, INNS AND GAMING: 2.1% 4,706 Patriot American Hospitality (hotels & resorts) Bridge II 03/31/99 4,705,882 5,294 Patriot American Hospitality Bridge III 03/31/00 5,294,118 9,992 Patriot American Hospitality Term B 03/31/03 9,991,667 5,000 Station Casinos, Inc. (gaming) Term B 12/31/05 5,000,000 ------------ 24,991,667 ------------
See Accompanying Notes to Financial Statements. 15 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- INSURANCE: 0.5% $ 5,438 TRG Holdings Corp. (insurance run off) Term 01/31/03 $ 5,437,500 ----------- 5,437,500 ----------- LEISURE, AMUSEMENT, MOTION PICTURES AND ENTERTAINMENT: 4.5% 3,713 AMFAC Parks and Resorts (park services operator) Term B 09/04/04 3,712,500 3,713 AMFAC Parks and Resorts Term C 09/30/04 3,712,500 20,000 Florida Panthers Holdings, Inc. (investment holding) Bridge 06/15/99 20,000,000 9,925 Four Media Co. (film services) Term B 09/10/04 9,925,000 10,000 Panavision, Inc. (high precision file camera systems) Term B 03/10/05 10,000,000 7,157 Worldwide Sports & Recreation Corp. (optics, sports products) Term B 03/31/01 6,977,665 ----------- 54,327,665 ----------- MACHINERY (NONAGRICULTURE, NONCONSTRUCTION, NONELECTRONIC): 0.6% 7,474 Clearing Niagara (metal stamping press manufacturer) Term 10/18/04 7,473,571 ----------- 7,473,571 ----------- MINING, STEEL, IRON AND NONPRECIOUS METALS: 4.5% 5,895 Cable Systems International (cable wire manufacturer) Term B 10/04/02 5,895,000 3,269 @ Centennial Resources, Inc. (coal mining)(3) Term A 03/31/02 2,125,000 8,510 @ Centennial Resources, Inc. Term B 03/31/04 5,531,250 1,177 Centennial Resources, Inc. DIP Loan 06/30/99 1,177,001 7,344 Ispat Sidbec, Inc. (steel producer) Term B 07/17/03 7,343,750 7,344 Ispat Sidbec, Inc. Term C 07/17/04 7,343,750 174 National Refractories, Inc. (kiln lining materials) Term B 09/30/99 173,580 3,270 National Refractories, Inc. Term C 09/30/99 3,269,726 8,000 P & L Coal Holdings (coal mining) Term B 06/30/06 8,000,000 5,000 Scovill Fasteners, Inc. (fasteners) Term A 11/26/03 5,000,000 83 United Building Materials, Inc. (stone and concrete products) Term 12/31/99 82,875 7,800 US Aggregates, Inc. (stone and concrete products) Term B 03/31/06 7,800,000 ----------- 53,741,932 ----------- OIL AND GAS: 2.7% 11,451 Cardinal Services, Inc. (oil field services) Term B 03/10/05 11,450,855 5,000 Key Energy Group, Inc. (oil field services) Term B 10/26/04 5,000,000 7,500 Kinder Morgan, Inc. (pipeline operator) Term 05/31/00 7,500,000 1,489 Perf O Log (oil field services) Term 08/11/03 1,488,750 3,960 Perf O Log Term B 08/11/03 3,960,000 2,488 Perf O Log Term C 08/11/04 2,487,500 ----------- 31,887,105 -----------
See Accompanying Notes to Financial Statements. 16 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 7.7% $14,605 Boston Chicken, Inc. (quick service restaurant) (3) Lease 12/09/01 $13,874,590 4,949 Brickman Group, Inc. (landscaping) Term B 12/31/05 4,949,455 18,905 Coinmach Laundry Corp. (laundry) Term B 06/30/05 18,905,000 5,377 Papa Gino's, Inc. (quick service restaurants) Term A 02/19/02 5,376,645 14,922 Papa Gino's, Inc. Term B 02/19/04 14,922,058 14,962 SC International Services (airline catering) Term 06/01/05 14,962,363 6,500 24 Hour Fitness, Inc. (health club operator) Term A 12/31/02 6,500,000 13,500 24 Hour Fitness, Inc. Term B 12/31/04 13,500,000 ----------- 92,990,111 ----------- PERSONAL AND NONDURABLE CONSUMER PRODUCTS (MANUFACTURING ONLY): 3.7% 1,186 @ AM Cosmetics (cosmetics and skin care products) Term A 06/30/03 1,008,013 8,687 @ AM Cosmetics Term B 12/31/04 7,384,362 10,000 Amscan Holdings, Inc. (party goods) Hybrid 12/31/04 10,000,000 9,279 Medtech Products, Inc. (non prescription consumer medications) Term B 10/15/02 9,278,661 9,000 Norwood Promotional Productions (licensed products) Term B 08/31/04 9,000,000 4,000 20th Century Plastics Inc. (album manufacturing) Term B 09/30/05 4,000,000 3,500 20th Century Plastics Inc. Term C 09/30/06 3,500,000 ----------- 44,171,036 ----------- PERSONAL TRANSPORTATION: 0.8% 9,974 Neoplan USA Corporation (personal transportation) Term B 05/29/05 9,974,275 ----------- 9,974,275 ----------- PRINTING AND PUBLISHING: 3.4% 8,930 American Color Graphics (commercial printing) Term B 06/04/05 8,929,756 6,738 Bankers Systems, Inc. (banking industry compliance services) Term B 11/01/02 6,737,500 3,327 Von Hoffman Press, Inc. (textbook manufacturer) Term B 05/29/04 3,326,786 10,801 Von Hoffman Press, Inc. Term C 05/29/05 10,800,893 4,988 Weider Publications, Inc (magazine publications) Term B 09/18/05 4,987,500 4,988 Weider Publications, Inc Term C 09/18/05 4,987,500 ----------- 39,769,935 ----------- RETAIL STORES: 4.0% 6,916 @ Color Tile, Inc. (home improvement retailer) (3) Term D 12/31/98 2,005,576 12,260 Murray's Discount Auto Parts (auto parts retailer) Term 06/30/03 11,646,635 4,962 Nebraska Book Co. (wholesale and retail textbooks) Term B 04/30/04 4,961,538 5,080 Peebles, Inc. (department store chain) Term A 04/30/01 5,080,325 12,969 Peebles, Inc. Term B 04/30/02 12,969,496 2,162 Renters Choice, Inc. (consumer goods rent to own) Term B 01/31/06 2,161,563 2,651 Renters Choice, Inc. Term C 01/31/07 2,650,694 5,944 TravelCenters of America (road transport service centers) Term B 03/27/05 5,943,750 ----------- 47,419,577 -----------
See Accompanying Notes to Financial Statements. 17 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
Principal Amount Loan Stated (000's) Industry/Borrower Type Maturity Value - ------- ----------------- ---- -------- ----- TELECOMMUNICATIONS: 10.4% $10,000 American Wireless Corporation (rural cellular phone operator) Term B 06/04/07 $ 10,000,000 10,000 American Wireless Corporation Term C 12/04/07 10,000,000 8,803 Claricom Holdings, Inc. (communication systems) Term B 07/01/03 8,362,585 8,120 CommNet Cellular, Inc. (cellular phones) Term A 09/30/05 8,120,000 1,173 CommNet Cellular, Inc. Term B 09/18/06 1,172,903 823 CommNet Cellular, Inc. Term C 03/18/07 822,920 3,004 CommNet Cellular, Inc. Term D 09/18/07 3,004,177 11,500 Nextel Finance Co. (cellular phones) Term B 09/30/06 11,500,000 1,750 Nextel Finance Co. Term A 06/30/03 1,750,000 2,307 Nextel Finance Co. Revolver 06/30/03 2,306,500 10,364 Omnipoint Communications, Inc. (cellular phones) Term A 02/23/06 10,363,695 5,084 Omnipoint Communications, Inc. Term B 02/23/06 5,083,886 3,017 Omnipoint Communications, Inc. Term C 02/23/06 3,017,195 2,496 Pacific Coin (private pay phone operator) Term A 12/31/02 2,495,902 6,666 Pacific Coin Term B 12/31/04 6,665,625 8,368 Prodelin Holding Corporation (satellite antenna manufacturer) Term B 05/28/06 8,368,421 10,000 Teletouch Communications (rural paging services) Term B 11/30/04 10,000,000 12,000 TSR Wireless, LLC (paging) Term 06/30/05 12,000,000 10,000 Western PCS Corporation (cellular phones) Term B 07/09/05 10,000,000 -------------- 125,033,809 -------------- TEXTILES AND LEATHER: 4.3% 9,975 Accessory Network Group (personal clothing accessories) Term B 08/13/05 9,975,000 5,761 Harriet & Henderson Yarns, Inc. (yarn manufacturer) Term A 06/12/00 5,761,405 6,650 Humphreys, Inc. (belts and personal leather goods) Term B 11/15/03 6,650,000 9,960 Polymer Group (polyolefin products manufacturer) Term B 01/31/06 9,960,000 8,510 Targus Group International, Inc. (luggage) Term B 01/05/05 8,510,238 1,427 Targus Group International, Inc. Term C 01/05/05 1,427,294 9,975 Tartan Textile Services (linen rental services) Term B 05/13/05 9,975,000 -------------- 52,258,937 -------------- Total Senior Loans -- 142.0% 1,708,720,498 -------------- (Cost $1,722,242,299) OTHER CORPORATE DEBT FINANCE: 0.8% 10,000 Value Asset Management, Inc. (money management) Sr. Sub. Note 04/28/99 10,000,000 -------------- 10,000,000 -------------- CHEMICALS, PLASTICS AND RUBBER: 0.3% 2,875 Paint Sundry Brands, LLC (paint brushes & accessories) Sub. Note 08/11/05 2,875,000 -------------- 2,875,000 -------------- DIVERSIFIED/CONGLOMERATE MANUFACTURING: 0.5% 6,000 Capital Tool & Design Ltd. (brake backing plates) Sub. Note 07/26/03 6,000,000 -------------- 6,000,000 -------------- Total Other Corporate Debt -- 1.6% 18,875,000 -------------- (Cost $18,875,000)
See Accompanying Notes to Financial Statements. 18 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of November 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCK AND PREFERRED STOCK
Shares Value ------ ----- APPAREL PRODUCTS: 0.0% 13,294 @ Butterick Company, Inc. (sewing aids) $ 12,557 ---------- DIVERSIFIED/CONGLOMERATE MANUFACTURING: 0.0% 2,633 @ KDI Corp. common (defense and leisure products) (2) -- ---------- DIVERSIFIED/CONGLOMERATE SERVICES: 0.0% 22,694 @ Staff Leasing, Inc. (employee leasing) (R) 486,454 ---------- RESTAURANTS: 0.3% 413,980 @ America's Favorite Chicken Co. common (quick service restaurant chain) (R) 3,645,508 ---------- TEXTILES AND LEATHER: 0.1% 127,306 @ Dan River, Inc. common (diversified textiles) (R) 930,925 ---------- Total Common Stock and Preferred Stock -- 0.4% 5,075,444 ---------- (Cost $1,251,586) STOCK PURCHASE WARRANTS AND OTHER SECURITIES 1 @ Autotote Systems, Inc., Warrant representing 48,930 common shares (designer and manufacturer of wagering equipment), Expires 10/30/03 (R) 30,150 1 @ Autotote Systems, Inc., Option representing 0.248% common shares issued and outstanding (R) -- 80,634 @ Capital Tool & Design, Warrants representing 80,634 common shares (brake backing plates) (R) 143,528 19,000 @ Covenant Care, Inc., Warrants representing 19,000 common shares (long term healthcare facilities) (R) 285,000 26,606 @ KDI Corp. Units of Trust (defense and leisure products) (R)(2) -- ------------- Total Stock Purchase Warrants and Other Securities -- 0.0% 458,678 ------------- (Cost $0) TOTAL INVESTMENTS (COST $1,742,368,885) (5) 144.0% 1,733,129,620 LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS NET (44.0)% (529,581,682) ----- ------------- NET ASSETS 100.0% 1,203,547,938 ====== =============
- ---------- @ Non-income producing security (A) Axel describes an amortizing extended term loan with limited call protection. (R) Restricted security * Senior loans, while exempt from registration under the Securities Act of 1933, contain certain restrictions on resale and cannot be sold publicly. These senior loans bear interest (unless otherwise noted) at rates that float periodically at a margin above the Prime Rate of a U.S. bank specified in the credit agreement, LIBOR, the certificate of deposit rate, or in some cases another base lending rate. (1) The borrower has entered into a forebearance agreement pending sale of the company or refinance of this debt. (2) The borrower filed for protection under Chapter 7 of the U.S. Federal bankruptcy code and is in the process of liquidation. (3) The borrower filed for protection under Chapter 11 of the U.S. Federal bankruptcy code and is in the process of developing a plan of reorganization. (4) The borrower is restructuring and interest is being recognized as cash payments are received. (5) For Federal income tax purposes, which is the same for financial reporting purposes, cost of investments is $1,742,368,885 and net unrealized depreciation consists of the following: Gross Unrealized Appreciation $ 4,596,754 Gross Unrealized Depreciation (13,836,019) ------------ Net Unrealized Depreciation $ (9,239,265) ============ See Accompanying Notes to Financial Statements. 19 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES as of November 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- ASSETS: Cash $ 3,318,322 Investments in securities at value (Cost $1,742,368,885) 1,733,129,620 Receivables: Interest 22,609,189 Other 90,930 Prepaid expenses 1,042,233 Prepaid arrangement fees on notes payable 394,681 -------------- Total assets 1,760,584,975 -------------- LIABILITIES: Notes payable 550,000,000 Deferred arrangement fees on senior loans 3,187,612 Accrued interest payable 2,741,740 Accrued expenses 1,107,685 -------------- Total liabilities 557,037,037 -------------- NET ASSETS (equivalent to $9.27 per share, based on 129,774,791 shares of beneficial interest authorized and outstanding, no par value) $1,203,547,938 ============== Net Assets Consist of: Paid in capital $1,231,467,298 Undistributed net investment income 11,813,520 Accumulated net realized loss on investments (30,493,615) Net unrealized depreciation of investments (9,239,265) -------------- Net assets $1,203,547,938 ============== See Accompanying Notes to Financial Statements. 20 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS for the Nine Months Ended November 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $101,904,748 Arrangement fees earned 3,730,709 Other 1,380,030 ------------ Total investment income 107,015,487 ------------ EXPENSES: Interest 21,318,872 Investment management fees 8,813,706 Administration fees 1,494,243 Miscellaneous expense 693,304 Revolving credit facility fees 505,969 Reports to shareholders 477,419 Custodian fees 322,138 Transfer agent and registrar fees 320,630 Professional fees 240,700 Recordkeeping and pricing fees 151,014 Insurance expense 57,803 Trustees' fees 41,438 ------------ Total expenses 34,437,236 Less: Earnings credits (88,751) ------------ Net expenses 34,348,485 ------------ Net investment income 72,667,002 ------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS: Net realized loss on investments (124,058) Change in unrealized depreciation of investments (10,819,391) ------------ Net loss on investments (10,943,449) ------------ Net increase in net assets resulting from operations $ 61,723,553 ============ See Accompanying Notes to Financial Statements. 21 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Year Nine Months Ended Ended November 30, February 28, 1998 (Unaudited) 1998 ------------------ --------------- INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 72,667,002 $ 95,217,224 Net realized loss on investments (124,058) (18,935,269) Change in unrealized appreciation/(depreciation) on investments (10,819,391) 5,319,483 -------------- -------------- Net increase in net assets resulting from operations 61,723,553 81,601,438 DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income (72,780,196) (93,879,672) CAPITAL SHARE TRANSACTIONS: Issuance from dividend reinvestment 11,380,175 15,591,705 Net increase in net assets derived from the sale of shares in connection with shelf offerings 168,821,596 -- -------------- -------------- Net increase from capital share transactions 180,201,771 15,591,705 -------------- -------------- Total increase in net assets 169,145,128 3,313,471 NET ASSETS: Beginning of period 1,034,402,810 1,031,089,339 -------------- -------------- End of period (including undistributed net investment income of $11,813,520 and $11,926,714 respectively) $1,203,547,938 $1,034,402,810 ============== ============== SUMMARY OF CAPITAL SHARE TRANSACTIONS: Shares issued from dividend reinvestment 1,203,272 1,624,659 Shares sold in connection with shelf offerings 17,807,031 -- -------------- -------------- Net increase in shares outstanding 19,010,303 1,624,659 ============== ==============
See Accompanying Notes to Financial Statements. 22 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- STATEMENT OF CASH FLOWS for the Nine Months Ended November 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH CASH FLOWS FROM OPERATING ACTIVITIES: Interest received $ 92,981,696 Facility fees received 3,308,128 Commitment fees received 161,188 Other income received 1,476,873 Interest paid (20,470,052) Other operating expenses paid (13,326,471) Purchases of portfolio securities (1,223,474,617) Proceeds from disposition of portfolio securities 853,257,375 --------------- Net cash used for operating activities (306,085,880) --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (61,400,021) Overdraft financing (6,017,373) Proceeds from share offerings 168,821,596 Loan advance 208,000,000 --------------- Net cash provided by financing activities 309,404,202 --------------- Net change in cash 3,318,322 Cash at beginning of period -- --------------- Cash at end of period $ 3,318,322 =============== RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net increase in net assets resulting from operations $ 61,723,553 --------------- Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: Increase in investments in securities (365,864,340) Increase in dividends and interest receivable (9,593,709) Decrease in other assets 6,920,135 Decrease in prepaid arrangement fees on notes payable 16,665 Increase in prepaid expenses (628,806) Decrease in deferred arrangement fees on senior loans (202,108) Increase in accrued interest payable 1,227,911 Increase in accrued expenses 314,819 --------------- Total adjustments (367,809,433) --------------- Net cash used for operating activities $ (306,085,880) =============== See Accompanying Notes to Financial Statements. 23 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
Nine Months Ended Years Ended February 28 or February 29, November 30, 1998 ---------------------------------------------------------- (Unaudited) 1998 1997(7) 1996(6) 1995 1994 ----------- ---- ------- ------- ---- ---- Per Share Operating Performance Net asset value, beginning of period $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02 $ 10.05 Net investment income 0.67 0.87 0.82 0.89 0.74 0.60 Net realized and unrealized gain (loss) on investments (0.09) (0.13) (0.02) (0.08) 0.07 (0.05) ---------- ---------- ---------- -------- -------- -------- Increase in net asset value from investment operations 0.58 0.74 0.80 0.81 0.81 0.55 Distributions from net investment income (0.68) (0.85) (0.82) (0.86) (0.73) (0.60) Increase in net asset value from share offerings 0.03 -- -- -- -- -- Reduction in net asset value from rights offering -- -- (0.14) -- (0.44) -- Increase in net asset value from repurchase of capital stock -- -- -- -- -- 0.02 ---------- ---------- ---------- -------- -------- -------- Net asset value, end of period $ 9.27 $ 9.34 $ 9.45 $ 9.61 $ 9.66 $ 10.02 ========== ========== ========== ======== ======== ======== Closing market price at end of period $ 9.63 $ 10.31 $ 10.00 $ 9.50 $ 8.75 $ 9.25 Total Return Total investment return at closing market price(3) (0.44%) 12.70% 15.04%(5) 19.19% 3.27%(5) 8.06% Total investment return at net asset value(4) 5.87% 8.01% 8.06%(5) 9.21% 5.24%(5) 6.28% Ratios/Supplemental Data Net assets, end of period (000's) $1,203,548 $1,034,403 $1,031,089 $862,938 $867,083 $719,979 Average borrowings (000's) $ 471,793 $ 346,110 $ 131,773 $ -- $ -- $ -- Ratios to average net assets plus borrowings: Expenses (before interest and other fees related to revolving credit facility) 1.06%(1) 1.04% 1.13% -- -- -- Expenses 2.90%(1) 2.65% 1.92% -- -- -- Net investment income 6.14%(1) 6.91% 7.59% -- -- -- Ratios to average net assets: Expenses (before interest and other fees related to revolving credit facility) 1.51%(1) 1.39% 1.29% -- -- -- Expenses 4.14%(1) 3.54% 2.20% 1.23% 1.30% 1.31% Net investment income 8.77%(1) 9.23% 8.67% 9.23% 7.59% 6.04% Portfolio turnover rate 70% 90% 82% 88% 108% 87% Shares outstanding at end of period (000's) 129,775 110,764 109,140 89,794 89,794 71,835
- ---------- (1) Annualized. (2) Prior to the waiver of expenses, the ratios of expenses to average net assets were 1.95% (annualized), 1.48% and 1.44% for the period from May 12, 1988 to February 28, 1989, and for the fiscal years ended February 28, 1990 and February 29, 1992, respectively, and the ratios of net investment income to average net assets were 8.91% (annualized), 10.30% and 7.60% for the period from May 12, 1988 to February 28, 1989, and for the fiscal years ended February 28, 1990 and February 29, 1992, respectively. (3) Total investment return measures the change in the market value of your investment assuming reinvestment of dividends and capital gain distributions, if any, in accordance with the provisions of the dividend reinvestment plan. On March 9, 1992, the shares of the Trust were initially listed for trading on the New York Stock Exchange. Accordingly, the total investment return for the year ended February 28, 1993, covers only the period from March 9, 1992, to February 28, 1993. Total investment return for periods prior to the year ended February 28, 1993, are not presented since market values for the Trust's shares were not available. Total returns for less than one year are not annualized. See Accompanying Notes to Financial Statements. 24 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (Continued) - --------------------------------------------------------------------------------
Years Ended February 28 or February 29, ---------------------------------------------------------- 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Per Share Operating Performance Net asset value, beginning of period $ 9.96 $ 9.97 $ 10.00 $ 10.00 $ 10.00 Net investment income 0.60 0.76 0.98 1.06 0.72 Net realized and unrealized gain (loss) on investments 0.01 (0.02) (0.05) -- -- -------- -------- ---------- ---------- -------- Increase in net asset value from investment operations 0.61 0.74 0.93 1.06 0.72 Distributions from net investment income (0.57) (0.75) (0.96) (1.06) (0.72) Increase in net asset value from share offerings -- -- -- -- -- Reduction in net asset value from rights offering -- -- -- -- -- Increase in net asset value from repurchase of capital stock 0.05 -- -- -- -- -------- -------- ---------- ---------- -------- Net asset value, end of period $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00 ======== ======== ========== ========== ======== Closing market price at end of period $ 9.13 -- -- -- -- Total Return Total investment return at closing market price(3) 10.89% -- -- -- -- Total investment return at net asset value(4) 7.29% 7.71% 9.74% 11.13% 7.35% Ratios/Supplemental Data Net assets, end of period (000's) $738,810 $874,104 $1,158,224 $1,036,470 $252,998 Average borrowings (000's) $ -- $ -- $ -- $ -- $ -- Ratios to average net assets plus borrowings: Expenses (before interest and other fees related to revolving credit facility) -- -- -- -- -- Expenses -- -- -- -- -- Net investment income -- -- -- -- -- Ratios to average net assets: Expenses (before interest and other fees related to revolving credit facility) -- -- -- -- -- Expenses 1.42% 1.42%(2) 1.38% 1.46%(2) 1.18%(1)(2) Net investment income 5.88% 7.62% 9.71% 10.32%(2) 9.68%(1)(2) Portfolio turnover rate 81% 53% 55% 100% 49%(1) Shares outstanding at end of period (000's) 73,544 87,782 116,022 103,660 25,294
- ------------ (4) Total investment return at net asset value has been calculated assuming a purchase at net asset value at the beginning of each period and a sale at net asset value at the end of each period and assumes reinvestment of dividends and capital gain distributions in accordance with the provisions of the dividend reinvestment plan. This calculation differs from total investment return because it excludes the effects of changes in the market values of the Trust's shares. Total returns for less than one year are not annualized. (5) Calculation of total return excludes the effects of the per share dilution resulting from the rights offering as the total account value of a fully subscribed shareholder was minimally impacted. (6) Pilgrim America Investments, Inc., the Trust's investment manager, acquired certain assets of Pilgrim Management Corporation, the Trust's former investment manager, in a transaction that closed on April 7, 1995. (7) The Manager has agreed to reduce its fee for a period of three years from the Expiration Date of the November 12, 1996 Rights Offering to 0.60% of the average daily net assets, plus the proceeds of any outstanding borrowings, over $1.15 billion. See Accompanying Notes to Financial Statements. 25 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES Pilgrim Prime Rate Trust (the "Trust", prior to November 16, 1998 Pilgrim America Prime Rate Trust) is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end, investment management company. The Trust invests in senior loans which are exempt from registration under the Securities Act of 1933 (the "`33 Act") but contain certain restrictions on resale and cannot be sold publicly. These loans bear interest (unless otherwise noted) at rates that float periodically at a margin above the Prime Rate of a U.S. bank specified in the credit agreement, the London Inter-Bank Offered Rate ("LIBOR"), the certificate of deposit rate, or in some cases another base lending rate. The following is a summary of the significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A. Security Valuation. Senior loans are valued at fair value in the absence of readily ascertainable market values. Fair value is determined by Pilgrim Investments, Inc. (the "Manager") under procedures established and monitored by the Trust's Board of Trustees. In valuing a loan, the Manager will consider, among other factors: (i) the creditworthiness of the corporate issuer and any interpositioned bank; (ii) the current interest rate, period until next interest rate reset and maturity date of the senior corporate loan; (iii) recent market prices for similar loans, if any; and (iv) recent prices in the market for instruments with similar quality, rate, period until next interest rate reset, maturity, terms and conditions. The Manager may also consider prices or quotations, if any, provided by banks, dealers or pricing services which may represent the prices at which secondary market transactions in the loans held by the Trust have or could have occurred. However, because the secondary market in senior loans has not yet fully developed, the Manager will not rely solely on such prices or quotations. Securities for which the primary market is a national securities exchange or the NASDAQ National Market System are stated at the last reported sale price on the day of valuation. Debt and equity securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the mean between the last reported bid and asked price. Securities other than senior loans for which reliable quotations are not readily available and all other assets will be valued at their respective fair values as determined in good faith by, or under procedures established by, the Board of Trustees of the Trust. Investments in securities maturing in less than 60 days are valued at amortized cost, which when combined with accrued interest, approximates market value. B. Federal Income Taxes. It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. At February 28, 1998, the Trust had capital loss carryforwards for federal income tax purposes of approximately $19,738,326 which are scheduled to expire through February 28, 2006. The Board of Trustees intends to offset any future net capital gains with the capital loss carryforwards until each carryforward has been fully utilized or expires. C. Security Transactions and Revenue Recognition. Security transactions are accounted for on trade date. Realized gains or losses are reported on the basis of identified cost of securities delivered. Interest income is recorded on an accrual basis at the then current loan rate, and dividend income is recorded on the ex-dividend date. The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to meet payments as they become due. Upon such discontinuance, all unpaid accrued interest is reversed. Cash collections on nonaccrual senior loans are generally applied as a reduction to the recorded investment of the loan. Senior loans are returned to accrual status only after all past due amounts have been received and the borrower has demonstrated sustained performance. Arrangement fees, which represent non-refundable fees associated with the acquisition of loans, are deferred and recognized ratably over the shorter of 2.5 years or the actual term of the loan. 26 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- D. Distributions to Shareholders. The Trust records distributions to its shareholders on the ex-date. Distributions from income are declared by the Trust on a monthly basis. Distributions from capital gains, if any, are declared on at least an annual basis. The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. Key differences are the treatment of short-term capital gains and other temporary differences. To the extent that these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassifications. Distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as distributions in excess of net investment income and/or realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as a tax return of capital. E. Dividend Reinvestments. Pursuant to the Shareholder Investment Program (formerly known as the Automatic Dividend Reinvestment Plan), DST Systems, Inc., the Plan Agent, purchased, from time to time, shares of beneficial interest of the Trust on the open market to satisfy dividend reinvestments. Such shares were purchased only when the closing sale or bid price plus commission was less than the net asset value per share of the stock on the valuation date. If the market price plus commissions was equal to or exceeded the net asset value, new shares may be issued at the greater of (i) net asset value or (ii) the market price of the shares during the pricing period, minus a discount of 5%. F. Use of Estimates. Management of the Trust has made certain estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. G. Share Offerings. Beginning May, 1998 the Trust began issuing shares under two separate shelf registration statements, whereby the net proceeds received by the Trust from share sales may not be less than the greater of (i) the NAV per share or (ii) 94% of the average daily market price over the relevant pricing period. NOTE 2 -- INVESTMENTS For the nine months ended November 30, 1998, the cost of purchases and the proceeds from principal repayment and sales of investments, excluding short-term notes, totaled $1,223,474,617 and $853,257,375, respectively. At November 30, 1998, the Trust held senior loans valued at $1,708,720,498 representing 98.6% of its total investments. The market value of these securities can only be established by negotiation between parties in a sales transaction. Due to the uncertainty inherent in the valuation process, the fair values as determined may materially differ from the market values that would have been used had a ready market for these securities existed. The senior loans acquired by the Trust may take the form of a direct co-lending relationship with the corporate issuer, an assignment of a co-lender's interest in a loan, or a participation interest in a co-lender's interest in a loan. The lead lender in a typical corporate loan syndicate administers the loan and monitors collateral. In the event that the lead lender becomes insolvent, enters FDIC receivership or, if not FDIC insured, enters into bankruptcy, the Trust may incur certain costs and delays in realizing payment, or may suffer a loss of principal and/or interest. Additionally, certain situations may arise where the Trust acquires a participation in a co-lender's interest in a loan and the Trust does not have privity with or direct recourse against the corporate issuer. Accordingly, the Trust may incur additional credit risk as a participant because it must assume the risk of insolvency or bankruptcy of the co-lender from which the participation was acquired. Common and preferred stocks, and stock purchase warrants held in the portfolio were acquired in conjunction with senior loans held by the Trust. Certain of these stocks and warrants are restricted and may not be publicly sold without registration under the '33 Act, or without an exemption under the '33 Act. In some cases, these restrictions expire after a designated 27 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- period of time after issuance of the stock or warrant. These restricted securities are valued at fair value as determined by the Board of Trustees by considering quality, dividend rate, and marketability of the securities compared to similar issues. In order to assist in the determination of fair value, the Trust will obtain quotes from dealers who periodically trade in such securities where such quotes are available. Dates of acquisition and cost or assigned basis of restricted securities are as follows: Date of Cost or Acquisition Assigned Basis ----------- -------------- America's Favorite Chicken Co. -- Common 11/05/92 $ 1 Autotote Systems, Inc. -- Option 11/11/92 -- Autotote Systems, Inc. -- Warrant 11/11/92 -- Capital Tool & Design -- Warrants 07/26/96 -- Covenant Care, Inc. -- Warrants 12/22/95 -- Dan River, Inc. -- Common 09/15/91 1,217,260 KDI Corp. Units of Trust 09/19/95 -- Staff Leasing, Inc. 09/01/95 34,325 ---------- Total restricted securities excluding senior loans (market value of $5,521,565 was 0.46% of net assets at November 30, 1998) $1,251,586 ========== NOTE 3 -- MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT The Trust has entered into an Investment Management Agreement with Pilgrim Investments, Inc. (the "Manager") a wholly-owned subsidiary of Pilgrim Group, Inc. ("PG"), to provide advisory and management services. The Investment Management Agreement compensates the Manager with a fee, computed daily and payable monthly, at an annual rate of 0.80% of the Trust's average daily net assets plus borrowings. Prior to August 6, 1998, the Investment Management Agreement compensated the Manager at an annual rate of 0.85% of the Trust's average daily net assets plus borrowings up to $700 million; 0.75% of the average daily net assets plus borrowings of $700 million to $800 million; and 0.65% of average daily net assets plus borrowings in excess of $800 million. The Manager has reduced its fee for a period of three years from the Expiration Date of the November 12, 1996 Rights Offering (See Note 5) to 0.60% of the average daily net assets, plus the proceeds of any outstanding borrowings, over $1.15 billion. The Trust has also entered into an Administration Agreement with PG to provide administrative services and also to furnish facilities. The Administration Agreement compensates the Administrator with a fee, computed daily and payable monthly, at an annual rate of 0.15% of the Trust's average daily net assets plus borrowings up to $800 million; and 0.10% of the average daily net assets plus borrowings in excess of $800 million. NOTE 4 -- COMMITMENTS The Trust has entered into both a 364 day and a five year revolving credit agreement to borrow up to $650 million from a syndicate of major financial institutions maturing July 16, 2003. Borrowing rates under these agreements are based on a fixed spread over LIBOR, the federal funds rate, or a commercial paper based rate. The Trust also pays an unused arrangement fee for any unborrowed amount amortized over 364 days and five years, respectively. The amount of borrowings outstanding at November 30, 1998, was $550 million at a weighted average interest rate of 5.6%, which represented 31.2% of net assets plus borrowings. Average borrowings for the nine months ended November 30, 1998, were $471,792,727 and the average annualized interest rate was 5.8%. 28 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- As of November 30, 1998, the Trust had unfunded loan commitments pursuant to the terms of the following loan agreements: Capstar Radio Broadcasting $2,326,316 Huntsman Corporation $ 830,140 Centennial Resources Inc. 1,157,321 Liberman Broadcasting, Inc. 320,000 Edwards Baking Co. 674,090 Nextel Finance Co. 2,943,500 Gaylord Container Corp. 9,103,448 Papa Gino's, Inc. 3,178,808 Genesis Eldercare Acquisition 76,787 Pathmark Stores Inc. 3,308,785 ----------- $23,919,195 =========== NOTE 5 -- RIGHTS OFFERINGS On October 18, 1996, the Trust issued to its shareholders transferable rights which entitled the holders to subscribe for 18,122,963 shares of the Trust's common stock at the rate of one share of common stock for each five rights held. On November 12, 1996, the offering expired and was fully subscribed. The Trust issued 18,122,963 shares of its common stock to exercising rights holders at a subscription price of $9.09 . Offering costs of $6,972,203 were charged against the offering proceeds. On December 27, 1994, the Trust issued to its shareholders non-transferable rights which entitled the holders to subscribe for 17,958,766 shares of the Trust's common stock at the rate of one share of common stock for each four rights held. On January 27, 1995, the offering expired and was fully subscribed. The Trust issued 17,958,766 shares of its common stock to exercising rights holders at a subscription price of $8.12. Offering costs of $4,470,955 were charged against the offering proceeds. NOTE 6 -- CUSTODIAL AGREEMENT Investors Fiduciary Trust Company ("IFTC") serves as the Trust's custodian and recordkeeper. Custody fees paid to IFTC are reduced by earnings credits based on the cash balances held by IFTC for the Trust. For the nine months ended November 30, 1998, the Trust received $88,751 in earnings credits from IFTC. NOTE 7 -- AFFILIATED TRANSACTIONS During the nine months ended November 30, 1998, the Trust sold certain holdings in senior loans to an affiliated fund managed by the Manager at prices determined by the Manager to represent market prices. The proceeds and cost of such loans were $40,001,830 and $40,000,000, respectively, excluding any benefit to the Trust from the recognition of deferred arrangement fees. NOTE 8 -- SUBSEQUENT EVENTS Subsequent to November 30, 1998, the Trust declared the following dividends from net investment income: Per Share Amount Declaration Date Record Date Payable Date ---------------- ---------------- ----------- ------------ $.0690 12/21/98 12/31/98 01/13/99 29 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of November 30, 1998 (Unaudited) - -------------------------------------------------------------------------------- MANAGEMENT'S ADDITIONAL OPERATING INFORMATION APPROVAL OF CHANGES IN INVESTMENT POLICIES At a Special Meeting of Trust Shareholders, held August 6, 1998, Shareholders approved changes in the Trust's fundamental investment policies which make available certain additional investment opportunities to the Trust, including (i) investing in loans in any form of business entity, as long as the loans otherwise meet the Trust's requirements regarding the quality of loans in which it may invest; (ii) the treatment of lease participations as Senior Loans which would constitute part of the 80% of the Trust's assets normally invested in Senior Loans; (iii) investing in all types of hybrid loans that meet credit standards established by the Investment Manager constituting part of the 20% of the Trust's assets that may be invested in Other Investments; (iv) the ability to invest up to 5% of its total assets in both subordinated and unsecured loans which would constitute part of the 20% of the Trust's assets that may be invested in Other Investments. Additionally, another policy change approved by the Board of Trustees of the Trust, which does not require shareholder approval, permits the Trust to accept guarantees and expanded forms of intangible assets as collateral, including copyrights, patent rights, franchise value, and trademarks. Another policy change approved by the Board that does not require shareholder approval provides that 80% of the Trust's gross assets, as opposed to 80% of its net assets, may normally be invested in Senior Loans. The Trust's Manager considered the evolving nature of the syndicated loan market and the potential benefits to the Trust and its shareholders of revising the restriction to permit the Trust to invest in loans other than Senior Loans and the increase in the number of attractive investment opportunities available to the Trust due to the change. REPURCHASE OF SECURITIES BY CLOSED-END COMPANIES In accordance with Section 23(c) of the Investment Company Act of 1940, and Rule 23c-1 under the Investment Company Act of 1940, the Trust may from time to time purchase shares of beneficial interest of the Trust in the open market, in privately negotiated transactions and/or purchase shares to correct erroneous transactions. SHAREHOLDER INVESTMENT PROGRAM The Trust offers a Shareholder Investment Program (the "Program") which enables investors to conveniently add to their holdings at reduced costs. Should you desire further information concerning this Program, please contact the Shareholder Servicing Agent at (800) 992-0180. 30 Pilgrim Prime Rate Trust - -------------------------------------------------------------------------------- FUND ADVISORS AND AGENTS - -------------------------------------------------------------------------------- INVESTMENT MANAGER INSTITUTIONAL INVESTORS AND ANALYSTS Pilgrim Investments, Inc. Call Pilgrim Prime Rate Trust Two Renaissance Square 1-800-336-3436, Extension 8256 40 North Central Avenue Suite 1200 Phoenix, Arizona 85004-4424 SHAREHOLDER SERVICING AGENT TRANSFER AGENT Pilgrim Group, Inc. DST Systems, Inc. Two Renaissance Square P.O. Box 419368 40 North Central Avenue Kansas City, Missouri 64141 Suite 1200 Phoenix, Arizona 85004-4424 1-800-992-0180 INDEPENDENT AUDITORS CUSTODIAN KPMG Peat Marwick LLP Investors Fiduciary Trust Company 725 South Figueroa Street 801 Pennsylvania Los Angeles, California 90017 Kansas City, Missouri 64105 WRITTEN REQUESTS Please mail all account inquiries and other comments to: Pilgrim Prime Rate Trust Account Services c/o Pilgrim Group, Inc. Two Renaissance Square 40 North Central Avenue, Suite 1200 Phoenix, Arizona 85004-4424 TOLL-FREE SHAREHOLDER INFORMATION Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for account or other information, at 1-800-992-0180. 33 Pilgrim ------- THE VALUE OF INVESTING MagnaCap Fund LargeCap Leaders Fund MidCap Value Fund Bank and Thrift Fund Asia-Pacific Equity Fund High Yield Fund Government Securities Income Fund - -------------------------------------------------------------------------------- Prospectuses containing more complete information regarding the funds, Q3 including charges and expenses, may be obtained by calling Pilgrim Securities, Inc. Distributor at 1-800-334-444. Please read the prospectuses carefully before you invest or send money. - ---------- -----END PRIVACY-ENHANCED MESSAGE-----