As filed with the Securities and Exchange Commission on September 16, 1996
1933 Act File No. 33-_____
1940 Act File No. 811-5410
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|_| Pre-Effective Amendment No. ___
|_| Post-Effective Amendment No. ___
and
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
|X| Amendment No. 20
PILGRIM AMERICA PRIME RATE TRUST
(formerly Pilgrim Prime Rate Trust)
Exact Name of Registrant Specified in Charter
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(800) 334-3344
Registrant's Telephone Number, Including Area Code
James M. Hennessy
Pilgrim America Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
Name and Address (Number, Street, State, Zip Code) of Agent for Service
Copies to:
Jeffrey S. Puretz Steven N. Robinson
Dechert Price & Rhoads Cleary, Gottlieb, Steen & Hamilton
1500 K Street, N.W. 1752 N Street, N.W.
Washington, D.C. 20005 Washington, D.C. 20036
Approximate Date of Proposed Public Offering: ____________, 1996
|
If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. |_|
As soon as practicable after the effective date of this Registration Statement
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
====================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Per Aggregate Offering Amount of
Being Registered Registered Unit(1) Price(1) Registration Fee(1)
- ---------------- ---------- ---- ----- -------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of Beneficial 22,588,788 shares $9.56 $215,948,813 $74,465.11
Interest(without par
value)
====================================================================================================================================
|
(1)Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(d) under the Securities Act of 1933 on the basis of net asset value per share on September 13 1996.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
PILGRIM AMERICA PRIME RATE TRUST
CROSS-REFERENCE SHEET
PART A
Item No. Caption Location in Prospectus
1. Outside Front Cover................................... Front Cover Page
2. Inside Front and Outside
Back Cover Page....................................... Front Cover Page
3. Fee Table and Synopsis................................ Prospectus Summary; Trust Expenses
4. Financial Highlights.................................. Financial Highlights and Investment
Performance -- Financial Highlights
Table
5. Plan of Distribution.................................. Front Cover Page; Prospectus Summary;
The Offer; Distribution Arrangements
6. Selling Shareholders.................................. Not Applicable
7. Use of Proceeds....................................... Use of Proceeds
8. General Description of the Registrant................. Front Cover Page; Prospectus Summary;
Financial Highlights and Investment
Performance -- Portfolio Composition;
Financial Highlights and Investment
Performance -- Trading and Net Asset
Value Information; The Offer;
Description of the Common Shares;
Investment Objectives and Policies; Risk
Factors and Special Considerations;
General Information on Senior Loans
9. Management............................................ Prospectus Summary; Investment
Management and Other Services
10. Capital Stock, Long-Term Debt, and Other
Securities............................................ Front Cover Page; Description of the
Common Shares; Dividends and
Distributions -- Distribution Policy;
Dividends and Distributions -- Dividend
Reinvestment and Cash Purchase Plan;
Tax Matters
11. Defaults and Arrears on Senior Securities............. Not Applicable
12. Legal Proceedings..................................... Not Applicable
13. Table of Contents of the Statement of
Additional Information................................ Table of Contents of Statement of
Additional Information
|
PART B
Location in Statement of Additional
Item No. Caption Information
14. Cover Page............................................ Cover Page
15. Table of Contents..................................... Table of Contents
16. General Information and History....................... Change of Name
17. Investment Objective and Policies..................... Additional Information About
Investments and Investment Techniques;
Investment Restrictions
18. Management............................................ Trustees and Officers
19. Control Persons and Principal Holders of
Securities............................................ Trustees and Officers; Prospectus:
Description of the Common Shares
20. Investment Advisory and Other Services................ Investment Management and Other
Services; Prospectus: Investment
Management and Other Services;
Prospectus: Experts
21. Brokerage Allocation and Other Practices.............. Portfolio Transactions
22. Tax Status............................................ Tax Matters
23. Financial Statement................................... Prospectus: Financial Statements
|
PART C
Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement.
PROSPECTUS
Shares of Beneficial Interest
Pilgrim America Prime Rate Trust
Issuable Upon Exercise of Non-Transferable Rights to Subscribe for Such Shares of Beneficial Interest
New York Stock Exchange Symbol: PPR
Pilgrim America Prime Rate Trust (the "Trust") is issuing to its shareholders ("Shareholders") of record as of the close of business on ____________, 1996 (the "Record Date") non-transferable rights (the "Rights") entitling the holders thereof to subscribe for up to an aggregate of ___________ shares of beneficial interest of the Trust ("Common Shares" or "Shares"), at the rate of one Common Share for each five Rights held (the "Offer"). Shareholders of record will receive one non-transferable right for each Share held and Shareholders who fully exercise their Rights will have, subject to certain limitations and subject to allotment, an over-subscription privilege (the "Over-Subscription Privilege"). Fractional shares will not be issued upon the exercise of Rights. The Rights are non-transferable and will not be admitted for trading on the New York Stock Exchange (the "NYSE") or any other exchange. Shares of the Trust trade on the NYSE under the symbol "PPR." See "The Offer." THE SUBSCRIPTION PRICE (THE "SUBSCRIPTION PRICE") PER SHARE WILL BE 97.5% OF THE LOWER OF (a) THE AVERAGE OF THE LAST REPORTED SALES PRICE OF A SHARE OF THE TRUST'S COMMON SHARES ON THE NYSE ON ____________, 1996 (THE "PRICING DATE") AND THE FOUR PRECEDING BUSINESS DAYS OR (b) THE NET ASSET VALUE ("NAV") PER SHARE AS OF THE PRICING DATE.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ___________, 1996, (THE "EXPIRATION DATE"). For additional information regarding the Offer, please call Shareholder Communications Corporation (the "Information Agent") at 1-800-733-8481, extension ______.
The Trust is a diversified, closed-end management investment company. The Trust's investment objective is to seek as high a level of current income as is consistent with the preservation of capital. The Trust seeks to achieve its objective by investing in interests in variable or floating-rate senior collateralized corporate loans ("Senior Loans"), the interest rates of which float periodically based upon a benchmark indicator of prevailing interest rates. Investment in the Trust involves certain risks and special considerations, including risks associated with the Trust's use of leverage. See "Risk Factors and Special Considerations." The Trust's Investment Manager is Pilgrim America Investments, Inc. ("PAII" or the "Investment Manager"). The address of the Trust is Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004.
The Trust announced the Offer after the close of trading on the NYSE on September 16, 1996. The NAV of the Common Shares at the close of business on September 16, 1996 and [Date of Prospectus or nearest business date], 1996 was $_____ and $_____, respectively, and the last reported sales prices per Common Share on the NYSE for those dates was $_____ and $_____, respectively.
As a result of the terms of the Offer, Shareholders who do not fully exercise their Rights will, upon the completion of the Offer, own a smaller proportional interest in the Trust than they owned prior to the Offer. In addition, because the Subscription Price per share will be less than the current NAV per share, the Offer will result in an immediate dilution of the NAV per share for all existing shareholders. Such dilution, which might be substantial, is not currently determinable because it is not known how many Shares will be subscribed for, what the NAV or market price of the Common Shares will be on the Pricing Date or what the Subscription Price will be. Shareholders will experience a decrease in the NAV per share held by them, irrespective of whether they exercise all or any portion of their Rights. See "The Offer" and "Risk Factors and Special Considerations."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Estimated Subscription Estimated Estimated Proceeds to
Price (1) Sales Load (2) Trust (3)
Per Share . . . . . . . . . . . $____ $____ $____
Total Maximum . . . . . . . . . $___________ $_________ $___________
|
Footnotes set forth on next page
Investors are advised to read this Prospectus and retain it for future reference. A Statement of Additional Information dated ___________________, 1996 (the "SAI") containing additional information about the Trust has been filed with the Securities and Exchange Commission (the "Commission") and is incorporated by reference in its entirety into this Prospectus. A copy of the SAI, the table of contents of which appears on page ___ of this Prospectus, may be obtained without charge by contacting the Trust at (800) 331-1080.
Dealer Managers
Prudential Securities Incorporated Merrill Lynch & Co.
_____________________________, 1996
(continued from previous page)
(1) Estimated on the basis of the average of the last reported sales prices of a share of the Trust's Common Shares on the NYSE on [Date of Prospectus or nearest business date], 1996 and the four preceding business days. Pursuant to the Over-Subscription Privilege, the Trust may increase the number of Shares subject to subscription by up to 25% of the Shares offered hereby. If the Trust increases the number of Shares subject to subscription by 25%, the total maximum Estimated Subscription Price will be approximately $______________, the total maximum Estimated Sales Load will be approximately $________________, and the total maximum Estimated Proceeds to the Trust will be approximately $___________________.
(2) In connection with the Offer, the Trust has agreed to pay Prudential Securities Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Dealer Managers") a fee for their financial advisory, marketing and soliciting services equal to 3.5% of the aggregate Subscription Price for the Shares issued pursuant to the Offer and to reimburse Prudential Securities Incorporated for out-of-pocket expenses up to $150,000. The Dealer Managers will reallow to certain broker-dealers a concession of 2.25% of the Subscription Price per Share for Shares issued pursuant to the Offer. See "Distribution Arrangements." These fees and expense reimbursement will be borne by the Trust and indirectly by all of the Trust's Shareholders, including those who do not exercise their Rights. The Trust and the Investment Manager have agreed to indemnify the Dealer Managers against certain liabilities under the Securities Act of 1933, as amended (the "Securities Act") and the Investment Company Act of 1940, as amended (the "Investment Company Act").
(3) Before deduction of expenses incurred by the Trust, estimated at approximately $_______, including $150,000 to be paid to Prudential Securities Incorporated for reimbursement of their expenses.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes that the allowable
increase of 25% of the Shares offered hereby pursuant to the Over-Subscription
Privilege will not occur.
THE OFFER AT A GLANCE
The Offer The Trust is issuing to Record Date Shareholders
one non-transferable Right for each share held
entitling Shareholders to subscribe for Shares of the
Trust at the rate of one Common Share for each five
Rights.
Subscription Price The Subscription Price will be 97.5% of the lower of
(a) the average of the last reported sales price per
Common Share on the NYSE on the Pricing Date
and the four preceding business days or (b) the NAV
per share as of the Pricing Date.
Over-Subscription Privilege Shareholders who fully exercise their Rights may
have, subject to certain limitations and subject to
allotment, a privilege to subscribe for additional
Shares. The Trust may, at its discretion, issue up to
an additional 25% of the Shares available in the
Offer to honor over-subscriptions.
- 4 -
|
Purpose of Offer The Trust's Investment Manager, Pilgrim America
Investments, Inc. ("PAII"), believes that increasing
the Trust's assets through the Offer will improve the
Trust's competitive position within the Senior Loan
market. While there can be no assurance that
potential benefits will be realized, improving the
Trust's competitive position is intended to:
- increase income from investments over
time;
- allow the Trust to increase its average
investment size while maintaining portfolio
diversification; and
- enhance the Trust's ability to seek
opportunities in the secondary Senior Loan
market to generate cash for new investments
and to seek capital gains.
PAII believes the Offer will reduce the Trust's
operating costs per share.
The Offer affords Shareholders the opportunity to
purchase additional Shares of the Trust at a price
that will be below market value and NAV at the
Expiration Date.
(See "The Offer -- Purpose of the Offer.")
Use of Proceeds It is expected that net proceeds of the Offer will
be used to pay down the Trust's outstanding borrowings, and
therefore will be invested in Senior Loans consistent
with the Trust's investment policies almost
immediately. PAII believes that the Trust's monthly
dividend will not be reduced as a result of
the Offer, although there can be no assurance of this.
(See "Use of Proceeds.")
How to Obtain Subscription Information Contact your broker.
Contact the Information Agent toll-free at
1-800-733-8481, extension _____.
- 5 -
|
How to Subscribe Registered shareholders may subscribe in
one of the two following ways:
Deliver a completed Exercise Form and
payment to the Subscription Agent by the
Expiration Date.
Deliver Notice of Guaranteed Delivery to the
Subscription Agent by the Expiration Date
and deliver the Exercise Form and payment
to the Subscription Agent by _______, 1996.
Investors whose shares are held by a nominee (such as
a trust company, bank, or broker-dealer must
contact the nominee.
Subscription Agent State Street Bank and Trust Company
|
IMPORTANT DATES TO REMEMBER:
Record Date ...................................... ____________
Subscription Period (Submit Exercise Form and Payment) ____________
Expiration Date and Pricing Date.................... ____________
Deadline for delivery of Exercise Form
together with payment of Estimated Subscription
Price or for delivery of Notice of
Guaranteed Delivery ............................. ____________
Deadline for payment pursuant to Notice of
Guaranteed Delivery ............................. ____________
Confirmation Date to Registered Shareholders ........ ____________
For Registered Shareholders -
deadline for payment of unpaid balance if final
Subscription Price is higher than Estimated
Subscription Price ............................. ____________
|
THE TRUST AT A GLANCE
The Trust The Trust is a diversified, closed-end
management investment company organized
as a Massachusetts business trust. As of
September ___, 1996, the Trust's NAV was
$___________.
NYSE Listed As of August 31, 1996, the Trust had
90,355,152 shares outstanding, which are
traded on the NYSE under the symbol
"PPR." As of September ___, 1996, the
last reported sales price of a Share of the
Trust was $________. The Rights are non-transferable and
therefore will not be admitted for trading on
the NYSE.
Investment Objective To obtain as high a level of current income
as is consistent with the preservation of
capital.
Primary Investment Strategy The Trust seeks to achieve its investment
objective by acquiring interests in Senior
Loans with interest rates that float
periodically based on a benchmark indicator
of prevailing interest rates, such as the prime
rate or London Inter-Bank Offered Rate
("LIBOR"). The Trust may also employ
techniques such as borrowing for investment
purposes. There can be no assurance that
the Trust will achieve its investment
objective.
Diversification The Trust maintains a diversified investment
portfolio. As a diversified management
investment company, the Trust, with respect
to 75% of its total assets, may invest no more
than 5% of the value of its total assets in any
one issuer (other than the U.S. government).
This strategy of diversification is intended to
manage risk by limiting exposure to any one
issuer.
- 7 -
|
General Investment Guidelines Under normal circumstances, at least 80% of the
Trust's assets are invested in Senior Loans.
A maximum of 25% of the Trust's assets are
invested in any one industry.
The Trust only invests in Series Loans in U.S.
corporations or corporations domiciled in Canada
or U.S. territories and possessions, and the
Senior Loans must be denominated in U.S. dollars.
Distributions Income dividends are declared and paid
monthly. Income dividends may be
distributed in cash or reinvested in additional
full and fractional shares through the Trust's
Dividend Reinvestment and Cash Purchase
Plan.
Investment Manager Pilgrim America Investments, Inc.
Administrator Pilgrim America Group, Inc.
|
RISK FACTORS AND SPECIAL CONSIDERATIONS AT A GLANCE
This Prospectus contains certain statements that may be deemed to be "forward-looking statements." Actual results could differ materially from those projected in the forward-looking statements as a result of uncertainties set forth below and elsewhere in the Prospectus. For additional information, see "Risk Factors and Special Considerations".
Dilution The Offer will result in dilution.
Record Date Shareholders who do not fully
exercise their Rights will experience as a result of the
Offer: dilution of NAV per Share; dilution of a
proportionate ownership interest in the Trust; and
dilution of voting power.
Also, an immediate dilution of the NAV per
Share will be experienced by all Shareholders,
regardless of whether they exercise any or all of their
rights, because the Subscription Price will be less
than the current NAV per Share, and the number of
Shares outstanding after the Offer will increase by a
greater percentage than the increase in the size of
the Trust's assets.
Discount The Trust's Shares may trade at a discount to NAV.
This is a risk separate and distinct from the risk that
the Trust's NAV will decrease.
Credit Risk Investment in the Trust involves the risk that
borrowers under Senior Loans may default on
obligations to pay principal and interest when due,
and the risk that the Trust's investment objective may
not be realized.
Limited Secondary Market Because of a limited secondary market for Senior
Loans, the Trust may be limited in its ability to sell
portfolio holdings to generate gains or avoid losses.
Leverage The Trust may borrow for investment purposes,
which increases both investment opportunity and
investment risk.
|
TRUST EXPENSES
The following table is intended to assist the Trust's investors in
understanding the various costs and expenses associated with investing in the
Trust through the exercise of Rights.
Net Assets
Without Net Assets Plus
Borrowings Borrowings (6)
Shareholder Transaction Expenses
Sales Load (as a percentage of Subscription Price)(1) . 3.50% 3.50%
Dividend Reinvestment and Cash Purchase Plan Fees . . . NONE NONE
Annual Expenses (as a percentage of average net assets
attributable to Common Shares)
Management Fee(2) . . . . . . . . . . . . . . . . . . . 0.80% 0.75%
Administrative Fee(3) . . . . . . . . . . . . . . . . . 0.14% 0.13%
Other Operating Expenses(4) . . . . . . . . . . . . . . 0.26% 0.20%
Total Annual Expenses before Interest Expense . . . . . 1.20% 1.08%
Interest Expense on Borrowed Funds . . . . . . . . . . 0.00% 1.50%
Total Annual Expenses(5) . . . . . . . . . . . . . . . 1.20% 2.58%
|
(1) The Trust has agreed to pay the Dealer Managers a fee for their financial advisory, marketing and soliciting services equal to 3.5% of the aggregate Subscription Price for the Shares issued pursuant to the Offer and to reimburse Prudential Securities Incorporated for out-of-pocket expenses up to $150,000. Total offering expenses are estimated to be $__________. In addition, the Trust has agreed to pay a fee to the Subscription Agent and the Information Agent estimated to be $150,000 and $56,000, respectively, which includes reimbursement for their out-of-pocket expenses related to the Offer. These fees will be borne by the Trust and indirectly by all of the Trust's Shareholders, including those who do not exercise their Rights. See "Distribution Arrangements."
(2) Pursuant to an investment management agreement with the Trust, PAII is entitled to receive a fee of 0.85% of the average daily net assets of the Trust, plus the proceeds of any outstanding borrowings, up to $700 million; 0.75% of the average daily net assets, plus the proceeds of any outstanding borrowings, in excess of $700 million up to $800 million; and 0.65% of the average daily net assets, plus the proceeds of any outstanding borrowings, in excess of $800 million. PAII has agreed to reduce its management fee for a period of three years from the Expiration Date to 0.60% on that portion of the Trust's average daily net assets, plus the proceeds of any outstanding borrowings, in excess of $1.15 billion. See "Investments Management and Other Services -- Investment Manager."
(3) Pursuant to its Administration Agreement with the Trust, Pilgrim America Group, Inc. ("PAGI" or the "Administrator"), the Trust's Administrator, is entitled to receive a fee of 0.15% of the Trust's average daily net assets, plus the proceeds of any outstanding borrowings, up to $800 million; and 0.10% of the average net assets, plus the proceeds of any outstanding borrowings, in excess of $800 million. See "Administration Agreement."
(4) "Other Expenses" are based on estimated amounts for the current fiscal year.
(5) The indicated ____% expense ratio assumes that the Offer is fully subscribed, yielding estimated net proceeds of approximately $________ million (with an estimated Subscription Price of $______ per share) and that, as a result, based on the Trust's net assets on ______________, 1996, the average net assets attributable to Shareholders would be $__________ million.
(6) Expense ratios are calculated using net assets plus borrowings (at 25% of net assets) and include additional expenses expected to be incurred as a result of such borrowings, including interest expense. Expense ratios do not reflect increased income anticipated from the use of borrowed funds.
Example 1 year 3 years 5 years 10 years You would pay the following expenses on a $1,000 investment, assuming a 5% annual $47 $72 $99 $175 return and where the Trust has not borrowed . . . . . . . . . . . . . . . . You would pay the following expenses on a $1,000 investment, assuming a 5% annual $60 $112 $167 $316 return and where the Trust has borrowed . |
This hypothetical example assumes that all dividends and other distributions are reinvested at NAV and that the percentage amounts listed under Annual Expenses above remain the same in the years shown. See also Note (5) above for assumptions made in calculating the expenses in this hypothetical example. The above tables and the assumption in the hypothetical example of a 5% annual return are required by regulation of the Commission applicable to all investment companies; the assumed 5% annual return is not a prediction of, and does not represent, the projected or actual performance of the Trust's Shares. For more complete descriptions of certain of the Trust's costs and expenses, see "Investment Management and Other Services."
The foregoing example should not be considered a representation of past or future expenses, and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS AND INVESTMENT PERFORMANCE
Financial Highlights Table
The table below sets forth selected financial information which has been derived from the financial statements that are in the Trust's Annual Report dated as of February 29, 1996, and Semi-Annual Report dated as of August 31, 1996. For the fiscal year ended February 29, 1996, the information in the table below has been audited by KPMG Peat Marwick, LLP, independent certified public accountants. For all periods ending prior to February 29, 1996, the financial information was audited by the Trust's former auditors, Tait, Weller & Baker, independent certified public accountants. These statements should be read in conjunction with the other financial statements and notes thereto included in the Trust's February 29, 1996 Annual Report to Shareholders and August 31, 1996, Semi-Annual Report to Shareholders, which contain further information about the Trust's performance, and which are available to shareholders upon request and without charge.
Six Months May 12,
Ended Year Ended February 28* 1988** to
August 31, February 28,
1996 1996(6) 1995 1994 1993 1992 1991 1990 1989
Per Share Operating Performance
NAV, beginning of period $ 9.66 $ 10.02 $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00 $ 10.00
Net investment income 0.89 0.74 0.60 0.60 0.76 0.98 1.06 0.72
Net realized and unrealized
gain (loss) on investment (0.08) 0.07 (0.05) 0.01 (0.02) (0.05) -- --
Increased in NAV from
investment operations 0.81 0.81 0.55 0.61 0.74 0.93 1.06 0.72
Distributions from net
investment income (0.86) (0.73) (0.60) (0.57) (0.75) (0.96) (1.06) (0.72)
Reduction in NAV from
rights offering -- (0.44) -- -- -- -- -- --
Increase in NAV from
repurchase of capital stock -- -- 0.02 0.05 -- -- -- --
NAV, end of period $ 9.61 $ 9.66 $ 10.02 $ 10.05 $ 9.96 $ 9.97 $ 10.00 $ 10.00
Closing market price at end of
period $ 9.50 $ 8.75 $9.25 $ 9.13 $ -- $ -- $ -- $ --
Total Return
Total investment return based on
closing market price (3) 19.19% 3.27%(5) 8.06% 10.89% -- -- -- --
Total investment return based on
NAV (4) 9.21% 5.24%(5) 6.28% 7.29% 7.71% 9.74% 11.13% 7.35%
Ratios/ Supplemental Data
Net assets, end of period
(thousands) $862,938 $867,083 $719,979 $738,810 $874,104 $1,158,224 $1,036,470 $252,998
Ratios to average net assets:
Expenses 1.23% 1.30% 1.31% 1.42% 1.42%(2) 1.38% 1.46%(2) 1.18%(1)(2)
Net investment income 9.23% 7.59% 6.04% 5.88% 7.62%(2) 9.71% 10.32%(2) 9.68%(1)(2)
Portfolio turnover rate 88% 108% 87% 81% 53% 55% 100% 49%
- 12 -
|
Shares outstanding at end of period (thousands) 89,794 89,794 71,835 73,544 87,782 116,022 103,600 25,294 Average daily balance of debt outstanding during the period (thousands) (7) $ -- $ 2,811 $ -- $ 636 $ 8,011 $ 2,241 $ -- $ -- Average monthly shares outstanding during the period (thousands) 89,794 74,598 -- 79,394 102,267 114,350 -- -- Average amount of debt per share during the period (7) $ -- $ 0.04 $ -- $ 0.01 $ 0.08 $ 0.02 $ -- $ -- |
* Or February 29, if applicable. ** Commencement of operations.
(1) Annualized.
(2) Prior to the waiver of expenses, the ratio of expenses to average net assets was 1.95% (1), 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 ratio of net investment income to average net assets was 8.91%(1), 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 at closing market price for the periods prior to the year ended February 28, 1993 is not presented since market values for the Trust's shares were not available.
(4) Total investment return at NAV has been calculated assuming a purchase at NAV at the beginning of each period and a sale at NAV 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.
(5) Calculation of total return excludes the effect of the per share dilution resulting from the rights offering in 1995 as the total account value of a fully subscribed shareholder was minimally impacted.
(6) PAII, 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) Prior to May 2, 1996, the Trust borrowed to enable it to purchase its Shares in connection with periodic tender offers. On May 2, 1996, the Trust received shareholder approval to borrow for investment purposes. As of August 31, 1996, the Trust had outstanding borrowings of $197,000,000 under a $285 million line of credit. See "Policy on Borrowing" in this section.
Portfolio Characteristics and Composition
The following tables set forth certain information with respect to the characteristics and the composition of the Trust's investment portfolio in terms of percentages of net assets as of August 31, 1996.
Portfolio Characteristics
Net Assets $867,307,083
Assets Invested in Senior Loans $1,055,886,435*
Total Number of Senior Loans 102
Average Amount Outstanding per Senior Loan $10,351,828
Total Number of Industries 28
Year to Date Portfolio Turnover Rate 41.50%
Average Senior Loan Amount per Industry $37,710,230
Weighted Average Days to Interest Rate Reset 38 days
Average Senior Loan Maturity 67 months
Average Age of Senior Loans Held in Portfolio 10 months
|
(*Includes Senior Loans and other debt received through restructures)
Largest Senior Loans Held Largest Industry Groups
(as a % of Net Assets) (as a % of Net Assets)
KMart Corp. 5.8% Diversified Manufacturing 10.8%
Riverwood International Corp. 3.5% General Merchandise Retailing 10.6%
Smith's Food & Drug Co. 3.1% Media / Broadcast 10.2%
Favorite Brands International 2.9% Aerospace Products & Services 10.2%
Community Health Systems 2.3% Food Stores 8.6%
Graco Children's Products, Inc. 2.3% Electronic Equipment 7.0%
Liberty House, Inc. 2.3% Industrial Equipment 5.0%
Ralph's Grocery Co. 2.1% Health Care Services 4.8%
MTF Acquisition Corp. 2.1% Paper Products 4.6%
Lifestyle Furnishings International 2.0% Diversified Services / Entertainment 4.5%
|
Policy on Borrowing
Beginning in May of 1996, the Trust began a policy of borrowing for investment purposes. This policy was approved by shareholders of the Trust at a meeting held on May 2, 1996. The Trust has entered into a four-year credit agreement ("Credit Facility") with a syndicate of banks providing for a revolving line of credit of up to $285 million with interest payable by the Trust at a variable rate of LIBOR or the federal funds rate plus .50% of outstanding borrowings plus a 0.125% fee on unused credit. As of August 31, 1996, the Trust had outstanding borrowings of $197,000,000. Because additional income producing investments can be acquired with borrowed proceeds, borrowing has the potential to increase the Trust's total income.
The Trust is permitted to borrow up to 33 1/3%, or such other percentage permitted by law, of its total assets (including the amount borrowed) less all liabilities other than borrowings. Upon completion of the Offer, the Trust intends to increase the Trust's Credit Facility and use the proceeds for investment purposes. No assurance can be given that the terms on the new borrowings under the Trust's Credit Facility will be the same as the current terms.
Trading And NAV Information
The following table shows, for the Trust's Shares for the periods indicated: (1) the high and low closing prices on the NYSE; (2) the NAV represented by each of the high and low closing prices; and (3) the discount or premium to NAV per Share (expressed as a percentage) represented by these closing prices. The table also sets forth the aggregate number of Shares traded on the NYSE during the respective quarter.
Premium/(Discount)
Price NAV To NAV Reported
Calendar Quarter Ended High Low High Low High Low NYSE Volume
March 31, 1994 $9.500 $9.000 $10.010$9.960 (5.10%)(9.64%) 15,317,700
June 30, 1994 9.875 9.375 10.050 9.980 (1.74) (6.06) 14,307,500
September 30, 1994 10.000 9.750 10.090 10.090 (0.89) (3.37) 11,814,700
December 31, 1994 9.875 9.000 10.090 10.060 (2.13) (10.53) 15,590,400
March 31, 1995 9.000 8.375 10.040 9.650 (10.36)(13.21) 24,778,200
June 30, 1995 9.250 8.750 9.650 9.620 (4.15) (9.04) 16,974,600
September 30, 1995 9.375 8.875 9.660 9.660 (2.95) (8.13) 15,325,900
December 31, 1995 9.500 9.000 9.630 9.620 (1.35) (6.45) 16,428,200
March 31, 1996 9.625 9.250 9.550 9.590 0.79 (3.55) 17,978,300
June 30, 1996 9.750 9.375 9.580 9.580 1.78 (2.14) 13,187,700
September 30, 1996 ____ ____ ____ ____ ____ ____ __________
|
The following chart shows, for the Trust's Shares for the period indicated:
(1) the closing price of the Shares on the NYSE; (2) the NAV of the Shares; and
(3) the discount or premium to NAV.
The following plot points replace a chart showing the premium and discount at which the Trust's shares have traded.
PREMIUM/DISCOUNT TABLE
Range 11/4/94 to 6/30/96
PPR US PILGRIM AMERICA PRIME RATE TRUST
DATE PRICE NAV % PREM 8/30/96 9.875 9.600 2.86 8/23/96 9.875 9.600 2.86 8/16/96 9.875 9.580 3.08 8/ 9/96 9.875 9.560 3.29 8/ 2/96 9.813 9.620 2.00 7/26/96 9.750 9.600 1.56 7/19/96 9.625 9.580 .47 7/12/96 9.625 9.570 .57 7/ 5/96 9.750 9.550 2.09 6/28/96 9.750 9.610 1.46 6/21/96 9.625 9.590 .36 6/14/96 9.750 9.570 1.88 6/ 7/96 9.625 9.560 .68 5/31/96 9.500 9.610 -1.14 5/24/96 9.625 9.590 .36 5/17/96 9.625 9.570 .57 5/10/96 9.500 9.560 -.63 5/ 3/96 9.625 9.600 .26 4/26/96 9.500 9.580 -.84 4/19/96 9.625 9.570 .57 4/12/96 9.625 9.550 .79 4/ 5/96 9.500 9.540 -.42 3/29/96 9.625 9.610 .16 3/22/96 9.375 9.590 -2.24 3/15/96 9.375 9.570 -2.04 3/ 8/96 9.375 n/a n/a 3/ 1/96 9.375 9.610 -2.45 2/23/96 9.500 9.610 -1.14 2/16/96 9.375 9.590 -2.24 2/ 9/96 9.375 9.580 -2.14 2/ 2/96 9.313 9.640 -3.40 1/26/96 9.375 9.620 -2.55 1/19/96 9.375 9.620 -2.55 1/12/96 9.375 9.600 -2.34 1/ 5/96 9.375 9.590 -2.24 |
12/29/95 9.250 9.580 -3.44 12/22/95 9.375 9.630 -2.65 12/15/95 9.375 9.630 -2.65 12/ 8/95 9.250 9.610 -3.75 12/ 1/95 9.125 9.670 -5.64 11/24/95 9.125 9.650 -5.44 11/17/95 9.250 9.620 -3.85 11/10/95 9.000 9.620 -6.44 11/ 3/95 9.125 9.670 -5.64 10/27/95 9.250 9.660 -4.24 10/20/95 9.250 9.640 -4.05 10/13/95 9.375 9.620 -2.55 10/ 6/95 9.375 9.610 -2.45 9/29/95 9.375 9.660 -2.95 9/22/95 9.250 9.640 -4.05 9/15/95 9.375 9.630 -2.65 9/ 8/95 9.250 9.610 -3.75 9/ 1/95 9.250 9.670 -4.34 8/25/95 9.250 9.640 -4.05 8/18/95 9.125 9.620 -5.15 8/11/95 9.000 9.610 -6.35 8/ 4/95 9.125 9.670 -5.64 7/28/95 9.000 9.650 -6.74 7/21/95 8.875 9.630 -7.84 7/14/95 9.000 9.620 -6.44 7/ 7/95 9.125 9.600 -4.95 6/30/95 9.125 9.650 -5.44 6/23/95 9.125 9.650 -5.44 6/16/95 9.000 9.630 -6.54 6/ 9/95 9.125 9.620 -5.15 6/ 2/95 9.000 9.670 -6.93 5/26/95 8.875 9.660 -8.13 5/19/95 9.000 9.640 -6.64 5/12/95 8.875 9.620 -7.74 5/ 5/95 8.875 9.600 -7.55 4/28/95 8.875 9.660 -8.13 4/21/95 8.875 9.640 -7.94 4/14/95 8.750 9.620 -9.04 4/ 7/95 8.750 9.610 -8.95 3/31/95 8.750 9.670 -9.51 3/24/95 8.750 9.650 -9.33 3/17/95 8.750 9.630 -9.14 3/10/95 8.750 9.610 -8.95 3/ 3/95 8.750 9.660 -9.42 2/24/95 8.625 9.650 -10.62 |
2/17/95 8.750 9.630 -9.14 2/10/95 8.750 9.610 -8.95 2/ 3/95 8.625 9.660 -10.71 1/27/95 8.500 10.090 -15.76 1/20/95 8.625 10.080 -14.43 1/13/95 8.750 10.060 -13.02 1/ 6/95 8.875 10.030 -11.52 12/30/94 9.125 10.030 -9.02 12/23/94 9.125 n/a n/a 12/16/94 9.250 10.060 -8.05 12/ 9/94 9.250 10.050 -7.96 12/ 2/94 9.750 10.010 -2.60 11/25/94 9.625 10.080 -4.51 11/18/94 9.875 10.070 -1.94 11/11/94 9.750 10.060 -3.08 11/ 4/94 9.688 10.050 -3.61 |
Source: BLOOMBERG Financial Markets.
Immediately prior to the Trust's announcement of the Offer on September 16,
1996 and on [Date of Prospectus or nearest business date], 1996, the last
reported sale price of a share of the Trust's Common Shares on the NYSE was
$____ and $____, respectively. The Trust's NAV on September 16, 1996 and on
[Date of Prospectus or nearest business date], 1996 was $_____ and $_____,
respectively. See "NAV" in the SAI. On [Date of announcement], 1996, the last
reported sale price of a share of the Trust's Common Shares on the NYSE ($____)
represented a ____% [premium above][discount to] NAV ($_____) as of that date.
On [Date of Prospectus or nearest business date], 1996, the last reported sale
price of a share of the Trust's Common Shares on the NYSE represented a [premium
above][discount to] NAV of ($_____) as of that date.
The Trust's shares have traded in the market above, at, and below NAV since March 9, 1992, when the Trust's shares were listed on the NYSE. The Trust cannot predict whether its shares will trade in the future at a premium or discount to NAV, and if so, the level of such premium or discount. Shares of closed-end investment companies frequently trade at a discount from NAV.
Investment Performance
Morningstar Ratings
For the three and five year periods ended August 31, 1996, the Trust had a five star and a four star Morningstar risk-adjusted performance rating, respectively, when rated among 92 and 63 taxable bond funds. The Trust's overall rating through August 31, 1996, is four stars. For the three-year period ended August 31, 1996, the Trust's risk score was among the top 1% of 30 Corporate Bond - General funds and the top 1% of the entire universe of 416 closed-end funds. For the five-year period ended August 31, 1996, the Trust's risk score was among the top 1% of 25 Corporate Bond - General funds and the top 1% of the entire universe of 230 closed-end funds.1
Lipper Rankings
According to Lipper Analytical Services, Inc. ("Lipper") (a company that calculates and publishes rankings of closed-end and open-end management investment companies), in the five-year period ended August 31, 1996, the Trust ranked in first place among all funds in the Loan Participation Category of Closed-End Funds, defined by Lipper to include closed-end management investment companies that invest in Senior Loans. Investors should note that past performance is no assurance of future results.
Periods ended Total Number of Funds August 31, 1996 Ranking(1) Return (1) in Category (2) One year 1 8.35% 7 Three years 1 27.55% 6 Five years 1 43.91% 5 |
(1) Ranking is based on total return. Total return is measured on the basis
of NAV at the beginning and end of each period, assuming the
reinvestment of all dividends and distributions, and reflects a
January 1995 rights offering.
(2) This category includes other closed-end investment companies that,
unlike the current practices of the Trust, offer their shares
continuously and have conducted periodic tender offers for their
shares. These practices may have affected the total return of these
companies.
1 Morningstar's taxable bond fund category includes Corporate Bond - General, Government Bond, International Bond and Multisector Bond funds. On Morningstar's risk-adjusted performance rating system, funds falling into the top 10% of all funds within their category are awarded five stars and funds in the next 22.5% receive four stars. Morningstar ratings are calculated from the fund's three, five and ten-year returns (with fee adjustment) in excess of 90-day Treasury bill returns, and a risk factor that reflects fund performance below 90-day Treasury bill returns. The ratings are subject to change every month. Morningstar ranks funds within the Corporate Bond - General category and the closed end universe for risk for the three, five and ten year periods based upon their downside volatility compared to a 90-day Treasury bill.
Comparative Performance
Presented below are distribution rates for the Trust. Also shown are distribution rates of a composite of other investment companies with comparable investment objectives and policies as those of the Trust. In addition, presented below are various benchmark indicators of interest and borrowing rates. The distribution rates for the Trust and the composite of other investment companies are calculated using actual distributions annualized for the preceding twelve months.
The following plot points replace a graph showing comparative yield of the Trust, the prime rate, the 3-month C.D. rate, the 1-month Federal funds rate, and a composite of comparable investment companies.
Lipper Pilgrim
Index of America 1-Month
Comparable Prime Rate Prime 3-Month Fed. Funds
Funds* Trust* Rate CD Rate Rate
Jan-91 9.51% 9.72% 9.96% 8.17% 8.10%
Feb-91 9.54% 9.68% 9.92% 8.07% 7.99%
Mar-91 9.48% 9.63% 9.83% 7.96% 7.82%
Apr-91 9.40% 9.50% 9.75% 7.79% 7.64%
May-91 9.32% 9.39% 9.67% 7.57% 7.45%
Jun-91 9.24% 9.21% 9.54% 7.38% 7.25%
Jul-91 9.02% 9.06% 9.42% 7.21% 7.05%
Aug-91 8.86% 8.91% 9.29% 7.05% 6.85%
Sep-91 8.65% 8.76% 9.17% 6.84% 6.65%
Oct-91 8.47% 8.56% 9.00% 6.62% 6.42%
Nov-91 8.26% 8.41% 8.83% 6.38% 6.18%
Dec-91 8.03% 8.20% 8.63% 6.11% 5.93%
Jan-92 7.77% 8.00% 8.38% 5.83% 5.89%
Feb-92 7.58% 7.78% 8.13% 5.59% 5.45%
Mar-92 7.37% 7.56% 7.92% 5.36% 5.27%
Apr-92 7.16% 7.42% 7.71% 5.19% 5.09%
May-92 6.98% 7.23% 7.50% 5.04% 4.91%
Jun-92 6.80% 7.10% 7.33% 4.87% 4.74%
Jul-92 6.70% 6.96% 7.17% 4.67% 4.56%
Aug-92 6.55% 6.81% 6.96% 4.47% 4.35%
Sep-92 6.37% 6.67% 6.75% 4.28% 4.15%
Oct-92 6.21% 6.57% 6.58% 4.08% 3.97%
Nov-92 6.05% 6.48% 6.42% 3.94% 3.79%
Dec-92 5.90% 6.38% 6.29% 3.84% 3.65%
Jan-93 5.84% 6.26% 6.25% 3.78% 3.52%
Feb-93 5.73% 6.19% 6.21% 3.70% 3.44%
Mar-93 5.70% 6.14% 6.17% 3.61% 3.35%
Apr-93 5.87% 6.08% 6.13% 3.51% 3.28%
May-93 5.69% 6.06% 6.08% 3.43% 3.21%
Jun-93 5.60% 6.05% 6.04% 3.36% 3.14%
Jul-93 5.51% 6.01% 6.00% 3.31% 3.08%
Aug-93 5.47% 5.99% 6.00% 3.28% 3.07%
Sep-93 5.45% 6.00% 6.00% 3.28% 3.05%
|
Oct-93 5.44% 5.97% 6.00% 3.27% 3.03% Nov-93 5.45% 5.89% 6.00% 3.25% 3.03% Dec-93 5.44% 5.91% 6.00% 3.20% 3.02% Jan-94 5.48% 5.93% 6.00% 3.19% 3.02% Feb-94 5.50% 5.95% 6.00% 3.19% 3.03% Mar-94 5.49% 5.97% 6.00% 3.24% 3.04% Apr-94 5.48% 6.01% 6.02% 3.29% 3.07% May-94 5.39% 6.06% 6.08% 3.39% 3.12% Jun-94 5.45% 6.15% 6.19% 3.51% 3.20% Jul-94 5.55% 6.25% 6.29% 3.64% 3.30% Aug-94 5.64% 6.37% 6.40% 3.77% 3.40% Sep-94 5.75% 6.47% 6.54% 3.92% 3.52% Oct-94 5.91% 6.60% 6.69% 4.10% 3.66% Nov-94 6.01% 6.73% 6.63% 4.30% 3.81% Dec-94 6.17% 6.66% 7.04% 4.53% 3.99% Jan-95 6.37% 7.07% 7.25% 4.76% 4.20% Feb-95 6.55% 7.28% 7.46% 5.02% 4.41% Mar-95 6.77% 7.48% 7.71% 5.23% 4.63% Apr-95 7.04% 7.70% 7.94% 5.43% 4.85% May-95 7.24% 7.91% 8.13% 5.59% 5.06% Jun-95 7.39% 8.09% 8.27% 5.70% 5.23% Jul-95 7.58% 8.25% 8.42% 5.81% 5.37% Aug-95 7.66% 8.40% 8.54% 5.89% 5.50% Sep-95 7.75% 8.54% 8.63% 5.97% 5.61% Oct-95 7.81% 8.66% 8.71% 6.00% 5.70% Nov-95 7.88% 8.76% 8.79% 6.02% 5.78% Dec-95 7.91% 8.87% 8.81% 5.99% 5.82% Jan-96 7.86% 8.89% 8.81% 5.91% 5.84% Feb-96 7.88% 8.91% 8.81% 5.83% 5.84% Mar-96 7.82% 8.89% 8.75% 5.75% 5.78% Apr-96 7.69% 8.83% 8.69% 5.69% 5.73% May-96 7.58% 8.76% 8.63% 5.62% 5.66% Jun-96 7.55% 8.71% 8.56% 5.58% 5.59% |
Jul-96 7.42% 8.66% 8.50% 5.54% 5.53%
Aug-96 7.37% 8.62% 8.46% 5.51% 5.49%
* Monthly distributions (income + capital gains distributions) divided by month end NAV, annualized.
(1) Historical yields for the Trust based on monthly dividends divided by
corresponding month-end NAV, annualized. The Trust's expenses were waived
from May 12, 1988 to February 28, 1989, and for the fiscal years ended
February 28, 1990, and February 29, 1992. The Trust is not insured nor
does it offer a fixed rate of return like certificates of deposit.
(2) The composite represents an unweighted average for investment companies
included in Lipper Analytical Services, Inc. Loan Participation category
of closed-end funds (for funds excluding the Trust in existence for the
entire period shown). Historical yields based on monthly dividends divided
by corresponding month-end NAV, annaulized. The closed-end investment
companies reflected in the composite, unlike the current practices of the
Trust, offer their shares continuously and have conducted periodic tender
offers for their shares. These practices may have affected the yield of
these companies.
(3) Source: BLOOMBERG Financial Markets.
(4) Source: BLOOMBERG Financial Markets.
(5) The Certificate of Deposit Rate represents the average annual rate
paid on large three-month certificates of deposit traded in the secondary
market. Source: BLOOMBERG Financial Markets.
Comparison Of Expense Ratios
The chart below depicts the annual total expense ratios of the Trust compared to the annual expense ratios of a composite of other investment companies with investment objectives and policies comparable to those of the Trust. The Trust has maintained a lower total expense ratio than the composite group throughout most of the 1990's.
The following plot points replace a chart showing the comparison of expense ratios.
1995 1994 1993 1992 1991 1990
PPR 1.30 1.31 1.42 1.42 1.38 1.46
Composite
Group* 1.48 1.60 1.56 1.51 1.47 1.32
|
(1) The composite represents an unweighted average for investment companies
included in Lipper Analytical Services, Inc. Loan Participation
category of closed-end funds (for funds excluding the Trust in existence
for the entire period shown).
(2) For the twelve month period ended February 29, 1996, the Trust's total
expense ratio was 1.23%. For more information on the Trust's expenses,
including the expenses of borrowing, see "Trust Expenses."
THE OFFER
Terms of the Offer
The Trust is issuing to Record Date Shareholders non-transferable Rights to subscribe for an aggregate of __________ Shares of the Trust. Each such Shareholder is being issued one non-transferable Right for each full Common Share owned on the Record Date. The Rights entitle the holder to acquire at the Subscription Price (as hereinafter defined) one Share for each five Rights held. Rights may be exercised at any time during the Subscription Period, which commences on _______________, 1996 and ends at 5:00 p.m. on __________, 1996. A Shareholder's right to acquire during the Subscription Period at the Subscription Price one additional Share for each five Rights held is hereinafter referred to as the "Primary Subscription." A Shareholder who exercises Rights pursuant to the Primary Subscription is hereinafter referred to as an "Exercising Shareholder." Fractional shares will not be issued upon the exercise of Rights. Shareholders who receive, and who are left with, a number of Rights which are not in a multiple of five will be unable to exercise such Rights and will not be entitled to receive any cash in lieu thereof. The Rights are non-transferable, and, therefore, may not be purchased or sold. Only the underlying Shares will be listed for trading on the NYSE or any other exchange.
Any Shareholder who fully exercises all Rights issued to him or her (other than those Rights which cannot be exercised because they represent the right to acquire less than one Share) is entitled to subscribe for additional Shares (the "Over-Subscription Privilege"). For purposes of determining the number of Shares a Shareholder may acquire pursuant to the Offer, broker-dealers, trust companies, banks or others whose Shares are held of record by Cede & Co. Inc. ("Cede"), nominee for The Depository Trust Company, or by any other depository or nominee will be deemed to be the holders of the Rights that are issued to Cede or such other depository or nominee on their behalf. Shares acquired pursuant to the Over-Subscription Privilege are subject to allotment or increase, as is more fully discussed under "The Offer -- Over-Subscription Privilege."
The Offer affords Record Date Shareholders the opportunity to purchase the Trust's Common Shares at a price that will be below the market price and NAV of the Shares at the Expiration Date. The Offer, however, will result in a decrease in the NAV per share of the Common Shares, thus adversely affecting all shareholders.
The Rights will be evidenced by Exercise Forms which will be mailed to Record Date Shareholders. Rights may be exercised by completing an Exercise Form and delivering it, together with payment (in the manner described below), either by means of (i) a check or money order or (ii) a Notice of Guaranteed Delivery to the Subscription Agent during the Subscription Period. The method by which Rights may be exercised and Shares paid for is set forth below in "Exercise of Rights" and "Payment for Shares."
Purpose of the Offer
As discussed below, the Board of Trustees of the Trust has determined that it is in the best interests of the Trust and its Shareholders to make the Offer for several reasons. The Board of Trustees considered the proposal for the Offer at several meetings, including a meeting at which the Independent Trustees met without management present to discuss the Offer. The Board, including all of the Independent Trustees, unanimously approved the Offer. Trust would be beneficial to the Trust and its Shareholders. However, there can be no assurance that the anticipated benefits discussed herein will occur as a result of increasing the assets of the Trust.
Improving Competitive Position Within the Market. PAII advised the Trustees that increasing the assets of the Trust is important to sustaining the Trust's ability to compete effectively with other lenders for Senior Loans. PAII informed the Trustees that it believes that to obtain optimal terms on Senior Loans and to have an opportunity to review the largest variety of Senior Loan opportunities, the asset base of the Trust should be increased. Recently, increased numbers of lending institutions have entered the Senior Loan market, and the asset size of other comparable Senior Loan funds have increased in relation to the size of the Trust. For information on Senior Loans and the Senior Loan market, see "General Information on Senior Loans."
PAII advised the Board that the lenders with the most assets to invest generally are offered a larger number of opportunities to invest in offerings of Senior Loans. Thus, there is a concern that if the Trust's assets are not increased, as assets of comparable funds continue to grow and as new institutional investors become active in the Senior Loan market, the competitive ability of the Trust to invest in Senior Loans on favorable terms may be harmed. With an increased asset base as a result of the Offer and an increased ability to leverage the Trust's portfolio, PAII believes the Trust would be offered the opportunity to invest in Senior Loans from a larger universe of potential offerings, which PAII believes would have the benefits described below.
Potential to Increase Income on Investments. As a result of a larger asset base and the resulting increased access to Senior Loan opportunities, it is expected that the Trust will have greater opportunities to enter into certain Senior Loans on relatively more favorable terms than are currently available to the Trust. PAII's experience has been that lenders who acquire a relatively larger portion of a Senior Loan are able to obtain a larger share of fees generated upon entering into Senior Loans ("arrangement fees"). In particular, PAII believes that acquisition of larger portions of Senior Loans will enhance the Trust's ability to act as co- agent, thereby generating greater income from the investment. Increased loan size and increased co-agent opportunities may increase the Trust's income per share. While there can be no assurance that these benefits will be achieved, PAII believes that larger net assets would improve the Trust's ability to attain proportionately larger income in changing markets.
Increasing Investment Size While Maintaining Portfolio Diversification. PAII believes that larger commitments are necessary to obtain Senior Loans on relatively attractive terms. The Trust, however, is a diversified investment company and therefore is limited in the percentage of its assets that can be invested in any one issuer. With respect to 75% of the Trust's total assets, no more than 5% of the value of its total assets may be invested in any one issuer. PAII expects that with a larger asset base, the Trust will have greater flexibility to make the commitments of the size necessary to be more competitive in attracting favorable Senior Loan opportunities without compromising the Trust's diversification or risking the Trust's qualification as a diversified investment company. In addition, with a larger asset base and increased access to Senior Loans, PAII should have greater flexibility in assessing credit risks.
Potential to Seek Opportunities in the Secondary Market to Generate Fees and Capital Gains. With an increased amount of assets, PAII believes that the Trust will be able to make larger commitments in Senior Loans. PAII believes that larger commitments may enhance opportunities to trade Senior Loans more easily in the secondary market. Enhanced access to the secondary market could benefit the Trust in several ways. First, the Trust may have greater flexibility to liquidate positions and
reallocate proceeds to new Senior Loans which offer additional arrangement fee opportunities. Second, increased access to the secondary market would provide the Trust with greater opportunity to seek gains from sales of the Senior Loan interests as well as give the Trust additional flexibility to sell Senior Loans to seek to avoid losses.
Potential Reduction in Operating Costs Per Share. The Trustees were advised by PAII that the Trust could potentially achieve additional economies of scale as a result of an increase in total assets. In particular, the Trustees believe that a well-subscribed Offer would tend to reduce the Trust's expenses as a proportion of average net assets per share. There can be no assurance, however, that such a reduction will occur as a result of increasing the asset size of the Trust.
Opportunity to Purchase Below NAV. In addition, the Trustees have concluded that the Offer affords existing Shareholders the opportunity to purchase additional shares of the Trust at a price that will be below market value and NAV at the Expiration Date. However, Shareholders who do not fully exercise their Rights will own, upon completion of the Offer, a smaller proportional interest in the Trust than they owned prior to the Offer. The Board of Trustees took this into account by adopting the subscription price formula applicable to the Offer and selecting a Rights ratio by which dilution could be minimized.
Special Considerations. The Trustees noted that PAII and its parent company, PAGI, will benefit from the Offer because their respective fees for investment management and administrative services are based on the net assets of the Trust, plus the proceeds of any outstanding borrowings. It is not possible to state precisely the amount of additional compensation PAII and PAGI will receive as a result of the Offer because it is not known how many Shares will be subscribed, and because the proceeds of the Offer will be invested in additional portfolio securities that may fluctuate in value. In addition, the amount of proceeds from outstanding borrowings will fluctuate. However, in the event that all the Rights are exercised in full based on the Estimated Subscription Price of $_____ per share, PAII and PAGI would receive additional fees for investment management and administrative services of approximately $_________ and $_________, respectively, per annum as a result of the increase in assets under management. In addition, in the event that all Rights are exercised in full based upon the Assumed Subscription Price of $________ per share, and the Trust were to borrow an additional $_______, PAII and PAGI would receive additional fees for investment management and administrative services of approximately $________ and $________, respectively, per annum as a result of the increase in assets attributed to such borrowed amounts. PAII has undertaken to reduce from 0.65% per year to 0.60% per year the portion of its management fee related to average daily net assets, plus the proceeds of any outstanding borrowings, on that portion of the Trust's assets over $1.15 billion, effective upon the Final Payment Date for a minimum of three years from the Expiration Date. PAII's affiliate, Pilgrim America Securities, Inc. ("PASI"), will also benefit from the Offer because it expects to serve as a soliciting dealer, for which it will receive a reallowance fee for each Share issued pursuant to the Offer for which a Shareholder designates PASI as broker-dealer. (See "Distribution Arrangements.") In addition, certain Officers and Trustees of the Trust owning Shares in the Trust have indicated that they will exercise the Rights issued to them in the Offer and will purchase the Trust's Shares in the Primary Subscription. Those Officers and Trustees may elect to purchase additional amounts of the Trust's Shares in the Over- Subscription Privilege; such election will disproportionately increase their already existing ownership, resulting in a higher percentage of ownership of the Trust's outstanding Common Shares.
The Trust held one prior rights offering in 1995. At that time, the Trust had a different investment manager and portfolio manager and a substantially different Board of Trustees. Further, the primary market for Senior Loans was undergoing an expansion. See "General Information on Senior Loans --- Market Overview." For these and other reasons, it is difficult for the Trust to assess the results of the prior rights offering. The stated purposes of the 1995 offering included increasing the assets of the
Trust to enable the Trust to purchase larger portions of Senior Loans and thereby obtain greater income from investments and to allow the Trust to assume a larger role in the market for Senior Loans. The rights offering prospectus also stated that the offering was expected to decrease expenses of the Trust's Shareholders because of economies of scale.
It is difficult to assess the impact of the prior rights offering on the Trust's income. The spread between the yield distributed to the Trust's Shareholders (as a percentage of NAV) and the prime rate increased as a result of the 1995 rights offering. From January 1, 1994 to the expiration date of the prior offer on January 31, 1995, the average spread was -0.181%. In the period following the offering, (February 1995 to August 1996), the spread averaged 0.121%. While there was no sustained impact on the average size of the Senior Loans in the Trust's portfolio and the percentage of fee income to total income has not increased, the Trust generally has achieved a distribution rate that equals or exceeds the prime rate and has increased its yield advantage over that of a composite of funds in its peer group. See "Investment Performance."
The Trust achieved economies of scale as a result of the 1995 rights offering. The Trust's expense ratio for the year ended February 29, 1996 and the six-month period ended August 31, 1996 was 1.23% and _____%, respectively, compared with expense ratios of 1.30%, 1.31%, and 1.42% for the fiscal years ended February 28, 1995, 1994, and 1993, respectively. Expenses after the last rights offering, however, are not indicative of what expenses will be after the current rights offering.
The current Offer differs significantly in several respects from the prior rights offering, so that it is difficult to assess the precedential value of the distribution expenses of the prior offering. The rights in the prior offering were transferrable while the Rights issued pursuant to the current Offer are non-transferable. In the prior rights offering, one share was issued for each three rights held, whereas the present Offer grants one share for each five rights held. At the time of the announcement of the 1995 rights offering, the Trust's shares were trading at a discount to NAV. For several months, prior to the announcement of the present Offer, shares have been trading at a premium to NAV. See "Financial Highlights and Investment Performance--Trading and NAV Information." In the prior rights offering, shares were offered at 95% of the lesser of (i) the Trust's NAV per share at the close of business on the date the offer expired and (ii) the average of the closing prices of the Trust's shares on the date the offer expired and the preceding four trading dates. The subscription price in the current offer is 97.5% as of comparable dates. The dilution was 4.4% in the 1995 rights offering. The extent of dilution depends upon the amount, if any, by which the Subscription Price represents a discount to NAV on the date new Shares are issued.
The Trust may, in the future and at its discretion, choose to make additional offerings of its Common Shares from time to time for a number of Shares and on terms which may or may not be similar to this Offer. Any such future offering will be made in accordance with the Investment Company Act.
Over-Subscription Privilege
If some Shareholders do not exercise all of the Rights initially issued to them in the Primary Subscription, any Shares for which subscriptions have not been received from Shareholders will be offered by means of the Over-Subscription Privilege to the Exercising Shareholders. Exercising Shareholders who exercise on Primary Subscription all of the Rights initially issued to them will be asked to indicate on the Exercise Form (at the time they submit the Exercise Form with respect to the Rights issued to them) how many Shares they would like to purchase pursuant to the Over-Subscription Privilege. See "Exercise of
Rights" for a description of the exercise of the Over-Subscription Privilege through the use of DTC Participant Over-Subscription Forms. If sufficient Shares remain as a result of unexercised Rights, all over-subscriptions will be honored in full.
The Trust may, at its discretion, issue up to an additional 25% of the Shares to honor over- subscriptions, if sufficient Shares are not available from the Primary Subscription to honor all over-subscriptions. To the extent the Trust determines not to issue additional Shares to honor all over-subscriptions, the available Shares will be allocated among those who over-subscribe based on the number of Rights originally issued to them, so that the number of Shares issued to Exercising Shareholders who subscribe pursuant to the Over- Subscription Privilege will generally be in proportion to the number of Shares held by them on the Record Date.
The percentage of remaining Shares each over-subscribing Exercising Shareholder may acquire will be rounded down to result in delivery of whole Shares. The allocation process may involve a series of allocations to assure that the total number of Shares available for over-subscriptions is distributed on a pro rata basis. The Trust will provide interested Exercising Shareholders who so request with an accounting of how the Over-Subscription Privilege allocation was determined.
Nominee holders of Rights will be required to certify to the Subscription Agent, before any Over- Subscription privilege may be exercised as to any particular beneficial owner, as to the aggregate number of Rights exercised pursuant to the Primary Subscription and the number of Shares subscribed for pursuant to the Over-Subscription Privilege by such beneficial owner and that such beneficial owner's Primary Subscription was exercised in full.
The Subscription Price
The Subscription Price per Share will be 97.5% of the lower of (a) the average of the last reported sales price per share of the Trust's Common Shares on the NYSE on _________, 1996 (the "Pricing Date") and the four preceding business days or (b) the NAV per share as of the Pricing Date. Since the Expiration Date and the Pricing Date are each _________, 1996, Shareholders who choose to exercise their Rights will not know at the time of exercise the Subscription Price for Shares acquired pursuant to such exercise.
The Trust announced the Offer on September 16, 1996. The NAV per share of Common Shares at the close of business on September 16, 1996 (the date on which the Trust announced the Offer) and on [Date of Prospectus or nearest business date] _____________, 1996 was $_____ and $_____, respectively, and the average of the closing sale prices of a share of the Trust's Common Shares on the NYSE for such dates and the four trading dates immediately preceding those dates was $_____ and $_____, respectively. See "NAV" in the SAI. There is no minimum number of Rights which must be exercised in order for the Offer to close.
Expiration of the Offer
The Offer will expire at 5:00 p.m., on __________, 1996. Rights will expire on the Expiration Date and thereafter may not be exercised.
Any extension, termination, or amendment will be followed as promptly as practical by announcement thereof, such announcement in the case of an extension to be issued no later than 9:00 a.m., on the next business day following the previously scheduled Expiration Date. The Trust will not, unless otherwise obligated by law, have any obligation to publish, advertise, or otherwise communicate any such announcement other than by making a release to the Dow Jones News Service or such other means of announcement as the Trust deems appropriate.
Subscription Agent
The Subscription Agent is State Street Bank and Trust Company, P.O. Box 9061, Boston, Massachusetts 02205 ("State Street"), which will perform administrative, processing, invoice, and other services in connection with the Offer. Signed Exercise Forms should be sent to the Subscription Agent, by one of the methods described below. Shareholders may also subscribe for the Offer by contacting their brokers and nominees. The Trust reserves the right to accept Exercise Forms actually received on a timely basis at any of the addresses listed.
State Street will receive a fee for its services as Subscription Agent, estimated to be $______, including reimbursement for all out-of-pocket expenses related to the Offer. A subsidiary of State Street, Investors Fiduciary Trust Company ("IFTC"), serves as the Trust's transfer agent, dividend paying agent, registrar, custodian, and recordkeeper.
Exercise Form Delivery Address/Number
Method
By Mail Pilgrim America Prime Rate Trust
c/o State Street Bank and Trust Company
P.O. Box 9061
Boston, MA 02205
By Hand to New York Pilgrim America Prime Rate Trust
Delivery Window c/o Banc Boston Trust Company
of New York
55 Broadway, 3rd Floor
New York, NY 10006
By Express Mail or Pilgrim America Prime Rate Trust
Overnight Courier c/o Boston EquiServe
150 Royall Street
Mail Stop #45-02-53
Canton, MA 02021
By Notice of Guaranteed Contact your broker-dealer, trust company, bank,
Delivery or other nominee to notify the Trust of your
intent to exercise the Rights.
|
Information Agent
Any questions or requests for assistance may be directed to the Information Agent at its telephone number and address listed below:
The Information Agent for the Offer is:
Shareholder Communications Corporation
17 State Street - 27th and 28th Floors
New York, New York 10004
Toll Free: (800) 733-8481, Extension ________
Shareholders may also contact Pilgrim America Securities, Inc., toll free telephone 1-800-331-1080, or their brokers or nominees for information with respect to the Offer.
The Information Agent will receive a fee estimated to be $______ and will be reimbursed for all out-of-pocket expenses related to the Offer.
Exercise of Rights
Rights may be exercised by completing and signing the reverse side of the Exercise Form which accompanies this Prospectus and mailing it in the envelope provided, or otherwise delivering the completed and signed Exercise Form to the Subscription Agent, together with payment for the Shares as described below under "Payment for Shares." Completed Exercise Forms and related payments must be received by the Subscription Agent prior to 5:00 p.m. on or before the Expiration Date (unless payment is effected by means of a Notice of Guaranteed Delivery as described below under "Payment for Shares") at the offices of the Subscription Agent at the address set forth above. Rights may also be exercised through an Exercising Shareholder's broker, who may charge such Exercising Shareholder a servicing fee.
Record Date Shareholders who are issued fewer than five Rights or Exercising Shareholders who hold fewer than five Rights or who, upon exercising their Rights, are left with fewer than five Rights will not be able to exercise such Rights to purchase a Share or one additional Share, respectively, as described under "The Offer--Terms of the Offer" and "Over-Subscription." In addition, Record Date Shareholders who are issued fewer than five Rights or for whom there is not a current address ("stop mail" accounts) will not be mailed the Offering Prospectus or other subscription materials.
Exercising Shareholders Who Are Record Owners. Exercising Shareholders who are owners of record may choose between either option set forth under "Payment for Shares" below. If time is of the essence, option (2) will permit delivery of the Exercise Form and payment after the Expiration Date.
Investors Whose Shares are Held By A Nominee. Exercising Shareholders whose shares are held by a nominee such as a broker or trustee must contact the nominee to exercise their Rights. In that case, the nominee will complete the Exercise Form on behalf of the Exercising Shareholder and arrange for proper payment by one of the methods set forth under "Payment for Shares" below.
Nominees. Nominees who hold Shares for the account of others should notify the respective beneficial owners of such Shares as soon as possible to ascertain such beneficial owners' intentions and to obtain instructions with respect to exercising the Rights. If the beneficial owner so instructs, the nominee
should complete the Exercise Form and submit it to the Subscription Agent with the proper payment described under "Payment for Shares" below.
All questions as to the validity, form, eligibility (including times of receipt and matters pertaining to beneficial ownership) and the acceptance of subscription forms and the Subscription Price will be determined by the Trust, which determinations will be final and binding. No alternative, conditional or contingent subscriptions will be accepted. The Trust reserves the absolute right to reject any or all subscriptions not properly submitted or the acceptance of which would, in the opinion of the Trust's counsel, be unlawful. The Trust also reserves the right to waive any irregularities or conditions, and the Trust's interpretations of the terms and conditions of the Offer shall be final and binding. Any irregularities in connection with subscriptions must be cured within such time as the Trust shall determine unless waived. Neither the Trust nor the Subscription Agent shall be under any duty to give notification of defects in such subscriptions or incur any liability for failure to give such notification. Subscriptions will not be deemed to have been made until such irregularities have been cured or waived.
Payment for Shares
Exercising Shareholders may exercise their Rights and pay for Shares subscribed for pursuant to the Primary Subscription and Over-Subscription Privilege in one of the following ways:
(1) Deliver Exercise Form and Payment to the Subscription Agent by the Expiration Date:
Exercising Shareholders may deliver to the Subscription Agent at
any of the offices set forth above (1) a complete and executed
Exercise Form indicating the number of Rights they have been issued
and the number of Shares they are acquiring pursuant to the Primary
Subscription, as well as the number of any additional Shares they
would like to subscribe for under the Over-Subscription Privilege and
(2) payment for all such ordered Shares based on the Estimated
Subscription Price of $__________ per Share, both no later than 5:00
p.m. on the Expiration Date.
The Subscription Agent will deposit all checks received by it for the purchase of Shares into a segregated interest bearing account of the Trust (the interest from which will belong to the Trust) pending proration and distribution of Shares.
A PAYMENT PURSUANT TO THIS METHOD (1) MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES, (2) MUST BE PAYABLE TO "PILGRIM AMERICA PRIME RATE TRUST" AND (3) MUST ACCOMPANY AN EXECUTED EXERCISE FORM FOR SUCH SUBSCRIPTION TO BE ACCEPTED. THIRD (OR MULTIPLE) PARTY CHECKS WILL NOT BE ACCEPTED.
(2) Deliver Notice of Guaranteed Delivery by Expiration Date and Deliver Payment together with the Exercise Form by _________________, 1996:
Exercising Shareholders may (1) request a NYSE member or bank or trust company to execute a Notice of Guaranteed Delivery and deliver it, by facsimile or otherwise, to the Subscription Agent by 5:00 p.m. on the Expiration Date (1) indicating (i) the number of Rights they wish to exercise, the number of Primary Subscription Shares
they wish to acquire, and the number of Over-Subscription Privilege Shares for which they wish to subscribe and (ii) guaranteeing delivery of payment and a completed Exercise Form from such Exercising Shareholder by ____________, 1996 and (2) deliver to the Subscription Agent by _________________, 1996 a complete and executed Exercise Form confirming the number of Rights they have been issued and the Shares they have ordered, together with payment for such Shares at the Estimated Subscription Price. The Subscription Agent will not honor a Notice of Guaranteed Delivery unless the completed Exercise Form and full payment are received by ______________, 1996.
On _____________, 1996 (the "Confirmation Date"), the Subscription Agent
will send a confirmation to each Exercising Shareholder (or, if the Shares are
held by a depository or other nominee, to such depository or other nominee),
showing (i) the number of Shares acquired pursuant to the Primary Subscription,
(ii) the number of Shares, if any, acquired pursuant to the Over-Subscription
Privilege, (iii) the per Share and total purchase price for the Shares, and (iv)
any additional amount payable by such Exercising Shareholder to the Trust or any
excess to be refunded by the Trust to such Exercising Shareholder in each case
based upon the final Subscription Price. Any additional payment required from an
Exercising Shareholder must be received by the Subscription Agent within _______
business days after the Confirmation Date (the "Final Payment Date"). Any excess
payment to be refunded by the Trust to an Exercising Shareholder will be mailed
by the Subscription Agent to the holder as promptly as practicable after the
Final Payment Date.
Issuance and delivery of certificates for the Shares purchased are subject to actual collection of checks and actual payment pursuant to any Notice of Guaranteed Delivery.
If an Exercising Shareholder does not make payment of any additional amounts due, the Trust reserves the right to take any or all of the following actions: (i) apply any payment received by it toward the purchase of the greatest whole number of Shares which could be acquired by such Exercising Shareholder upon exercise of the Primary Subscription and/or Over-Subscription Privilege based on the amount of such payment; (ii) allocate the Shares subject to subscription rights to one or more other Shareholders; (iii) sell all or a portion of the Shares deliverable upon exercise of subscription rights on the open market and applying the proceeds thereof to the amount owed; and/or (iv) exercise any and all other rights or remedies to which it may be entitled, including, without limitation, the right to set-off against payments actually received by it with respect to such subscribed Shares.
An Exercising Shareholder will have no right to cancel the exercise of Rights or rescind a purchase after the Subscription Agent has received payment, either by means of a Notice of Guaranteed Delivery or a check or money order, except as described under "The Offer--Notice of NAV Decline."
The risk of delivery of subscription forms and payments to the Subscription Agent will be borne by the Exercising Shareholder and not the Trust, the Dealer Managers, the Subscription Agent, the Information Agent or broker-dealers designated by the Dealer Managers. If the mail is used to exercise Rights, insured registered mail is recommended.
Notice of NAV Decline
The Trust will suspend the Offer until it amends this Prospectus if, subsequent to the effective date of this Prospectus, the Trust's NAV declines more than 10% from its NAV as of that date. In such event, the Trust will notify Shareholders of any such decline and thereby permit them to cancel their exercise of their Rights.
Delivery of Stock Certificates
Participants in the Trust's Dividend Reinvestment and Cash Purchase Plan (the "Dividend Reinvestment Plan") will have any Shares that they acquire pursuant to the Offer credited to their shareholder dividend reinvestment accounts in the Dividend Reinvestment Plan. Shareholders whose Shares are held of record by Cede or by any other depository or nominee on their behalf or their broker-dealers' behalf will have any Shares that they acquire pursuant to the Offer credited to the account of Cede or such other depository or nominee. With respect to all other Shareholders, stock certificates for all Shares acquired pursuant to the Offer will be mailed after payment for all the Shares subscribed for has cleared, which clearance may take up to fifteen days from the date of receipt of the payment. It is expected that Shares purchased pursuant to the Offer will be issued after the record date for the monthly dividend declared in __________, and accordingly, the Trust will not pay such monthly dividend with respect to such Shares.
Employee Plan Considerations
Shareholders that are employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (including corporate savings and 401(k) plans), profit sharing/retirement plans for corporations and self-employed individuals and Individual Retirement Accounts (collectively, "Plans") should be aware that additional contributions of cash to the Plan (other than rollover contributions or trustee-to-trustee transfers from other Plans) in order to exercise Rights would be treated as Plan contributions and therefore, when taken together with contributions previously made, may be treated as excess or nondeductible contributions subject to excise taxes. In the case of Plans qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), additional cash contributions could cause violations of the maximum contribution limitations of Section 415 of the Code or other qualification rules. Plans in which contributions are so limited should consider whether there is an additional source of funds available within the Plan, including the liquidation of assets, with which to exercise the Rights. Because the rules governing plans are extensive and complex, Plans contemplating the exercise of Rights should consult with their counsel prior to such exercise.
Plans and other tax exempt entities, including governmental plans, should also be aware that if they borrow in order to finance their exercise of Rights, they may become subject to the tax on unrelated business taxable income ("UBTI") under Section 511 of the Code. If any portion of an Individual
Retirement Account ("IRA") is used as security for a loan, the portion so used is treated as a distribution to the IRA depositor.
ERISA contains fiduciary responsibility requirements, and ERISA and the Code contain prohibited transactions rules that may impact the exercise of Rights. Due to the complexity of these rules and the penalties for noncompliance, Plans should consult with their counsel regarding the consequences of their exercise of Rights under ERISA and the Code.
Certain Federal Income Tax Consequences of the Offer
The following discussion summarizes the principal federal income tax consequences of the Offer to Record Date Shareholders and Exercising Shareholders. It is based upon the Code, U.S. Treasury regulations, Internal Revenue Service rulings and policies and judicial decisions in effect on the date of this Prospectus. This discussion does not address all federal income tax aspects of the Offer that may be relevant to a particular Shareholder in light of his individual circumstances or to Shareholders subject to special treatment under the Code (such as insurance companies, financial institutions, tax-exempt entities, dealers in securities, foreign corporations, and persons who are not citizens or residents of the United States), and it does not address any state, local or foreign tax consequences. Accordingly, each Shareholder should consult his own tax advisor as to the specific tax consequences of the Offer to him. Each Shareholder should also review the discussion of certain tax considerations affecting the Trust and its shareholders set forth under "Tax Matters" below.
For federal income tax purposes, neither the receipt nor the exercise of the Rights by Record Date Shareholders will result in taxable income to those Shareholders, and no loss will be realized if the Rights expire without exercise.
A Record Date Shareholder's holding period for a Share acquired upon exercise of a Right begins with the date of exercise. A Record Date Shareholder's basis for determining gain or loss upon the sale of a Share acquired upon the exercise of a Right will be equal to the sum of the Shareholder's basis in the Right, if any, and the Subscription Price per Share. The Shareholder's basis in the Right will be zero unless either (i) the fair market value of the Right on the date of distribution is 15% or more of the fair market value on such date of the Shares with respect to which the Right was distributed, or (ii) the Shareholder elects, in its federal income tax return for the taxable year in which the Right is received, to allocate part of the basis of such Shares to the Right. If either of clauses (i) and (ii) is applicable, then if the Right is exercised, the Shareholder will allocate its basis in the Shares with respect to which the Right was distributed between such Shares and the Right in proportion to the fair market values of each on the date of distribution. A Shareholder's gain or loss recognized upon a sale of a Share acquired upon the exercise of a Right will be capital gain or loss (assuming the Share was held as a capital asset at the time of sale) and will be long-term capital gain or loss if the Share was held at the time of sale for more than one year.
The foregoing is only a summary of the applicable federal income tax laws presently in effect and does not include any state or local tax consequences of the Offer. Shareholders should consult their own tax advisers concerning the tax consequences of this transaction.
USE OF PROCEEDS
If [ ] Shares are sold at the Estimated Subscription Price of $[ ] per Share, the net proceeds of the Offer are estimated to be approximately $[ ], after deducting commissions and expenses payable
by the Trust estimated at approximately $[ ]. If the Trust in its sole discretion increases the number of shares subject to the Offer by 25% in order to satisfy over-subscriptions, the additional net proceeds will be approximately $[ ]. The net proceeds will be invested in Senior Loans and other securities consistent with the Trust's investment objective and policies. Initially, it is expected that the proceeds will be used to pay down the Trust's outstanding borrowings under its Credit Facility as quickly as possible. See "Financial Highlights and Investment Performance -- Policy on Borrowing." As of August 31, 1996, $197,000,000 was outstanding. By paying down the Trust's outstanding borrowings, it will be possible to invest the proceeds of the Offer consistent with the Trust's investment objective and policies almost immediately. For this and other reasons, PAII has advised the Trust's Board of Trustees that it believes that the Trust's monthly dividend will not be reduced as a result of the Offer. There can be no assurance as to this result, and the Trust's dividend may be affected by factors other than the Offer.
After the Offer, the Trust intends to increase the Credit Facility in proportion to the increase in the Trust's net assets as a result of the Offer and to use the expanded Credit Facility for investment. As investment opportunities are identified, it is expected that the Trust will redeploy its available credit to increase its investments in additional Senior Loans. It is expected that the additional borrowing under the Credit Facility will be redeployed within three months of receipt of the proceeds from the Offer, although it may take longer.
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is to provide as high a level of current income as is consistent with the preservation of capital. The Trust seeks to achieve its objective primarily by investing in interests in variable or floating rate Senior Loans, which are fully collateralized by the assets of a domestic corporation or a corporation headquartered in Canada or U.S. territories and possessions. The Trust only invests in Senior Loans that have interest rates that float periodically based upon a benchmark indicator of prevailing interest rates, such as the prime rate or LIBOR. Under normal circumstances, at least 80% of the Trust's net assets is invested in Senior Loans.
The Trust will only purchase interests in Senior Loans that, at the time of acquisition, are fully collateralized and where the market value of the collateral securing the Senior Loans, in the opinion of the Investment Manager, equals or exceeds the principal amount of the Senior Loan. There is no assurance that the collateral could be readily liquidated. The Trust also will only purchase interests in Senior Loans of corporate borrowers which PAII believes can meet the debt service requirements from cash flow. In addition, the Trust invests only in loans that occupy a senior position in the capital structure of the borrowing company, so that they are characterized by liens that, subject to bankruptcy law, generally entitle the lender to priority rights to cash flows or proceeds from collateral if the borrower becomes insolvent. Senior Loans vary in yield according to their terms and conditions, how often they pay interest, and when rates are reset.
The Trust may only invest in Senior Loans made to domestic corporations or in U.S. dollar- denominated Senior Loans made to corporations headquartered in Canada or U.S. territories and possessions. The Trust does not invest in Senior Loans whose interest rates are tied to non-domestic interest rates other than LIBOR.
Subject to certain limitations, the Trust may acquire Senior Loans of corporate borrowers engaged in any industry. With no more than 25% of its total assets, the Trust may acquire Senior Loans that are unrestricted as to the percentage of a single issue the Trust may hold and, with respect to at least 75% of its total assets, the Trust will hold no more than 25% of the amount borrowed from all lenders in a single Senior Loan or other issue. The Trust may not always achieve its objective but will follow these investment standards at all times because they are fundamental and may not be changed without approval by Shareholders.
Investors should recognize that, because of the issues involved in securities investments in any market, there can be no assurance that the investment objective of the Trust will be realized. Moreover, the value of the Trust's assets may be affected by other uncertainties such as economic developments affecting the market for Senior Loans or affecting corporate borrowers generally. For additional information on Senior Loans, see "General Information on Senior Loans -- About Senior Loans."
Portfolio Maturity
Although the Trust has no restrictions on portfolio maturity, normally at least 80% of the net assets invested in Senior Loans are composed of Senior Loans with maturities of one to ten years with rates of interest which typically reset either daily, monthly, or quarterly. The maximum period of time of interest rate reset on any Senior Loans in which the Trust may invest is one year. In addition, the Trust will ordinarily maintain a dollar-weighted average time to next interest rate adjustment on its Senior Loans of 90 days or less.
In the event of a change in the benchmark interest rate on a Senior Loan, the rate payable to lenders under the Senior Loan will, in turn, change at the next scheduled reset date. If the benchmark rate goes up, the Trust as lender would earn interest at a higher rate, but only on and after the reset date. If the benchmark rate goes down, the Trust as lender would earn interest at a lower rate, but only on and after the reset date.
Credit Analysis
In acquiring a Senior Loan, PAII considers the following factors: positive coverage of debt service; adequate working capital; appropriate capital structure; leverage ratio consistent with industry norms; historical experience of attaining business and financial projections; the quality and experience of management; and adequate collateral coverage. The Trust does not impose any minimum standard regarding the rating of any outstanding debt securities of corporate borrowers.
PAII performs its own independent credit analysis of the corporate borrower. In so doing, PAII may utilize information and credit analyses from the agents that originate or administer loans, other lenders investing in a Senior Loan, and other sources. These analyses will continue on a periodic basis for any Senior Loan purchased by the Trust. See "Risk Factors and Special Considerations -- Credit Risks and Realization of Investment Objective."
Other Investments
Assets not invested in Senior Loans will generally consist of short-term debt instruments with remaining maturities of 120 days or less (which may have yields tied to the prime rate, commercial paper rates, federal funds rate or LIBOR), and other instruments, including longer term debt securities, lease participation interests, equity securities acquired in connection with a workout on a Senior Loan, and other instruments as described under "Additional Information About Investments and Investment Techniques" in the SAI. Short-term instruments may include (i) commercial paper rated A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc., or of comparable quality as determined by PAII, (ii) certificates of deposit and bankers' acceptances, and (iii) securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. During periods when, in the opinion of PAII, a temporary defensive posture in the market is appropriate, the Trust may hold up to 100% of its assets in cash, or in the instruments described above.
Use of Leverage
The Trust is permitted to borrow up to 33 1/3%, or such other percentage permitted by law, of its total assets (including the amount borrowed) less all liabilities other than borrowings.
The Trust has entered into a revolving credit agreement with a syndicate of banks pursuant to which the Trust may borrow any amount up to $285 million. Borrowing may be made for the purpose of acquiring additional income-producing investments when the Investment Manager believes that such use of
borrowed proceeds will enhance the Trust's net yield. The amount of outstanding borrowings may vary with prevailing market or economic conditions. The Trust also may borrow money to pay expenses or for temporary or emergency purposes. In addition, although the Trust has not conducted a tender offer since 1992, in the event that it determines to again conduct a tender offer, the Trust may use borrowings to finance the purchase of its shares. For information on risks associated with borrowing, see "Risk Factors and Special Considerations -- Borrowing and Leverage.
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following summarizes certain risks that should be considered, among others, in connection with the Offer and an investment in the Trust.
This Prospectus includes certain statements that may be deemed to be "forward-looking statements." All statements, other than statements of historical facts, included in this Prospectus that address activities, events or developments that the Trust or PAII, as the case may be, expects, believes or anticipates will or may occur in the future, including such matters as the use of proceeds of this Offer, investment strategies, results of the Offer, and other such matters could be considered forward-looking statements. These statements are based on certain assumptions and analyses made by the Trust or PAII, as the case may be, in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, including the risk factors discussed below, general economic and business conditions, the investment opportunities (or lack thereof) that may be presented to and pursued by the Trust, changes in laws or regulations and other factors, many of which are beyond the control of the Trust. Prospective investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those described in the forward-looking statements.
Dilution. Record Date Shareholders who do not fully exercise their Rights will experience as a result of the Offer: dilution of NAV per Share; dilution of a proportionate ownership interest in the Trust; and dilution of voting power. In addition, the Offer will result in an immediate dilution per Share for all existing Shareholders. Although it is not possible to state precisely the dollar amount of a decrease in NAV per share, because it is not known at this time what the Subscription Price and the NAV per share on the Pricing Date will be, the dilution resulting from the Offer could be substantial. For example, assuming that all Shares offered hereby are purchased in the Offer at the Estimated Subscription Price of $____ (97.5% of the lower of (a) the average of the last reported sales price per share, of the Trust's common shares last reported on the NYSE on ___________, 1996 and the four trading days immediately preceding such date or (b) the Trust's NAV on __________, 1996), the Trust's NAV per share would be reduced by approximately $____ per share as of that date.
Discount From NAV. The Trust's shares have traded in the market above, at, and below NAV since March 9, 1992, when the Trust's shares were listed on the NYSE. The reasons for the Trust's shares trading at a premium or discount to NAV are not known to the Trust, nor can the Trust predict whether its shares will trade in the future at a premium or discount to NAV, and if so, the level of such premium or discount. Shares of closed-end investment companies frequently trade at a discount from NAV. The
possibility that Shares of the Trust will trade at a discount from NAV is a risk separate and distinct from the risk that the Trust's NAV would decrease. See "Description of the Common Shares--Status of Shares."
Credit Risks and Realization of Investment Objective. While all investments involve some amount of risk, Senior Loans generally involve less risk than equity instruments of the same issuer because the payment of principal and interest on debt instruments is a contractual obligation of the issuer that takes precedence over the payment of dividends, or the return of capital, to the issuer's shareholders. Senior Loans are subject to the risk of nonpayment of scheduled interest or principal payments. In the event of a failure to pay scheduled interest or principal payments on Senior Loans held by the Trust, the Trust could experience a reduction in its income, and would experience a decline in the market value of the particular Senior Loan so affected, and may experience a decline in the NAV of Trust Shares or the amount of its dividends. Further, there is no assurance that the liquidation of the collateral underlying a Senior Loan would satisfy the issuer's obligation to the Trust in the event of non-payment of scheduled interest or principal, or that collateral could be readily liquidated. The risk of non-payment of interest and principal also applies to other debt instruments in which the Trust may invest. As of August 31, 1996 approximately 2.50% of the Trust's net assets consisted of non-performing Senior Loans.
Investment decisions will be based largely on the credit analysis performed by the Investment Manager's investment personnel, and such analysis may be difficult to perform for many issuers. Information about interests in Senior Loans generally will not be in the public domain, and interests are generally not currently rated by any nationally recognized rating service. Many issuers have not issued securities to the public and are not subject to reporting requirements under federal securities laws. Generally, issuers are required to provide financial information to lenders including the Trust, and information may be available from other Senior Loan participants or agents that originate or administer Senior Loans.
While debt instruments generally are subject to the risk of changes in interest rates, the interest rates of the Senior Loans in which the Trust will invest will float with a specified interest rate. Thus the risk that changes in interest rates will affect the market value of such Senior Loans is significantly decreased.
Borrowing and Leverage. The Trust is permitted to enter into borrowing transactions up to 33 1/3% (or such other percentage permitted by law) of its total assets (including the amount borrowed) less all liabilities other than borrowings. Borrowing for investment purposes increases both investment opportunity and investment risk and, accordingly, such borrowing may be speculative. Capital raised through borrowings will be subject to interest and other costs. There can be no assurance that the Trust's income from borrowed proceeds will exceed these costs; however, the Investment Manager seeks to borrow for the purposes of making additional investments only if it believes, at the time of entering into a Senior Loan, that the total return on investments will exceed interest payments and other costs. In addition, the Investment Manager intends to mitigate the risk that the costs of borrowing will exceed the total return on an investment by borrowing on a variable rate basis. In the event of a default on one or more Senior Loans or other interest-bearing instruments held by the Trust, borrowing would exaggerate the loss to the Trust and may exaggerate the effect on the Trust's NAV. The Trust's lenders will have priority to the Trust's assets over the Trust's shareholders.
As prescribed by the Investment Company Act, the Trust will be required to maintain specified asset coverages of at least 300% with respect to any bank borrowing immediately following any such borrowing and on an ongoing basis as a condition of declaring dividends. The Trust's inability to make
distributions as a result of these requirements could cause the Trust to fail to qualify as a regulated investment company and/or subject the Trust to income or excise taxes.
The interest rate on the Trust's Credit Facility as of August 31, 1996 is LIBOR plus 0.50% of outstanding borrowings plus a 0.125% fee on unused credit. At such a rate, and assuming the Trust has borrowed an amount equal to 25% of its total assets, the Trust must produce a 1.50% annual return (net of expenses) in order to cover interest payments. The Trust intends to borrow only for investment purposes when it believes at the time of borrowing that total return on investment will exceed interest and other costs.
The following table is designed to illustrate the effect on return to a holder of the Trust's Common Shares of the leverage obtained by the Trust's use of borrowing, assuming hypothetical annual returns on the Trust's portfolio of minus 10 to plus 10 percent. As can be seen, leverage generally increases the return to shareholders when portfolio return is positive and decreases return when the portfolio return is negative. Actual returns may be greater or less than those appearing in the table.
Assumed Portfolio Return (net of expenses)(1) ..................... -10% - 5% 0% 5% 10% Corresponding Return to Common Shareholders(2) ................... -15.33% -8.67% -2.00% 4.67% 11.33% |
(1) The Assumed Portfolio Return is required by regulation of the Commission and is not a prediction of, and does not represent, the projected or actual performance of the Trust.
(2) In order to compute the "Corresponding Return to Common Shareholders," the "Assumed Portfolio Return" is multiplied by the total value of Trust assets at the beginning of the Trust's fiscal year to obtain an assumed return to the Trust. From this amount, all interest accrued during the year is subtracted to determine the return available to the Trust's shareholders. The return available to the Trust's shareholders is then divided by the total value of the Trust's assets as of the beginning of the fiscal year to determine the "Corresponding Return to Common Shareholders."
Limited Secondary Market. Although it is growing, the secondary market for Senior Loans is currently limited. Accordingly, some or many of the Senior Loans in which the Trust invests will be relatively illiquid. The Trust may have difficulty disposing of illiquid assets if it needs cash to repay debt, to pay dividends, to pay expenses or to take advantage of new investment opportunities. Although the Trust has not conducted a tender offer since 1992, in the event that it determines to again conduct a tender offer, limitations of a secondary market may result in difficulty in raising cash to purchase tendered Shares. These events may cause the Trust to sell securities at lower prices than it would otherwise consider to meet cash needs and may cause the Trust to maintain a greater portion of its assets in cash equivalents than it would otherwise, which could negatively impact performance. If the Trust purchases a relatively large Senior Loan to generate income, the limitations of the secondary market may inhibit the Trust from selling a portion of the Senior Loan and reducing its exposure to a borrower when the Investment Manager deems it advisable to do so.
In addition, because the secondary market for Senior Loans may be limited, it may be more difficult to value Senior Loans. Market quotations may not be available and valuation may require more research than for more liquid securities. In addition, elements of judgment may play a greater role in the valuation, because there is less reliable, objective data available.
Employee Benefit Plan Considerations. In the case of certain employee benefit plans, additional cash contributions may cause violation of maximum contribution limitations or other qualification rules.
Plans in which contributions are so limited should consider whether there
is an additional source of funds available within the Plan, including the
liquidation of assets, with which to exercise the Rights. Because the rules
governing plans are extensive and complex, Plans contemplating the exercise of
Rights should consult with their counsel prior to such exercise. See "The Offer
- -- Employee Plan Considerations."
GENERAL INFORMATION ON SENIOR LOANS
Primary Market Overview
The primary market for Senior Loans has become much larger in recent years. The volume of loans originated in the syndicated credit market has increased from $2.75 billion in 1992 to $35.46 billion during the 12 month period ended June, 1996. In June, 1996, the volume of leveraged loans (loans for which interest is priced at LIBOR plus 150 basis points and above) reached the highest level since 1989. Additionally, an active secondary market has developed. The following chart shows the growth of the primary and secondard markets in recent years.
The following plot points replace a bar chart showing the growth of the primary and secondary loan market from 1992 to June 1996.
(In Millions)
June
1992 1993 1994 1995 95-96
---- ---- ---- ---- -----
A Term Tranches $2,220 $5,850 $12,150 $20,660 $24,530
B,C, & D Tranches $ 530 $2,300 $ 5,100 $ 8,000 $10,930
Net Asset of the
Trust $ 734 $ 717 $ 721 $ 860 $ 868
|
Source: Loan Pricing Corporation.
At the same time, demand has remained strong as institutional investors other than banks have begun to enter the Senior Loan market. Investment companies, insurance companies, and private investment vehicles are replacing U.S. and foreign banks as lenders. In 1992, institutional investors comprised 8% of the Senior Loan market; by 1996, such investors comprised 31% of the market. In addition, certain institutional investors, such as publicly-registered investment companies, have grown in size. Since 1995, investment companies that invest primarily in Senior Loans have received a record amount of cash inflows.
About Senior Loans
Senior Loans vary from other types of debt in that they generally hold the most senior position in the capital structure of a company. Priority liens are obtained by the lenders that typically provide the first right to cash flows or proceeds from the sale of a borrower's collateral if the borrower becomes insolvent (subject to the limitations of bankruptcy law, which may provide higher priority to certain claims such as, for example, employee salaries, employee pensions and taxes). Thus, Senior Loans are generally
repaid before unsecured bank loans, corporate bonds, subordinated debt, trade creditors, and preferred or common stockholders. Generally, the agent on a Senior Loan is responsible for monitoring collateral and for exercising remedies available to the lenders such as foreclosure upon collateral.
Senior Loans generally are arranged through private negotiations between a corporate borrower and several financial institutions ("lenders") represented in each case by an agent ("agent"), which usually is one or more of the lenders. The Trust will acquire Senior Loans from and sell Senior Loans to the following lenders: money center banks, selected regional banks and selected non-banks, insurance companies, finance companies, other investment companies, and lending companies. The Trust may also acquire Senior Loans from and sell Senior Loans to U.S. branches of foreign banks which are regulated by the Federal Reserve System or appropriate state regulatory authorities. On behalf of the lenders, generally the agent is primarily responsible for negotiating the loan agreement ("loan agreement"), which establishes the terms and conditions of the Senior Loan and the rights of the corporate borrower and the lenders. The agent and the other original lenders typically have the right to sell interests ("participations") in their share of the Senior Loan to other participants. The agent and the other original lenders also may assign all or a portion of their interests in the Senior Loan to other participants.
The Trust's investment in Senior Loans generally may take one of several forms including: acting as one of the group of lenders originating a Senior Loan (an "original lender"); purchasing of an assignment ("assignment") of a portion of a Senior Loan from a third party, or acquiring a participation in a Senior Loan. With respect to any given Senior Loan, the rights of the Trust when it acquires a participation may be more limited than the rights of original lenders or of persons who acquire an assignment. Participations may entail certain risks relating to the creditworthiness of the parties from which the participations are obtained. Further, the Trust may pay a fee or forego a portion of interest payments to the lender selling a participation or assignment under the terms of such participation or assignment.
The agent that arranges a Senior Loan is frequently the commercial bank or other entity that originates the Senior Loan and the entity that invites other parties to join the lending syndicate. In larger transactions, it is common to have several agents; however, generally only one such agent has primary responsibility for documentation and administration of the Senior Loan. Agents are typically paid fees by the corporate borrower for their services. The Trust may serve as the agent or co-agent for a Senior Loan. See "Additional Information About Investments and Investment Techniques -- Originating Senior Loans" in the SAI.
When the Trust is an original lender originating a Senior Loan, it may share in a fee paid to the original lenders. When the Trust is an original lender or acquires an assignment, it will have a direct contractual relationship with the corporate borrower, may enforce compliance by the corporate borrower with the terms of the Senior Loan agreement, and may have rights with respect to any funds acquired by other lenders through set-off. Lenders also have certain voting and consent rights under the applicable Senior Loan agreement. Action subject to lender vote or consent generally requires the vote or consent of the holders of some specified percentage of the outstanding principal amount of the Senior Loan. Certain decisions, such as reducing the amount or increasing the time for payment of interest on or repayment of principal of a Senior Loan, or releasing collateral therefor, frequently require the unanimous vote or consent of all lenders affected.
The Trust may also purchase assignments from lenders. The purchaser of an assignment typically succeeds to all the rights and obligations under the loan agreement of the assigning lender and becomes a lender under the loan agreement with the same rights and obligations as the assigning lender. Assignments are, however, arranged through private negotiations between potential assignees and potential
assignors, and the rights and obligations acquired by the purchaser of an assignment may be more limited than those held by the assigning lender. The Trust will purchase an assignment or act as lender with respect to a syndicated Senior Loan only where the agent with respect to such Senior Loan is determined by the Investment Manager to be creditworthy at the time of acquisition.
To a lesser extent, the Trust invests in participations in Senior Loans. Participation by the Trust in a lender's portion of a Senior Loan typically results in the Trust having a contractual relationship only with the lender, not with the corporate borrower. The Trust has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the participation and only upon receipt by such lender of such payments from the corporate borrower. In connection with purchasing participations, the Trust generally will have no right to enforce compliance by the corporate borrower with the terms of the Senior Loan agreement, nor any rights with respect to any funds acquired by other lenders through set-off against the borrower, and the Trust may not directly benefit from the collateral supporting the Senior Loan. As a result, the Trust may assume the credit risk of both the corporate borrower and the lender selling the participation. In the event of insolvency of the lender selling a participation, the Trust may be treated as a general creditor of such lender, and may not benefit from any set-off between such lender and the corporate borrower. The Trust will only acquire participations if the lender selling the participations and any other persons interpositioned between the Trust and the lender are determined by the Investment Manager to be creditworthy.
If the terms of an interest in a Senior Loan provide that the Trust is in privity with the corporate borrower, the Trust has direct recourse against the corporate borrower in the event the corporate borrower fails to pay scheduled principal or interest. In all other cases, the Trust looks to the agent to use appropriate credit remedies against the corporate borrower. When the Trust is an original lender, it will have a direct contractual relationship with the corporate borrower. When the Trust purchases an assignment, the Trust typically succeeds to the rights of the assigning lender under the Senior Loan agreement, and becomes a lender under the Senior Loan agreement. When the Trust purchases a participation in a Senior Loan, the Trust typically enters into a contractual arrangement with the lender selling the participation, and not with the corporate borrower.
Should an agent become insolvent, or enter FDIC receivership or bankruptcy, any interest in the Senior Loan transferred by such person and any Senior Loan repayment held by the agent for the benefit of participants may be included in the agent's estate where the Trust acquires a participation interest from an original lender, should that original lender become insolvent, or enter FDIC receivership or bankruptcy, any interest in the Senior Loan transferred by the original lender may be included in its estate. In such an event, the Trust might incur certain costs and delays in realizing payment or may suffer a loss of principal and interest.
DESCRIPTION OF THE COMMON SHARES
The Trust was organized as a Massachusetts business trust on December 2, 1987, and is registered with the Commission as a diversified closed-end investment company under the Investment Company Act. The Trust's Agreement and Declaration of Trust, a copy of which is on file in the office of the Secretary of State of the Commonwealth of Massachusetts, authorizes the issuance of an unlimited number of shares of beneficial interest without par value.
The Trust issues shares of beneficial interest in the Trust. Under Massachusetts law, shareholders could, under certain circumstances, be held liable for the obligations of the Trust. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given to all parties in each agreement, obligation or instrument entered into or executed by the Trust or the Trustees, and each party thereto must expressly waive all rights or any action directly against shareholders. The Agreement and Declaration of Trust provides for indemnification out of the Trust's property for all loss and expense of any shareholder of the Trust held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust would be unable to meet its obligations wherein the complaining party was held not to be bound by the disclaimer.
As of ___________, 1996, the Trust had approximately ________ beneficial shareholders, [and to the best of the Trust's knowledge, no shareholders beneficially owned more than 5% of the outstanding Common Shares of the Trust.] The number of Common Shares outstanding as of August 31, 1996 was 90,355,152, none of which were held by the Trust. Assuming that all Rights are exercised, an additional __________ Shares will be issued. The Shares are listed on the NYSE.
Dividends, Voting and Liquidation Rights
Each share of the Trust has one vote and shares equally in dividends and distributions when and if declared by the Trust and in the Trust's net assets upon liquidation. All shares, when issued, are fully paid and are non-assessable by the Trust. There are no preemptive or conversion rights applicable to any of the shares. Trust shares do not have cumulative voting rights and, as such, holders of more than 50% of the shares voting for trustees can elect all trustees and the remaining shareholders would not be able to elect any trustees.
Status of Shares
The Board of Trustees may classify or reclassify any unissued shares of the Trust into shares of any series by setting or changing in any one or more respects, from time to time, prior to the issuance of such shares, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares. Any such classification or reclassification will comply with the provisions of the Investment Company Act.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Manager
PAII, Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004, serves as Investment Manager to the Trust and has overall responsibility for the management of the Trust. The Trust and PAII have entered into an agreement dated November 15, 1988, as amended and restated February 17, 1995, April 7, 1995, and __________, 1996, that requires PAII to provide all investment advisory and portfolio management services for the Trust. It also requires PAII to assist in managing and supervising all aspects of the general day-to-day business activities and operations of the Trust, including custodial, transfer agency, dividend disbursing, accounting, auditing, compliance and related services. PAII provides the Trust with office space, equipment and personnel necessary to administer the Trust. The agreement with PAII can be cancelled by the Board of Trustees upon 60 days' written notice. Organized in December 1994, PAII is registered as an investment adviser with the Commission.
PAII acquired certain assets of an investment adviser to certain investment companies, including certain funds in the Pilgrim America family of funds, in a transaction that closed on April 7, 1995. Prior to that date, PAII had not previously served as an investment adviser to a registered investment company,
although investment personnel of PAII had managed other registered investment companies. PAII serves as investment manager to seven other registered investment companies (or series thereof) and currently has assets under management of approximately $___________ billion as of the date of this Prospectus.
PAII is an indirect, wholly-owned subsidiary of Express America Holdings Corporation ("Express America") (NASDAQ: EXAM). Through its subsidiaries, Express America engages in the financial services business, focusing on providing investment advisory, administrative and distribution services to open-end and closed-end investment companies.
PAII bears its expenses of providing the services described above. PAII currently receives from the Trust an annual fee, paid monthly, of 0.85% of the average daily net assets of the Trust, plus the proceeds of any outstanding borrowings, up to $700 million; 0.75% of the average daily net assets of the Trust, plus the proceeds of any outstanding borrowings, over $700 million up to $800 million; and 0.65% of the average daily net assets of the Trust, plus the proceeds of any outstanding borrowings, over $800 million. PAII has agreed to reduce its fee for a period of three years from the Expiration Date to 0.60% of the average daily net assets, plus the proceeds of any outstanding borrowings, over $1.15 billion.
The Trust pays all operating and other expenses of the Trust not borne by PAII including, but not limited to, audit and legal fees, transfer agent, registrar and custodian fees, expenses in preparing tender offers, shareholder reports and proxy solicitation materials and other miscellaneous business expenses. The Trust also pays all taxes imposed on it and all brokerage commissions and loan-related fees. The Trust is responsible for paying all of the expenses of the Offer from the proceeds of the Offer.
Portfolio Management. The Trust's portfolio is managed by a portfolio management team consisting of a Senior Portfolio Manager, two Assistant Portfolio Managers, and credit analysts.
Howard Tiffen is a Senior Vice President of PAII and the Senior Portfolio Manager of the Trust. He has had primary responsibility for investment management of the Trust since November, 1995. Mr. Tiffen's banking career spans more than 25 years. Mr. Tiffen served in a series of positions in the lending and capital market functions at a major United States Bank for 13 years and has served in international investment banking functions in Hong Kong, Malta, the Caribbean, Singapore, Thailand, and Japan. From 1982 to November 1995, Mr. Tiffen worked for Bank of America (and its predecessor, Continental Bank) in the following capacities: Managing Director, Money Managers Group (1993-1995); Managing Director, Loan Sales Trading (1990-1993); Managing Director, Distribution (London, England, 1984-1990); and Vice President and Managing Director, Capital Markets (1982-1984). Mr. Tiffen is a graduate of Northwestern University and is an associate of the Chartered Institute of Bankers.
Daniel A. Norman has served as Senior Vice President and Assistant Portfolio Manger of the Trust since April 1995 and September 1996, respectively. Mr. Norman is a Senior Vice President of PAGI (since April 1995), PAII (since April 1995), PASI (since December 1994), Express America (since April 1995), and Express America Mortgage Corporation (since February 1992). Mr. Norman was Chief Financial Officer of Prime Financial Inc. (December 1985 - February 1992) and from 1981 to 1985 was employed by Arthur Andersen & Co. Mr. Norman received an MBA from the University of Nebraska.
Michael Bacevich has served as Assistant Portfolio Manager and Vice President of the Trust since December 1995 and September 1996, respectively. Mr.
Bacevich is Vice President of PAGI and PAII (since November 1995). Prior to joining Pilgrim America, Mr. Bacevich was a Vice President with the Bank of America (and its predecessor, Continental Bank) in its Leveraged Finance Group (July 1994 - November 1995) and prior to that in Special Assets Administration (July 1990 - July 1994). Mr. Bacevich began his banking career with Chemical Bank in June 1988. Prior to that time, Mr. Bacevich was in the United States Army where he achieved the rank of Captain (June 1981 - August 1986). Mr. Bacevich is a graduate of West Point and received an MBA from the University of Chicago.
The Administrator
The Administrator of the Trust is PAGI. Its principal business address is Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004-4424. The Administrator is a wholly-owned subsidiary of Express America and the immediate parent company of PAII.
Under an Administration Agreement between PAGI and the Trust, PAGI administers the Trust's corporate affairs subject to the supervision of the Trustees of the Trust. In that connection PAGI monitors the provisions of the Senior Loan agreements and any agreements with respect to interests in Senior Loans and is responsible for recordkeeping with respect to the Senior Loans in the Trust's portfolio. PAGI also furnishes the Trust with office facilities and furnishes executive personnel together with clerical and certain recordkeeping and administrative services. These include preparation of annual and other reports to shareholders and to the Commission. PAGI also handles the filing of federal, state and local income tax returns not being furnished by the Custodian or Transfer Agent. The Administrator has authorized all of its officers and employees who have been elected as Trustees or officers of the Trust to serve in the latter capacities. All services furnished by the Administrator under the Administration Agreement may be furnished by such officers or employees of the Administrator.
The Trust pays PAGI for the services performed and the facilities furnished by PAGI as Administrator a fee, computed daily and payable monthly. The Administration Agreement states that PAGI is entitled to receive a fee at an annual rate of 0.15% of the average daily net assets of the Trust, plus the proceeds of any outstanding borrowings, up to $800 million; and 0.10% of the average net assets of the Trust, plus the proceeds of any outstanding borrowings, in excess of $800 million.
Transfer Agent, Dividend Disbursing Agent and Registrar
The transfer agent, dividend disbursing agent and registrar for the shares is IFTC, whose principal business address is 127 W. 10th Street, Kansas City, Missouri 64105.
Custodian
The Trust's securities and cash are held under a Custodian Agreement with Investors Fiduciary Trust Company. In addition to serving as custodian, IFTC acquires shares on behalf of the Trust for distribution to shareholders under the Trust's Dividend Reinvestment Plan.
DIVIDENDS AND DISTRIBUTIONS
Distribution Policy. Income dividends are declared and paid monthly. Income dividends may be distributed in cash or reinvested in additional full and fractional shares pursuant to the Trust's Dividend Reinvestment Plan discussed below. Shareholders receive statements on a monthly basis reflecting any distributions credited or paid to their account. Income dividends consist of interest accrued and amortization of fees earned less any amortization of premiums paid and the estimated expenses of the Trust, including fees payable to PAII. Income dividends are calculated monthly under guidelines approved by the Trustees. Each dividend is payable to shareholders of record at the time of declaration. Accrued amounts of fees received, including facility fees, will be taken in as income and passed on to shareholders as part of dividend distributions. Any fees or commissions paid to facilitate the sale of portfolio Senior Loans in connection with quarterly tender offers or other portfolio transactions may reduce the dividend yield. The Trust may make one or more annual payments from any net realized capital gains, if any.
Dividend Reinvestment and Cash Purchase Plan. The Trust's Dividend Reinvestment Plan, which allows participating shareholders to reinvest all dividends and capital gain distributions in additional shares of the Trust. The Dividend Reinvestment Plan also allows participants to make voluntary purchases monthly through IFTC (the "Plan Agent"), in amounts ranging from a minimum of $100 to a maximum of $5,000 (such minimum and maximum may be waived at management's discretion). All distributions to shareholders whose shares are registered in their own names automatically will be paid in cash, unless the shareholder elects to reinvest the distributions in additional shares of the Trust pursuant to the Dividend Reinvestment Plan. Shareholders who receive dividends and capital gain distributions in cash may elect to participate in the Dividend Reinvestment Plan by notifying IFTC. Additional information about the Dividend Reinvestment Plan may be obtained from The Pilgrim America Group's Shareholder Services Department (1-800-331-1080). For additional information, see "Dividend Reinvestment and Cash Purchase Plan" in the SAI.
TAX MATTERS
The Trust intends to operate as a "regulated investment company" under the Internal Revenue Code. To do so, the Trust must meet certain income, distribution and diversification requirements. In any fiscal year in which the Trust so qualifies and distributes to shareholders substantially all of its net investment income and net capital gains, the Trust itself is generally relieved of any federal income or excise tax.
All dividends and capital gains distributed to shareholders are taxable whether they are reinvested or received in cash, unless the shareholder is exempt from taxation or entitled to tax deferral. Dividends paid out of the Trust's investment company taxable income (including interest, dividends, if any, and net short-term capital gains) will be taxable to shareholders as ordinary income. If a portion of the Trust's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Trust may be eligible for the corporate dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, designated as capital gain dividends are taxable as long-term capital gains, regardless of how long a shareholder has held the Trust's shares. Early each year, shareholders will be notified as to the amount and federal tax status of all dividends and capital gains paid during the prior year. Such dividends and capital gains may also be subject to state or local taxes. Dividends declared in October, November, or December with a record date in such month and paid during the following January will be treated as having been paid by the Trust and received by shareholders on December 31 of the calendar year in which declared, rather than the calendar year in which the dividends are actually received.
If a shareholder sells or otherwise disposes of his or her shares of the Trust, he or she may realize a capital gain or loss which will be long-term or short-term, generally depending on the holding period for the shares.
If a shareholder has not furnished a certified correct taxpayer identification number (generally a Social Security number) and has not certified that withholding does not apply, or if the Internal Revenue Service has notified the Trust that the taxpayer identification number listed on the account is incorrect according to their records or that the shareholder is subject to backup withholding, federal law generally requires the Trust to withhold 31% from any dividends and/or redemptions (including exchange redemptions). Amounts withheld are applied to federal tax liability; a refund may be obtained from the Service if withholding results in overpayment of taxes. Federal law also requires the Trust to withhold 30% or the applicable tax treaty rate from ordinary dividends paid to certain nonresident alien and other non-U.S. shareholder accounts.
This is a brief summary of some of the tax laws that affect an investment in the Trust. Please see the SAI and a tax adviser for further information.
DISTRIBUTION ARRANGEMENTS
Prudential Securities Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Dealer Managers"), will act as dealer managers for the Offer. Under the terms and subject to the conditions contained in a Dealer Manager Agreement dated the date hereof, the Dealer Managers will provide financial advisory, marketing and soliciting services. The Trust has agreed to pay the Dealer Managers a fee for their financial advisory, marketing and soliciting services equal to 3.5% of the aggregate Subscription Price for the Shares issued pursuant to the Offer (the "Dealer Manager Fee"). The Dealer Managers will reallow to the broker-dealer designated on the related Exercise Form a concession of 2.25% of the Subscription Price per Share for each Share issued pursuant to the Offer, provided that the designated broker-dealer has executed a confirmation accepting the terms of the Soliciting Dealer Agreement relating to the Offer. The Dealer Manager Fee will be borne by the Trust and indirectly by all of the Trust's shareholders, including those who do not exercise their Rights. PASI, a subsidiary of PAGI, intends to serve as a Soliciting Dealer in connection with the Offer and will be entitled to receive a soliciting dealer concession.
The Trust will bear the expenses of the Offer, which will be paid from the proceeds of the Offer. These expenses include, but are not limited to: the expense of preparation and printing of the prospectus for the Offer, the expense of counsel and auditors in connection with the Offer, the out-of-pocket expenses of Prudential Securities Incorporated incurred in connection with the Offer up to $150,000, the out-of- pocket expenses incurred by the Officers of the Trust in connection with the Offer, and others. In addition, the Trust has agreed to indemnify the Dealer Managers against certain liabilities under the Securities Act of 1933, and the Investment Company Act. Prudential Securities Incorporated acted as financial adviser to Express America in connection with its acquisition in 1995 of certain investment advisory assets.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed on for the Trust by Dechert Price & Rhoads, Washington, D.C., counsel to the Trust. Certain legal matters in connection with this Offer will be passed on for the Dealer Managers by Cleary, Gottlieb, Steen & Hamilton, Washington D.C.
EXPERTS
The audited financial statements and financial highlights of the Trust as of February 29, 1996 and for the year then ended have been incorporated herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The address of KPMG Peat Marwick LLP is 725 South Figueroa Street, Los Angeles, California 90017-5491. Tait Weller & Baker, Two Penn Center Plaza, Philadelphia, Pennsylvania, served as independent auditors for the Trust with respect to its financial statements for 1995 and prior years.
REGISTRATION STATEMENT
The Trust has filed with the Securities and Exchange Commission, Washington, D.C., a Registration Statement under the Securities Act, relating to the Shares offered hereby. For further information with respect to the Trust and its Common Shares, reference is made to such Registration Statement and the exhibits filed with it.
FINANCIAL STATEMENTS
The Trust's audited financial statements for the fiscal year ended February 29, 1996, are incorporated into the SAI by reference from the Trust's Annual Report dated as of February 29, 1996. The Trust's unaudited financial statements for the six months ended August 31, 1996, are included as an Appendix to this Prospectus. The Trust will furnish without charge copies of its Annual Report and Semi- Annual Report, upon request to the Trust, Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004-4424, toll-free telephone 1-(800) 331-1080.
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Page
Additional Information About Investments and Investment Techniques.. Investment Restrictions............................................. Trustees and Officers............................................... Investment Management and Other Services............................ Portfolio Transactions.............................................. NAV................................................................. Methods Available to Reduce Market Value Discount from NAV.......... Dividend Reinvestment and Cash Purchase Plan........................ Tax Matters......................................................... Advertising and Performance Data.................................... |
FINANCIAL STATEMENTS DATED AUGUST 31, 1996
[To be provided]
No dealer, salesperson or any other person has been authorized to
give any information or to make any representations other than
those contained in this Prospectus in connection with the offer Shares of Beneficial Interest
made by this Prospectus and, if given or made, such information
or representations must not be relied upon as having been
authorized by the Trust, the Investment Manager or any of the
Dealer Managers. This Prospectus does not constitute an offer to
sell or the solicitation of any offer to buy any security other than
the shares of Common Shares offered by the Prospectus, nor does Pilgrim America Prime Rate Trust
it constitute an offer to sell or a solicitation of any offer to buy the
shares of Common Shares by anyone in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so, or to
any such person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any
implication that information contained herein is correct as of any
time subsequent to the date hereof. However, if any material
change occurs while this Prospectus is required by law to be
delivered, the Prospectus will be amended or supplemented Issuable Upon Exercise of
accordingly. Non-Transferable Rights to
Subscribe for Such
Shares of Beneficial Interest
TABLE OF CONTENTS
__________________________
Prospectus Summary.......................................
Trust Expenses........................................... PROSPECTUS
Financial Highlights And Investment Performance.......... __________________________
The Offer................................................
Use Of Proceeds..........................................
Investment Objective and Policies........................
Risk Factors and Special Considerations..................
General Information On Senior Loans...................... Dealer Managers
Description of the Common Shares.........................
Investment Management and Other Services.................
Dividends and Distributions.............................. Prudential Securities Incorporated
Tax Matters..............................................
Distribution Arrangements................................ Merrill Lynch & Co.
Legal Matters............................................
Experts..................................................
Registration Statement...................................
Financial Statements.....................................
Appendix I: Financial Statements dated August 31, 1996...
Table Of Contents of Statement of Additional Information.
_______________, 1996
|
PILGRIM AMERICA PRIME RATE TRUST
STATEMENT OF ADDITIONAL INFORMATION
Pilgrim America Prime Rate Trust (the "Trust") is a diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"). The Trust's investment objective is to seek as high a level of current income as is consistent with the preservation of capital. The Trust seeks to achieve its objective by investing in variable or floating-rate senior collateralized corporate loans ("Senior Loans"), the interest rates of which float periodically based upon a benchmark indicator of prevailing interest rates, such as the prime rate or the London Inter-Bank Offered Rate ("LIBOR"). Under normal circumstances, at least 80% of the Trust's net assets are invested in Senior Loans. The Trust is managed by Pilgrim America Investments, Inc. ("PAII" or the "Investment Manager").
This Statement of Additional Information ("SAI") is not a prospectus, but should be read in conjunction with the Prospectus for the Trust dated ___________, 1996 (the "Prospectus"). This SAI does not include all information that a prospective investor should consider before purchasing shares of the Trust, and investors should obtain and read the Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained without charge, by calling 800-331-1080. This SAI incorporates by reference the entire Prospectus.
TABLE OF CONTENTS
PAGE
Change of Name.................................................... Additional Information About Investments and Investment Techniques Investment Restrictions........................................... Trustees And Officers............................................. Investment Management And Other Services.......................... Portfolio Transactions............................................ Net Asset Value.................................................. Methods Available to Reduce Market Value Discount From NAV........ Dividend Reinvestment and Cash Purchase Plan...................... Tax Matters....................................................... Advertising and Performance Data..................................
The Prospectus and this SAI omit certain of the information contained in the registration statement filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C. The registration statement may be obtained from the Commission upon payment of the fee prescribed, or inspected at the Commission's office at no charge.
This SAI is dated __________, 1996.
CHANGE OF NAME
The Trust changed its name from "Pilgrim Prime Rate Trust" to "Pilgrim America Prime Rate Trust" in April, 1996.
ADDITIONAL INFORMATION ABOUT INVESTMENTS
AND INVESTMENT TECHNIQUES
Some of the different types of securities in which the Trust may invest, subject to its investment objective, policies and restrictions, are described in the Prospectus under "Investment Practices." Additional information concerning certain of the Trust's investments and investment techniques is set forth below.
Equity Securities
In connection with its purchase or holding of interests in Senior Loans, the Trust may acquire (and subsequently sell) equity securities or exercise warrants that it receives. The Trust will acquire such interests only as an incident to the intended purchase or ownership of Senior Loans or if, in connection with a reorganization of a borrower, the Trust receives an equity interest in a reorganized corporation or warrants to acquire such an equity interest. The Trust normally will not hold more than 20% of its total assets in equity securities. Equity securities will not be treated as Senior Loans; therefore, an investment in such securities will not count toward the 80% of the Trust's total assets that normally will be invested in Senior Loans. Equity securities are subject to financial and market risks and can be expected to fluctuate in value.
Lease Participations
The Trust may invest up to 20% of its assets in participation interests in lease financings ("Lease Participations"). Investments in Lease Participations will not be counted toward the 80% of the Trust's assets that under normal market conditions are invested in Senior Loans.
The Trust will invest in Lease Participations only if they generally meet the same credit quality standards and general requirements that the Trust applies to Senior Loans. Thus, the collateral quality, the credit quality of the borrower and the likelihood of payback for a Lease Participation are the same as those applied to a Senior Loan. A Lease Participation is also required to have a floating interest rate that is indexed to the federal funds rate, LIBOR, or prime rate in order to be eligible for investment.
The Office of the Comptroller of the Currency has established regulations which set forth circumstances under which national banks may engage in lease financings. Among other things, the regulation requires that a lease be a net-full payout lease representing the noncancelable obligation of the lessee, and that the bank make certain determinations with respect to any estimated residual value of leased property relied upon by the bank to yield a full return on the lease. The Trust may invest in lease financings only if the Lease Participation meets these banking law requirements.
Repurchase Agreements
In general, the Trust does not engage, nor does it intend to engage in the foreseeable future, in repurchase agreements. The Trust has the ability, however, pursuant to its investment objective and policies, to enter into repurchase agreements (a purchase of, and a simultaneous commitment to resell, a financial instrument at an agreed upon price on an agreed upon date) only with member banks of the Federal Reserve System, member firms of the New York Stock Exchange ("NYSE") or other entities
determined by PAII to be creditworthy. When participating in repurchase agreements, the Trust buys securities from a vendor, e.g., a bank or brokerage firm, with the agreement that the vendor will repurchase the securities at a higher price at a later date. The Trust may be subject to various delays and risks of loss if the vendor is unable to meet its obligation to repurchase. Under the Investment Company Act, repurchase agreements are deemed to be collateralized loans of money by the Trust to the seller. In evaluating whether to enter into a repurchase agreement, PAII will consider carefully the creditworthiness of the vendor. If the member bank or member firm that is the party to the repurchase agreement petitions for bankruptcy or otherwise becomes subject to the U.S. Bankruptcy Code, the law regarding the rights of the Trust to enforce the terms of the repurchase agreement is unsettled. The securities underlying a repurchase agreement will be marked to market every business day so that the value of the collateral is at least equal to the value of the loan, including the accrued interest thereon, and PAII will monitor the value of the collateral. No specific limitation exists as to the percentage of the Trust's assets which may be used to participate in repurchase agreements.
Reverse Repurchase Agreements
In general, the Trust does not engage, nor does it intend to engage in the foreseeable future, in reverse repurchase agreements. The Trust has the ability, however, pursuant to its investment objective and policies, to enter into reverse repurchase agreements. A reverse repurchase agreement is an instrument under which the Trust may sell an underlying debt instrument and simultaneously obtain the commitment of the purchaser to sell the security back to the Trust at an agreed upon price on an agreed upon date. Reverse repurchase agreements will be considered borrowings by the Trust and as such are subject to the restrictions on borrowing. Borrowings by the Trust create an opportunity for greater total return, but at the same time, increase exposure to capital risk. The Trust will maintain in a segregated account with its custodian cash or liquid high grade portfolio securities in an amount sufficient to cover its obligations with respect to reverse repurchase agreements. The Trust will receive payment for such securities only upon physical delivery or evidence of book entry transfer by its custodian. Regulations of the Commission require either that securities sold by the Trust under a reverse repurchase agreement be segregated pending repurchase or that the proceeds be segregated on the Trust's books and records pending repurchase. Reverse repurchase agreements may involve certain risks in the event of default or insolvency of the other party, including possible loss from delays or restrictions upon the Trust's ability to dispose of the underlying securities. An additional risk is that the market value of securities sold by the Trust under a reverse repurchase agreement could decline below the price at which the Trust is obligated to repurchase them.
Lending Senior Loans and Other Portfolio Instruments
To generate additional income, the Trust may lend its portfolio securities, including an interest in a Senior Loan, in an amount up to 33 1/3% of total Trust assets to broker-dealers, major banks, or other recognized domestic institutional borrowers of securities. No lending may be made with any companies affiliated with PAII. During the time portfolio securities are on loan, the borrower pays the Trust any dividends or interest paid on such securities, and the Trust may invest the cash collateral and earn additional income, or it may receive an agreed-upon amount of interest income from the borrower who has delivered equivalent collateral or a letter of credit. As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the collateral should the borrower fail financially.
The Trust may seek to increase its income by lending financial instruments in its portfolio in accordance with present regulatory policies, including those of the Board of Governors of the Federal Reserve System and the Commission. The lending of financial instruments is a common practice in the securities industry. The loans are required to be secured continuously by collateral, consistent with the requirements of the Investment Company Act discussed below, maintained on a current basis at an amount at least equal to the market value of the portfolio instruments loaned. The Trust has the right to call a
Senior Loan and obtain the portfolio instruments loaned at any time on such notice as specified in the transaction documents. For the duration of the Senior Loan, the Trust will continue to receive the equivalent of the interest paid by the issuer on the portfolio instruments loaned and may also receive compensation for the loan of the financial instrument. Any gain or loss in the market price of the instruments loaned that may occur during the term of the Senior Loan will be for the account of the Trust.
The Trust may lend its portfolio instruments so long as the terms and the structure of such loans are not inconsistent with the requirements of the Investment Company Act, which currently require that (a) the borrower pledge and maintain with the Trust collateral consisting of cash, a letter of credit issued by a domestic U.S. bank, or securities issued or guaranteed by the U.S. government having a value at all times not less than 100% of the value of the instruments loaned, (b) the borrowers add to such collateral whenever the price of the instruments loaned rises (i.e., the value of the loan is "marked to the market" on a daily basis), (c) the loan be made subject to termination by the Trust at any time, and (d) the Trust receive reasonable interest on the loan (which may include the Trust's investing any cash collateral in interest bearing short-term investments), any distributions on the loaned instruments and any increase in their market value. The Trust may lend its portfolio instruments to member banks of the Federal Reserve System, members of the NYSE or other entities determined by PAII to be creditworthy. All relevant facts and circumstances, including the creditworthiness of the qualified institution, will be monitored by PAII, and will be considered in making decisions with respect to the lending of portfolio instruments.
The Trust may pay reasonable negotiated fees in connection with loaned instruments. In addition, voting rights may pass with the loaned securities, but if a material event were to occur affecting such a loan, the Trust will retain the right to call the loan and vote the securities. If a default occurs by the other party to such transaction, the Trust will have contractual remedies pursuant to the agreements related to the transaction but such remedies may be subject to bankruptcy and insolvency laws which could materially and adversely affect the Trust's rights as a creditor. However, the loans will be made only to firms deemed by PAII to be of good financial standing and when, in the judgment of PAII, the consideration which can be earned currently from loans of this type justifies the attendant risk.
Interest Rate Hedging Transactions
Generally, the Trust does not engage, nor does it intend to engage, in the
foreseeable future, in interest rate swaps, or to purchase or sell interest rate
caps and floors. The Trust has the ability, however, pursuant to its investment
objectives and policies, to engage in certain hedging transactions including
interest rate swaps and the purchase or sale of interest rate caps and floors.
The Trust may undertake these transactions primarily for the following reasons:
to preserve a return on or value of a particular investment or portion of the
Trust's portfolio, to protect against decreases in the anticipated rate of
return on floating or variable rate financial instruments which the Trust owns
or anticipates purchasing at a later date, or for other risk management
strategies such as managing the effective dollar-weighted average duration of
the Trust's portfolio. Market conditions will determine whether and in what
circumstances the Trust would employ any of the hedging techniques described
below.
Interest rate swaps involve the exchange by the Trust with another party of their respective commitments to pay or receive interest, e.g., an exchange of an obligation to make floating rate payments on a specified dollar amount referred to as the "notional" principal amount for an obligation to make fixed rate payments. For example, the Trust may seek to shorten the effective interest rate redetermination period of a Senior Loan in its portfolio that has an interest rate redetermination period of one year. The Trust could exchange its right to receive fixed income payments for one year from a borrower for the right to receive payments under an obligation that readjusts monthly. In such event, the Trust would consider the interest rate redetermination period of such Senior Loan to be the shorter period. The purchase of an
interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate floor. The Trust will not enter into swaps, caps or floors if, on a net basis, the aggregate notional principal amount with respect to such agreements exceeds the net assets of the Trust or to the extent the purchase of swaps, caps or floors would be inconsistent with the Trust's other investment restrictions.
The Trust will not treat swaps covered in accordance with applicable regulatory guidance as senior securities. The Trust will usually enter into interest rate swaps on a net basis, i.e., where the two parties make net payments with the Trust receiving or paying, as the case may be, only the net amount of the two payments. The net amount of the excess, if any, of the Trust's obligations over its entitlement with respect to each interest rate swap will be accrued and an amount of cash or liquid securities having an aggregate NAV at least equal to the accrued excess will be maintained in a segregated account. If the Trust enters into a swap on other than a net basis, the Trust will maintain in the segregated account the full amount of the Trust's obligations under each such swap. The Trust may enter into swaps, caps and floors with member banks of the Federal Reserve System, members of the NYSE or other entities determined by PAII. If a default occurs by the other party to such transaction, the Trust will have contractual remedies pursuant to the agreements related to the transaction but such remedies may be subject to bankruptcy and insolvency laws which could materially and adversely affect the Trust's rights as a creditor.
The swap, cap and floor market has grown substantially in recent years with a large number of banks and financial services firms acting both as principals and as agents utilizing standardized swap documentation. As a result, this market has become relatively liquid. There can be no assurance, however, that the Trust will be able to enter into interest rate swaps or to purchase interest rate caps or floors at prices or on terms PAII believes are advantageous to the Trust. In addition, although the terms of interest rate swaps, caps and floors may provide for termination, there can be no assurance that the Trust will be able to terminate an interest rate swap or to sell or offset interest rate caps or floors that it has purchased.
The successful utilization of hedging and risk management transactions requires skills different from those needed in the selection of the Trust's portfolio securities and depends on PAII's ability to predict correctly the direction and degree of movements in interest rates. Although the Trust believes that use of the hedging and risk management techniques described above will benefit the Trust, if PAII's judgment about the direction or extent of the movement in interest rates is incorrect, the Trust's overall performance would be worse than if it had not entered into any such transactions. The Trust will incur brokerage and other costs in connection with its hedging transactions.
Borrowing
Under the Investment Company Act, the Trust is not permitted to incur indebtedness unless immediately after such incurrence the Trust has an asset coverage of 300% of the aggregate outstanding principal balance of indebtedness. Additionally, under the Investment Company Act the Trust may not declare any dividend or other distribution upon any class of its capital stock, or purchase any such capital stock, unless the aggregate indebtedness of the Trust has at the time of the declaration of any such
dividend or distribution or at the time of any such purchase an asset coverage of at least 300% after deducting the amount of such dividend, distribution, or purchase price, as the case may be.
Subordinated Tranches of Senior Loans
In connection with its purchase or holding of interests in Senior Loans, the Trust may acquire, with up to 5% of the Trust's total assets, Senior Loans that are subordinated in some manner as to the payment of interest and/or principal to other Senior Loans or to other secured lenders (otherwise known as "subordinated classes" or "subordinated tranches" of Senior Loans). Such subordinated tranches of Senior Loans may be acquired to provide the Trust opportunities to enhance Trust performance by obtaining higher interest rates and/or higher fees.
Subordinated tranches of Senior Loans in an insolvency would bear an increased share of the ultimate credit losses relative to other senior secured bank lenders. The primary risk arising from a holder's subordination is the potential loss in the event of default by the issuer of Senior Loans. The Trust, in this instance, continues to be a senior, fully secured lender in these Senior Loans. The Trust will only invest in such subordinated tranches when PAII believes that the Trust would receive an appropriately higher interest rate and/or higher fees in connection with its purchase as compensation for assuming this additional risk.
Originating Senior Loans
The Trust may act as an "agent" in originating and administering a loan on behalf of all lenders or as one of a group of "co-agents" in originating Senior Loans. Senior Loans are typically arranged through private negotiations between a corporate borrower and several financial institutions ("lenders") represented in each case by one or more such lenders acting as agent of the several lenders. On behalf of the several lenders, the agent, which is frequently the entity that originates the Senior Loan and invites the other parties to join the lending syndicate, will be primarily responsible for negotiating the Senior Loan agreements that establish the relative terms, conditions and rights of the corporate borrower and the several lenders. The co-agents, on the other hand, are not responsible for administration of a Senior Loan, but are part of the initial group of lenders that commit to providing funding for a Senior Loan. In large transactions, it is common to have several agents; however, one such agent typically has primary responsibility for documentation and administration of the Senior Loan. The agent is required to administer and manage the Senior Loan and to service or monitor the collateral. The agent is also responsible for the collection of principal and interest and fee payments from the corporate borrower and the apportionment of these payments to the credit of all lenders which are parties to the loan agreement. The agent is charged with the responsibility of monitoring compliance by the corporate borrower with the restrictive covenants in the loan agreement and of notifying the lenders of any adverse change in the corporate borrower's financial condition. In addition, the agent generally is responsible for determining that the lenders have obtained a perfected security interest in the collateral securing the Senior Loan.
Lenders generally rely on the agent to collect their portion of the payments on the Senior Loan and to use appropriate creditor remedies against the corporate borrower. Typically under loan agreements, the agent is given broad discretion in enforcing the loan agreement and is obligated to use the same care it would use in the management of its own property. The corporate borrower compensates the agent for these services. Such compensation may include special fees paid on structuring and funding the Senior Loan and other fees paid on a continuing basis. The precise duties and rights of an agent are defined in the loan agreement.
When the Trust is an agent, it has, as a party to the loan agreement, a direct contractual relationship with the corporate borrower and, prior to allocating portions of the Senior Loan to the lenders, if any, assumes all risks associated with the Senior Loan. The agent may enforce compliance by
the corporate borrower with the terms of the loan agreement. Agents also have voting and consent rights under the applicable loan agreement. Action subject to agent vote or consent generally requires the vote or consent of the holders of some specified percentage of the outstanding principal amount of the Senior Loan, which percentage varies depending on the relevant loan agreement. Certain decisions, such as reducing the amount or increasing the time for payment of interest on or repayment of principal of a Senior Loan, or releasing collateral therefor, frequently require the unanimous vote or consent of all lenders affected.
Pursuant to the terms of a loan agreement, the Trust as agent typically has sole responsibility for servicing and administering a loan on behalf of the other lenders. Each lender in a Senior Loan is generally responsible for performing their own credit analysis and their own investigation of the financial condition of the corporate borrower. Generally, loan agreements will hold the Trust liable for any action taken or omitted that amounts to gross negligence or willful misconduct. In the event of a corporate borrower's default on a loan, the loan agreements provide that the lenders do not have recourse against the Trust for its activities as agent. Instead, lenders will be required to look to the corporate borrower for recourse.
Acting in the capacity of an agent in a Senior Loan may subject the Trust to certain risks in addition to those associated with the Trust's current role as a lender. An agent is charged with the above described duties and responsibilities to lenders and corporate borrowers subject to the terms of the loan agreement. Failure to adequately discharge such responsibilities in accordance with the standard of care set forth in the loan agreement may expose the Trust to liability for breach of contract. If a relationship of trust is found between the agent and the lenders, the agent will be held to a higher standard of conduct in administering the loan. In consideration of such risks, the Trust will invest no more than 10% of its total assets in Senior Loans in which it acts as agent or co-agent and the size of any individual loan will not exceed 5% of the Trust's total assets.
Additional Information on Senior Loans
Senior Loans are direct obligations of corporations and are arranged by banks or other commercial lending institutions and made generally to finance internal growth, mergers, acquisitions, stock repurchases, and leveraged buyouts. Senior Loans usually include restrictive covenants which must be maintained by the borrowing corporation. Such covenants, in addition to the timely payment of interest and principal, may include mandatory prepayment provisions arising from free cash flow, restrictions on dividend payments and usually state that a company must maintain specific minimum financial ratios as well as establishing limits on total debt. A breach of a covenant, which is not waived by the agent, is normally an event of acceleration, i.e., the agent has the right to call the outstanding Senior Loan. In addition, loan covenants may include mandatory prepayment provisions stemming from free cash flow. Free cash flow is cash that is in excess of capital expenditures plus debt service requirements of principal and interest. The free cash flow shall be applied to prepay the Senior Loan in an order of maturity described in the loan documents. Under certain interests in Senior Loans, the Trust may have an obligation to make additional loans upon demand by the corporate borrower. The Trust intends to reserve against such contingent obligations by segregating sufficient assets in high quality short-term liquid investments or borrowing to cover such obligations.
In a typical interest in a Senior Loan, the agent administers the loan and has the right to monitor the collateral. The agent is also required to segregate the principal and interest payments received from the corporate borrower and to hold these payments for the benefit of the lenders. The Trust normally looks to the agent to collect and distribute principal of and interest on a Senior Loan. Furthermore, the Trust looks to the agent to use normal credit remedies, such as to foreclose on collateral; monitor credit loan covenants; and notify the lenders of any adverse changes in the corporation's financial condition or
declarations of insolvency. At times the Trust may also negotiate with the agent regarding the agent's exercise of credit remedies under a Senior Loan. The agent is compensated for these services by the corporate borrower as is set forth in the loan agreement. Such compensation may take the form of a fee or other amount paid upon the making of the Senior Loan and/or an ongoing fee or other amount.
The loan agreement in connection with Senior Loans sets forth the standard of care to be exercised by the agents on behalf of the lenders and usually provides for the termination of the agent's agency status in the event that it fails to act properly, becomes insolvent, enters FDIC receivership, or if not FDIC insured, enters into bankruptcy or if the agent resigns. In the event an agent is unable to perform its obligations as agent, another lender would generally serve in that capacity.
The Trust believes that the principal credit risk associated with acquiring Senior Loans from another lender is the credit risk associated with the corporate borrower of the underlying Senior Loan. The Trust may incur additional credit risk, however, when the Trust acquires a participation in a Senior Loan from another lender because the Trust must assume the risk of insolvency or bankruptcy of the other lender from which the Senior Loan was acquired. However, in acquiring Senior Loans, the Trust conducts an analysis and evaluation of the financial condition of each such lender. In this regard, if the lenders have a long-term debt rating, the long term debt of all such Participants is rated BBB or better by Standard and Poor's Corporation or Baa or better by Moody's Investors Service, Inc., or has received a comparable rating by another nationally recognized rating service. In the absence of rated long-term debt, the lenders or, with respect to a bank, the holding company of such lenders have commercial paper outstanding which is rated at least A-1 by Standard and Poor's Corporation or P-1 by Moody's Investors Service, Inc. In the absence of such rated long-term debt or rated commercial paper if a bank, the Trust may acquire participations in Senior Loans from lenders whose long-term debt and commercial paper is of comparable quality to the foregoing rating standards as determined by the Manager under the supervision of the Trustees. The Trust also diversifies its portfolio with respect to lenders from which the Trust acquires Senior Loans. See "Investment Restrictions."
Senior Loans, unlike certain bonds, usually do not have call protection. This means that interests comprising the Trust's portfolio, while having a stated one to ten-year term, may be prepaid, often without penalty. The weighted average maturity of Senior Loans purchased is expected to be approximately two- and-a-half years. The Trust generally holds Senior Loans to maturity unless it has become necessary to sell them to satisfy any shareholder tender offers or to adjust the Trust's portfolio in accordance with PAII's view of current or expected economic or specific industry conditions.
Senior Loans usually require the prepayment of a loan when there are asset sales or a securities issuance. Prepayments on Senior Loans may also be made by the corporate borrower at its election. The rate of such prepayments may be affected by, among other things, general business and economic conditions, as well as the financial status of the corporate borrower. Prepayment would cause the actual duration of a Senior Loan to be shorter than its stated maturity. This should, however, allow the Trust to reinvest in a new loan and recognize as income any unamortized loan fees. In many cases this will result in a new facility fee payable to the Trust.
Because interest rates paid on these Senior Loans periodically fluctuate with the market, it is expected that the prepayment and a subsequent purchase of a new Senior Loan by the Trust will not have a material adverse impact on the yield of the portfolio. See "Portfolio Transactions."
Under a Senior Loan, the corporate borrower generally must pledge as collateral assets which may include one or more of the following: cash; accounts receivable; inventory; property, plant and equipment; and both common and preferred stock in its subsidiaries. The market value of the assets serving as collateral will, in the opinion of the Investment Manager, equal or exceed the principal amount of the Senior Loan. The valuations of these assets may be performed by an independent appraisal. If the
agent becomes aware that the value of the collateral has declined, the agent normally takes such action as it deems necessary for the protection of its own interests and the interests of the other lenders, including, for example, giving the corporate borrower an opportunity to provide additional collateral or accelerating the loan. There is no assurance, however, that the corporate borrower would provide additional collateral or that the liquidation of the existing collateral would satisfy the corporate borrower's obligation in the event of nonpayment of scheduled interest or principal, or that such collateral could be readily liquidated.
The Trust may be required to pay and may receive various fees and
commissions in the process of purchasing, selling and holding Senior Loans. The
fee component may include any, or a combination of, the following elements:
arrangement fees, non-use fees, facility fees, letter of credit fees and ticking
fees. Arrangement fees are paid at the commencement of a loan as compensation
for the initiation of the transaction. A non-use fee is paid based upon the
amount committed but not used under the loan. Facility fees are on-going annual
fees paid in connection with a loan. Letter of credit fees are paid if a loan
involves a letter of credit. Ticking fees are paid from the initial commitment
indication until loan closing if for an extended period. The amount of fees is
negotiated at the time of transaction.
In order to allow national banks to purchase shares of the Trust for their own accounts without limitation, the Trust invests only in obligations which are eligible for purchase by national banks for their own accounts pursuant to the provisions of paragraph seven of Section 24 of U.S. Code Title 12. National banks which are contemplating purchasing shares of the Trust for their own accounts should refer to Banking Circular 220, issued by the U.S. Comptroller of the Currency on November 21, 1986, for a description of certain considerations applicable to such purchases.
INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions relating to its investments and activities, which may not be changed without a Majority Vote (as defined in "Description of Common Shares" in the Prospectus). The Trust may not:
Issue senior securities, except insofar as the Trust may be deemed to have issued a senior security by reason of (i) entering into certain interest rate hedging transactions, (ii) entering into reverse repurchase agreements, or (iii) borrowing money in an amount not exceeding 33 1/3%, or such other percentage permitted by law, of the Trust's total assets (including the amount borrowed) less all liabilities other than borrowings.
Invest more than 25% of its total assets in any industry.
Invest in marketable warrants other than those acquired in conjunction with Senior Loans and such warrants will not constitute more than 5% of its assets.
Make investments in any one issuer other than U.S. Government securities if, immediately after such purchase or acquisition, more than 5% of the value of the Trust's total assets would be invested in such issuer, or the Trust would own more than 25% of any outstanding issue, except that up to 25% of the Trust's total assets may be invested without regard to the foregoing restrictions. For the purpose of the foregoing restriction, the Trust will consider the corporate borrower of a Senior Loan to be the issuer of such Senior Loan. In addition, with respect to a Senior Loan under which the Trust does not have privity with the corporate borrower or would not have a direct cause of action against the corporate borrower in the event of the failure of the borrower to pay scheduled principal or interest, the Trust will also separately meet the foregoing
requirements and consider each interpositioned bank (a lender from which the Trust acquires a Senior Loan) to be an issuer of the Senior Loan.
Act as an underwriter of securities, except to the extent that it may be deemed to act as an underwriter in certain cases when disposing of its portfolio investments or acting as an agent or one of a group of Co-Agents in originating Senior Loans.
Purchase or sell equity securities (except that the Trust may, incidental to the purchase or ownership of an interest in a Senior Loan, or as part of a borrower reorganization, acquire, sell and exercise warrants and/or acquire or sell other equity securities), real estate, real estate mortgage loans, commodities, commodity futures contracts, or oil or gas exploration or development programs; or sell short, purchase or sell straddles, spreads, or combinations thereof, or write put or call options.
Make loans of money or property to any person, except that the Trust
(i) may hold Senior Loans in accordance with its investment objectives
and policies; (ii) may lend portfolio instruments; and (iii) may
acquire securities subject to repurchase agreements.
Purchase shares of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization.
Make investments on margin or hypothecate, mortgage or pledge any of its assets except for the purpose of securing borrowings as described above in connection with the issuance of senior securities and then only in an amount up to 33 1/3%, or such other percentage permitted by law, of the value of the Trust's total net assets (including the amount borrowed) less all liabilities other than borrowings.
If a percentage restriction is adhered to at the time of investment, a later increase or decrease in percentage resulting from a change in value of the Trust's investments or amount of total assets will not be considered a violation of any of the foregoing restrictions.
There is no limitation on the percentage of the Trust's assets that may be invested in instruments which are not readily marketable or subject to restrictions on resale, and to the extent the Trust invests in such instruments, the Trust's portfolio should be considered illiquid. The extent to which the Trust invests in such instruments may affect its ability to realize the net asset value ("NAV") of the Trust in the event of the voluntary or involuntary liquidation of its assets.
TRUSTEES AND OFFICERS
Board of Trustees. The Trust is governed by its Board of Trustees. The Trustees and Officers of the Trust are listed below. An asterisk (*) has been placed next to the name of each Trustee who is an "interested person," as that term is defined in the Investment Company Act, by virtue of that person's affiliation with the Trust or PAII.
Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix, Arizona 85016. (Age 55.) Trustee. Realtor, The Prudential Arizona Realty, for more than the last five years. Ms. Baldwin is also Treasurer, United States Olympic Committee, and formerly was on the teaching staff at Arizona State University. Ms. Baldwin also is a director and/or trustee of each of the funds managed by the Investment Manager.
Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210. (Age 67.) Trustee. President of Al Burton Productions, for more than the last five years, and Executive Producer, Castle Rock Entertainment. Mr. Burton also is a director and/or trustee of each of the funds managed by the Investment Manager.
Bruce S. Foerster, 4045 Sheridan Avenue, Suite 432, Miami Beach, Florida 33140. (Age 55.) Trustee. President, South Beach Capital Markets Advisory Corporation (since January 1995). Mr. Foerster was formerly Managing Director, U.S. Equity Syndicate Desk, Lehman Brothers (June 1992 - December 1994) and Managing Director, Equity Transactions Group/Equity Syndicate, PaineWebber Incorporated (September 1984 - May 1992). Mr. Foerster also is a director and/or trustee of each of the funds managed by the Investment Manager.
Jock Patton, 100 West Clarendon, Phoenix, Arizona 85013. (Age 49.) Trustee. President, StockVal, Inc. (1992 - present); director and co-owner, StockVal, Inc. (1982 - present); director of Artisoft, Inc. Mr. Patton was formerly a partner and director of the law firm of Streich, Lang, P.A. (1972 - 1992). Mr. Patton is also a director or trustee of each of the funds managed by the Investment Manager.
*Robert W. Stallings, Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 46.) Trustee and President. Chairman, Chief Executive Officer and President of Pilgrim America Group, Inc. ("Pilgrim America Group" or the "Administrator") and PAII, and a director of Pilgrim America Securities, Inc. ("PASI") since December 1994). Chairman, Chief Executive Officer and President of Pilgrim America Bank and Thrift Fund, Inc., Pilgrim Government Securities Income Fund, Inc., Pilgrim America Investment Funds, Inc. and Pilgrim America Master Series, Inc. (since April 1995). Chairman and Chief Executive Officer of Express America Holdings Corporation ("Express America") (since August 1990) and Express America Mortgage Corporation (since May 1991) and President of Express America and Express America Mortgage Corporation (since December 1993). Mr. Stallings formerly was Chairman and Chief Executive Officer of First Western Partners, Inc., a consulting and management services firm to financial institutions and private investors (February 1990 - December 1991) and Chairman and Chief Executive Officer of Western Savings & Loan Assoc. (April 1989 - February 1990).
The Board of Trustees has an Audit Committee comprised of the disinterested
Trustees. The Trust pays each Trustee who is not an interested person a pro rata
share, based on all of the investment companies in the Pilgrim America Group, of
(i) an annual retainer of $20,000; (ii) $1,500 per quarterly and special Board
meeting; (iii) $500 per committee meeting; (iv) $100 per special telephonic
meeting; and (v) out-of-pocket expenses. The pro rata share paid by the Trust is
based on the Trust's average net assets for the previous quarter as a percentage
of the average net assets of all the funds managed by PAII for which the
Trustees serve in common as directors/trustees.
Compensation of Trustees
The following table sets forth information regarding compensation of Trustees by the Trust and other funds managed by PAII for the fiscal year ended February 29, 1996. Officers of the Trust and Trustees who are interested persons of the Trust do not receive any compensation from the Trust or any other funds managed by PAII. In the column headed "Total Compensation From Registrant and Fund Complex Paid to Trustees," the number in parentheses indicates the total number of boards in the Pilgrim America Family of funds on which the Trustee serves.
Total
Compensation
From
Aggregate Registrant
Compensation and Fund
from Complex Paid
Name of Person, Position Registrant to Trustees
Mary A. Baldwin (1)(2), Trustee..... $15,788 $24,800 (5 boards)
Al Burton (2)(3), Trustee........... $16,288 $25,300 (5 boards)
Bruce S. Foerster (1)(2), Trustee. $15,853 $24,900 (5 boards)
Jock Patton (2)(4), Trustee......... $10,556 $15,300 (5 boards)
Robert W. Stallings (5), Trustee
and Chairman................. $0 $ 0 (5 boards)
|
(1) Commenced service as a Trustee on April 7, 1995.
(2) Member of the Audit Committee.
(3) Commenced service as a Trustee in 1986.
(4) Commenced service as a Trustee on August 28, 1995.
(5) "Interested person," as defined in the Investment Company Act, of the Trust because of the affiliation with the Investment Manager.
Officers
James R. Reis, Executive Vice President
Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 38.) Mr. Reis serves in the capacity of Chief Credit Officer for the Trust. Mr. Reis reviews each potential portfolio investment based on the Portfolio Managers' and Analysts' recommendation prior to providing purchase approval. Vice Chairman (since December 1994) and Executive Vice President (since April 1995) of Pilgrim America Group and PAII and a director (since December 1994) and Assistant Secretary (since January 1995) of PASI Executive Vice President of Pilgrim Government Securities Income Fund, Inc., Pilgrim America Investment Funds, Inc., Pilgrim America Masters Series, Inc., and Pilgrim America Bank and Thrift Fund, Inc., Vice Chairman and Chief Financial Officer of Express America (since December 1993) and President and Chief Financial Officer of Express America (May 1991 - December 1993). Mr. Reis is also Vice Chairman (since December 1993) of Express America Mortgage Corporation and formerly was President (May 1991 - December 1993), and he was also the President and Chief Financial Officer of First Western Partners, Inc. (February 1990 - December 1991).
James M. Hennessy, Senior Vice President and Secretary
Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 46.) Mr. Hennessy serves in the capacity of counsel to all of the funds in the Pilgrim America family of funds. In this capacity, Mr. Hennessy monitors all matters relating to regulatory compliance for Pilgrim America Group. Senior Vice President and Secretary, Express America, Pilgrim America Group, PAII and PASI (since April 1995). Senior Vice President and Secretary of Pilgrim Government Securities Income Fund, Inc., Pilgrim America Investment Funds, Inc., Pilgrim America Masters Series, Inc. and Pilgrim America Bank and Thrift Fund, Inc., Senior Vice President, Express America Mortgage
Corporation (June 1992 - August 1994). Mr. Hennessy was also the President of Beverly Hills Securities (January 1990 - June 1992).
Daniel A. Norman, Senior Vice President and Assistant Portfolio Manager
Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 38.) Mr. Norman has served as Senior Vice President and Assistant Portfolio Manager of the Trust since April 1995 and September 1996, respectively. Mr. Norman is a Senior Vice President of PAGI (since April 1995), PAII (since April 1995), PASI (since December 1994), Express America (since April 1995), and Express America Mortgage Corporation (since February 1992). Mr. Norman was Chief Financial Officer of Prime Financial Inc. (December 1985 - February 1992) and from 1981 to 1985 was employed by Arthur Andersen & Co. Mr. Norman received an MBA from the University of Nebraska.
Michael J. Roland, CPA, Senior Vice President, Treasurer and Principal Accounting Officer
Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 37.) Mr. Roland serves as the senior financial accounting and compliance officer for all of the funds in the Pilgrim America family of funds. Senior Vice President and Chief Financial Officer of Pilgrim America Group, PAII and PASI (since April 1995). Senior Vice President and Treasurer of Pilgrim Government Securities Income Fund, Inc., Pilgrim America Bank and Thrift Fund, Inc., Pilgrim America Masters Series, Inc., and Pilgrim America Investment Funds, Inc. (since January 1995). From July 1994 through December 1994, Partner at the consulting firm of Corporate Savings Group in Newport Beach, California. From 1992 to June 1994, Vice President of Pacific Financial Asset Management Corp. Funds in Newport Beach, California. From 1988 to 1992, Director of Financial Reporting for Pacific Mutual Life Insurance Company in Newport Beach, California.
Howard Tiffen, Senior Vice President and Senior Portfolio Manager
Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004. (Age 47.) Mr. Tiffen is a Senior Vice President of PAII and
Senior Portfolio Manager of the Trust. He has had primary responsibility
for investment management of the Trust since November, 1995. Mr. Tiffen's
banking career spans more than 25 years. Mr. Tiffen served in a series of
positions in the lending and capital market functions at a major United
States Bank for 13 years and has served in international investment banking
functions in Hong Kong, Malta, the Caribbean, Singapore, Thailand, and
Japan. From 1982 to November 1995, Mr. Tiffen worked for Bank of America
(and its predecessor, Continental Bank) in the following capacities:
Managing Director, Money Managers Group (1993- 1995); Managing Director,
Loan Sales Trading (1990-1993); Managing Director, Distribution (London,
England, 1984-1990); and Vice President and Managing Director, Capital
Markets (1982-1984).
Michael Bacevich, Vice President and Assistant Portfolio Manager
Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age ___.) Mr. Bacevich has served as Assistant Portfolio Manager and Vice President of the Trust since December 1995 and September 1996, respectively. Mr. Bacevich is Vice President of PAGI and PAII (since November 1995). Prior to joining Pilgrim America, Mr. Bacevich was a Vice President with the Bank of America (and its predecessor, Continental Bank) in its Leveraged Finance Group (July 1994 - November 1995) and prior to that in Special Assets Administration (July 1990 - July 1994). Mr. Bacevich began his banking career with Chemical Bank in June 1988. Prior to that time, Mr. Bacevich was in the United States Army where he achieved the rank of Captain (June 1981 - August 1986). Mr. Bacevich is a graduate of West Point and received an MBA from the University of Chicago.
As of _______________, 1996, the Trustees and Officers of the Trust as a group owned beneficially less than 1% of the Trust's shares.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Manager. The Investment Manager serves as investment manager to the Trust and has overall responsibility for the management of the Trust. The
Investment Management Agreement between the Trust and the Investment Manager requires the Investment Manager to oversee the provision of all investment advisory services for the Trust. The Investment Manager, which was organized in December 1994, is registered as an investment adviser with the Commission and serves as investment adviser to seven other registered investment companies (or series thereof) and as of ____________, 1996 had total assets under management of approximately $________ billion. The Investment Manager is a wholly owned subsidiary of Pilgrim America Group, which itself is a wholly-owned subsidiary of Express America, a Delaware corporation, the shares of which are traded on the NASDAQ National Market System and which is a holding company that through its subsidiaries engages in the financial services business.
The Investment Manager pays all of its expenses arising from the performance of its obligations under the Investment Management Agreement, including executive salaries and expenses of the Trustees and Officers of the Trust who are employees of the Investment Manager or its affiliates. Other expenses incurred in the operation of the Trust are borne by the Trust, including, without limitation, expenses incurred in connection with the sale, issuance, registration and transfer of its shares; fees of its Custodian, Transfer and Shareholder Servicing Agent; salaries of officers and fees and expenses of Trustees or members of any advisory board or committee of the Trust who are not members of, affiliated with or interested persons of the Investment Manager; the cost of preparing and printing reports, proxy statements and prospectuses of the Trust or other communications for distribution to its shareholders; legal, auditing and accounting fees; the fees of any trade association of which the Trust is a member; fees and expenses of registering and maintaining registration of its shares for sale under Federal and applicable State securities laws; and all other charges and costs of its operation plus any extraordinary and non-recurring expenses.
For the fiscal years ended February 29, 1996, and February 28, 1995 and 1994, PAII (or, prior to April 7, 1995, its predecessor) was paid $7,122,089, $6,196,871, and $6,133,835 for services rendered to the Trust.
The Investment Management Agreement continues from year to year if specifically approved at least annually by the Trustees or the Shareholders. But in either event, the Investment Management Agreement must also be approved by vote of a majority of the Trustees who are not parties to the Investment Management Agreement or "interested persons" of any such party, cast in person at a meeting called for that purpose.
The use of the name "Pilgrim" in the Trust's name is pursuant to a license granted by PAII, and in the event the Investment Management Agreement is terminated, the Trust has agreed to amend its Agreement and Declaration of Trust to remove the reference to "Pilgrim."
The Administrator. The Administrator of the Trust is Pilgrim America Group, which is an affiliate of the Investment Manager. In connection with its administration of the corporate affairs of the Trust, the Administrator bears the following expenses: the salaries and expenses of all personnel of the Trust and the Administrator except for the fees and expenses of Trustees not affiliated with the Administrator or PAII; costs to prepare information for determination of daily NAV by the recordkeeping and accounting agent; expenses to maintain certain of the Trust's books and records that are not maintained by PAII, the custodian, or transfer agent; costs incurred to assist in the preparation of financial information for the Trust's income tax returns, proxy statements, quarterly, semi-annual, and annual shareholder reports; costs of providing shareholder services in connection with any tender offers or to shareholders proposing to transfer their shares to a third party; providing shareholder services in connection with the dividend reinvestment plan; and all expenses incurred by the Administrator or by the Trust in connection with administering the ordinary course of the Trust's business other than those assumed by the Trust, as described below.
Except as indicated above and under "Investment Management Agreement," the Trust is responsible for the payment of its other expenses including: the fees payable to PAII; the fees payable to the Administrator; the fees and expenses of Trustees who are not affiliated with PAII or the Administrator; the fees and certain expenses of the Trust's custodian and transfer agent, including the cost of providing records to the Administrator in connection with its obligation of maintaining required records of the Trust; the charges and expenses of the Trust's legal counsel and independent accountants; commissions and any issue or transfer taxes chargeable to the Trust in connection with its transactions; all taxes and corporate fees payable by the Trust to governmental agencies; the fees of any trade association of which the Trust is a member; the cost of share certificates representing shares of the Trust; organizational and offering expenses of the Trust and the fees and expenses involved in registering and maintaining registration of the Trust and of its shares with the Commission including the preparation and printing of the Trust's registration statement and prospectuses for such purposes; allocable communications expenses, with respect to investor services and all expenses of shareholders and Trustees' meetings and of preparing, printing and mailing reports, proxy statements and prospectuses to shareholders; and the cost of insurance; and litigation and indemnification expenses and extraordinary expenses not incurred in the ordinary course of the Trust's business.
For the fiscal years ended February 29, 1996 and February 28, 1995 and 1994, PAGI (or, prior to April 7, 1995, its predecessor) was paid $1,264,932, $1,098,740, and $1,086,767 for services rendered to the Trust.
PORTFOLIO TRANSACTIONS
The Trust will generally have at least 80% of its net assets invested in Senior Loans. The remaining assets of the Trust will generally consist of short-term debt instruments with remaining maturities of 120 days or less and certain other instruments such as interest rate swaps, caps and floors, repurchase agreements and reverse repurchase agreements. The Trust will acquire Senior Loans from and sell Senior Loans to major money center banks, selected regional banks and selected non-banks, insurance companies, finance companies and leasing companies which usually act as lenders on senior collateralized loans. The Trust may also purchase Senior Loans from and sell Senior Loans to U.S. branches of foreign banks which are regulated by the Federal Reserve System or appropriate state regulatory authorities. The Trust's interest in a particular Senior Loan will terminate when the Trust receives full payment on the loan or sells a Senior Loan in the secondary market. Costs associated with purchasing or selling Senior Loans in the secondary market include commissions paid to brokers and processing fees paid to agents. These costs are allocated between the purchaser and seller as agreed between the parties.
Purchases and sales of short-term debt and other financial instruments for the Trust's portfolio usually are principal transactions, and normally the Trust will deal directly with the underwriters or dealers who make a market in the securities involved unless better prices and execution are available elsewhere. Such market makers usually act as principals for their own account. On occasion, securities may be purchased directly from the issuer. Short-term debt instruments are generally traded on a net basis and do not normally involve either brokerage commissions or transfer taxes. The cost of portfolio securities transactions of the Trust that are not transactions with principals will consist primarily of brokerage commissions or dealer or underwriter spreads between the bid and asked price, although purchases from underwriters may involve a commission or concession paid by the issuer.
While PAII seeks to obtain the most favorable net results in effecting transactions in the Trust's portfolio securities, brokers or dealers who provide research services may receive orders for transactions by the Trust. Such research services ordinarily consist of assessments and analyses of the business or prospects of a company, industry, or economic sector. If, in the judgment of PAII, the Trust will benefit from such research services, PAII is authorized to
pay spreads or commissions to brokers or dealers furnishing such services which are in excess of spreads or commissions that other brokers or dealers not providing such research may charge for the same transaction. Information so received will be in addition to, and not in lieu of, the services required to be performed by PAII under the Investment Management Agreement between PAII and the Trust. The expenses of PAII will not necessarily be reduced as a result of the receipt of such supplemental information. PAII may use any research services obtained for the benefit of the Trust in providing investment advice to its other investment advisory accounts. Conversely, such information obtained by the placement of business for PAII or other entities advised by PAII will be considered by and may be useful to PAII in carrying out its obligations to the Trust.
The Trust does not intend to effect any brokerage transaction in its portfolio securities with any broker-dealer affiliated directly or indirectly with the Investment Manager, except for any sales of portfolio securities pursuant to a tender offer, in which event the Investment Manager will offset against the management fee a part of any tender fees which legally may be received by such affiliated broker-dealer. To the extent certain services which the Trust is obligated to pay for under the Investment Management Agreement are performed by the Investment Manager, the Trust will reimburse the Investment Manager for the costs of personnel involved in placing orders for the execution of portfolio transactions.
The Trust paid $7,400, $8,544 and $0 in brokerage commissions during the fiscal years ended February 29, 1996, February 28, 1995 and February 28, 1994, respectively.
Portfolio Turnover Rate
The annual rate of the Trust's total portfolio turnover for the years ended February 29, 1996 and February 28, 1995 and 1994, was 88%, 108% and 87%, respectively. The annual turnover rate of the Trust is generally expected to be between 50% and 100%, although as part of its investment policies, the Trust places no restrictions on portfolio turnover and the Trust may sell any portfolio security without regard to the period of time it has been held. The annual turnover rate of the Trust also includes Senior Loans for which the full payment on the Senior Loan has been prepaid by the corporate borrower. The Investment Manager believes that prepaid Senior Loans generally comprise approximately 25% to 75% of the Trust's total portfolio turnover each year.
NET ASSET VALUE
The NAV per share is determined once daily as of the close of trading on the NYSE on each day it is open, by dividing the value of the Trust's portfolio securities plus all cash and other assets (including dividends accrued but not collected) less all liabilities (including accrued expenses but excluding capital and surplus) by the number of shares outstanding. In accordance with generally accepted accounting principles for investment companies, dividend income is accrued on the ex-dividend date. The NAV per share is made available for publication.
The value of a Senior Loan is determined by obtaining market quotations. Senior Loans are valued at fair value in the absence of readily ascertainable market values. Fair value is determined by PAII under procedures established and monitored by the Trust's Board of Trustees. In valuing a loan, PAII considers, 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 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 intrest rate reset, maturity, terms and conditions, if any. PAII 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, PAII will not currently 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.
METHODS AVAILABLE TO REDUCE MARKET VALUE DISCOUNT FROM NAV
In recognition of the possibility that the Trust's shares may trade at discount to NAV, the Trustees have determined that it would be in the best interest of Shareholders for the Trust to take action to attempt to reduce or eliminate a market value discount from NAV. To that end, the Trustees presently contemplate that the Trust will take action either to repurchase in the open market or to consider the making of tender offers to purchase its own shares at NAV. Since Trust shares became listed on the NYSE on March 9, 1992, the Trust has authorized two repurchase programs and has not conducted any tender offers. The Trustees presently intend each quarter to consider the making of such tender offers. The Trustees will at no time be required to make such tender offers. Moreover, there can be no assurance that tender offers will result in the Trust's shares trading at a price which is equal to their NAV. The Trust anticipates that the market price may, among other things, be determined by the relative demand for and supply of such shares in the market, the Trust's investment performance, the Trust's yield, and investor perception of the Trust's overall attractiveness as an investment as compared with other investment alternatives.
In deciding whether the Trust will entertain tender offers and whether it will accept shares tendered, the Trustees will consider several factors. One of the principal factors in the Board's determinations on whether or not to make quarterly offers will be the strength of the public market for the Trust's shares. Other factors include the desire to reduce or eliminate a market value discount from NAV. In addition, the Trustees will take into consideration the liquidity of its assets in determining whether to make a tender offer or accept tendered shares. In paying shareholders for tendered shares, the Trust anticipates that it will use cash on hand, such as proceeds from sales of new Trust shares and specified pay-downs from Senior Loans, and proceeds from the sale of cash equivalents held by the Trust. The Trust may also borrow to pay Shareholders for tendered shares. To the extent more shares are anticipated to be tendered or are tendered than could be paid for out of such amounts, the liquidity of the Senior Loans held by the Trust may be a consideration in the Trust's determination whether to make a tender offer or, if an offer is made, in its determination of whether it will accept shares tendered. Accepting tendered shares may require the Trust to sell portfolio investments and incur certain costs which it otherwise would not have. Under most Senior Loans, it will be necessary for the Trust to obtain the consent of the agent or lender from whom the Trust purchased the Senior Loan prior to selling the Senior Loan to a third party. Senior Loans such as those the Trust intends to invest in have historically been considered by the investment community to be liquid assets, although in certain instances, the conversion of such instruments into cash has taken several days or longer. The market for Senior Loans is relatively new as compared to markets for more established debt instruments. Accordingly, while PAII does not anticipate any material difficulty in meeting the liquidity needs for tender offers, there can be no guarantee that the Trust will be able to liquidate a particular Senior Loan it holds within a given period of time.
Furthermore, even if a tender offer has been made, it is the Trustees' announced policy, which may be changed by the Trustees, not to effect tender offers or accept tenders if: (1) such transactions, if consummated, would impair the Trust's status as a regulated investment company under the Internal Revenue Code (which would make the Trust a taxable entity, causing its income to be taxed at the corporate level in addition to the taxation of shareholders who receive dividends from the Trust) or (2) there is, in the judgment of the Trustees, any (a) material legal action or proceeding instituted or threatened challenging such transactions or otherwise materially adversely affecting the Trust, (b) declaration of a banking moratorium by federal or state authorities or any suspension of payment by banks in the United States, (c) limitation affecting the Trust or the issuers of its portfolio instruments imposed by federal or state authorities on the extension of credit by lending institutions or on the exchange of foreign currency, (d) commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States, or (e) other event or condition which would have a
material adverse effect on the Trust or its shareholders if shares were repurchased. The Trustees may modify these conditions in light of experience.
Any tender offer made by the Trust will be at a price equal to the NAV of the shares. Each shareholder will be notified in accordance with the requirements of the Securities Exchange Act of 1934 and the Investment Company Act, either by publication or mailing or both. Each offering document will contain such information as is prescribed by such laws and the rules and regulations promulgated thereunder. Other procedures to be used in connection with a particular tender offer will be determined by the Trustees in accordance with the provisions of applicable law, including the Securities Exchange Act of 1934.
Any tender offer that the Trust makes may have the effect of reducing shareholder return as a result of the expenses incurred with respect to the tender offers, the reduced level of interest earned on the money received by the Trust as payment for shares newly purchased which may be held in cash equivalents in anticipation of tender offers, and the cost of borrowing money to fund the tender offers.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
The Trust maintains a Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), which allows participating shareholders to reinvest all dividends and
capital gain distributions in additional shares of the Trust. The Plan also
allows participants to make voluntary purchases monthly through IFTC (the "Plan
Agent"), in amounts ranging from a minimum of $100 to a maximum of $5,000 (such
minimum and maximum may be waived at management's discretion). IFTC establishes
a Dividend Investment Account (the "Account") for each shareholder participating
in the Plan and credits to each participant's Account funds it receives from:
(a) dividends and capital gain distributions paid on Trust shares registered in
the participant's name; and (b) voluntary cash contributions. If on the close of
business on the Trust's dividend valuation date the market price (the average of
sale prices, per share, as reported on the NYSE Composite Transaction Tape) plus
commissions is less than the NAV, funds credited to a participant's Account will
be used to purchase shares. If the market price, plus estimated commissions, of
the shares equals or exceeds their NAV at the close of business on such
valuation date, the Trust will issue shares valued at NAV per share to IFTC in
the aggregate amount of the distributions credited to the participants'
Accounts.
Shareholders may elect to withdraw from the Plan at any time by giving IFTC written notice. When a participant withdraws from the Plan, or when the Plan is terminated or amended, the participant will receive a certificate for full shares in the Account, plus a check for any fractional shares based on market price; or if a participant so desires, upon receipt of a request with signature guaranteed and a properly completed W- 9, IFTC will sell such Shares in the Plan and send the proceeds to the participant less brokerage commissions.
The automatic reinvestment of dividends and capital gain distributions does not affect the tax characterization of the dividends and capital gains (i.e., capital gains and income are realized even though cash is not received). There are no direct brokerage charges nor service charges to participants for reinvesting dividends and capital gain distributions or purchases made with voluntary cash payments. However, each participant will pay a pro rata share of brokerage commissions with respect to IFTC's open market purchases in connection with the reinvestment of distributions and voluntary cash contributions.
In accordance with Section 23(c) of the Investment Company Act and Rule 23c-1 thereunder, the Trust may from time to time purchase shares of beneficial interest of the Trust in the open market in connection with the Plan.
See "Tax Matters--Distributions" for a discussion of the federal income tax ramifications of obtaining Shares under the Plan.
TAX MATTERS
The following is only a summary of certain U.S. federal income tax considerations generally affecting the Trust and its shareholders. No attempt is made to present a detailed explanation of the tax treatment of the Trust or its shareholders, and the following discussion is not intended as a substitute for careful tax planning. Shareholders should consult with their own tax advisers regarding the specific federal, state, local, foreign and other tax consequences of investing in the Trust.
Qualification as a Regulated Investment Company
The Trust has elected to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a regulated investment company, the Trust generally is not subject to federal income tax on the portion of its investment company taxable income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses, and net short-term capital gains in excess of net long-term capital losses) and net capital gains (i.e., the excess of net long- term capital gains over net short-term capital losses) that it distributes to shareholders, provided that it distributes at least 90% of its investment company taxable income for the taxable year (the "Distribution Requirement"), and satisfies certain other requirements of the Code that are described below.
In addition to satisfying the Distribution Requirement and an asset
diversification requirement discussed below, a regulated investment company must
(1) derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; and (2) derive less than 30% of its gross income from
the sale or other disposition of stock, securities or foreign currencies (or
options, futures or forward contracts thereon) held for less than three months
(the "Short-Short Test"). However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short if they are directly related to the regulated
investment company's investment in stock or securities (or options or futures
thereon). Because of the Short-Short Test, the Trust may have to limit the sale
of appreciated securities that it has held for less than three months.
In general, gain or loss recognized by the Trust on the disposition of an asset will be a capital gain or loss. However, gain recognized on the disposition of a debt obligation purchased by the Trust other than at original issue at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time the Trust held the debt obligation.
In general, investments by the Trust in zero coupon or other original issue discount securities will result in income to the Trust equal to a portion of the excess of the face value of the securities over their issue price (the "original issue discount") each year that the Trust holds the securities, even though the Trust receives no cash interest payments. This income is included in determining the amount of income which the Trust must distribute to maintain its status as a regulated investment company and to avoid federal income and excise taxes.
In addition to satisfying the requirements described above, the Trust must satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each quarter of the Trust's taxable year, at least 50% of the value of the Trust's assets must consist of cash and cash items (including receivables), U.S. Government securities, securities of other regulated investment companies, and securities of other issuers (as to which the Trust has not invested more than 5% of the value of the Trust's total assets in securities of any such issuer and as to which the Trust does not hold more than 10% of the outstanding voting securities of any such issuer), and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Trust controls and which are engaged in the same or similar trades or businesses.
If for any taxable year the Trust does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable as ordinary dividends to the extent of the Trust's current and accumulated earnings and profits. Such distributions generally will be eligible for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to at least 98% of ordinary taxable income for the calendar year, at least 98% of capital gain net income (i.e., capital gains in excess of capital losses) for the one-year period ended on October 31 of such calendar year taxable income and capital gain net income for previous years that was not distributed during those years. A distribution will be treated as paid on December 31 of the current calendar year if it is declared by the Trust in October, November or December with a record date in such a month and paid by the Trust during January of the following calendar year. Such distributions will be taxable to shareholders in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received.
The Trust intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income to avoid liability for the excise tax.
Distributions
The Trust anticipates distributing substantially all of its investment company taxable income for each taxable year. Such distributions will be taxable to shareholders as ordinary income. If a portion of the Trust's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Trust may be eligible for the corporate dividends received deduction.
The Trust may either retain or distribute to shareholders its net capital gain for each taxable year. The Trust currently intends to distribute any such amounts. If net capital gain is distributed and designated as a capital gain dividend, it will be taxable to shareholders as long-term capital gain, regardless of the length of time the shareholder has held his shares. Conversely, if the Trust elects to retain its net
capital gain, the Trust will be taxed thereon (except to the extent of any available capital loss carryovers) at the 35% corporate tax rate. In such event, it is expected that the Trust also will elect to treat such gain as having been distributed to shareholders. As a result, each shareholder will be required to report his pro rata share of such gain on his tax return as long-term capital gain, will be entitled to claim a tax credit for his pro rata share of tax paid by the Trust on the gain, and will increase the tax basis for his shares by an amount equal to the deemed distribution less the tax credit.
Distributions by the Trust in excess of the Trust's earnings and profits will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any such return of capital distributions in excess of the shareholder's tax basis will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Trust will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional shares of the Trust. If the NAV at the time a shareholder purchases shares of the Trust reflects undistributed income or gain, distributions of such amounts will be taxable to the shareholder in the manner described above, even though such distributions economically constitute a return of capital to the shareholder.
The Trust will be required in certain cases to withhold and remit to the U.S. Treasury 31% of all taxable distributions payable to any shareholder (1) who fails to provide the Trust with a certified, correct tax identification number or other required certifications, or (2) who is notified by the Internal Revenue Service that he or she is subject to backup withholding for failure to report the receipt of interest or dividend income properly.
Sale of Shares
A shareholder will recognize gain or loss on the sale or exchange of shares of the Trust in an amount generally equal to the difference between the proceeds of the sale and the shareholder's adjusted tax basis in the shares. In general, any such gain or loss will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. However, any capital loss arising from the sale of shares held for six months or less will be treated as a long-term capital loss to the extent of any long-term capital gains distributed (or deemed distributed) with respect to such shares. Also, any loss realized on a sale or exchange of shares will be disallowed to the extent the shares disposed of are replaced within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such case, the tax basis of the acquired shares will be adjusted to reflect the disallowed loss.
Foreign Shareholders
U.S. taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership ("foreign shareholder") depends on whether the income from the Trust is "effectively connected" with a U.S. trade or business carried on by such shareholder.
If the income from the Trust is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, distributions of investment company taxable income will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate). Such a foreign shareholder would generally be exempt from U.S. federal income tax on gains realized on the sale or exchange of shares of the Trust, capital gain dividends, and amounts retained by the Trust that are designated as undistributed capital gains.
If the income from the Trust is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then distributions of investment company taxable income, capital gain dividends, amounts retained by the Trust that are designated as undistributed capital gains and any gains realized upon the sale or exchange of shares of the Trust will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations. Such shareholders that are classified as corporations for U.S. tax purposes also may be subject to a profits tax.
In the case of foreign noncorporate shareholders, the Trust may be required to withhold U.S. federal income tax at a rate of 31% on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Trust with proper notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Trust, including the applicability of foreign taxes.
Effect of Future Legislation; Other Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is based on the Code and the Treasury Regulations issued thereunder as in effect on the date of this Statement of Additional Information. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to the transactions contemplated herein.
Income received by the Trust from foreign sources may be subject to withholding and other taxes imposed by such foreign jurisdictions, absent treaty relief. Distributions to shareholders also may be subject to state, local and foreign taxes, depending upon each shareholder's particular situation. Shareholders are urged to consult their tax advisers as to the particular consequences to them of an investment in the Trust.
ADVERTISING AND PERFORMANCE DATA
Advertising
From time to time advertisements and other sales materials for the Trust may include information concerning the historical performance of the Trust. Any such information may include annual total return, aggregate total return, distribution rate, average compounded distribution rate and yield of the Trust for specified periods of time. Such information may also include performance rankings and similar information from independent organizations such as Lipper Analytical Services, Inc. ("Lipper"), Morningstar, or other industry publications.
On occasion, the Trust may quote total return calculations published by Lipper, a widely recognized independent publication that monitors the performance of both open and closed-end investment companies. The Trust may also cite investment company rankings published by Lipper based on total return. These rankings will typically compare the Trust to other Senior Loan funds and also to taxable closed-end fixed income funds. The Trust may also refer to ratings received for its overall risk-adjusted performance from Morningstar, another widely recognized independent publisher of investment company ratings. Any such use of rankings and ratings in advertisements and sales literature will conform with the guidelines proposed by the NASD and
subsequently approved by the Commission on July 13, 1994. Ranking comparisons and ratings should not be considered representative of the Trust's relative performance for any future period.
In addition, the Trust may compare its yield to (i) the prime rate, quoted daily in The Wall Street Journal as the base rate on corporate loans at large U.S. money center commercial banks, (ii) one or more averages compiled by Donoghue's Money Fund Report, a widely recognized independent publication that monitors the performance of money market mutual funds, (iii) the average yield reported by the Bank Rate Monitor National Index for money market deposit accounts offered by the 100 leading banks and thrift institutions in the ten largest standard metropolitan statistical areas, (iv) yield data published by Lipper, or (v) the yield on an investment in 90-day Treasury bills on a rolling basis, assuming quarterly compounding. Also, the Trust may compare such other yield data described above to each other. As with yield and total return calculations, yield comparisons should not be considered representative of the Trust's yield or relative performance for any future period.
Performance Data
The Trust may quote annual total return and aggregate total return performance data. Total return quotations for the specified periods will be computed by finding the rate of return (based on net investment income and any capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the value of such investment at the end of the period.
The Trust's distribution rate generally is determined on a monthly basis with respect to the immediately preceding monthly distribution period. The distribution rate is computed by first annualizing the Trust's distributions per share during such a monthly distribution period and dividing the annualized distribution by the Trust's maximum offering price per share on the last day of such period. The Trust calculates the compounded distribution rate by adding one to the monthly distribution rate, raising the sum to the power of 12, and subtracting one from the product. In circumstances in which the Trust believes that, as a result of decreases in market rates of interest, its expected monthly distributions may be less than the distributions with respect to the immediately preceding monthly distribution period, the Trust reserves the right to calculate the distribution rate on the basis of a period of less than one month. Historical distribution rates on a month to month basis may also be presented.
Total return, distribution rate and compounded distribution rate figures utilized by the Trust are based on historical performance and are not intended to indicate future performance. Distribution rate, compounded distribution rate and NAV per share can be expected to fluctuate over time. Total return will vary depending on market conditions, the Senior Loans, and other securities comprising the Trust's portfolio, the Trust's operating expenses and the amount of net realized and annualized capital gains or losses during the period.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements
Contained in Part A:
(a) Financial Highlights for the six months ended August 31, 1996 (unaudited) and the years ended February 29, 1996; February 28, 1995, 1994, 1993; February 29, 1992; February 28, 1991, 1990 and 1989
(b) Portfolio of Investments as of August 31, 1996 (unaudited)
(c) Statement of Assets and Liabilities as of August 31, 1996 (unaudited)
(d) Statement of Operations for the six months ended August 31, 1996
(unaudited)
(e) Statements of Changes in Net Assets for the six months ended August 31, 1996 (unaudited) and the year ended February 29, 1996
(f) Statement of Cash Flows for the six months ended August 31, 1996
(unaudited)
(g) Notes to Financial Statements (unaudited)
Incorporated in Part B by reference to Registrant's February 29, 1996 Annual Report:
(a) Portfolio of Investments as of February 29, 1996
(b) Statement of Assets and Liabilities as of February 29, 1996
(c) Statement of Operations for the year ended February 29, 1996
(d) Statements of Changes in Net Assets for the years ended February 28, 1995 and February 29, 1996
(e) Statement of Cash Flows for the year ended February 29, 1996
(f) Notes to Financial Statements
(g) Report of Independent Accountants dated April 12, 1996
2. Exhibits
(a) (i) Agreement and Declaration of Trust
(ii) Amendment to the Agreement and Declaration of Trust dated March 26, 1996 and effective April 12, 1996
(b) By-Laws1/
(c) Not Applicable
(d) (i) Specimen Certificate for Shares of Beneficial Interest2/
(ii) Form of Notice of Guaranteed Delivery
(iii) Form of Exercise Form
(iv) Form of DTC Participant Oversubscription Exercise Form
(v) Form of Beneficial Owner Certification
(e) Dividend Reinvestment and Cash Purchase Plan
(f) Not Applicable
(g) (i) Investment Management Agreement
(ii) Amendment to Investment Management Agreement
(h) (i) Form of Dealer Manager Agreement (to be filed in a post-effective amendment)
(ii) Form of Soliciting Dealer Agreement (to be filed in a post-effective amendment)
(i) Not Applicable
(j) Custodian Agreement2/
(k) (i) Amendment to Administration Agreement
(ii) Form of Subscription Rights Agency Agreement
(iii) Form of Information Agency Agreement
(l) Opinion of Dechert Price & Rhoads (to be filed in a post- effective amendment)
(m) Not Applicable
(n) (i) Consent of KPMG Peat Marwick LLP
(ii) Consent of Tait, Weller & Baker
(o) Not Applicable
(p) Certificate of Initial Capital1/
(q) Not Applicable
(r) Financial Data Schedule
1/ Incorporated herein by reference to pre-effective amendment no. 1 to Registrant's initial registration statement on Form N-2 (File No. 33-18886), filed on January 22, 1988 (hereinafter "Initial Registration Statement").
2/ Incorporated herein by reference to pre-effective amendment no. 4 to Registrant's Initial Registration Statement, filed on April 8, 1988.
3/ Incorporated herein by reference to pre-effective amendment no. 5 to Registrant's Initial Registration Statement, filed on April 21, 1988.
4/ Incorporated herein by reference to post-effective amendment no. 2 to Registrant's Initial Registration Statement, filed on October 24, 1988.
5/ Incorporated herein by reference to post-effective amendment no. 2 to Registrant's Initial Registration Statement, filed on December 9, 1988.
6/ Incorporated herein by reference to Registrant's registration statement on Form N-2 (File No. 33- 32401), filed December 1, 1989.
7/ Incorporated herein by reference to pre-effective amendment no. 1 to Registrant's registration statement on Form N-2 (File No. 33-32401), filed January 8, 1990.
Item 25. Marketing Agreements
See Form of Dealer Manager Agreement to be filed as Exhibit (h)(i) to this Registration Statement.
Item 26. Other Expenses of Issuance and Distribution*
Registration Fees..............................................._____________ Federal Taxes..................................................._____________ State Taxes and Fees............................................_____________ Trustee Fees...................................................._____________ Transfer Agent's Fees..........................................._____________ Printing and Engraving Expenses................................._____________ Rating Agency Fees.............................................._____________ Legal Fees......................................................_____________ New York Stock Exchange Listing Fees............................_____________ National Association of Securities Dealers, Inc. Fees..........._____________ Accounting Fees and Expenses...................................._____________ |
Offering Manager Expenses........................................_____________
Subscription Agent Fees.........................................._____________
Miscellaneous Expenses..........................................._____________
Total..................................................._____________
_____________________
|
* To be completed by amendment.
Item 27. Person Controlled by or Under Common Control
Not Applicable.
Item 28. Number of Holders of Securities
As of August 30, 1996:
(1) Title of Class (2) Number of Record Holders
-------------- ------------------------
Shares of Beneficial Approximately 53,285
Interest
|
Item 29. Indemnification
Registrant's Agreement and Declaration of Trust generally provides that the Trust shall indemnify each of its Trustees and officers (including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) ("Covered Persons") against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, by reason of being or having been such a Covered Person except with respect to any matter as to which such Covered Person shall have been finally adjudicated (a) not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interest of the Trust or (b) to be liable to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of duties involved in the conduct of such Covered Person's office.
Reference is made to Section 7 of the Form of Dealer Manager Agreement to be filed as Exhibit (h)(i) to this Registration Statement for the provisions relating to indemnification of the Dealer Managers.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of the Registrant
of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the securities being registered, the Registrant will submit, unless in the opinion of its counsel the matter has been settled by controlling precedent, to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 30. Business and Other Connections of Investment Adviser
Certain of the officers and directors of the Registrant's Investment Manager also serve as officers and/or directors for other registered investment companies in the Pilgrim America family of funds and with Pilgrim America Group, Inc. and its subsidiaries. Information as to the directors and officers of the Adviser is included in the Investment Manager's Form ADV and amendments thereto filed with the Commission and is incorporated herein by reference thereto. For additional information, see "Investment Management and Other Services" in the Prospectus.
Item 31. Location of Accounts and Records
The amounts and records of the Registrant will be maintained at its office at Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004 and at the office of its custodian, Investors Fiduciary Trust Company, 127 W. 10th Street, Kansas City, Missouri 64105.
Item 32. Management Services
Not Applicable.
Item 33. Undertakings
1. The Registrant undertakes to suspend the Offer until the prospectus is amended if (1) subsequent to the effective date of this registration statement, the net asset value declines more than ten percent from its net asset value as of the effective date of this registration statement or (2) the net asset value increases to an amount greater than the net proceeds as stated in the prospectus included in this registration statement.
2. Not Applicable.
3. Not Applicable.
4. Not Applicable.
5. The Registrant undertakes:
a. for the purpose of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and
b. for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
6. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Phoenix in the State of Arizona this 16th day of September, 1996.
PILGRIM AMERICA PRIME RATE TRUST
/s/ Robert W. Stallings
Robert W. Stallings
President
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated:
/s/ Robert W. Stallings President September 16, 1996 Robert W. Stallings and Trustee /s/ Michael J. Roland Treasurer September 16, 1996 Michael J. Roland /s/ Mary A. Baldwin Trustee September 16, 1996 Mary A. Baldwin /s/ Al Burton Trustee September 16, 1996 Al Burton /s/ Bruce S. Foerster Trustee September 16, 1996 Bruce S. Foerster /s/ Jock Patton Trustee September 16, 1996 Jock Patton |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the duly elected President of Pilgrim America Prime Rate Trust (the "Trust"), constitutes and appoints James R. Reis, James M. Hennessy, Daniel A. Norman, Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign the Trust's registration statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and conforming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: September 16, 1996
/s/ Robert W. Stallings
Robert W. Stallings
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the duly elected Treasurer and Principal Accounting Officer of Pilgrim America Prime Rate Trust (the "Trust"), constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy, Daniel A. Norman, Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign the Trust's registration statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and conforming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: September 16, 1996
/s/ Michael J. Roland
Michael J. Roland
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly elected Trustee of Pilgrim America Prime Rate Trust (the "Trust"), constitutes and appoints James R. Reis, James M. Hennessy, Daniel A. Norman, Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign the Trust's registration statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and conforming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: September 16, 1996
/s/ Robert W. Stallings
Robert W. Stallings
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly elected Trustee of Pilgrim America Prime Rate Trust (the "Trust"), constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy, Daniel A. Norman, Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg, and each of them, her true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for her in her name, place and stead, in any and all capacities, to sign the Trust's registration statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as she might or could do in person, hereby ratifying and conforming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: September 16, 1996
/s/ Mary A. Baldwin
Mary A. Baldwin
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being duly elected Trustee of Pilgrim America Prime Rate Trust (the "Trust"), constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy, Daniel A. Norman, Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign the Trust's registration statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and conforming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: September 16, 1996
/s/ Al Burton
Al Burton
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly elected Trustee of Pilgrim America Prime Rate Trust (the "Trust"), constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy, Daniel A. Norman, Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign the Trust's registration statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and conforming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: September 16, 1996
/s/ Bruce S. Foerster
Bruce S. Foerster
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being a duly elected Trustee of Pilgrim America Prime Rate Trust (the "Trust"), constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy, Daniel A. Norman, Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him in his name, place and stead, in any and all capacities, to sign the Trust's registration statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and conforming all that said attorneys-in-fact and agents, or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: September 16, 1996
/s/ Jock Patton
Jock Patton
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that Pilgrim America Prime Rate Trust (the "Trust") constitutes and appoints Robert W. Stallings, James R. Reis, James M. Hennessy, Daniel A. Norman, Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg, and each of them, its true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution to sign the Trust's registration statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection with the aforesaid and hereby ratifying and conforming all that said attorneys-in-fact and agents, or any of them, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: September 16, 1996
PILGRIM AMERICA PRIME RATE TRUST
By: /s/ Robert W. Stallings
Robert W. Stallings
President
|
EXHIBIT INDEX
Exhibit Number Name of Exhibit
2(a)(i) Agreement and Declaration of Trust
2(a)(ii) Amendment to the Agreement and
Declaration of Trust dated March
26, 1996 and effective April 12,
1996
2(d)(ii) Form of Notice of Guaranteed
Delivery
2(d)(iii) Form of Exercise Form
2(d)(iv) Form of DTC Participant
Oversubscription Exercise Form
2(d)(v) Form of Beneficial Owner
Certification
2(e) Dividend Reinvestment and Cash
Repurchase Plan
2(g)(i) Investment Management Agreement
2(g)(ii) Amendment to the Investment
Management Agreement
2(k)(i) Amendment to the Administration
Agreement
2(k)(ii) Form of Subscription Rights Agency
Agreement
2(k)(iii) Form of Information Agency
Agreement
2(n)(i) Consent of KPMG Peat Marwick LLP
2(n)(ii) Consent of Tait, Weller & Baker
2(r) Financial Data Schedule
|
PILGRIM PRIME RATE TRUST
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made this 2 day of December, 1987, by the Trustees hereunder, and by the holders of shares of beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into their hands as trustees of a Massachusetts voluntary association with transferable shares in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash, securities and other assets, which they may from time to time acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the following terms and conditions for the pro rata benefit of the holders from time to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1. Name. This Trust shall be known as "Pilgrim Prime Rate Trust", and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust established by this Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named herein or elected in accordance with Article IV;
(c) "Shares" means the equal proportionate transferable units of interest into which the beneficial interest in the Trust shall be divided from time to time or, if more than one series of Shares is authorized by the Trustees, the equal proportionate transferable units into which each series of Shares
shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 and the Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person", "Assignment", "Commission", "Interested Person", "Principal Underwriter" and "Majority Shareholder Vote" (the 67% or 50% requirement of the third sentence of Section 2(a)(42) of the 1940 Act, whichever may be applicable) shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of Trust as amended or restated from time to time; and
(h) "By-laws" shall mean the By-laws of the Trust as amended from time to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to provide investors a managed investment primarily in securities and debt instruments and to carry on such other business as the Trustees may from time to time determine pursuant to their authority under this Declaration of Trust.
ARTICLE III
SHARES
Section 1. Division of Beneficial Interest. The Shares of the Trust shall be issued in one or more series as the Trustees may, without shareholder approval, authorize. Each series shall be preferred over all other series in respect of the assets allocated to that series. The beneficial interest in each series shall at all times be divided into Shares, without par value, each of which shall represent an equal proportionate interest in the series with each other Share of the same series, none having priority or preference over another. The number of Shares authorized shall be unlimited. The Trustees may from time to time divide or combine the Shares into a greater or lesser number without thereby changing the proportionate beneficial
interests in the series.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded on the books of the Trust or a transfer or similar agent. No certificates certifying the ownership of Shares shall be issued except as the Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the issuance of Share certificates, the transfer of Shares and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent, as the case may be, shall be conclusive as to who are the Shareholders of each series and as to the number of Shares of each series held from time to time by each Shareholder.
Section 3. Investment in the Trust. The Trustees shall accept investments in the Trust from such persons and on such terms and for such consideration, which may consist of cash or tangible or intangible property or a combination thereof, as they from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares of each series, together with all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sales, exchange or liquidation thereof, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the series of Shares with respect to which the same were received by the Trust for all purposes, subject only to the rights of creditors, and shall be so handled upon the books of account of the Trust and are herein referred to as "assets of" such series.
Section 4. No Preemptive Rights. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust.
Section 5. Status of Shares and Limitation of Personal Liability. Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof and to have become a party hereto. The death of a Shareholder during the continuance of the Trust shall not operate to terminate the same nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but only to the rights of said decedent under this Trust. Ownership of Shares shall nor entitle the Shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders partners. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally any Shareholder, nor
except as specifically provided herein to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay.
ARTICLE IV
THE TRUSTEES
Section 1. Election. The persons who shall act as Trustees until the first annual meeting or until their successors are duly chosen and qualify are the initial Trustees executing this Agreement and Declaration of Trust or any counterpart thereof. The number of Trustees shall be as provided in the Bylaws or as fixed from time to time by the Trustees. The shareholders may elect Trustees at any meeting of Shareholders called by the Trustees for that purpose. Each Trustee shall serve during the continued lifetime of the Trust until he dies, resigns or is removed, or, if sooner, until the next meeting of Shareholders called for the purpose of electing Trustees and the election and qualification of his successor. Any Trustee may resign at any time by written instrument signed by him and delivered to any officer of the Trust, to each other Trustee or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. Except to the extent expressly provided in a written agreement with the Trust, no Trustee resigning and no Trustee removed shall have any right to any compensation for any period following his resignation or removal, or any right to damages on account of such removal.
Section 2. Effect of Death, Resignation, etc. of a Trustee. The death, declination, resignation, retirement, removal or incapacity of the Trustees, or any one of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust.
Section 3. Powers. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Trustees, and they shall have all powers necessary or convenient to carry out that responsibility. Without limiting the foregoing, the Trustees may adopt By-laws not inconsistent with this Declaration of Trust providing for the conduct of the business of the Trust and may amend and repeal them to the extent that such By-laws do not reserve that right to the Shareholders; they may enlarge or reduce their number, may fill vacancies in their number, including vacancies caused by enlargement of their number, and may remove Trustees with or without cause; they may elect and remove, with or without cause, such officers and appoint and terminate such agents as they consider appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive committee which may, when the Trustees are not in session, exercise some or all of the power and authority of the Trustees as the Trustees may determine; they may employ one or more custodians of the assets of the Trust and may authorize such custodians to employ subcustodians and to deposit all or any part of such assets in a system or systems for the central handling of securities, retain a transfer agent or a Shareholder servicing agent, or both, provide for the distribution of Shares by the Trust, through one or more principal underwriters or otherwise, set record dates for the determination of Shareholders with respect to various matters, and in general delegate such authority as they consider desirable to any officer of the Trust, to any committee of the Trustees and to any agent or employee of the Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the assets of the Trust;
(c) To act as a distributor of shares and as underwriter of, or broker or dealer in, securities or other property;
(d) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Trustees shall deem proper;
(e) To exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities;
(f) To hold any security or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in the name of the Trustees or of the Trust or in the name of a custodian, sub-custodian or other depositary or a nominee or nominees or otherwise;
(g) To allocate assets, liabilities and expenses of the Trust to a particular series of Shares or to apportion the same among two or more series, provided that any liabilities or expenses incurred by a particular series of Shares shall be payable solely out of the assets of that series;
(h) To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer, any security of which is or was held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer, and to pay calls or subscriptions with respect to any security held in the Trust;
(i) To join with other security holders in acting through a committee, depositary, voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depositary or trustee, and to delegate to them such power and authority with relation to any security (whether or not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Trustees shall deem proper;
(j) To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust or any matter in controversy, including but not limited to claims for taxes;
(k) To enter into joint ventures, general or limited partnerships and any other combinations or associations;
(l) To borrow funds;
(m) To enter into contracts of every kind and description;
(n) To endorse or guarantee the payment of any notes or other obligations of any person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof; and to mortgage and pledge the Trust property or any part thereof to secure any of or all such obligations;
(o) To purchase and pay for entirely out of Trust property such insurance as they may deem necessary or appropriate for the conduct of the business, including without limitation, insurance policies insuring the assets of the Trust and payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees, officers, employees, agents, investment advisers or managers, principal underwriters, or independent contractors of the Trust individually against all claims and liabilities of every nature arising by reason of holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such person as Shareholder, Trustee, officer, employee, agent, investment adviser or manager, principal underwriter, or independent contractor, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such person against such liability;
(p) To pay pensions for faithful service, as deemed appropriate by the Trustees, and to adopt, establish and carry out pension, profitsharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust; and
(q) To engage in any other lawful act or activity in which corporations organized under the Massachusetts Business Corporation Law may engage.
The Trustees shall not in any way be bound or limited by any present or future law or custom in regard to investments by trustees.
Except as otherwise provided herein or from time to time in the By-laws, any action to be taken by the Trustees may be taken by a majority of the Trustees present at a meeting of Trustees (a quorum being present), within or without Massachusetts, including any meeting held by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting, or by written consents of a majority of the Trustees then in office.
Section 4. Payment of Expenses by Trust. The Trustees are authorized to pay or to cause to be paid out of the principal or income of the Trust, or partly out of principal and partly out of income, as they deem fair, all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust, in connection with the management thereof, or in connection with the financing of the sale of Shares, including, but not limited to, the Trustees compensation and such expenses and charges for the services of the Trust's officers, employees, any investment adviser, manager, or sub-adviser, principal underwriter, auditor, counsel, custodian, transfer agent, shareholder servicing agent, and such other agents or independent contractors and such other expenses and charges as the Trustees may deem necessary or proper to incur, provided, however, that all expenses, fees, charges, taxes and liabilities incurred or arising in connection with a particular series of Shares as determined by the Trustees, shall be payable solely out of the assets of that series.
Section 5. Ownership of Assets of the Trust. Title to all of the assets of each series of Shares and of the Trust shall at all times be considered as vested in the Trustees.
Section 6. Advisory, Management and Distribution Services. The Trustees may, at any time and from time to time, contract for exclusive or nonexclusive advisory and/or management services with any corporation, trust, association or other organization (the "Manager"), every such contract to comply with such requirements and restrictions as may be set forth in the Bylaws; and any such contract may provide for one or more sub- advisers who shall perform all or part of the obligations of the Manager under such contract and may contain such other terms interpretive of or in addition to said requirements and restrictions as the Trustees may determine, including, without limitation, authority to determine from time to time what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested and to make changes in the Trust's investments. The Trustees may also, at any time and from time to time, contract with the Manager or any other corporation, trust, association or other organization, appointing it exclusive or nonexclusive distributor or principal underwriter for the Shares, every such contract to comply with such requirements and restrictions as may be set forth in the By-laws; and any such contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, manager, adviser, principal underwriter or distributor or agent of or for any corporation, trust, association, or other organization, or of or for any parent or affiliate of any organization, with which an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, shareholder servicing or other agency contract may have been or may hereafter be made, or that any such organization, or any parent or affiliate thereof, is a Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with which an advisory or management contract or principal underwriter's or distributor's contract, or transfer, shareholder servicing or other agency contract may have been or may hereafter be made also has an advisory or management contracts or principal underwriter's or distributor's contract, or transfer, shareholder servicing or other agency contract with one or more other corporations, trusts, associations or other organizations, or has other business or interests shall not affect the validity of any such contract or disqualify any Shareholder, Trustee or officer of the Trust from voting upon or executing the same or create any liability or accountability
to the Trust or its Shareholders.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Shareholders shall have such power to vote as is provided for in, and may hold meetings and take actions pursuant to the provisions of the By-laws.
ARTICLE VI
DISTRIBUTIONS AND REPURCHASES
Section 1. Distributions. The Trustees may each year, or more frequently if they so determine, distribute to the Shareholders of each series such income and capital gains relating to such series, accrued or realized, as the Trustees may determine, after providing for actual and accrued expenses and liabilities (including such reserves as the Trustees may establish) determined in accordance with good accounting practices. The Trustees shall have full discretion to determine which items shall be treated as income and which items as capital and their determination shall be binding upon the Shareholders. Distributions of each year's income of each series shall be distributed pro rata to Shareholders of a series in proportion to the number of Shares of such series held by each of them. Such distributions shall be made in cash or Shares or a combination thereof as determined by the Trustees. Any such distribution paid in Shares of a series will be paid at the net asset value thereof as determined in accordance with the Bylaws.
Section 2. Repurchases. The Trust shall purchase such Shares as are offered by any Shareholder in accordance with such procedures for repurchase as the Trustees may from time to time authorize, including through tender offers.
Section 3. Dividends, Distributions and Repurchases. No dividend or distribution (including, without limitation, any distribution paid upon termination of the Trust or of any series) with respect to, nor any repurchase of, the Shares of any series shall be effected by the Trust other than from the assets allocated to such series.
ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
Section 1. Compensation. The Trustees as such shall be entitled to reasonable compensation from the Trust; they may fix the amount of their compensation. Nothing herein shall in any way prevent the employment of any Trustee for advisory, management, legal, accounting, investment banking, underwriting, brokerage, or investment dealer or other services and payment for the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agency, employee, manager or principal underwriter of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, but nothing herein contained shall protect any Trustee against any liability to which he or she would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been executed or done only in or with respect to their or his or her capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon.
ARTICLE VIII
INDEMNIFICATION
Section 1. Trustees, Officers, etc. The Trust shall indemnify each of its Trustees and officers (including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such Covered Person may be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Covered Person except with respect to any matter as
to which such Covered Person shall have been finally adjudicated in any such
action, suit or other proceeding (a) not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust or (b) to be liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office. Expenses,
including counsel fees so incurred by any such Covered Person (but excluding
amounts paid in satisfaction of judgments in compromise or as fines or
penalties) shall be paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that either (a) such
Covered Person shall have provided appropriate security for such undertaking,
(b) the Trust shall be insured against losses arising from any such advance
payments or (c) either a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees then in office
act on the matter), or independent legal counsel in a written opinion shall have
determined, based upon a review of readily available facts (as opposed to a full
trial type inquiry) that there is reason to believe that such Covered Person
will be found entitled to indemnification under this Article.
Section 2. Compromise Payment. As to any matter disposed of (whether by a compromise payment, pursuant to a consent decree or otherwise) without an adjudication by a court, or by any other body before which the proceeding was brought, that such Covered Person either (a) did not act in good faith in the reasonable belief that his or her action was in the best interests of the Trust or (b) is liable to the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office, indemnification shall be provided if (a) approved as in the best interests of the Trust, after notice that it involves such indemnification, by at least a majority of the disinterested Trustees acting on the matter (provided that a majority of the disinterested Trustees then in office act on the matter) upon a determination, based upon a review of readily available facts (as opposed to a full trial type inquiry) that such Covered Person acted in good faith in the reasonable belief that his or her action was in the best interests of the Trust and is not liable to the Trust or its Shareholders by reasons of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office, or (b) there has been obtained an opinion in writing of independent legal counsel, based upon a review of readily available facts (as opposed to a full trial
type inquiry) to the effect that such Covered Person appears to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Trust and that such indemnification would not protect such Covered Person against any liability to the Trust to which he or she would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Any approval pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with this Section as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that, such Covered Person's action was in the best interests of the Trust or to have been liable to the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office.
Section 3. Indemnification Not Exclusive. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which such Covered Person may be entitled. As used in this Article VIII, the term "Covered Person" shall include such person's heirs, executors and administrators and a "disinterested Trustee" is a Trustee who is not an "interested person" of the Trust as defined in Section 2(a)(19) of the 1940 Act (or who has been exempted from being an "interested person" by any rule, regulation or order of the Commission) and against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending. Nothing contained in this Article shall affect any rights to indemnification to which personnel of the Trust, other than Trustees or officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Trust to purchase and maintain liability insurance on behalf of any such person; provided, however, that the Trust shall not purchase or maintain any such liability insurance in contravention of applicable law, including without limitation the 1940 Act.
Section 4. Shareholders. In case any Shareholder or former Shareholder shall be held to be personally liable solely by reason of his or her being or having been a Shareholder and not because of his or her acts or omissions or for some other reason, the Shareholder or former Shareholder (or his or her heirs, executors, administrators or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified against all loss and expense arising from such liability, but only out of the assets of the particular series of Shares of which he or she is or was a Shareholder.
ARTICLE IX
MISCELLANEOUS
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice. All persons extending credit to, contracting with or having any claim against the Trust or a particular series of Shares shall look only to the assets of the Trust or the assets allocated to that particular series of Shares for payment under such credit, contract or claim; and neither the Shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. Nothing in this Declaration of Trust shall protect any Trustee against any liability to which such Trustee would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officer or officers shall give notice that this Declaration of Trust is on file with the Secretary of The Commonwealth of Massachusetts and shall recite that the same was executed or made by or on behalf of the Trust or by them as Trustee or Trustees or as officers or officer and not individually and that the obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only upon the assets and property of the Trust, and may contain such further recital as he or she or they may deem appropriate, but the omission thereof shall not operate to bind any Trustee or Trustees or officer or officers or Shareholder or Shareholders individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or Surety. The exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. A Trustee shall be liable for his or her own wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and for nothing else, and shall nor be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust, and shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its order.
Section 4. Duration and Termination of Trust. Unless terminated as provided herein, the trust shall continue without limitation of time. The Trust may be terminated at any time by the vote of Shareholders holding at least a majority of the Shares of each series entitled to vote or by the Trustees by written notice to the Shareholders. Any series of Shares may be terminated at any time by vote of Shareholders holding at least a majority of the Shares of such series entitled to vote or by the Trustees by written notice to the Shareholders of such series.
Upon termination of the Trust or of any one or more series of Shares, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated, of the Trust or of the particular series as may be determined by the Trustees, the Trust shall in accordance with such procedures as the Trustees consider appropriate reduce the remaining assets to distributable form in cash or shares or other securities, or any combination thereof, and distribute the proceeds to the Shareholders of the series involved, ratably according to the number of Shares of such series held by the several Shareholders of such series on the date of termination.
Section 5. Filing of Copies, References, Headings. The original or a copy of this instrument and of each amendment hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. A copy of this instrument and of each amendment hereto shall be filed by the Trust with the Secretary of the Commonwealth of Massachusetts and with the Boston City Clerk, as well as any other governmental office where such filing may from time to time be required. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such amendments have been made and as to any matters in connection with the Trust hereunder, and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such amendments. In this instrument and in any such amendment, references to this instrument and all expressions like "herein," "hereof" and "hereunder" shall be deemed to refer to this instrument as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. This instrument may be executed in any number of counterparts each of which shall deemed an original.
Section 6. Applicable Law. This Declaration of Trust is created under and is to be governed by and construed and administered according to the laws of The Commonwealth of Massachusetts. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a trust.
Section 7. Amendments. This Declaration of Trust may be amended at any time by an instrument in writing signed by a majority of the then Trustees when authorized to do so by vote of Shareholders holding a majority of the Shares of each series entitled to vote, except that an amendment which shall affect the holders of one or more series of Shares but not the holders of all outstanding series shall be authorized by vote of the Shareholders holding a majority of the Shares entitled to vote of each series affected and no vote of Shareholders of a series not affected shall be required. Amendments having the purpose of changing the name of the Trust or of supplying any omission, curing any ambiguity or curing, correcting or supplementing any defective or inconsistent provision contained herein shall not require authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the day and year first above written.
/s/ Palomba Weingarten
Palomba Weingarten
Chairman of the Board and President
|
STATE OF CALIFORNIA )
) ss:
COUNTY OF LOS ANGELES)
On this 2 day of December, 1987 before me personally appeared Palomba Weingarten to me known to be one of the persons described in and who executed the foregoing instrument, and acknowledged that she executed the same as her free act and deed.
/s/ Victoria Martin Conde
Notary Public
My Commission Expires:
September 19, 1989
|
WRITTEN INSTRUMENT AMENDING
THE AGREEMENT AND DECLARATION OF TRUST
OF
PILGRIM PRIME RATE TRUST
This Amendment to the Agreement and Declaration of Trust ("Declaration") of Pilgrim Prime Rate Trust (the "Trust") is made this 26th day of March, 1996 by the parties signatory hereto, as Trustees of the Trust (the "Trustees").
WITNESSETH
WHEREAS, the Declaration of Trust was made on December 2, 1987 and the Trustees now desire to amend the Declaration and change the name of the Trust; and
WHEREAS, Article IX, Section 7 of the Declaration provides that the Trustees may amend the Declaration without the vote or consent of Shareholders to change the name of the Trust by an instrument signed by a majority of the Trustees; and
WHEREAS, the Trustees have determined that the following amendment to the Declaration shall not adversely affect the rights of the Shareholders the Trust;
NOW, THEREFORE, the Trustees hereby declare that Article I, Section 1 be amended, effective April 12, 1996 to read as follows:
Section 1. Name. This Trust shall be known as "Pilgrim America Prime Rate Trust," and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine.
IN WITNESS WHEREOF, the undersigned have executed this instrument this 26th day of March, 1996.
/s/ Robert W. Stallings Robert W. Stallings /s/ Mary A. Baldwin Mary A. Baldwin /s/ Al Burton Al Burton |
/s/ Bruce S. Foerster Bruce S. Foerster /s/ Jock Patton Jock Patton |
Certificate
Pursuant to Article IX Section 5 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Pilgrim Prime Rate Trust is made in accordance with the provisions of the Declaration and shall become effective on the 12th day of April, 1996.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 26th day of March, 1996.
/s/ Robert W. Stallings Robert W. Stallings |
Certificate
Pursuant to Article IX Section 5 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Pilgrim Prime Rate Trust is made in accordance with the provisions of the Declaration and shall become effective on the 12th day of April, 1996.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 26th day of March, 1996.
/s/ Mary A. Baldwin Mary A. Baldwin |
Certificate
Pursuant to Article IX Section 5 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Pilgrim Prime Rate Trust is made in accordance with the provisions of the Declaration and shall become effective on the 12th day of April, 1996.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 26th day of March, 1996.
/s/ Al Burton Al Burton |
Certificate
Pursuant to Article IX Section 5 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Pilgrim Prime Rate Trust is made in accordance with the provisions of the Declaration and shall become effective on the 12th day of April, 1996.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 26th day of March, 1996.
/s/ Bruce S. Foerster Bruce S. Foerster |
Certificate
Pursuant to Article IX Section 5 of the Declaration, the undersigned Trustee hereby acknowledges and certifies that this Amendment to the Declaration of Pilgrim Prime Rate Trust is made in accordance with the provisions of the Declaration and shall become effective on the 12th day of April, 1996.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 26th day of March, 1996.
/s/ Jock Patton Jock Patton |
The Subscription Agent is State Street Bank and Trust Company
BY EXPRESS MAIL OR BY FIRST CLASS MAIL: BY HAND DELIVERY TO NEW OVERNIGHT COURIER: Pilgrim America Prime Rate Trust YORK DELIVERY WINDOW: Pilgrim America Prime Rate Trust c/o State Street Bank and Trust Company Pilgrim America Prime Rate Trust c/o Boston EquiServe P.O. Box 9061 c/o Banc Boston Trust Company of New 150 Royall Street Boston, MA 02205-8686 York Mail Stop #45-02-53 55 Broadway, 3rd Floor Canton, MA 02021 New York, NY 10006 |
Delivery of this instrument to an address, or transmission of instructions via a telecopy or facsimile number, other than as set forth above, does not constitute a valid delivery.
The New York Stock Exchange member firm or bank or trust company which completes this form must communicate the guarantee and the number of Shares subscribed for in connection with this guarantee (separately disclosed as to the Primary Subscription and the Over-Subscription Privilege) to the Subscription Agent and must deliver this Notice of Guaranteed Delivery of Payment, guaranteeing delivery of (a) payment in full for all subscribed Shares and (b) a properly completed and signed copy of the Subscription Certificate (which certificate and full payment must then be delivered no later than the close of business on the fifth business day after the Expiration Date, unless extended) to the Subscription Agent prior to 5:00 p.m., on _____________, 1996, the Expiration Date, unless extended. Failure to do so will result in a forfeiture of the Rights.
Guarantee
The undersigned, a member firm of the New York Stock Exchange or a bank or trust company having an office or correspondent in the United States, guarantees delivery to the Subscription Agent, no later than ______________________________, of (a) a properly completed and executed Subscription Certificate, and (b) payment of the full Subscription Price for Shares subscribed for on Primary Subscription and for any additional Shares subscribed for pursuant to the Over-Subscription Privilege, as subscription for such Shares is indicated herein or in the Subscription Certificate.
Please assign a unique control number to each guarantee submitted. This number needs to be referenced on any direct delivery of Rights or any delivery through DTC. In addition, please note that if you are guaranteeing for the Over-Subscription Privilege Shares and are a DTC participant, you must also execute and forward to State Street Bank and Trust Company a DTC Participant Over-Subscription Exercise Form.
Broker Assigned Control Number ___________________________
1. Primary Subscription Number of Rights to be exercised: Number of Primary Shares Payment to be made in
requested for which you are connection with Primary
guaranteeing delivery of Rights Shares:
and Payment:
-------------------------- ------------------------ $----------------
(Rights/by 4)
2. Over-Subscription Number of Over-Subscription Payment to be made in
Shares requested for which you connection with Over-
are guaranteeing payment: Subscription Shares:
------------------------ $----------------
3. Totals Total Number of Rights to be Total Payment:
Delivered:
------------------- $----------------
|
Method of Delivery (Check one)
- --------------------------------------------------------------------------------
|_| Through DTC |_| Directly to Investors Fiduciary Trust
Company, as Subscription Agent
|
Please reference below the registration of the Rights to be delivered
Broker assigned control number:
In order to properly track incoming guarantees on the Expiration Date, we are requiring that each guarantee submitted be assigned a unique control number. Each person in the Reorganization Department would assign his or her own unique number (i.e. the sixth item delivered by Paul in the Reorganization Department at XYZ Securities, would have control number XYZPaul6). It is the individual's responsibility to ensure that control numbers are not duplicated as they will be held responsible for any losses incurred due to duplication.
Item 1. The Primary Subscription
Indicate the Rights exercised and Shares requested with the corresponding dollar amount. Please note, by completing Item 1 you are exercising primary Rights. If the Rights had previously been exercised through DTC do not complete this portion.
Item 2. The Over Subscription Privilege
Indicate the Shares requested and the corresponding dollar amount.
Item 3 Totals
Total the Rights and payment which the Subscription Agent will receive from you on the designated dates.
Method of Delivery
Indicate how the Rights will be delivered to the Subscription Agent. If physical Rights are to be delivered directly to the Subscription Agent, please provide the registration of such Rights.
VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT BEFORE 5:00 P.M.
EASTERN STANDARD TIME ON _______________, 1996
Control No. _______________ Shares available for subscription __________
PILGRIM AMERICA PRIME RATE TRUST
RIGHTS OFFERING
EXERCISE FORM
Dear Shareholder,
TO EXERCISE YOUR RIGHTS PLEASE COMPLETE BOTH SIDES OF THIS CARD.
You have been granted Rights, based on the number of shares you owned on ____________________, 1996 (the "Record Date"), to subscribe for the number of Shares of Pilgrim America Prime Rate Trust's (the "Trust") shares of beneficial interest shown above. Primary Subscription: you may subscribe for one new Share for every five Rights held. Over-Subscription Privilege: you may subscribe for any number of additional Shares (to the extent available), provided you subscribe for the maximum number of Shares for which you are eligible under the Primary Subscription.
SAMPLE CALCULATION
(FOR ILLUSTRATIVE PURPOSES ONLY)
o A shareholder who owns 100 shares on the Record Date is issued 100 Rights.
o 100 Rights entitle the shareholder to subscribe for 20 new Shares at
the rate of one new Share for every five Rights held. Fractional Shares
have been excluded because fractional Shares will not be issued.
o At the Estimated Subscription Price of $___________ per Share, the payment
amount due for the 20 new Shares would be $ ________.
EXAMPLE
- --------------------------------------------------------------------------------------------------
100 / 5 = [20] X $ [_______] = $[________]
(No. of (No. of Shares, (Estimated (Payment to be
Rights) excluding fractional Subscription Price Remitted)
Shares) per Share)
- --------------------------------------------------------------------------------------------------
|
* $[ __________ ] is the Subscription Price only. The final Subscription Price, which will be determined on __________________, 1996, could be higher or lower than $[_______], depending on movements in the net asset value and market price of the shares.
TO EXERCISE YOUR RIGHTS
To exercise your Rights, please complete Sections 1 and 2 (and if applicable,
Section 3) of the Exercise Form on the reverse of this Certificate, and deliver
the Exercise Form and payment for the Shares to the Subscription Agent by one of
the methods described below or (ii) deliver a properly completed Notice of
Guaranteed Delivery to the Subscription Agent, in either case, prior to 5:00
P.M. on the Expiration Date.
- --------------------------------------------------------------------------------
By Express Mail or
By Mail By Hand Overnight Courier
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pilgrim America Prime Pilgrim America Prime Pilgrim America Prime
Rate Trust Rate Trust Rate Trust
c/o State Street Bank and c/o Banc Boston Trust c/o Boston EquiServe
Trust Company Company of New York 150 Royall Street
P.O. Box 9061 55 Broadway, 3rd Floor Mail Stop #45-02-53
Boston, MA 02205 New York, NY 10006 Canton, MA 02021
- --------------------------------------------------------------------------------
|
A Confirmation notice will be sent to you by _____________________, 1996. The Confirmation notice will show the number of Shares you purchased pursuant to the Primary Subscription and the Over-Subscription Privilege (if applicable), and any additional amount payable to the Trust or excess to be refunded by the Trust. If an additional payment is due, it must be received by the Subscription Agent by _____________, 1996.
RIGHTS TO PURCHASE SHARES ARE NON-TRANSFERABLE
FULL PAYMENT FOR BOTH PRIMARY SUBSCRIPTION AND OVER-SUBSCRIPTION SHARES MUST ACCOMPANY THE EXERCISE FORM AND MUST BE MADE PAYABLE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES AND PAYABLE TO "PILGRIM AMERICA PRIME RATE TRUST". ALTERNATIVELY, A NOTICE OF GUARANTEED DELIVERY MUST ACCOMPANY THE EXERCISE FORM.
Any questions regarding this Exercise Form and the Offer may be directed to the
Subscription Agent, State Street Bank and Trust Company, toll free at (800) ____
- - ______.
NUMBER: _____________________ TAX ID No. __________________________ Exercise Form No. __________________________ Account Certificate ____________ Rights Represented by the Available _____________ Primary Subscription Shares |
SECTION 1: DETAILS OF SUBSCRIPTION
TO SUBSCRIBE FOR ALL OF THE SHARES YOU ARE ENTITLED TO PURCHASE PLEASE COMPLETE THE FOLLOWING:
A. I wish to subscribe for _______________________ X $[ _____] * = $ ____________________
all of the Shares I am (Total number of new Shares Payment Amount
entitled to purchase entitled to be purchased)
under the Primary
Subscription.
B. I wish to subscribe for _______________________ X $[______]* = $ ____________________
additional Shares, if (Number of over-subscription Payment Amount
available, pursuant to Shares subscribed for)
the Over-Subscription
Privilege. **
TOTAL AMOUNT ENCLOSED = $ ____________________
** You may purchase additional Shares pursuant to the Over-Subscription
Privilege only if you have fully exercised the Rights issued to you
under the primary Subscription.
IF YOU DO NOT WISH TO SUBSCRIBE FOR ALL OF THE SHARES YOU ARE ENTITLED TO
PURCHASE PLEASE COMPLETE THE FOLLOWING:
C.. I wish to subscribe only _______________________ X $[______]* = $ ____________________
for the following (Number of new Shares to be Payment Amount
number of Shares purchased)
under the Primary
Subscription.
TOTAL AMOUNT ENCLOSED = $ ____________________
* Estimated Subscription Price only; the final Subscription Price may be higher or lower.
|
SECTION 2: CERTIFICATION
I hereby irrevocably subscribe for the number of new Shares indicated above on the terms and conditions set forth in the Prospectus for the Offer, receipt of which is hereby acknowledged. I understand and agree that I will be obligated to pay any additional purchase price amounts for these new Shares to the Trust if the Subscription Price, as determined on the Expiration Date, is in excess of the $[ _____ ] Estimated Subscription Price.
Name and Signature of Shareholder(s) _______________________________________
Telephone number: ( )___________________________
If you wish to have your Shares and refund check (if any) delivered to an address other than the address of record listed on the top of this card, you must have your signature guaranteed by a member of the New York Stock Exchange or by a bank or trust company and provide the delivery address below. Please check below if your address of record should be changed to this address permanently:
Delivery Address: Change my address of record [ ]
to such delivery address
- ----------------------------------------------
- ----------------------------------------------
|
SECTION 3: DESIGNATION OF BROKER/DEALER
The following broker/dealer is hereby designated as having been instrumental in my exercise of Rights pursuant to this Offer:
FIRM: ____________________________________________________________
BROKER/DEALER NAME: ______________________________________________
BROKER/DEALER NUMBER: ____________________________________________
Pilgrim America Prime Rate Trust Rights Offering DTC Participant Over-Subscription Exercise Form
THIS FORM IS TO BE USED ONLY BY DEPOSITORY TRUST COMPANY PARTICIPANTS TO EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE OF RIGHTS, AS ISSUED BY PILGRIM AMERICA PRIME RATE TRUST (THE "TRUST"). ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES.
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE TRUST'S PROSPECTUS DATED _________________ (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE TRUST'S INFORMATION AGENT.
THIS FORM WILL BE DEEMED AS VOID UNLESS RECEIVED BY STATE STREET BANK AND TRUST COMPANY (THE "SUBSCRIPTION AGENT") BY 5:00 P.M., ON ___________ 1996 (THE "EXPIRATION DATE") UNLESS EXTENDED BY THE TRUST.
BY FIRST CLASS MAIL: BY HAND TO NEW YORK DELIVERY WINDOW:
Pilgrim America Prime Rate Trust Pilgrim America Prime Rate Trust
c/o State Street Bank and Trust Company c/o Banc Boston Trust Company of
P.O. Box 9061 New York
Boston, Massachusetts 02205 55 Broadway, 3rd Floor
New York, NY 10006
BY EXPRESS MAIL OR OVERNIGHT COURIER:
Pilgrim America Prime Rate Trust
c/o Boston EquiServe
150 Royall Street
Mail Stop #45-02-53
Canton, Massachusetts 02021
|
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
1. The undersigned hereby certifies to the Trust and the Subscription Agent that it is a participant in The Depository Trust Company ("DTC") and that it has either (i) exercised the Primary Subscription in full and delivered such exercised Rights to the Subscription in full and delivered such exercised Rights to the Subscription Agent by means of transfer to the DTC account of the Subscription Agent or (ii) delivered to the Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of the Primary Subscription and will deliver the Rights called for in such Notice of Guaranteed Delivery to the Subscription Agent by means of transfer to the DTC account of the Subscription Agent.
2. The undersigned hereby exercises the Over-Subscription Privilege to purchase, to the extent available, _____ shares of beneficial interest of the Trust and certifies to the Trust and the Subscription Agent that such Over-Subscription Privilege is being exercised for the account or accounts of persons (which may include the undersigned) on whose behalf all Primary Subscription Rights have been exercised.
3. The undersigned understands that payment of the Estimated Subscription
Price of $_____ per share for each share of beneficial interest subscribed for
pursuant to the Over-Subscription Privilege must be received by the Subscription
Agent at or before 5:00 pm, on the Expiration Date and represents that such
payment, in the aggregate amount of $__________, either (check appropriate box):
___ has been or is being delivered to the Subscription Agent pursuant to the
Notice of Guaranteed Delivery (Broker Assigned Control #______________) ___ is
being delivered the Subscription Agent herewith ___ has been delivered
separately to the Subscription Agent
PLEASE NOTE: THIS FORM WILL NOT BE ACCEPTED AS VALID UNLESS THE FOLLOWING INFORMATION IS PROVIDED FOR THE ALLOCATION OF OVER-SUBSCRIPTION SHARES.
The positions below pertain to those persons on whose behalf the Over-Subscription is being exercised:
Alternatively, you may complete and submit a Beneficial Holder Certification to the Subscription Agent on or before 5:00 pm, on the Expiration Date.
You may obtain a copy of the form from the Information Agent as listed on the reverse side. on the Expiration Date.
Registration into which Shares, refund and/or solicitation checks should be issued:
State in Item 2 on side 1, the total number of Over-Subscription Shares requested.
In addition, we request the completion of the Beneficial Owner Certification, which details each beneficial shareholder's Record Date position, primary Shares purchased and Over-Subscription Shares requested.
Complete and submit one Beneficial Owner Certification for each Over-Subscription Exercise Form submitted.
Payment for Shares
Full payment for Shares is due on the Expiration Date, unless a properly completed Notice of Guaranteed Delivery is submitted, in which case payment is due five business days following the Expiration Date.
Please detail the method of delivery. If a Notice of Guaranteed Delivery is submitted, provide the Broker Assigned Control Number.
Registration
State the firm name, address, tax identification number, contact name and phone number for all check and certificate mailings and any other mailing related to the Offer.
Please be advised, any solicitation payment will be delivered to this address, unless otherwise notified.
Pilgrim America Prime Rate Trust Beneficial Owner Certification
- --------------------------------------------------------------------------------------------------------------------------
I II III
- --------------------------------------------------------------------------------------------------------------------------
Record Date Shares Number of Shares Purchased Number of Shares Requested Pursuant
(if any) Pursuant to Primary Subscription to Over-Subscription Privilege
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Total = Total = Total =
- -------------------------------------------------------------------------------------------------------------------
|
Provide the following information if applicable:
- -------------------------------------------------------------------------------- Depository Trust Company DTC Basic Subscription (DTC) Participant Number Confirmation Number - -------------------------------------------------------------------------------- Contact Name Phone Number - -------------------------------------------------------------------------------- |
PILGRIM AMERICA PRIME RATE TRUST
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
WHAT IS THE DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN FOR PILGRIM AMERICA PRIME RATE TRUST?
The Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers shareholders in Pilgrim America Prime Rate Trust (the "Fund") two benefits:
1) A prompt and simple way to reinvest dividends and capital gain distributions, if any, in shares of the Fund.
Each month the Fund will distribute to shareholders substantially all of its net investment income. The Fund expects to distribute at least annually any net realized long-term capital gains.
2) The opportunity to make optional cash investments in Fund shares through Investors Fiduciary Trust Company ("IFTC").
Each month, or less often if you wish, you can add from $100 to $5,000 to your reinvested dividend to enable your holdings to grow more rapidly. Investors Fiduciary Trust Company ("IFTC") will serve as administrative, Plan and record keeping agent. The complete terms and conditions of the Plan appear later in the brochure.
WHO CAN PARTICIPATE IN THE PLAN?
All shareholders in The Fund may participate in the Plan.
If you own shares in your own name, and are currently reinvesting your distributions, you will automatically participate directly in the Plan unless you elect otherwise. If you are currently receiving your distributions in cash and would like to participate in the Plan, please notify IFTC. If you own shares that are held in the name of a brokerage firm or nominee and you wish to participate in the Plan, you should contact your brokerage firm or nominee to determine whether or how you may participate in the Plan.
WHAT DOES THE PLAN OFFER?
1. REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
If you choose to participate in the Plan your dividends and capital gain distributions, if any, will be invested for you automatically, increasing your holdings in the Fund. All investments are in full and fractional shares.
2. VOLUNTARY CASH PURCHASE
Plan participants have the option of making additional investments of any amount from $100 to $5,000 monthly. The Fund reserves the right to waive the minimum or maximum investment requirements at any time. If you hold shares in your own name, you may deal directly with IFTC or you may contact your Shareholder Services department at (800) 331-1080. Please send your check to the following address:
Investors Fiduciary Trust Company
c/o Pilgrim America Prime Rate Trust
Post Office Box 419368
Kansas City, MO 64141
IS THERE A COST TO PARTICIPATE?
There is no direct charge to participants for reinvesting dividends and capital gain distributions or purchases made with voluntary cash payments. For further information see Paragraphs 3 & 6 of the Dividend Reinvestment & Cash Purchase Plan.
WHAT ARE THE TAX IMPLICATIONS FOR PARTICIPANTS?
You will receive tax information annually for your personal records and to help you prepare your federal income tax return. The automatic reinvestment of dividends and capital gain distributions does not affect the tax characterization of the dividends and capital gains. Other questions should be directed to your tax adviser.
HOW DO PARTICIPATING SHAREHOLDERS BENEFIT?
* You will build holdings in the Fund easily and automatically at reduced costs.
* You will receive a detailed account statement showing total dividends and distributions, additional cash payments, date of investment, shares acquired and price per share, and total shares of record held by you.
* As long as you participate in the Plan, shares acquired through the Plan will be held for you in safekeeping in non-certificated form. This convenience provides added protection against loss, theft or inadvertent destruction of certificates.
WHOM SHOULD I CONTACT FOR ADDITIONAL INFORMATION?
If you hold shares in your own name, please address all notices, correspondence, questions or other communications regarding the Plan to:
Investors Fiduciary Trust Company
c/o Pilgrim America Prime Rate Trust
P. O. Box 419368
Kansas City, MO 64141
If your shares are not held in your name, you should contact your brokerage firm or other nominee for more information.
HOW DO I ENROLL IN THE PLAN?
If you hold shares of Pilgrim America Prime Rate Trust in your own name and are currently reinvesting your dividends, you are already enrolled in the Dividend Reinvestment and Cash Purchase Plan.
Your reinvestment will begin with the first dividend after you purchase your shares. You may also exercise the voluntary cash purchase option at the next appropriate date.
If you are currently receiving Distributions in cash, you may contact our Shareholder Service Department at (800) 331-1080.
ONCE ENROLLED IN THE PLAN, MAY I WITHDRAW FROM IT?
You may withdraw from the plan without penalty at any time by providing written notice to IFTC. Your withdrawal will be effective as specified in Paragraph 11 of the Dividend Reinvestment and Cash Purchase Plan.
If you withdraw, you will receive, without charge, a share certificate issued in your name for all full shares.
Pilgrim America Prime Rate Trust may amend or terminate the Plan. Participants will receive written notice at least 90 days before the record date of any distribution affected by an amendment. In the case of termination, participants will receive written notice at least 90 days before the record date of any dividend or capital gain distribution by the Fund.
PILGRIM AMERICA PRIME RATE TRUST
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
APRIL 30, 1996
1. PARTICIPATION
All Distributions to shareholders whose shares are registered in their own names will automatically be paid in cash, unless the shareholder elects to reinvest the Distributions in additional shares of Pilgrim America Prime Rate Trust (the "Fund") pursuant to the Dividend Reinvestment and Cash Purchase Plan (the "Plan"). Shareholders participating in the Plan will be deemed to have appointed Investors Fiduciary Trust Company ("IFTC") as their agent under the Plan. If you are not currently participating in the Plan and would like to do so, please complete the application included herewith and return it to IFTC.
2. DIVIDEND INVESTMENT ACCOUNT
The Fund's transfer agent and dividend disbursing agent, IFTC will credit all
shares purchased by each shareholder participating in the Plan to each such
shareholder's account in the Fund (the "Account"). Shares may be purchased by:
(a) dividends and capital gain distributions paid on shares of beneficial
interest (the "Shares") of the Fund registered in the participant's name on the
books of the Fund; and (b) voluntary cash contributions made pursuant to
paragraph 4 hereof. The sources of funds described in clause (a) of the
preceding sentence are hereinafter called "Distributions."
3. INVESTMENT OF DISTRIBUTIONS IN EACH ACCOUNT
If the "Market Price" (the average of sale prices, per share, as reported on the NYSE Composite Transaction Tape) plus estimated commissions is less than the net asset value on the next business day after the record date ("Record Date") for a distribution ("Valuation Date"), IFTC will acquire Shares directly from (I) first, those participants selling Shares from Pilgrim America sponsored Retirement Plan accounts where IFTC acts as Custodian ("Retirement Accounts") and thereafter (II) purchase Shares on the open market through a bank or securities broker as provided herein. Open market purchases may be effected on any securities exchange on which shares of the Fund trade or in the over-the-counter market. IFTC will normally apply all Distributions received to purchase Shares by the Distribution Payable Date ("Payable Date") and not later than the sixth business day after the Payable Date, except when necessary to comply with applicable provisions of the federal securities laws.
If the Market Price, plus estimated commissions, exceeds the net asset value before IFTC has completed its purchases, IFTC will use reasonable efforts to cease purchasing Shares, and the Fund shall issue the remaining Shares at the net asset value calculated on the day the Market Price first exceeds the net
asset value. In a case where IFTC has terminated open market purchases and the Fund has issued the remaining Shares, the number of Shares received by the participant will be based on the weighted average of the price paid for Shares purchased from Retirement Accounts, prices paid for Shares, including brokerage commissions, purchased in the open market and the net asset value at which additional Shares were issued by the Fund.
If the Market Price, plus estimated commissions, is equal to or exceeds the net asset value on the Valuation Date, Plan participants reinvesting Distributions will be issued Shares on the Payable Date valued at the net asset value at the close of business on Valuation Date.
Shares acquired through the reinvestment program will be credited to shareholder accounts as of the Payable Date.
In the event the Fund makes available to its shareholders rights to purchase additional Shares or other securities, the Shares held for Participants under the Plan will be added to non-Plan Shares held by Participants in calculating the number of rights to be issued to Participants. During rights offerings, IFTC, on behalf of Qualified Retirement Plan investors for whom IFTC acts as custodian, will be allowed to conduct transactions to buy and/or sell Shares of the Fund for such investors pursuant to the terms of the rights offering and such supplemental procedures as IFTC may adopt.
4. VOLUNTARY CASH CONTRIBUTION
A participant may from time-to-time make voluntary cash contributions to his Account by sending to IFTC a check or money order made payable to IFTC, with appropriate accompanying instructions. A participant may make voluntary cash contributions in amounts of at least $100 but not more than $5,000 per month. (The Fund reserves the right to waive such minimum or maximum investment requirements at any time.) IFTC will use the funds to purchase additional Shares for the participant's Account. Voluntary cash contributions received by IFTC at least four business days before a Record Date will normally be invested concurrently with the next reinvestment of Distributions. IFTC will attempt to acquire Shares first directly from Retirement Accounts and next acquire Shares in the open market. IFTC will use reasonable efforts to apply all voluntary cash contributions received to purchase Shares not later than the sixth business day after Payable Date except when necessary to comply with applicable provisions in the federal securities laws. Under certain circumstances when the Fund advises IFTC that temporary curtailment or suspension is necessary to comply with applicable provisions of federal securities law, IFTC may be unable to purchase Shares under the Plan. To the extent that IFTC is unable to complete open market voluntary cash purchases shareholders which are impacted will be notified in writing and uninvested voluntary cash contributions
will be returned as soon as practicable. Interest will not be paid on uninvested cash contributions. Participants have an unconditional right to obtain the return of any voluntary cash payment if IFTC receives such request in writing at least four business days before the Record Date. IFTC may commingle the cash in a participant's Account with similar funds of other participants of the Fund for whom IFTC acts as agent under the Plan.
Shares acquired through the voluntary cash purchase program will be credited to shareholder accounts as soon as practicable.
5. DETERMINATION OF PURCHASE AND SALE PRICES, ALLOCATION OF PURCHASED SHARES AND TERMS OF OPEN MARKET TRANSACTIONS
The cost of Shares and fractional Shares acquired for each participant's Account in connection with reinvestment of Distributions shall be based on the weighted average of prices paid for Shares purchased from Retirement Plans, in the open market, including brokerage commissions, and the net asset value at which additional Shares are issued, if any.
The cost of Shares and fractional Shares acquired for each participant's account in connection with voluntary cash contributions shall be determined by the average cost per Share of Shares acquired from Retirement Plans and Shares purchased on the open market, including brokerage commissions.
Unless all the Shares needed in connection with reinvestment of a Distribution are issued by the Fund as provided in paragraph 3, above, all Shares purchased from Retirement Plans and all Shares purchased on the open market (prior to the issuance of new Shares, if any) will be allocated pro rata to the reinvestment and the cash purchase programs based on the requirements of each program in connection with the Distribution. When the Fund does not issue any Shares in connection with a Distribution, shareholders will receive the same weighted average price for the purchased Shares in both programs. When the Fund issues Shares in connection with a Distribution, however, different prices may be paid for the two programs because the Shares issued at net asset value pursuant to paragraph 3, above, are included in the weighted average price for the reinvestment program but not the cash purchase program.
When Retirement Account Shares are purchased for the Plan, the price will be the Market Price on the Valuation Date. If the number of Retirement Account Shares submitted for sale exceeds the number required by the Plan for the next Distribution, the excess Retirement Account Shares will be sold on the open market as soon as practicable. In such cases, all the Retirement Accounts selling Shares will receive a weighted average price based on the price at which Shares are sold to the Plan and the actual market price received, after deducting any commissions, from sales on the open market. Proceeds will be forwarded as
soon as practicable after receipt by IFTC.
Shareholders will receive a confirmation showing the price and number of Shares acquired or sold as soon as practicable. Purchases and sales of Shares on the open market will be subject to such terms and conditions as price, availability, delivery, commissions and other such factors as IFTC is able to obtain on the open market. There is no guarantee that the price(s) obtained will be the best possible. Purchases and sales of Shares may be made in one or more lots at such time(s) as IFTC determines in its discretion, subject to the limitations set forth in the Plan.
6. BROKERAGE CHARGES
There will be no brokerage charges with respect to Shares issued directly by the Fund as a result of Distributions. However, each participant will pay a pro rata share of brokerage commissions with respect to IFTC's open market purchases in connection with the reinvestment of Distributions as well as from voluntary cash contributions. Brokerage charges for purchasing Shares for individual Accounts through the Plan may be expected, but are not guaranteed, to be less than the usual brokerage charge for such transactions, as IFTC will usually be purchasing shares for all participants in blocks and prorating the lower commission thus attainable.
7. SERVICE CHARGES
There is no service charge by IFTC to shareholders who participate in the Plan. However, the Fund reserves the right to amend the Plan in the future to include a service charge.
8. TRANSFER OF SHARES HELD BY IFTC
IFTC will maintain the participant's Account, hold the additional shares acquired through the Plan in book entry form and furnish the participant with written confirmation of all transactions in the Account. Shares in the Account are transferable upon proper written instructions to IFTC. Upon request to IFTC, a certificate for any or all full shares in a participant's Account will be sent to the participant.
9. SHARES NOT HELD IN SHAREHOLDER'S NAME
Beneficial owners of Shares which are held in the name of the broker or nominee should contact the broker or nominee in whose name their Shares are held to determine whether and how they may participate in the Plan.
10. AMENDMENTS
Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or
terminate the Plan. In the case of substantive amendment or termination, participants will receive at least 90 days written notice.
11. WITHDRAWAL FROM THE PLAN
Shareholders may withdraw from the Plan at any time by giving IFTC a written notice. Elections to withdraw from the Plan will be effective immediately if notice is received by IFTC not less than ten days prior to any Distribution Record Date; otherwise such notice will be effective on the first trading day after the Payable Date for such Distribution with respect to any subsequent Distribution.
When a participant withdraws from the Plan, or when the Plan is terminated in accordance with Paragraph 10 hereof, the participant will receive a certificate for full Shares in the Account. Fractional Shares will be held and aggregated with other Fractional Shares being liquidated by IFTC as agent of the Plan and as transfer agent of the Fund and paid for by check when actually sold. Fractional Shares will be sold by IFTC concurrent with Distribution reinvestment, either on the open market or to the Plan for use in Distribution reinvestment or cash purchase transactions. The price for Fractional Shares will be either the actual market price received, after deducting any commissions, for open market sales, or the Market Price on the Valuation Date for sales to the Plan. If the certificate for full Shares or sale proceeds for fractional Shares are to be sent to anyone other than the registered owner(s) at the address of record, a signature guarantee will be required on the request.
In addition, a participant may, if a tender offer is conducted, tender such Shares pursuant to the terms and conditions of such tender offer. Tendered Shares accepted for repurchase will be at a price equal to their net asset value
on the expiration date of the tender offer.
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT made as of the 15th day of November, 1988, amended and restated as of the 17th day of February, 1995, and further amended and restated as of the 7th day of April, 1995, by and between PILGRIM PRIME RATE TRUST, a Massachusetts Business Trust (hereinafter called the "Trust"), and PILGRIM AMERICA INVESTMENTS, INC., a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Manager").
W I T N E S S E T H:
WHEREAS, the Trust is a closed-end management investment company, registered as such under the Investment Company Act of 1940; and
WHEREAS, the Manager is registered as an investment adviser under the Investment Advisers Act of 1940, and is engaged in the business of supplying investment advice and investment management services, as an independent contractor; and
WHEREAS, the Trust desires to retain the Manager to render investment advice and investment management services to the Trust pursuant to the terms and provisions of this Agreement, and the Manager is interested in furnishing said advice and services.
NOW, THEREFORE, in consideration of the covenants and the mutual promises hereinafter set forth, the parties hereto, intending to be legally bound hereby, mutually agree as follows:
1. The Trust hereby employs the Manager and the Manager hereby accepts such employment, to render investment advice and investment management services with respect to the assets of the Trust, subject to the supervision and direction of the Trust's Board of Trustees. The Manager
shall, as part of its duties hereunder (i) furnish the Trust with advice and recommendations with respect to the investment of the Trust's assets and the purchase and sale of its portfolio securities, including the taking of such other steps as may be necessary to implement such advice and recommendations, (ii) furnish the Trust with reports, statements and other data on securities, economic conditions and other pertinent subjects which the Trust's Board of Trustees may request, (iii) permit its officers and employees to serve without compensation as Trustees or officers of the Trust if elected to such positions and (iv) in general superintend and manage the investments of the Trust, subject to the ultimate supervision and direction of the Trust's Board of Trustees.
2. The Manager shall use its best judgment and efforts in rendering the advice and services to the Trust as contemplated by this Agreement.
3. The Manager shall, for all purposes herein, be deemed to be an independent contractor, and shall, unless otherwise expressly provided and authorized, have no authority to act for or represent the Trust in any way, or in any way be deemed an agent for the Trust. It is expressly understood and agreed that the services to be rendered by the Manager to the Trust under the provisions of this Agreement are not to be deemed exclusive, and the Manager shall be free to render similar or different services to others so long as its ability to render the services provided for in this Agreement shall not be impaired thereby.
4. The Manager agrees to use its best efforts in the furnishing of such advice and recommendations to the Trust, in the preparation of reports and information, and in the management of the Trust's assets, all pursuant to this Agreement, and for this purpose the Manager shall, at its own expense, maintain such staff and employ or retain such personnel and consult with such other persons as it shall from time to time determine to be necessary to the performance of its obligations under this Agreement. Without limiting the generality of the foregoing, the staff and personnel of the Manager shall be deemed to include persons employed or retained by the Manager to furnish statistical, research, and other factual information, advice regarding economic factors and trends, information with respect to technical and scientific developments, and such other information, advice and assistance as the Manager may desire and request.
5. The Trust will from time to time furnish to the Manager detailed statements of the investments and assets of the Trust and information as to its investment objectives and needs, and will make available to the Manager such financial reports, proxy statements, legal and other information relating to its investments as may be in the possession of the Trust or available to it and such other information as the Manager may reasonably request.
6. Whenever the Manager has determined that the Trust should tender securities pursuant to a "tender offer solicitation" the Manager shall designate an affiliate as the "tendering dealer" so long as it is legally permitted to act in such capacity under the Federal securities laws and rules thereunder and the rules of any securities exchange or
association of which such affiliate may be a member. Such affiliated dealer shall not be obligated to make any additional commitments of capital, expenses or personnel beyond that already committed (other than normal periodic fees or payments necessary to maintain its corporate existence and membership in the National Association of Securities Dealers, Inc.) as of the date of this Agreement. This Agreement shall not obligate the Manager or such affiliate (i) to act pursuant to the foregoing requirement under any circumstances in which they might reasonably believe that liability might be imposed upon them as a result of so acting, or (ii) to institute legal or other proceedings to collect fees which may be considered to be due from others to it as a result of such a tender, unless the Trust shall enter into an agreement with such affiliate to reimburse it for all expenses connected with attempting to collect such fees, including legal fees and expenses and that portion of the compensation due to their employees which is attributable to the time involved in attempting to collect such fees.
7. The Manager shall bear and pay the costs of rendering the services to be performed by it under this Agreement. The Trust shall be responsible for all other expenses of its operation, including, but not limited to, expenses incurred in connection with the sale, issuance, registration and transfer of its shares; fees of its custodian, transfer and shareholder servicing agent; salaries of officers and fees and expenses of trustees or members of any advisory board or committee of the Trust who are not members of, affiliated with or interested persons of the Manager; the cost of preparing and printing reports, proxy statements and prospectuses of the Trust or other
communications for distribution to its shareholders; legal, auditing and accounting fees; the fees of any trade association of which the Trust is a member; fees and expenses of registering and maintaining registration of its shares for sale under Federal and applicable State securities laws; and all other charges and costs of its operation plus any extraordinary and non-recurring expenses, except as herein otherwise prescribed. To the extent the Manager incurs any costs or performs any services which are an obligation of the Trust, as set forth herein, the Trust shall promptly reimburse the Manager for such costs and expenses. To the extent the services for which the Trust is obligated to pay are performed by the Manager, the Manager shall be entitled to recover from the Trust only to the extent of its costs for such services.
8. (a) The Trust agrees to pay to the Manager, and the Manager agrees to accept, as full compensation for all investment management services furnished or provided to the Trust and as full reimbursement for all expenses assumed by the Manager, a management fee computed at the annual rate of .85% of the average daily net assets of the Trust up to $700 million; at an annual rate of .75% of the Trust's average daily net assets in excess of $700 million up to but not including $800 million; and at an annual rate of .65% of the Trust's average daily net assets over $800 million.
(b) The management fee shall be accrued daily by the Trust and paid to the Manager at the end of each calendar month.
(c) If, for any fiscal year, the expenses borne by the Trust, including the investment advisory fee, but excluding
brokerage commissions and fees, taxes, interest and to the extent permitted, any extraordinary expenses such as litigation and non-recurring expenses, would exceed the expense limitations applicable to the Trust imposed by the securities laws or regulations thereunder of any state in which the Trust's shares are qualified for sale, the Manager agrees to reduce its fee or reimburse the Trust for all such excess expenses exceeding such limitation no later than the last day of the first month of the next succeeding fiscal year. For the purposes of this paragraph, the term "fiscal year" shall exclude the portion of the current fiscal year which shall have elapsed prior to the date hereof and shall include the portion of the then current fiscal year which shall have elapsed at the date of termination of this Agreement.
(d) The management fee payable by the Trust hereunder shall be reduced to the extent that an affiliate of the Manager has actually received cash payments of tender offer solicitation fees less certain costs and expenses incurred in connection therewith, as referred to in Paragraph 6 herein.
9. The Manager agrees that neither it nor any of its officers or employees shall take any short position in the capital stock of the Trust. This prohibition shall not prevent the purchase of such shares by any of the officers and directors or bona fide employees of the Manager or any trust, pension, profit-sharing or other benefit plan for such persons or affiliates thereof.
10. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Trust
Indenture or any applicable statute or regulation, or to relieve or deprive the Board of Trustees of the Trust of its responsibility for and control of the conduct of the affairs of the Trust.
11. (a) In the absence of willful misfeasances, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the part of the Manager, the Manager shall not be subject to liability to the Trust or to any shareholder of the Trust for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any investment by the Trust.
(b) Notwithstanding the foregoing, the Manager agrees to reimburse the Trust for any and all costs, expenses, and counsel and trustees' fees reasonably incurred by the Trust in the preparation, printing and distribution of proxy statements, amendments to its Registration Statement, holding of meetings of its shareholders or trustees, the conduct of factual investigations, any legal or administrative proceedings including any applications for exemptions or determinations by the Securities and Exchange Commission which the Trust incurs as the result of action or inaction of the Manager or any of its shareholders where the action or inaction necessitating such expenditures (i) is directly or indirectly related to any transactions or proposed transaction in the shares or control of the Manager or its affiliates (or litigation related to any pending or proposed future transaction in such shares or control) which shall have been undertaken without the prior express approval of the Trust's Board of Trustees; or (ii) is within the sole control of the Manager or any of its affiliates or
any of their officers, directors, employees or shareholders. The Manager
shall not be obligated pursuant to the provisions of this Subparagraph
11(b), to reimburse the Trust for any expenditures related to the
institution of an administrative proceeding or civil litigation by the
Trust or a Trust shareholder seeking to recover all or a portion of the
proceeds derived by any shareholder of the Manager or any of its
affiliates from the sale of his shares of the Manager, or similar matters.
So long as this Agreement is in effect, the Manager shall pay to the Trust
the amount due for expenses subject to this Subparagraph 11(b) within
thirty (30) days after a bill or statement has been received by the Trust
therefor. This provision shall not be deemed to be a waiver of any claim
the Trust may have or may assert against the Manager or others or costs,
expenses, or damages heretofore incurred by the Trust for costs, expenses,
or damages the Trust may hereafter incur which are not reimbursable to it
hereunder.
(c) No provision of this Agreement shall be construed to protect any trustee or officer of the Trust, or the Manager, from liability in violation of Section 17(h) and (i) of the Investment Company Act of 1940, as amended.
12. This Agreement shall become effective at the close of business on the date hereof and shall continue in effect for two years from such date, and, thereafter, from year to year so long as such continuation is specifically approved at least annually by (i) the Board of Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the Trust, and (ii) the vote of a majority of the trustees of the Trust who are not parties to this
Agreement or interested persons thereof, cast in person at a meeting called for the purpose of voting on such approval.
13. This Agreement may be terminated at any time, without payment of
any penalty, by the Board of Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Trust, upon sixty
(60) days' written notice to the Manager, and by the Manager upon sixty
(60) days' written notice to the Trust.
14. This Agreement shall terminate automatically in the event of any transfer or assignment thereof, as defined in the Investment Company Act of 1940, as amended.
15. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder of this Agreement shall not be affected thereby.
16. The term "majority of the outstanding voting securities" of the Trust shall have the meaning as set forth in the Investment Company Act of 1940, as amended.
17. In consideration of the execution of this Agreement the Manager, on behalf of its sole shareholder, Pilgrim America Group, Inc., hereby grants to the Trust the right to use the name "Pilgrim" as part of its name. The Manager, on behalf of its sole shareholder, Pilgrim America Group, Inc., reserves the right to grant to others the right to use the name "Pilgrim," including to any other investment company. The Trust agrees that in the event this Agreement is terminated, the Trust shall immediately take such steps
as are necessary to amend its name to remove the reference to "Pilgrim."
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers on the day and year first above written.
ATTEST: PILGRIM PRIME RATE TRUST
_________________________ By: ___________________________
Assistant Vice President Senior Vice President
and Assistant Secretary
ATTEST: PILGRIM AMERICA INVESTMENTS, INC.
_________________________ By: ___________________________
Assistant Vice President Senior Vice President
and Secretary
|
AMENDMENT TO THE INVESTMENT MANAGEMENT AGREEMENT
The Investment Management Agreement, which was made as of April 7, 1995, by and between Pilgrim Prime Rate Trust, a business trust organized and existing under the laws of the Commonwealth of Massachusetts (hereinafter called the "Trust"), and Pilgrim America Investments, Inc., a corporation organized and existing under the law of the State of Delaware (hereinafter called the "Manager"), is hereby amended by the addition of the provisions set forth in this Amendment to the Investment Management Agreement, which is made as of this 2nd day of May, 1996.
W I T N E S S E T H:
WHEREAS, the Trust is a closed-end management investment company, registered as such under the Investment Company Act of 1940, as amended; and
WHEREAS, the Trust may borrow in an amount up to 33 1/3% of the Trust's total assets; and
WHEREAS, the proceeds of such borrowings shall be managed by the Manager consistent with the investment objectives and policies of the Trust; and
WHEREAS, the Trust and the Manager believe it is appropriate to amend the Investment Management Agreement to provide that the investment management fee shall be based upon the current rate schedule plus the amounts of any proceeds of any outstanding borrowings; and
WHEREAS, this Addendum shall be effective as of the date indicated above provided that it has earlier been approved by the shareholders of the Trust at a meeting held for that purpose.
NOW, THEREFORE, in consideration of the promises and mutual covenants in the Investment Management Agreement and in this Amendment to such Agreement, it is agreed between the Trust and the Manager as follows:
1. Section 8(a) of the Investment Management Agreement is amended by adding the following underscored language, and Section 8(a) shall be restated as follows:
The Trust agrees to pay the Manager, and the Manager agrees to accept, as full compensation for all investment management services furnished or provided to the Trust and as full reimbursement for
all expenses assumed by the Manager, a management fee computed at the annual rate of .85% of the average daily net assets of the Trust, plus the proceeds of any outstanding borrowings, up to $700 million; at an annual rate of .75% of the Trust's average daily net assets, plus the proceeds of any outstanding borrowings, in excess of $700 million up to but not including $800 million; and at an annual rate of .65% of the Trust's average daily net assets, plus the proceeds of any outstanding borrowings, over $800 million.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed by their officers designated below on the date written above.
PILGRIM PRIME RATE TRUST
By: /s/ Nancy L. Peden
Attest
Assistant Vice President Senior Vice President
Title Title
|
PILGRIM AMERICA INVESTMENTS, INC.
By: /s/ James M. Hennessy
Attest
Assistant Vice President Senior Vice President
Title Title
|
AMENDMENT TO THE ADMINISTRATION AGREEMENT
The Administration Agreement, which was made as of April 7, 1995, by and between Pilgrim Prime Rate Trust, a business trust organized and existing under the laws of the Commonwealth of Massachusetts (hereinafter called the "Trust"), and Pilgrim America Group, Inc., a corporation organized and existing under the law of the State of Delaware (hereinafter called the "Administrator"), is hereby amended by the addition of the provisions set forth in this Amendment to the Administration Agreement, which is made as of this 2nd day of May, 1996.
W I T N E S S E T H:
WHEREAS, the Trust is a closed-end management investment company, registered as such under the Investment Company Act of 1940, as amended; and
WHEREAS, the Trust may borrow in an amount up to 33 1/3% of the Trust's total assets; and
WHEREAS, the proceeds of such borrowings shall be managed by the Administrator consistent with the investment objectives and policies of the Trust; and
WHEREAS, the Trust and the Administrator believe it is appropriate to amend the Administration Agreement to provide that the investment management fee shall be based upon the current rate schedule plus the amounts of any proceeds of any outstanding borrowings; and
WHEREAS, the Addendum shall be effective as of the date indicated above provided that it has earlier been approved by the shareholders of the Trust at a meeting held for that purpose.
NOW, THEREFORE, in consideration of the promises and mutual covenants in the Administration Agreement and in this Amendment to such Agreement, it is agreed between the Trust and the Administrator as follows:
1. Section 8(a) of the Administration Agreement is amended by adding the following underscored language, and Section 8(a) shall be restated as follows:
The Trust agrees to pay the Administrator, and the Administrator agrees to accept, as full compensation for all administrative services furnished or provided to the Trust and as full reimbursement for all expenses assumed by the Administrator, an administration fee computed at the annual rate of .15% of the average daily net assets of the Trust, plus the proceeds of any outstanding borrowings, up to
$800 million; and at an annual rate of .10% of the Trust's daily average net assets, plus the proceeds of any outstanding borrowings, over $800 million.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed by their officers designated below on the date written above.
PILGRIM PRIME RATE TRUST
_________________________ By:________________________________
Attest
- ------------------------- -----------------------------------
Title Title
PILGRIM AMERICA GROUP, INC.
_________________________ By:________________________________
Attest
- ------------------------- -----------------------------------
Title Title
|
DRAFT
SUBSCRIPTION RIGHTS AGENCY AGREEMENT
This Subscription Rights Agency Agreement (the "Agreement") is made as of September ___, 1996 between Pilgrim America Prime Rate Trust, a Massachusetts Business Trust ("the Trust"), and Investors Fiduciary Trust Company, a state chartered trust company organized and existing under the laws of the State of Missouri, as subscription and distribution agent ("Agent").
WHEREAS, the Trust proposes to make a subscription offer by issuing certificates or other evidences of subscription rights, in the form designated by the Trust ("Subscription Certificates"), to shareholders of record ("Record Date Shareholders") of its shares of beneficial interest of the Trust ("Common Shares" or "Shares") as of a record date specified by the Trust (the "Record Date"), pursuant to which each Record Date Shareholder will have certain rights (the "Rights") to subscribe for the Trust's Common Shares as described in and upon such terms as are set forth in the final prospectus (the "Prospectus") for the Form N-2 Registration Statement that was filed by the Trust with the Securities and Exchange Commission on September ___, 1996, as amended from time to time (the "Registration Statement"). (Capitalized terms used but not defined herein shall have the meanings given to them in the Prospectus);
WHEREAS, the Trust wishes the Agent to perform certain acts on its behalf and the Agent is willing to so act, in connection with the distribution of the Subscription Certificates and the issuance and exercise of the Rights to subscribe for Common Shares all upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing and of the mutual agreements set forth herein, the parties agree as follows:
1. Pursuant to resolution of its Board of Trustees, the Trust hereby appoints and authorizes the Agent to act on its behalf in accordance with the provisions hereof, and the Agent hereby accepts such appointment and agrees to so act or to cause its designee to so act.
2. (a) Each Subscription Certificate shall evidence the Rights of the holder of the Subscription Certificates (the "Rights Holder") to purchase Common Shares upon the terms and conditions therein and herein set forth.
(b) Upon the written advice of the Trust signed by its Chairman, President, Vice President, Secretary or Assistant Secretary, as to the Record Date, the Agent shall, from a list of Record Date Shareholders to be prepared by the Agent in its capacity as Transfer Agent prepare and record Subscription Certificates in the names of the Record Date Shareholders,
setting forth the number of Rights to subscribe to the Common Shares calculated on the basis of one Right for each Common Share recorded on the Trust's books in the name of each such Record Date Shareholder. Fractional Rights shall not be issued. Each Subscription Certificate shall be dated as of the Record Date and shall be executed manually or by facsimile signature of a duly authorized Officer of the Trust. Upon the written advice, signed as aforesaid, as to the effective date of the Registration Statement, the Agent shall as promptly as practicable countersign and deliver the Subscription Certificates, together with a copy of the Prospectus (which will be provided by the Trust), to all Record Date Shareholders. Subscription Certificates for Record Date Shareholders in jurisdictions outside the United States (excluding Guam and Puerto Rico) and such other jurisdictions as the Trust advises shall be held by the Agent until written instructions are received as to handling of the Rights. If no such instructions are received on or before the fourth business day prior to the Expiration Date, _______________. No Subscription Certificate shall be valid for any purpose unless so executed. Should any Officer whose signature has been placed upon and Subscription Certificate cease to hold such office at any time thereafter, such event shall have no effect on the validity of such Subscription Certificate.
3. (a) Each Subscription Certificate shall be non-transferable and shall, its having been exercised by the holder thereof in the manner set forth in the Prospectus, become irrevocable upon a completed subscription certificate having been delivered to the Agent. The Agent shall, in its capacity as Transfer Agent for the Trust maintain a register of Subscription Certificates and the Rights Holders. Each Subscription Certificate shall, subject to the provisions thereof, entitle the Rights Holder in whose name it is recorded to the right (the "Primary Subscription Right") to purchase one Common Share for each five Rights held. If the number of Subscription Rights held is not a multiple of five, a Rights Holder will not be entitled to purchase any Common Shares in excess of the highest multiple of five and will not be able to receive any cash from the Trust in lieu of such remaining Subscription Rights.
In addition, each Subscription Certificate shall, subject to the provisions thereof, entitle Record Date Shareholders and Purchasing Rights Holders in the Primary Subscription ("Exercising Rights Holders") the right (the "Over-Subscription Right") to purchase from the Trust additional Common Shares subject to the availability of such shares and to allotment of such shares as may be available among Exercising Rights Holders who exercise Over-Subscription Rights on the basis specified in the Prospectus; provided, however, that an Exercising Rights Holder who has not exercised his Primary Subscription Rights with
respect to the full number of Rights issued to him shall not be entitled to any Over-Subscription Rights. The Trust may, at its discretion, issue up to an additional 25% of the Shares to honor Over-Subscriptions, if sufficient Shares are not available to honor all Over-Subscriptions. To the extent the Trust determines not to issue additional Shares to honor all Over-Subscriptions, the available Shares will be allocated among those who OverSubscribe based on the number of Rights originally issued to them, so that the number of Shares issued to Exercising Rights Holders who subscribe pursuant to the Over-Subscription Privilege will generally be in proportion to the number of Shares held by them on the Record Date.
(b) A Rights Holder may exercise his Primary Subscription Rights and his Over-Subscription Rights by delivery to the Agent at its corporate office specified in the Prospectus of (i) the Subscription Certificate with respect thereto, duly executed by such Rights Holder in accordance with and as provided by the terms and conditions of the Subscription Certificate, together with (ii) the Estimated Subscription Price for each Common Share subscribed for by exercise of such Rights, in United States dollars by money order or check drawn on a bank located in the continental United States and in each case payable to the order of the Trust.
(c) Rights may be exercised at any time after the date of issuance
of the Subscription Certificates with respect thereto but no later than 5:00
p.m. Eastern Daylight Time on such date as the Trust shall designate to the
Agent in writing (the "Expiration Date"). For the purpose of determining the
time of the exercise of any Rights, delivery of any material to the Agent shall
be deemed to occur when such materials are received at the corporate office of
the Agent specified in the Prospectus. All questions as to the validity, form,
eligibility and acceptance of Subscription Certificates will be determined by
the Trust. The Agent shall have no duty to notify Rights Holders of defects in
subscriptions and shall incur no liability to Rights Holders for failure to give
such notification. Subscriptions shall not be deemed to have been made until any
irregularities have been cured by the Rights Holder or waived by the Trust.
(d) Notwithstanding the provisions of Section 3(b) and 3(c)
regarding Delivery of an executed Subscription Right to the Agent prior to 5:00
p.m. Eastern Daylight Time on the Expiration Date, if prior to such time the
Agent receives notice of guaranteed delivery by mail or otherwise from a bank,
trust company or a New York Stock Exchange member guaranteeing delivery of (i)
full payment for Shares purchased and subscribed for by virtue of a Rights
Holder's Rights, and (ii) a properly completed and executed Subscription
Certificate, then such exercise of
Primary Subscription Rights and Over-Subscription Rights shall be regarded as timely, subject, however, to receipt of the duly executed Subscription Certificate by the Agent within five business days after the Expiration Date.
(e) Within [5] business days following the Expiration Date (the "Confirmation Date"), the Agent shall send a confirmation to each exercising Rights Holder (or their nominee), showing (i) the number of Shares acquired pursuant to the Primary Subscription Right, (ii) the number of Shares, if any, acquired pursuant to the Over-Subscription Right, (iii) the per Share and total purchase price for the shares, and (iv) any additional amount payable by such Rights Holder to the Trust or any excess to be refunded by the Trust to such Rights Holder, in each case based on the Subscription Price as determined on the Expiration Date. Any additional payment required from a Rights Holder must be received by the Agent within ten business days after the Confirmation Date (the "Final Payment Date"). Any excess payment to be refunded by the Trust to a Rights Holder, shall be mailed by the Agent to the Rights Holder as soon as practicable after the Final Payment Date, as provided in Section 6 below.
4. If, after allocation of Common Shares to persons exercising Primary Subscription Rights, there remain unexercised Rights, then the Agent shall allot the Shares issuable upon exercise of such unexercised Rights (the "Remaining Shares") to persons exercising Over-Subscription Rights, in the amounts of such over-subscription. If the number of Shares for which Over- Subscription Rights have been exercised is greater than the Remaining Shares, the Agent shall allot the Remaining Shares to the persons exercising Over-Subscription Rights pro rata based solely on the number of Rights originally issued to them by the Trust.
5. All proceeds from the exercise of Rights shall be held by the Agent in a segregated, noninterest-bearing account in the name of the Trust. The Agent shall advise the Trust immediately upon the completion of the allocation set forth above as to the total number of shares subscribed and distributable.
6. (a) The Agent shall mail to the Rights Holders within fifteen business days after the Confirmation Date and after full payment for the Shares subscribed for has cleared: (i) certificates representing those shares purchased pursuant to exercise of Primary Subscription Rights and those shares purchased pursuant to the exercise of Over-Subscription Rights; and (ii) in the case of each Rights Holder who subscribed and paid for Shares at an Extimated Subscription Price which is greater than the actual Subscription Price, a refund in the amount of the
difference between the Estimated Subscription Price and the actual Subscription Price.
(b) The Agent shall deliver the proceeds of the exercise of Rights to the Trust as promptly as practicable, but in no event later than fifteen business days after Confirmation Date.
7. (a) The Agent shall account promptly to the Trust with respect to Rights exercised and concurrently account for all monies received and returned by the Agent with respect to the purchase of Common Shares upon the exercise of Rights.
(b) The Agent will advise the Trust and the Offering Manager of the total number of Rights exercised by each Rights Holder during the immediately preceding day (indicating the total number of Rights verified to be in proper form for exercise, rejected for exercise and being processed) and the number of Rights exercised on Subscription Certificates indicating the soliciting broker, if any, specified as the broker-dealer with respect to such exercise and such other information as the Trust or the Offering manager may reasonable request, including a certified list of Record Date Shareholders. The Agent will provide the names and Trust account numbers of each exercising Right Holder to the Trust or its Agent and the Offering Manager during the immediately preceding day.
(c) The Agent shall notify the Trust and the Offering Manager no later than 5:00 p.m., New York time, on the first business day following the Expiration Date, of the number of Rights exercised, the total number of Rights verified to be in proper form for exercise, rejected for exercise and being processed, the number of Rights exercised on Subscription Certificates indicating the soliciting broker, if any, specified as the broker-dealer with respect to such exercise, the number of Rights exercised by Record Date Shareholders and such other information as the Trust or Offering Manager may reasonably request.
(d) Upon request of either the Trust or the Offering Manager after the Confirmation Date, the Agent shall notify the Trust or the Offering Manger of any Right with respect of which the full amount due upon the exercise thereof has not been received and the soliciting broker, if any, specified as the broker-dealer with respect to such right.
8. In the event the Agent does not receive, within ten business days after
the Confirmation Date, any amount due from a Rights Holder as specified in
Section 3(e), then it shall take such action with respect to such Rights
Holder's Subscription
Certificates as may be instructed in writing by the Trust, including, without limitation, (i) applying any payment actually received by it toward the purchase of the greatest whole number of Common Shares which could be acquired with such payment, and (ii) allocating the shares subject to such Subscription Certificates to one or more other Shareholders.
9. No Subscription Certificate shall entitle a Rights Holder to vote or receive dividends or be deemed the holder of Common Shares for any purpose, nor shall anything contained in any Subscription Certificate be construed to confer upon any Rights Holder any of the rights of a shareholder of the Trust (whether upon any recapitalization, issue of Common Shares, reclassification of Shares, consolidation, merger, conveyance or otherwise), nor shall a Subscription Certificate entitle a Rights Holder to receive notice of meetings or other action affecting shareholders or to receive dividends or otherwise, until the Rights evidenced thereby shall have been exercised and the Common Shares purchasable upon the exercise thereof shall have become deliverable as provided in this Agreement and in the Prospectus.
10. If there shall be delivered to the Agent (i) evidence to the Agent's and the Trust's satisfaction of the destruction, loss or theft of any Subscription Certificates and (ii) such security or indemnity as may be required by the Agent or the Trust to save each of them harmless, then the Agent may issue a new Subscription Certificate for a like number of Rights in substitution for the Subscription Certificate so lost, stolen, mutilated or destroyed.
11. (a) The Trust covenants that all Common Shares issued upon exercise of Rights will be validly issued, fully paid, nonassessable and free of preemptive rights.
(b) The Trust shall furnish to the Agent, upon request, evidence satisfactory to the Agent to the effect that a registration statement under the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (the "Acts") is then in effect with respect to its Common Shares issuable upon exercise of the Rights set forth in the Subscription Certificates. Upon written advice to the Agent that the Securities and Exchange Commission shall have issued or threatened to have issued any order preventing or suspending the use of the Prospectus, or if for any reason it shall be necessary to amend or supplement the Prospectus in order to comply with the Acts, the Agent shall cease acting hereunder until receipt of written instructions from the Trust and such assurances as it may reasonably request that it may comply with such instruction without violations of the Acts.
(c) The Trust covenants and agrees that it will pay all taxes when due and payable in respect of the issue or delivery of Subscription Certificates, if any.
12. (a) Any corporation into which the Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Agent shall be a party, or any corporation succeeding to the corporate trust business of the Agent, shall be the successor to the Agent hereunder without the execution or filing of any document by any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Agent. In case at the time such successor to the Agent shall succeed to the agency created by this Agreement, any of the Subscription Certificates shall have been countersigned but not delivered, any such successor to the Agent may adopt the countersignature of the original Agent and deliver such Subscription Certificates so countersigned, and in case at that time any of the Subscription Certificates shall not have been countersigned, any successor to the Agent may countersign such Subscription Certificates either in the name of the predecessor Agent or in the name of the successor Agent, and in all such cases such Subscription Certificates shall have the full force provided in the Subscription Certificates and in this Agreement.
(b) In case at any time the name of the Agent shall be changed and at such time any of the Subscription Certificates shall have been countersigned but not delivered, the Agent may adopt the countersignature under its prior name and deliver Subscription Certificates so countersigned, and in case at that time any of the Subscription Certificates shall not have been countersigned, the Agent may countersign such Subscription Certificates either in its prior name or in its changed name, and in all such cases such Subscription Certificates shall have the full force provided in the Subscription Certificates and in this Agreement.
13. The Trust agrees to pay to the Agent within 30 days after completion of the offering reasonable compensation for all services tendered by it hereunder and also its reasonable out-of-pocket expenses and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder as set forth in Schedule A (attached). Agent shall make and file reports with state or federal taxing authorities, upon specific written instructions received from the Trust, provided that the Trust agrees to reimburse Agent for expenses incurred with respect to such reports.
14. The Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions:
(a) Whenever in the performance of its duties under this Agreement the Agent shall deem it necessary or desirable that any fact or matter be proved or established, prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof is herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board or President or a Vice President or the Secretary or Assistant Secretary or the Treasurer of the Trust delivered to the Agent, and such certificate shall be full authorization to the Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.
(b) The Agent shall not be responsible for and the Trust shall indemnify and hold the Agent harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liabilities arising out of or attributable to all actions of the Agent or its agents or subcontractors required to be taken pursuant to this Agreement, provided that such actions are taken in good faith and without negligence or willful misconduct.
(c) The Agent shall at all times act in good faith and agrees to use its best efforts within reasonable limits to insure the accuracy of all services performed under this Agreement, but assumes no responsibility and shall not be liable for loss or damage due to errors unless said errors are caused by its negligence, bad faith, or willful misconduct or that of its employees.
(d) Nothing herein shall preclude the Agent from acting in any other capacity for the Trust or for any other legal entity.
(e) The Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any officer or assistant officer of the Trust and to apply to any such officer of the Trust for advice or instructions in connection with its duties, and shall be indemnified and not be liable for any action taken or suffered by it in good faith in accordance with instructions of any officer or assistant officer of the Trust.
(f) The Agent shall be indemnified and shall incur no liability for or in respect of any action taken, suffered, or omitted by it in reliance upon any Subscription Right or certificate for Common Shares, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document that it reasonably believes to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons.
(g) If Agent is in doubt as to its duties and responsibilities hereunder, it may consult with counsel for the Trust, at the Trust's expense, and shall be indemnified and not be liable for any action taken or suffered by it in accordance with the advice or opinion of such counsel.
(h) The Agent's duties hereunder shall be determined solely by the terms of this Agreement and applicable laws, and not with reference to any other document or agreement.
15. The Agent may, without the consent or concurrence of the Shareholders in whose names Subscription Certificates are registered, by supplemental agreement or otherwise, concur with the Trust and the Offering Manager in making any changes or corrections in a Subscription Certificate that it shall have been advised by counsel (who may be counsel for the Trust) is appropriate to cure any ambiguity or to correct any defective or inconsistent provision or clerical omission or mistake or manifest error therein or herein contained, and which shall not be inconsistent with the provisions of the Subscription Certificate or the Prospectus except insofar as any such change may confer additional rights upon the Shareholders.
16. All the covenants and provisions of the Agreement by or for the benefit of the Trust or the Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.
17. All capitalized terms used herein and not defined herein shall have the meaning specified in the Prospectus.
18. The validity, interpretation and performance of this Agreement shall be governed by the law of the State of Missouri.
19. Any notice, request or other communication to be given hereunder, shall be in writing and shall be sufficient if sent by telecopier, telefax or registered or certified mail, postage prepaid, addressed (until another address is supplied in writing by the addressee) as follows:
To the Trust:
Two Renaissance Square
40 N. Central Ave., Suite 1200
Telecopier: (602) 417-8325
Attention: James M. Hennessy
To the Agent:
127 W. 10th Street
Kansas City, Missouri 64105
Telecopier: (816) 435-3372
Attention: Marvin Rau
With copies to each of the following:
1055 Broadway Boston EquiServe
Kansas City, MO 64105 150 Royall Street
Telecopier: (816) 435-8630 Canton, MA - 02021
Attention: Jules Moskowitz Telecopier: (617) 575-2500
Attention: Michael Monohan
|
20. The Agent may resign from its duties under this Agreement upon sixty
(60) days' prior written notice to the Trust and to each Rights Holder.
21. The Agent, with consent of the Trust, may assign or subcontract performance of its duties hereunder to a transfer agent duly registered pursuant to the Securities Exchange Act of 1934. The Trust agrees that the provisions of Sections 14(a), (b), (e), (f), and (g) hereof shall inure to the benefit of such transfer agent. The Trust hereby consents to such assignment and/or subcontracting to DST Systems, Inc., and Boston EquiServe and its affiliates. The Agent agrees that notwithstanding any such permitted assignment, the Agent will remain primarily obligated to the Trust for the proper and timely performance of the Agent's obligations and duties hereunder.
22. The Agent shall not be responsible or liable for the failure or delay in performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation: any interruption, loss or malfunction of any utility, transportation, computer (hardware or software) or communication service; inability to obtain labor, material, equipment or transportation, or a delay in mails; governmental or exchange action, statute, ordinance, rulings, regulations or direction; war, strike, riot, emergency, civil disturbance, terrorism, vandalism, explosions, labor disputes, freezes, floods, fires, tornadoes, acts of God or public enemy, revolutions, or insurrection.
23. Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this
Agreement or for any consequential damages arising out of any act or failure to act hereunder.
24. This Agreement constitute the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof whether oral or written.
25. All provisions regarding indemnification, warranty and liability and limits thereon shall survive the termination of this Agreement.
26. If any provision or provisions of this Agreement shall be held to be invalid, unlawful, or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.
27. This Agreement may be executed by the parties hereto on any number of counterparts, and all said counterparts taken together shall be deemed to constitute one and the same instrument.
INVESTORS FIDUCIARY PILGRIM AMERICA
TRUST COMPANY PRIME RATE TRUST
- ------------------------- -------------------------
Robert Novellano James M. Hennessy
|
Date: _______________ Date: _______________
DRAFT
SCHEDULE A
PILGRIM AMERICA PRIME RATE TRUST
OFFERING FEE SCHEDULE
Administration Fee $10,000.00
Subscription Form Generation $2.00 per form
Subscription Form Processing $8.00 per subscription
(Registered and Brokers)
Broker Solicitation Checks $5.00 per check
Notice of Guaranty $9.00 per form received
Defective Tenders $12.50 per item
Extension $1,000.00 per extension
|
*$9.00 charge for processing will include the following services:
Confirm (bill) Generation
Oversubscription Calculation
Check Generation
Certificate Issuance
Report Generation
The above schedule does not include out-of-pocket expenses that would be incurred by IFTC or its agents and sub-contractors on the clients behalf. Examples of out-of-pocket expenses include but are not limited to forms, postage, magnetic tapes, printing, microfilm, microfiche, overnight mailing services, temporary staffing, programming hours as billed by DST, fax machine rental, etc.
IFTC will offset fees with balance credits calculated at 75% of the bank credit rate (the lesser of the 91-day Treasury Bill Rate or the average Federal Funds rate for the month less 50 basis points) applied to the average cash balances for the month. Balance credits can be used only to offset fees. For calculation purposes, IFTC uses an actual/actual basis.
AGREEMENT
This document will constitute the agreement between PILGRIM AMERICA PRIME RATE TRUST (the "FUND"), with its principal executive offices at Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, AZ 85004-4424 and SHAREHOLDER COMMUNICATIONS CORPORATION ("SCC"), with its principal executive offices at 17 State Street, New York, NY 10005, relating to a Rights Offering (the "OFFER") of the Fund.
The services to be provided by SCC will be as follows:
(1) INDIVIDUAL HOLDERS OF RECORD AND BENEFICIAL OWNERS
Target Group. SCC estimates that it may call between 2,650 and 4,100 of the approximately 53,000 outstanding beneficial and registered shareholders. The estimate number is subject to adjustment and SCC may actually call more or less shareholders depending on the response to the OFFER or at the FUND's direction.
Telephone Number Lookups. SCC will obtain the needed telephone numbers from various types of telephone directories.
Initial Telephone Calls to Provide Information. SCC will begin telephone calls to the target group as soon as practicable after effectiveness of the registration statement for the Offer. Most calls will be made during 10:00 A.M. to 9:00 P.M. on business days and only during 10:00 A.M. to 5:00 P.M. on Saturdays. No calls will be received by any shareholder after 9:00 P.M. on any day, in any time zone, unless specifically requested by the shareholder. SCC will maintain "800" lines for shareholders to call with questions about the OFFER. The "800" lines will be staffed Monday through Friday between 9:00 a.m. and 9:00 p.m. SCC will provide the Fund with a weekly report reflecting the number of calls received by SCC reflecting the names and phone number, if available.
Remails. SCC will coordinate remails of offering materials to the shareholders who advise us that they have discarded or misplaced the originally mailed materials.
Reminder/Extension Mailing. SCC will help to coordinate any targeted or broad-based reminder mailing at the request of the FUND. SCC will mail only materials supplied by the FUND or approved by the Fund in writing.
Subscription Reports. SCC will rely upon the subscription agent for accurate and timely information as to participation in the OFFER.
(2) BANK/BROKER SERVICING
SCC will contact all banks, brokers and other nominee shareholders ("intermediaries") holding stock as shown on appropriate portions of the shareholder lists to ascertain quantities of offering materials needed for forwarding to beneficial owners.
SCC will deliver offering materials by messenger to New York City based intermediaries and by Federal Express or other means to non-New York City based intermediaries. SCC will also follow-up by telephone with each intermediary to insure receipt of the offering materials and to confirm timely remailing of materials to the beneficial owners.
SCC will maintain frequent contact with intermediaries to monitor shareholder response and to insure that all liaison procedures are proceeding satisfactorily. In addition, SCC will contact beneficial holders directly, if possible, and do whatever may be appropriate or necessary to provide information regarding the OFFER to this group.
SCC will, as frequently as practicable, report to the Fund with response from intermediaries.
(3) PROJECT FEE
In consideration for acting as Information Agent SCC will receive a project fee of $12,500.
(4) ESTIMATED EXPENSES
SCC will be reimbursed by the FUND for its reasonable out-of-pocket expenses incurred provided that SCC submits to the FUND an expense report, itemizing such expenses and providing copies of all supporting bills in respect of such expenses. If the actual expenses incurred are less than the portion of the estimated high range expenses paid in advance by the FUND, the FUND will receive from SCC a check payable in the amount of the difference at the time that SCC sends its final invoice for the second half of the project fee.
SCC's expenses are estimated as set forth below and the estimates are based largely on data provided to SCC by the FUND. In the course of the OFFER the expenses and expense categories may change due to changes in the OFFER schedule or due to events beyond SCC's control, such as delays in
receiving offering material and related items. In the event of a change of 10% or more from the estimate or new expenses not originally contemplated, SCC will notify the FUND by phone and/or by letter for prior approval of such expenses.
Estimated Expenses Low Range High Range
Distribution Expenses............. $ 2,500 $ 4,500
Telephone # look up
15,420 @ $.45..................... 6,939 6,939
Outgoing telephone 2,650 to 4,100
initial outgoing telephone calls
@ $3.25........................... 8,612 13,325
Outgoing in excess of 4,100 @
$2.00 per call
Incoming "800" calls
4,200 to 5,500 @ $2.50............ 10,500 13,750
Incoming in excess of 5,500 @ $1.95
Miscellaneous, data processing,
postage, deliveries Federal
Express and mailgrams............. 2,500 5,000
Total Estimated Expenses..... $31,051 $43,514
------- -------
|
(5) PERFORMANCE
SCC will use its best efforts to achieve the goals of the FUND but SCC is
not guaranteeing a minimum success rate. SCC's Project Fee as outlined in
Section 3 or Expenses as outlined in Section 4 are not contingent on
success or failure of the OFFER.
SCC's strategies revolve around a telephone information campaign. The purpose of the telephone information campaign is to raise the overall awareness among shareholders of the OFFER and help shareholders better understand the transaction. This in turn may result in higher overall response.
(6) COMPLIANCE
SCC agrees that all activities by SCC and by others on behalf of SCC pursuant to this Agreement shall be conducted in compliance with all applicable (i) federal and state laws and regulations, including, but not limited to all federal and state securities laws and regulations, and (ii) requirements of the National Association of Securities Dealers, Inc. and the New York Stock Exchange.
The Fund agrees that all activities by the Fund and by others (other than by, or on behalf of SCC) on behalf of the Fund pursuant to this Agreement shall be conducted in compliance with all applicable (i) federal and state laws and regulations, including, but not limited to all federal and state securities laws and regulations, and (ii) requirements of the National Association of Securities Dealers, Inc.
In rendering the services contemplated by this Agreement, SCC agrees not to make any representations, oral or written, to any shareholders or prospective shareholders of the FUND that are not contained in the FUND's Prospectus, unless previously authorized to do so in writing by the FUND.
(7) PAYMENT
Payment for one half the project fee ($6,250) and one half the estimated high range expenses ($21,757) for a total of $28,007 will be made at the signing of this contract. The balance, if any, will be paid by the FUND due thirty days after SCC sends its final invoice.
(8) DISSEMINATION OF INFORMATION
In rendering the services contemplated by this Agreement, SCC agrees that neither SCC, nor any person or entity acting on behalf of SCC shall (i) mail or otherwise distribute any written materials unless such materials have been provided by the Fund to SCC for distribution, or such distribution has been approved by the Fund in advance in writing, of (ii) make any oral representations or other statements to any person or entity relating in anyway to the Fund or the Offer other than as set forth in (A) written materials provided by the Fund to SCC for use by SCC in oral communications pursuant to this Agreement of (B) the prospectus for the Offer. In connection with representations or other statements based on information set forth in such prospectus, SCC shall take appropriate steps to ensure that information is presented in a manner that is fair, balanced and not misleading.
(9) TRAINING
SCC shall provide training to all persons who are to be involved in communications with shareholders of the Fund or intermediaries so as to ensure that all such persons (1) review carefully and understand the prospectus for the Offer so as to be in position to effectively communicate with the Fund's shareholders and the intermediaries.
(10) MISCELLANEOUS
SCC will hold in confidence and will not use nor disclose to third parties information we receive from the FUND, or information developed by SCC based upon such information we receive, except for information which was public at the time of disclosure or becomes part of the public domain without disclosure by SCC or information which we learn from a third party which does not have an obligation of confidentiality to the FUND.
In the event the project is cancelled for an indefinite period of time after the signing of this Agreement and before the expiration of the OFFER, SCC will reimbursed by the FUND for any expenses incurred and a pro rata portion of the project fee as calculated based upon the number of days lapsed from the signing of this Agreement through expiration date.
The FUND agrees to indemnify, hold harmless, reimburse and defend SCC, and its officers, agents and employees, against all claims or threatened claims, costs, expenses, liabilities, obligations, losses or damages (including reasonable legal fees and expenses) of any nature, incurred by or imposed upon SCC, or any of its officers, agents or employees, which results, arises out of or is based upon services rendered to the FUND in accordance with the provisions of this AGREEMENT, provided that such services are rendered to the FUND without any negligence, willful misconduct, bad faith or reckless disregard on the part of SCC, or its officers, agents and employees.
This agreement will be governed by and construed in accordance with the laws of the State of New York. This AGREEMENT sets forth the entire AGREEMENT between SCC and the FUND with respect to the agreement herein and cannot be modified except in writing by both parties.
IN WITNESS WHEREOF, the parties have signed this AGREEMENT this ____ day of September 1996.
PILGRIM AMERICA PRIME SHAREHOLDER COMMUNICATIONS RATE TRUST CORPORATION By _________________________ By _________________________ James M. Hennessy Robert S. Brennan Senior Vice President Vice President |
INDEPENDENT AUDITORS' CONSENT
To Board of Trustees
Pilgrim America Prime Rate Trust:
We consent to the use of our report incorporated herein by reference and to the references to our firm under the headings "Financial Highlights and Investment Performance" and "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
September 16, 1996
|
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our Report of Independent Certified Public Accountants dated March 16, 1995 (except for Note 5 as to which the date was April 10, 1995) accompanying Pilgrim Prime Rate Trust's statement of changes in net assets for the year ended February 28, 1995 and its' financial highlights for each of the six years in the period then ended and for the period from May 12, 1988 (commencement of operations) to February 28, 1989. Reference to this report is made in the Report of Independent Auditors dated April 12, 1996 which accompanies Pilgrim America Prime Rate Trust's financial statements and financial highlights for the fiscal year ended February 28, 1996 appearing in the Trust's Annual Report which is incorporated by reference into Part B of the Post-Effective Amendment to this Registration Statement and Prospectus. We consent to the use of the aforementioned Report of Independent Certified Public Accountants in this Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
September 13, 1996
| ARTICLE 6 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | FEB 29 1996 |
| PERIOD END | FEB 29 1996 |
| INVESTMENTS AT COST | 859,664,840 |
| INVESTMENTS AT VALUE | 854,951,398 |
| RECEIVABLES | 8,935,841 |
| ASSETS OTHER | 5,576,989 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 869,464,228 |
| PAYABLE FOR SECURITIES | 0 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 6,526,637 |
| TOTAL LIABILITIES | 6,526,637 |
| SENIOR EQUITY | 0 |
| PAID IN CAPITAL COMMON | 866,450,968 |
| SHARES COMMON STOCK | 89,793,828 |
| SHARES COMMON PRIOR | 89,793,828 |
| ACCUMULATED NII CURRENT | 9,110,584 |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 0 |
| OVERDISTRIBUTION GAINS | 7,910,519 |
| ACCUM APPREC OR DEPREC | (4,713,442) |
| NET ASSETS | 862,937,591 |
| DIVIDEND INCOME | 198,781 |
| INTEREST INCOME | 81,256,012 |
| OTHER INCOME | 9,034,664 |
| EXPENSES NET | 10,664,797 |
| NET INVESTMENT INCOME | 79,824,660 |
| REALIZED GAINS CURRENT | (3,827,587) |
| APPREC INCREASE CURRENT | (3,260,231) |
| NET CHANGE FROM OPS | (7,087,818) |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | 76,983,896 |
| DISTRIBUTIONS OF GAINS | 0 |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 101,482 |
| NUMBER OF SHARES REDEEMED | 0 |
| SHARES REINVESTED | 0 |
| NET CHANGE IN ASSETS | (4,145,572) |
| ACCUMULATED NII PRIOR | 7,071,809 |
| ACCUMULATED GAINS PRIOR | 0 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 4,082,932 |
| GROSS ADVISORY FEES | 7,122,089 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 10,673,665 |
| AVERAGE NET ASSETS | 866,480,419 |
| PER SHARE NAV BEGIN | 9.66 |
| PER SHARE NII | 0.89 |
| PER SHARE GAIN APPREC | (0.08) |
| PER SHARE DIVIDEND | 0.86 |
| PER SHARE DISTRIBUTIONS | 0 |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 9.61 |
| EXPENSE RATIO | 1.23 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |