SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant X
Filed by a party other than the registrant
Check the appropriate box:
X Preliminary proxy statement
Definitive proxy statement
Definitive additional materials
Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Pilgrim Prime Rate Trust
(Name of Registrant as Specified in Its Charter)
Pilgrim Prime Rate Trust
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
X $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A. $500 per each party to the
controversy pursuant to Exchange Act Rule 14a-6(i)(3). Fee computed on
table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identifying the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
PILGRIM PRIME RATE TRUST
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
March 22, 1996
Dear Shareholder:
Enclosed you will find a Notice and Proxy Statement for the Special
Meeting of Shareholders of the Pilgrim Prime Rate Trust to be held at 10:00
a.m., local time, on May 2, 1995. There are several important matters on which
you, as a shareholder of the Trust, are being asked to consider -- election of
Trustees, an amendment to the investment advisory agreement, approval of
amendments in connection with the Trust's ability to borrow money, which the
Board of Trustees believes will increase total return to shareholders, and the
ratification of the selection of KPMG Peat Marwick LLP.
After reviewing each matter carefully, the Board of Trustees
unanimously recommends that you vote FOR each of the proposals.
Your vote is important, regardless of the number of shares you own.
Please take a few minutes to review this material, cast your vote on the
enclosed Proxy Card and return the Proxy Card in the enclosed postage-paid
envelope.
The Trust has retained Shareholder Communications Corporation, a
professional proxy solicitation firm, to assist shareholders in the voting
process. As the date of the meeting approaches, if we have not already heard
from you, you may receive a telephone call from Shareholder Communications
reminding you to exercise your right to vote.
Thank you very much for your assistance.
Sincerely,
Robert W. Stallings
President
Pilgrim Prime Rate Trust
-----------------
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 331-1080
Notice of Special Meeting in Lieu of the Annual Meeting of Shareholders
to be Held on May 2, 1996
To the Shareholders:
A Special Meeting of Shareholders in Lieu of the Annual Meeting of
Pilgrim Prime Rate Trust (the "Trust") will be held on Thursday, May 2, 1996 at
10:00 a.m., local time, at the offices of the Trust, Two Renaissance Square, 40
North Central Avenue, Suite 1200, Phoenix, Arizona 85004 for the following
purposes:
1. To elect five trustees to serve until their successors are elected and
qualified.
2. To approve the following amendments in connection with the Trust's
ability to borrow money:
a. To approve amendments to the Trust's fundamental investment
policies to expand its ability to engage in borrowing
transactions.
b. To approve an amendment to the Investment Management Agreement
between the Trust and its Investment Manager to provide that
the Trust pay the Investment Manager at the current rate
schedule based on an expanded base of assets -- the Trust's
average daily net assets plus the proceeds of any outstanding
borrowings.
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Trust for the fiscal year ending February 28, 1997.
4. To transact such other business as may properly come before the
Special Meeting of Shareholders or any adjournments thereof.
Shareholders of record at the close of business on March 21, 1996 are
entitled to notice of, and to vote at, the meeting. Your attention is called to
the accompanying Proxy Statement. Regardless of whether you plan to attend the
meeting, PLEASE COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD so
that a quorum will be present and a maximum number of shares may be voted. If
you are present at the meeting, you may change your vote, if desired, at that
time.
By Order of the Board of
Trustees
Nancy L. Peden
Assistant Secretary
, 1996
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
Pilgrim Prime Rate Trust
PROXY STATEMENT
Special Meeting in Lieu of the Annual Meeting of Shareholders
to be held on May 2, 1996
This Proxy Statement is furnished by the Board of Trustees of Pilgrim
Prime Rate Trust (the "Trust") in connection with the Trust's solicitation of
voting instructions for use at a Special Meeting in Lieu of the Annual Meeting
of Shareholders of the Trust (the "Meeting") to be held on Thursday, May 2,
1996, at 10:00 a.m., local time, at the offices of the Trust, Two Renaissance
Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004 for the
purposes set forth below and in the accompanying Notice of Special Meeting. At
the Meeting, the shareholders of the Trust will be asked:
1. To elect five trustees to serve until their successors are
elected and qualified.
2. To approve the following amendments in connection with the
Trust's ability to borrow money:
a. To approve amendments to the Trust's fundamental
investment policies to expand its ability to engage
in borrowing transactions.
b. To approve an amendment to the Investment Management
Agreement between the Trust and its Investment
Manager to provide that the Trust pay the Investment
Manager at the current rate schedule based on an
expanded base of assets -- the Trust's average daily
net assets plus the proceeds of any outstanding
borrowings.
3. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors for the Trust for the fiscal year ending
February 28, 1997.
4. To transact such other business as may properly come before
the Special Meeting of Shareholders or any adjournments
thereof.
Solicitation of proxies is being made primarily by the mailing of this
Notice and Proxy Statement with its enclosures on or about March 27, 1996.
Shareholders of the Trust whose shares of beneficial interest are held by
nominees such as brokers, can vote their shares by contacting their respective
nominee. In addition to the solicitation of
proxies by mail, officers of the Trust and employees of Pilgrim America
Investments, Inc. ("Pilgrim America" or the "Investment Manager"), investment
adviser to the Trust, and its affiliates, without additional compensation, may
solicit proxies in person or by telephone, telegraph, facsimile, or oral
communication. Shareholder Communications Corporation ("SCC") has been engaged
to assist in the solicitation of proxies. As the meeting date approaches,
certain shareholders of the Trust may receive a telephone call from a
representative of SCC if the Trust has not yet received their vote.
Authorization to permit SCC to execute proxies may be obtained by telephonic or
electronically transmitted instructions from shareholders of the Trust. Proxies
that are obtained telephonically will be recorded in accordance with the
procedures set forth below. Management of the Trust believes that these
procedures are reasonably designed to ensure that the identity of the
shareholder casting the vote is accurately determined and that the voting
instructions of the shareholder are accurately determined. The Trust has
received an opinion of its counsel that addresses the validity, under the
applicable law of The Commonwealth of Massachusetts, of authorization to execute
a proxy given orally. The opinion given by the Trust's counsel concludes that a
Massachusetts court would find that there is no Massachusetts law or public
policy against the acceptance of proxies signed by an orally-authorized agent
provided that it adheres to the procedures set forth below. The cost of this
assistance is expected to be approximately $ . The costs associated with such
solicitation and the Meeting will be borne by the Trust, although the Investment
Manager or its affiliates shall bear the expense of any solicitation activities
by their employees.
In all cases where a telephonic proxy is solicited, the SCC
representative is required to ask for each shareholder's full name, address,
social security or employer identification number, title (if the shareholder is
authorized to act on behalf of an entity, such as a corporation), the number of
shares owned and to confirm that the shareholder has received the proxy
statement card in the mail. If the information solicited agrees with the
information provided to SCC by the Trust, then the SCC representative has the
responsibility to explain the process, read the proposals listed on the proxy
card, and ask for the shareholder's instructions on each proposal. The SCC
representative, although he or she is permitted to answer questions about the
process, is not permitted to recommend to the shareholder how to vote, other
than to read any recommendations set forth in the proxy statement. SCC will
record the shareholder's instructions on the card. Within 72 hours, SCC will
send the shareholder a letter or mailgram to confirm his or her vote and asking
the shareholder to call SCC immediately if his or her instructions are not
correctly reflected in the confirmation.
If any shareholder wishes to participate in the meeting of
shareholders, but does not wish to give his or her proxy by telephone, the
shareholder may still submit the proxy card originally sent with the proxy
statement or attend in person. Should shareholders require additional
information regarding the proxy or replacement proxy cards, they may contact SCC
toll-free at 1-800-733-8481, Extension 425. Any proxy given by a shareholder,
whether in writing or by telephone, is revocable.
Each share of beneficial interest of the Trust (each a "Share",
collectively the "Shares") is entitled to one vote. A shareholder may revoke the
accompanying proxy or a proxy given telephonically at any time prior to its use
by filing with the Trust a written revocation or duly executed proxy bearing a
later date. In addition, any shareholder who attends the Meeting in person may
vote by ballot at the Meeting, thereby cancelling any proxy previously given.
The persons named in the accompanying proxy will vote as directed by the proxy,
but in the absence of voting directions in any proxy that is signed and
returned, they intend to vote FOR each of the proposals and may vote in their
discretion with respect to other matters not now known to the Board of Trustees
of the Trust that may be presented at the Meeting.
Shareholders of the Trust at the close of business on March 21, 1996
(the "Record Date") will be entitled to be present and give voting instructions
for the Trust at the Meeting with respect to their Shares owned as of such
Record Date. As of February 29, 1996, there were _____________ Shares
outstanding and entitled to vote as of such Record Date, and the Trust had total
net assets of approximately $_____________.
A majority of the outstanding Shares of the Trust on the Record Date,
represented in person or by proxy, must be present to constitute a quorum for
the transaction of the Trust's business at the Meeting.
A "Majority Vote" is required for the approval of Proposals 2.a. and
2.b. For the purposes of this requirement, a "Majority Vote" shall mean a
"majority of the outstanding voting securities" of the Trust as defined in the
Investment Company Act of 1940, as amended, i.e., (i) 67% or more of the Shares
of the Trust present at the Meeting if more than 50% of the outstanding Shares
of the Trust are represented at the Meeting in person or by proxy, or (ii) more
than 50% of the outstanding Shares of the Trust, whichever is less. Proposals
2.a. and 2.b. will only be adopted if both of those proposals are approved by
the shareholders, even if the shareholder vote to adopt one proposal is
received. A majority of the votes cast at the Meeting is required for the
approval of the change in the Trust's name (Proposal 2) and the ratification of
independent accountants (Proposal 3). A plurality of the votes cast (i.e., the
greatest number of votes cast for a candidate) is required for the election of
Board Members; since no Board Members are opposed, a majority of the votes cast
is required for the election of each Trustee (Proposal 1).
If a quorum is not present at a Meeting, or if a quorum is present but
sufficient votes to approve any or all of the Proposals are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. In determining whether to adjourn the
Meeting, the following factors may be considered: the nature of the Proposals
that are the subject of the Meeting, the percentage of votes actually cast, the
percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any adjournment will
require the affirmative vote of a majority of those Shares represented at the
Meeting in person or by proxy. A shareholder vote may be taken on one or more of
the Proposals in this proxy statement prior to any adjournment if sufficient
votes have been received with respect to a Proposal. If a shareholder abstains
from voting as to any matter, then the Shares held by such shareholder shall be
deemed present at the Special Meeting of the Trust for purposes of determining a
quorum and for purposes of calculating the vote with respect to such matter, but
shall not be deemed to have been voted in favor or against such matter. If a
broker returns a "non-vote" proxy, indicating a lack of authority to vote on a
matter, then the Shares covered by such non-vote shall be deemed present at the
Special Meeting for purposes of determining a quorum, but shall not be deemed
represented at the Special Meeting for purposes of calculating the vote with
respect to such matter. Therefore, with respect to Proposals 2.a. and 2.b.,
which require a Majority Vote, broker non-votes will not be taken into account
when determining the number of Shares present at the Meeting and the number of
votes cast.
To the knowledge of the Trust, as of February 29, 1996, no current
Trustee of the Trust owns 1% or more of outstanding Shares of the Trust and the
officers and Trustees of the Trust own, as a group, less than 1% of the Shares
of the Trust. To the knowledge of the Trust, as of February 29, 1996, no person
owned beneficially more than 5% of the outstanding Shares of the Trust.
Pilgrim America, whose address is Two Renaissance Square, 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004, is the Investment Manager of
the Trust. Pilgrim America Group, Inc., whose address is also Two Renaissance
Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004, is the
administrator of the Trust.
1. TO ELECT FIVE TRUSTEES TO SERVE UNTIL THEIR SUCCESSORS ARE
ELECTED AND QUALIFIED
At the Meeting, five Trustees will be elected to serve as trustees,
each to serve until his or her successor is duly elected and qualified. Each of
the nominees are currently Trustees. Mary A. Baldwin, Al Burton, Bruce S.
Foerster, and Robert W. Stallings were last elected at the Special Meeting of
Shareholders held on April 4, 1995. On August 28, 1995, the Board unanimously
voted to increase the number of Trustees of the Board from four to five, as
provided for in the Trust's Agreement and Declaration of Trust , and elected
Jock Patton to fill the newly created Trustee's vacancy. Each nominee has
consented to serve as a Trustee if elected; however, should any nominee become
unavailable to accept election, an event not now anticipated, the persons named
in the proxy will vote in their discretion for another person or persons who may
be nominated as Trustee.
The following table sets forth the name of each nominee and certain
additional information.
Principal Occupation for First Became
Nominee the Last Five Years Board Member
- --------------------------------------------------------------------------------
Mary A. Baldwin, Trustee of the Trust; Realtor, The 1995
Ph.D. Prudential Arizona Realty for more than the
Age 55 last five years; Treasurer, United States
Olympic Committee; Director or Trustee of
each of the funds in the Pilgrim America
Group; Formerly on the teaching staff at
Arizona State University.
- --------------------------------------------------------------------------------
Al Burton Trustee of the Trust; President of Al Burton 1986
Age 66 Productions for more than the last five
years; Executive Producer, Castle Rock
Entertainment; Director or Trustee of each
of the funds in the Pilgrim America Group.
- --------------------------------------------------------------------------------
Bruce S. Foerster Trustee of the Trust; President and Chief 1995
Age 53 Executive Officer, South Beach Capital
(January 1995-Present); Director or Trustee
of each of the funds in the Pilgrim America
Group; Managing Director US Equity
Syndicates Desk, Lehman Brothers (June
1992-December 1994); Managing Director
Equity Transactions Group/Equity
Syndicate, Paine Webber Incorporated
(September 1984-May 1992).
- --------------------------------------------------------------------------------
Jock Patton Trustee of the Trust; President, StockVal, 1995
Age 49 Inc. (since 1992); Director and co-owner,
StockVal, Inc. (1982-present). Director,
Artisoft, Inc.; Partner and director,
Streich, Lang (1972-1992); Director or
Trustee of each of the funds in the Pilgrim
America Group (since August 1995).
- --------------------------------------------------------------------------------
Robert W. Chairman, Chief Executive Officer and 1995
Stallings* President of the Trust (since April 1995);
Age 46 Chairman, Chief Executive Officer and
President, Pilgrim America Group, Inc. and
Pilgrim America Investments, Inc. (since
December 1994); Director, Pilgrim America
Securities, Inc. (since December 1994);
Chairman and Chief Executive Officer, Express
America Holdings Corporation (since August
1990) and Express America Mortgage
Corporation (since May 1991); Chairman, Chief
Executive Officer and President, of each of
the funds in the Pilgrim America Group (since
April 1995); Formerly Chairman and Chief
Executive Officer of First Western Partners,
Inc. of Scottsdale, Arizona, a consulting and
management services firm to financial
institutions and private investors (February
1990-December 1991); Chairman and Chief
Executive Officer of Western Savings & Loan
Assoc. (April 1989-February 1990). 1995
- ---------------
* As an officer of Pilgrim America, the Trust's investment adviser,
Mr. Stallings is an "interested person" of the Trust, as defined in
the 1940 Act.
During the Trust's fiscal year ended February 29, 1996, the Board held
eleven meetings. Each Trustee attended more than 75% of such meetings during the
period in which such Trustee served as a Trustee.
Committees
The Board has an Audit Committee whose function is to meet with the
independent accountants of the Trust in order to review the scope of the Trust's
audit, the Trust's financial statements and interim accounting controls; and to
meet with Trust management concerning these matters, among other things. This
Committee currently consists of all of the independent trustees (Mary A.
Baldwin, Al Burton, Bruce S. Foerster and Jock Patton). During the fiscal year
ended February 29, 1996, the Audit Committee met two times. Each member of the
Committee attended more than 75% of such meetings during the period in which he
or she was a member of the Audit Committee. The Trust does not have a nominating
or compensation committee.
Remuneration of Board Members and Officers
The Trust pays each "disinterested" Trustee, in addition to
out-of-pocket expenses, the Trust's 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; and (iv) $100 per special telephonic meeting. The pro rata
share paid by the Trust is based upon the Trust's average net assets for the
previous quarter as a percentage of the average net assets of all of the funds
in the Pilgrim America Group for which the Board Members serve in common as
directors/trustees.
Compensation Table
Fiscal Year Ended February 29, 1996
Total
Compensation
Aggregate from Trust and
Compensation Fund Family
Name of Person, Position from Trust to Trustees(1)
Al Burton, Trustee $16,288 $25,300
Mary A. Baldwin, Trustee(2) $15,788 $24,800
Bruce S. Foerster, Trustee (2) $15,853 $24,900
Jock Patton, Trustee(3) $10,556 $15,300
Robert W. Stallings, Trustee(2) $0 $0
- ---------------
(1) The Fund Family consists of the following funds in the Pilgrim America
Group: Pilgrim America Masters Series, Inc., which consists of Pilgrim
America Masters Asia-Pacific Equity Fund, Pilgrim America Masters
MidCap Value Fund, and Pilgrim America Masters LargeCap Value Fund,
Pilgrim America Investment Funds, Inc., which consists of Pilgrim
America MagnaCap Fund and Pilgrim America High Yield Fund, Pilgrim
Government Securities Income Fund, Inc., Pilgrim Regional BankShares,
Inc., and Pilgrim Prime Rate Trust.
(2) Commenced service as a trustee on April 7, 1995.
(3) Commenced service as a trustee on August 28, 1995.
Recommendation and Required Vote
The affirmative vote of the holders of a plurality of the Shares of the
Trust represented at the Meeting, assuming a quorum is present, is required to
approve the election of the nominees.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT
SHAREHOLDERS OF THE TRUST VOTE FOR THE ELECTION OF THE NOMINEES
2. AMENDMENTS IN CONNECTION WITH THE TRUST'S ABILITY TO
BORROW MONEY
a. PROPOSAL TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT
POLICIES TO EXPAND ITS ABILITY TO ENGAGE IN BORROWING
TRANSACTIONS TO THE EXTENT PERMITTED UNDER THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED
The Board of Trustees has approved, subject to shareholder approval, amendments
to the Trust's fundamental investment policies regarding borrowing money that
would permit the Trust to engage in borrowing transactions to the extent
permitted under the Investment Company Act of 1940, as amended (the "1940 Act").
The purpose of the amendments is to expand the Trust's ability to borrow money
so that the Trust can finance the purchase of additional income-producing
investments.
The Investment Manager has informed the Board that it will only borrow money for
such purposes when, at the time of borrowing, it believes that the interest
payments and other costs with respect to such borrowings will be exceeded by the
total return on the investments purchased. To mitigate interest rate risk, it is
the Investment Manager's current policy that borrowings will be made at interest
rates that float based upon a benchmark indicator of prevailing interest rates
such as the federal funds rate or the London Inter-Bank Offered Rate. Since the
Trust invests primarily in senior collateralized corporate loans that pay
interest at a floating rate, the Investment Manager believes that it will be
able to predict at the time of borrowing or investment whether the total return
on investment that could be made with borrowed proceeds will exceed the costs of
the borrowings.
Based upon recommendations from the Investment Manager, the Board believes that
the ability of the Trust to borrow money has the potential to benefit the
shareholders of the Trust in several ways. First, the total yield to
shareholders should increase, because additional income producing investments
could be acquired with borrowed proceeds and would be working for the Trust.
Second, the increased liquidity that would be provided by the borrowings should
enable the Trust to participate in loan syndications on a more favorable basis.
Finally, a larger base of investable assets will allow the Trust to be more
diversified in
its investments, thus potentially lessening risk. The Board noted that other
investment companies with similar objectives to those of the Trust also have the
ability to borrow money to acquire investment assets.
The Board also considered that this change in borrowing policy could
provide a source of funds to meet loan funding demands under the unused portions
of credit agreement commitments. Currently the Trust must set aside cash (or
short term cash equivalents) in anticipation of the need to fund these unused
portions of credit commitments. This use of borrowing will allow the Trust to be
more fully invested. In addition, the Board considered that the proposed change
in borrowing policy could provide the Trust with greater flexibility and
liquidity in connection with a tender offer for repurchase of its Shares in the
event that such an offer is approved in the future by the Board of Trustees. The
Trust does not currently conduct periodic tender offers, and does not anticipate
that borrowing proceeds will be used for the latter purpose at this time.
If approved by shareholders, the amount of borrowings may vary with
prevailing market or economic conditions. The change in investment policy on
borrowing will not change the Trust's investment objective or any other of its
investment policies.
The 1940 Act requires registered investment companies such as the Trust
to adopt certain specific investment policies that can be changed only by
shareholder vote. These policies are often referred to as "fundamental
policies." Included among the fundamental policies of the Trust are policies
regarding borrowing and the issuance of "senior securities," which generally
include, among other things, notes evidencing indebtedness.
The Trust's current fundamental policy on the issuance of senior
securities is as follows:
[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 or
(ii) entering into reverse repurchase agreements, and except that
it may borrow in an amount up to 331/3% of its total net assets to
obtain such short-term credits as are necessary for tender offers
by the Trust for its shares.
In addition, the Trust's fundamental investment policies provide that:
[The Trust may not] 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% of the value of the Trust's total net assets including the
borrowing or make additional purchases of Participation Interests
or make other investments while borrowings exceed 5% of the Trust's
total assets.
As amended, the Trust's fundamental policies regarding borrowing and
the issuance of senior securities would be as follows:
[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 331/3%, or such other percentage
permitted by law, of the Trust's total assets (including the amount
borrowed) less all liabilities other than borrowings.
and
[The Trust may not] make investments on margin or hypothecate,
mortgage or pledge any of its assets except for the purpose of
securing borrowing 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 assets (including the amount borrowed) less all
liabilities other than borrowings.
Effect of the Proposed Amendments
The proposed amendments would expand the Trust's ability to borrow
money. The ability of the Trust to borrow is currently limited to certain
short-term temporary financing arrangements and to borrowings to obtain
short-term credits to fund tender offers by the Trust for its shares. The Trust
may not otherwise enter into borrowing arrangements that would be considered to
be senior securities under the 1940 Act. If approved, the proposal would allow
the Trust to enter into borrowing transactions up to 331/3% (or such higher
amount as permitted by law) of its total net assets (including the amount
borrowed). If approved by shareholders, the Investment Manager currently intends
to use the proceeds of any borrowings (i) to fund the purchase of additional
income-producing investments, and (ii) to meet loan funding demands under the
unused portions of credit agreement commitments, thus allowing the Trust to
invest more of its assets. The Trust's ability to enter into interest rate
hedging transactions and reverse repurchase agreements would be unaffected by
the amendments.
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 does not intend to
borrow for the purposes of making additional investments unless it believes that
the interest payments and other costs will be exceeded by the total return on
the investments. 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 net asset value. The Trust's lenders will have priority to the Trust's
assets over the Trust's shareholders.
As of January 31, 1996, the Trust had total assets of $_________ and
total liabilities of $____________ , [none of which represented the proceeds of
borrowings.] Accordingly, as of that date, if the proposed amendments had been
in effect, the Trust could have borrowed up to $___________. The Investment
Manager has informed the Board that, initially and for the foreseeable future,
the Investment Manager intends to leverage the Trust by no more than 25% of the
net assets of the Trust.
Recommendation and Required Vote
Assuming a quorum is present, a Majority Vote, as defined above, is
required to approve the amendment to the Trust's investment policy. This
Proposal will not be adopted unless Proposal 2.b. also is adopted by the
shareholders.
b. PROPOSAL TO AMEND THE TRUST'S INVESTMENT MANAGEMENT
AGREEMENT
The Trustees have approved at a meeting held on January 31, 1996 an
amendment to the Trust's Investment Management Agreement with the Investment
Manager, subject to the approval of the shareholders of the Trust. The proposed
amendment provides that the Investment Manager will receive its current rate
schedule based upon the Trust's average daily net assets plus the proceeds of
any outstanding borrowings. Currently, the Investment Manager's fee is
calculated based on the Trust's average daily net assets only, which does not
include proceeds from any borrowing.
In approving the amendment to the Management Agreement, the Trustees
considered (i) the benefit to the Trust from the additional investment advisory
services that the Investment Manager would be performing for the Trust, and (ii)
the amount of compensation that the Investment Manager would receive pursuant to
the amendment to the Management Agreement. Currently, the investment
restrictions of the Trust prevent the Trust from entering into long-term
borrowing arrangements that are considered to be senior securities, except that
the Trust may borrow for the limited purpose of making
tender offers for Shares of the Trust. However, if the amendments to the Trust's
fundamental investment policies described in Proposal 2.a. are adopted, the
Trust intends to use the proceeds of borrowings for investment purposes. The
Board of Trustees considered the fact that managing these investments will
require the Investment Manager to provide additional services to the Trust. In
particular, the Investment Manager would be required to analyze potential
investment opportunities, and would have to monitor a larger investment
portfolio. Thus, the Investment Manager would render additional services and
expend greater resources. The Trustees noted that the current advisory fee
schedule contains breakpoints that take into account the various economies of
scale that result from an increase of assets under management, and that, if
shareholders approve the amendment, additional fees earned on a base of assets
that includes borrowed money would be paid at the lowest rate in the advisory
fee schedule. In addition, the Trustees noted that other investment companies
with similar investment objectives calculated fees paid to their investment
advisers on the basis of total net assets including borrowings.
The Management Agreement
The Investment Management Agreement, dated April 7, 1995 (the
"Management Agreement") was initially approved by shareholders of the Trust on
April 4, 1995. Pursuant to the Management Agreement, the Investment Manager
furnishes the Trust with investment advice and investment management and
administrative services with respect to the Trust's assets, including making
specific recommendations as to the purchase and sale of portfolio investments,
furnishing requisite office space and personnel, and managing the Trust's
investments subject to the ultimate supervision and direction of the Board of
Trustees. The Investment Manager is paid a fee for these services at the
following annual rates:
o .85% of the Trust's average daily net assets up to $700 million
o .75% of the Trust's average daily net assets in excess of $700
million up to but not including $800 million
o .65% of the Trust's average daily net assets over $800 million.
The Investment Manager will reduce its aggregate fees for any fiscal year, or
reimburse the Trust to the extent required so that the Trust's expenses do not
exceed the expense limitations applicable to the Trust under the securities laws
or regulations of those states or jurisdictions in which the Trust's Shares are
qualified for sale. The investment management fees paid by the Trust to the
Investment Manager for its most recent fiscal year ended February 29, 1996 were
$ .
In addition, the Trust pays fees to Pilgrim America Group, Inc.
("PAGI"), an affiliate of the Investment Manager, for services provided to
the Trust pursuant to an
Administrative Services Agreement, dated as of April 7, 1995 (the
"Administrative Services Agreement"). These fees were $ for the fiscal year
ended February 29, 1996. On , 1996, the Board of Trustees approved an amendment
to the Administrative Services Agreement providing that the fees payable to PAGI
under the Agreement be based on all investable assets of the Trust, including
the proceeds of any borrowing. Previously, fees paid under the Agreement were
based on average daily net assets of the Trust excluding any borrowings. The
services provided by PAGI will continue to be provided regardless of whether the
amendment to the Management Agreement is approved.
Effect of the Amendment to the Management Agreement
The amendment to the Management Agreement would increase the base of
assets upon which the Investment Manager's fees are calculated by the amount of
any borrowings. Currently, the fees paid to the Investment Manager are based on
the average daily net assets of the Fund, which does not include the proceeds of
borrowings.
For example, the Investment Manager received $ in fees from the Trust (
% of net assets of the Trust and % of total assets) pursuant to the Management
Agreement in the fiscal year ended February 29, 1996. Had the amendment to the
Management Agreement been in effect during that fiscal year and assuming that
the Trust had borrowed up to 25% of its assets and maintained outstanding
borrowings at a rate of 25% of its total assets through the year, the fees
received by the Investment Manager would have been $ ( % of net assets of the
Trust and % of total assets). This would represent an increase of % in total
fees paid by the Trust to the Investment Manager, but a decrease of % of fees
paid by the Trust as a percentage of total assets. If the amendment to the
Management Agreement had been effect in the fiscal year ended February 29, 1996
and the Trust had not borrowed funds, there would have been no increase in the
fees received by it pursuant to the Management Agreement.
In determining whether to approve the amendment to the Management
Agreement, the Trustees considered the fact that Mr. Robert W. Stallings, who is
an executive officer and Chairman of the Trust, is also an officer and director
of the Investment Manager. In addition, the following officers of the Fund are
also officers of the Investment Manager: Howard Tiffen, James R. Reis, James M.
Hennessy, Daniel A. Norman, and Michael J. Roland. The Trustees also considered
the fact that the proposed amendment to the Management Agreement would increase
the total amount of fees received by the Investment Manager should the Trust
borrow money for investment purposes. The total amount of fees received would be
decreased if the Trust reduces its borrowings. The Trustees believe that the
proposed amendment does not represent an unfair burden on the Shareholders of
the Trust, as it compensates the Investment Manager for bona fide investment
advisory services provided in connection with the management of proceeds from
borrowings.
The proposal to amend the Investment Management Agreement was
unanimously approved by the Board, including all of the Trustees who are not
"interested" persons of the Trust within the meaning of the 1940 Act.
The Investment Manager
The Investment Manager is a wholly owned subsidiary of PAGI, which is
in turn a wholly owned subsidiary of Express America Holdings Corporation
("Express America"). Express America (a Delaware corporation, the shares of
which are traded on the NASDAQ National Market System) is a holding company that
engages in the financial services business. The address of Express America is
Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004.
The name and principal occupations of the principal executive officer
and each director of the Investment Manager are set forth below under "Other
Information -- Principal Executive Officers and Directors of the Investment
Manager".
Recommendation and Required Vote
Assuming a quorum is present, a Majority Vote, as defined above, is
required to approve the amendment to the Management Agreement. This Proposal
will not be adopted unless Proposal 2.a. is approved by the shareholders.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT
SHAREHOLDERS OF THE TRUST VOTE FOR THE PROPOSED
CHANGES TO THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES IN
PROPOSAL 2.A. AND FOR THE PROPOSED AMENDMENT OF THE
MANAGEMENT AGREEMENT IN PROPOSAL 2.B. .
3. RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS
At a meeting of the Board held on January 31, 1996, the Board,
including a majority of trustees who are not "interested persons" as defined in
the 1940 Act, as well as the trustees who were members of the Audit Committee,
selected the accounting firm of KPMG Peat Marwick LLP to act as the independent
auditors of the Trust for the fiscal year ending February 28, 1997.
KPMG Peat Marwick was initially selected as the independent auditors of
the Trust for the fiscal year ended February 29, 1996 at a meeting of the Board
held on June 7, 1995. Selection of KPMG Peat Marwick LLP resulted in a change in
the Trust's independent auditor from the auditor used in prior years. A
different auditing firm had served as independent auditors for the Trust with
respect to its financial statements for the fiscal year ending February 28, 1995
and prior years. The Board considered the services of the former auditing firm
to have been satisfactory. However, based upon a recommendation from the
Investment Manager, the Trustees deemed it appropriate at the meeting on June 7,
1995 to select KPMG Peat Marwick LLP as independent auditors. The Board selected
KPMG Peat Marwick LLP after considering that firm's experience as independent
auditors to investment companies.
The former auditing firm resigned as independent auditors of the Trust
on October 25, 1995. Such auditing firm's report on the financial statements for
either of the past two years has not contained an adverse opinion or disclaimer
of opinion, and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. During the Trust's two most recent fiscal years, there
were no disagreements with the former auditing firm on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of that
firm, would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report.
KPMG Peat Marwick LLP are independent auditors and have no direct
financial or material indirect financial interest in the Trust. Representatives
of KPMG Peat Marwick LLP are not expected to be at the Meeting.
The Board's selection is submitted to the shareholders for
ratification.
Recommendation and Required Vote
The affirmative vote of the holders of a majority of the shares of the
Trust represented at the meeting, assuming a quorum is present, is required for
the ratification of the selection of independent auditors.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT
SHAREHOLDERS OF THE TRUST RATIFY THE SELECTION OF KPMG PEAT
MARWICK LLP AS INDEPENDENT AUDITORS FOR THE TRUST FOR THE YEAR
ENDING FEBRUARY 28, 1997
GENERAL INFORMATION
Other Matters to Come Before the Meeting
The Trust's management does not know of any matters to be presented at
the Meeting other than those described in this Proxy Statement. If other
business should properly come before the Meeting, the proxyholders will vote
thereon in accordance with their best judgment.
Executive Officers of the Trust
Robert W. Stallings has been the Chairman of the Board, Chief Executive
Officer and President of the Trust since April 1995. Mr. Stallings' business
experience is described above under Proposal 3. The following additional persons
currently are principal executive officers of the Trust:
- --------------------------------------------------------------------------------
Principal Occupation for the
Name Position with the Trust Last Five Years
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Howard Tiffen Senior Vice President Senior Vice President, Pilgrim
(Age 47) (since February 1996) America Group, Inc. and Pilgrim
America Investments, Inc. (since
November 1995); Managing Director
of various divisions of Bank of
America (and its predecessor,
Continental Bank) (1982-1995);
Managing Director, Wells Fargo
Asia Limited, Wells Fargo Bank,
N.A. (1980-1982); Managing
Director, Wardley Thailand
Limited and various other
positions, Wardley Limited Hong
Kong (1974-1980); various
international management
positions, Barclays Bank
(1966-1974).
- --------------------------------------------------------------------------------
James R. Reis Executive Vice Vice Chairman (since December
(Age 38) President (since April 1994) and Executive Vice
1995) President since April 1995),
Pilgrim America Group, Inc. and
Pilgrim America Investments,
Inc.; a director (since December
1994) and Assistant Secretary
since April 1995), Pilgrim America
Securities, Inc.; Executive Vice
President of each of the funds in
the Pilgrim America Group (since
April 1995); Vice Chairman and
Chief Financial Officer, Express
America Holdings Corporation
(since December 1993); President
and Chief Financial Officer,
Express America Holdings
Corporation (May 1991 - December
1993); Vice Chairman (since
December 1993), Express America
Mortgage Corporation and former
President (May 1991 - December
1993); President and Chief
Financial Officer, First Western
Partners, Inc. (February 1990 -
December 1991).
-------------------------------------------------------------------------------
James M. Hennessy Senior Vice President Senior Vice President and
(Age 46) and Secretary (since Secretary, Express America
April 1995) Holdings Corporation, Pilgrim
America Group, Inc., Pilgrim
America Securities Inc., Pilgrim
America Investment, Inc.and each
of the funds in the Pilgrim
America Group (since April 1995).
Senior Vice President, Express
America Mortgage Corporation
June 1992 - August 1994).
President, Beverly Hills
Securities Corp (January
1990 - June 1992).
- --------------------------------------------------------------------------------
Daniel A. Norman Senior Vice President Director and Senior Vice
(Age 38) (since April 1995) President, Pilgrim America
Group, Inc.; Director, Senior
Vice President and Assistant
Secretary, Pilgrim America
Investments, Inc., Director and
Senior Vice President of Pilgrim
America Securities, Inc. (since
December 1994); Senior Vice
President of each of the funds in
the Pilgrim America Group (since
April 1995); Senior Vice
President, Express America
Holdings Corporation (since April
1995); Senior Vice President,
Express America Mortgage
Corporation (since February
1992); Chief Financial Officer,
Prime Financial, Inc. (December
1985 - February 1992).
- --------------------------------------------------------------------------------
Nancy L. Peden Senior Vice President Senior Vice President and
(Age 39) and Assistant Secretary Assistant Secretary, Pilgrim
(since 1987) America Group, Inc. (since April
1995); Vice President of
Operations, The Pilgrim Group
Inc.(for more than the past five
years prior to April 1995);
Senior Vice President and
Assistant Secretary, Pilgrim
America Masters Series, Inc.
(since April 1995), Pilgrim
America Investment Funds, Inc.
(since April 1995), and Pilgrim
Government Securities Income
Fund, Inc. (since 1993) and
Pilgrim Regional BankShares,
Inc. (since 1993).
- --------------------------------------------------------------------------------
Michael J. Roland, Senior Vice President Senior Vice President, Treasurer
CPA and Treasurer (since and Chief Financial Officer,
(Age 37) January 1995) Pilgrim America Group, Inc.,
Pilgrim America Investments, Inc.
and Pilgrim America Securities,
Inc. (since April 1995); Senior
Vice President and Treasurer of
each of the funds in the Pilgrim
America Group (since April 1995);
Partner at the consulting firm of
Corporate Savings Group, in
Newport Beach, California
(July 1994 - December 1994);
Vice President, Pacific Financial
Asset Management Corp. (PFAMCo)
Funds (1992 - June 1994);
Director of Financial Reporting,
Pacific Mutual Life Insurance
Company (1988 - 1992).
- --------------------------------------------------------------------------------
Principal Executive Officer and Directors of the Investment Manager
Robert W. Stallings has been the Chairman, Chief Executive Officer and
President of the Investment Manager since April 1995. Mr. Stallings' business
experience is described above under Proposal 3. James R. Reis and Daniel A.
Norman are the two other directors of the Investment Manager. Mr. Reis' and Mr.
Norman's business experience is described above under "Other Information --
Executive Officers of the Trust".
Shareholder Proposals
It is anticipated that the next annual meeting of the Trust will be
held in June 1997. Any proposals of shareholders of beneficial interest of the
Trust that are intended
to be presented at the Trust's next annual meeting must be received at the
Trust's principal executive offices within a reasonable period of time before
the proxy solicitation for that meeting is made and must comply with all other
legal requirements in order to be included in the Trust's proxy statement and
form of proxy for that meeting.
Reports to Shareholders
The Trust will furnish, without charge, a copy of the Annual Report and
the most recent Semi-Annual Report regarding the Trust on request. Requests for
such reports should be directed to Pilgrim America at Two Renaissance Square, 40
North Central Avenue, Suite 1200, Phoenix, Arizona 85004 or to the Trust at
(800) 331-1080.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
Nancy L. Peden
Assistant Secretary
, 1996
Two Renaissance Square, Suite 1200
40 North Central Avenue
Phoenix, Arizona 85004
VOTING INSTRUCTION/PROXY
PILGRIM PRIME RATE TRUST
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES.
THE UNDERSIGNED OWNER OF SHARES OF BENEFICIAL INTEREST, (THE "SHARES") OF
PILGRIM PRIME RATE TRUST (THE "TRUST") HEREBY INSTRUCTS ROBERT W. STALLINGS OR
JAMES M. HENNESSEY TO VOTE THE SHARES HELD BY HIM OR HER AT THE SPECIAL MEETING
OF SHAREHOLDERS OF THE TRUST TO BE HELD AT 10:00 A.M., LOCAL TIME, ON MAY 2,
1996 AT TWO RENAISSANCE SQUARE, 40 NORTH CENTRAL AVENUE, SUITE 1200, PHOENIX,
ARIZONA 85004 AND AT ANY ADJOURNMENT THEREOF, IN THE MANNER DIRECTED BELOW WITH
RESPECT TO THE MATTERS REFERRED TO IN THE PROXY STATEMENT FOR THE MEETING,
RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED, AND IN THE PROXIES' DISCRETION, UPON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT
THEREOF.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING
PROPOSALS.
1. ELECTION OF TRUSTEES: 1)MARY A. BALDWIN, 2) AL BURTON,
3) BRUCE S. FOERSTER, 4) JOCK PATTON, 5) ROBERT W.
STALLINGS
_____ FOR ALL NOMINEES _____ WITHHOLD AUTHORITY TO
VOTE FOR ALL NOMINEES
WITHHOLD AUTHORITY TO VOTE WITH RESPECT TO THE FOLLOWING
NOMINEE(S) ONLY
2. TO APPROVE THE FOLLOWING AMENDMENTS IN CONNECTION WITH
THE TRUST'S ABILITY TO BORROW MONEY (PLEASE NOTE AMENDMENTS
REQUIRE APPROVAL OF BOTH 2.A. AND 2.B.):
A. TO APPROVE AMENDMENTS OF THE TRUST'S FUNDAMENTAL
INVESTMENT POLICIES TO EXPAND ITS ABILITY TO
ENGAGE IN BORROWING TRANSACTIONS.
_____ FOR _____ AGAINST _____ ABSTAIN
B. TO APPROVE AN AMENDMENT TO THE INVESTMENT MANAGEMENT
AGREEMENT BETWEEN THE TRUST AND ITS INVESTMENT
MANAGER TO PROVIDE THAT THE TRUST PAY THE INVESTMENT
MANAGER AT THE CURRENT RATE SCHEDULE BASED ON AN
EXPANDED BASE OF ASSETS -- THE TRUST'S AVERAGE DAILY
NET ASSETS PLUS THE PROCEEDS OF ANY OUTSTANDING
BORROWINGS.
_____ FOR _____ AGAINST _____ ABSTAIN
3. TO RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS FOR THE TRUST FOR THE FISCAL YEAR
ENDING FEBRUARY 28, 1997.
_____ FOR _____ AGAINST _____ ABSTAIN
4. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE SPECIAL MEETING OF SHAREHOLDERS OR ANY
ADJOURNMENTS THEREOF.
_____ FOR _____ AGAINST _____ ABSTAIN
THESE VOTING INSTRUCTIONS WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THIS VOTING INSTRUCTION WILL BE VOTED FOR
ALL PROPOSALS.
SHAREHOLDER SHARES RECEIPT OF THE NOTICE OF MEETING AND
PROXY STATEMENT IS HEREBY ACKNOWLEDGED:
DATED: __________________, 1996
---------------------------------------
---------------------------------------
SIGNATURE OF SHAREOWNER(S)
THIS VOTING INSTRUCTION SHALL BE SIGNED EXACTLY AS YOUR NAME(S)
APPEARS HEREON. IF SIGNING AS AN ATTORNEY, EXECUTOR, GUARDIAN OR
IN SOME REPRESENTATIVE CAPACITY OR AS AN OFFICER OF A
CORPORATION, PLEASE ADD TITLE AS SUCH. JOINT OWNERS MUST EACH
SIGN.
PLEASE VOTE, SIGN AND DATE THIS VOTING INSTRUCTION AND RETURN IT IN THE ENCLOSED
ENVELOPE.