<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 28, 1995
SECURITIES ACT FILE NO. 33-61341
INVESTMENT COMPANY ACT FILE NO. 811-5898
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 1 / /
POST-EFFECTIVE AMENDMENT NO. 1 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 10 /X/
-------------------
PRIME INCOME TRUST
(FORMERLY ALLSTATE PRIME INCOME TRUST)
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
-------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the registration statement
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRIME INCOME TRUST
FORM N-2
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART I ITEM NUMBER PROSPECTUS CAPTION
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Cover Page........................................... Cover Page
2. Synopsis............................................. Prospectus Summary
3. Condensed Financial Information...................... Financial Highlights; Financial Statements
4. Plan of Distribution................................. Cover Page; Prospectus Summary; Initial Underwriting
and Continuous Offering
5. Use of Proceeds...................................... Use of Proceeds; Investment Objective and Policies
6. General Information and History...................... The Trust and its Adviser; Description of Shares
7. Investment Objectives and Policies................... Investment Objective and Policies; Investment
Practices; Investment Restrictions; Appendix A
8. Tax Status........................................... Taxation
9. Brokerage Allocation and Other Practices............. Portfolio Transactions
10. Pending Legal Proceedings............................ Not Applicable
11. Control Persons and Principal Holders of
Securities.......................................... Description of Shares
12. Directors, Officers and Advisory Board Members....... Trustees and Officers
13. Remuneration of Directors and Officers............... Trustees and Officers
14. Custodian, Transfer Agent and Dividend-Paying
Agent............................................... Custodian, Dividend Disbursing and Transfer Agent
15. Investment Advisory and Other Services............... The Trust and its Adviser; Investment Advisory
Agreement; Administrator and Administration
Agreement
16. Defaults and Arrears on Senior Securities............ Not Applicable
17. Capital Stock........................................ Description of Shares
18. Long-Term Debt....................................... Not Applicable
19. Other Securities..................................... Not Applicable
20. Financial Statements................................. Report of Independent Accountants; Financial
Statements
</TABLE>
<PAGE>
PROSPECTUS
PRIME INCOME TRUST
-----------
PRIME INCOME TRUST (THE "TRUST") IS A NON-DIVERSIFIED, CLOSED-END MANAGEMENT
INVESTMENT COMPANY WHICH SEEKS TO PROVIDE A HIGH LEVEL OF CURRENT INCOME
CONSISTENT WITH THE PRESERVATION OF CAPITAL. THE TRUST SEEKS TO ACHIEVE ITS
INVESTMENT OBJECTIVE THROUGH INVESTMENT PRIMARILY IN INTERESTS IN SENIOR
COLLATERALIZED LOANS ("SENIOR LOANS") TO CORPORATIONS, PARTNERSHIPS AND OTHER
ENTITIES ("BORROWERS"). AN INVESTMENT IN THE TRUST MAY NOT BE APPROPRIATE FOR
ALL INVESTORS, AND THERE IS NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS
INVESTMENT OBJECTIVE.
--------------------
SENIOR LOANS IN WHICH THE TRUST MAY INVEST GENERALLY WILL PAY INTEREST AT
RATES WHICH FLOAT OR ARE RESET AT A MARGIN ABOVE A GENERALLY RECOGNIZED BASE
LENDING RATE. THESE BASE LENDING RATES ARE GENERALLY THE PRIME RATE QUOTED BY A
MAJOR U.S. BANK, THE LONDON INTER-BANK OFFERED RATE, THE CERTIFICATE OF DEPOSIT
RATE OR OTHER BASE LENDING RATES USED BY COMMERCIAL LENDERS. THE INVESTMENT
ADVISER BELIEVES THAT OVER TIME THE EFFECTIVE YIELD OF THE TRUST WILL EXCEED
MONEY MARKET RATES AND WILL TRACK THE MOVEMENTS OF THE PUBLISHED PRIME RATE OF
MAJOR U.S. BANKS.
--------------------
THE BOARD OF TRUSTEES OF THE TRUST CURRENTLY INTENDS, EACH QUARTER, TO
CONSIDER AUTHORIZING THE TRUST TO MAKE TENDER OFFERS FOR ALL OR A PORTION OF ITS
OUTSTANDING SHARES OF BENEFICIAL INTEREST (THE "SHARES") AT THE THEN CURRENT NET
ASSET VALUE OF THE SHARES. AN EARLY WITHDRAWAL CHARGE PAYABLE TO DEAN WITTER
INTERCAPITAL INC. (THE "INVESTMENT ADVISER" OR "INTERCAPITAL") OF UP TO 3.0% OF
THE ORIGINAL PURCHASE PRICE OF SHARES WILL BE IMPOSED ON MOST SHARES HELD FOR
FOUR YEARS OR LESS WHICH ARE PURCHASED BY THE TRUST PURSUANT TO TENDER OFFERS.
SEE "SHARE REPURCHASES AND TENDERS." NEITHER THE TRUST NOR THE INVESTMENT
ADVISER INTENDS TO MAKE A SECONDARY MARKET IN THE SHARES AT ANY TIME.
ACCORDINGLY, THERE IS NOT EXPECTED TO BE ANY SECONDARY TRADING MARKET IN THE
SHARES, AND AN INVESTMENT IN THE SHARES SHOULD BE CONSIDERED ILLIQUID.
--------------------
THE TRUST CONTINUOUSLY OFFERS SHARES THROUGH DEAN WITTER DISTRIBUTORS INC.
(THE "DISTRIBUTOR"), AS PRINCIPAL UNDERWRITER OF THE SHARES, THROUGH CERTAIN
DEALERS, INCLUDING DEAN WITTER REYNOLDS INC. ("DWR"), WHO HAVE ENTERED INTO
SELECTED DEALER AGREEMENTS WITH THE DISTRIBUTOR, AT A PRICE EQUAL TO THE THEN
CURRENT NET ASSET VALUE PER SHARE. THERE IS NO INITIAL SALES CHARGE ON PURCHASES
OF THE SHARES. THE INVESTMENT ADVISER USES ITS OWN ASSETS, WHICH MAY INCLUDE
PROFITS FROM THE ADVISORY FEE PAYABLE UNDER ITS INVESTMENT ADVISORY AGREEMENT
WITH THE TRUST, AS WELL AS BORROWED FUNDS, TO COMPENSATE DEALERS PARTICIPATING
IN THE CONTINUOUS OFFERING. SEE "PURCHASE OF SHARES."
--------------------
DEAN WITTER INTERCAPITAL INC., AN AFFILIATE OF DEAN WITTER DISTRIBUTORS
INC., ACTS AS INVESTMENT ADVISER FOR THE TRUST. THE ADDRESS OF THE TRUST IS TWO
WORLD TRADE CENTER, NEW YORK, NEW YORK 10048, AND ITS TELEPHONE NUMBER IS (212)
392-1600. INVESTORS ARE ADVISED TO READ THIS PROSPECTUS CAREFULLY AND RETAIN IT
FOR FUTURE REFERENCE.
--------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO PROCEEDS TO
PUBLIC (1) SALES LOAD (1) THE TRUST (2)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
PER SHARE $9.98 NONE $9.98
TOTAL (2) $1,010,893,930.46 NONE $1,010,893,930.46
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SEE FOOTNOTES ON INSIDE FRONT COVER)
--------------------
DEAN WITTER DISTRIBUTORS INC.
, 199
<PAGE>
(FOOTNOTES TO TABLE ON FRONT COVER)
(1) THE SHARES ARE OFFERED ON A BEST EFFORTS BASIS AT A PRICE EQUAL TO THE NET
ASSET VALUE PER SHARE WHICH ON NOVEMBER 17, 1995 WAS $9.98.
(2) ASSUMING ALL SHARES CURRENTLY REGISTERED ARE SOLD PURSUANT TO THIS
CONTINUOUS OFFERING AT A PRICE OF $9.98 PER SHARE. THE TRUST COMMENCED
OPERATIONS ON NOVEMBER 30, 1989, FOLLOWING COMPLETION OF A FIRM COMMITMENT
UNDERWRITING FOR 10,921,751 SHARES, WITH NET PROCEEDS TO THE TRUST OF
$109,217,510. THE TRUST COMMENCED THE CONTINUOUS OFFERING OF ITS SHARES ON
DECEMBER 4, 1989.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRUST OR THE PRINCIPAL UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Trust Expenses............................................... 3
Financial Highlights.................................................... 4
Prospectus Summary...................................................... 5
The Trust and its Adviser............................................... 12
Investment Objective and Policies....................................... 14
Special Risk Factors.................................................. 19
Investment Practices.................................................... 22
Investment Restrictions................................................. 25
Trustees and Officers................................................... 28
Investment Advisory Agreement........................................... 36
Administrator and Administration Agreement.............................. 38
Portfolio Transactions.................................................. 39
Determination of Net Asset Value........................................ 40
Dividends and Distributions............................................. 41
Taxation................................................................ 42
Description of Shares................................................... 44
Share Repurchases and Tenders........................................... 46
Purchase of Shares...................................................... 48
Yield Information....................................................... 49
Custodian, Dividend Disbursing and Transfer Agent....................... 50
Reports to Shareholders................................................. 50
Legal Counsel........................................................... 50
Experts................................................................. 50
Additional Information.................................................. 50
Report of Independent Accountants....................................... 52
Financial Statements--September 30, 1995................................ 53
Appendix A.............................................................. 69
</TABLE>
------------------------
2
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The expenses and fees set forth in the table are for the fiscal year ended
September 30, 1995.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------
<S> <C>
Sales Load Imposed on Purchases............................. None
Sales Load Imposed on Reinvested Dividends.................. None
Early Withdrawal Charge..................................... 3.0%
An early withdrawal charge is imposed on tenders at the
following declining rates:
EARLY WITHDRAWAL
YEAR AFTER PURCHASE CHARGE
- ------------------------------------------------------------ ----------------
First..................................................... 3.0%
Second.................................................... 2.5%
Third..................................................... 2.0%
Fourth.................................................... 1.0%
Fifth and thereafter...................................... None
ANNUAL EXPENSES (AS A PERCENTAGE OF NET ASSETS)
Investment Advisory Fees.................................... 0.90%
Interest Payments on Borrowed Funds......................... None
Sum of Other Expenses....................................... 0.62%
Total Annual Expenses....................................... 1.52%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) tender at the end
of each time period:................... $45 $68 $83 $182
You would pay the following expenses on
the same investment, assuming no
tender:................................ $15 $48 $83 $182
</TABLE>
- ------------------------
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE TRUST MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Trust will bear directly or
indirectly. For a more complete description of these costs and expenses, see the
cover page of this Prospectus and "Investment Advisory Agreement,"
"Administrator and Administration Agreement" and "Share Repurchases and
Tenders--Early Withdrawal Charge" in this Prospectus.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. This data should be read in conjunction with the
financial statements, and notes thereto, and the unqualified report of
independent accountants which are contained in this Prospectus commencing on
page 52. As noted in the financial statements and in the report of Price
Waterhouse LLP, the Trust invests primarily in senior collateralized loans which
values have been determined by the Trustees in the absence of readily
ascertainable market values.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
--------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 10.00 $ 9.91 $ 9.99 $ 10.00 $ 10.00
------- ------- ------ ------- -------
Net investment income.......... 0.82 0.62 0.55 0.62 0.84
Net realized and unrealized
gain (loss)................... 0.01 0.09 (0.08) (0.01) --
------- ------- ------ ------- -------
Total from investment
operations...................... 0.83 0.71 0.47 0.61 0.84
------- ------- ------ ------- -------
Less dividends and distributions
from:
Net investment income.......... (0.81) (0.62) (0.55) (0.62) (0.84)
Net realized gain.............. (0.03) -- -- -- --
------- ------- ------ ------- -------
Total dividends and
distributions................... (0.84) (0.62) (0.55) (0.62) (0.84)
------- ------- ------ ------- -------
Net asset value, end of period... $ 9.99 $ 10.00 $ 9.91 $ 9.99 $ 10.00
------- ------- ------ ------- -------
------- ------- ------ ------- -------
TOTAL INVESTMENT RETURN+........... 8.57% 7.32% 4.85% 6.23% 8.77%
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 1.52% 1.60% 1.45% 1.47% 1.52%
Net investment income............ 8.11% 6.14% 5.53% 6.14% 8.23%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands....................... $521,361 $305,034 $311,479 $413,497 $479,941
Portfolio turnover rate.......... 102% 147% 92% 46% 42%
<CAPTION>
FOR THE PERIOD
NOVEMBER 30,
1989*
THROUGH
SEPTEMBER 30,
1990
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 10.00
-------
Net investment income.......... 0.74
Net realized and unrealized
gain (loss)................... (0.01)
-------
Total from investment
operations...................... 0.73
-------
Less dividends and distributions
from:
Net investment income.......... (0.73)
Net realized gain.............. --
-------
Total dividends and
distributions................... (0.73)
-------
Net asset value, end of period... $ 10.00
-------
-------
TOTAL INVESTMENT RETURN+........... 7.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 1.48%(2)
Net investment income............ 8.95%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands....................... $328,189
Portfolio turnover rate.......... 35%(1)
</TABLE>
- --------------------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MORE DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS.
<TABLE>
<S> <C>
THE TRUST................. Prime Income Trust (the "Trust") is a non-diversified,
closed-end management investment company, organized as a
Massachusetts business trust. The Trust commenced operations on
November 30, 1989 (under the name "Allstate Prime Income Trust")
following completion of a firm commitment initial underwriting
for 10,921,751 Shares, with net proceeds to the Trust of
$109,217,510. The Trust commenced the continuous offering of its
shares on December 4, 1989. See "The Trust and its Adviser."
PURCHASE OF SHARES........ The Trust is offering continuously its shares of beneficial
interest, par value $.01 (the "Shares"), through Dean Witter
Distributors Inc. (the "Distributor"), as principal underwriter
of the Shares, through certain dealers, including Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of the Trust's
Investment Adviser and Administrator, which have entered into
selected dealer agreements with the Distributor, at a price per
Share equal to the then current net asset value per Share. The
minimum investment in the Trust is $1,000 for initial
investments and $100 for subsequent investments. See "Purchase
of Shares."
INVESTMENT OBJECTIVE AND
POLICIES.................. The investment objective of the Trust is to provide a high level
of current income consistent with the preservation of capital.
The Trust seeks to achieve its objective through investment
primarily in interests in senior collateralized loans ("Senior
Loans") to corporations, partnerships and other entities
("Borrowers"). Senior Loans may take the form of syndicated
loans ("Syndicated Loans") or of debt obligations of Borrowers
issued directly to investors in the form of debt securities
("Senior Notes"). Senior Loans in which the Trust will invest
generally pay interest at rates which float or are reset at a
margin above a generally recognized base lending rate. These
base lending rates are generally the prime rate quoted by a
major U.S. bank ("Prime Rate"), the London Inter-Bank Offered
Rate ("LIBOR"), the Certificate of Deposit ("CD") rate or other
base lending rates used by commercial lenders. Under normal
market conditions, the Trust will invest at least 80% of its
total assets in Senior Loans. The remainder of its assets will
be invested in cash or in short-term, high quality money market
instruments. There is no restriction or percentage limitation
with respect to the Trust's investment in illiquid securities.
While the Trust is not subject to any restrictions with respect
to the maturity of Senior Loans held in its portfolio, it is
currently anticipated that at least 80% of the Trust's total
assets invested in Senior Loans will consist of Senior Loans
with stated maturities of between three and ten years. As a
result of prepayments and amortization, however, the actual
maturities of the Syndicated Loans in the Trust's portfolio are
expected to range between three and four years and the Senior
Notes are expected to have average maturities of approximately
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
six to seven years. The Senior Loans in the Trust's portfolio
will at all times have a dollar-weighted average time until the
next interest rate determination of 90 days or less.
The Investment Adviser will perform its own credit analyses of
Borrowers and will consider, and may rely in part on, analyses
performed by lenders other than the Trust. The Trust will invest
only in Senior Loans where the Investment Adviser believes that
the Borrower can meet debt service requirements in a timely
manner and where the market value of the collateral at the time
of investment equals or exceeds the amount of the Senior Loan.
Among other factors, the Investment Adviser will also consider
the operating history, competitive position and management of
the Borrower; the business outlook of the Borrower's industry
and the terms of the loan agreement with the Borrower. The
Investment Adviser will monitor the qualifications of Borrowers
on an ongoing basis. Senior Loans presently are not rated by
nationally recognized statistical rating organizations. Since
the minimum debt rating of a Borrower may not have a meaningful
relation to the quality of such Borrower's senior collateralized
debt, the Trust does not impose any minimum standard regarding
the rating of other debt instruments of the Borrower.
Senior Loans are typically structured by a syndicate of lenders
("Lenders"), one or more of which administers the Senior Loan on
behalf of the Lenders ("Agent"). Lenders may sell interests in
Senior Loans to third parties ("Participations") or may assign
all or a portion of their interest in a Senior Loan to third
parties ("Assignments"). The Trust may invest in Senior Loans in
the following ways: it may purchase Participations, it may
purchase Assignments of a portion of a Senior Loan or it may act
as one of the group of Lenders originating a Senior Loan or
obtain from such a Lender (through a novation) all of the rights
of such Lender in a Senior Loan, including the ability to
enforce such rights directly against the Borrower. When the
Trust is a Lender, or obtains through a novation all of the
rights of a Lender, it will, as a party to the loan agreement
with the Borrower ("Loan Agreement"), have a direct contractual
relationship with the Borrower and may enforce directly
compliance by the Borrower with the terms of the Loan Agreement.
When the Trust purchases a Participation, the Trust typically
enters into a contractual relationship with the Lender or third
party selling such Participation ("Selling Participant"), but
not with the Borrower. As a result, the Trust assumes the credit
risk of the Borrower, the Selling Participant and any other
persons interpositioned between the Trust and the Borrower
("Intermediate Participants") and the Trust may not directly
benefit from the collateral supporting the Senior Loan in which
it has purchased the Participation. The Trust will only acquire
Participations if the Selling Participant, and each Intermediate
Participant, is a financial institution which meets certain
minimum creditworthiness standards. See "Investment Objective
and Policies." When the Trust purchases an Assignment, it will
acquire all or a portion of the rights of the Lender or
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
other third party whose interest is being assigned, but may not
be a party to the Loan Agreement and may be required to rely on
such Lender or other third party to demand payment and enforce
its rights against the Borrower. Assignments are arranged
through private negotiations between potential assignors and
potential assignees; consequently, the rights and obligations
acquired by the purchaser of an Assignment may differ from and
be more limited than those held by the assignor. The Trust may
pay a fee or forgo a portion of interest payments when acquiring
Participations and Assignments. See "Investment Objective and
Policies."
INVESTMENT ADVISER........ Dean Witter InterCapital Inc. ("InterCapital" or the "Investment
Adviser"), whose address is Two World Trade Center, New York,
New York 10048, is the Fund's Investment Adviser. The Investment
Adviser, which was incorporated in July, 1992, is a wholly-owned
subsidiary of Dean Witter, Discover & Co. ("DWDC"), a balanced
financial services organization providing a broad range of
nationally marketed credit and investment products.
The Investment Adviser and its wholly-owned subsidiary, Dean
Witter Services Company Inc., serve in various investment
management, advisory, management, and administrative capacities
to ninety-six investment companies, thirty of which are listed
on the New York Stock Exchange, with combined assets of
approximately $74.6 billion as of October 31, 1995. The
Investment Adviser also manages and advises portfolios of
pension plans, other institutions and individuals which
aggregated approximately $2.4 billion at such date. The Trust's
Trustees approved a new investment advisory agreement with
InterCapital, on December 23, 1992, as a consequence of the
withdrawal of Allstate Investment Management Company ("AIMCO")
from its investment company advisory activities and its
concomitant resignation as the Trust's Investment Adviser. At a
Special Meeting of Shareholders held on February 25, 1993, the
shareholders approved a new Investment Advisory Agreement with
InterCapital. The name of the Fund was changed by the Trustees
to delete the name "Allstate" upon the effectiveness of the new
investment advisory agreement with InterCapital. The term
"Investment Adviser" refers to AIMCO prior to the Special
Meeting of Shareholders, and to InterCapital after the Special
Meeting. See "The Trust and its Adviser" and "Investment
Advisory Agreement."
ADVISORY FEE.............. The investment advisory fees paid to InterCapital pursuant to
the new investment advisory agreement is calculated at an annual
rate of 0.90% of average daily net assets on assets of the Trust
up to $500 million and at an annual rate of 0.85% of average
daily net assets on assets of the Trust exceeding $500 million.
These fees represent a reduction of the investment advisory fees
paid by the Trust to AIMCO which were calculated at the annual
rate of 1.0% of average daily net assets on assets of the Trust
up to $500 million and at the annual rate of 0.95% of
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
average daily net assets on assets of the Trust exceeding $500
million. The advisory fee is higher than that paid by most other
investment companies. See "Investment Advisory Agreement."
ADMINISTRATOR............. Dean Witter Services Company Inc. (the "Administrator" or
"DWSC"), a wholly-owned subsidiary of InterCapital, the
Investment Adviser of the Trust, is the Administrator of the
Trust. The term "Administrator" refers to InterCapital prior to
December 31, 1993 and to DWSC after that date. See
"Administrator and Administration Agreement" and "Purchase of
Shares."
ADMINISTRATION FEE........ The Trust pays the Administrator a monthly fee at an annual rate
of 0.25% of the Trust's average daily net assets. See
"Administrator and Administration Agreement."
DIVIDENDS AND
DISTRIBUTIONS............. Income dividends are declared daily and paid monthly. Dividends
and distributions to holders of Shares cannot be assured, and
the amount of each monthly payment may vary. Capital gains, if
any, will be distributed at least annually. All dividends and
capital gains distributions will be reinvested automatically in
additional Shares, unless the shareholder elects to receive cash
distributions. See "Dividends and Distributions" and "Taxation."
SHARE REPURCHASES AND
TENDERS................... The Board of Trustees of the Trust currently intends, each
quarter, to consider authorizing the Trust to make tender offers
for all or a portion of its outstanding Shares at the then
current net asset value of the Shares. An early withdrawal
charge payable to the Investment Adviser of up to 3.0% of the
original purchase price of such Shares will be imposed on most
Shares accepted for tender that have been held for four years or
less. There can be no assurance that the Trust will in fact
tender for any of its Shares. If a tender offer is not made or
Shares are not purchased pursuant to a tender offer,
Shareholders may not be able to sell their Shares. If the Trust
tenders for Shares, there is no guarantee that all or any Shares
tendered will be purchased. Subject to its borrowing
restrictions, the Trust may incur debt to finance repurchases of
its Shares pursuant to tender offers, which borrowings entail
additional risks. The ability of the Trust to tender for its
Shares may be limited by certain requirements of the Internal
Revenue Code of 1986 that must be satisfied in order for the
Trust to maintain its desired tax status as a regulated
investment company. See "The Trust and its Adviser," "Purchase
of Shares" and "Share Repurchases and Tenders."
CUSTODIAN................. The Bank of New York serves as Custodian of the Trust's assets.
See "Custodian, Dividend Disbursing and Transfer Agent."
SPECIAL CONSIDERATIONS AND
RISK FACTORS.............. There is not expected to be any secondary trading market in the
Shares and an investment in the Shares should be considered
illiquid. Moreover, the Distributor and other dealers who enter
into dealer
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
agreements with the Distributor are prohibited under applicable
law from making a market in the Shares while the Trust is
continuously offering its Shares or engaged in a tender offer
for its Shares. To the extent that a secondary market does
develop, however, investors should be aware that the shares of
closed-end funds frequently trade in the secondary market at a
discount from their net asset values. Should there be a
secondary market for the Shares, it is expected that the Shares
will not trade at a premium because the Trust intends to engage
in a continuous offering at net asset value.
Due to the lack of a secondary market for the Shares and the
early withdrawal charge, the Trust should be viewed as a
long-term investment and not as a vehicle for short-term
trading.
Since the Trust invests primarily in floating and variable rate
obligations, the Trust's yield is likely to vary in accordance
with changes in prevailing short-term interest rates. This
policy should also result in a net asset value which fluctuates
less than would a portfolio consisting primarily of fixed rate
obligations; however, the Trust's net asset value may vary to
the extent that changes in prevailing interest rates are not
immediately reflected in the interest rates payable on Senior
Loans in the Trust's portfolio, particularly if there were a
sudden and extreme change in interest rates. Also, to the extent
Senior Loans in the Trust's portfolio are valued based on recent
pricings for similar Senior Loans, net asset value may fluctuate
due to changes in pricing parameters for newly issued Senior
Loans (e.g., interest rates are set at a higher or lower margin
above the base lending rate than were Senior Loans in the
Trust's portfolio).
In addition to fluctuations in net asset value which may be
caused by variations in prevailing interest rates and Senior
Loan pricing parameters, the Trust's net asset value would be
adversely affected in the event of a default on a Senior Loan
and could be affected by a substantial deterioration in the
creditworthiness of Borrowers or Selling Participants or
Intermediate Participants or a decline in value of the
collateral securing the Senior Loan. Also, if any such Borrower
or Selling Participant or Intermediate Participant fails to meet
in a timely manner its obligations to remit principal and
interest payments to the Trust, the Trust is likely to
experience a decline in its net asset value.
Although the Trust will generally have access to financial and
other information made available to the Lenders in connection
with Senior Loans, the amount of public information available
with respect to Senior Loans generally will be less extensive
than that available for rated, registered and exchange listed
securities. As a result, the performance of the Trust and its
ability to meet its investment objective is more dependent on
the analytical abilities of the Investment Adviser than would be
the case for an investment company that invests primarily in
rated, registered or exchange-listed securities.
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The Loan Agreement with the Borrower, which establishes the
relative terms and conditions of the Senior Loan and rights of
the Borrower and the Lenders, will typically vest the Agent with
broad discretion in enforcing and administering the Agreement.
Accordingly, the success of the Trust will depend in part on the
skill with which the Agent administers the terms of the Loan
Agreement, monitors Borrower compliance with covenants, collects
principal, interest and fee payments from Borrowers and, where
necessary, enforces creditor's remedies against Borrowers. See
"Investment Objective and Policies."
Interests in Senior Loans are not listed on any national
securities exchange or automated quotation system and no regular
market has developed in which interests in Senior Loans are
traded. The substantial portion of the Trust's assets invested
in relatively illiquid Senior Loan interests may restrict the
ability of the Trust to dispose of its investments in Senior
Loans in a timely fashion and at a fair price, and could result
in capital losses to the Trust and holders of Shares. To the
extent that the Trust's investments are illiquid, the Trust may
have difficulty disposing of portfolio securities in order to
purchase its Shares pursuant to tender offers, if any. The Board
of Trustees of the Trust will consider the liquidity of the
Trust's portfolio securities in determining whether a tender
offer should be made by the Trust and the number of Shares to be
tendered.
The Trust may invest in Senior Loans which are made to non-U.S.
Borrowers provided that the Senior Loans are dollar-denominated
and any such Borrower meets the credit standards established by
the Investment Adviser for U.S. Borrowers. Loans to non-U.S.
Borrowers may involve risks not typically involved in loans to
U.S. Borrowers.
The Trust's Declaration of Trust includes anti-takeover
provisions, including the requirement for a 66% shareholder vote
to remove Trustees and for certain mergers, issuances of Shares
and asset acquisitions that could have the effect of limiting
the ability of other persons or entities to acquire control of
the Trust and could have the effect of depriving holders of
Shares of an opportunity to sell their Shares at a premium above
prevailing market prices by discouraging a third party from
seeking to obtain control of the Trust. See "Description of
Shares--Anti-Takeover Provisions."
The Trust may be deemed to be concentrated in securities of
issuers in the industry group consisting of financial
institutions and their holding companies, including commercial
banks, thrift institutions, insurance companies and finance
companies. As a result, the Trust is subject to certain risks
associated with such institutions, including, among other
things, changes in governmental regulation, interest rate levels
and general economic conditions. See "Investment Objective and
Policies" and "Investment Restrictions."
The Trust has registered as a "non-diversified" investment
company so that it will be able to invest more than 5% of the
value of its total assets in
</TABLE>
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<S> <C>
the obligations of any single issuer, including Senior Loans of
a single Borrower or Participations purchased from a single
Lender. The Trust does not intend to invest, however, more than
10% of the value of its total assets in interests in Senior
Loans of a single Borrower. To the extent the Trust invests its
assets in obligations of a more limited number of issuers than a
diversified investment company, the Trust will be more
susceptible than a diversified investment company to any single
corporate, economic, political or regulatory occurrence. See
"Investment Objective and Policies."
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THE TRUST AND ITS ADVISER
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Prime Income Trust (the "Trust") is a non-diversified, closed-end management
investment company whose investment objective is to provide a high level of
current income consistent with the preservation of capital. The Trust will seek
to achieve its objective through investment primarily in senior collateralized
loans ("Senior Loans") to corporations, partnerships and other entities
("Borrowers"). No assurance can be given that the Trust will achieve its
investment objective. The Trust is designed primarily for long-term investment
and not as a trading vehicle.
The Trust is a trust of a type commonly known as a "Massachusetts business
trust" and was organized under the laws of Massachusetts on August 17, 1989
under the name "Allstate Prime Income Trust." Effective March 1, 1993, the Trust
Agreement was amended to change the name of the Trust to "Prime Income Trust".
Such amendment was made upon the approval by the shareholders of a new
investment advisory agreement with InterCapital. The Trust commenced operations
on November 30, 1989, following completion of a firm commitment initial
underwriting for 10,921,751 Shares, with net proceeds to the Trust of
$109,217,510. The Trust commenced the continuous offering of its shares on
December 4, 1989. The Trust's principal office is located at Two World Trade
Center, New York, New York 10048 and its telephone number is (212) 392-1600. The
Trust is offering continuously its shares of beneficial interest, $.01 par value
(the "Shares"). See "Purchase of Shares."
An investment in Shares offers several benefits. The Trust offers investors
the opportunity to receive a high level of current income by investing in a
professionally managed portfolio comprised primarily of Senior Loans, a type of
investment typically not available to individual investors. In managing such a
portfolio, the Investment Adviser provides the Trust and its shareholders with
professional credit analysis and portfolio diversification. The Trust also
relieves the investor of burdensome administrative details involved in managing
a portfolio of Senior Loans, even if they were available to individual
investors. Such benefits are at least partially offset by the expenses involved
in operating an investment company, which consist primarily of management and
administrative fees and operational costs. See "Investment Advisory Agreement"
and "Administrator and Administration Agreement."
On December 23, 1992 the Trust's Trustees approved a new investment advisory
agreement with InterCapital as a consequence of the withdrawal of Allstate
Investment Management Company ("AIMCO") from its investment company advisory
activities and its concomitant resignation as the Trust's Investment Adviser.
InterCapital is a wholly-owned subsidiary of Dean Witter, Discover & Co.
("DWDC"). The Trust's shareholders voted to approve a new investment advisory
agreement with InterCapital at a Special Meeting of Shareholders held on
February 25, 1993. The shareholders also voted to approve the automatic
reinstatement of the new investment advisory agreement (to the extent that such
agreement would otherwise terminate as a consequence of the Sears, Roebuck and
Co. ("Sears") spin-off of DWDC stock [the "Spin-Off"]), which new investment
advisory agreement took effect on June 30, 1993, upon the Spin-Off by Sears of
its remaining shares of DWDC. Upon approval by the shareholders of the new
investment advisory agreement, InterCapital, which continued to serve at such
time as the Trust's Administrator, assumed the duties of Investment Adviser
which previously were performed by AIMCO and the name of the Trust was changed
by the Trustees to "Prime Income Trust." The term "Investment Adviser" refers to
AIMCO prior to the Special Meeting of Shareholders, and to InterCapital after
the Special Meeting.
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InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-six investment companies, thirty of which
are listed on the New York Stock Exchange, with combined assets of approximately
$74.6 billion at October 31, 1995. InterCapital also manages and advises
portfolios of pension plans, other institutions and individuals which aggregated
approximately $2.4 billion at such date.
The Trust is managed within InterCapital's Taxable Fixed-Income Group, which
manages 26 funds and fund portfolios with approximately $13.6 billion in assets
as of October 31, 1995. Mr. Rafael Scolari, a member of the Taxable Fixed-Income
Group, is the Trust's primary portfolio manager. Mr. Scolari joined InterCapital
in March 1993. Prior thereto, he was the portfolio manager of the Trust's
portfolio while at AIMCO (from January, 1990 through February, 1993). During
this period, he was also portfolio manager of bank loans for Allstate Life
Insurance Company.
InterCapital is also the investment manager or investment adviser of the
following management investment companies: Active Assets Money Trust, Active
Assets Tax-Free Trust, Active Assets California Tax-Free Trust, Active Assets
Government Securities Trust, Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., Dean Witter Strategist Fund, Dean Witter Tax-Free Daily
Income Trust, Dean Witter Developing Growth Securities Trust, Dean Witter
Tax-Exempt Securities Trust, Dean Witter Natural Resource Development Securities
Inc., Dean Witter Dividend Growth Securities Inc., Dean Witter American Value
Fund, Dean Witter U.S. Government Money Market Trust, Dean Witter Variable
Investment Series, Dean Witter World Wide Investment Trust, Dean Witter Select
Municipal Reinvestment Fund, Dean Witter U.S. Government Securities Trust, Dean
Witter California Tax-Free Income Fund, Dean Witter New York Tax-Free Income
Fund, Dean Witter Convertible Securities Trust, Dean Witter Federal Securities
Trust, Dean Witter Value-Added Market Series, High Income Advantage Trust, High
Income Advantage Trust II, Dean Witter Government Income Trust, Dean Witter
Utilities Fund, Dean Witter Managed Assets Trust, Dean Witter California
Tax-Free Daily Income Trust, Dean Witter World Wide Income Trust, Dean Witter
Intermediate Income Securities, High Income Advantage Trust III, Dean Witter
Capital Growth Securities, Dean Witter European Growth Fund Inc., Dean Witter
Precious Metals and Minerals Trust, Dean Witter New York Municipal Money Market
Trust, Dean Witter Global Short-Term Income Fund Inc., Dean Witter Multi-State
Municipal Series Trust, Dean Witter Premier Income Trust, Dean Witter Short-Term
U.S. Treasury Trust, Dean Witter Diversified Income Trust, InterCapital Quality
Municipal Investment Trust, InterCapital Insured Municipal Bond Trust, Dean
Witter Pacific Growth Fund Inc., Dean Witter Health Sciences Trust, Dean Witter
Retirement Series, InterCapital Insured Municipal Trust, InterCapital California
Quality Municipal Securities, InterCapital California Insured Municipal Income
Trust, InterCapital Quality Municipal Income Trust, InterCapital Quality
Municipal Securities, InterCapital New York Quality Municipal Securities,
InterCapital Insured Municipal Securities, InterCapital Insured California
Municipal Securities, Dean Witter Global Dividend Growth Securities, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Global Utilities Fund, Dean Witter National Municipal Trust, Dean Witter High
Income Securities, Dean Witter International SmallCap Fund, Dean Witter Mid-Cap
Growth Fund, Dean Witter Select Dimensions Series, Dean Witter Global Asset
Allocation Fund, Dean Witter Balanced Growth Fund, Dean Witter Balanced Income
Fund, Dean Witter Hawaii Municipal Trust, Dean Witter Capital Appreciation Fund,
Dean Witter Intermediate Term U.S. Treasury Trust, Dean Witter Information Fund,
InterCapital Insured Municipal Income Trust, Municipal Income Trust, Municipal
Income Trust II, Municipal Income Trust III, Municipal Income Opportunities
Trust, Municipal Income Opportunities Trust II, Municipal Income Opportunities
Trust III, Municipal Premium Income Trust and Prime Income Trust. The foregoing
investment companies, together with
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the Fund, are collectively referred to as the Dean Witter Funds. In addition,
Dean Witter Services Company Inc. ("DWSC"), a wholly-owned subsidiary of
InterCapital, serves as manager for the following investment companies for which
TCW Funds Management, Inc. is the investment adviser: TCW/DW Core Equity Trust,
TCW/DW North American Government Income Trust, TCW/DW Latin American Growth
Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth Fund, TCW/DW
Balanced Fund, TCW/DW Global Convertible Trust, TCW/DW Total Return Trust,
TCW/DW Emerging Markets Opportunites Trust, TCW/DW Term Trust 2000, TCW/DW Term
Trust 2002 and TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also
serves as: (i) sub-adviser to Templeton Global Opportunities Trust, an open-end
investment company; (ii) administrator of The BlackRock Strategic Term Trust
Inc., a closed-end investment company; and (iii) sub-administrator of MassMutual
Participation Investors and Templeton Global Governments Income Trust,
closed-end investment companies.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Trust's investment objective is to provide a high level of current
income consistent with the preservation of capital. The Trust will seek to
achieve its objective through investment primarily in Senior Loans. Senior Loans
in which the Trust will invest generally pay interest at rates which float or
are reset at a margin above a generally recognized base lending rate. These base
lending rates are the Prime Rate, LIBOR, the CD rate or other base lending rates
used by commercial lenders. The Prime Rate quoted by a major U.S. bank is the
interest rate at which such bank is willing to lend U.S. dollars to creditworthy
borrowers. LIBOR is an average of the interest rates quoted by several
designated banks as the rates at which such banks would offer to pay interest to
major financial institutional depositors in the London interbank market on U.S.
dollar-denominated deposits for a specified period of time. The CD rate is the
average rate paid on large certificates of deposit traded in the secondary
market. The Investment Adviser believes that over time the Trust's effective
yield will exceed money market rates and will track the movements in the
published Prime Rate of major U.S. banks, although it may not equal the Prime
Rate. An investment in the Trust may not be appropriate for all investors and is
not intended to be a complete investment program. No assurance can be given that
the Trust will achieve its investment objective.
Under normal market conditions, the Trust will invest at least 80% of its
total assets in Senior Loans. The Trust currently intends to limit its
investments in Senior Notes to no more than 20% of its total assets. The
remainder of the Trust's assets may be invested in cash or in high quality debt
securities with remaining maturities of one year or less, although it is
anticipated that the debt securities in which the Trust invests will have
remaining maturities of 60 days or less. Such securities may include commercial
paper rated at least in the top two rating categories of either Standard &
Poor's Corporation or Moody's Investors Service, Inc., or unrated commercial
paper considered by the Investment Adviser to be of similar quality,
certificates of deposit and bankers' acceptances and securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. Such
securities may pay interest at rates which are periodically redetermined or may
pay interest at fixed rates. High quality debt securities and cash may comprise
up to 100% of the Trust's total assets during temporary defensive periods when,
in the opinion of the Investment Adviser, suitable Senior Loans are not
available for investment by the Trust or prevailing market or economic
conditions warrant.
The Trust is not subject to any restrictions with respect to the maturity of
Senior Loans held in its portfolio. It is currently anticipated that at least
80% of the Trust's total assets invested in Senior Loans will consist of Senior
Loans with stated maturities of between three and ten years, inclusive, and with
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rates of interest which are redetermined either daily, monthly or quarterly. As
a result of prepayments and amortization, however, it is expected that the
actual maturities of Syndicated Loans will be approximately three to four years
and of Senior Notes approximately six to seven years. The Senior Loans in the
Trust's portfolio will at all times have a dollar-weighted average time until
the next interest rate redetermination of 90 days or less.
The value of fixed income obligations generally varies in response to
changes in interest rates. When interest rates decline, the value of a fixed
income obligation can be expected to rise; conversely, the value of the
obligation can be expected to decrease when interest rates rise. Accordingly,
the net asset value of an investment company which invests a substantial portion
of its total assets in fixed income securities can be expected to fluctuate
significantly with changes in interest rates. The Investment Adviser expects the
Trust's net asset value to be relatively stable during normal market conditions,
because the Trust's portfolio will consist primarily of Senior Loans on which
the interest rate is periodically adjusted in response to interest rate changes
on short-term investments. However, because the interest rate on a Senior Loan
may be reset only periodically, the Trust's net asset value may fluctuate from
time to time in the event of an imperfect correlation between the interest rates
on Senior Loans in the Trust's portfolio and prevailing short-term interest
rates. This would be particularly likely to occur in the event of a sudden and
extreme movement in interest rates. Also, to the extent that Senior Loans in the
Trust's portfolio are valued based on recent pricings for similar Senior Loans,
net asset value may fluctuate due to changes in pricing parameters for newly
issued Senior Loans (e.g., interest rates are set at a higher or lower margin
above the base lending rate than were Senior Loans in the Trust's portfolio). A
decline in the Trust's net asset value would also result from a default on a
Senior Loan in which the Trust has invested and could result from a substantial
deterioration in the creditworthiness of a Borrower or in the value of
collateral securing a Senior Loan. Also, if any Borrower or any Selling
Participant or Intermediate Participant fails to meet in a timely manner its
obligations to remit principal and interest payments to the Trust, the Trust is
likely to experience a decline in its net asset value.
The Senior Loans in which the Trust will invest will consist primarily of
direct obligations of a Borrower undertaken to finance the growth of the
Borrower's business or to finance a capital restructuring. Such loans may
include "leveraged buy-out" loans which are made to a Borrower for the purpose
of acquiring ownership control of another company, whether as a purchase of
equity or of assets or for a leveraged reorganization of the Borrower with no
change in ownership. The Trust may invest in Senior Loans which are made to
non-U.S. Borrowers, provided that the loans are dollar-denominated and any such
Borrower meets the credit standards established by the Investment Adviser for
U.S. Borrowers. Loans by non-U.S. Borrowers involve risks not typically involved
in domestic investment, including future foreign political and economic
developments and the possible imposition of exchange controls or other foreign
or U.S. governmental laws or restrictions applicable to such loans. In addition,
although loans to non-U.S. Borrowers will be dollar-denominated debt
obligations, such loans involve foreign currency exchange risks to the extent
that a decline in a non-U.S. Borrower's own currency relative to the dollar may
impair such Borrower's ability to meet debt service on a Senior Loan.
Senior Loans hold the most senior position in a Borrower's capital
structure, although some Senior Loans may hold an equal ranking with other
senior securities of the Borrower (i.e., have equal claims to the Borrower's
assets). In order to borrow money pursuant to Senior Loans, a Borrower will
frequently pledge as collateral its assets, including, but not limited to,
trademarks, accounts receivable, inventory, buildings, real estate, franchises
and common and preferred stock in its subsidiaries. In addition, in the
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case of some Senior Loans, there may be additional collateral pledged in the
form of guarantees by and/or securities of affiliates of the Borrowers. A Loan
Agreement may also require the Borrower to pledge additional collateral in the
event that the value of the collateral falls. In certain instances, a Senior
Loan may be secured only by stock in the Borrower or its subsidiaries. Each
Senior Loan in which the Trust will invest will be secured by collateral which
the Investment Adviser believes to have a market value, at the time of
acquisition of the Senior Loan, which equals or exceeds the principal amount of
the Senior Loan. The value of such collateral generally will be determined by an
independent appraisal and/or other information regarding the collateral
furnished by the Agent. Such information will generally include appraisals in
the case of assets such as real estate, buildings and equipment, audits in the
case of inventory and analyses (based upon, among other things, investment
bankers' opinions, fairness opinions and relevant transactions in the
marketplace) in the case of other kinds of collateral. Loan Agreements may also
include various restrictive covenants designed to limit the activities of the
Borrower in an effort to protect the right of the Lenders to receive timely
payments of interest on and repayment of principal of the Senior Loans.
Restrictive covenants contained in a Loan Agreement may include mandatory
prepayment provisions arising from excess cash flow and typically include
restrictions on dividend payments, specific mandatory minimum financial ratios,
limits on total debt and other financial tests. Breach of such covenants, if not
waived by the Lenders, is generally an event of default under the applicable
Loan Agreement and may give the Lenders the right to accelerate principal and
interest payments.
The Investment Adviser will perform its own credit analysis of the Borrower
and will consider, and may rely in part on, the analyses performed by Lenders
other than the Trust. The Trust will invest only in those Senior Loans with
respect to which the Borrower, in the opinion of the Investment Adviser,
demonstrates the ability to meet debt service in a timely manner (taking into
consideration the Borrower's capital structure, liquidity and historical and
projected cash flow) and where the Investment Adviser believes that the market
value of the collateral at the time of investment equals or exceeds the amount
of the Senior Loan. The Investment Adviser will also consider the following
characteristics: the operating history, competitive position and management of
the Borrower; the business outlook of the Borrower's industry; the terms of the
Loan Agreement (e.g., the nature of the covenants, interest rate and fees and
prepayment conditions); whether the Trust will purchase an Assignment,
Participation or act as a lender originating a Senior Loan; and the
creditworthiness of and quality of service provided by the Agent and any Selling
Participant or Intermediate Participants. Senior Loans presently are not rated
by nationally recognized statistical rating organizations. Because of the
collateralized nature and other credit enhancement features of Senior Loans,
such as third-party guarantees, as well as the fact that a Borrower's other debt
obligations are often subordinated to its Senior Loans, the Trust and the
Investment Adviser believe that ratings of other securities issued by a Borrower
do not necessarily reflect adequately the relative quality of a Borrower's
Senior Loans. Therefore, although the Investment Adviser may consider such
ratings in determining whether to invest in a particular Senior Loan, the
Investment Adviser is not required to consider such ratings and such ratings
will not be the determinative factor in its analysis.
Senior Loans typically are arranged through private negotiations between a
Borrower and several financial institutions ("Lenders") represented in each case
by one or more of such Lenders acting as agent ("Agent") of the several Lenders.
On behalf of the several Lenders, the Agent, which is frequently the commercial
bank that originates the Senior Loan and the person that invites other parties
to join the
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lending syndicate, typically will be primarily responsible for negotiating the
loan agreement or agreements ("Loan Agreement") that establish the relative
terms, conditions and rights of the Borrower and the several Lenders. 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 a fee or fees by the Borrower for
their services.
The Trust may invest in Senior Loans in the following ways: (i) it may
purchase Participations, (ii) it may purchase Assignments of a portion of a
Senior Loan, (iii) it may act as one of the group of Lenders originating a
Senior Loan or (iv) it may assume through a novation all of the rights of a
Lender in a Senior Loan, including the right to enforce its rights as a Lender
directly against the Borrower.
When the Trust is a Lender, or assumes all of the rights of a Lender through
an assignment or a novation, it will, as a party to the Loan Agreement, have a
direct contractual relationship with the Borrower and may enforce compliance by
the Borrower with the terms of the Loan Agreement. Lenders also have voting and
consent rights under the applicable 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,
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.
A Participation may be acquired from an Agent, a Lender or any other holder
of a Participation ("Selling Participant"). Investment by the Trust in a
Participation typically will result in the Trust having a contractual
relationship only with the Selling Participant, not with the Borrower or any
other entities interpositioned between the Trust and the Borrower ("Intermediate
Participants"). The Trust will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Selling Participant
and only upon receipt by such Selling Participant of such payments from the
Borrower. In connection with purchasing Participations, the Trust generally will
have no right to enforce compliance by the Borrower with the terms of the Loan
Agreement, nor any rights with respect to 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 in which it has purchased the
Participation. As a result, the Trust will assume the credit risk of the
Borrower, the Selling Participant and any Intermediate Participants. In the
event of the insolvency of the Selling Participant or any Intermediate
Participant, the Trust may be treated as a general creditor of such entity and
may be adversely affected by any set-off between such entity and the Borrower.
The Trust will acquire Participations only if the Selling Participant and any
Intermediate Participant is a commercial bank or other financial institution
with an investment grade long-term debt rating from either Standard and Poor's
Corporation ("S&P") (rated BBB or higher) or Moody's Investors Service, Inc.
("Moody's") (rated Baa or higher), or with outstanding commercial paper rated at
least in the top two rating categories of either of such rating agencies (at
least A-2 by S&P or at least Prime-2 by Moody's) or, if such long-term debt and
commercial paper are unrated, with long-term debt or commercial paper believed
by the Investment Adviser to be of comparable quality. Long-term debt rated BBB
by S&P is regarded by S&P as having adequate capacity to pay interest and repay
principal and debt rated Baa by Moody's is regarded by Moody's as a medium grade
obligation, i.e., it is neither highly protected nor poorly secured, although
debt rated Baa by Moody's is considered to have speculative characteristics.
Commercial paper rated A-2 by S&P indicates that the degree of safety regarding
timely payment is considered by S&P to be strong, and issues of commercial paper
rated
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Prime-2 by Moody's are considered by Moody's to have a strong capacity for
repayment of senior short-term debt obligations. The Trust will purchase an
Assignment or act as one of a group of Lenders only where the Agent with respect
to the Senior Loan is a bank, a member of a national securities exchange or
other entity designated in the Investment Company Act of 1940, as amended (the
"1940 Act"), as qualified to serve as a custodian for a registered investment
company such as the Trust (a "Designated Custodian"). In addition, the Trust
will purchase a Participation initially only when the Lender selling such
Participation, and any other person interpositioned between such Lender and the
Trust, are Designated Custodians. If the Trust determines in the future to
purchase interests in Senior Loans in instances in which such Agent, Lender or
interpositioned person is not a Designated Custodian, the Trust will seek
appropriate relief under the 1940 Act and if such relief is granted the Trust
will thereafter purchase Senior Loans in a manner consistent with such relief.
The Trust may also purchase Assignments from Lenders and other third
parties. The purchaser of an Assignment typically succeeds to all the rights of
the Lender or other third party whose interest is being assigned, but it may not
be a party to the Loan Agreement and may be required to rely on such Lender or
other third party to demand payment and enforce its rights against the Borrower.
Assignments are arranged through private negotiations between potential
assignors and potential assignees; consequently, the rights and obligations
acquired by the purchaser of an Assignment may differ from and be more limited
than those held by the assignor.
In determining whether to purchase Participations or Assignments or act as
one of a group of Lenders, the Investment Adviser will consider the availability
of each of these forms of investments in Senior Loans, the terms of the Loan
Agreement, and in the case of Participations, the creditworthiness of the
Selling Participant and any Intermediate Participants.
In connection with the purchase of interests in Senior Loans, the Trust may
also acquire warrants and other equity securities of the Borrower or its
affiliates. The acquisition of such equity securities will only be incidental to
the Trust's purchase of interests in Senior Loans.
The Trust will limit its investments to those which could be acquired
directly by national banks for their own portfolios, as provided in 12 U.S.
Code, section 24, paragraph 7 and the implementing regulations and
interpretations of the Comptroller of the Currency. The conditions and
restrictions governing the purchase of Shares by national banks are set forth in
the U.S. Comptroller of the Currency's Banking Circular No. 220, dated November
21, 1986. Subject to such conditions and restrictions, national banks may
acquire Shares for their own investment portfolio.
The Trust is authorized to invest in Senior Notes. It is anticipated that
Senior Notes purchased by the Trust will generally bear a higher rate of
interest than Syndicated Loans. Such securities may, however, involve greater
risks than those associated with Syndicated Loans. The covenants and
restrictions to which the Borrower would be subject in the case of Senior Notes
may not be as rigorous in all respects as those to which the Borrower would be
subject in the case of a Syndicated Loan. Also, the scope of financial
information respecting the Borrower available to investors in Senior Notes may
be more limited than that available to Syndicated Loan Lenders. In addition, a
Syndicated Loan typically requires steady amortization of principal throughout
the life of the loan, whereas Senior Notes typically are structured to allow
Borrowers to repay principal later in the life of the loan.
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<PAGE>
The investment objective of the Trust and its policy to invest, under normal
market conditions, at least 80% of its total assets in Senior Loans, are
fundamental policies of the Trust and may not be changed without the approval of
a majority of the outstanding voting securities of the Trust, as defined in the
1940 Act. Such a majority is defined as the lesser of (i) 67% or more of the
Trust's Shares present at a meeting of shareholders, if the holders of more than
50% of the outstanding Shares of the Trust are present or represented by proxy,
or (ii) more than 50% of the outstanding Shares of the Trust. Except as
otherwise specified, all other investment policies of the Trust are not
fundamental and may be changed by the Board of Trustees without shareholder
approval.
SPECIAL RISK FACTORS
The Trust may be required to pay and may receive various fees and
commissions in connection with purchasing, selling and holding interests in
Senior Loans. When the Trust buys an interest in a Senior Loan, it may receive a
facility fee, which is a fee paid to Lenders upon origination of a Senior Loan
and/or a commitment fee which is a fee paid to Lenders on an ongoing basis based
upon the undrawn portion committed by the Lenders of the underlying Senior Loan.
In certain circumstances, the Trust may receive a prepayment penalty on the
prepayment of a Senior Loan by a Borrower. When the Trust sells an interest in a
Senior Loan it may be required to pay fees or commissions to the purchaser of
the interest. The extent to which the Trust will be entitled to receive or be
required to pay such fees will generally be a matter of negotiation between the
Trust and the party selling to or purchasing from the Trust. The Investment
Adviser currently anticipates that the Trust will continue to receive and/or pay
fees and commissions in a majority of the transactions involving Senior Loans.
Pursuant to the relevant Loan Agreement, a Borrower may be required in
certain circumstances, and may have the option at any time, to prepay the
principal amount of a Senior Loan, often without incurring a prepayment penalty.
The degree to which Borrowers prepay Senior Loans may be affected by such
factors as general business conditions, the financial condition of the Borrower
and competitive conditions among lenders. Accordingly, prepayment cannot be
predicted with accuracy. Because the interest rates on Senior Loans are
periodically redetermined at relatively short intervals, the Trust and the
Investment Adviser believe that the prepayment of, and subsequent reinvestment
by the Trust in, Senior Loans will not have a materially adverse impact on the
yield on the Trust's portfolio and may have a beneficial impact on income due to
receipt of prepayment penalties, if any, and any facility fees earned in
connection with reinvestment. However, yield could be adversely affected to the
extent that the Trust is unable to reinvest promptly prepayments in Senior
Loans, or, in a period of declining interest rates, to the extent that Borrowers
prepay Senior Loans whose interest rates have not yet been reset to reflect such
declines.
Lenders commonly have certain obligations pursuant to the Loan Agreement,
which may include the obligation to make additional loans or release collateral
in certain circumstances. The Trust will establish a segregated account with its
custodian bank in which it will maintain cash or high quality debt securities
equal in value to its commitments to make such additional loans. In no event
will such commitments exceed 20% of the Trust's total assets.
On behalf of the several Lenders, the Agent typically will be required to
administer and manage the Senior Loan and to service or monitor the collateral.
The Trust will rely on the Agent (where the Trust is a Lender or owns an
Assignment of a Lender's interest) or the Selling Participant (where the Trust
owns a Participation) to collect principal of and interest on a Senior Loan.
Furthermore, the Trust usually will rely
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<PAGE>
on the Agent (where the Trust is a Lender or owns an Assignment of a Lender's
interest) and/or the Selling Participants (where the Trust owns a Participation)
to monitor compliance by the Borrower with restrictive covenants in the Loan
Agreement and notify the Trust of any adverse change in the Borrower's financial
condition or any declaration of insolvency. The Agent monitors the value of the
collateral on an ongoing basis and, if the value of the collateral declines, may
take certain action, including accelerating principal payments on the Senior
Loan, giving the Borrower an opportunity (or requiring the Borrower if the Loan
Agreement so provides) to provide additional collateral or seeking other
protection for the benefit of the participants in the Senior Loan, depending on
the terms of the Loan Agreement. Furthermore, unless the Trust's interest in a
Senior Loan affords it the right to direct recourse against the Borrower, the
Trust will rely on the Agent to use appropriate creditor remedies against the
Borrower. Typically, the Agent will have broad discretion in enforcing the terms
of a Loan Agreement.
Loan Agreements typically provide for the termination of the Agent's agency
status in the event that it fails to act as required under the relevant Loan
Agreement, becomes insolvent, or has a receiver, conservator or similar official
appointed for it by the appropriate bank regulatory authority or becomes a
debtor in a bankruptcy proceeding. Should such an Agent or a Selling
Participant, Intermediate Participant or assignor with respect to an Assignment
become insolvent or have a receiver, conservator or similar official appointed
for it by the appropriate bank regulatory authority or become a debtor in a
bankruptcy proceeding, the Trust believes that its interest in the Senior Loan
and any loan payment held by such person for the benefit of the Trust should not
be included in such person's estate. If, however, any such amount were included
in such person's estate, the Trust would incur certain costs and delays in
realizing payment or could suffer a loss of principal and/or interest. Even if
such amount is not included in such person's estate, the possibility exists that
the servicing of the Senior Loans may be temporarily disrupted and that there
could be delays in the receipt of principal and/or interest by the Trust which
would adversely affect income and net asset value.
Senior Loans, like other corporate debt obligations, are subject to the risk
of nonpayment of scheduled interest or principal. Such nonpayment would result
in a reduction of income to the Trust, a reduction in the value of the Senior
Loan experiencing nonpayment and a decrease in the net asset value of the Trust.
Although the Trust will invest only in Senior Loans that the Investment Adviser
believes are secured by collateral, the value of which equals or exceeds the
principal amount of the Senior Loan, the value of the collateral pledged by the
Borrower under a Senior Loan, including any additional collateral which the Loan
Agreement may require the Borrower to pledge, may decline below the amount of
the Senior Loan after the acquisition of the interest in the Senior Loan. If
this were to occur, the Trust would be exposed to the risk that the value of the
collateral will not at all times equal or exceed the amount of the Borrower's
obligations under the Senior Loan. Furthermore, there is no assurance that the
liquidation of the collateral would satisfy the Borrower's obligation in the
event of nonpayment of scheduled interest or principal, or that the collateral
could be readily liquidated. As a result, the Trust may not receive payments to
which it is entitled and thereby is likely to experience a decline in the value
of its investment and in its net asset value.
Senior Loans made in connection with leveraged buy-outs and other highly
leveraged transactions are subject to greater credit risks than loans made to
less leveraged Borrowers. These credit risks include the possibility of default
or bankruptcy of the Borrower, and the assertion that the pledging of collateral
to secure the loan constituted a fraudulent conveyance or preferential transfer
which can be
20
<PAGE>
nullified or subordinated to the rights of other creditors of the Borrower under
applicable law. The value of such Senior Loans also may be subject to a greater
degree of volatility in response to interest rate fluctuations and may be less
liquid than other Senior Loans.
Senior Loans in which the Trust will invest presently are not rated by a
nationally recognized statistical rating agency, will not be registered with the
SEC or any state securities commission and will not be listed on any national
securities exchange. Although the Trust will generally have access to financial
and other information made available to the Lenders in connection with Senior
Loans, the amount of public information available with respect to Senior Loans
will generally be less extensive than that available for rated, registered
and/or exchange listed securities. As a result, the performance of the Trust and
its ability to meet its investment objective is more dependent on the analytical
ability of the Investment Adviser than would be the case for an investment
company that invests primarily in rated, registered and/or exchange listed
securities.
Senior Loans are at present not readily marketable and are often subject to
restrictions on resale. For example, bank approval is often required for resale
of interests in Senior Loans. Although interests in Senior Loans may be
transferable among financial institutions, such interests do not at present have
the liquidity of conventional debt securities traded in the secondary market.
The substantial portion of the Trust's assets invested in interests in Senior
Loans may restrict the ability of the Trust to dispose of its investments in
Senior Loans in a timely fashion and at a fair price, and could result in
capital losses to the Trust and holders of Shares. Such risks are particularly
acute in situations where the Trust's operations require cash, such as when the
Trust tenders for its Shares, and may result in the Trust's borrowing to meet
short-term cash requirements. The Board of Trustees of the Trust will consider
the liquidity of the Trust's portfolio investments in determining whether a
tender offer should be made by the Trust and the number of Shares offered to be
purchased pursuant thereto.
The Trust has registered as a "non-diversified" investment company so that,
subject to its investment restrictions, it will be able to invest more than 5%
of the value of its total assets in the obligations of any single issuer,
including Senior Loans of a single Borrower or Participations purchased from a
single Lender or Selling Participant. However, the Trust does not intend to
invest more than 10% of the value of its total assets in interests in Senior
Loans of a single Borrower. To the extent the Trust invests its assets in
obligations of a more limited number of issuers than a diversified investment
company, the Trust will be more susceptible than a diversified investment
company to any single corporate, economic, political or regulatory occurrence.
In addition, the Trust may invest up to 100% of its assets in
Participations. Because the Trust will regard the Selling Participants and
Intermediate Participants as issuers, the Trust may be deemed to be concentrated
in securities of issuers in the industry group consisting of financial
institutions and their holding companies, including commercial banks, thrift
institutions, insurance companies and finance companies. As a result, the Trust
is subject to certain risks associated with such institutions. Banking and
thrift institutions are subject to extensive governmental regulations which may
limit both the amounts and types of loans and other financial commitments which
such institutions may make and the interest rates and fees which such
institutions may charge. The profitability of these institutions is largely
dependent on the availability and cost of capital funds, and has shown
significant recent fluctuation as a result of volatile interest rate levels. In
addition, general economic conditions are important to the operations of these
institutions, with exposure to credit losses resulting from possible financial
difficulties
21
<PAGE>
of borrowers potentially having an adverse effect. Insurance companies also are
affected by economic and financial conditions and are subject to extensive
government regulation, including rate regulation. The property and casualty
industry is cyclical, being subject to dramatic swings in profitability which
can be affected by natural catastrophes and other disasters. Individual
companies may be exposed to material risks, including reserve inadequacy, latent
health exposure, and inability to collect from their reinsurance carriers. The
financial services area is currently undergoing relatively rapid change as
existing distinctions between financial service segments become less clear. In
this regard, recent business combinations have included insurance, finance and
securities brokerage under single ownership. Moreover, the federal laws
generally separating commercial and investment banking are currently being
studied by Congress. Also, the Trust could be adversely affected if Selling
Participants and Intermediate Participants were to become overexposed to
leveraged buy-outs or other loans.
INVESTMENT PRACTICES
- --------------------------------------------------------------------------------
The following investment practices apply to the portfolio investments of the
Trust and may be changed by the Trustees of the Trust without shareholder
approval, following written notice to shareholders.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust may purchase and sell interests in Senior Loans and other
securities in which the Trust may invest or dispose of on a when-issued or
delayed delivery basis; i.e., delivery and payment can take place more than 30
days after the date of the transaction. The interests or securities so purchased
or sold are subject to market fluctuation during this period and no interest
accrues to the purchaser prior to the date of settlement. At the time the Trust
makes the commitment to enter into a when-issued or delayed delivery
transaction, it will record the transaction and thereafter reflect the value,
each day, of such interest or security in determining the net asset value of the
Trust. At the time of delivery, the value of the interest or security may be
more or less than the purchase price. Since the Trust is dependent on the party
issuing the when-issued or delayed delivery security to complete the
transaction, failure by the other party to deliver the interest or security as
arranged would result in the Trust losing an investment opportunity. The Trust
will also establish a segregated account with its custodian bank in which it
will maintain cash or high quality debt securities equal in value to commitments
for such when-issued or delayed delivery interests or other securities; subject
to this requirement, the Trust may enter into transactions on such basis without
limit. The Investment Adviser and the Trustees do not believe that the Trust's
net asset value or income will be adversely affected by its purchase or sale of
interests or other securities on such basis.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Trust in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations of the Trust. These agreements, which may be
viewed as a type of secured lending by the Trust, typically involve the
acquisition by the Trust of debt securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Trust will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral"), which is
held by the Trust's custodian, at a specified price and at a fixed time in the
future, usually not more than seven days from the date of purchase. The Trust
will receive interest from the institution until the time when the
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<PAGE>
repurchase is to occur. Although such date is deemed by the Trust to be the
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Trust will follow procedures adopted by the
Trustees designed to minimize such risks. These procedures include effecting
repurchase transactions only with large, well-capitalized and well-established
financial institutions, whose financial condition will be continually monitored
by the Investment Adviser. In addition, the value of the collateral underlying
the repurchase agreement will be maintained at a level at least equal to the
repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, the Trust will seek to liquidate such collateral. However, the
exercising of the Trust's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Trust could suffer a loss. In addition, to the extent that the Trust's security
interest in the collateral may not be properly perfected, the Trust could suffer
a loss up to the entire amount of the collateral. It is the policy of the Trust
not to invest in repurchase agreements that do not mature within seven days if
any such investments amount to more than 10% of its total assets.
REVERSE REPURCHASE AGREEMENTS
The Trust may enter into reverse repurchase agreements with respect to debt
obligations which could otherwise be sold by the Trust. 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 (a
commercial bank or a broker or dealer) to sell the security back to the Trust at
an agreed upon price on an agreed upon date. The value of the underlying
securities will be at least equal at all times to the total amount of the resale
obligation, including the interest factor. Reverse repurchase agreements could
involve certain risks in the event of default or insolvency of the other party,
including possible 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. Reverse
repurchase agreements will be considered borrowings by the Trust and as such
would be subject to the restrictions on borrowing described below under
"Investment Restrictions." The Trust will not hold more than 5% of the value of
its total assets in reverse repurchase agreements.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Trust may lend its
portfolio securities to brokers, dealers and financial institutions, provided
that such loans are callable at any time by the Trust (subject to notice
provisions described below), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least 102% of the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Trust
continues to receive the income on collateral, which will be invested in
short-term obligations. The Trust will not lend its portfolio securities if such
loans are not permitted by the laws or regulations of any state in which its
shares are qualified for sale and will not lend more than 25% of the value of
its total assets.
A loan may be terminated by the borrower on one business day's notice, or by
the Trust on four business days' notice. If the borrower fails to deliver the
loaned securities within four days after receipt of notice, the Trust could use
the collateral to replace the securities while holding the borrower liable for
any
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<PAGE>
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will be made only to firms deemed by the
Investment Adviser to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks. Upon termination of the loan, the
borrower is required to return the securities to the Trust. Any gain or loss in
the market price during the loan period would inure to the Trust. The
creditworthiness of firms to which the Trust lends its portfolio securities will
be monitored on an ongoing basis by the Investment Adviser pursuant to
procedures adopted and reviewed, on an ongoing basis, by the Trustees of the
Trust.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Trust will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Trust's investment
in such loaned securities. The Trust will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
BORROWING
The Trust may borrow money from a bank for temporary or emergency purposes
or to effect a tender offer for its Shares provided that immediately after such
borrowing the amount borrowed does not exceed 33 1/3% of the value of its total
assets (including the amount borrowed) less its liabilities (not including any
borrowings but including the fair market value at the time of computation of any
other senior securities then outstanding). If, due to market fluctuations or
other reasons, the value of the Trust's assets falls below the foregoing
required coverage requirement, the Trust, within three business days, will
reduce its bank debt to the extent necessary to comply with such requirement. To
achieve such reduction, it is possible that the Trust may be required to sell
portfolio securities at a time when it may be disadvantageous to do so.
Borrowings other than for temporary or emergency purposes would involve
additional risk to the Trust, since the interest expense may be greater than the
income from or appreciation of the interests carried by the borrowing. The Trust
may be required to maintain minimum average balances in connection with
borrowings or to pay a commitment or other fee to maintain a line of credit.
Either of these requirements will increase the cost of borrowing over the stated
interest rate. Investment activity will continue while the borrowing is
outstanding. The purchase of additional interests while any borrowing is
outstanding involves the speculative factor known as "leverage," which will
increase the Trust's exposure to capital risk.
HEDGING AND RISK MANAGEMENT TRANSACTIONS
The Trust is authorized to engage in various interest rate hedging
transactions and risk management transactions, including interest rate swaps and
the purchase and sale of interest rate caps and floors. These techniques are
described in Appendix A. The Trust does not, however, presently intend to engage
in such hedging and risk management transactions, and, if the Trust is offering
its Shares, will not do so unless and until the Trust's prospectus is revised to
reflect this change.
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below have been adopted by the Trust as
fundamental policies, which may not be changed without the vote of a majority,
as defined in the 1940 Act, of the outstanding voting securities of the Trust.
All other investment policies or practices, other than the Trust's investment
policy with respect to Senior Loans, are considered by the Trust not to be
fundamental and accordingly may be changed without shareholder approval. All
percentage limitations apply immediately after a purchase or initial investment,
and any subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total or net assets does not
require elimination of any security from the portfolio.
The Trust may not:
1. Invest more than 25% of the Trust's total assets in the securities of
any one issuer or, with respect to 50% of the Trust's total assets, purchase any
securities (other than obligations issued or guaranteed by the United States
Government or by its agencies or instrumentalities), if as a result more than 5%
of the Trust's total assets would then be invested in securities of a single
issuer or if as a result the Trust would hold more than 10% of the outstanding
voting securities of any single issuer. For purposes of this restriction and
restriction number two, the Trust will consider a Borrower to be the issuer of a
Participation and, with respect to Participations under which the Trust does not
have privity with the Borrower or would not have a direct cause of action
against the Borrower in the event of its failure to pay scheduled principal or
interest, the Trust will also separately meet the requirements contained in this
investment restriction and consider each person interpositioned between the
Borrower and the Trust to be an issuer of the Participation.
2. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry (the electric, gas, water and telephone utility
industries will be treated as separate industries for purposes of this
restriction); provided that this limitation shall not apply with respect to
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities; and provided further that the Trust will (once at least 80%
of the Trust's assets are invested in Senior Loans) invest more than 25% and may
invest up to 100% of its total assets in securities of issuers in the industry
group consisting of financial institutions and their holding companies,
including commercial banks, thrift institutions, insurance companies and finance
companies. (See restriction number one for the definition of issuer for purposes
of this restriction.)
3. Invest in common stock, except that the Trust may acquire warrants or
other equity securities incidental to the purchase of an interest in a Senior
Loan.
4. Invest in securities of any issuer if, to the knowledge of the Trust,
any officer or trustee of the Trust or any officer or director of the Investment
Adviser or DWR owns more than 1/2 of 1% of the outstanding securities of such
issuer, and such officers, trustees and directors who own more than 1/2 of 1%
own in the aggregate more than 5% of the outstanding securities of such issuer.
5. Purchase or sell real estate or interests therein, commodities or
commodity contracts except pursuant to the exercise by the Trust of its rights
under Loan Agreements, except to the extent the
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<PAGE>
interest in Senior Loans the Trust may invest in are considered to be interests
in real estate, commodities or commodities contracts and except to the extent
that hedging instruments the Trust may invest in are considered to be
commodities or commodities contracts.
6. Purchase oil, gas or other mineral leases, rights or royalty contracts,
or exploration or development programs, except pursuant to the exercise by the
Trust of its rights under Loan Agreements. In addition, the Trust may purchase
securities of issuers which deal in, represent interests in or are secured by
interests in such leases, rights or contracts.
7. Write, purchase or sell puts, calls or combinations thereof, except for
options on futures contracts or options on debt securities.
8. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets or, by
purchase in the open market of securities of closed-end investment companies
where no underwriter's or dealer's commission or profit, other than customary
broker's commissions, is involved and only if immediately thereafter not more
than: (a) 5% of the Trust's total assets would be invested in any one such
company and (b) 10% of the Trust's total assets would be invested in such
securities. The Trust will rely on representations of Borrowers in Loan
Agreements in determining whether such Borrowers are investment companies.
9. Borrow money, except that the Trust may borrow from a bank for temporary
or emergency purposes or for the repurchase of Shares, provided that immediately
after such borrowing the amount borrowed does not exceed 33 1/3% of the value of
its total assets (including the amount borrowed) less its liabilities (not
including any borrowings but including the fair market value at the time of
computation of any other senior securities which are outstanding at the time).
10. Pledge, mortgage or hypothecate its assets or assign or otherwise
encumber them, except to secure borrowings effected within the limitations set
forth in Restriction 9 (and then only to the extent of 33 1/3% of the value of
the Trust's total assets) and except pursuant to reverse repurchase agreements
as provided in this Prospectus. However, for the purpose of this restriction,
collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial margin for futures are not deemed to be
pledges of assets.
11. Issue senior securities, as defined in the 1940 Act, except insofar as
the Trust may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; (c) entering into the hedging
transactions described in this prospectus, including Appendix A; (d) borrowing
money in accordance with restrictions described above; or (e) lending portfolio
securities.
12. Make loans of money or securities, except: (a) by acquiring interests in
Senior Loans and making other permitted investments in accordance with its
investment objective; (b) by entering into repurchase agreements (provided that
no more than 10% of the Trust's total assets will be invested in repurchase
agreements that do not mature within seven days) or reverse repurchase
agreements; and (c) by lending its portfolio securities (provided that the Trust
may not lend its portfolio securities in excess of 25% of its total assets).
13. Make short sales of securities.
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<PAGE>
14. Purchase securities on margin. Neither the deposit of initial or
variation margin in connection with hedging transactions nor short-term credits
as may be necessary for the clearance of such transactions is considered the
purchase of a security on margin.
15. Engage in the underwriting of securities, except to the extent the Trust
may be deemed to be an underwriter in connection with the sale of or granting of
interests in Senior Loans or other securities acquired by the Trust.
16. Make investments for the purpose of exercising control or management of
any other issuer, except to the extent that exercise by the Trust of its rights
under Loan Agreements would be deemed to constitute such control or
participation.
The Trust generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as it
deems advisable in view of prevailing or anticipated market conditions to
accomplish the Trust's investment objective. For example, the Trust may sell
portfolio securities in anticipation of a movement in interest rates. Frequency
of portfolio turnover will not be a limiting factor if the Trust considers it
advantageous to purchase or sell securities. The Trust anticipates that the
annual portfolio turnover rate of the Trust will be less than 100%. A high rate
of portfolio turnover involves correspondingly greater expenses than a lower
rate, which expenses must be borne by the Trust and its shareholders. High
portfolio turnover also may result in the realization of substantial net
short-term capital gains. In order to continue to qualify as a regulated
investment company for federal income tax purposes, less than 30% of the annual
gross income of the Trust must be derived from the sale of securities held by
the Trust for less than three months. See "Taxation."
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TRUSTEES AND OFFICERS
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The Trustees and Executive Officers of the Trust and their principal
occupations for at least the last five years and their affiliations, if any,
with InterCapital and with the 80 Dean Witter Funds and the 12 TCW/DW Funds are
shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Jack F. Bennett (71) ................................... Retired; Director or Trustee of the Dean Witter Funds;
Trustee formerly Senior Vice President and Director of Exxon
c/o Gordon Altman Butowsky Weitzen Corporation (1975-1989) and Under Secretary of the U.S.
Shalov & Wein Treasury for Monetary Affairs (1974-1975); Director of
Counsel to the Independent Trustees Philips Electronics N.V., Tandem Computers Inc. and
114 West 47th Street Massachusetts Mutual Insurance Co.; director or trustee
New York, New York of various not-for-profit and business organizations.
Michael Bozic (54) ..................................... Chairman and Chief Executive Officer of Levitz Fur-
Trustee niture Corporation (since November, 1995); Director or
c/o Levitz Furniture Corporation Trustee of the Dean Witter Funds; formerly President and
6111 Broken Sound Parkway, N.W. Chief Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 1991-July, 1995); formerly Chairman and Chief Executive
Officer (January, 1987-August, 1990) and President and
Chief Operating Officer (August, 1990-February, 1991) of
the Sears Merchandise Group of Sears, Roebuck and Co.;
Director of Eaglemark Financial Services, Inc.; the
United Negro College Fund, Weirton Steel Corporation and
Domain Inc. (home decor retailer).
Charles A. Fiumefreddo* (62) ........................... Chairman, Chief Executive Officer and Director of
Chairman of the Board, InterCapital, Distributors and DWSC; Director and
President and Chief Executive Officer Executive Vice President of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of the
New York, New York Dean Witter Funds; Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Chairman and Director of
Dean Witter Trust Company ("DWTC"); Director and/or
officer of various DWDC subsidiaries; formerly Executive
Vice President and Director of DWDC (until February
1993).
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Edwin J. Garn (63) ..................................... Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman Chemical Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1971-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice Chair-
man, Huntsman Chemical Corporation (since January,
1993); Director of Franklin Quest (time management
systems) and John Alden Financial Corp.; Member of the
board of various civic and charitable organizations.
John R. Haire (70) ..................................... Chairman of the Audit Committee and Chairman of the
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Trustee of
New York, New York the TCW/DW Funds, formerly President, Council for Aid to
Education (1978-1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an investment adviser
(1964-1978); Director of Washington National Corporation
(insurance).
Dr. Manuel H. Johnson (46) ............................. Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm (since June, 1985); Koch Professor of
c/o Johnson Smick International, Inc. International Economics and Director of the Center for
1133 Connecticut Avenue, N.W. Global Market Studies at George Mason University (since
Washington, D.C. September, 1990); Co-Chairman and a founder of the Group
of Seven Council (G7C), an international economic
commission (since September, 1990); Director or Trustee
of the Dean Witter Funds; Trustee of the TCW/DW Funds;
Director of NASDAQ (since June, 1995); Director of
Greenwich Capital Markets Inc. (broker-dealer); formerly
Vice Chairman of the Board of Governors of the Federal
Reserve System (February, 1986-August, 1990) and
Assistant Secretary of the U.S. Treasury (1982-1986).
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Paul Kolton (72) ....................................... Director or Trustee of the Dean Witter Funds; Chairman
Trustee of the Audit Committee and Chairman of the Committee of
c/o Gordon Altman Butowsky Weitzen the Independent Trustees and Trustee of the TCW/DW
Shalov & Wein Funds; formerly Chairman of the Financial Accounting
Counsel to the Independent Trustees Standards Advisory Council and Chairman and Chief
114 West 47th Street Executive Officer of the American Stock Exchange;
New York, New York Director of UCC Investors Holding Inc. (Uniroyal
Chemical Company, Inc.); director or trustee of various
not-for-profit organizations.
Michael E. Nugent (59) ................................. General Partner, Triumph Capital, L.P., a private
Trustee investment partnership (since 1988); Director or Trustee
c/o Triumph Capital, L.P. of the Dean Witter Funds; Trustee of the TCW/DW Funds;
237 Park Avenue formerly Vice President, Bankers Trust Company and BT
New York, New York Capital Corporation (1984-1988); director of various
business organizations.
Philip J. Purcell* (52) ................................ Chairman of the Board of Directors and Chief Executive
Trustee Officer of DWDC, DWR and Novus Credit Services Inc.;
Two World Trade Center Director of InterCapital, DWSC and Distributors;
New York, New York Director or Trustee of the Dean Witter Funds; Director
and/or officer of various DWDC subsidiaries.
John L. Schroeder (65) ................................. Retired; Director or Trustee of the Dean Witter Funds;
Trustee Trustee of the TCW/DW Fund; Director of Citizens
c/o Gordon Altman Butowsky Weitzen Utilities Company; formerly, Executive Vice President
Shalov & Wein and Chief Investment Officer of the Home Insurance
Counsel to the Independent Trustees Company (August, 1991-September, 1995); formerly
114 West 47th St. Chairman and Chief Investment Officer of Axe-Houghton
New York, New York Management and the Axe-Houghton Funds (April, 1983-June,
1991) and President of USF&G Financial Services, Inc.
(June, 1990-June, 1991).
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Sheldon Curtis (63) .................................... Senior Vice President, Secretary and General Counsel of
Vice President, Secretary and General Counsel InterCapital and DWSC; Senior Vice President, Assistant
Two World Trade Center Secretary and Assistant General Counsel of Distributors;
New York, New York Senior Vice President and Secretary of DWTC; Assistant
Secretary of DWR; Vice President, Secretary and General
Counsel of the Dean Witter Funds and the TCW/ DW Funds.
Rafael Scolari (38) .................................... Vice President of InterCapital (since April, 1994);
Vice President formerly, a Portfolio Manager of AIMCO (January,
Two World Trade Center 1990-February, 1993).
New York, New York
Thomas F. Caloia (49) .................................. First Vice President (since May, 1991) and Assistant
Treasurer Treasurer (since January 1993) of InterCapital; First
Two World Trade Center Vice President and Assistant Treasurer of DWSC and
New York, New York Treasurer of the Dean Witter Funds and the TCW/DW Funds;
previously Vice President of InterCapital.
<FN>
- ------------------------
* Denotes Trustees who are "interested persons" of the Trust, as defined in
the 1940 Act.
</TABLE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, David A. Hughey, Executive Vice President and Chief
Administrative Officer of InterCapital, DWSC, Distributors and DWTC and Director
of DWTC, Edmund C. Puckhaber, Executive Vice President of InterCapital and
Director of DWTC, Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC, Distributors and DWTC and Joseph J. McAlinden, Senior Vice President of
InterCapital, are Vice Presidents of the Trust, and Marilyn K. Cranney and Barry
Fink, First Vice Presidents and Assistant General Counsels of InterCapital and
DWSC, Lou Anne D. McInnis and Ruth Rossi, Vice Presidents and Assistant General
Counsels of InterCapital and DWSC, and Carsten Otto, a Staff Attorney with
InterCapital, are Assistant Secretaries of the Trust.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of ten (10) trustees. These same individuals
also serve as directors or trustees for all of the Dean Witter Funds, and are
referred to in this section as Trustees. As of the date of this Prospectus,
there are a total of 79 Dean Witter Funds, comprised of 119 portfolios. As of
November 30, 1995, the Dean Witter Funds had total net assets of approximately
$70.9 billion and more than five million shareholders.
31
<PAGE>
Eight Trustees (80% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own any
stock or other securities issued by InterCapital's parent company, DWDC. These
are the "disinterested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with InterCapital. Five of the eight
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1994,
the three Committees held a combined total of eleven meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEES
The Chairman of the Committees maintains an office at the Funds'
headquarters in New York. He is responsible for keeping abreast of regulatory
and industry developments and the Funds' operations and management. He screens
and/or prepares written materials and identifies critical issues for the
Independent Trustees to consider, develops agendas for Committee meetings,
determines the type and amount
32
<PAGE>
of information that the Committees will need to form a judgment on various
issues, and arranges to have that information furnished to Committee members. He
also arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of all
three Committees and guides their efforts is pivotal to the effective
functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Manager and other service providers. In effect,
the Chairman of the Committees serves as a combination of chief executive and
support staff of the Independent Trustees.
The Chairman of the Committees is not employed by any other organization and
devotes his time primarily to the services he performs as Committee Chairman and
Independent Trustee of the Dean Witter Funds and as an Independent Trustee of
the TCW/DW Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees, and a Chairman of their Committees,
of the caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 ($1,200 prior
to October 1, 1995) plus a per meeting fee of $50 for meetings of the Board of
Trustees or committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an annual fee of $750 ($1,000
prior to January 1, 1995) and pays the Chairman of the Committee of the
Independent Trustees an additional annual fee of $2,400, in each case inclusive
of the Committee meeting fees). The Fund also reimburses such Trustees for
travel and other out-of-pocket expenses incurred by them in connection with
attending such meetings. Trustees and officers of the Fund who are or have been
employed by the Investment Manager or an affiliated company receive no
compensation or expense reimbursement from the Fund.
The Fund has adopted a retirement program under which an Independent Trustee
who retires after serving for at least five years (or such lesser period as may
be determined by the Board) as an Independent Director or Trustee of any Dean
Witter Fund that has adopted the retirement program (each such Fund referred to
as an "Adopting Fund" and each such Trustee referred to as an "Eligible
Trustee")
33
<PAGE>
is entitled to retirement payments upon reaching the eligible retirement age
(normally, after attaining age 72). Annual payments are based upon length of
service. Currently, upon retirement, each Eligible Trustee is entitled to
receive from the Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 28.75% of his or her Eligible Compensation plus
0.4791666% of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years up
to a maximum of 57.50% after ten years of service. The foregoing percentages may
be changed by the Board. (1) "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Fund in the five
year period prior to the date of the Eligible Trustee's retirement. Benefits
under the retirement program are not secured or funded by the Fund. As of the
date of this Prospectus, 58 Dean Witter Funds have adopted the retirement
program.
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
34
<PAGE>
The following table illustrates the compensation paid and the retirement
benefits accrued to the Fund's Independent Trustees by the Fund for the fiscal
year ended September 30, 1995 and the estimated retirement benefits for the
Fund's Independent Trustees as of September 30, 1995.
<TABLE>
<CAPTION>
FUND COMPENSATION ESTIMATED RETIREMENT BENEFITS
------------------------------- -------------------------------------------------------------------
ESTIMATED ESTIMATED
RETIREMENT CREDIT YEARS ESTIMATED ANNUAL
AGGREGATE BENEFITS OF SERVICE AT PERCENTAGE OF ESTIMATED BENEFITS
NAME OF INDEPENDENT COMPENSATION ACCRUED AS RETIREMENT ELIGIBLE ELIGIBLE UPON
TRUSTEE FROM THE FUND FUND EXPENSES (MAXIMUM 10) COMPENSATION COMPENSATION(2) RETIREMENT(3)
- -------------------- -------------- -------------- ---------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack F. Bennett..... $ 1,950 $ 1,344 8 46.0% $2,229 1$,025
Michael Bozic....... 1,900 341 10 57.5 1,950 1,121
Edwin J. Garn....... 2,000 646 10 57.5 1,950 1,121
John R. Haire....... 4,350(4) 3,128 10 57.5 5,152 2,962
Dr. Manuel H.
Johnson............ 2,000 258 10 57.5 1,950 1,121
Paul Kolton......... 2,000 1,370 10 57.0 2,445 1,394
Michael E. Nugent... 1,850 453 10 57.5 1,950 1,121
John L. Schroeder... 1,850 670 8 47.9 1,950 934
</TABLE>
- --------------------------
(2) Based on current levels of compensation.
(3) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
(4) Of Mr. Haire's compensation from the Fund, $3,400 was paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($1,000).
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1994 for services
to the 73 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Kolton
and Nugent, the 13 TCW/DW Funds that were in operation at December 31, 1994.
With respect to Messrs. Haire, Johnson, Kolton and Nugent, the TCW/DW Funds are
included solely because of a limited exchange privilege between those Funds and
five Dean Witter Money Market Funds. Mr. Schroeder was elected as a Trustee of
the TCW/DW Funds on April 20, 1995.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS TOTAL CASH
FOR SERVICE CHAIRMAN OF COMPENSATION
AS DIRECTOR OR COMMITTEES OF FOR SERVICES
TRUSTEE AND FOR SERVICE AS INDEPENDENT TO
COMMITTEE MEMBER TRUSTEE AND DIRECTORS/ 73 DEAN
OF 73 DEAN COMMITTEE MEMBER TRUSTEES AND WITTER
WITTER OF 13 TCW/DW AUDIT FUNDS AND 13
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Jack F. Bennett............ $125,761 -- -- $125,761
Michael Bozic.............. 82,637 -- -- 82,637
Edwin J. Garn.............. 125,711 -- -- 125,711
John R. Haire.............. 101,061 $66,950 $225,563(5) 393,574
Dr. Manuel H. Johnson...... 122,461 60,750 -- 183,211
Paul Kolton................ 128,961 51,850 34,200(6) 215,011
Michael E. Nugent.......... 115,761 52,650 -- 168,411
John L. Schroeder.......... 85,938 -- -- 85,938
</TABLE>
- --------------------------
(5) For the 73 Dean Witter Funds.
(6) For the 13 TCW/DW Funds.
35
<PAGE>
As of the date of this Prospectus, the aggregate number of shares of
beneficial interest of the Fund owned by the Fund's officers and Trustees as a
group was less than 1 percent of the Fund's shares of beneficial interest
outstanding.
INVESTMENT ADVISORY AGREEMENT
- --------------------------------------------------------------------------------
The Trust has retained the Investment Adviser to manage the Trust's assets,
including the placing of orders for the purchase and sale of portfolio
securities, pursuant to an Investment Advisory Agreement with InterCapital (the
"Advisory Agreement"). See "The Trust and Its Adviser" for a detailed
description of the Advisory Agreement.
The Investment Adviser obtains and evaluates such information and advice
relating to the economy, securities markets, and specific securities as it
considers necessary or useful to manage continuously the assets of the Trust in
a manner consistent with its investment objective and policies. The Trust's
Board of Trustees reviews the various services provided by the Investment
Adviser to ensure that the Trust's general investment policies and programs are
being properly carried out. Under the terms of the Advisory Agreement, the
Investment Adviser pays the salaries of all personnel, including officers of the
Trust, who are employees of the Investment Adviser.
Expenses not expressly assumed by the Investment Adviser under the Advisory
Agreement will be paid by the Trust. The expenses borne by the Trust include,
but are not limited to: charges and expenses of any registrar, custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes; engraving
and printing of share certificates; registration costs of the Trust's Shares in
this continuous offering under federal and state securities laws; all expenses
of shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees or
retired employees of the Investment Adviser or any corporate affiliate thereof;
all expenses incident to any dividend or distribution program; charges and
expenses of any outside service used for pricing of the Trust's investments;
fees and expenses of legal counsel, including counsel to the Trustees who are
not interested persons of the Trust or of the Investment Adviser (not including
compensation or expenses of attorneys who are employees of the Investment
Adviser) and independent accountants; membership dues of industry associations;
interest on Trust borrowings; fees and expenses incident to Trust borrowings;
postage; insurance premiums on property or personnel (including officers and
trustees) of the Trust which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Trust's operation.
As full compensation for the services furnished to the Trust, the Trust pays
InterCapital pursuant to the Advisory Agreement, monthly compensation calculated
daily at an annual rate of 0.90% of average daily net assets on assets of the
Trust up to $500 million and at an annual rate of 0.85% of average daily net
assets on assets of the Trust exceeding $500 million. The Trust paid AIMCO, the
former investment adviser under the previous advisory agreement, monthly
compensation calculated daily by applying the annual rate of 1.0% to the Trust's
average daily net assets up to $500 million and 0.95% on average daily net
assets over $500 million. The sum of this fee and the administration fee is
higher than that paid by most other investment companies. See "Administrator and
Administration Agreement." For the fiscal year ended September 30, 1995, the
Trust accrued to InterCapital total compensation of $3,526,906. For
36
<PAGE>
the fiscal year ended September 30, 1994, the Trust accrued to InterCapital
total compensation of $2,586,181. For the fiscal year ended September 30, 1993,
the Trust accrued to AIMCO (for the period October 1, 1992 through February 28,
1993) total compensation under the prior Advisory Agreement of $1,683,031 and to
InterCapital (for the period March 1, 1993 through September 30, 1993) total
compensation under the new Advisory Agreement of $1,874,994 for a total of
$3,558,025.
The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Adviser is not liable to the Trust or any of its shareholders for
any act or omission by the Investment Adviser or for any losses sustained by the
Trust or its shareholders. The Advisory Agreement in no way restricts the
Investment Adviser from acting as investment manager or adviser to others.
The Advisory Agreement with AIMCO was initially approved by the Trustees on
October 10, 1989, by AIMCO as the then sole shareholder on November 20, 1989 and
by the Trust's shareholders at a Meeting of Shareholders on June 19, 1991. The
Advisory Agreement with AIMCO was terminated effective March 1, 1993.
The Advisory Agreement may be terminated at any time, without penalty, on 30
days notice by the Trustees of the Trust, by the holders of a majority, as
defined in the 1940 Act, of the outstanding Shares of the Trust, or by the
Investment Adviser. The Advisory Agreement will automatically terminate in the
event of its assignment (as defined in the 1940 Act).
Under its terms, the Advisory Agreement with InterCapital had an initial
term ending April 30, 1994, and provides that it will continue from year to year
thereafter, provided continuance of the Advisory Agreement is approved at least
annually by the vote of the holders of a majority (as defined in the 1940 Act)
of the outstanding voting securities of the Trust, or by the Trustees of the
Trust; provided that in either event such continuance is approved annually by
the vote of a majority of the Trustees of the Trust who are not parties to the
Advisory Agreement or "interested persons" (as defined in the 1940 Act) of any
such party (the "Independent Trustees"), which vote must be cast in person at a
meeting called for the purpose of voting on such approval. At their meeting held
on April 20, 1995, the Trust's Board of Trustees, including all the Independent
Trustees, approved continuation of the Investment Advisory Agreement until April
30, 1996.
Under the Investment Advisory Agreement, the Investment Adviser has agreed
to reimburse the Trust to the extent that the Trust's annual ordinary expenses
exceed the most stringent limits prescribed by any state in which the Trust's
Shares are offered for sale. Currently the most restrictive applicable
limitations provide that the Trust's expenses may not exceed an annual rate of
2.0% of the first $100 million of average net assets and 1 1/2% of assets in
excess of that amount. Expenses which are not subject to this limitation are
interest, taxes, amortization of organizational expenses and extraordinary
expenses. During the fiscal years ended September 30, 1995, 1994, and 1993, the
Trust did not exceed the foregoing expense limitation.
37
<PAGE>
ADMINISTRATOR AND ADMINISTRATION AGREEMENT
- --------------------------------------------------------------------------------
On December 31, 1993, InterCapital effected an internal reorganization
pursuant to which certain administrative activities previously performed by
InterCapital would instead be performed by Dean Witter Services Company Inc.
(the "Administrator" or "DWSC"), a wholly-owned subsidiary of InterCapital.
Accordingly, the Administration Agreement between InterCapital and the Trust was
terminated and a new Administration Agreement between the Administrator and the
Trust was entered into. The foregoing internal reorganization did not result in
any change of the management of the Trust's Administrator. The nature and scope
of the adminstrative services being provided to the Trust or any of the fees
being paid by the Trust under the new Administration Agreement are identical to
those of the previous Agreement. The term "Administrator" refers to InterCapital
prior to this reorganization and to DWSC after December 31, 1993. Dean Witter
Distributors Inc., the Distributor of the Trust's shares, is an affiliate of
InterCapital and DWSC and a wholly-owned subsidiary of DWDC.
In an earlier internal reorganization which took place in January, 1993,
DWR's investment company-related operations, pursuant to which the
administration activities that had been performed by DWR's InterCapital Division
were assumed by the then new company, Dean Witter InterCapital Inc., and the
share distribution activities that had been performed by DWR were assumed by a
separate new company, Dean Witter Distributors Inc. InterCapital refers to the
InterCapital Division of DWR prior to the internal reorganization and to Dean
Witter InterCapital Inc. after the reorganization. This internal reorganization
did not result in a change of management of the Administrator or Distributor.
Under the terms of the Administration Agreement, the Administrator maintains
certain of the Trust's books and records and furnishes, at its own expense, such
office space, facilities, equipment, clerical help, and bookkeeping and certain
legal services as the Trust may reasonably require in the conduct of its
business, including the preparation of proxy statements and reports required to
be filed with federal and state securities commissions (except insofar as the
participation or assistance of independent accountants and attorneys is, in the
opinion of the Administrator, necessary or desirable). In addition, the
Administrator pays the salaries of all personnel, including officers of the
Trust who are employees of the Administrator. The Administrator also bears the
cost of telephone service, heat, light, power and other utilities provided to
the Trust.
As full compensation for the services and facilities furnished to the Trust
and expenses of the Trust assumed by the Administrator, the Trust pays the
Administrator monthly compensation calculated daily by applying the annual rate
of 0.25% to the Trust's average daily net assets. The sum of this fee and the
investment advisory fee is higher than that paid by most other investment
companies. See "Investment Advisory Agreement." During the fiscal year ended
September 30, 1995, total accrued compensation amounted to $979,775. During the
fiscal year ended September 30, 1994, total accrued compensation amounted to
$718,384, of which $523,831 was paid to DWSC and $194,553 was paid to
InterCapital. During the fiscal year ended September 30, 1993, the Trust accrued
to InterCapital total compensation under the Administration Agreement of
$941,589.
The Administration Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Administrator is not liable to the Trust or any of
its shareholders for any act or omission by the Administrator or for any losses
sustained by the Trust or its shareholders. The Administration Agreement in no
way restricts the Administrator from acting as administrator or investment
manager or adviser to others.
38
<PAGE>
The Administration Agreement was initially approved by the Trustees on
October 10, 1989, by the Investment Adviser as the sole shareholder on November
20, 1989 and by the Trust's shareholders at a Meeting of Shareholders on June
19, 1991. At their meeting held on October 30, 1992, the Trustees of the Trust
including all the Trustees of the Trust who are not parties to the
Administration Agreement or "interested persons" (as defined in the Act) of any
such party (the "Independent Trustees"), approved the assumption by InterCapital
of DWR's rights and duties under the Administration Agreement, which assumption
took place upon the reorganization described above. The Administration Agreement
may be terminated at any time, without penalty, on thirty days notice by the
Trustees of the Trust, by the holders of a majority, as defined in the 1940 Act,
of the outstanding Shares of the Trust, or by the Administrator. The
Administration Agreement will automatically terminate in the event of its
assignment (as defined in the 1940 Act).
Under its terms, the new Administration Agreement with DWSC, which took
effect on January 1, 1994, had an initial term ending April 30, 1994, and
provides that it will continue from year to year thereafter, provided
continuance of the Administration Agreement is approved at least annually by the
vote of the holders of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Trust, or by the Trustees of the Trust;
provided that in either event such continuance is approved annually by the vote
of a majority of the Independent Trustees, which vote must be cast in person at
a meeting called for the purpose of voting on such approval. On April 17, 1995,
DWSC was reincorporated in the State of Delaware, necessitating the entry into a
new Administration Agreement with the Trust. At their meeting held on April 20,
1995, the Trustees, including all of the Independent Trustees, approved the
continuation of the Administration Agreement until April 30, 1996.
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the Investment
Adviser is responsible for decisions to buy and sell interests in Senior Loans
and other securities and effect hedging transactions for the Trust, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. With respect to interests in Senior Loans, the
Trust generally will engage in privately negotiated transactions for their
purchase or sale in which the Investment Adviser will negotiate on behalf of the
Trust. The Trust may be required to pay fees, or forgo a portion of interest and
any fees payable to the Trust, to the Selling Participant or the entity selling
an Assignment to the Trust. The Investment Adviser will determine the Lenders
and Selling Participants from whom the Trust will purchase Assignments and
Participations by considering their professional ability, level of service,
relationship with the Borrower, financial condition, credit standards and
quality of management. The secondary market for interests in Senior Loans is
relatively illiquid. Although the Trust intends generally to hold interests in
Senior Loans until maturity or prepayment of the Senior Loan, such illiquidity
may restrict the ability of the Investment Adviser to locate in a timely manner
persons willing to purchase the Trust's interests in Senior Loans at a fair
price should the Trust desire to sell such interests. See "Investment Objective
and Policies."
With respect to portfolio securities other than Senior Loans, the Trust
expects that the primary market for the securities in which it intends to invest
will generally be the over-the-counter market. Such securities are generally
traded in the over-the-counter market on a "net" basis with dealers acting as
principal for their own accounts without charging a stated commission, although
the price of the security usually includes a profit to the dealer. The Trust
also expects that securities will be purchased at times in
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underwritten offerings, where the price includes a fixed amount of compensation,
generally referred to as the underwriter's concession or discount. On occasion,
the Trust may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid. During the fiscal
years ended September 30, 1995, 1994 and 1993, the Trust did not pay any
brokerage commissions.
The policy of the Trust regarding purchases and sales of Senior Loans and
securities and futures contracts for its portfolio is that primary consideration
will be given to obtaining the most favorable prices and efficient execution of
transactions. In seeking to implement the Trust's policies, the Investment
Adviser will effect transactions with those banks, brokers and dealers which the
Investment Adviser believes provide the most favorable prices and who are
capable of providing efficient executions. If the Investment Adviser believes
such price and execution are obtainable from more than one bank, broker or
dealer, it may give consideration to placing portfolio transactions with those
banks, brokers and dealers who also furnish research and other services to the
Trust or the Investment Adviser. Such services may include, but are not limited
to, any one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or opinions
pertaining to investment; wire services; and appraisals or evaluations of
portfolio securities.
The information and services received by the Investment Adviser from banks,
brokers and dealers may be of benefit to the Investment Adviser and its
affiliates in the management of other accounts and may not in all cases benefit
the Trust directly. While the receipt of such information and services is useful
in varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Adviser and thus reduce its expenses, it
is of indeterminable value and the advisory fee paid to the Investment Adviser
is not reduced by any amount that may be attributable to the value of such
services.
Consistent with the policy described above, brokerage transactions in
securities and futures contracts listed on exchanges or admitted to unlisted
trading privileges may be effected through DWR. In order for DWR to effect
portfolio transactions of the Trust, the commissions, fees or other remuneration
received by DWR must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on an exchange
during a comparable period of time. This standard would allow DWR to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker in a commensurate arm's-length transaction. Furthermore, the
Trustees of the Trust, including a majority of the Independent Trustees, have
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to DWR are consistent with the
foregoing standard.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of the Trust's Shares is determined by
calculating the total value of the Trust's assets, deducting its total
liabilities, and dividing the result by the number of Shares outstanding. The
net asset value will be computed as of 4:00 p.m. New York time on each business
day on which the New York Stock Exchange is open for trading (or on days when
the New York Stock Exchange closes prior to 4:00 p.m., at such earlier time).
The Trust reserves the right to calculate the net asset value more frequently if
deemed desirable.
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The Board of Trustees believes that, at present, there are not sufficient
market quotations provided by banks, dealers, or pricing services respecting
interests in Senior Loans to enable the Trust to value Senior Loans based on
available market quotations therefor. Accordingly, until the market for Senior
Loans develops to the point where sufficient market quotations respecting
interests in Senior Loans become available, interests in Senior Loans held by
the Trust will be valued at their fair value in accordance with procedures
established in good faith by the Board of Trustees of the Trust. Under the
procedures adopted by the Board of Trustees, interests in Senior Loans will be
priced in accordance with a matrix which takes into account the relationship
between the then current interest rate and interest rates payable on each Senior
Loan, as well as the total number of days in each interest period and the period
remaining until next interest rate determination or maturity of the Senior Loan.
Adjustments in the matrix-determined price of a Senior Loan will be made in the
event of a default on a Senior Loan or a significant change in the
creditworthiness of the Borrower and may also be required in the event of
changes in pricing parameters for newly issued Senior Loans (e.g., interest
rates are set at a higher or lower margin above the base lending rate than were
Senior Loans in the Trust's portfolio). In assessing the creditworthiness of a
Borrower, the primary focus will be on the ability and intent of the Borrower to
continue to meet its principal and interest payment obligations specified under
the applicable Loan Agreement. Such factors as the Borrower's current and
projected cash flow relative to its debt service requirements and liquidity will
be considered in this regard. S&P and Moody's ratings of any outstanding
commercial paper of a Borrower may also be considered. The procedures will be
monitored by the Board of Trustees on an ongoing basis to insure that the values
arrived at continue to represent fair value. Should the Board of Trustees
determine in the future that the market for Senior Loans has developed to the
point where market quotations provided by banks, dealers or pricing services
respecting interests in Senior Loans could reliably serve as a basis for valuing
the Trust's portfolio securities, such quotations would be used as a basis for
valuing interests in Senior Loans held by the Trust. Other portfolio securities
traded in the over-the-counter market will be valued based upon closing bid
prices; provided, however, that short-term securities with remaining maturities
of less than 60 days will be valued at amortized cost. Other assets are valued
at fair value in accordance with procedures established in good faith by the
Board of Trustees of the Trust.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
It is the Trust's present policy, which may be changed by the Board of
Trustees, to declare daily and pay monthly dividends to shareholders from net
investment income of the Trust. Distributions to holders of Shares cannot be
assured, and the amount of each monthly distribution is expected to vary. The
Trust intends to distribute all of the Trust's net investment income on an
annual basis. Net investment income of the Trust consists of all interest income
and fee and other ordinary income earned by the Trust on its portfolio assets,
less all expenses of the Trust. The Trust will distribute its capital gains
(after offset for any available loss carryovers), if any, at least once per
year, but it may make such distributions on a more frequent basis to comply with
the distribution requirements of the Tax Reform Act of 1986, as amended, but in
all events in a manner consistent with the 1940 Act.
All dividends and capital gains distributions are reinvested automatically
in full and fractional Shares at the net asset value per Share determined on the
payable date of such dividend or distribution. A shareholder may, at any time,
by written notification to the Transfer Agent, elect to have subsequent
dividends or capital gains distributions, or both, paid in cash rather than
reinvested, in which event payment will be mailed on or about the payment date.
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TAXATION
- --------------------------------------------------------------------------------
Because the Trust intends to distribute all of its net investment income and
capital gains to shareholders and intends to otherwise comply with all the
provisions of Subchapter M of the Internal Revenue Code of 1986 (the "Code"), it
is not expected that the Trust will be required to pay any federal income tax on
such income and capital gains. If, however, any such capital gains are retained,
the Trust will pay federal income tax thereon. In such a case, the Trust may
make an election pursuant to which shareholders would have to include such
retained gains in their income but would be able to claim their share of the tax
paid by the Trust as a credit against their individual federal income tax.
Shareholders will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Trust.
Such dividends and distributions derived from net investment income or
short-term capital gains are taxable to the shareholders as ordinary income
regardless of whether the shareholder receives such distributions in additional
Shares or in cash. It is not expected that any portion of such dividends and
distributions will be eligible for the corporate dividends received deduction.
Long-term or short-term capital gains may be generated by the sale of
portfolio securities and by certain transactions in options and futures
contracts engaged in by the Trust. Distributions of long-term capital gains, if
any, are taxable to shareholders as long-term capital gains regardless of how
long a shareholder has held the Trust's shares and regardless of whether the
distribution is received in additional Shares or in cash. Capital gains
distributions are not eligible for the dividends-received deduction.
Any distribution in excess of the Trust's earnings and profits will first
reduce a shareholder's adjusted basis in his Shares to zero and, after such
basis is reduced to zero, will constitute gain to the shareholder from the sale
of Shares.
A holder of Shares who either sells his Shares or, pursuant to a tender
offer, tenders all Shares owned by such shareholder and any Shares considered
owned by such shareholder under attribution rules contained in the Code will
realize a taxable gain or loss depending upon such shareholder's basis in the
Shares. Such gain or loss will generally be treated as capital gain or loss and
will be long-term capital gain or loss if the Shares are held for more than one
year. However, any loss on a sale or exchange of Shares held for six months or
less will be treated as long-term capital loss to the extent of any long-term
capital gain distribution with respect to such Shares.
If a tendering holder of Shares tenders less than all Shares owned by or
attributed to such shareholder, and if the distribution to such shareholder does
not otherwise qualify as a payment in exchange for stock, the proceeds received
will be treated as a taxable dividend, return of capital or capital gain
depending on the Trust's earnings and profits and the shareholder's basis in the
tendered Shares. Also, if some tendering holders of Shares receive taxable
dividends, there is a risk that non-tendering holders of Shares may be
considered to have received a deemed distribution which may be a taxable
dividend in whole or in part.
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined, in general, on an October 31 year end,
plus certain undistributed amounts from previous years. The Trust anticipates
that it will make sufficient timely distributions to avoid imposition of the
excise tax. If the Trust pays a dividend in January
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which was declared in the previous calendar quarter to shareholders of record on
a date in such calendar quarter, then such dividend or distribution will be
treated for tax purposes as being paid in December and will be taxable to
shareholders as if received in December.
Any dividend or capital gains distribution received by a shareholder from an
investment company will have the effect of reducing the net asset value of the
shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the
distribution of realized long-term capital gains, such distribution would be in
part a return of the shareholder's investment to the extent of such reduction
below the shareholder's cost, but nonetheless would be taxable to the
shareholder. Therefore, an investor should consider the tax implications of
purchasing Shares immediately prior to a distribution record date.
The tax treatment of listed put and call options written or purchased by the
Trust on debt securities and of futures contracts entered into by the Trust will
generally be governed by Section 1256 of the Code, pursuant to which each such
position held by the Trust will be marked-to-market (i.e., treated as if it were
sold for fair market value) on the last business day of each taxable year of the
Trust, and all gain or loss associated with transactions in such positions will
be treated as 60% long-term capital gain or loss and 40% short-term capital gain
or loss. Positions of the Trust which consist of at least one debt security and
at least one option or futures contract which substantially diminishes the
Trust's risk of loss with respect to such debt security could be treated as
"mixed straddles" which are subject to the straddle rules of Section 1092 of the
Code, the operation of which may cause deferral of losses, adjustments in the
holding periods of debt securities and conversion of short-term capital losses
into long-term capital losses. Certain tax elections exist for mixed straddles
which reduce or eliminate the operation of the straddle rules. Furthermore, as a
regulated investment company, the Trust is subject to the requirement that less
than 30% of its gross income be derived from the sale or other disposition of
securities held for less than three months. This requirement may limit the
Trust's ability to engage in options and futures transactions. The Trust will
monitor its transactions in options and futures contracts and may make certain
tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Trust as a regulated investment company under Subchapter
M of the Code. Such tax elections may result in an increase in distributions of
ordinary income (relative to long-term capital gain) to shareholders.
The federal income tax treatment of interest rate swaps is not entirely
clear. The Trust may be required to treat payments received under such
arrangements as ordinary income and to amortize such payments under certain
circumstances. The Trust will limit its activity in this regard in order to
maintain its qualification as a regulated investment company.
After the end of each calendar year, shareholders will receive full
information on their dividends and capital gains distributions for tax purposes.
Shareholders who receive distributions of Shares which are automatically
reinvested will generally be viewed as receiving a distribution equal to the
fair market value of such Shares.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
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Ordinary income dividends and distributions paid by the Trust to
shareholders who are non-resident aliens will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Non-resident shareholders are
urged to consult their own tax advisers concerning the applicability of the
United States withholding tax.
The above discussion is only a brief summary of some of the significant tax
consequences of investing in the Trust. Shareholders should consult their tax
advisers regarding specific questions as to state or local taxes and as to the
applicability of the foregoing to their current federal tax situation.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
GENERAL
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest, of $.01 par value
("Shares"). Share certificates will be issued to the holder of record of Shares
upon request. Currently, Shares will be required to be held of record by the
investor. The investor's broker may not be reflected as the record holder;
however, arrangements for Shares to be held in "street name" may be implemented
in the future.
Shareholders are entitled to one vote for each Share held and to vote on
matters submitted to meetings of shareholders. No material amendment may be made
to the Trust's Declaration of Trust without the affirmative vote of at least a
majority of its Shares represented in person or by proxy at a meeting at which a
quorum is present or by written consent without a meeting. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove the
Trustees. Shares have no preemptive or conversion rights and when issued are
fully paid and non-assessable.
The Trust's Declaration of Trust permits the Trustees to divide or combine
the Shares into a greater or lesser number of Shares without thereby changing
the proportionate beneficial interests in the Trust. Each Share represents an
equal proportionate interest in the Trust with each other Share.
The Trust may be terminated (i) by the affirmative vote of the holders of
66% of its outstanding Shares or (ii) by an instrument signed by a majority of
the Trustees and consented to by the holders of two-thirds of the Trust's
outstanding Shares. Upon termination of the Trust, the Trustees will wind up the
affairs of the Trust, the Trust's business will be liquidated and the Trust's
net assets will be distributed to the Trust's shareholders on a pro rata basis.
If not so terminated, the Trust will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust, requires that Trust
documents include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Trust's property for any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations. Given the nature of the Trust's assets and operations, the
possibility of the Trust being unable to meet its obligations is remote. Given
the above limitations on
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shareholders' personal liability and the Trust's ability to meet its
indemnification obligations, in the opinion of Massachusetts counsel to the
Trust, the risk to Trust shareholders of personal liability is remote.
The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust. Accordingly, the Trustees will not be liable for errors of judgment or
mistakes of fact or law, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
ANTI-TAKEOVER PROVISIONS
The Trust presently has certain anti-takeover provisions in its Declaration
of Trust which could have the effect of limiting the ability of other entities
or persons to acquire control of the Trust, to cause it to engage in certain
transactions or to modify its structure. A Trustee may be removed from office by
a written instrument signed by at least two-thirds of the remaining trustees or
by a vote of the holders of at least 66% of the Shares. In addition, the
affirmative vote or consent of the holders of 66% of the Shares of the Trust (a
greater vote than that required by the 1940 Act and greater than the required
vote applicable to business corporations under state law) is required to
authorize the conversion of the Trust from a closed-end to an open-end
investment company, or generally to authorize any of the following transactions:
(i) merger or consolidation of the Trust with or into any other
corporation, association, trust or other organization;
(ii) issuance of any securities of the Trust to any person or entity for
cash;
(iii) sale, lease or exchange of all or any substantial part of the
assets of the Trust, to any entity or person (except assets having an
aggregate fair market value of less than $1,000,000, aggregating similar
transactions over a twelve-month period); or
(iv) sale, lease or exchange to the Trust, in exchange for securities of
the Trust, of any assets of any entity or person (except assets having an
aggregate fair market value of less than $1,000,000, aggregating similar
transactions over a twelve-month period)
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of 5% or more of the outstanding shares of the
Trust. However, such 66% vote or consent will not be required with respect to
the foregoing transactions where the Board of Trustees under certain conditions
approves the transaction, in which case, with respect to (i) and (iii) above, a
majority shareholder vote or consent will be required, and, with respect to (ii)
and (iv) above, a shareholder vote or consent would be required. Furthermore,
any amendment to the provisions in the Declaration of Trust requiring a 66%
shareholder vote or consent for the foregoing transactions similarly requires a
66% shareholder vote or consent.
The foregoing provisions will make more difficult a change in the Trust's
management, or consummation of the foregoing transactions without the Trustee's
approval, and would, in the event a secondary market were to develop in the
Shares, have the effect of depriving shareholders of an opportunity to sell
their shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Trust in a tender offer or similar
transaction. However, the Board of Trustees has considered these anti-takeover
provisions and believes that they are in the shareholders' best interests
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and benefit shareholders by providing the advantage of potentially requiring
persons seeking control of the Trust to negotiate with its management regarding
the price to be paid and facilitating the continuity of the Trust's management.
Reference should be made to the Declaration of Trust on file with the SEC for
the full text of these provisions. See "Further Information."
SHARE REPURCHASES AND TENDERS
- --------------------------------------------------------------------------------
The Board of Trustees of the Trust currently intends, each quarter, to
consider authorizing the Trust to make tender offers for all or a portion of its
then outstanding Shares at the then current net asset value of the Shares.
Although such tender offers, if undertaken and completed, will provide some
liquidity for holders of the Shares, there can be no assurance that such tender
offers will in fact be undertaken, completed or, if completed, that they will
provide sufficient liquidity for all holders of Shares who may desire to sell
such Shares. As such, investment in the Shares should be considered illiquid.
Although the Board of Trustees believes that tender offers for the Shares
generally would increase the liquidity of the Shares, the acquisition of Shares
by the Trust will decrease the total assets of the Trust, and therefore, have
the effect of increasing the Trust's expense ratio. Because of the nature of the
Trust's investment objective and policies and the Trust's portfolio, the
Investment Adviser anticipates potential difficulty in disposing of portfolio
securities in order to consummate tender offers for the Shares. As a result, the
Trust may be required to borrow money in order to finance repurchases and
tenders. The Trust's Declaration of Trust authorizes the Trust to borrow money
for such purposes.
Even if a tender offer has been made, the Trustees' announced policy, which
may be changed by the Trustees, is that the Trust cannot accept tenders if (1)
such transactions, if consummated, would (a) impair the Trust's status as a
regulated investment company under the Code (which would make the Trust a
taxable entity, causing the Trust's taxable income to be taxed at the Trust
level) or (b) result in a failure to comply with applicable asset coverage
requirements 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)
suspension of or limitation on prices for trading securities generally on the
New York Stock Exchange, (c) declaration of a banking moratorium by federal or
state authorities or any suspension of payment by banks in the United States or
New York State, (d) limitation affecting the Trust or the issuers of its
portfolio securities imposed by federal or state authorities on the extension of
credit by lending institutions, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States or (f) other event or condition which would have a material
adverse effect on the Trust or the holders of its Shares if Shares were
repurchased. The Trustees may modify these conditions in light of experience.
Any tender offer made by the Trust for its Shares will be at a price equal
to the net asset value of the Shares determined at the close of business on the
day the offer ends. During the pendency of any tender offer by the Trust, the
Trust will establish procedures which will be specified in the tender offer
documents to enable holders of Shares to ascertain readily such net asset value.
Each offer will be made and holders of Shares notified in accordance with the
requirements of the 1934 Act and the 1940 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. If any tender
offer, after consideration and approval by the Trustees, is undertaken by the
Trust, the terms of such tender offer will set forth the maximum number of
Shares (if less than all) that the Trust is willing to purchase pursuant to the
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tender offer. The Trust will purchase, subject to such maximum number of Shares
tendered in accordance with the terms of the offer, all Shares tendered unless
it determines to accept none of them. In the event that a number of Shares in
excess of such maximum number of outstanding Shares are tendered in accordance
with the Trust's tender offer, the Trust intends to purchase, on a pro rata
basis, an amount of tendered Shares equal to such maximum number of the
outstanding Shares or, alternatively, to extend the offering period and increase
the number of Shares that the Trust is offering to purchase. The Trust will pay
all costs and expenses associated with the making of any tender offer.
During the fiscal year November 1, 1994 through September 30, 1995, the
Trust completed four tender offers. The first tender offer commenced on November
18, 1994 and resulted in the tender of 1,083,835 Shares. The second tender offer
commenced on February 15, 1995 and resulted in the tender of 965,375 Shares. The
third tender offer commenced on May 17, 1995 and resulted in the tender of
1,120,064 Shares. The fourth tender offer commenced on August 16, 1995 and
resulted in the tender of 1,090,470 shares.
If the Trust must liquidate portfolio holdings in order to purchase Shares
tendered, the Trust may realize gains and losses. Such gains may be realized on
securities held for less than three months. Because of the limitation of 30% on
the portion of the Trust's annual gross income that may be derived from the sale
or disposition of securities held less than three months (in order to retain the
Trust's tax status as a regulated investment company under the Code), such gains
would reduce the ability of the Trust to sell other portfolio holdings held for
less than three months that the Trust may wish to sell in the ordinary course of
its portfolio management, which may adversely affect the Trust's yield.
EARLY WITHDRAWAL CHARGE
Any early withdrawal charge to defray distribution expenses will be charged
in connection with Shares held for four years or less which are accepted by the
Trust for repurchase pursuant to tender offers, except as noted below. The early
withdrawal charge will be imposed on a number of Shares accepted for tender the
value of which exceeds the aggregate value at the time the tender is accepted of
(a) all Shares in the account purchased more than four years prior to such
acceptance, (b) all Shares in the account acquired through reinvestment of
dividends and distributions, and (c) the increase, if any, of value of all other
Shares in the account (namely those purchased within the four years preceding
the acceptance) over the purchase price of such Shares. Accordingly, the early
withdrawal charge is not imposed on Shares acquired through reinvestment of
dividends and distributions or on any increases in the net asset value of Shares
above the initial purchase price. The early withdrawal charge will be paid to
the Investment Adviser. In determining whether an early withdrawal charge is
payable, it is assumed that the acceptance of a repurchase offer would be made
from the earliest purchase of Shares. Any early withdrawal charge which is
required to be imposed will be made in accordance with the following schedule.
<TABLE>
<CAPTION>
YEAR OF REPURCHASE EARLY WITHDRAWAL
AFTER PURCHASE CHARGE
- ----------------------------------------- -----------------
<S> <C>
First.................................... 3.0%
Second................................... 2.5%
Third.................................... 2.0%
Fourth................................... 1.0%
Fifth and following...................... 0.0%
</TABLE>
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The following example will illustrate the operation of the early withdrawal
charge. Assume that an investor purchases $1,000 of the Trust's Shares for cash
and that 21 months later the value of the account has grown through the
reinvestment of dividends and capital appreciation to $1,200. The investor then
may submit for repurchase pursuant to a tender offer up to $200 of Shares
without incurring an early withdrawal charge. If the investor should submit for
repurchase pursuant to a tender offer $500 of Shares, an early withdrawal charge
would be imposed on $300 of the Shares submitted. The charge would be imposed at
the rate of 2.5% because it is in the second year after the purchase was made,
and the charge would be $7.50. For the fiscal year ended September 30, 1995,
InterCapital informed the Trust that it received approximately $219,000 in
withdrawal fees. For the fiscal year ended September 30, 1994, InterCapital
informed the Trust that it received approximately $541,000 in withdrawal fees.
For the fiscal year ended September 30, 1993, AIMCO informed the Trust that it
received approximately $448,000 (for the period October 1, 1992 through February
28, 1993) and InterCapital informed the Trust that it received approximately
$1,449,000 (for the period March 1, 1993 through September 30, 1993) in
withdrawal fees for a total of $1,897,000.
PURCHASE OF SHARES
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The Trust continuously offers Shares through Dean Witter Distributors Inc.,
which is acting as the distributor of the Shares, through certain
broker-dealers, including Dean Witter Reynolds Inc. ("DWR"), which have entered
into selected dealer agreements with the Distributor ("Selected
Broker-Dealers"). The Trust or the Distributor may suspend the continuous
offering of the Shares to the general public at any time in response to
conditions in the securities markets or otherwise and may thereafter resume such
offering from time to time.
Dean Witter Distributors Inc. serves as distributor of the Trust's shares
pursuant to a Distribution Agreement initially approved by the Trustees on
October 30, 1992. The Distribution Agreement had an initial term ending April
30, 1994, and provides under its terms that it will continue from year to year
thereafter if approved by the Board. At their meeting held on April 20, 1995,
the Trustees, including all of the Independent Trustees, approved the
continuation of the Distribution Agreement until April 30, 1996.
None of the Trust, the Distributor or the Investment Adviser intends to make
a secondary market in the Shares. Accordingly, there is not expected to be any
secondary trading market in the Shares, and an investment in the Shares should
be considered illiquid.
The minimum investment in the Trust is $1,000. Subsequent purchases of $100
or more may be made by sending a check, payable to Prime Income Trust, directly
to Dean Witter Trust Company, an affiliate of the Distributor (the "Transfer
Agent") at P.O. Box 1040, Jersey City, New Jersey 07303 or by contacting an
account executive of DWR or of a Selected Broker-Dealer. Certificates for Shares
purchased will not be issued unless a request is made by the shareholder in
writing to the Transfer Agent.
Shares of the Trust are sold through Dean Witter Distributors Inc. or a
Selected Broker-Dealer on a normal three business day settlement basis; that is,
payment generally is due on or before the third business day (settlement date)
after the order is placed with the Distributor. Shares of the Trust purchased
through the Distributor or a Selected Broker-Dealer are entitled to dividends
beginning on the next business day following settlement date. Since the
Distributor or a Selected Broker-Dealer forwards investors' funds on settlement
date, they may benefit from the temporary use of the funds where payment is made
prior thereto.
48
<PAGE>
The Shares are offered by the Trust at the then current net asset value per
share next computed after the Distributor receives an order to purchase from an
investor's dealer or directly from the investor. See "Determination of Net Asset
Value." The Investment Adviser compensates the Distributor at a rate of 2.75% of
the purchase price of Shares purchased from the Trust. The Distributor may
reallow to dealers 2.5% of the purchase price of Shares of the Trust purchased
by such dealers. If such Shares remain outstanding after one year from the date
of their initial purchase, the Investment Adviser currently intends to
compensate the Distributor at an annual rate equal to 0.10% of the net asset
value of the Shares sold and remaining outstanding. Such 0.10% fee will begin
accruing after one year from the date of the initial purchase of the Shares. The
compensation to the Distributor described above is paid by the Investment
Adviser from its own assets, which may include profits from the advisory fee
payable under the Advisory Agreement, as well as borrowed funds. An early
withdrawal charge payable to the Investment Adviser of up to 3.0% of the
original purchase price of the Shares will be imposed on most Shares held for
four years or less that are accepted for repurchase pursuant to a tender offer
by the Trust. See "Share Repurchases and Tenders." The compensation paid to the
Distributor, including compensation paid in connection with the purchase of
Shares from the Trust, the annual payments referred to above and the early
withdrawal charge, if any, described above, will not in the aggregate exceed the
applicable limit (currently 7.25%) as determined from time to time by the
National Association of Securities Dealers, Inc.
YIELD INFORMATION
- --------------------------------------------------------------------------------
The Trust may, from time to time, publish its yield. The yield on Trust
Shares normally will fluctuate. Therefore, the yield for any given past period
is not an indication or representation by the Trust of future yields or rates of
return on its Shares. The Trust's yield is affected by changes in prevailing
interest rates, average portfolio maturity and operating expenses. Current yield
information may not provide a basis for comparison with bank deposits or other
investments which pay a fixed yield over a stated period of time.
The yield of the Trust is computed by dividing the Trust's net investment
income over a 30-day period by an average value (using the average number of
Shares entitled to receive dividends and the net asset value per Share at the
end of the period), all in accordance with the standardized yield formula
prescribed by the SEC for open-end investment companies. Such amount is
compounded for six months and then annualized for a twelve-month period to
derive the Trust's yield. For the 30-day period ended September 30, 1995, the
Fund's yield, calculated pursuant to this formula, was 7.54%.
On occasion, 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 Analytical Services, Inc., or (v) the yield on an investment in 90-day
Treasury bills on a rolling basis, assuming quarterly compounding. In addition,
the Trust may compare the Prime Rate, the DONOGHUE'S averages and the other
yield data described above to each other. As with yield quotations, yield
comparisons should not be considered representative of the Trust's yield or
relative performance for any future period.
49
<PAGE>
CUSTODIAN, DIVIDEND DISBURSING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286, is the
Trust's custodian and has custody of all securities and cash of the Trust. The
custodian, among other things, attends to the collection of principal and income
and payment for collection of proceeds of securities bought and sold by the
Trust. Any of the Trust's cash balances with the Custodian in excess of $100,000
are unprotected by federal deposit insurance. Such balances may, at times, be
substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311, an affiliate of Dean Witter InterCapital Inc., the
Trust's Investment Adviser, Dean Witter Services Company Inc., the Trust's
Administrator and Dean Witter Distributors Inc., the Trust's Distributor, is the
dividend disbursing and transfer agent of the Trust. Dean Witter Trust Company
charges the Trust an annual per shareholder account fee.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Trust will send to shareholders semi-annual reports showing the Trust's
portfolio and other information. An annual report, containing financial
statements audited by independent accountants, together with their report
thereon, will be sent to shareholders each year.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Adviser, is an officer and the General Counsel of the Trust.
EXPERTS
- --------------------------------------------------------------------------------
The September 30, 1995 financial statements of the Trust, included herein,
have been so included in reliance upon the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
CODE OF ETHICS
Directors, officers and employees of InterCapital, Dean Witter Services
Company Inc. and the Distributor are subject to a strict Code of Ethics adopted
by those companies. The Code of Ethics is intended to ensure that the interests
of shareholders and other clients are placed ahead of any personal interest,
that no undue personal benefit is obtained from a person's employment activities
and that actual and potential conflicts of interest are avoided. To achieve
these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and option transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within thirty days before or after any transaction in any Dean Witter
50
<PAGE>
Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the recent report by the Investment Company Institute
Advisory Group on Personal Investing.
SHAREHOLDER INQUIRIES
All inquiries regarding the Trust should be directed to the Trust at the
telephone number or address set forth on the front cover of this Prospectus.
This Prospectus does not contain all of the information set forth in the
Registration Statement that the Trust has filed with the SEC. The complete
Registration Statement may be obtained from the SEC upon payment of the fee
prescribed by the Rules and Regulations of the SEC.
51
<PAGE>
PRIME INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF PRIME INCOME TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of Prime Income Trust
(the "Trust") at September 30, 1995, the results of its operations and its cash
flows for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended and for the period November 30, 1989
(commencement of operations) through September 30, 1990, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at September 30, 1995 by
correspondence with the custodian, and with respect to senior collateralized
loans by correspondence with the selling participants and agent banks, provide a
reasonable basis for the opinion expressed above.
As explained in Note 1, the financial statements include senior collateralized
loans valued at $489,969,598 (94 percent of net assets), whose values have been
determined in accordance with procedures established by the Trustees in the
absence of readily ascertainable market values. We have reviewed the procedures
which were established by the Trustees in determining the fair values of such
senior collateralized loans and have inspected underlying documentation, and, in
the circumstances, we believe the procedures are reasonable and the
documentation appropriate. However, because of the inherent uncertainty of
valuation, those values determined in accordance with procedures established by
the Trustees may differ significantly from the values that would have been used
had a ready market for the senior collateralized loans existed, and the
differences could be material.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
NOVEMBER 8, 1995
52
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SENIOR COLLATERALIZED LOANS (a) (94.0%)
ADVERTISING (1.4%)
$ 7,250 Eller Media Company
Term Loan............................. 9.07 % 12/21/03 $ 7,249,637
---------------
AEROSPACE (0.9%)
1,682 Gulfstream Aerospace Corp. Term
Loan.................................. 7.88 03/31/97 1,681,561
2,900 Gulfstream Aerospace Corp. Term
Loan.................................. 8.80 03/31/98 2,899,333
---------------
4,580,894
---------------
AIRLINES (2.8%)
5,213 AeroMexico 1994-I U.S. Receivables
Trust Term Loan (Mexico)+............. 9.94 07/31/99 5,212,297
2,365 Northwest Airlines, Inc. Term Loan
(Participation: First National Bank of
Chicago) (b).......................... 9.13 09/15/97 2,364,819
6,805 Northwest Airlines, Inc.
Term Loan............................. 9.13 09/15/97 6,805,554
---------------
14,382,670
---------------
APPAREL (2.5%)
960 Anvil Knitwear, Inc. Term Loan........ 8.38 02/03/01 959,824
3,987 Anvil Knitwear, Inc. Term Loan........ 9.13 to 10.75 02/02/02 3,985,739
4,888 Hosiery Corporation of America, Inc.
Term Loan............................. 9.13 to 9.19 07/31/01 4,885,367
96 London Fog Industries, Inc. Term Loan
(d)................................... 05/31/02 91,550
2,823 London Fog Industries, Inc. Term
Loan.................................. 9.75 ++ 05/31/02 2,681,831
580 London Fog Industries, Inc. Term Loan
(c)................................... 12.50 05/31/02 551,691
---------------
13,156,002
---------------
BEVERAGES (1.9%)
4,000 Select Beverages, Inc.
Term Loan............................. 9.13 06/30/01 3,999,480
6,000 Select Beverages, Inc.
Term Loan............................. 9.38 06/30/02 5,999,220
---------------
9,998,700
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BREWERS (1.9%)
$ 5,000 G. Heileman Brewing Company, Inc. Term
Loan.................................. 8.50 to 8.63% 12/31/98 $ 4,996,354
5,000 G. Heileman Brewing Company, Inc. Term
Loan (Participation: Bankers Trust)
(b)................................... 9.69 12/31/00 5,000,300
---------------
9,996,654
---------------
BROADCAST MEDIA (3.0%)
6,930 Silver King Communications, Inc.
Term Loan............................. 8.88 07/31/02 6,929,168
3,897 U.S. Radio Holdings, Inc.
Term Loan............................. 8.88 to 9.00 12/31/01 3,897,387
5,003 U.S. Radio Holdings, Inc.
Term Loan............................. 9.88 to 11.75 09/20/03 5,003,271
---------------
15,829,826
---------------
BUILDING MATERIALS (2.9%)
15,000 National Gypsum Company Term Loan..... 8.84 09/30/03 14,999,550
---------------
CABLE TELEVISION EQUIPMENT (1.0%)
5,000 Marcus Cable Operating Co. L.P. Term
Loan.................................. 8.69 04/30/04 4,999,450
---------------
CABLE/CELLULAR (1.7%)
8,750 Paging Network, Inc. Term Loan........ 9.45 03/31/02 8,750,875
---------------
CONSUMER PRODUCTS (1.9%)
10,000 Revlon Consumer Products Corp.
Term Loan............................. 9.31 06/30/97 9,992,000
---------------
CONTAINERS (3.3%)
17,000 Silgan Corporation Term Loan.......... 8.88 to 8.94 03/15/02 16,996,979
---------------
CONTAINERS - PAPERS (1.2%)
6,500 Stone Container Corp.
Term Loan............................. 9.25 10/01/03 6,500,000
---------------
CONVENIENCE STORES (2.0%)
10,333 Cumberland Farms, Inc.
Term Loan (Participation:
Merrill Lynch) (b).................... 9.25 12/31/98 10,332,710
---------------
COSMETICS (1.0%)
5,000 Mary Kay Cosmetics, Inc.
Term Loan............................. 9.38 to 9.88 12/06/02 4,999,432
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DRUG STORES (2.1%)
$ 7,500 Duane Reade, Inc. Term Loan........... 9.88 % 12/31/99 $ 7,497,975
3,549 M & H Drugs, Inc. Term Loan........... 10.13 09/01/96 3,548,835
---------------
11,046,810
---------------
ELECTRONICS (0.8%)
4,026 Sperry Marine, Inc. Term Loan......... 9.13 to 9.69 11/12/00 4,023,371
---------------
ENTERTAINMENT (1.9%)
10,000 Harrah's Jazz Co. & Finance Corp. Term
Loan.................................. 9.13 to 9.19 09/30/99 9,996,167
---------------
ENTERTAINMENT & LEISURE (2.3%)
12,010 Six Flags Theme Parks, Inc. Term
Loan.................................. 8.88 to 9.00 06/23/03 12,002,899
---------------
EQUIPMENT (1.9%)
9,960 Primeco, Inc. Term Loan............... 8.88 to 9.03 12/31/00 9,958,816
---------------
FOOD & BEVERAGES (1.4%)
7,500 Restaurants Unlimited, Inc. Term
Loan.................................. 9.34 06/03/00 7,498,200
---------------
FOOD PROCESSING (1.0%)
5,000 American Italian Pasta Co.
Term Loan............................. 9.94 12/30/00 4,999,650
---------------
FOOD SERVICES (5.2%)
10,702 SC International Services, Inc. &
Caterair International Corp. Term
Loan.................................. 10.75 09/15/01 10,701,818
13,353 SC International Services, Inc. &
Caterair International Corp. Term
Loan.................................. 10.75 09/15/02 13,352,727
2,945 SC International Services, Inc. &
Caterair International Corp. Term
Loan.................................. 11.00 09/15/03 2,945,455
---------------
27,000,000
---------------
GAS - TRUCK STOP (0.7%)
3,848 Petro PSC Properties, L.P.
Term Loan............................. 9.13 05/24/01 3,847,276
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES (1.9%)
9,975 Graco Children's Products, Inc. Term
Loan.................................. 8.81 to 10.75 06/30/03 9,970,309
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDUSTRIALS (2.4%)
$ 6,079 UCAR International, Inc.
Term Loan............................. 8.88 % 01/31/03 $ 6,079,180
3,195 UCAR International, Inc.
Term Loan............................. 9.38 07/31/03 3,195,467
3,195 UCAR International, Inc.
Term Loan............................. 10.06 01/31/04 3,195,658
---------------
12,470,305
---------------
LEASING (8.5%)
44,216 GPA Group PLC Revolver (Ireland)+
(Participation: First National Bank of
Chicago) (b).......................... 7.00 to 7.88 09/30/97 44,219,100
---------------
MANUFACTURING (2.2%)
4,516 Desa International, Inc.
Term Loan............................. 9.06 11/30/00 4,512,071
2,701 Intermetro Industries Corp. Term
Loan.................................. 8.88 06/30/01 2,699,462
4,053 Intermetro Industries Corp. Term
Loan.................................. 9.38 12/31/02 4,050,211
---------------
11,261,744
---------------
MEDICAL PRODUCTS & SUPPLIES (1.0%)
5,000 Deknatel Holdings, Inc.
Term Loan............................. 9.81 04/20/01 5,000,150
---------------
MEDICAL SERVICES (0.8%)
4,305 Unilab Corporation Term Loan.......... 9.38 05/16/02 4,304,059
---------------
PAPER PRODUCTS (1.0%)
3,750 Mail Well Corp. Term Loan............. 8.88 07/31/03 3,749,100
1,250 Supermex, Inc. Term Loan.............. 8.88 07/31/03 1,249,700
---------------
4,998,800
---------------
PUBLISHING (2.8%)
7,490 Ziff Davis Publishing Co.
Term Loan............................. 8.88 12/31/01 7,487,653
7,055 Ziff Davis Publishing Co.
Term Loan............................. 9.38 12/31/02 7,052,707
---------------
14,540,360
---------------
RAILROAD EQUIPMENT (1.9%)
10,000 Johnstown America Industries, Inc.
Term Loan............................. 9.00 03/31/03 9,999,000
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RECORD & TAPE (2.3%)
$ 4,875 Camelot Music, Inc. Term Loan......... 8.81 to 8.88% 02/28/01 $ 4,874,829
7,400 The Wherehouse Entertainment, Inc.
Term Loan (d)......................... 10.25 01/31/98 7,030,000
---------------
11,904,829
---------------
RETAIL DEPARTMENT STORES (1.8%)
2,114 Saks & Company Term Loan.............. 8.75 to 10.25 06/30/98 2,114,701
7,469 Saks & Company Term Loan.............. 9.25 to 9.50 06/30/00 7,468,896
---------------
9,583,597
---------------
RETAIL - SPECIALTY (2.9%)
15,000 QVC, Inc. Term Loan................... 8.94 01/31/04 14,996,100
---------------
SCIENTIFIC INSTRUMENTS (0.6%)
1,705 Waters Corporation Term Loan.......... 9.63 11/30/02 1,704,558
1,371 Waters Corporation Term Loan.......... 10.00 05/31/03 1,370,610
---------------
3,075,168
---------------
SPECIALTY PACKAGING (2.0%)
6,000 Calmar, Inc. Term Loan................ 8.88 09/15/03 5,999,940
4,500 Calmar, Inc. Term Loan................ 9.13 03/15/04 4,499,955
---------------
10,499,895
---------------
SPORTING GOODS (3.3%)
7,403 Spalding & Evenflo Companies, Inc.
Term Loan............................. 9.06 10/17/02 7,402,524
2,000 Worldwide Sports & Recreation, Inc.
Term Loan............................. 8.94 04/26/00 2,000,000
8,000 Worldwide Sports & Recreation, Inc.
Term Loan............................. 9.44 04/26/01 8,000,000
---------------
17,402,524
---------------
SUPERMARKETS (4.8%)
4,655 Food 4 Less Supermarkets, Inc. Term
Loan.................................. 9.13 06/15/02 4,654,585
4,655 Food 4 Less Supermarkets, Inc. Term
Loan.................................. 9.63 06/15/03 4,654,538
4,655 Food 4 Less Supermarkets, Inc. Term
Loan.................................. 9.88 02/15/04 4,654,492
4,576 Pathmark Stores Inc. Term Loan........ 8.94 01/28/00 4,575,210
3,789 Star Markets Company, Inc. Term
Loan.................................. 8.88 12/31/01 3,789,436
2,842 Star Markets Company, Inc. Term
Loan.................................. 9.38 12/31/02 2,842,077
---------------
25,170,338
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS EQUIPMENT (1.4%)
$ 3,500 K-Tec Holdings, Inc. Term Loan........ 8.63 % 01/31/03 $ 3,499,965
4,000 K-Tec Holdings, Inc. Term Loan........ 9.13 01/31/04 3,999,960
---------------
7,499,925
---------------
TEXTILES (1.9%)
3,840 Blackstone Capital Company II, L.L.C.
Purchase Term Loan.................... 8.88 01/13/97 3,839,962
1,160 Blackstone Capital Company II, L.L.C.
Reserve Term Loan..................... 8.88 01/13/97 1,159,988
3,840 Wasserstein/C&A Holdings, L.L.C.
Purchase Term Loan.................... 8.81 01/13/97 3,837,274
1,160 Wasserstein/C&A Holdings, L.L.C.
Reserve Term Loan..................... 8.81 01/13/97 1,159,176
---------------
9,996,400
---------------
TEXTILES - APPAREL MANUFACTURERS (1.9%)
9,950 Chicopee, Inc. Term Loan.............. 9.13 03/31/03 9,950,000
---------------
WIRE & CABLE (1.9%)
9,992 International Wire Group, Inc. Term
Loan.................................. 9.00 09/30/02 9,988,427
---------------
TOTAL SENIOR COLLATERALIZED LOANS
(IDENTIFIED COST $487,492,471)....................................... 489,969,598
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (d) (0.0%)
APPAREL (0.0%)
1,291K London Fog Industries, Inc. (Restricted)................................ --
---------------
FOOD SERVICES (0.0%)
4,209 Flagstar Companies (Restricted)......................................... 22,098
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $60,507)............................................... 22,098
---------------
PREFERRED STOCK (0.2%)
APPAREL
1,722K London Fog Industries, Inc. 17.50% due 2/28/05 (Series A-1) (c)
(Restricted) (IDENTIFIED COST $1,873,346)............................... 1,222,422
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (e) (4.0%)
COMMERCIAL PAPER (0.1%)
AUTOMOTIVE FINANCE
$ 595 Ford Motor Credit Co. (AMORTIZED COST
$592,529)............................. 5.75 % 10/27/95 $ 592,529
---------------
U.S. GOVERNMENT AGENCIES (3.9%)
4,700 Federal Home Loan Banks*.............. 5.65 10/12/95 4,691,886
10,000 Federal Home Loan Mortgage Corp.*..... 6.30 10/02/95 9,998,250
5,100 Federal Home Loan Mortgage Corp.*..... 5.66 10/06/95 5,095,992
650 Federal National Mortgage Assoc.*..... 5.58 10/20/95 648,085
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $20,434,213)......................................... 20,434,213
---------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $21,026,742)......................................... 21,026,742
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $510,453,066) (F)........... 98.2% 512,240,860
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES.................................. 1.8 9,120,101
----- ------------
NET ASSETS................................... 100.0% $521,360,961
----- ------------
----- ------------
<FN>
- ---------------------
K In thousands.
+ Senior Note.
++ 3 percent paid in cash, 6.75 percent payment in kind; converts to prime
plus 1 percent cash payment on May 31, 1997.
* All or a portion of these securities are segregated in connection with
unfunded loan commitments.
(a) Floating rate securities. Interest rates reset periodically. Interest
rates shown are those in effect at September 30, 1995.
(b) Participation; participation interests were acquired through the financial
institutions indicated parenthetically.
(c) Payment in kind security.
(d) Non income producing security.
(e) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(f) The aggregate cost for federal income tax purposes is $510,453,066; the
aggregate gross unrealized appreciation is $3,134,546 and the aggregate
gross unrealized depreciation is $1,346,752, resulting in net unrealized
appreciation of $1,787,794.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $510,453,066)............................ $512,240,860
Cash........................................................ 4,022,199
Receivable for:
Shares of beneficial interest sold...................... 4,898,633
Interest................................................ 4,496,892
Principal prepayments................................... 435,368
Prepaid expenses and other assets........................... 389,771
------------
TOTAL ASSETS........................................... 526,483,723
------------
LIABILITIES:
Payable for:
Investments purchased................................... 580,663
Investment advisory fee................................. 374,551
Dividends to shareholders............................... 220,544
Administration fee...................................... 104,121
Accrued expenses and other payables......................... 271,139
Deferred facility fees...................................... 3,571,744
Commitments and contingencies (Note 7)......................
------------
TOTAL LIABILITIES...................................... 5,122,762
------------
NET ASSETS:
Paid-in-capital............................................. 522,524,992
Net unrealized appreciation................................. 1,787,794
Accumulated undistributed net investment income............. 413,674
Accumulated net realized loss............................... (3,365,499)
------------
NET ASSETS............................................. $521,360,961
------------
------------
NET ASSET VALUE PER SHARE,
52,197,974 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.99
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $34,988,644
Net facility and amendment fees............................. 2,232,672
Other income................................................ 549,221
-----------
TOTAL INCOME........................................... 37,770,537
-----------
EXPENSES
Investment advisory fee..................................... 3,526,906
Administration fee.......................................... 979,775
Professional fees........................................... 546,641
Shareholder reports and notices............................. 281,710
Transfer agent fees and expenses............................ 253,583
Registration fees........................................... 117,505
Custodian fees.............................................. 94,161
Trustees' fees and expenses................................. 29,004
Organizational expenses..................................... 8,018
Other....................................................... 129,989
-----------
TOTAL EXPENSES......................................... 5,967,292
-----------
NET INVESTMENT INCOME.................................. 31,803,245
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (2,551,571)
Net change in unrealized depreciation....................... 2,716,998
-----------
NET GAIN............................................... 165,427
-----------
NET INCREASE................................................ $31,968,672
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 31,803,245 $ 17,647,052
Net realized gain (loss).................................... (2,551,571) 596,754
Net change in unrealized depreciation....................... 2,716,998 2,033,215
------------------ ------------------
NET INCREASE........................................... 31,968,672 20,277,021
------------------ ------------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (31,409,897) (17,652,279)
Net realized gain........................................... (957,304) --
------------------ ------------------
TOTAL.................................................. (32,367,201) (17,652,279)
------------------ ------------------
Net increase (decrease) from transactions in shares of
beneficial interest....................................... 216,725,076 (9,069,554)
------------------ ------------------
TOTAL INCREASE (DECREASE).............................. 216,326,547 (6,444,812)
NET ASSETS:
Beginning of period......................................... 305,034,414 311,479,226
------------------ ------------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$413,674 AND $590, RESPECTIVELY)........................ $521,360,961 $305,034,414
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income................................................................. $ 31,803,245
---------------
Adjustments to reconcile net investment income
to net cash from operating activities:
Increase in receivables and other assets related to operations........................ (2,860,585)
Increase in payables related to operations............................................ 1,439,130
Accretion of discounts................................................................ (477,143)
---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................................ 29,904,647
---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of investments.............................................................. (563,680,131)
Principal repayments/sales of investments............................................. 350,474,058
Net sales/maturities of short-term investments........................................ 3,891,453
---------------
NET CASH USED FOR INVESTING ACTIVITIES........................................... (209,314,620)
---------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Shares of beneficial interest sold.................................................... 241,897,744
Shares tendered....................................................................... (42,566,808)
Dividends and distributions from:
Net investment income (net of reinvested dividends of $16,029,070).................... (15,250,078)
Net realized gain..................................................................... (957,304)
---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................................ 183,123,554
---------------
NET INCREASE IN CASH.................................................................. 3,713,581
CASH AT BEGINNING OF YEAR............................................................. 308,618
---------------
CASH AT END OF YEAR................................................................... $ 4,022,199
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
Prime Income Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended, as a non-diversified, closed-end management investment
company. The Trust was organized as a Massachusetts business trust on August 17,
1989 and commenced operations on November 30, 1989.
The Trust offers and sells its shares to the public on a continuous basis. The
Trustees intend, each quarter, to consider authorizing the Trust to make tender
offers for all or a portion of its outstanding shares of beneficial interest at
the then current net asset value of such shares.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) The Trustees believe that, at present, there
are not sufficient market quotations provided by banks, dealers, or pricing
services respecting interests in senior collateralized loans ("Senior Loans") to
corporations, partnerships and other entities ("Borrower") to enable the Trust
to properly value Senior Loans based on available market quotations.
Accordingly, until the market for Senior Loans develops, interests in Senior
Loans held by the Trust are valued at their fair value in accordance with
procedures established in good faith by the Trustees. Under the procedures
adopted by the Trustees, interests in Senior Loans are priced in accordance with
a matrix which takes into account the relationship between current interest
rates and interest rates payable on each Senior Loan, as well as the total
number of days in each interest period and the period remaining until the next
interest rate determination or maturity of the Senior Loan. Adjustments in the
matrix-determined price of a Senior Loan will be made in the event of a default
on a Senior Loan or a significant change in the creditworthiness of the
Borrower; (2) all portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price; (3) short-
term debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost; and (4) all other securities and
other assets are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected. When the Trust
buys an
63
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995, CONTINUED
interest in a Senior Loan, it may receive a facility fee, which is a fee paid to
lenders upon origination of a Senior Loan and/or a commitment fee which is paid
to lenders on an ongoing basis based upon the undrawn portion committed by the
lenders of the underlying Senior Loan. The Trust amortizes the facility fee over
the expected term of the loan. When the Trust sells an interest in a Senior
Loan, it may be required to pay fees or commissions to the purchaser of the
interest. Fees received in connection with loan amendments are amortized over
the expected term of the loan.
C. SENIOR LOANS -- The Trust invests primarily in Senior Loans to Borrowers.
Senior Loans are typically structured by a syndicate of lenders ("Lenders"), one
or more of which administers the Senior Loan on behalf of the Lenders ("Agent").
Lenders may sell interests in Senior Loans to third parties ("Participations")
or may assign all or a portion of their interest in a Senior Loan to third
parties ("Assignments"). Senior Loans are exempt from registration under the
Securities Act of 1933. Presently, they are not readily marketable and are often
subject to restrictions on resale.
D. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Adviser") paid the organizational expenses of the Trust in the amount of
$248,312 which have been fully reimbursed by the Trust and were fully amortized
as of November 29, 1994.
64
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995, CONTINUED
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays an advisory fee,
accrued daily and payable monthly, by applying the following annual rates to the
net assets of the Trust determined as of the close of each business day: 0.90%
to the portion of the daily net assets not exceeding $500 million and 0.85% to
the portion of the daily net assets exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Adviser pays the salaries of all personnel,
including officers of the Trust, who are employees of the Investment Adviser.
3. ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement with Dean Witter Services Company Inc.
(the "Administrator"), the Trust pays an administration fee, calculated daily
and payable monthly, by applying the annual rate of 0.25% to the Trust's average
daily net assets.
Under the terms of the Administration Agreement, the Administrator maintains
certain of the Trust's books and records and furnishes, at its own expense,
office space, facilities, equipment, clerical, bookkeeping and certain legal
services and pays the salaries of all personnel, including officers of the Trust
who are employees of the Administrator. The Administrator also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Trust.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended September 30, 1995 aggregated
$564,260,794 and $350,909,426, respectively.
Shares of the Trust are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator.
Pursuant to a Distribution Agreement between the Trust, the Investment Adviser
and the Distributor, the Investment Adviser compensates the Distributor at an
annual rate of 2.75% of the purchase price of shares purchased from the Trust.
The Investment Adviser will compensate the Distributor at an annual rate of
0.10% of the value of shares sold for any shares that remain outstanding after
one year from the date of their initial purchase. Any early withdrawal charge to
defray distribution expenses will be charged in connection with shares held for
four years or less which are accepted by the Trust for repurchase pursuant to
tender offers. For the
65
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995, CONTINUED
year ended September 30, 1995, the Investment Adviser has informed the Trust
that it received approximately $219,000 in early withdrawal charges. The Trust's
shareholders pay such withdrawal charges which are not an expense of the Trust.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Trust's transfer agent. At September 30, 1995, the Trust
had transfer agent fees and expenses payable of approximately $28,000.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended September 30, 1995
included in Trustees' fees and expenses in the Statement of Operations amounted
to $7,596. At September 30, 1995, the Trust had an accrued pension liability of
$51,200 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------- --------------
<S> <C> <C>
Balance, September 30, 1993...................................... 31,428,097 $ 314,869,470
Shares sold...................................................... 6,355,963 63,559,546
Shares issued to shareholders for reinvestment of dividends...... 948,118 9,461,997
Shares tendered (four quarterly tender offers)................... (8,242,584) (82,091,097)
----------- --------------
Balance, September 30, 1994...................................... 30,489,594 305,799,916
Shares sold...................................................... 24,363,027 243,262,814
Shares issued to shareholders for reinvestment of dividends and
distributions................................................... 1,605,098 16,029,070
Shares tendered (four quarterly tender offers)................... (4,259,745) (42,566,808)
----------- --------------
Balance, September 30, 1995...................................... 52,197,974 $ 522,524,992
----------- --------------
----------- --------------
</TABLE>
On October 26, 1995, the Trustees approved a tender offer to purchase up to 4
million shares of beneficial interest to commence on November 15, 1995.
6. FEDERAL INCOME TAX STATUS
At September 30, 1995, the Trust had a net capital loss carryover of
approximately $1,384,000 which will be available through September 30, 2003 to
offset future capital gains to the extent provided by regulations.
66
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995, CONTINUED
Any net capital loss incurred after October 31 ("post-October losses") within
the taxable year is deemed to arise on the first business day of the Trust's
next taxable year. The Trust incurred and will elect to defer a net capital loss
of approximately $2,390,000 during fiscal 1995.
As of September 30, 1995, the Trust had temporary book/tax differences primarily
attributable to post-October losses.
7. COMMITMENTS AND CONTINGENCIES
As of September 30, 1995, the Trust had unfunded loan commitments pursuant to
the following loan agreements:
<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENT
- ----------------------------------------------------------------- -----------
<S> <C>
GPA Group PLC. .................................................. $ 6,018,926
Marcus Cable Co. ................................................ 5,000,000
-----------
$11,018,926
-----------
-----------
</TABLE>
8. FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT RISK
When the Trust purchases a Participation, the Trust typically enters into a
contractual relationship with the Lender or third party selling such
Participation ("Selling Participant"), but not with the Borrower. As a result,
the Trust assumes the credit risk of the Borrower, the Selling Participant and
any other persons interpositioned between the Trust and the Borrower
("Intermediate Participants") and the Trust may not directly benefit from the
collateral supporting the Senior Loan in which it has purchased the
Participation. Because the Trust will only acquire Participations if the Selling
Participant and each Intermediate Participant is a financial institution, the
Trust may be considered to have a concentration of credit risk in the banking
industry. At September 30, 1995, such Participations had a fair value of
$61,916,929.
The Trust will only invest in Senior Loans where the Investment Adviser believes
that the Borrower can meet debt service requirements in a timely manner and
where the market value of the collateral at the time of investment equals or
exceeds the amount of the Senior Loan. In addition, the Trust will only acquire
Participations if the Selling Participant, and each Intermediate Participant, is
a financial institution which meets certain minimum creditworthiness standards.
67
<PAGE>
PRIME INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 30,
1989*
FOR THE YEAR ENDED SEPTEMBER 30 THROUGH
--------------------------------------------------------- SEPTEMBER 30,
1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 10.00 $ 9.91 $ 9.99 $ 10.00 $ 10.00 $ 10.00
--------- --------- --------- --------- --------- ------
Net investment income............ 0.82 0.62 0.55 0.62 0.84 0.74
Net realized and unrealized gain
(loss).......................... 0.01 0.09 (0.08) (0.01) -- (0.01)
--------- --------- --------- --------- --------- ------
Total from investment
operations...................... 0.83 0.71 0.47 0.61 0.84 0.73
--------- --------- --------- --------- --------- ------
Less dividends and distributions
from:
Net investment income......... (0.81) (0.62) (0.55) (0.62) (0.84) (0.73)
Net realized gain............. (0.03) -- -- -- -- --
--------- --------- --------- --------- --------- ------
Total dividends and
distributions................... (0.84) (0.62) (0.55) (0.62) (0.84) (0.73)
--------- --------- --------- --------- --------- ------
Net asset value, end of period... $ 9.99 $ 10.00 $ 9.91 $ 9.99 $ 10.00 $ 10.00
--------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- ------
TOTAL INVESTMENT RETURN+......... 8.57% 7.32% 4.85% 6.23% 8.77% 7.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 1.52% 1.60% 1.45% 1.47% 1.52% 1.48%(2)
Net investment income............ 8.11% 6.14% 5.53% 6.14% 8.23% 8.95%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands....................... $521,361 $305,034 $311,479 $413,497 $479,941 $328,189
Portfolio turnover rate.......... 102% 147% 92% 46% 42% 35%(1)
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
68
<PAGE>
APPENDIX A
HEDGING TRANSACTIONS
- --------------------------------------------------------------------------------
INTEREST RATE AND OTHER HEDGING TRANSACTIONS. The Trust may in the future
enter into various interest rate hedging and risk management transactions;
however, it does not presently intend to engage in such transactions and will do
so only after providing 30 days' written notice to shareholders. If in the
future the Trust were to engage in such transactions, it expects to do so
primarily to seek to preserve a return on a particular investment or portion of
its portfolio, and may also enter into such transactions to seek to protect
against decreases in the anticipated rate of return on floating or variable rate
financial instruments 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. In addition, with
respect to fixed-income securities in the Trust's portfolio or to the extent an
active secondary market develops in interests in Senior Loans in which the Trust
may invest, the Trust may also engage in hedging transactions to seek to protect
the value of its portfolio against declines in net asset value resulting from
changes in interest rates or other market changes. The Trust will not engage in
any of the transactions for speculative purposes and will use them only as a
means to hedge or manage the risks associated with assets held in, or
anticipated to be purchased for, the Trust's portfolio or obligations incurred
by the Trust. The successful utilization of hedging and risk management
transactions requires skills different from those needed in the selection of the
Trust's portfolio securities. The Investment Adviser currently actively utilizes
various hedging techniques in connection with its management of other fixed
income portfolios and the Trust believes that the Investment Adviser possesses
the skills necessary for the successful utilization of hedging and risk
management transactions. The Trust will incur brokerage and other costs in
connection with its hedging transactions.
The types of hedging transactions in which the Trust is most likely to
engage are interest rate swaps and the purchase or sale of interest rate caps or
floors. The Trust will not sell interest rate caps or floors that it does not
own. Interest rate swaps involve the exchange by the Trust with another party of
their respective obligations to pay or receive interest, e.g., an exchange of an
obligation to make floating rate payments for an obligation to make fixed rate
payments. 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 at the difference of the index and the predetermined rate
on a notional principal amount (the reference amount with respect to which
payment obligations are determined, although no actual exchange of principal
occurs) 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 at
the difference of the index and the predetermined rate on a notional principal
amount from the party selling such interest rate floor.
In circumstances in which the Investment Adviser anticipates that interest
rates will decline, the Trust might, for example, enter into an interest rate
swap as the floating rate payor. In the case where the Trust purchases such an
interest rate swap, if the floating rate payments fell below the level of the
fixed rate payment set in the swap agreement, the Trust's counterparty would pay
the Trust amounts equal to interest computed at the difference between the fixed
and floating rates over the notional principal amount. Such payments would
offset or partially offset the decrease in the payments the Trust would receive
in respect of floating rate assets being hedged. In the case of purchasing an
interest rate floor, if interest rates declined below the floor rate, the Trust
would receive payments from its counterparty which would wholly or partially
offset the decrease in the payments it would receive in respect of the financial
instruments being hedged.
69
<PAGE>
The successful use of swaps, caps and floors to preserve the rate of return
on a portfolio of financial instruments depends on the Investment Adviser'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 the Investment Adviser'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. For example, if the Trust had purchased an
interest rate swap or an interest rate floor to hedge against its expectation
that interest rates would decline but instead interest rates rose, the Trust
would lose part or all of the benefit of the increased payments it would receive
as a result of the rising interest rates because it would have to pay amounts to
its counterparty under the swap agreement or would have paid the purchase price
of the interest rate floor.
Any interest rate swaps entered into by the Trust would usually be done 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. Inasmuch as any such hedging transactions entered into by the Trust
will be for good-faith risk management purposes, the Investment Adviser and the
Trust believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to its investment restrictions
on borrowing. The net amount of the excess, if any, of the Trust's obligations
over its entitlements with respect to each interest rate swap will be accrued
and an amount of cash or liquid high quality securities having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account by the Trust's custodian.
The Trust will not enter into interest rate swaps, caps or floors if on a
net basis the aggregate notional principal amount with respect to such agreement
exceeds the net assets of the Trust. Thus, the Trust may enter into interest
rate swaps, caps or floors with respect to its entire portfolio.
There is no limit on the amount of interest rate swap transactions that may
be entered into by the Trust. These transactions do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net amount of
interest payments that the Trust is contractually obligated to make. If the
other party to an interest rate swap defaults, the Trust's risk of loss consists
of the net amount of interest payments that the Trust contractually is entitled
to receive. The creditworthiness of firms with which the Trust enters into
interest rate swaps, caps or floors will be monitored on an ongoing basis by the
Investment Adviser pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board of Trustees of the Trust. 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 affect the Trust's rights as a
creditor. The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively liquid. Caps and floors are more recent innovations and
they are less liquid than swaps.
The Trust is also authorized to enter into hedging transactions involving
financial futures and options, but presently believes it is unlikely that it
would enter into such transactions. The Trust may also invest in any new
financial products which may be developed to the extent determined by the Board
of Trustees to be consistent with its investment objective and otherwise in the
best interests of the Trust and its shareholders. The Trust will engage in such
transactions only to the extent permitted under applicable law and after
providing 30 days' written notice to shareholders.
70
<PAGE>
Prime Income Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
- ----------------------------------------
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John H. Haire
Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ----------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Rafael Scolari
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
- ----------------------------------------
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
- ----------------------------------------
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ----------------------------------------
Price Waterhouse LLP
1177 Avenue of Americas
New York, New York 10036
INVESTMENT ADVISER
- ----------------------------------------
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
- ----------------------------------------
Dean Witter Services Company Inc.
Two World Trade Center
New York, New York 10048
DISTRIBUTOR
- ----------------------------------------
Dean Witter Distributors Inc.
Two World Trade Center
New York, New York 10048
PRIME
INCOME
TRUST
Prospectus
, 199
<PAGE>
PRIME INCOME TRUST
PART C OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included
in Prospectus (Part A):
Page in
Prospectus
----------
Financial highlights for the period November
30, 1989 through September 30, 1989 and for the
years ended September 30, 1991, 1992, 1993, 1994
and 1995............................................. 4
Report of Independent Accountants ................... 52
Portfolio of Investments at September 30, 1995....... 53
Statement of assets and liabilities at
September 30, 1995....................................60
Statement of operations for the year ended
September 30, 1995....................................60
Statement of changes in net assets for the
years ended September 30, 1994 and 1995...............61
Statement of cash flows for the year ended
September 30, 1995....................................62
Notes to Financial Statements.........................63
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
99.2(a) -- Form of Declaration of Trust and various Amendments
<PAGE>
99.2(j) -- Form of Custodian Agreement between Registrant and
The Bank of New York
99.2(n) -- Consent of Independent Accountants
99.2(o) -- 30-day yield quotation
27 -- Financial Data Schedule
---------------------------------------------
All other exhibits previously filed and incorporated
by reference.
Item 25. MARKETING ARRANGEMENT.
Not Applicable.
Item 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Not Applicable.
Item 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
None
Item 28. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AT OCTOBER 31, 1995
Shares of Beneficial Interest 28,489
Item 29. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
2
<PAGE>
Pursuant to Section 5.2 of the Registrant's Declaration of
Trust and paragraph 8 of the Registrant's Investment Advisory and Administration
Agreements, neither the Investment Adviser or Administrator nor any trustee,
officer, employee or agent of the Registrant shall be liable for any action or
failure to act, except in the case of bad faith, willful misfeasance, gross
negligence or reckless disregard of duties to the Registrant. In addition,
pursuant to Section 6 of the Underwriting Agreement, the Trust and the
Investment Adviser have agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the Underwriter may be required to make in respect
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "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
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
trustee, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act, and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent with Release
11330 of the Securities and Exchange Commission under the Investment Company Act
of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such Act
remains in effect.
Registrant, in conjunction with the Investment Manager,
Registrant's Trustees, and other registered investment management companies
managed by the Investment Manager, maintains insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of Registrant, or who is or
was serving at the request of Registrant as a trustee, director, officer,
employee or agent of another trust or corporation, against any liability
asserted against him and incurred by him or arising out of his position.
However, in no event will Registrant maintain insurance to indemnify any such
person for any act for which Registrant itself is not permitted to
3
<PAGE>
indemnify him.
Item 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "The Fund and Its Management" in the Prospectus regarding
the business of the investment adviser. The following information is given
regarding officers of Dean Witter InterCapital Inc. InterCapital is a wholly-
owned subsidiary of Dean Witter, Discover & Co. The principal address of the
Dean Witter Funds is Two World Trade Center, New York, New York 10048.
The term "Dean Witter Funds" used below refers to the following registered
investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
OPEN-END INVESTMENT COMPANIES:
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
4
<PAGE>
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Managed Assets Trust
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Premier Income Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter U.S. Government Money Market Trust
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Global Asset Allocation Fund
(51) Dean Witter Balanced Growth Fund
(52) Dean Witter Balanced Income Fund
(53) Dean Witter Hawaii Municipal Trust
(54) Dean Witter Capital Appreciation Fund
(55) Dean Witter Intermediate Term U.S. Treasury Trust
(56) Dean Witter Information Fund
The term "TCW/DW Funds" refers to the following registered investment companies:
OPEN-END INVESTMENT COMPANIES
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
5
<PAGE>
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Global Convertible Trust
(8) TCW/DW Total Return Trust
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust Company
("DWTC"); Chairman, Director or Trustee, President
and Chief Executive Officer of the Dean Witter
Funds and Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Formerly Executive
Vice President and Director of Dean Witter,
Discover & Co. ("DWDC"); Director and/or officer
of various DWDC subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of DWDC and DWR; Director of DWSC and
Distributors; Director or Trustee of the Dean
Witter Funds; Director and/or officer of various
DWDC subsidiaries.
Richard M. DeMartini Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Capital;
Director of DWR, DWSC, Distributors and DWTC;
Trustee of the TCW/DW Funds; Member (since
January, 1993) and Chairman (since January,
1995) of the Board of Directors of NASDAQ.
James F. Higgins Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial
Executive Vice Officer of DWDC, DWR, DWSC and Distributors;
President, Chief Director of DWR, DWSC and Distributors.
Financial Officer and
Director
6
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Christine A. Edwards Executive Vice President, Secretary and General
Director Counsel of DWDC and DWR; Executive Vice President,
Secretary and Chief Legal Officer of Distributors;
Director of DWR, DWSC and Distributors.
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
David A. Hughey Executive Vice President and Chief Administrative
Executive Vice Officer of DWSC, Distributors and DWTC; Director
President and Chief of DWTC; Vice President of the Dean Witter Funds
Administrative Officer and the TCW/DW Funds.
Edmund C. Puckhaber Director of DWTC; Vice President of the Dean
Executive Vice Witter Funds.
President
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Sheldon Curtis Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
General Counsel and President, Assistant General Counsel and Assistant
Secretary Secretary of Distributors; Senior Vice President
and Secretary of DWTC; Vice President, Secretary
and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone
Senior Vice President Senior Vice President of DWSC, Distributors
and DWTC; Vice President of the Dean Witter Funds
and the TCW/DW Funds.
7
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Joseph J. McAlinden
Senior Vice President Vice President of the Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
8
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Barry Fink First Vice President and Assistant Secretary of
First Vice President DWSC; Assistant Secretary of the Dean Witter
and Assistant Secretary Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
Robert Zimmerman
First Vice President
Joan Allman
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Douglas Brown
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Dwight Doolan
Vice President
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
9
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
Peter W. Gurman
Vice President
Russell Harper
Vice President
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of Dean Witter Mid-Cap Growth Fund.
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
Stanley Kapica
Vice President
Michael Knox Vice President of Dean Witter Convertible
Vice President Securities Trust.
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
10
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ------------------------------------------------
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Hugh Rose
Vice President
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Rafael Scolari
Vice President Vice President of Prime Income Trust
Jayne M. Stevlingson
Vice President Vice President of various Dean Witter Funds.
Kathleen Stromberg
Vice President Vice President of various Dean Witter Funds.
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
Marianne Zalys
Vice President
Item 31. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
11
<PAGE>
Item 32. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service
contract.
Item 33. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
12
<PAGE>
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 New York and the State of New York on the 28th day of
December, 1995.
PRIME INCOME TRUST
By: /s/ SHELDON CURTIS
--------------------------------------
Sheldon Curtis
VICE PRESIDENT AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------- ---------------------
<S> <C> <C>
(1) Principal Executive Officer
President,
By: /S/ CHARLES A. FIUMEFREDDO Chief Executive Officer, 12/28/95
Charles A. Fiumefreddo Trustee and Chairman
(2) Principal Financial Officer
By: /S/ THOMAS F. CALOIA Treasurer and
Thomas F. Caloia Principal Accounting Officer 12/28/95
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By: /S/ SHELDON CURTIS
Sheldon Curtis 12/28/95
Attorney-in-Fact
Jack F. Bennett Manuel H. Johnson
Michael Bozic Paul Kolton
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
By: /S/ DAVID M. BUTOWSKY
David M. Butowsky 12/28/95
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
99.2(a) -- Form of Declaration of Trust and various Amendments
99.2(j) -- Form of Custodian Agreement between Registrant and The
Bank of New York
99.2(n) -- Consent of Independent Accountants
99.2(o) -- 30-day yield quotation
ex 27 -- Financial Data Schedule
<PAGE>
EXHIBIT 1(a)
ALLSTATE PRIME RATE TRUST
DECLARATION OF TRUST
Dated: August 17, 1989
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I -- NAME AND DEFINITIONS 2
Section 1.1 Name 2
Section 1.2 Definitions 2
ARTICLE II -- TRUSTEES 4
Section 2.1 Number of Trustees 4
Section 2.2 Election and Term 4
Section 2.3 Resignation and Removal 5
Section 2.4 Vacancies 5
Section 2.5 Delegation of Power to Other Trustees 5
ARTICLE III -- POWERS OF TRUSTEES 6
Section 3.1 General 6
Section 3.2 Investments 6
Section 3.3 Legal Title 7
Section 3.4 Issuance and Repurchase of Securities 7
Section 3.5 Borrowing Money;
Lending Trust Assets 8
Section 3.6 Delegation; Committees 8
Section 3.7 Collection and Payment 8
Section 3.8 Expenses 8
Section 3.9 Manner of Acting; By-Laws 8
Section 3.10 Miscellaneous Powers 8
Section 3.11 Principal Transactions 9
Section 3.12 Litigation 9
Section 3.13 Trustees and Officers as Shareholders 10
ARTICLE IV -- INVESTMENT ADVISER, DISTRIBUTOR,
CUSTODIAN AND TRANSFER AGENT 11
Section 4.1 Investment Adviser 11
Section 4.2 Administrative Services 11
Section 4.3 Distributor 11
Section 4.4 Transfer Agent 12
Section 4.5 Custodian 12
Section 4.6 Parties to Contract 12
ARTICLE V -- LIMITATIONS OF LIABILITY
OF SHAREHOLDERS, TRUSTEES
AND OTHERS 13
Section 5.1 No Personal Liability of
Shareholders, Trustees, etc. 13
Section 5.2 Non-Liability of Trustees, etc. 13
-i-
<PAGE>
PAGE
----
Section 5.3 Indemnification 13
Section 5.4 No Bond Required of Trustees 14
Section 5.5 No Duty of Investigation;
Notice in Trust Instruments, etc. 14
Section 5.6 Reliance on Experts, etc. 14
ARTICLE VI -- SHARES OF BENEFICIAL INTEREST 15
Section 6.1 Beneficial Interest 15
Section 6.2 Rights of Shareholders 15
Section 6.3 Trust Only 15
Section 6.4 Issuance of Shares 15
Section 6.5 Register of Shares 16
Section 6.6 Transfer of Shares 16
Section 6.7 Notices 16
Section 6.8 Voting Powers 17
ARTICLE VII -- DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS 18
Section 7.1 Net Asset Value 18
Section 7.2 Distributions to Shareholders 18
Section 7.3 Determination of Net Income 19
Section 7.4 Power to Modify Foregoing Procedures 19
ARTICLE VIII-- DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC. 20
Section 8.1 Duration 20
Section 8.2 Termination of Trust 20
Section 8.3 Amendment Procedure 21
Section 8.4 Merger, Consolidation and Sale of Assets 22
Section 8.5 Incorporation and Reorganization 22
Section 8.6 Conversion 23
Section 8.7 Certain Transactions 23
ARTICLE IX -- REPORTS TO SHAREHOLDERS 26
ARTICLE X -- MISCELLANEOUS 27
Section 10.1 Filing 27
Section 10.2 Governing Law 27
Section 10.3 Resident Agent 27
Section 10.4 Counterparts 27
Section 10.5 Reliance by Third Parties 27
Section 10.6 Provisions in Conflict with
Law or Regulations 28
Section 10.7 Use of the Name "Allstate" 28
SIGNATURE PAGE 29
-ii-
<PAGE>
DECLARATION OF TRUST
OF
ALLSTATE PRIME RATE TRUST
Dated: August 17, 1989
THE DECLARATION OF TRUST OF Allstate Prime Rate Trust is made the 17th
day of August, 1989 by the parties signatory hereto, as trustees (such persons,
so long as they shall continue in office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time in question have
been duly elected or appointed as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, being hereinafter called the
"Trustees").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is provided that the beneficial interest in the trust assets
be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust,
all money and property contributed to the trust fund to manage and dispose of
the same for the benefit of the holders from time to time of the shares of
beneficial interest issued hereunder and subject to the provisions hereof, to
wit:
-1-
<PAGE>
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1 NAME. The name of the trust created hereby is the "Allstate
Prime Rate Trust," and so far as may be practicable the Trustees shall conduct
the Trust's activities, execute all documents and sue or be sued under that
name, which name (and the word "Trust" wherever herein used) shall refer to the
Trustees as Trustees, and not as individuals, or personally, and shall not refer
to the officers, agents, employees or Shareholders of the Trust. Should the
Trustees determine that the use of such name is not advisable, they may use such
other name for the Trust as they deem proper and the Trust may hold its property
and conduct its activities under such other name.
SECTION 1.2 DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "BY-LAWS" means the By-Laws referred to in Section 3.9 hereof, as
from time to time amended.
(b) the terms "COMMISSION," "AFFILIATED PERSON" and "INTERESTED PERSON,"
have the meanings given them in the 1940 Act.
(c) "DECLARATION" means this Declaration of Trust as amended from
time to time. Reference in this Declaration of Trust to "DECLARATION,"
"HEREOF," "HEREIN" AND "HEREUNDER" shall be deemed to refer to this
Declaration rather than the article or section in which such words appear.
(d) "DISTRIBUTOR" means the party, other than the Trust, to a contract
described in Section 4.3 hereof.
(e) "FUNDAMENTAL POLICIES" shall mean the investment policies and
restrictions set forth in the Registration Statement and designated as
fundamental policies therein.
(f) "INVESTMENT ADVISER" means any party, other than the Trust, to a
contract described in Section 4.1 hereof.
(g) "MAJORITY SHAREHOLDER VOTE" means the vote of the holders of a
majority of Shares, which shall consist of: (i) a majority of Shares
represented in person or by proxy and entitled to vote at a meeting of
Shareholders at which a quorum, as determined in accordance with the By-Laws, is
present; (ii) a majority of Shares issued and outstanding and entitled to vote
when action is taken by written consent of Shareholders; and (iii) a "majority
of the outstanding voting securities," as the phrase is defined in the 1940 Act,
when any action is required by the 1940 Act by such majority as so defined.
-2-
<PAGE>
(h) "1940 ACT" means the Investment Company Act of 1940 and the rules
and regulations thereunder as amended from time to time.
(i) "PERSON" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
(j) "REGISTRATION STATEMENT" means the Registration Statement of the
Trust under the Securities Act of 1933 as such Registration Statement may be
amended and filed with the Commission from time to time.
(k) "SHAREHOLDER" means a record owner of outstanding Shares.
(l) "SHARES" means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time and includes fractions
of Shares as well as whole Shares.
(m) "TRANSFER AGENT" means the party, other than the Trust, to the
contract described in Section 4.4 hereof.
(n) "TRUST" means the Allstate Prime Rate Trust.
(o) "TRUST PROPERTY" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(p) "TRUSTEES" means the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly elected or appointed,
qualified and serving as Trustees in accordance with the provisions hereof, and
reference herein to a Trustee or the Trustees shall refer to such person or
persons in their capacity as trustees hereunder.
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ARTICLE II
TRUSTEES
SECTION 2.1. NUMBER OF TRUSTEES. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees, provided, however, that the number of Trustees shall
in no event be less than three (3) nor more than fifteen (15).
SECTION 2.2. ELECTION AND TERM. The Trustees shall be elected by a
Majority Shareholder Vote at the first meeting of Shareholders following the
public offering of Shares of the Trust. The Trustees shall have the power to
set and alter the terms of office of the Trustees, and they may at any time
lengthen or lessen their own terms or make their terms of unlimited duration,
subject to the resignation and removal provisions of Section 2.3 hereof.
Subject to Section 16(a) of the 1940 Act, the Trustees may elect their own
successors and may, pursuant to Section 2.4 hereof, appoint Trustees to fill
vacancies. The Trustees shall adopt By-Laws not inconsistent with this
Declaration or any provision of law to provide for election of Trustees by
Shareholders at such time or times as the Trustees shall determine to be
necessary or advisable.
SECTION 2.3. RESIGNATION AND REMOVAL. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the aggregate number
of Trustees after such removal shall not be less than the number required by
Section 2.1 hereof) by the action of two-thirds of the remaining Trustees or by
the action of the Shareholders of record of not less than eighty percent (80%)
of the Shares outstanding (for purposes of determining the circumstances and
procedures under which such removal by the Shareholders may take place, the
provisions of Section 16(c) of the 1940 Act shall be applicable to the same
extent as if the Trust were subject to the provisions of that Section). Upon
the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property held in the name of the resigning or removed
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence.
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SECTION 2.4. VACANCIES. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy existing by reason of an
increase in the number of Trustees, subject to the provisions of Section 16(a)
of the 1940 Act, the remaining Trustees or, prior to the public offering of
Shares of the Trust, if only one Trustee shall then remain in office, the
remaining Trustee, shall fill such vacancy by the appointment of such other
person as they or he, in their or his discretion, shall see fit, made by a
written instrument signed by a majority of the remaining Trustees or by the
remaining Trustee, as the case may be. Any such appointment shall not become
effective, however, until the person named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of the Declaration. An appointment of a
Trustee may be made in anticipation of a vacancy to occur at a later date by
reason of retirement, resignation or increase in the number of Trustees,
provided that such appointment shall not become effective prior to such
retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.4, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
SECTION 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under the Declaration except as herein otherwise expressly provided.
Nothing in this Section 2.5 shall apply to, or limit the ability of any Trustee
to grant any power of attorney for the purpose of executing any registration
statement filed with the Commission relating to the Shares.
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ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities wheresoever in the world they may be
located and to do all such other things and execute all such instruments as they
deem necessary, proper or desirable in order to promote the interests of the
Trust although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust made by the Trustees
in good faith shall be conclusive. In construing the provisions of the
Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
SECTION 3.2. INVESTMENTS. The Trustees shall have the power to :
(a) conduct, operate and carry on the business of an investment company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange,
distribute, lend or otherwise deal in or dispose of negotiable
or nonnegotiable instruments, obligations, evidences of
indebtedness, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, reverse repurchase agreements,
options, commodities, commodity futures contracts and related
options, currencies, currency futures and forward contracts, and
other securities, investment contracts and other instruments of
any kind, including, without limitation, those issued, guaranteed
or sponsored by any and all Persons including, without limitation,
states, territories and possessions of the United States, the
District of Columbia and any of the political subdivisions,
agencies or instrumentalities thereof, and
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by the United States Government or its agencies or
instrumentalities, foreign or international instrumentalities, or by
any bank or savings institution, or by any corporation or
organization organized under the laws of the United States or of any
state, territory or possession thereof, and of corporations or
organizations organized under foreign laws, or in "when issued"
contracts for any such securities, or retain Trust assets in cash
and from time to time change the investments of the assets of the
Trust; and to exercise any and all rights, powers and privileges of
ownership or interest in respect of any and all such investments of
every kind and description, including, without limitation, the right
to consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations or corporations
to exercise any of said rights, powers and privileges in respect of
any of said instruments; and the Trustees shall be deemed to have
the foregoing powers with respect to any additional securities in
which the Trust may invest should the Fundamental Policies be
amended.
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust, nor shall the Trustees be limited by any
law limiting the investments which may be made by fiduciaries.
SECTION 3.3. LEGAL TITLE. Legal title to all the Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name of any
other Person as nominee, on such terms as the Trustees may determine, provided
that the interest of the Trust therein is appropriately protected. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee he shall automatically cease to have
any right, title or interest in any of the Trust Property, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
SECTION 3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall
have the power to issue, sell, repurchase, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject
to the provisions set forth in Articles VII and VIII hereof, to apply to any
such repurchase, retirement, cancellation or acquisition of Shares any funds or
property of the Trust, whether capital or surplus or otherwise, to the full
extent now or hereafter permitted by the laws of the Commonwealth of
Massachusetts governing business corporations.
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In addition, the Trustees shall have the power to authorize separate
classes of shares of beneficial interest, including preferred shares and debt
securities, subject to such terms and conditions as the Board of Trustees may
determine and subject to applicable law.
SECTION 3.5. BORROWING MONEY; LENDING TRUST ASSETS. Subject to the
Fundamental Policies, the Trustees shall have power to borrow money or otherwise
obtain credit and to secure the same by mortgaging, pledging or otherwise
subjecting as security the assets of the Trust, to endorse, guarantee, or
undertake the performance of any obligation, contract or engagement of any other
Person and to lend Trust assets.
SECTION 3.6. DELEGATION; COMMITTEES. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust or the
names of the Trustees or otherwise as the Trustees may deem expedient.
SECTION 3.7. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
SECTION 3.8. EXPENSES. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration, and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
SECTION 3.9. MANNER OF ACTING; BY-LAWS. Except as otherwise provided
herein or in the By-Laws or by any provision of law, 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), including any meeting held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating in the meeting can hear each other, or by
written consents of all the Trustees. The Trustees may adopt By-Laws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such By-Laws to the extent such power is not
reserved to the Shareholders.
SECTION 3.10. MISCELLANEOUS POWERS. The Trustees shall have the power
to: (a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the
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business of the Trust or any Series thereof; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees
(to the extent specified in Section 2.3 hereof) or fill vacancies in or add
to their number, elect and remove such officers and appoint and terminate
such agents or employees as they consider appropriate, and appoint from their
own number, and terminate, any one or more committees which may exercise some
or all of the power and authority of the Trustees as the Trustees may
determine; (d) purchase, and pay for out of Trust Property or the property of
the appropriate Series of the Trust, insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment advisers,
distributors, selected dealers or independent contractors of the Trust
against all claims arising by reason of holding any such position or by
reason of any action taken or omitted to be taken by any such Person in such
capacity, whether or not constituting negligence, or whether or not the Trust
would have the power to indemnify such Person against such liability; (e)
establish pension, profit-sharing, Share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents
of the Trust; (f) to the extent permitted by law, indemnify any person with
whom the Trust has dealings, including any Investment Adviser, Distributor,
Transfer Agent and selected dealers, to such extent as the Trustees shall
determine; (g) guarantee indebtedness or contractual obligations of others;
(h) determine and change the fiscal year of the Trust and the method by which
its accounts shall be kept; and (i) adopt a seal for the Trust but the
absence of such seal shall not impair the validity of any instrument executed
on behalf of the Trust.
SECTION 3.11. PRINCIPAL TRANSACTIONS. Except in transactions
permitted by the 1940 Act or any rule or regulation thereunder, or any order
of exemption issued by the Commission, or effected to implement the
provisions of any agreement to which the Trust is a party, the Trustees shall
not, on behalf of the Trust, buy any securities (other than Shares) from or
sell any securities (other than Shares) to, or lend any assets of the Trust
to, any Trustee or officer of the Trust or any firm of which any such Trustee
or officer is a member acting as principal, or have any such dealings with
any Investment Adviser, Distributor or Transfer Agent or with any Affiliated
Person of such Person; but the Trust or any Series thereof may employ any
such Person, or firm or company in which such Person is an Interested Person,
as broker, legal counsel, registrar, transfer agent, dividend disbursing
agent or custodian upon customary terms.
SECTION 3.12. LITIGATION. The Trustees shall have the power to engage
in and to prosecute, defend, compromise, abandon, or adjust, by arbitration, or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust, and out of the assets of the Trust to pay or to satisfy
any debts, claims or expenses incurred in connection
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therewith, including those of litigation, and such power shall include without
limitation the power of the Trustees or any appropriate committee thereof, in
the exercise of their or its good faith business judgment, to dismiss any
action, suit, proceeding, dispute, claim, or demand, derivative or otherwise,
brought by any person, including a Shareholder in its own name or the name of
the Trust, whether or not the Trust or any of the Trustees may be named
individually therein or the subject matter arises by reason of business for or
on behalf of the Trust.
SECTION 3.13. TRUSTEES AND OFFICERS AS SHAREHOLDERS. No officer or
Trustee of the Trust, and no officer or director of the Investment Adviser or
the Distributor, and no Investment Adviser or Distributor of the Trust, shall
take a short position in the securities issued by the Trust.
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ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, CUSTODIAN AND TRANSFER AGENT
SECTION 4.1. INVESTMENT ADVISER. Subject to approval by a Majority
Shareholder Vote, the Trustees may in their discretion from time to time enter
into one or more investment advisory or management contracts whereby the other
party or parties to any such contracts shall undertake to furnish the Trust such
management, investment advisory, administration, accounting, legal, statistical
and research facilities and services, promotional or marketing activities, and
such other facilities and services, if any, as the Trustees shall from time to
time consider desirable and all upon such terms and conditions as the Trustees
may in their discretion determine. Notwithstanding any provisions of the
Declaration, the Trustees may authorize the Investment Advisers, or any of them,
under any such contracts (subject to such general or specific instructions as
the Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of portfolio securities and other investments of the Trust on behalf
of the Trustees or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of such
Investment Advisers, or any of them (and all without further action by the
Trustees). Any such purchases, sales, loans and exchanges shall be deemed to
have been authorized by all of the Trustees.
SECTION 4.2. ADMINISTRATIVE SERVICES. The Trustees may in their
discretion from time to time contract for administrative personnel and services
whereby the other party shall agree to provide the Trustees or the Trust
administrative personnel and services to operate the Trust on a daily or other
basis, on such terms and conditions as the Trustees may in their discretion
determine. Such services may be provided by one or more persons or entities.
SECTION 4.3. DISTRIBUTOR. The Trustees may in their discretion from
time to time enter into one or more contracts, providing for the sale of Shares
whereby the Trust may either agree to sell the Shares to the other parties to
the contracts, or any of them, or appoint any such other party its sales agent
for such Shares. In either case, any such contract shall be on such terms and
conditions as the Trustees may in their discretion determine not inconsistent
with the provisions of this Article IV or the By-Laws, including, without
limitation, the provision for the repurchase or sale of shares of the Trust by
such other party as principal or as agent of the Trust, and for entry by the
other parties to the contracts into selected dealer agreements with registered
securities dealers to further the purpose of distribution of the Shares.
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SECTION 4.4. TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such
terms and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration or the By-Laws. Such services may be provided
by one or more Persons.
SECTION 4.5. CUSTODIAN. The Trustees may appoint or otherwise engage
one or more banks or trust companies, each having an aggregate capital,
surplus and undivided profits (as shown in its last published report) of at
least five million dollars ($5,000,000) to serve as Custodian with authority
as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the By-Laws of the Trust.
SECTION 4.6 PARTIES TO CONTRACT. Any contract of the character
described in Sections 4.1, 4.2, 4.3, 4.4 or 4.5 of this Article IV and any other
contract may be entered into with any Person, although one or more of the
Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship; nor shall any Person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article IV. The same Person may be the
other party to any contracts entered into pursuant to Sections 4.1, 4.2, 4.3,
4.4 or 4.5 above or otherwise, and any individual may be financially interested
or otherwise affiliated with Persons who are parties to any or all of the
contracts mentioned in this Section 4.6.
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ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC.
No Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs of
the Trust. No Trustee, officer, employee or agent of the Trust shall be subject
to any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with the Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust. If any Shareholder, Trustee, officer,
employee or agent, as such, of the Trust is made a party to any suit or
proceeding to enforce any such liability, he shall not, on account thereof, be
held to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall
not exclude any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to indemnify
or reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
SECTION 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders,
or to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
of his or her duties.
SECTION 5.3. INDEMNIFICATION. (a) The Trustees shall provide for
indemnification by the Trust of any person who is, or has been, a Trustee,
officer, employee or agent of the Trust against all liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee, officer, employee or agent and
against amounts paid or incurred by him in the settlement thereof, in such
manner as the Trustees may provide from time to time in the By-Laws.
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(b) The words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
SECTION 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be
obligated to give any bond or other security for the performance of any of his
duties hereunder.
SECTION 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC.
No purchaser, lender, transfer agent or other Person dealing with the Trustees
or any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as officers, employees or agents of the Trust. Every
written obligation, contract, instrument, certificate, Share, other security of
the Trust or undertaking made or issued by the Trustees shall recite that the
same is executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of the Trust under any such instrument are
not binding upon any of the Trustees or Shareholders, individually, but bind
only the Trust Estate, and may contain any further recital which they or he may
deem appropriate, but the omission of such recital shall not affect the validity
of such obligation, contract instrument, certificate, Share, security or
undertaking and shall not operate to bind the Trustees or Shareholders
individually. The Trustees may maintain insurance for the protection of the
Trust Property, its Shareholders, Trustees, officers, employees and agents in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by any Investment Adviser, Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
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ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest of
$.01 par value. The number of such shares of beneficial interest authorized
hereunder is unlimited. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split in
Shares, shall be fully paid and nonassessable.
SECTION 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust
Property of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to assume any losses of the Trust or suffer an assessment of any kind by
virtue of their ownership of Shares. The Shares shall be personal property
giving only the rights in the Declaration specifically set forth. The Shares
shall not entitle the holder to preference, preemptive, appraisal, conversion or
exchange rights.
SECTION 6.3. TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
SECTION 6.4. ISSUANCE OF SHARES. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares. 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 Trust. Contributions
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to the Trust may be accepted for whole Shares and/or 1/1,000ths of a Share or
integral multiples thereof.
SECTION 6.5 REGISTER OF SHARES. A register shall be kept in respect
of the Trust at the principal office of the Trust or at an office of the
Transfer Agent which shall contain the names and addresses of the
Shareholders and the number of Shares held by them respectively and a record
of all transfers thereof. Such register may be in written form or any other
form capable of being converted into written form within a reasonable time
for visual inspection. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders.
No Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-Laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. The Trustees, in their discretion, may authorize the issuance of
Share certificates and promulgate appropriate rules and regulations as to
their use.
SECTION 6.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on
the register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law, except as may otherwise be provided by the laws of
the Commonwealth of Massachusetts.
SECTION 6.7. NOTICES. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage
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prepaid, addressed to any Shareholder of record at his last known address as
recorded on the register of the Trust. Annual reports and proxy statements need
not be sent to a shareholder if: (i) an annual report and proxy statement for
two consecutive annual meetings, or (ii) all, and at least two, checks (if sent
by first class mail) in payment of dividends or interest and shares during a
twelve month period have been mailed to such shareholder's address and have been
returned undelivered. However, delivery of such annual reports and proxy
statements shall resume once a Shareholder's current address is determined.
SECTION 6.8. VOTING POWERS. The Shareholders shall have power to
vote only (i) for the election of Trustees as provided in Section 2.3 hereof,
(ii) for the removal of Trustees as provided in Section 2.3 hereof, (iii)
with respect to any investment advisory or management contract as provided in
Section 4.1, (iv) with respect to termination of the Trust as provided in
Section 8.2, (v) with respect to any amendment of the Declaration to the
extent and as provided in Section 8.3, (vi) with respect to any merger,
consolidation, conversion or sale of assets as provided in Sections 8.4, 8.5
and 8.6, (vii) with respect to incorporation or reorganization of the Trust
to the extent and as provided in Section 8.5, (viii) to the same extent as
the stockholders of a Massachusetts business corporation as to whether or not
a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders and (ix) with respect to such additional matters relating to the
Trust as may be required by law, the Declaration, the By-Laws or any
registration of the Trust with the Commission (or any successor agency) or
any state, or as and when the Trustees may consider necessary or desirable.
Each whole Share shall be entitled to one vote as to any matter on which it
is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote, except that Shares held in the treasury of the
Trust as of the record date, as determined in accordance with the By-Laws,
shall not be voted. There shall be no cumulative voting in the election of
Trustees. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, the Declaration or the
By-Laws to be taken by Shareholders. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
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ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
SECTION 7.1. NET ASSET VALUE. The net asset value of each outstanding
Share of the Trust shall be determined on such days and at such time or times as
the Trustees may determine. The method of determination of net asset value
shall be determined by the Trustees and shall be as set forth in the
Registration Statement. The power and duty to make the calculations may be
delegated by the Trustees to any Investment Adviser, the Custodian, the Transfer
Agent or such other person as the Trustees by resolution may determine. The
Trustees may suspend the determination of net asset value to the extent
permitted by the 1940 Act.
SECTION 7.2. DISTRIBUTIONS OF SHAREHOLDERS. The Trustees shall from time
to time distribute ratably among the Shareholders of the Trust such proportion
of the net income, earnings, profits, gains, surplus (including paid-in
surplus), capital, or assets of the Trust held by the Trustees as they may deem
proper. Such distribution may be made in cash or property (including without
limitation any type of obligations of the Trust or any assets thereof), and the
Trustees may distribute ratably among the Shareholders of the Trust additional
Shares issuable hereunder in such manner, at such times, on such terms as the
Trustees may deem proper. Such distributions may be among the Shareholders of
record (determined in accordance with the Registration Statement) of the Trust
at the time of declaring a distribution or among the Shareholders of record of
the Trust at such later date as the Trustees shall determine. The Trustees may
always retain from the net income, earnings, profits or gains of the Trust such
amount as they may deem necessary to pay the debts or expenses of the Trust or
to meet obligations of the Trust, or as they may deem desirable to use in the
conduct of its affairs or to retain for future requirements or extensions of the
business. The Trustees may adopt and offer to Shareholders of the Trust such
dividend reinvestment plans as the Trustees deem appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
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The character of dividends and distributions to Shareholders shall be
allocated among the Shareholders to the extent permitted by the Internal Revenue
Code (the "Code"). For purposes of such allocations, the amount of any
distribution to any shareholder shall first be treated as being equal to the
amount of cash which such Shareholder could have received irrespective of
whether the Shareholder elects to receive additional shares of the Trust
pursuant to a dividend reinvestment plan. After the allocation in the previous
sentence, any excess amounts may be allocated in a way which takes into account
amounts received under a dividend reinvestment plan. Notwithstanding the above,
the Trustees shall have the power, in their absolute discretion, to modify the
allocation of the character of dividends or distributions as they may deem
necessary or desirable to enable the Trust to comply with any provision of the
Code or any interpretation of the Code by the Internal Revenue Service or the
Department of the Treasury or by any court.
SECTION 7.3. DETERMINATION OF NET INCOME. The Trustees shall have the
power to determine the net income of the Trust and from time to time to
distribute such net income ratably among the Shareholders as dividends in
cash or additional Shares issuable hereunder. The determination of net
income and the resultant declaration of dividends shall be as set forth in
the Registration Statement. The Trustees shall have full discretion to
determine whether any cash or property received by the Trust shall be treated
as income or as principal and whether any item of expense shall be charged to
the income or the principal account, and their determination made in good
faith shall be conclusive upon the Shareholders. In the case of stock
dividends received, the Trustees shall have full discretion to determine, in
the light of the particular circumstances, how much, if any, of the value
thereof shall be treated as income, the balance, if any, to be treated as
principal.
SECTION 7.4. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any of
the foregoing provisions of this Article VII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the Shares or net income, or the declaration and
payment of dividends and distributions, as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, or any rule or
regulation thereunder, or any order of exemption issued by the Commission, all
as in effect now or hereafter amended or modified.
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ARTICLE VIII
DURATION; TERMINATION OF
TRUST; AMENDMENT; MERGERS, ETC.
SECTION 8.1. DURATION. The Trust shall continue without limitation of
time but subject to the provisions of this Article VIII.
SECTION 8.2. TERMINATION OF TRUST. (a) The Trust may be terminated (i) by
the affirmative vote of the holders of not less than eighty percent (80%) of the
Shares outstanding and entitled to vote at any meeting of Shareholders of the
Trust, or (ii) by an instrument in writing, without a meeting, signed by a
majority of the Trustees and consented to by the holders of not less than two-
thirds of such Shares of the Trust. Upon the termination of the Trust.
(i) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust and
all of the powers of the Trustees under this Declaration shall continue
until the affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose of
all or any part of the remaining Trust Property to one or more persons at
public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay
its liabilities, and to do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property shall require Shareholder approval in accordance with Section
8.4 hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Shareholders of the Trust according to their respective rights.
(b) After termination of the Trust and distribution to the Shareholders as
herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged
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from all further liabilities and duties with respect to the Trust, and the
rights and interests of all Shareholders of the Trust shall thereupon cease.
SECTION 8.3. AMENDMENT PROCEDURE. (a) Except as provided in paragraph (c)
of this section 8.3, this Declaration may be amended by a Majority Shareholder
Vote, at a meeting of Shareholders, or by written consent without a meeting.
The Trustees may also amend this Declaration without the vote or consent of
Shareholders (i) to change the name of the Trust, (ii) to supply any omission,
or cure, correct or supplement any ambiguous, defective or inconsistent
provision hereof, (iii) if they deem it necessary to conform this Declaration to
the requirements of applicable federal or state laws or regulations or the
requirements of the Internal Revenue Code, or to eliminate or reduce any
federal, state or local taxes which are or may be payable by the Trust or the
Shareholders, but the Trustees shall not be liable for failing to do so, or (iv)
for any other purpose which does not adversely affect the rights of any
Shareholder with respect to which the amendment is or purports to be applicable.
(b) No amendment may be made under this Section 8.3 which would change any
rights with respect to any Shares of the Trust by reducing the amount payable
thereon upon liquidation of the Trust or by diminishing or eliminating any
voting rights pertaining thereto, except with the vote or consent of the holders
of two-thirds of the Shares of the Trust outstanding and entitled to vote.
Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessments
upon Shareholders.
(c) No amendment may be made under this Section 8.3 which shall amend,
alter, change or repeal any of the provisions of Sections 8.3, 8.4, 8.6 and 8.7
unless the amendment effecting such amendment, alteration, change or repeal
shall receive the affirmative vote or consent of eighty percent (80%) of the
Shares outstanding and entitled to vote. Such affirmative vote or consent shall
be in addition to the vote or consent of the holders of Shares otherwise
required by law or by the terms of any class or series of preferred stock,
whether now or hereafter authorized, or any agreement between the Trust and any
national securities exchange.
(d) A certificate signed by a majority of the Trustees or by the Secretary
or any Assistant Secretary of the Trust, setting forth an amendment and reciting
that it was duly adopted by the Shareholders or by the Trustees as aforesaid or
a copy of the Declaration, as amended, and executed by a majority of the
Trustees or certified by the Secretary or any Assistant Secretary of the Trust,
shall be conclusive evidence
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of such amendment when lodged among the records of the Trust. Unless such
amendment or such certificate sets forth some later time for the effectiveness
of such amendment, such amendment shall be effective when lodged among the
records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
SECTION 8.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized, at any meeting of Shareholders called
for the purpose, by the affirmative vote of the holders of not less than eighty
percent (80%) of the Shares of the Trust outstanding and entitled to vote, or by
an instrument or instruments in writing without a meeting, consented to by the
holders of not less than eighty percent (80%) of such Shares; provided, however,
that, if such merger, consolidation, sale, lease or exchange is recommended by
the Trustees, a Majority Shareholder Vote shall be sufficient authorization; and
any such merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the laws of the
Commonwealth of Massachusetts. Nothing contained herein shall be construed as
requiring approval of shareholders for any sale of assets in the ordinary course
of business of the Trust.
SECTION 8.5. INCORPORATION AND REORGANIZATION. With approval of a
Majority Shareholder Vote, the Trustees may cause to be organized or assist
in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other
organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest,
and to sell, convey and transfer the Trust Property to any such corporation,
trust, partnership, association or organization in exchange for the shares or
securities thereof or otherwise, and to lend money to, subscribe for the
shares or securities of, and enter into any contracts with any such
corporation, trust, partnership, association or organization in which the
Trust holds or is about to acquire shares or any other interest. Subject to
Section 8.4 hereof, the Trustees may also cause a merger or consolidation
between the Trust or any successor thereto and any such corporation, trust,
partnership, association or other organization if and to the extent permitted
by law, as provided under the law then in effect. Nothing contained herein
shall be construed as requiring
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approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to such organization or entities.
SECTION 8.6. CONVERSIONS. Notwithstanding any other provision of this
Declaration, the conversion of the Trust from a "closed-end company" to an
"open-end company," as those terms are defined in Sections 5(a)(2) and 5(a)(1),
respectively, of the 1940 Act, shall require the affirmative vote or consent of
the holders of eighty percent (80%) of the Shares outstanding and entitled to
vote. Such affirmative vote or consent shall be in addition to the vote or
consent of the holders of the Shares otherwise required by law or by the terms
of any class or series of preferred stock, whether now or hereafter authorized,
or any agreement between the Trust and any national securities exchange.
SECTION 8.7. CERTAIN TRANSACTIONS. (a) Notwithstanding any other
provision of this Declaration and subject to the exceptions provided in
paragraph (d) of this Section, the types of transactions described in paragraph
(c) of this Section shall require the affirmative vote or consent of the holders
of eighty percent (80)% of the Shares outstanding and entitled to vote, when a
Principal Shareholder (as defined in paragraph (b) of this Section) is a party
to the transaction. Such affirmative vote or consent shall be in addition to
the vote or consent of the holders of Shares otherwise required by law or by the
terms of any class or series of preferred stock, whether now or hereafter
authorized, or any agreement between the Trust and any national securities
exchange.
(b) The term "Principal Shareholder" shall mean any corporation, person
or other entity which is the beneficial owner, directly or indirectly, of
more than five percent (5%) of the outstanding Shares and shall include any
affiliate or associate, as such terms are defined in clause (ii) below, of a
Principal Shareholder. For the purposes of this Section, in addition to the
Shares which a corporation, person or other entity beneficially owns
directly, (a) any corporation, person or other entity shall be deemed to be
the beneficial owner of any Shares (i) which it has the right to acquire
pursuant to any agreement or upon exercise of conversion rights or warrants,
or otherwise (but excluding share options granted by the Trust) or (ii) which
are beneficially owned, directly or indirectly (including Shares deemed owned
through application of clause (i) above), by any other corporation, person or
entity with which its "affiliate" or "associate" (as defined below) has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of Shares, or which is its "affiliate" or
"associate" as those terms are
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defined in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, and (b) the outstanding Shares shall include Shares deemed
owned through application of clauses (i) and (ii) above but shall not include
any other Shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights or warrants, or otherwise.
(c) This Section shall apply to the following transactions:
(i) The merger or consolidation of the Trust or any subsidiary of the
Trust with or into any Principal Shareholder.
(ii) The issuance of any securities of the Trust to any Principal
Shareholder for cash.
(iii) The sale, lease or exchange of all or any substantial part of the
assets of the Trust to any Principal Shareholder (except assets
having an aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all assets sold,
leased or exchanged in any series of similar transactions within
a twelve-month period.)
(iv) The sale, lease or exchange to the Trust or any subsidiary
thereof, in exchange for securities of the Trust of any assets of
any Principal Shareholder (except assets having an aggregate fair
market value of less than $1,000,000, aggregating for the
purposes of such computation all assets sold, leased or exchanged
in any series of similar transactions within a twelve-month
period).
(d) The provisions of this Section shall not be applicable to (i) any of
the transactions described in paragraph (c) of this Section if the Board of
Trustees of the Trust shall by resolution have approved a memorandum of
understanding with such Principal Shareholder with respect to and substantially
consistent with such transaction, or (ii) any such transaction with any
corporation of which a majority of the outstanding shares of all classes of
stock normally entitled to vote in elections of directors is owned of record or
beneficially by the Trust and its subsidiaries.
(e) The Board of Trustees shall have the power and duty to determine for
the purposes of this Section on the basis of information known to the Trust,
whether (i) a corporation, person or entity beneficially owns more than five
percent (5%) of the outstanding Shares, (ii) a corporation, person or entity is
an "affiliate" or "associate" (as defined above) of another, (iii) the assets
being acquired or leased to or by the Trust or any subsidiary thereof,
constitute a substantial part of the assets of
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the Trust and have an aggregate fair market value of less than $1,000,000, and
(iv) the memorandum of understanding referred to in paragraph (d) hereof is
substantially consistent with the transaction covered thereby. Any such
determination shall be conclusive and binding for all purposes of this Section.
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ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit or cause the officers of
the Trust to submit to the Shareholders a written financial report of the Trust,
including financial statements which shall at least annually be certified by
independent public accountants.
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ARTICLE X
MISCELLANEOUS
SECTION 10.1 FILING. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Each amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee or by the Secretary or any Assistant Secretary of the
Trust stating that such action was duly taken in a manner provided herein. A
restated Declaration, integrating into a single instrument all of the provisions
of the Declaration which are then in effect and operative, may be executed from
time to time by a majority of the Trustees and shall, upon filing with the
Secretary of the Commonwealth of Massachusetts, be conclusive evidence of all
amendments contained therein and may thereafter be referred to in lieu of the
original Declaration and the various amendments thereto.
SECTION 10.2. RESIDENT AGENT. The Prentice-Hall Corporation System, Inc.,
84 State Street, Boston, Massachusetts 02109 is the resident agent of the Trust
in the Commonwealth of Massachusetts.
SECTION 10.3. GOVERNING LAW. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said State.
SECTION 10.4. COUNTERPARTS. The Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
SECTION 10.5. RELIANCE BY THIRD PARTIES. Any certificate executed by
an individual who, according to the records of the Trust, appears to be a
Trustee hereunder, or Secretary or Assistant Secretary of the Trust,
certifying to: (a) the number or identity of Trustees or Shareholders, (b)
the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Shareholders, (d) the
fact that the number of Trustees or Shareholders present at any meeting or
executing any written instrument satisfies the requirements of this
Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (f) the
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existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.
SECTION 10.6. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of the Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provisions shall be deemed superseded by such law or regulation to
the extent necessary to eliminate such conflict; provided, however, that such
determination shall not affect any of the remaining provisions of the
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
pertain only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
SECTION 10.7. USE OF THE NAME "ALLSTATE." Allstate Insurance Company
("Allstate") has consented to the use by the Trust of the identifying name
"Allstate," which is a property right of Allstate. The Trust will only use
the name as a component of its name and for no other purpose, and will not
purport to grant any third party the right to use the name "Allstate" for any
purpose. Allstate, or any corporate affiliate of the parent of Allstate, may
use or grant to others the right to use the name "Allstate", or any
combination or abbreviation thereof, as all or a portion of a corporate or
business name or for any commercial purpose, including a grant of such right
to any other investment company. At the request of Allstate or its parent,
the Trust will take such action as may be required to provide its consent to
the use by Allstate or its parent, or by any corporate affiliate of
Allstate's parent, or by any person to whom Allstate or its parent or an
affiliate of Allstate's parent shall have granted the right to the use, of
the name "Allstate," or any combination or abbreviation thereof. Upon the
termination of any investment advisory agreement into which Allstate
Investment Management Company and the Trust may enter, the Trust shall, upon
request by Allstate or its parent, cease to use the name "Allstate" as a
component of its name, and shall not use the name, or any combination or
abbreviation thereof, as a part of its name or for any other commercial
purpose, and shall cause its officers, trustees and shareholders to take any
and all actions which Allstate or its parent may request to effect the
foregoing and to reconvey to Allstate or its parent any and all rights to
such name.
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IN WITNESS WHEREOF, the undersigned have executed this Declaration of Trust
this 17th day of , 19 .
- ----------------------------------- -----------------------------------
Charles A. Fiumefreddo, as Andrew J. Melton, Jr., as
Trustee and not individually Trustee and not individually
Two World Trade Center Five World Trade Center
New York, New York 10048 New York, New York 10048
- -----------------------------------
Sheldon Curtis, as Trustee
and not individually
Two World Trade Center
New York, New York 10048
STATE OF NEW YORK )
):ss..
COUNTY OF NEW YORK)
On this day of , 19 , ANDREW J. MELTON, JR., CHARLES A.
FIUMEFREDDO and SHELDON CURTIS, known to me and known to be the individuals
described in and who executed the foregoing instrument, personally appeared
before me and they severally acknowledged the foregoing instrument to be their
free act and deed.
My commission expires:
_______________________
29
<PAGE>
C E R T I F I C A T E
The undersigned hereby certifies that he is the Secretary of Allstate Prime
Rate Trust (the "Trust"), an unincorporated business trust organized under the
laws of the Commonwealth of Massachusetts, that annexed hereto is an Amendment
to the Declaration of Trust of the Trust adopted by the unanimous written
consent of the Trustees of the Trust on September 12, 1989, as provided in
Section 8.3 of the said Declaration, said Amendment to take effect immediately,
and I do hereby further certify that such Amendment has not been amended and is
on the date hereof in full force and effect.
Dated this 12th day of September, 1989.
/s/ Sheldon Curtis
----------------------------------
Sheldon Curtis
Secretary
<PAGE>
A M E N D M E N T
Dated: September 12, 1989
To Be Effective: September 12, 1989
TO
ALLSTATE PRIME RATE TRUST
DECLARATION OF TRUST
DATED AUGUST 17, 1989
<PAGE>
Amendment dated September 12,
1989 to the Declaration of Trust
(the "Declaration") of Allstate
Prime Rate Trust (the "Trust")
dated August 17, 1989.
WHEREAS, the Trust was established by the Declaration on the date hereinabove
set forth under the laws of the Commonwealth of Massachusetts; and
WHEREAS, the Trustees of the Trust have deemed it advisable to change the name
of the Trust to "Allstate Prime Income Trust," to be effective on September 12,
1989;
1. Section 1.1 of Article I of the Declaration is hereby amended so that
that Section shall read in its entirety as follows:
"SECTION 1.1. NAME. The name of the trust created hereby is the
"Allstate Prime Income Trust," and so far as may be practicable the
Trustees shall conduct the Trust's activities, execute all documents
and sue or be sued under that name, which name (and the word "Trust"
whenever herein used) shall refer to the Trustees as Trustees, and not
as individuals, or personally, and shall not refer to the officers,
agents, employees or Shareholders of the Trust. Should the Trustees
determine that the use of such name is not advisable, they may use
such other name for the Trust as they deem proper and the Trust may
hold its property and conduct its activities under such other name."
2. Subsection (n) of Section 1.2 of Article I of the Declaration is
hereby amended so that that Section shall read in its entirety as follows:
"SECTION 1.2. DEFINITIONS. . . . .
"(n) "TRUST" means the Allstate Prime Income Trust."
3. The Trustees of the Trust hereby reaffirm the Declaration, as amended,
in all respects.
4. This Amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this amendment to
Declaration of Trust this 12th day of September, 1989.
/s/ Charles A. Fiumefreddo /s/ Andrew J. Melton, Jr.
- ----------------------------------- -----------------------------------
Charles A. Fiumefreddo, as Andrew J. Melton, Jr., as
Trustee and not individually Trustee and not individually
Two World Trade Center Five World Trade Center
New York, New York 10048 New York, New York 10048
/s/ Sheldon Curtis
- -----------------------------------
Sheldon Curtis, as Trustee
and not individually
Two World Trade Center
New York, New York 10048
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
ON this 12th day of September, 1989, ANDREW J. MELTON, JR., CHARLES A.
FIUMEFREDDO and SHELDON CURTIS, known to me to be the individuals described in
and who executed the foregoing instrument, personally appeared before me and
they severally acknowledged the foregoing instrument to be their free act and
deed.
-----------------------------------
Notary Public
My commission expires:
<PAGE>
EXHIBIT 1(c)
C E R T I F I C A T E
The undersigned hereby certifies that he is the Secretary of Allstate Prime
Income Trust (the "Trust"), an unincorporated business trust organized under the
laws of the Commonwealth of Massachusetts, that annexed hereto is an Amendment
to the Declaration of Trust of the Trust adopted by the unanimous written
consent of the Trustees of the Trust on September 28, 1989, as provided in
Section 8.3 of the said Declaration, said Amendment to take effect immediately,
and I do hereby further certify that such Amendment has not been amended and is
on the date hereof in full force and effect.
Dated this 28th day of September, 1989.
/s/ Sheldon Curtis
------------------------------
Sheldon Curtis
Secretary
<PAGE>
A M E N D M E N T
Dated: September 28, 1989
To Be Effective September 28, 1989
TO
ALLSTATE PRIME INCOME TRUST
DECLARATION OF TRUST
DATED AUGUST 17, 1989
<PAGE>
Amendment dated September 28, 1989
to the Declaration of Trust (the
"Declaration") of Allstate Prime
Income Trust (the "Trust") dated
August 17, 1989, as amended
September 12, 1989
WHEREAS, the Trust was established by the Declaration on the date hereinabove
set forth under the laws of the Commonwealth of Massachusetts; and
WHEREAS, the Trustees of the Trust have deemed it advisable to amend the
Declaration, such amendment to be effective on September 28, 1989;
1. Section 2.3 of Article II of the Declaration is hereby amended to read
in its entirety as follows:
"SECTION 2.3. RESIGNATION AND REMOVAL. Any Trustee may resign his
trust (without need for prior or subsequent accounting) by an instrument in
writing signed by him and delivered to the other Trustees and such
resignation shall be effective upon such delivery, or at a later date
according to the terms of the instrument. Any of the Trustees may be
removed (provided the aggregate number of Trustees after such removal shall
not be less than the number required by Section 2.1. hereof) by the action
of two-thirds of the remaining Trustees or by the action of the
Shareholders of record of not less than sixty-six percent (66%) of the
Shares outstanding (for purposes of determining the circumstances and
procedures under which such removal by the Shareholders may take place, the
provisions of Section 16(c) of the 1940 Act shall be applicable to the same
extent as if the Trust were subject to the provisions of that Section).
Upon the resignation or removal of a Trustee, or his otherwise ceasing to
be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding
sentence."
2. Subsection (a) of Section 8.2 of Article VIII of the Declaration is
hereby amended to read in its entirety as follows:
-1-
<PAGE>
"SECTION 8.2. TERMINATION OF TRUST. (a) The Trust may be terminated
(i) by the affirmative vote of the holders of not less than sixty-six
percent (66%) of the Shares outstanding and entitled to vote at a meeting
of Shareholders of the Trust, or (ii) by an instrument in writing, without
a meeting, signed by a majority of the Trustees and consented to by the
holders of not less than two-thirds of such Shares of the Trust. Upon the
termination of the Trust:
(i) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust and
all of the powers of the Trustees under this Declaration shall continue
until the affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose of
all or any part of the remaining Trust Property to one or more persons at
public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay
its liabilities, and to do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property shall require Shareholder approval in accordance with Section 8.4
hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Shareholders of the Trust according to their respective rights."
3. Subsection (c) of Section 8.3 of Article VIII of the Declaration is
hereby amended to read in its entirety as follows:
"SECTION 8.3. AMENDMENT PROCEDURE. . . .
(c) No amendment may be made under this Section 8.3 which shall
amend, alter, change or repeal any of the provisions of Sections 8.3,
8.4, 8.6 and 8.7 unless the amendment effecting such
-2-
<PAGE>
amendment, alteration, change or repeal shall receive the affirmative
vote or consent of sixty-six percent (66%) of the Shares outstanding
and entitled to vote. Such affirmative vote or consent shall be in
addition to the vote or consent of the holders of Shares otherwise
required by law or by the terms of any class or series of preferred
stock, whether now or hereafter authorized, or any agreement between
the Trust and any national securities exchange."
4. Section 8.4 of Article VIII of the Declaration is hereby amended to
read in its entirety as follows:
"SECTION 8.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The
Trust may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or
exchange all or substantially all of the Trust Property, including its
good will, upon such terms and conditions and for such consideration
when and as authorized, at any meeting of Shareholders called for the
purpose, by the affirmative vote of the holders of not less than
sixty-six percent (66%) of the Shares of the Trust outstanding and
entitled to vote, or by an instrument or instruments in writing
without a meeting, consented to by the holders of not less than sixty-
six percent (66%) of such Shares; provided, however, that, if such
merger, consolidation, sale, lease or exchange is recommended by the
Trustees, a Majority Shareholder Vote shall be sufficient
authorization; and any such merger, consolidation, sale, lease or
exchange shall be deemed for all purposes to have been accomplished
under and pursuant to the laws of the Commonwealth of Massachusetts.
Nothing contained herein shall be construed as requiring approval of
shareholders for any sale of assets in the ordinary course of business
of the Trust."
5. Section 8.6 of Article VIII of the Declaration is hereby amended in
its entirety as follows:
"SECTION 8.6. CONVERSION. Notwithstanding any other provision of
this Declaration, the conversion of the Trust from a "closed-end
company" to an "open-end company," as those terms are defined in
Sections 5(a)(2) and 5(a)(1), respectively, of the 1940 Act, shall
require the affirmative vote or consent of the holders of sixty-six
percent (66%) of the Shares outstanding and entitled to vote. Such
affirmative vote or consent shall be in addition to the vote or
consent
-3-
<PAGE>
of the holders of the Shares otherwise required by law or by the terms
of any class or series of preferred stock, whether now or hereafter
authorized, or any agreement between the Trust and any national
securities exchange.
6. Subsection (a) of Section 8.7. of Article VIII of the Declaration is
hereby amended to read in its entirety as follows:
SECTION 8.7. CERTAIN TRANSACTIONS. (a) Notwithstanding any other
provision of this Declaration and subject to the exceptions provided
in paragraph (d) of this Section, the types of transactions described
in paragraph (c) of this Section shall require the affirmative vote or
consent of the holders of sixty-six percent (66%) of the Shares
outstanding and entitled to vote, when a Principal Shareholder (as
defined in paragraph (b) of this Section) is a party to the
transaction. Such affirmative vote or consent shall be in addition to
the vote or consent of the holders of Shares otherwise required by law
or by the terms of any class or series of preferred stock, whether now
or hereafter authorized, or any agreement between the Trust and any
national securities exchange."
7. The Trustees of the Trust hereby reaffirm the Declaration, as amended,
in all respects.
8. This Amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
-4-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this amendment to
Declaration of Trust this 28th day of September, 1989.
/s/ Charles A. Fiumefreddo /s/ Andrew J. Melton
- ----------------------------------- -----------------------------------
Charles A. Fiumefreddo, as Andrew J. Melton, Jr., as
Trustee and not individually Trustee and not individually
Two World Trade Center Five World Trade Center
New York, New York 10048 New York, New York 10048
/s/ Sheldon Curtis
- -----------------------------------
Sheldon Curtis, as Trustee
and not individually
Two World Trade Center
New York, New York 10048
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK)
On this 28th day of September, 1989, ANDREW J. MELTON, JR., CHARLES A.
FIUMEFREDDO and SHELDON CURTIS, known to me to be the individuals described in
and who executed the foregoing instrument, personally appeared before me and
they severally acknowledged the foregoing instrument to be their free act and
deed.
------------------------------
Notary Public
My commission expires:
<PAGE>
EXHIBIT 1(d)
C E R T I F I C A T E
The undersigned hereby certifies that he is the Secretary of Allstate Prime
Income Trust (the "Trust"), an unincorporated business trust organized under the
laws of The Commonwealth of Massachusetts, that annexed hereto is an Amendment
to the Declaration of Trust of the Trust adopted by the unanimous written
consent of the Trustees on February 26, 1993, as provided in Section 8.3 of the
said Declaration, said Amendment to take effect on March 1, 1993, and I do
hereby further certify that such Amendment has not been amended and is on the
date hereof in full force and effect.
Dated this 26th day of February, 1993.
------------------------------
Sheldon Curtis
Secretary
<PAGE>
A M E N D M E N T
Dated: February 26, 1993
To be Effective: March 1, 1993
TO
ALLSTATE PRIME INCOME TRUST
DECLARATION OF TRUST
AUGUST 17, 1989
<PAGE>
Amendment dated February 26, 1993 to the
Declaration of Trust (the "Declaration")
of Allstate Prime Income Trust (the
"Trust") dated August 17, 1989
WHEREAS, the Trust was established by the Declaration on the date hereinabove
set forth under the laws of the Commonwealth of Massachusetts: and
WHEREAS, the Trustees of the Trust have deemed it advisable to change the name
of the Trust to "Prime Income Trust," to be effective on March 1, 1993;
1. Section 1.1 of Article I of the Declaration is hereby amended so that
that Section shall read in its entirety as follows:
"SECTION 1.1 NAME. The name of the Trust created hereby is the "Prime
Income Trust," and so far as may be practicable the Trustees shall conduct
the Trust's activities, execute all documents and sue or be sued under that
name, which name (and the word "Trust" whenever herein used) shall refer to
the Trustees as Trustees, and not as individuals, or personally, and shall
not refer to the officers, agents, employees or Shareholders of the Trust.
Should be Trustees determine that the use of such name is not advisable,
they may use such other name for the Trust as they deem proper and the
Trust may hold its property and conduct its activities under such other
name."
2. Subsection (n) of Section 1.2 of Article I of the Declaration is
hereby amended so that that Section shall read in its entirety as follows:
"SECTION 1.2 DEFINITIONS. . . .
"(n) "TRUST" means the "Prime Income Trust."
3. Section 10.7 of Article X of the Declaration is hereby deleted.
4. The Trustees of the Trust hereby reaffirm the Declaration, as amended,
in all respects.
5. This Amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this 26th day of February, 1993.
/s/ Jack F. Bennett /s/ Paul Kolton
- ----------------------------------- -----------------------------------
Jack F. Bennett, as Trustee Paul Kolton, as Trustee
and not individually and not individually
141 Taconic Road 9 Huntington Ridge Road
Greenwich, CT 06831 Stamford, CT 06903
/s/ Robert M. Gardiner /s/ Charles A. Fiumefreddo
- ----------------------------------- -----------------------------------
Robert M. Gardiner, as Trustee Charles A. Fiumefreddo as Trustee
and not individually and not individually
Two World Trade Center Two World Trade Center
New York, NY 10048 New York, NY 10048
/s/ John R. Haire /s/ Michael E. Nugent
- ----------------------------------- -----------------------------------
John R. Haire, as Trustee Michael E. Nugent, as Trustee
and not individually and not individually
439 East 51st Street 237 Park Avenue
New York, NY 10022 New York, NY 10017
/s/ John E, Jeuck /s/ Albert T. Sommers
- ----------------------------------- -----------------------------------
John E. Jeuck, as Trustee Albert T. Sommers, as Trustee
and not individually and not individually
70 East Cedar Street 16 Bonnie Heights Road
Chicago, IL 60611 Manhasset, NY 11030
/s/ Manuel H. Johnson /s/ Edward R. Telling
- ----------------------------------- -----------------------------------
Manuel H. Johnson, as Trustee Edward R. Telling, as Trustee
and not individually and not individually
7521 Old Dominion Dr. Sears, Roebuck and Co.
MacLean, VA 22102 Sears Tower, 68th Floor
Chicago, IL 60684
/s/ Edwin J. Garn
- -----------------------------------
Edwin J. Garn, as Trustee
and not individually
2000 Eagle Gate Tower
Salt Lake City, Utah 84111
<PAGE>
STATE OF NEW YORK )
:SS.:
COUNTY OF NEW YORK)
On this 26th day of February, 1993, CHARLES A. FIUMEFREDDO, JACK F.
BENNETT, EDWIN J. GARN, MICHAEL E. NUGENT, MANUEL H. JOHNSON, PAUL KOLTON,
ROBERT M. GARDINER, JOHN R. HAIRE, ALBERT T. SOMMERS and EDWARD R. TELLING,
known to me to be the individuals described in and who executed the foregoing
instrument, personally appeared before me and they severally acknowledged the
foregoing instrument to be their free act and deed.
/s/ Marilyn K. Cranney
------------------------------
Notary Public
My commission expires:
<PAGE>
EXHIBIT 8
CUSTODY AGREEMENT
Agreement made as of this th day of , 19 , between ALLSTATE
PRIME INCOME TRUST, a Massachusetts business trust organized and existing
under the laws of the Commonwealth of Massachusetts, having its principal
office and place of business at 2 World Trade Center, New York, New York 10048
(hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York
corporation authorized to do a banking business, having its principal office
and place of business at 48 Wall Street, New York, New York 10286
(hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, shall
have the following meanings:
1. "Agreement" shall mean this Custody Agreement and all Appendices and
Certifications described in the Exhibits delivered in connection herewith.
2. "Authorized Person" shall mean any person, whether or not such person
is an Officer or employee of the Fund, duly authorized by the Board of Trustees
of the Fund to give Oral Instructions and Written Instructions on behalf of the
Fund and listed in the Certificate annexed hereto as Appendix A or such other
Certificate as may be received by the Custodian from time to time, provided that
each person who is designated in any such Certificate as an "Officer of DWTC"
shall be an Authorized Person only for purposes of Articles XII and XIII hereof.
3. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for United States and federal agency securities, its successor or
successors and its nominee or nominees.
<PAGE>
4. "Call Option" shall mean an exchange traded option with respect to
Securities other than Index, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the specified underlying
instruments, currency, or Securities.
5. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given
to the Custodian which is actually received (irrespective of constructive
receipt) by the Custodian and signed on behalf of the Fund by any two Officers.
The term Certificate shall also include instructions by the Fund to the
Custodian communicated by a Terminal Link.
6. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
7. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein.
8. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying
instruments, currency, or Securities (excluding Futures Contracts) which are
owned by the writer thereof.
9. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Trustees specifically approving deposits therein by the
Custodian.
10. "Financial Futures Contract" shall mean the firm commitment to buy or
sell financial instruments on a U.S. commodities exchange or board of trade at a
specified future time at an agreed upon price.
11. "Futures Contract" shall mean a Financial Futures Contract and/or
Index Futures Contracts.
- 2 -
<PAGE>
12. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
13. "Investment Company Act of 1940" shall mean the Investment Company Act
of 1940, as amended, and the rules and regulations thereunder.
14. "Index Futures Contract" shall mean a bilateral agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the value of a particular
index at the close of the last business day of the contract and the price at
which the futures contract is originally struck.
15. "Index Option" shall mean an exchange traded option entitling the
holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
16. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or a Depository shall be deemed to have been deposited
in, or withdrawn from, a Margin Account upon the Custodian's effecting an
appropriate entry in its books and records.
17. "Money Market Security" shall mean all instruments and obligations
commonly known as a money market instruments, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale, including, without limitation, certain Reverse Repurchase
Agreements, debt obligations issued or guaranteed as to interest and/or
principal by the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation note issued by
any state or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase agreements with
respect to Securities and bank time deposits.
18. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the
- 3 -
<PAGE>
Securities Exchange Act of 1934, its successor or successors, and its nominee or
nominees.
19. "Officers" shall mean the President, any Vice President, the
Secretary, the Clerk, the Treasurer, the Controller, any Assistant Secretary,
any Assistant Clerk, any Assistant Treasurer, and any other person or persons,
whether or not any such other person is an officer or employee of the Fund, but
in each case only if duly authorized by the Board of Trustees of the Fund to
execute any Certificate, instruction, notice or other instrument on behalf of
the Fund and listed in the Certificate annexed hereto as Appendix B or such
other Certificate as may be received by the Custodian from time to time;
provided that each person who is designated in any such Certificate as holding
the position of "Officer of DWTC" shall be an Officer only for purposes of
Articles XII and XIII hereof.
20. "Option" shall mean a Call Option, Covered Call Option, Index Option
and/or a Put Option.
21. "Oral Instructions" shall mean verbal instructions actually received
(irrespective of constructive receipt) by the Custodian from an Authorized
Person or from a person reasonably believed by the Custodian to be an Authorized
Person.
22. "Put Option" shall mean an exchange traded option with respect to
instruments, currency, or Securities other than Index Options, Futures
Contracts, and Futures Contract Options entitling the holder, upon timely
exercise and tender of the specified underlying instruments, currency, or
Securities, to sell such instruments, currency, or Securities to the writer
thereof for the exercise price.
23. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
24. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Index Options, Index Futures
Contracts, Index Futures Contract Options, Financial Futures Contracts,
Financial Futures Contract Options, Reverse Repurchase Agreements, over the
counter options on Securities, common stocks and other securities having
characteristics similar to common stocks, preferred stocks, debt obligations
issued by state or municipal governments and by public authorities, (including,
without limitation, general obligation bonds, revenue bonds, industrial bonds
and industrial development bonds), bonds, debentures, notes, mortgages or other
obligations, and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase, sell or subscribe
- 4 -
<PAGE>
for the same, or evidencing or representing any other rights or interest
therein, or rights to any property or assets.
25. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
26. "Series" shall mean the various portfolios, if any, of the Fund as
described from time to time in the current and effective prospectus for the
Fund, except that if the Fund does not have more than one portfolio, "Series"
shall mean the Fund or be ignored where a requirement would be imposed on the
Fund or the Custodian which is unnecessary if there is only one portfolio.
27. "Shares" shall mean the shares of beneficial interest of the Fund and
its Series.
28. "Terminal Link" shall mean an electronic data transmission link
between the Fund and the Custodian requiring in connection with each use of the
Terminal Link the use of an authorization code provided by the Custodian and at
least two access codes established by the Fund, provided, that the Fund shall
have delivered to the Custodian a Certificate substantially in the form of
Appendix C.
29. "Transfer Agent" shall mean Dean Witter Trust Company, a New Jersey
limited purpose trust company, its successors and assigns.
30. "Transfer Agent Account" shall mean any account in the name of the
Transfer Agent maintained with The Bank of New York pursuant to a Cash
Management and Related Services Agreement between The Bank of New York and the
Transfer Agent.
31. "Written Instructions" shall mean written communications actually
received (irrespective of constructive receipt) by the Custodian from an
Authorized Person or from a person reasonably believed by the Custodian to be an
Authorized Person by telex or any other such system whereby the receiver of such
communications is able to verify by codes or otherwise with a reasonable degree
of certainty the identity of the sender of such communication.
- 5 -
<PAGE>
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian of
the Securities and moneys at any time owned by the Fund during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees
to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated, and the Custodian shall not
be responsible for any Securities or money not so delivered. The Custodian shall
physically segregate, keep and maintain the Securities of the Series separate
and apart from each other Series and from other assets held by the Custodian.
Except as otherwise expressly provided in this Agreement, the Custodian will not
be responsible for any Securities and moneys not actually received by it, unless
the Custodian has been negligent or has engaged in willful misconduct with
respect thereto. The Custodian will be entitled to reverse any credits of money
made on the Fund's behalf where such credits have been previously made and
moneys are not finally collected, unless the Custodian has been negligent or has
engaged in willful misconduct with respect thereto. The Fund shall deliver to
the Custodian a certified resolution of the Board of Trustees of the Fund,
substantially in the form of Exhibit A hereto, approving, authorizing and
instructing the Custodian on a continuous and on-going basis to deposit in the
Book-Entry System all Securities eligible for deposit therein, regardless of the
Series to which the same are specifically allocated and to utilize the
Book-Entry System to the extent possible in connection with its performance
hereunder, including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities and deliveries and
returns of Securities collateral. Prior to a deposit of Securities specifically
allocated to a Series in any Depository, the Fund shall deliver to the Custodian
a certified resolution of the Board of Trustees of the Fund,
- 6 -
<PAGE>
substantially in the form of Exhibit B hereto, approving, authorizing and
instructing the Custodian on a continuous and ongoing basis until instructed to
the contrary by a Certificate to deposit in such Depository all Securities
specifically allocated to such Series eligible for deposit therein, and to
utilize such Depository to the extent possible with respect to such Securities
in connection with its performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of Securities collateral. Securities and
moneys deposited in either the Book-Entry System or a Depository will be
represented in accounts which include only assets held by the Custodian for
customers, including, but not limited to, accounts in which the Custodian acts
in a fiduciary or representative capacity and will be specifically allocated on
the Custodian's books to the separate account for the applicable Series. Prior
to the Custodian's accepting, utilizing and acting with respect to Clearing
Member confirmations for Options and transactions in Options for a Series as
provided in this Agreement, the Custodian shall have received a certified
resolution of the Fund's Board of Trustees, substantially in the form of Exhibit
C hereto, approving, authorizing and instructing the Custodian on a continuous
and on-going basis, until instructed to the contrary by a Certificate, to
accept, utilize and act in accordance with such confirmations as provided in
this Agreement with respect to such Series. All securities are to be held or
disposed of by the Custodian for, and subject at all times to the instructions
of, the Fund pursuant to the terms of this Agreement. The Custodian shall have
no power or authority to assign, hypothecate, pledge or otherwise dispose of any
Securities except as provided by the terms of this Agreement, and shall have the
sole power to release and deliver Securities held pursuant to this Agreement.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Such moneys will be held in such manner and account as the Fund and the
Custodian shall agree upon in writing from time to time. Money credited to a
separate account for a Series shall be subject only to drafts, orders, or
charges of the Custodian pursuant to this Agreement and shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Resolutions of the Fund's Board of Trustees certified
by an Officer and by the Secretary or Assistant Secretary of the Fund setting
forth the name and address of the person to whom the payment is to be made, the
Series account from which payment is to be made, the purpose for which payment
is to be made, and declaring such purpose to
- 7 -
<PAGE>
be a proper corporate purpose; provided, however, that amounts representing
dividends, distributions, or redemptions proceeds with respect to Shares
shall be paid only to the Transfer Agent Account;
(c) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to such Series and authorized by this
Agreement; or
(d) Pursuant to Certificates to pay interest, taxes, management fees
or operating expenses (including, without limitation thereto, Board of Trustees'
fees and expenses, and fees for legal accounting and auditing services), which
Certificates set forth the name and address of the person to whom payment is to
be made, state the purpose of such payment and designate the Series for whose
account the payment is to be made.
3. Promptly after the close of business on each day, the Custodian shall
furnish the Fund with confirmations and a summary, on a per Series basis, of all
transfers to or from the account of the Fund for a Series, either hereunder or
with any co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to the account of
the Fund for a Series but held in a Depository, the Custodian shall upon such
transfer also by book-entry or otherwise identify such Securities as belonging
to such Series in a fungible bulk of Securities registered in the name of the
Custodian (or its nominee) or shown on the Custodian's account on the books of
the Book-Entry System or the Depository. At least monthly and from time to time,
the Custodian shall furnish the Fund with a detailed statement, on a per Series
basis, of the Securities and moneys held under this Agreement for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or a
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or a
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in a Depository in a separate
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account in the name of such Series physically segregated at all times from those
of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or a Depository with respect to Securities held
hereunder and therein deposited, shall with respect to all Securities held for
the Fund hereunder in accordance with preceding paragraph 4:
(a) Promptly collect all income and dividends due or payable;
(b) Promptly give notice to the Fund and promptly present for payment
and collect the amount of money or other consideration payable upon such
Securities which are called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call appears in one or more
of the publications listed in Appendix D annexed hereto, which may be amended at
any time by the Custodian without the prior consent of the Fund, provided the
Custodian gives prior notice of such amendment to the Fund;
(c) Promptly present for payment and collect for the Fund's account
the amount payable upon all Securities which mature;
(d) Promptly surrender Securities in temporary form in exchange for
definitive Securities;
(e) Promptly execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect;
(f) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of a Series, all
rights and similar securities issued with respect to any Securities held by the
Custodian for such Series hereunder; and
(g) Promptly deliver to the Fund all notices, proxies, proxy
soliciting materials, consents and other written information (including, without
limitation, notices of tender offers and exchange offers, pendency of calls,
maturities of Securities and expiration of rights) relating to Securities held
pursuant to this Agreement which are actually received by the Custodian, such
proxies and other similar materials to be executed by the registered holder (if
Securities are registered otherwise than in the name of the Fund), but without
indicating the manner in which proxies or consents are to be voted.
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6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Promptly execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities held hereunder for
the Series specified in such Certificate may be exercised;
(b) Promptly deliver any Securities held hereunder for the Series
specified in such Certificate in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the exercise of any
right, warrant or conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
(c) Promptly deliver any Securities held hereunder for the Series
specified in such Certificate to any protective committee, reorganization
committee or other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of any corporation,
and receive and hold hereunder specifically allocated to such Series in exchange
therefor such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery or such Securities as
may be issued upon such delivery; and
(d) Promptly present for payment and collect the amount payable upon
Securities which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of the Investment Company Act of 1940 in connection with the purchase,
sale, settlement, closing out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified in
Certificates in connection with any such purchase, sale, writing, settlement or
closing out upon its receipt from a broker, dealer, or futures commission
merchant of a statement or confirmation reasonably believed by the Custodian to
be in the form customarily used by brokers, dealers, or future
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commission merchants with respect to such Futures Contracts, Options, or Futures
Contract Options, as the case may be, confirming that such Security is held by
such broker, dealer or futures commission merchant, in book-entry form or
otherwise, in the name of the Custodian (or any nominee of the Custodian) as
custodian for the Fund, provided, however, that notwithstanding the foregoing,
payments to or deliveries from the Margin Account and payments with respect to
Securities to which a Margin Account relates, shall be made in accordance with
the terms and conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall, notwithstanding
any provision in this Agreement to the contrary, make payment for any Futures
Contract, Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each execution of a purchase of Securities by the Fund,
other than a purchase of an Option, a Futures Contract, or a Futures Contract
Option, the Fund shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, a Certificate, and
(ii) with respect to each purchase of Money Market Securities, a Certificate,
Oral Instructions or Written Instructions, specifying with respect to each such
purchase: (a) the Series to which such Securities are to be specifically
allocated; (b) the name of the issuer and the title of the Securities; (c) the
number of shares or the principal amount purchased and accrued interest, if any;
(d) the date of purchase and settlement; (e) the purchase price per unit; (f)
the total amount payable upon such purchase; (g) the name of the person from
whom or the broker through whom the purchase was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom payment is to be
made. The Custodian shall, upon receipt of such Securities purchased by or for
the Fund, pay to the broker specified in
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the Certificate out of the moneys held for the account of such Series the total
amount payable upon such purchase, provided that the same conforms to the total
amount payable as set forth in such Certificate, Oral Instructions or Written
Instructions.
2. Promptly after each execution of a sale of Securities by the Fund,
other than a sale of any Option, Futures Contract, Futures Contract Option, or
any Reverse Repurchase Agreement, the Fund shall deliver such to the Custodian
(i) with respect to each sale of Securities which are not Money Market
Securities, a Certificate, and (ii) with respect to each sale of Money Market
Securities, a Certificate, Oral Instructions or Written Instructions, specifying
with respect to each such sale: (a) the Series to which such Securities were
specifically allocated; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and accrued
interest, if any; (d) the date of sale and settlement; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale; (g) the name of
the broker through whom or the person to whom the sale was made, and the name of
the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. On the settlement date, the Custodian shall
deliver the Securities specifically allocated to such Series to the broker in
accordance with generally accepted street practices and as specified in the
Certificate upon receipt of the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable as set forth in such
Certificate, Oral Instructions or Written Instructions.
ARTICLE V
OPTIONS
1. Promptly after each execution of a purchase of any Option by the Fund
other than a closing purchase transaction the Fund shall deliver to the
Custodian a Certificate specifying with respect to each Option purchased: (a)
the Series to which such Option is specifically allocated; (b) the type of
Option (put or call); (c) the instrument, currency, or Security underlying such
Option and the number of Options, or the name of the in the case of an Index
Option, the index to which such Option relates and the number of Index Options
purchased; (d) the expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the total amount payable by the Fund in connection
with such purchase; and (h) the name of the Clearing Member through whom such
Option was purchased. The Custodian shall pay, upon receipt of a Clearing
Member's statement confirming the purchase of such Option held by such Clearing
Member for the account of the Custodian (or any duly appointed and registered
nominee of the
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Custodian) as custodian for the Fund, out of moneys held for the account of the
Series to which such Option is to be specifically allocated, the total amount
payable upon such purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Certificate.
2. Promptly after the execution of a sale of any Option purchased by the
Fund, other than a closing sale transaction, pursuant to paragraph 1 hereof, the
Fund shall deliver to the Custodian a Certificate specifying with respect to
each such sale: (a) the Series to which such Option was specifically allocated;
(b) the type of Option (put or call); (c) the instrument, currency, or Security
underlying such Option and the number of Options, or the name of the issuer and
the title and number of shares subject to such Option or, in the case of a Index
Option, the index to which such Option relates and the number of Index Options
sold; (d) the date of sale; (e) the sale price; (f) the date of settlement; (g)
the total amount payable to the Fund upon such sale; and (h) the name of the
Clearing Member through whom the sale was made. The Custodian shall consent to
the delivery of the Option sold by the Clearing Member which previously supplied
the confirmation described in preceding paragraph 1 of this Article with respect
to such Option against payment to the Custodian of the total amount payable to
the Fund, provided that the same conforms to the total amount payable as set
forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian
a Certificate specifying with respect to such Put Option: (a) the Series to
which such Put Option was specifically allocated; (b) the name of the issuer and
the title and number of shares subject to the Put Option; (c) the expiration
date; (d) the date of exercise
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and settlement; (e) the exercise price per share; (f) the total amount to be
paid to the Fund upon such exercise; and (g) the name of the Clearing Member
through whom such Put Option was exercised. The Custodian shall, upon receipt of
the amount payable upon the exercise of the Put Option, deliver or direct a
Depository to deliver the Securities specifically allocated to such Series,
provided the same conforms to the amount payable to the Fund as set forth in
such Certificate.
5. Promptly after the exercise by the Fund of any Index Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Index Option: (a) the
Series to which such Index Option was specifically allocated; (b) the type of
Index Option (put or call); (c) the number of Options being exercised; (d) the
index to which such Option relates; (e) the expiration date; (f) the exercise
price; (g) the total amount to be received by the Fund in connection with such
exercise; and (h) the Clearing Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct a
Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with a Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
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Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct a Depository to deliver, the underlying Securities as specified in the
Certificate against payment of the amount to be received as set forth in such
Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to such Put Option: (a)
the Series for which such Put Option was written; (b) the name of the issuer and
the title and number of shares for which the Put Option is written and which
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received and
to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate, against delivery of such
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Securities, and shall make the withdrawals specified in such Certificate.
10. Whenever the Fund writes an Index Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Index
Option: (a) the Series for which such Index Option was written; (b) whether such
Index Option is a put or a call; (c) the number of options written; (d) the
index to which such Option relates; (e) the expiration date; (f) the exercise
price; (g) the Clearing Member through whom such Option was written; (h) the
premium to be received by the Fund; (i) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; (j) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Collateral Account for such Series; and (k) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Margin Account, and the name in
which such account is to be or has been established. The Custodian shall, upon
receipt of the premium specified in the Certificate, make the deposits, if any,
into the Senior Security Account specified in the Certificate, and either (1)
deliver such receipts, if any, which the Custodian has specifically agreed to
issue, which are in accordance with the customs prevailing among Clearing
Members in Index Options and make the deposits into the Collateral Account
specified in the Certificate, or (2) make the deposits into the Margin Account
specified in the Certificate.
11. Whenever an Index Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Index
Option: (a) the Series for which such Index Option was written; (b) such
information as may be necessary to identify the Index Option being exercised;
(c) the Clearing Member through whom such Index Option is being exercised; (d)
the total amount payable upon such exercise, and whether such amount is to be
paid by or to the Fund; (e) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Margin Account; and (f) the amount
of cash and/or amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account for such Series; and the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
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12. Promptly after the execution of a purchase or sale by the Fund of any
Option identical to a previously written Option described in paragraphs, 6, 8 or
10 of this Article in a transaction expressly designated as a "Closing Purchase
Transaction" or a "Closing Sale Transaction", the Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction or a
Closing Sale Transaction; (b) the Series for which the Option was written; (c)
the instrument, currency, or Security subject to the Option, or, in the case of
an Index Option, the index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by or the
amount to be paid to the Fund; (f) the expiration date; (g) the type of Option
(put or call); (h) the date of such purchase or sale; (i) the name of the
Clearing Member to whom the premium is to be paid or from whom the amount is to
be received; and (j) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Collateral Account, a specified
Margin Account, or the Senior Security Account for such Series. Upon the
Custodian's payment of the premium or receipt of the amount, as the case may be,
specified in the Certificate and the return and/or cancellation of any receipt
issued pursuant to paragraphs 6, 8 or 10 of this Article with respect to the
Option being liquidated through the Closing Purchase Transaction or the Closing
Sale Transaction, the Custodian shall remove, or direct a Depository to remove,
the previously imposed restrictions on the Securities underlying the Call
Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein, and
upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
14. Securities acquired by the Fund through the exercise of an Option
described in this Article shall be subject to Article IV hereof.
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ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Futures
Contract,(or with respect to any number of identical Futures Contract(s)): (a)
the Series for which the Futures Contract is being entered; (b) the category of
Futures Contract (the name of the underlying index or financial instrument); (c)
the number of identical Futures Contracts entered into; (d) the delivery or
settlement date of the Futures Contract(s); (e) the date the Futures Contract(s)
was (were) entered into and the maturity date; (f) whether the Fund is buying
(going long) or selling (going short) such Futures Contract(s); (g) the amount
of cash and/or the amount and kind of Securities, if any, to be deposited in the
Senior Security Account for such Series; (h) the name of the broker, dealer, or
futures commission merchant through whom the Futures Contract was entered into;
and (i) the amount of fee or commission, if any, to be paid and the name of the
broker, dealer, or futures commission merchant to whom such amount is to be
paid. The Custodian shall make the deposits, if any, to the Margin Account in
accordance with the terms and conditions of the Margin Account Agreement. The
Custodian shall make payment out of the moneys specifically allocated to such
Series of the fee or commission, if any, specified in the Certificate and
deposit in the Senior Security Account for such Series the amount of cash and/or
the amount and kind of Securities specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian prior to the delivery or
settlement date a Certificate specifying: (a) the Futures Contract and the
Series to which the same relates; (b) with respect to an Index Futures Contract,
the total cash settlement amount to be paid
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or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the execution of a purchase of any Futures Contract
Option by the Fund, the Fund shall deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a) the Series to which
such Option is specifically allocated; (b) the type of Futures Contract Option
(put or call); (c) the type of Futures Contract and such other information as
may be necessary to identify the Futures Contract underlying the Futures
Contract Option purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the amount of premium to be paid by
the Fund upon such purchase; (h) the name of the broker or futures commission
merchant through whom such option was purchased; and (i) the name of the broker,
or futures commission merchant, to whom payment is to be made. The Custodian
shall pay out of the moneys specifically allocated to such Series the total
amount to be paid upon such purchase to the broker or futures commissions
merchant through whom the purchase was made, provided that the same conforms to
the amount set forth in such Certificate.
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2. Promptly after the execution of a sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to each such sale: (a)
Series to which such Futures Contract Option was specifically allocated; (b) the
type of Future Contract Option (put or call); (c) the type of Futures Contract
and such other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker of futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments of money, if any,
and the deposits of Securities, if any, into the Senior Security Account as
specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in
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the Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a call
is exercised, the Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract
Option is exercised; (e) the net total amount, if any, payable to the Fund upon
such exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
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7. Promptly after the execution by the Fund of a purchase of any Futures
Contract Option identical to a previously written Futures Contract Option
described in this Article in order to liquidate its position as a writer of such
Futures Contract Option, the Fund shall deliver to the Custodian a Certificate
specifying with respect to the Futures Contract Option being purchased: (a) the
Series to which such Option is specifically allocated; (b) that the transaction
is a closing transaction; (c) the type of Future Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Option Contract; (d) the exercise price; (e) the premium to be paid by
the Fund; (f) the expiration date; (g) the name of the broker or futures
commission merchant to whom the premium is to be paid; and (h) the amount of
cash and/or the amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account for such Series. The Custodian shall effect the
withdrawals from the Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after the execution of any short sales of Securities by any
Series of the Fund, the Fund shall deliver to the Custodian a Certificate
specifying: (a) the Series for which such short sale was made; (b) the name of
the issuer and the title of the Security; (c) the number of shares or principal
amount sold, and accrued interest or dividends, if any; (d) the dates of the
sale and settlement; (e) the sale
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price per unit; (f) the total amount credited to the Fund upon such sale, if
any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. Promptly after the execution of a purchase to close-out any short sale
of Securities, the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to each such closing out: (a) the Series for which such
transaction is being made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or the principal amount, and accrued interest
or dividends, if any, required to effect such closing-out to be delivered to the
broker; (d) the dates of closing-out and settlement; (e) the purchase price per
unit; (f) the net total amount payable to the Fund upon such closing-out; (g)
the net total amount payable to the broker upon such closing-out; (h) the amount
of cash and the amount and kind of Securities to be withdrawn, if any, from the
Margin Account; (i) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account; and (j) the name of
the broker through whom the Fund is effecting such closing-out. The Custodian
shall, upon receipt of the net total amount payable to the Fund upon such
closing-out, and the return and/ or cancellation of the receipts, if any, issued
by the Custodian with respect to the short sale being closed-out, pay out of the
moneys held for the account of the Fund to the broker the net total amount
payable to the broker, and make the withdrawals from the Margin Account and the
Senior Security Account, as the same are specified in the Certificate.
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ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate, Oral Instructions, or
Written Instructions specifying: (a) the Series for which the Reverse Repurchase
Agreement is entered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically allocated to such
Series; (c) the broker, dealer, or financial institution with whom the Reverse
Repurchase Agreement is entered; (d) the amount and kind of Securities to be
delivered by the Fund to such broker, dealer, or financial institution; (e) the
date of such Reverse Repurchase Agreement; and (f) the amount of cash and/or the
amount and kind of Securities, if any, specifically allocated to such Series to
be deposited in a Senior Security Account for such Series in connection with
such Reverse Repurchase Agreement. The Custodian shall, upon receipt of the
total amount payable to the Fund specified in the Certificate, Oral
Instructions, or Written Instructions make the delivery to the broker, dealer,
or financial institution and the deposits, if any, to the Senior Security
Account, specified in such Certificate, Oral Instructions, or Written
Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate, Oral Instructions, or Written Instructions to the
Custodian specifying: (a) the Reverse Repurchase Agreement being terminated and
the Series for which same was entered; (b) the total amount payable by the Fund
in connection with such termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series in connection
with such termination; (d) the date of termination; (e) the name of the broker,
dealer, or financial institution with whom the Reverse Repurchase Agreement is
to be terminated; and (f) the amount of cash and/or the amount and kind of
Securities to be withdrawn from the Senior Securities Account for such Series.
The Custodian shall, upon receipt of the amount and kind of Securities to be
received by the Fund specified in the Certificate, Oral Instructions, or Written
Instructions, make the payment to the broker, dealer, or financial institution
and the withdrawals, if any, from the Senior Security Account, specified in such
Certificate, Oral Instructions, or Written Instructions.
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3. The Certificates, Oral Instructions, or Written Instructions described
in paragraphs 1 and 2 of this Article may with respect to any particular Reverse
Repurchase Agreement be combined and delivered to the Custodian at the time of
entering into such Reverse Repurchase Agreement.
ARTICLE X
LOANS OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated in the
Certificate as to be delivered against the loan of Securities. The Custodian may
accept payment in connection with a delivery otherwise than through the
Book-Entry System or a Depository only in the form of a certified or bank
cashier's check payable to the order of the Fund or the Custodian drawn on New
York Clearing House funds.
2. In connection with each termination of a loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
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ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall establish a Senior Security Account and from time
to time make such deposits thereto, or withdrawals therefrom, as specified in a
Certificate. Such Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be deposited in, or
withdrawn from, such Senior Security Account for such Series. In the event that
the Fund fails to specify in a Certificate the Series, the name of the issuer,
the title and the number of shares or the principal amount of any particular
Securities to be deposited by the Custodian into, or withdrawn from, a Senior
Securities Account, the Custodian shall be under no obligation to make any such
deposit or withdrawal and shall promptly notify the Fund that no such deposit
has been made.
2. The Custodian shall make deliveries or payments from a Margin Account
to the broker, dealer, futures commission merchant or Clearing Member in whose
name, or for whose benefit, the account was established as specified in the
Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the
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Margin Account; (b) the amount and kind of Securities held therein; and (c) the
amount of money held therein. The Custodian shall make available upon request to
any broker, dealer, or futures commission merchant specified in the name of a
Margin Account a copy of the statement furnished the Fund with respect to such
Margin Account.
6. The Custodian shall establish a Collateral Account and from time to
time shall make such deposits thereto as may be specified in a Certificate.
Promptly after the close of business on each business day in which cash
and/or Securities are maintained in a Collateral Account for any Series, the
Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind
of Securities held therein. No later than the close of business next
succeeding the delivery to the Fund of such statement, the Fund shall furnish
to the Custodian a Certificate or Written Instructions specifying the then
market value of the Securities described in such statement. In the event such
then market value is indicated to be less than the Custodian's obligation
with respect to any outstanding Put Option guarantee letter or similar
document, the Fund shall promptly specifiy in a Certificate the additional
cash and/or Securities to be deposited in such Collateral Account to
eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Trustees of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, either (i) setting forth with
respect to the Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent and any sub-dividend agent or
co-dividend agent of the Fund on the payment date, or (ii) authorizing with
respect to the Series specified therein and the declaration of dividends and
distributions thereon the Custodian to rely on Oral Instructions, Written
Instructions, or a Certificate setting forth the date of the declaration of such
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent on the payment date.
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2. Upon the payment date specified in such resolution, Oral Instructions,
Written Instructions, or Certificate, as the case may be, the Custodian shall
pay to the Transfer Agent Account out of the moneys held for the account of the
Series specified therein the total amount payable to the Dividend Agent and any
sub-dividend agent or co-dividend agent of the Fund with respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver or cause to
be delivered, to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and price; and
(b) The amount of money to be received by the Custodian for the sale
of such Shares and specifically allocated to the separate account in the name of
such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series the Custodian shall pay, out
of the money held for the account of such Series, all original issue or other
taxes required to be paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish, or cause to be
furnished, to the Custodian a Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt of an advice from an Authorized Person setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent Account out of the moneys held in the separate
account in the name of the Series the total amount
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specified in the Certificate issued pursuant to the foregoing paragraph 4 of
this Article.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate, Oral Instructions, or
Written Instructions or which results in an overdraft in the separate account of
such Series for some other reason, or if the Fund is for any other reason
indebted to the Custodian with respect to a Series, (except a borrowing for
investment or for temporary or emergency purposes using Securities as collateral
pursuant to a separate agreement and subject to the provisions of paragraph 2 of
this Article), such overdraft or indebtedness shall be deemed to be a loan made
by the Custodian to the Fund for such Series payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to the Federal Funds Rate plus 1/2%,
such rate to be adjusted on the effective date of any change in such Federal
Funds Rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien and security
interest in the aggregate amount of such overdrafts and indebtedness as may from
time to time exist in and to any property specifically allocated to such Series
at any time held by it for the benefit of such Series or in which the Fund may
have an interest which is then in the Custodian's possession or control or in
possession or control of any third party acting in the Custodian's behalf. The
Fund authorizes the Custodian, in its sole discretion, at any time to charge any
such overdraft or indebtedness together with interest due thereon against any
money balance of account standing to such Series' credit on the Custodian's
books. In addition, the Fund hereby covenants that on each Business Day on which
either it intends to enter a Reverse Repurchase Agreement and/or otherwise
borrow from a third party, or which next succeeds a Business Day on which at the
close of business the Fund had outstanding a Reverse Repurchase Agreement or
such a borrowing, it shall prior to 9 a.m., New York City time, advise the
Custodian, in writing, of each such borrowing, shall specify the Series to which
the same relates, and shall not incur any indebtedness, including pursuant to
any Reverse Repurchase Agreement, not so specified other than from the
Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a
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separate agreement, the Custodian) from which it borrows money for investment or
for temporary or emergency purposes using Securities held by the Custodian
hereunder as collateral for such borrowings, a notice or undertaking in the form
currently employed by any such bank setting forth the amount which such bank
will loan to the Fund against delivery of a stated amount of collateral. The
Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to each such borrowing: (a) the Series to which such borrowing relates;
(b) the name of the bank, (c) the amount and terms of the borrowing, which may
be set forth by incorporating by reference an attached promissory note, duly
endorsed by the Fund, or other loan agreement, (d) the time and date, if known,
on which the loan is to be entered into, (e) the date on which the loan becomes
due and payable, (f) the total amount payable to the Fund on the borrowing date,
(g) the market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the Investment Company Act of
1940 and the Fund's prospectus. The Custodian shall deliver on the borrowing
date specified in a Certificate the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may, at the option of the
lending bank, keep such collateral in its possession, but such collateral shall
be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver such Securities
as additional collateral as may be specified in a Certificate to collateralize
further any transaction described in this paragraph. The Fund shall cause all
Securities released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund fails to specify
in a Certificate the Series, the name of the issuer, the title and number of
shares or the principal amount of any particular Securities to be delivered as
collateral by the Custodian, to any such bank, the Custodian shall not be under
any obligation to deliver any Securities.
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ARTICLE XV
CONCERNING THE CUSTODIAN
1. The Custodian shall use reasonable care in the performance of its
duties hereunder, and, except as hereinafter provided, neither the Custodian nor
its nominee shall be liable for any loss or damage, including counsel fees,
resulting from its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss or damage arising
out of its own negligence, bad faith, or willful misconduct or that of its
officers, employees, or agents. The Custodian may, with respect to questions of
law arising hereunder or under any Margin Account Agreement, apply for and
obtain the advice and opinion of counsel to the Fund, at the expense of the
Fund, or of its own counsel, at its own expense, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Notwithstanding the foregoing, the Custodian shall be under no
obligation to inquire into, and shall not be liable for:
(a) The validity (but not the authenticity) of the issue of any
Securities purchased, sold, or written by or for the Fund, the legality of the
purchase, sale or writing thereof, or the propriety of the amount paid or
received therefor, as specified in a Certificate, Oral Instructions, or Written
Instructions;
(b) The legality of the sale or redemption of any Shares, or the
propriety of the amount to be received or paid therefor, as specified in a
Certificate;
(c) The legality of the declaration or payment of any dividend by the
Fund, as specified in a resolution, Certificate, Oral Instructions, or Written
Instructions;
(d) The legality of any borrowing by the Fund using Securities as
collateral;
(e) The legality of any loan of portfolio Securities, nor shall
the Custodian be under any duty or obligation to see to it that the cash
collateral delivered to it by a broker, dealer, or financial institution or
held by it at any time as a result of such loan of portfolio Securities of the
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Fund is adequate collateral for the Fund against any loss it might sustain as a
result of such loan, except that this sub-paragraph shall not excuse any
liability the Custodian may have for failing to act in accordance with Article X
hereof or any Certificate, Oral Instructions, or Written Instructions given in
accordance with this Agreement. The Custodian specifically, but not by way of
limitation, shall not be under any duty or obligation periodically to check or
notify the Fund that the amount of such cash collateral held by it for the Fund
is sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of the Fund are lent pursuant to Article X of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund, except that this
sub-paragraph shall not excuse any liability the Custodian may have for failing
to establish, maintain, make deposits to or withdrawals from such accounts in
accordance with this Agreement. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer, futures commission merchant
or Clearing Member makes payment to the Fund of any variation margin payment or
similar payment which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see that any payment
received by the Custodian from any broker, dealer, futures commission merchant
or Clearing Member is the amount the Fund is entitled to receive, or to notify
the Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives such money directly or by the final
crediting of the account representing the Fund's interest at the Book-Entry
System or the Depository.
4. With respect to Securities held in a Depository, except as otherwise
provided in paragraph 5(b) of Article III hereof, the Custodian shall have no
responsibility and shall not be liable for ascertaining or acting upon any
calls, conversions, exchange offers, tenders, interest rate changes or similar
matters relating to such Securities, unless the Custodian shall have actually
received timely notice from the
- 32 -
<PAGE>
Depository in which such Securities are held. In no event shall the Custodian
have any responsibility or liability for the failure of a Depository to collect,
or for the late collection or late crediting by a Depository of any amount
payable upon Securities deposited in a Depository which may mature or be
redeemed, retired, called or otherwise become payable. However, upon receipt of
a Certificate from the Fund of an overdue amount on Securities held in a
Depository the Custodian shall make a claim against the Depository on behalf of
the Fund, except that the Custodian shall not be under any obligation to appear
in, prosecute or defend any action suit or proceeding in respect to any
Securities held by a Depository which in its opinion may involve it in expense
or liability, unless indemnity satisfactory to it against all expense and
liability be furnished as often as may be required, or alternatively, the Fund
shall be subrogated to the rights of the Custodian with respect to such claim
against the Depository should it so request in a Certificate. This paragraph
shall not, however, excuse any failure by the Custodian to act in accordance
with a Certificate, Oral Instructions, or Written Instructions given in
accordance with this Agreement.
5. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount due to the Fund from the Transfer Agent of
the Fund nor to take any action to effect payment or distribution by the
Transfer Agent of the Fund of any amount paid by the Custodian to the Transfer
Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount if the Securities upon which such amount is
payable are in default, or if payment is refused after the Custodian has timely
and properly, in accordance with this Agreement, made due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action, but the Custodian
shall have such a duty if the Securities were not in default on the payable date
and the Custodian failed to timely and properly make such demand for payment and
such failure is the reason for the non-receipt of payment.
7. The Custodian may appoint one or more banking institutions as
Sub-Custodian or Sub-Custodians, or as Co-Custodian or Co-Custodians including,
but not limited to, banking institutions located in foreign countries, of
Securities and moneys at any time owned by the Fund, upon such terms and
conditions as may be approved in a Certificate or contained in an agreement
executed by the Custodian, the Fund and the appointed institution.
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<PAGE>
8. The Custodian agrees to indemnify the Fund against and save the Fund
harmless from all liability, claims, losses and demands whatsoever, including
attorney's fees, howsoever arising or incurred because of the negligence, bad
faith or willful misconduct of any Sub-Custodian of the Securities and moneys
owned by the Fund, provided such Sub-Custodian is a banking institution located
in a foreign country and appointed by the Custodian pursuant to paragraph 7 of
this Article.
9. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it, for
the account of the Fund and specifically allocated to a Series are such as
properly may be held by the Fund or such Series under the provisions of its then
current prospectus, or (b) to ascertain whether any transactions by the Fund,
whether or not involving the Custodian, are such transactions as may properly be
engaged in by the Fund.
10. The Custodian shall be entitled to receive and the Fund agrees to pay
to the Custodian all reasonable out-of-pocket expenses and such compensation as
may be agreed upon from time to time between the Custodian and the Fund. The
Custodian may charge such compensation, and any such expenses with respect to a
Series incurred by the Custodian in the performance of its duties under this
Agreement against any money specifically allocated to such Series. The Custodian
shall also be entitled to charge against any money held by it for the account of
a Series the amount of any loss, damage, liability or expense, including counsel
fees, for which it shall be entitled to reimbursement under the provisions of
this Agreement attributable to, or arising out of, its serving as Custodian for
such Series. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund. Notwithstanding the foregoing or anything else contained
in this Agreement to the contrary, the Custodian shall, prior to effecting any
charge for compensation, expenses, or any overdraft or indebtedness or interest
thereon, submit an invoice therefor to the Fund.
11. The Custodian shall be entitled to rely upon any Certificate, notice
or other instrument in writing, Oral Instructions, or Written Instructions
received by the Custodian and reasonably believed by the Custodian to be
genuine. The Fund agrees to forward to the Custodian a Certificate or facsimile
thereof confirming Oral Instructions or Written Instructions in such manner so
that such Certificate or facsimile thereof is received by the Custodian, whether
by hand delivery, telecopier or other similar device,
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<PAGE>
or otherwise, by the close of business of the same day that such Oral
Instructions or Written Instructions are given to the Custodian. The Fund agrees
that the fact that such confirming instructions are not received by the
Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions thereby authorized by the Fund. The Fund
agrees that the Custodian shall incur no liability to the Fund in acting upon
Oral Instructions or Written Instructions given to the Custodian hereunder
concerning such transactions provided such instructions reasonably appear to
have been received from an Authorized Person.
12. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member. This paragraph shall not excuse any failure by the Custodian to
have acted in accordance with any Margin Agreement it has executed or any
Certificate, Oral Instructions, or Written Instructions given in accordance with
this Agreement.
13. The books and records pertaining to the Fund, as described in Appendix
E hereto, which are in the possession of the Custodian shall be the property of
the Fund. Such books and records shall be prepared and maintained by the
Custodian as required by the Investment Company Act of 1940, as amended, and
other applicable securities laws and rules and regulations. The Fund, or the
Fund's authorized representatives, shall have access to such books and records
during the Custodian's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by the Custodian to
the Fund or the Fund's authorized representative, and the Fund shall reimburse
the Custodian its expenses of providing such copies. Upon reasonable request of
the Fund, the Custodian shall provide in hard copy or on micro-film, whichever
the Custodian elects, any records included in any such delivery which are
maintained by the Custodian on a computer disc, or are similarly maintained, and
the Fund shall reimburse the Custodian for its expenses of providing such hard
copy or micro-film.
14. The Custodian shall provide the Fund with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System,
each Depository or O.C.C., and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to time.
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<PAGE>
15. The Custodian shall furnish upon request annually to the Fund a letter
prepared by the Custodian's accountants with respect to the Custodian's internal
systems and controls in the form generally provided by the Custodian to other
investment companies for which the Custodian acts as custodian.
16. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising out of, or related to, the
Custodian's performance of its obligations under this Agreement, except for any
such liability, claim, loss and demand arising out of the Custodian's own
negligence, bad faith, or willful misconduct or that of its officers, employees,
or agents.
17. Subject to the foregoing provisions of this Agreement, the Custodian
shall deliver and receive Securities, and receipts with respect to such
Securities, and shall make and receive payments only in accordance with the
customs prevailing from time to time among brokers or dealers in such
Securities and, except as may otherwise be provided by this Agreement or as
may be in accordance with such customs, shall make payment for Securities only
against delivery thereof and deliveries of Securities only against payment
therefor.
18. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XVI
TERMINATION
1. Except as provided in paragraph 3 of this Article, this Agreement
shall continue until terminated by either the Custodian giving to the Fund, or
the Fund giving to the Custodian, a notice in writing specifying the date of
such termination, which date shall be not less than 60 days after the date of
the giving of such notice. In the event such notice or a notice pursuant to
paragraph 3 of this Article is given by the Fund, it shall be accompanied by a
copy of a resolution of the Board of Trustees of the Fund, certified by an
Officer and the Secretary or an Assistant Secretary of the Fund, electing to
terminate this Agreement and designating a successor custodian or custodians,
each of which shall be eligible to serve as a custodian for the securities of a
management investment company under the Investment Company Act of 1940. In the
event such notice is given by the Custodian, the Fund shall, on or before the
termination date, deliver to the Custodian a copy of a resolution of the Board
of Trustees
- 36 -
<PAGE>
of the Fund, certified by the Secretary, the Clerk, any Assistant
Secretary or any Assistant Clerk, designating a successor custodian or
custodians. In the absence of such designation by the Fund, the
Custodian may designate a successor custodian which shall be a bank or
trust company having not less than $2,000,000 aggregate capital, surplus and
undivided profits. Upon the date set forth in such notice this
Agreement shall terminate, and the Custodian shall upon receipt of a notice
of acceptance by the successor custodian on that date deliver directly to
the successor custodian all Securities and moneys then owned by the Fund and
held by it as Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be
entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall
upon the date specified in the notice of termination of this Agreement and
upon the delivery by the Custodian of all Securities (other than Securities
held in the Book-Entry System which cannot be delivered to the Fund)
and moneys then owned by the Fund be deemed to be its own custodian and the
Custodian shall thereby be relieved of all duties and responsibilities
pursuant to this Agreement, other than the duty with respect to Securities
held in the Book Entry System which cannot be delivered to the Fund to
hold such Securities hereunder in accordance with this Agreement.
3. Notwithstanding the foregoing, the Fund may terminate this Agreement
upon the date specified in a written notice in the event of the "Bankruptcy" of
The Bank of New York. As used in this sub-paragraph, the term "Bankruptcy" shall
mean The Bank of New York's making a general assignment, arrangement or
composition with or for the benefit of its creditors, or instituting or having
instituted against it a proceeding seeking a judgment of insolvency or
bankruptcy or the entry of a order for relief under any applicable bankruptcy
law or any other relief under any bankruptcy or insolvency law or other similar
law affecting creditors' rights, or if a petition is presented for the winding
up or liquidation of the party or a resolution is passed for its winding up or
liquidation, or it seeks, or becomes subject to, the appointment of an
administrator, receiver, trustee, custodian or other similar official for it or
for all or substantially all of its assets or its taking any action in
furtherance or, or indicating its consent to approval of, or acquiescence in,
any of the foregoing.
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<PAGE>
ARTICLE XVII
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated to
have or utilize the Terminal Link, and the provisions of this Article shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to and to receive notices
from the Custodian.
2. The parties hereto shall utilize the Terminal Link only for the
purpose of the Fund providing Certificates to the Custodian and the Custodian
providing notices to the Fund and only after the Fund and the Custodian shall
have established access codes and internal safekeeping procedures to safeguard
and protect the confidentiality and availability of such access codes. Each use
of the Terminal Link by the Fund shall constitute a representation and warranty
that at least two such access codes have been utilized and that such procedures
have been established.
3. Each party shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the other party shall not be
responsible for the reliability or availability of any such equipment or
services, except that the Custodian shall not pay any communications costs of
any line leased by the Fund, even if such line is also used by the Custodian.
4. The Fund acknowledges that any data bases made available as part of,
or through the Terminal and any proprietary data, software, processes,
information and documentation (other than any such which are or become part of
the public domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall, and shall cause others to which it discloses
the Information, to keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential property and trade
secrets, and shall neither make nor permit any disclosure without the express
prior written consent of the Custodian.
5. Upon termination of this Agreement for any reason, each Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties. The provisions of this Article shall not affect the copyright status of
any of the Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
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<PAGE>
6. The Custodian reserves the right to modify the Terminal Link from time
to time without notice to the Fund, except that the Custodian shall give the
Fund notice not less than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund agrees not to
modify or attempt to modify the Terminal Link without the Bank's prior written
consent. The Fund acknowledges that the Terminal Link is the property of the
Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund or the Custodian and whether with or without
the Custodian's consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it utilizes
or the Fund utilizes in connection with the Terminal Link makes any warranties
or representations, express or implied, in fact or in law, including but not
limited to warranties of merchantability and fitness for a particular purpose.
8. Each party will, and will cause its officers and employees to, treat
the user and authorization codes, passwords and authentication keys applicable
to Terminal Link with extreme care. Each party hereby irrevocably authorizes the
other to act in accordance with and rely on Certificates and notices received by
it through the Terminal Link. Each party acknowledges that it is its
responsibility to assure that only its authorized persons use the Terminal Link
on its behalf, and that a party shall not be responsible nor liable for use of
the Terminal Link on its behalf of the other party by unauthorized persons
except that the other party shall be liable for such use thereof by unauthorized
persons who have obtained access thereto as a result of the bad faith or willful
misconduct of such party or any of its officers or employees.
9. Notwithstanding anything else in this Agreement to the contrary,
neither party shall have any liability to the other for any losses, damages,
injuries, claims, costs or expenses arising as a result of a delay, omission or
error in the transmission of a Certificate or notice by use of the Terminal Link
except for money damages for those suffered as the result of the negligence, bad
faith or willfull misconduct of such party or its officers, employees or agents
in an amount not exceeding for any incident $100,000, provided, however, that a
party shall have no liability under this Section 9 if the other party fails to
comply with the provisions of Section 11.
10. Without limiting the generality of the foregoing, it is hereby agreed
that in no event shall either party or any manufacturer or supplier of its
computer equipment, software or services relating to the Terminal Link be
responsible for
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<PAGE>
any special, indirect, incidental or consequential damages which the other party
may incur or experience by reason of its use of the Terminal Link even if such
party, manufacturer or supplier has been advised of the possibility of such
damages, nor with respect to the use of the Terminal Link shall either party or
any such manufacturer or supplier be liable for acts of God, or with respect to
the following to the extent beyond such person's reasonable control: machine or
computer breakdown or malfunction, interruption or malfunction of communication
facilities, labor difficulties or any other similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the business day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian learns
of any errors, omissions or interruption in, or delay or unavailability of, the
Terminal Link.
12. Each party shall, as soon as practicable after its receipt of a
Certificate or of any notice transmitted by the Terminal Link, verify to the
other party by use of the Terminal Link its receipt of such Certificate or
notice, and in the absence of such verification a party to whom a Certificate or
notice is sent shall not be liable for any failure to act in accordance with
such Certificate or notice, and the sending party may not claim that such
Certificate or notice was received by the other.
ARTICLE XVIII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Authorized Persons. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event that any such present
Authorized Person ceases to be an Authorized Person or in the event that other
or additional Authorized Persons are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be entitled to rely and to
act upon Oral Instructions, Written Instructions, or signatures of the present
Authorized Persons as set forth in the last delivered Certificate to the extent
provided by this Agreement.
- 40 -
<PAGE>
2. Annexed hereto as Appendix B is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Officers of the Fund. The Fund agrees to furnish to
the Custodian a new Certificate in similar form in the event any such present
Officer ceases to be an Officer of the Fund, or in the event that other or
additional Officers are elected or appointed. Until such new Certificate shall
be received, the Custodian shall be entitled to rely and to act upon the
signatures of the Officers as set forth in the last delivered Certificate to the
extent provided by this Agreement.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, other than any Certificate or
Written Instructions, shall be sufficiently given if addressed to the Custodian
and mailed or delivered to it at its offices at 90 Washington Street, New York,
New York 10286, or at such other place as the Custodian may from time to time
designate in writing.
4. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
5. This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund,
except that Appendices A and B may be amended unilaterally by the Fund without
such an approving resolution.
6. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian or The Bank of New York without the
written consent of the Fund, authorized or approved by a resolution of the
Fund's Board of Trustees. For purposes of this paragraph, no merger,
consolidation, or amalgamation of the Custodian, The Bank of New York, or the
Fund shall be deemed to constitute an assignment of this Agreement.
7. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
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<PAGE>
8. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
9. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
ALLSTATE PRIME INCOME TRUST
[SEAL] By:_______________________
Attest:
_______________________
THE BANK OF NEW YORK
[SEAL] By:_______________________
Attest:
_______________________
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<PAGE>
APPENDIX A
I, , President and I, ,
of , a Massachusetts business trust (the
"Fund"), do hereby certify that:
The following individuals have been duly authorized by the Board of
Trustees of the Fund in conformity with the Fund's Declaration of Trust and
By-Laws to give Oral Instructions and Written Instructions on behalf of the
Fund, except that those persons designated as being an "Officer of DWTC" shall
be an Authorized Person only for purposes of Articles XII and XIII. The
signatures set forth opposite their respective names are their true and correct
signatures:
Name Position Signature
_________________ ________________ _________________
<PAGE>
APPENDIX B
I, , President and I, ,
of , a Massachusetts business trust (the
"Fund"), do hereby certify that:
The following individuals for whom a position other than "Officer of DWTC"
is specified serve in the following positions with the Fund and each has been
duly elected or appointed by the Board of Trustees of the Fund to each such
position and qualified therefor in conformity with the Fund's Declaration of
Trust and By-Laws. With respect to the following individuals for whom a position
of "Officer of DWTC" is specified, each such individual has been designated by a
resolution of the Board of Trustees of the Fund to be an Officer for purposes of
the Fund's Custody Agreement with The Bank of New York, but only for purposes of
Articles XII and XIII thereof and a certified copy of such resolution is
attached hereto. The signatures of each individual below set forth opposite
their respective names are their true and correct signatures:
Name Position Signature
____________________ ___________________ _________________
<PAGE>
APPENDIX C
The undersigned, hereby certifies that
he or she is the duly elected and acting of
(the "Fund"), further certifies that the following
resolutions were adopted by the Board of Trustees of the Fund at a meeting duly
held on , 1991, at which a quorum at all times present and
that such resolutions have not been modified or rescinded and are in full force
an effect as of the date hereof.
RESOLVED, that The Bank New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
1991 (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis to act in accordance with, and to rely on instructions by the Fund
to the Custodian communicated by a Terminal Link as defined in the Custody
Agreement.
RESOLVED, that the Fund shall establish access codes and grant use of such
access codes only to officers of the Fund as defined in the Custody Agreement,
and shall establish internal safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes.
RESOLVED, that Officers of the Fund as defined in the Custody Agreement
shall, following the establishment of such access codes and such internal
safekeeping procedures, advise the Custodian that the same have been established
by delivering a Certificate, as defined in the Custody Agreement, and the
Custodian shall be entitled to rely upon such advice.
IN WITNESS WHEREOF, I hereunto set my hand in the seal of ,
as of the day of , 1991.
---------------------
<PAGE>
APPENDIX D
I, Richard P. Lando, an Assistant Vice President with THE BANK OF NEW YORK
do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
APPENDIX E
The following books and records pertaining to Fund shall be prepared and
maintained by the Custodian and shall be the property of the Fund:
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that he or she
is the duly elected and acting of , a
Massachusetts business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1991, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1991, (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis to deposit in the Book-Entry System, as
defined in the Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are specifically
allocated, and to utilize the Book-Entry System to the extent possible in
connection with its performance thereunder, including, without limitation,
in connection with settlements of purchases and sales of securities, loans
of securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of ,
as of the day of , 1991.
--------------------------
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies that he or
she is the duly elected and acting of , a
Massachusetts business Trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1991, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1991, (the "Custody Agreement") is authorized and instructed
on a continuous and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the contrary to
deposit in The Depository Trust Company ("DTC"), as a "Depository" as
defined in the Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are specifically
allocated, and to utilize DTC to the extent possible in connection with its
performance thereunder, including, without limitation, in connection with
settlements of purchases and sales of securities, loans of securities, and
deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of ,
as of the day of , 1991.
-----------------------------------
[SEAL]
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies that he or
she is the duly elected and acting of ,
a Massachusetts business Trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1991, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1991, (the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis until such time as it receives a
Certificate, as defined in the Custody Agreement, to the contrary to
deposit in the Participants Trust Company as a Depository, as defined in
the Custody Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are specifically allocated, and
to utilize the Participants Trust Company to the extent possible in
connection with its performance thereunder, including, without limitation,
in connection with settlements of purchases and sales of securities, loans
of securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of ,
as of the day of , 1991.
--------------------------------
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that he
or she is the duly elected and acting of , a
Massachusetts business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1991, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of
, 1991, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it receives
a Certificate, as defined in the Custody Agreement, to the contrary, to
accept, utilize and act with respect to Clearing Member confirmations for
Options and transaction in Options, regardless of the Series to which the
same are specifically allocated, as such terms are defined in the Custody
Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of ,
as of the day of , 1991.
--------------------------
[SEAL]
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 1 to the Registration Statement on Form N-2 of
our report dated November 8, 1995, relating to the financial statements and
financial highlights of Prime Income Trust, which appears in such Prospectus.
We also consent to the references to us under the headings "Financial
Highlights" and "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
------------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 27, 1995
<PAGE>
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
PRIME INCOME TRUST
30 day as of September 30, 1995
6
YIELD = 2{ [ ((a-b)/c d) + 1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = The maximum offering price per share on the last
day of the period
6
YIELD = 2{ [(( 3,778,566.07 - 666,843.60)/50,378,076.101 X 9.99)+1] -1}
= 7.54%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 510,453,066
<INVESTMENTS-AT-VALUE> 512,240,860
<RECEIVABLES> 9,830,893
<ASSETS-OTHER> 4,022,199
<OTHER-ITEMS-ASSETS> 389,771
<TOTAL-ASSETS> 526,483,723
<PAYABLE-FOR-SECURITIES> 580,663
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,542,099
<TOTAL-LIABILITIES> 5,122,762
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 522,524,992
<SHARES-COMMON-STOCK> 52,197,974
<SHARES-COMMON-PRIOR> 30,489,594
<ACCUMULATED-NII-CURRENT> 413,674
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,365,499)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,787,794
<NET-ASSETS> 521,360,961
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 34,988,644
<OTHER-INCOME> 2,781,893
<EXPENSES-NET> 5,967,292
<NET-INVESTMENT-INCOME> 31,803,245
<REALIZED-GAINS-CURRENT> (2,551,571)
<APPREC-INCREASE-CURRENT> 2,716,998
<NET-CHANGE-FROM-OPS> 31,968,672
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31,409,897
<DISTRIBUTIONS-OF-GAINS> 957,304
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 243,262,814
<NUMBER-OF-SHARES-REDEEMED> 42,566,808
<SHARES-REINVESTED> 16,029,070
<NET-CHANGE-IN-ASSETS> 216,306,547
<ACCUMULATED-NII-PRIOR> 590
<ACCUMULATED-GAINS-PRIOR> 163,112
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,526,906
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,967,292
<AVERAGE-NET-ASSETS> 391,909,889
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .82
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> .81
<PER-SHARE-DISTRIBUTIONS> .03
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<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
