<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1997
SECURITIES ACT FILE NO. 33-37819
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. / /
POST-EFFECTIVE AMENDMENT NO. 1 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 12 /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
BARRY FINK, 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 $9.95 NONE $9.95
TOTAL (2) $1,475,101,972 NONE $1,475,101,072
</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 19, 1997 WAS 9.95.
(2) ASSUMING ALL SHARES CURRENTLY REGISTERED ARE SOLD PURSUANT TO THIS
CONTINUOUS OFFERING AT A PRICE OF $9.95 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............................................... 11
Investment Objective and Policies....................................... 13
Special Risk Factors.................................................. 18
Investment Practices.................................................... 21
Investment Restrictions................................................. 23
Trustees and Officers................................................... 27
Investment Advisory Agreement........................................... 34
Administrator and Administration Agreement.............................. 36
Portfolio Transactions.................................................. 37
Determination of Net Asset Value........................................ 38
Dividends and Distributions............................................. 39
Taxation................................................................ 40
Description of Shares................................................... 42
Share Repurchases and Tenders........................................... 44
Purchase of Shares...................................................... 46
Yield Information....................................................... 47
Custodian, Dividend Disbursing and Transfer Agent....................... 47
Reports to Shareholders................................................. 48
Legal Counsel........................................................... 48
Experts................................................................. 48
Additional Information.................................................. 48
Report of Independent Accountants....................................... 50
Financial Statements--September 30, 1997................................ 51
Appendix A.............................................................. 72
</TABLE>
------------------------
2
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The expenses and fees set forth in the table are for the fiscal year ended
September 30, 1997.
<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.................................... 0.87%
Interest Payments on Borrowed Funds......................... None
Sum of Other Expenses....................................... 0.53%
Total Annual Expenses....................................... 1.40%
</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:................... $44 $64 $77 $168
You would pay the following expenses on
the same investment, assuming no
tender:................................ $14 $44 $77 $168
</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 51. 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 in accordance with the procedures adopted by the
Trustees in the absence of readily ascertainable market values.
<TABLE>
<CAPTION>
FOR THE
PERIOD
NOVEMBER
30, 1989*
FOR THE YEAR ENDED SEPTEMBER 30, THROUGH
------------------------------------------------------------------------------ SEPTEMBER
1997 1996 1995 1994 1993 1992 1991 30, 1990
---------- --------- --------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period.................. $ 9.94 $ 9.99 $ 10.00 $ 9.91 $ 9.99 $ 10.00 $ 10.00 $ 10.00
---------- --------- --------- ---------- --------- --------- ---------- ----------
Net investment income....... 0.75 0.74 0.82 0.62 0.55 0.62 0.84 0.74
Net realized and unrealized
gain (loss)................ -- (0.04) 0.01 0.09 (0.08) (0.01) -- (0.01)
---------- --------- --------- ---------- --------- --------- ---------- ----------
Total from investment
operations................. 0.75 0.70 0.83 0.71 0.47 0.61 0.84 0.73
---------- --------- --------- ---------- --------- --------- ---------- ----------
Less dividends and
distributions from:
Net investment income..... (0.74) (0.75) (0.81) (0.62) (0.55) (0.62) (0.84) (0.73)
Net realized gain......... -- -- (0.03) -- -- -- -- --
---------- --------- --------- ---------- --------- --------- ---------- ----------
Total dividends and
distributions.............. (0.74) (0.75) (0.84) (0.62) (0.55) (0.62) (0.84) (0.73)
---------- --------- --------- ---------- --------- --------- ---------- ----------
Net asset value, end of
period..................... $ 9.95 $ 9.94 $ 9.99 $ 10.00 $ 9.91 $ 9.99 $ 10.00 $ 10.00
---------- --------- --------- ---------- --------- --------- ---------- ----------
---------- --------- --------- ---------- --------- --------- ---------- ----------
TOTAL INVESTMENT RETURN+...... 7.78% 7.25% 8.57% 7.32% 4.85% 6.23% 8.77% 7.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................... 1.40% 1.46% 1.52% 1.60% 1.45% 1.47% 1.52% 1.48%(2)
Net investment income....... 7.53% 7.50% 8.11% 6.14% 5.53% 6.14% 8.23% 8.95%(2)
SUPPLEMENTAL DATA:
Net assets, end of period,
in thousands............... $1,344,603 $939,471 $521,361 $305,034 $311,479 $413,497 $479,941 $328,189
Portfolio turnover rate..... 86% 72% 102% 147% 92% 46% 42% 35%(1)
</TABLE>
- ---------------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
DIVIDENDS AND DISTRIBUTIONS ARE ASSUMED TO BE REINVESTED AT THE PRICES
OBTAINED UNDER THE TRUST'S DIVIDEND REINVESTMENT PLAN.
(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 Trust's Investment Adviser. The
Investment Adviser, which was incorporated in July, 1992, is a
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover
& Co., a preeminent global financial services firm that
maintains leading market positions in each of its three primary
businesses--securities, asset management and credit services.
The Investment Adviser and its wholly-owned subsidiary, Dean
Witter Services Company Inc., serve in various investment
management, advisory, management, and administrative capacities
to 102 investment companies, thirty of which are listed on the
New York Stock Exchange, with combined assets of approximately
$98.6 billion as of November 30, 1997. The Investment Adviser
also manages and advises portfolios of pension plans, other
institutions and individuals which aggregated approximately $3.8
billion at such date. The Trust's Trustees approved a new
investment advisory agreement with InterCapital, on February 21,
1997 in connection with the merger of Dean Witter, Discover &
Co. with Morgan Stanley Group Inc. (the "Merger"). At a Special
Meeting of Shareholders held on May 31, 1997, the shareholders
approved the new investment advisory agreement with
InterCapital. The investment advisory agreement took effect on
May 31, 1997 upon the consumation of the Merger. See "The Trust
and its Adviser" and "Investment Advisory Agreement."
ADVISORY FEE.............. The investment advisory fees paid to InterCapital pursuant to
the 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.
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. See "Administrator and Administration Agreement" and
"Purchase of Shares."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
ADMINISTRATION FEE........ The Trust pays the Administrator a monthly fee at an annual rate
of 0.25% of the Trust's 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 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.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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.
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."
</TABLE>
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<TABLE>
<S> <C>
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 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."
</TABLE>
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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 an 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 February 21, 1997 the Trust's Trustees approved a new investment advisory
agreement (the "Advisory Agreement") with InterCapital in connection with the
merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc. (the
"Merger"). The Trust's shareholders voted to approve the Advisory Agreement with
InterCapital at a Special Meeting of Shareholders held on May 21, 1997. The
Advisory Agreement took effect on May 31, 1997 upon the consumation of the
Merger. InterCapital is a wholly-owned subsidiary of Morgan Stanley, Dean
Witter, Discover & Co. ("MSDWD"). The Advisory Agreement is substantially
identical to a prior investment advisory agreement which was initially approved
by the Trust's Trustees on December 23, 1992 and by the Trust's shareholders on
February 25, 1993, entered into 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 and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 102 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$98.6 billion at November 30, 1997. InterCapital also manages and advises
portfolios of pension plans, other institutions and individuals which aggregated
approximately $3.8 billion at such date.
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The Trust is managed within InterCapital's Taxable Fixed-Income Group, which
manages 23 funds and fund portfolios with approximately $13.2 billion in assets
as of November 30, 1997. 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 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 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 International SmallCap Fund, Dean Witter
Mid-Cap Growth Fund, Dean Witter Select Dimensions Investment 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, Dean Witter Japan Fund, Dean Witter Income Builder
Fund, Dean Witter Special Value Fund, Dean Witter Financial Services Trust, Dean
Witter S&P 500 Index Fund, Dean Witter Fund of Funds, 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 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
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Small Cap Growth Fund, TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW
Mid-Cap Equity Trust, TCW/DW Global Telecom Trust, TCW/DW Strategic Income
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) administrator of The BlackRock Strategic Term
Trust Inc., a closed-end investment company; (ii) sub-administrator of
MassMutual Participation Investors and Templeton Global Governments Income
Trust, closed-end investment companies; and (iii) investment adviser of Offshore
Dividend Growth Fund and Offshore Money Market Fund, mutual funds established
under the laws of the Cayman Islands and available only to investors who are
participants in DWR's International Active Assets Account program and are
neither citizens nor residents of the United States.
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.
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
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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 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
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<PAGE>
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 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.
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<PAGE>
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
Securities and Exchange Commission ("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 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
20
<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 on 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.
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
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<PAGE>
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 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.
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<PAGE>
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.
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.
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<PAGE>
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." The Trust's portfolio
turnover rate for the fiscal year ended September 30, 1997 was 86%.
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<PAGE>
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
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 83 Dean Witter Funds and the 14 TCW/DW Funds are
shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Michael Bozic (56) ..................................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee
c/o Levitz Furniture Corporation of the Dean Witter Funds; formerly President and Chief
6111 Broken Sound Parkway, N.W. Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial
Services, Inc.; the United Negro College Fund and
Weirton Steel Corporation.
Charles A. Fiumefreddo* (64) ........................... Chairman, Chief Executive Officer and Director of
Chairman, InterCapital, Distributors and DWSC; Director and
President, Chief Executive Officer and Trustee 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 FSB ("DWT"); Director and/or officer
of various MSDWD subsidiaries; formerly Executive Vice
President and Director of Dean Witter, Discover & Co.
Inc. (until February, 1993).
Edwin J. Garn (65) ..................................... Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman 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
Chairman, Huntsman Corporation (since January, 1993);
Director of Franklin Covey (time management systems) and
John Alden Financial Corp. (health insurance), United
Space Alliance (joint venture between Lockheed Martin
and the Boeing Company) and Nuskin Asia Pacific
(multilevel marketing); Member of the board of various
civic and charitable organizations.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
John R. Haire (72) ..................................... 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; Chairman
New York, New York of the Audit Committee and Chairman of the Committee of
the Independent Trustees and Trustee of 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).
Wayne E. Hedien (63) ................................... Retired; Director or Trustee of the Dean Witter Funds;
Trustee Director of the PMI Group, Inc. (Private mortgage
c/o Gordon Altman Butowsky Weitzen insurance); Trustee and Vice Chairman of the Field
Shalov & Wein Museum of Natural History; formerly associated with the
Counsel to the Independent Trustees Allstate Companies (1966-1994), most recently as
114 West 47th Street Chairman of the Allstate Corporation (March,
New York, New York 1993-December, 1994) and Chairman and Chief Executive
Officer of its wholly-owned subsidiary, Allstate
Insurance Company (July, 1989-December, 1994); director
of various other business and charitable organizations.
Dr. Manuel H. Johnson (48) ............................. Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group
c/o Johnson Smick International, Inc. of Seven Council (G7C), an international economic
1133 Connecticut Avenue, N.W. commission; Director or Trustee of the Dean Witter
Washington, D.C. Funds; Trustee of the TCW/DW Funds; Director of NASDAQ
(since June, 1995); Director of Greenwich Capital
Markets, Inc. (broker-dealer); Chairman and Trustee of
the Financial Accounting Foundation (oversight
organization of the Financial Accounting Standards
Board); formerly Vice Chairman of the Board of Governors
of the Federal Reserve System (1986-1990) and Assistant
Secretary of the U.S. Treasury (1982-1986).
Michael E. Nugent (61) ................................. General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); director of various business
organizations.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Philip J. Purcell* (54) ................................ Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDWD, 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 MSDWD subsidiaries.
John L. Schroeder (67) ................................. Retired; Director or Trustee of the Dean Witter Funds;
Trustee Trustee of the TCW/DW Funds; 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).
114 West 47th St.
New York, New York
Barry Fink (42) ........................................ Senior Vice President (since March, 1997) and Secretary
Vice President, Secretary and General Counsel and General Counsel (since February, 1997) of
Two World Trade Center InterCapital and DWSC; Senior Vice President (since
New York, New York March, 1997) and Assistant Secretary and Assistant
General Counsel (since February, 1997) of Distributors;
Assistant Secretary of DWR (since August, 1996); Vice
President, Secretary and General Counsel of the Dean
Witter Funds and the TCW/DW Funds (since February,
1997); previously First Vice President (June,
1993-February, 1997), Vice President (until June, 1993)
and Assistant Secretary and Assistant General Counsel of
InterCapital and DWSC and Assistant Secretary of the
Dean Witter Funds and the TCW/DW Funds.
Rafael Scolari (41) .................................... Senior Vice President of InterCapital (since April,
Vice President 1994); formerly, a Portfolio Manager of AIMCO (January,
Two World Trade Center 1990-February, 1993).
New York, New York
Thomas F. Caloia (51) .................................. First Vice President and Assistant Treasurer of
Treasurer InterCapital and DWSC; Treasurer of the Dean Witter
Two World Trade Center Funds and the TCW/DW Funds.
New York, New York
</TABLE>
- ------------------------
* Denotes Trustees who are "interested persons" of the Trust, as defined in
the 1940 Act.
29
<PAGE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT; Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Executive Vice President and Director of DWR, and Director of
SPS Transaction Services, Inc. and various other MSDWD subsidiaries; Joseph J.
McAlinden, Executive Vice President and Chief Investment Officer of InterCapital
and Director of DWT, Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC, Distributors and DWT and Director of DWT, are Vice Presidents of the
Trust. Marilyn K. Cranney, First Vice President and Assistant General Counsel of
InterCapital and DWSC, Lou Anne D. McInnis, Ruth Rossi, and Carsten Otto, Vice
Presidents and Assistant General Counsels of InterCapital and DWSC, and Frank
Bruttomesso and Todd Lebo, Staff Attorneys with InterCapital, are Assistant
Secretaries of the Trust.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) 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 Statement of
Additional Information, there are a total of 83 Dean Witter Funds, comprised of
127 portfolios. As of November 30, 1997, the Dean Witter Funds had total net
assets of approximately $93.4 billion and more than six million shareholders.
Seven Trustees (77% 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. Four of the seven
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, 1996,
the three Committees held a combined total of sixteen 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
30
<PAGE>
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 COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee 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 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 both
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 Committee of the Independent Trustees and the Audit
Committee 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 and, since July
1, 1996, as Chairman of the Committee of the Independent Trustees and the Audit
Committee 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
31
<PAGE>
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 $100 ($800 after
December 31, 1997) 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 and pays the
Chairman of the Committee of the Independent Trustees an additional annual fee
of $1,200). If a Board meeting and a Committee meeting, or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
fee by the Fund. 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 following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended September 30, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,650
Edwin J. Garn................................................. 1,850
John R. Haire................................................. 3,800
Wayne E. Hedien............................................... 250
Dr. Manuel H. Johnson......................................... 1,800
Michael E. Nugent............................................. 1,850
John L. Schroeder............................................. 1,850
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1996 for services
to the 82 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31, 1996.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds. Mr. Hedien's term as Director or
Trustee of each Dean Witter Fund commenced on September 1, 1997.
32
<PAGE>
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS FOR SERVICE TOTAL CASH
CHAIRMAN OF AS COMPENSATION
COMMITTEES OF CHAIRMAN OF PAID
FOR SERVICE INDEPENDENT COMMITTEES OF FOR SERVICES
AS DIRECTOR OR DIRECTORS/ INDEPENDENT TO
TRUSTEE AND FOR SERVICE AS TRUSTEES AND TRUSTEES AND 82 DEAN
COMMITTEE MEMBER TRUSTEE AND AUDIT AUDIT WITTER
OF 82 DEAN COMMITTEE MEMBER COMMITTEES OF COMMITTEES OF FUNDS AND
NAME OF WITTER OF 14 TCW/DW 82 DEAN WITTER 14 TCW/DW 14 TCW/DW
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS FUNDS FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $138,850 -- -- -- $138,850
Edwin J. Garn.............. 140,900 -- -- -- 140,900
John R. Haire.............. 106,400 $64,283 $195,450 $ 12,187 378,320
Dr. Manuel H. Johnson...... 137,100 66,483 -- -- 203,583
Michael E. Nugent.......... 138,850 64,283 -- -- 203,133
John L. Schroeder.......... 137,150 69,083 -- -- 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have 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") 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 Adopting 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 25.0% of his or her Eligible
Compensation plus 0.4166666% 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 50.0% 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
Adopting 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 Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended September 30,
1997 and by the 57 Dean Witter Funds (including the Fund) for the year ended
December 31, 1996, and the estimated retirement benefits for the Fund's
Independent Trustees, to commence upon their retirement, from the Fund as of
September 30, 1997 and from the 57 Dean Witter Funds as of December 31, 1996.
- ------------------------
(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.
33
<PAGE>
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS ESTIMATED ANNUAL
-------------------------------------- BENEFITS
ESTIMATED RETIREMENT BENEFITS UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED ACCRUED AS EXPENSES ----------------------------
OF SERVICE AT PERCENTAGE OF ---------------------------- FROM
RETIREMENT ELIGIBLE BY THE BY ALL THE FROM ALL
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND ADOPTING FUNDS FUND ADOPTING FUNDS
- ------------------------------- ------------------- ----------------- --------- ----------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.................. 10 50.0% $ 372 $ 20,147 $ 925 $ 51,325
Edwin J. Garn.................. 10 50.0 548 27,772 925 51,325
John R. Haire.................. 10 50.0 (744) 46,952 2,241 129,550
Wayne E. Hedien................ 9 42.9 0 Not Applicable 794 Not Applicable
Dr. Manuel H. Johnson.......... 10 50.0 226 10,926 925 51,325
Michael E. Nugent.............. 10 50.0 384 19,217 925 51,325
John L. Schroeder.............. 8 41.7 716 38,700 771 42,771
</TABLE>
- ------------------------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
As of the date of this Statement of Additional Information, 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
34
<PAGE>
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 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
years ended September 30, 1995, 1996 and 1997, the Trust accrued to InterCapital
total compensation of $3,526,906, $6,524,700 and $9,981,012, respectively.
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 was initially approved by the Trustees on February
21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Advisory Agreement is substantially
identical to a prior investment advisory agreement which was initially approved
by the Trustees on December 23, 1992 and by the Trust's shareholders on February
25, 1993 (the "Prior Advisory Agreement"). The Advisory Agreement took effect on
May 31, 1997 upon the consummation of the merger of Dean Witter, Discover & Co.
with Morgan Stanley Group Inc. 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, 1999, and 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.
35
<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 MSDWD.
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 years ended
September 30, 1995, 1996 and 1997, total accrued compensation amounted to
$979,775, $1,845,500 and $2,862,062, respectively.
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.
The Administration Agreement was initially approved by the Trustees on April
17, 1996, in connection with the reincorporation of DWSC in the State of
Delaware. The Administration Agreement is
36
<PAGE>
substantially identical to the prior administration agreement, 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 (the "Prior Administration Agreement"). 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
Prior 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 had an initial
term ending April 30, 1997, 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. At
their meeting held on April 24, 1997, the Trust's Board of Trustees, including
all of the Independent Trustees, approved continuation of the Administration
Agreement until April 30, 1998.
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 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
37
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market instruments directly from an issuer, in which case no commissions or
discounts are paid. During the fiscal years ended September 30, 1995, 1996 and
1997, 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.
Interests in Senior Loans held by the Trust are currently valued at their
fair value in accordance with procedures established in good faith by the Board
of Trustees of the Trust. Under the procedures
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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 are 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). Loans purchased at a discount from par
for reasons other than credit impairment are valued at cost and the discount is
amortized to maturity. In assessing the creditworthiness of a Borrower, the
primary focus is 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 are considered in this
regard. S&P and Moody's ratings of any outstanding commercial paper of a
Borrower may also be considered. The procedures are 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 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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<PAGE>
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.
Treasury intends to issue regulations to permit shareholders to take into
account their proportionate share of the Fund's capital gains distributions that
will be subject to a reduced rate under the Taxpayer Relief Act of 1997. The
Taxpayer Relief Act reduced the maximum tax on long-term capital gains from 28%
to 20%; however, it also lengthened the required holding period to obtain this
lower rate from more than 12 months to more than 18 months. These lower rates do
not apply to collectibles and certain other assets. Additionally, the maximum
capital gain rate for assets that are held more than 5 years and that are
acquired after December 31, 2000 is 18%.
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
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<PAGE>
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 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. 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.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
41
<PAGE>
After the end of each calendar year, shareholders will receive full
information on their dividends and capital gains distributions for tax purposes.
Shareholders will also be notified of their proportionate share of long-term
capital gains distributions that are eligible for a reduced rate of tax under
the Taxpayer Relief Act of 1997. 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.
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.
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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 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
43
<PAGE>
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 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
44
<PAGE>
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
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 October 1, 1996 through September 30, 1997, the Trust
completed four tender offers. The first tender offer commenced on December 20,
1996 and resulted in the tender of 1,890,054 Shares. The second tender offer
commenced on March 14, 1997 and resulted in the tender of 2,035,269 Shares. The
third tender offer commenced on May 12, 1997 and resulted in the tender of
1,946,138 Shares. The fourth tender offer commenced on August 20, 1997 and
resulted in the tender of 2,779,048 shares.
If the Trust must liquidate portfolio holdings in order to purchase Shares
tendered, the Trust may realize gains and losses.
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
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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>
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 years ended September 30, 1995,
1996 and 1997, InterCapital informed the Trust that it received approximately
$219,000, $728,000 and $1,296,000, respectively, in withdrawal fees.
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 24, 1997,
the Trustees, including all of the Independent Trustees, approved the
continuation of the Distribution Agreement until April 30, 1998.
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 FSB, 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.
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<PAGE>
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.
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, 1997, the
Trust's yield, calculated pursuant to this formula, was 6.99%.
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
47
<PAGE>
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.
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 FSB, 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 FSB 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
- --------------------------------------------------------------------------------
Barry Fink, 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, 1997 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
48
<PAGE>
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 options transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sales 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
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 1994 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.
49
<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, 1997, 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
seven 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 at September 30, 1997 by
correspondence with the custodian and, with respect to senior collateralized
loans, 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 $1,140,452,162 (85 percent of net assets), which values have
been estimated by the Trustees in the absence of readily ascertainable market
values. Those estimated values 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 12, 1997
50
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SENIOR COLLATERALIZED TERM LOANS (a) (84.8%)
ADVERTISING (0.9%)
$ 12,000 Outdoor Systems, Inc. ...................................... 7.53% 06/30/04 $ 11,999,880
---------------
AEROSPACE (1.5%)
3,885 Fairchild Holding Corp. .................................... 8.91 07/28/00 3,884,882
5,060 The Aerostructures Corp. ................................... 8.81 09/30/03 5,060,000
1,840 The Aerostructures Corp. ................................... 9.06 09/30/04 1,839,982
9,900 Tri-Star Aerospace Co. ..................................... 9.00 09/30/03 9,900,396
---------------
20,685,260
---------------
AIR FREIGHT (1.8%)
9,000 Atlas Freighter Leasing II, Inc. ........................... 7.97 05/29/04 8,999,820
5,213 Evergreen International Aviation, Inc. ..................... 8.66 05/31/02 5,212,448
9,775 First Security Bank, National Association as Owner
Trustee................................................... 8.72 05/07/03 9,774,120
---------------
23,986,388
---------------
AIRCRAFT & AEROSPACE (0.6%)
8,706 Erickson Air-Crane Co. L.L.C. .............................. 9.16 12/31/04 8,706,163
---------------
APPAREL (0.6%)
4,475 Hosiery Corporation of America, Inc. ....................... 8.94 to 9.13 07/31/01 4,472,328
457 London Fog Industries, Inc. (b) ............................ 0.00 05/31/02 434,531
2,823 London Fog Industries, Inc. ................................ 9.50+ 05/31/02 2,681,831
581 London Fog Industries, Inc.................................. 12.50++ 05/31/02 551,691
---------------
8,140,381
---------------
AUTO PARTS (0.7%)
4,903 Hayes Wheels International, Inc. ........................... 8.47 to 8.50 07/31/04 4,902,987
3,974 Hayes Wheels International, Inc. ........................... 8.72 to 8.75 07/31/05 3,973,751
---------------
8,876,738
---------------
AUTO PARTS - AFTER MARKET (1.6%)
20,895 CSK Auto, Inc. ............................................. 8.69 10/31/03 20,895,000
---------------
BEVERAGES - SOFT DRINKS (0.7%)
3,880 Select Beverages, Inc. ..................................... 8.94 to 9.19 06/30/01 3,880,200
5,820 Select Beverages, Inc. ..................................... 9.19 to 9.38 06/30/02 5,819,419
---------------
9,699,619
---------------
BREWERS (1.7%)
4,922 The Stroh Brewery, Co. ..................................... 8.25 06/30/01 4,922,039
3,200 The Stroh Brewery, Co. (Revolver)........................... 8.19 to 10.00 06/30/01 3,200,052
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 14,211 The Stroh Brewery, Co. ..................................... 8.69 to 8.75% 06/30/03 $ 14,210,630
---------------
22,332,721
---------------
BROADCAST MEDIA (1.7%)
2,972 Benedek Broadcasting Corp. ................................. 10.13 05/01/01 2,972,361
3,267 Benedek Broadcasting Corp. ................................. 10.63 11/01/02 3,267,568
6,400 Chancellor Media Corp. ..................................... 6.09 06/30/05 6,399,851
1,949 Chancellor Media Corp. (Revolver)........................... 6.09 to 8.50 06/30/05 1,949,483
8,614 River City Broadcasting, L.P. .............................. 10.25 12/31/99 8,614,433
---------------
23,203,696
---------------
BUILDING MATERIALS (1.7%)
10,000 Falcon Buildings Products, Inc. ............................ 8.66 06/30/05 9,999,900
12,437 National Gypsum Co. ........................................ 7.91 to 9.75 09/20/03 12,436,880
---------------
22,436,780
---------------
CABLE/CELLULAR (5.7%)
5,955 Cable Systems International, Inc. .......................... 8.79 12/31/02 5,954,939
10,000 Charter Communications Entertainment I, L.P. ............... 8.44 12/31/04 9,999,400
9,238 Mobilemedia Communication Corp. ............................ 8.22 06/30/02 8,221,808
1,821 Mobilemedia Communication Corp. (Revolver).................. 8.22 to 8.29 06/30/02 1,620,294
2,500 Mobilemedia Communication Corp. ............................ 8.72 06/30/03 2,274,824
5,000 Supercanal Holdings S.A. ................................... 11.69 12/30/97 5,000,100
11,000 Supercanal Holdings S.A. ................................... 10.69 08/09/98 11,000,220
20,000 Western Wireless Corp. ..................................... 8.41 to 8.47 03/31/05 19,999,100
13,200 UIH Latin America, Inc. .................................... 11.69 01/29/98 13,199,868
---------------
77,270,553
---------------
CHEMICALS - SPECIALTY (1.5%)
3,929 Huntsman Specialty Chemicals Corp. ......................... 8.25 03/15/04 3,928,571
3,929 Huntsman Specialty Chemicals Corp. ......................... 8.50 03/15/05 3,928,532
5,000 Huntsman Corp. ............................................. 8.00 06/30/04 5,000,050
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 6,983 Pioneer America Acquisitions, Corp. ........................ 8.38 to 8.47% 12/05/06 $ 6,981,873
---------------
19,839,026
---------------
COAL (1.0%)
6,631 Alliance Coal Corp. ........................................ 8.97 12/31/02 6,629,995
7,425 Calciner Industries, Inc. .................................. 8.98 09/30/04 7,424,035
---------------
14,054,030
---------------
COMMERCIAL SERVICES (1.1%)
14,925 Omni Services, Inc. ........................................ 9.06 10/30/05 14,917,985
---------------
COMMUNICATIONS -
EQUIPMENT & SOFTWARE (1.8%)
1,353 L - 3 Communications Corp. ................................. 7.94 to 8.13 03/31/03 1,353,087
2,489 L - 3 Communications Corp. ................................. 8.19 to 8.38 03/31/05 2,488,938
1,639 L - 3 Communications Corp. ................................. 8.44 to 8.63 03/31/06 1,639,049
12,391 Latin Communications, Inc. ................................. 8.66 to 8.69 02/28/04 12,390,418
6,000 Telex Communications, Inc. ................................. 8.66 11/06/04 5,999,940
---------------
23,871,432
---------------
COMPUTER SERVICES (1.1%)
15,000 DecisionOne Corp. .......................................... 8.47 08/07/04 14,997,750
---------------
COMPUTERS - SYSTEMS (0.5%)
6,100 Anacomp, Inc. .............................................. 8.66 03/31/01 6,100,000
---------------
CONSUMER PRODUCTS (1.4%)
9,476 Chattem, Inc. .............................................. 9.16 02/14/04 9,476,060
8,978 Playtex Products, Inc. ..................................... 7.19 09/15/03 8,976,872
---------------
18,452,932
---------------
CONVENIENCE STORE (1.0%)
5,000 Caribbean Petroleum, L.P. .................................. 8.97 09/30/05 5,035,650
8,467 Cumberland Farms, Inc. (Participation: Merrill Lynch & Co.,
Inc.) (d)................................................. 9.00 12/31/98 8,467,368
---------------
13,503,018
---------------
DRUG STORES (0.7%)
10,000 Duane Reade, Inc. .......................................... 10.50 06/15/02 10,000,000
---------------
ELECTRONIC & ELECTRICAL
EQUIPMENT (0.7%)
4,417 Amphenol Corp. ............................................. 8.44 to 8.78 05/19/05 4,417,126
4,536 Amphenol Corp. ............................................. 8.94 to 9.28 05/19/06 4,536,379
---------------
8,953,505
---------------
ELECTRONICS (0.6%)
2,258 Axsys Technologies, Inc. ................................... 9.44 04/25/02 2,258,386
6,000 Details, Inc. .............................................. 8.75 01/31/02 5,999,700
---------------
8,258,086
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ENERGY TECHNOLOGY & EQUIPMENT (0.8%)
$ 11,249 IRI International Corp. .................................... 8.94% 03/31/02 $ 11,249,118
---------------
ENTERTAINMENT & LEISURE TIME (0.8%)
10,797 Six Flag Theme Parks, Inc. ................................. 8.69 06/23/03 10,797,216
---------------
FINANCE (1.9%)
13,000 Blackstone Capital Company II, L.L.C. ...................... 8.66 05/31/99 12,999,870
13,000 Wasserstein/C & A Holdings, L.L.C. ......................... 8.75 05/31/99 12,999,090
---------------
25,998,960
---------------
FOOD PROCESSING (1.1%)
10,808 American Italian Pasta Co. ................................. 9.44 02/27/04 10,807,716
4,000 Southern Foods Group, L.P. ................................. 8.69 to 8.88 03/04/06 3,999,964
---------------
14,807,680
---------------
FOOD SERVICES (2.6%)
1,667 Ameriserve Food Distribution, Inc. ......................... 8.69 06/30/04 1,666,667
1,667 Ameriserve Food Distribution, Inc. ......................... 8.94 06/30/05 1,666,667
1,667 Ameriserve Food Distribution, Inc. ......................... 9.19 06/30/06 1,666,667
6,689 Rykoff-Sexton, Inc. ........................................ 8.69 10/31/02 6,689,256
3,209 Rykoff-Sexton, Inc. ........................................ 8.94 04/30/03 3,209,492
10,000 SC International Services, Inc. & Caterair International
Corp. .................................................... 9.00 03/01/07 10,000,000
6,617 Volume - Services, Inc. .................................... 9.00 12/31/02 6,616,072
3,308 Volume - Services, Inc. .................................... 9.50 12/31/03 3,307,919
---------------
34,822,740
---------------
FOODS (0.4%)
4,460 Leon's Bakery, Inc. ........................................ 8.44 to 8.50 05/31/01 4,459,841
1,180 Leon's Bakery, Inc. (Participation: Bankers Trust) (d)...... 8.44 to 8.50 05/31/01 1,180,546
---------------
5,640,387
---------------
FOODS & BEVERAGES (1.6%)
9,487 International Home Foods, Inc. ............................. 7.91 to 9.75 09/30/04 9,487,050
7,615 Van de Kamps, Inc. ......................................... 8.72 to 10.50 04/30/03 7,614,278
4,778 Van de Kamps, Inc. ......................................... 8.97 to 10.75 09/30/03 4,777,353
---------------
21,878,681
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FUNERAL SERVICES (1.5%)
$ 4,944 Prime Succession, Inc. ..................................... 8.75% 08/01/03 $ 4,942,192
4,944 Prime Succession, Inc. (Participation: Goldman Sachs & Co.)
(d)....................................................... 8.75 08/01/03 4,942,192
9,867 Rose Hills Co. ............................................. 8.94 12/01/03 9,865,384
---------------
19,749,768
---------------
GAS - TRUCK STOP (0.5%)
6,667 Petro Stopping Centers, L.P. ............................... 9.03 09/30/03 6,666,667
---------------
HEALTHCARE (2.7%)
7,205 Community Health Systems, Inc. ............................. 9.00 12/31/03 7,205,479
7,205 Community Health Systems, Inc. ............................. 9.50 12/31/04 7,205,263
5,425 Community Health Systems, Inc. ............................. 9.75 12/31/05 5,424,441
5,091 Interim Healthcare, Inc. ................................... 10.00 02/29/04 5,090,909
1,909 Interim Healthcare, Inc. ................................... 10.50 02/28/05 1,909,091
9,500 PrimeCare International, Inc. .............................. 9.09 to 9.25 02/28/02 9,498,860
---------------
36,334,043
---------------
HEALTHCARE - DIVERSIFIED (1.3%)
17,500 Integrated Health Service, Inc. ............................ 7.44 12/31/04 17,500,175
---------------
HEATING & AIR CONDITIONING (1.9%)
12,500 Goodman Manufacturing Co., L.P. & Amana Company, L.P. ...... 7.75 09/30/04 12,500,250
12,500 Goodman Manufacturing Co., L.P. & Amana Company, L.P. ...... 8.00 09/30/05 12,500,250
---------------
25,000,500
---------------
HOTELS/MOTELS (1.4%)
3,125 Capstar Hotel Co. .......................................... 7.47 06/30/04 3,124,844
5,971 Doubletree Corp. ........................................... 7.94 05/15/04 5,970,694
9,981 Interstate Hotels Corp. .................................... 7.94 06/25/04 9,981,681
---------------
19,077,219
---------------
HOUSEHOLD APPLIANCES (1.0%)
12,959 Coinmach Corp. ............................................. 8.44 06/30/04 12,958,080
---------------
INSURANCE BROKERS (0.5%)
7,400 Acordia, Inc. .............................................. 8.47 12/31/04 7,398,742
---------------
MANUFACTURING (2.7%)
5,714 Alliance Gaming Corp. ...................................... 8.47 to 10.25 01/31/05 5,713,508
2,286 Alliance Gaming Corp. ...................................... 8.72 to 10.50 07/31/05 2,285,437
4,610 Chatham Technologies, Inc. ................................. 8.50 08/18/03 4,609,576
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,200 Chatham Technologies........................................ 9.00% 08/18/05 $ 5,199,376
8,846 Desa International, Inc. ................................... 8.25 08/31/01 8,846,170
9,508 Desa International, Inc. ................................... 8.75 to 10.25 02/28/03 9,507,898
---------------
36,161,965
---------------
MANUFACTURING - CONSUMER &
INDUSTRIAL PRODUCTS (1.1%)
4,571 C.S. Brooks Canada, Inc. ................................... 9.00 06/30/02 4,570,365
10,156 C.S. Brooks Canada, Inc. ................................... 9.25 06/30/04 10,156,061
---------------
14,726,426
---------------
MANUFACTURING - DIVERSIFIED (2.7%)
8,123 Adience, Inc. and Refraco Holdings, Ltd. ................... 8.69 04/15/05 8,122,500
7,000 Doskocil Manufacturing Co. ................................. 8.41 09/30/04 6,999,930
5,636 Mettler-Toledo, Inc. ....................................... 7.91 12/31/04 5,635,675
10,857 Refraco, Inc. .............................................. 9.44 10/15/05 10,857,143
4,721 Signature Brands, Inc. ..................................... 8.38 08/15/01 4,719,656
---------------
36,334,904
---------------
MANUFACTURING - RENTAL
CAREER APPAREL (0.5%)
6,237 The William Carter Co. ..................................... 8.72 to 8.88 10/30/03 6,235,910
---------------
MEDICAL EQUIPMENT (0.9%)
869 Hanger Orthopedic Group, Inc. .............................. 8.50 12/31/03 869,031
1,003 JE Hanger, Inc. of Georgia.................................. 8.50 12/31/03 1,002,721
2,625 Medical Specialties Group, Inc. ............................ 8.84 to 10.50 06/30/01 2,624,845
7,205 Medical Specialties Group, Inc. ............................ 9.59 to 11.25 06/30/04 7,204,114
---------------
11,700,711
---------------
MEDICAL PRODUCTS & SUPPLIES (2.0%)
2,447 Alaris Medical Systems, Inc. ............................... 8.69 to 8.75 11/01/03 2,446,195
2,447 Alaris Medical Systems, Inc. ............................... 9.19 to 9.25 11/01/04 2,446,170
2,303 Alaris Medical Systems, Inc. ............................... 9.44 to 9.50 05/01/05 2,302,255
2,177 Dade International, Inc. ................................... 7.94 12/31/01 2,177,419
5,893 Dade International, Inc. ................................... 8.19 to 8.56 12/31/02 5,893,286
5,893 Dade International, Inc. ................................... 8.44 to 8.81 12/31/03 5,893,259
5,133 Dade International, Inc. ................................... 8.69 12/31/04 5,132,726
---------------
26,291,310
---------------
MEDICAL SERVICES (1.0%)
10,000 SMT Health Services, Inc. .................................. 8.94 08/31/03 10,000,044
4,000 Transportacion Ferroviaria Mexicana, S.A. de C.V............ 9.75 12/23/02 3,999,960
---------------
14,000,004
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
METALS & MINING (0.6%)
$ 8,705 U.S. Silica Corp. .......................................... 8.97% 12/31/03 $ 8,704,684
---------------
MISCELLANEOUS (2.2%)
16,000 Mafco Finance Corp. ........................................ 10.16 03/20/99 15,999,680
1,280 Mafco Finance Corp. (Revolver).............................. 10.16 03/20/99 1,279,971
12,594 Pinnacle Brands, Inc. ...................................... 8.97 05/29/02 12,591,735
---------------
29,871,386
---------------
PACKAGING & BOTTLING (0.4%)
4,975 MPC Packaging Corp. ........................................ 8.72 05/30/04 4,974,254
---------------
PAPER (3.0%)
12,405 Alabama Pine Pulp Co., Inc. ................................ 6.85 to 6.98 12/31/02 10,706,099
1,952 Crown Paper Co. ............................................ 8.19 08/22/02 1,951,822
2,468 Crown Paper Co. (Revolver).................................. 8.19 to 10.00 08/22/02 2,467,764
9,899 Crown Paper Co. ............................................ 9.00 to 9.25 08/22/03 9,899,267
7,268 St. Laurent Paper Products Corp. ........................... 9.00 to 9.25 05/31/03 7,267,412
7,732 St. Laurent Paper Products Corp. ........................... 9.25 to 9.50 05/31/04 7,731,147
---------------
40,023,511
---------------
PLASTICS (1.3%)
7,905 Jet Plastica Industries, Inc. .............................. 8.31 12/31/02 7,905,405
9,143 Jet Plastica Industries, Inc. .............................. 8.81 12/31/04 9,143,243
---------------
17,048,648
---------------
PRINTED CIRCUIT BOARDS (0.8%)
6,953 Celestica, Inc. ............................................ 8.75 04/22/03 6,952,777
2,489 Circo Craft Technologies, Inc. ............................. 8.66 06/30/04 2,488,611
1,500 Circo Craft Technologies, Inc. ............................. 9.16 06/30/05 1,499,985
---------------
10,941,373
---------------
PUBLISHING (1.3%)
11,000 Cygnus Publishing, Inc. .................................... 8.50 to 8.59 06/05/05 10,998,515
3,363 Von Hoffman Press, Inc. .................................... 8.47 05/30/04 3,361,962
3,363 Von Hoffman Press, Inc. .................................... 8.72 05/30/05 3,361,962
---------------
17,722,439
---------------
PUBLISHING - BUSINESS (1.1%)
14,375 Advanstar Communications, Inc. ............................. 8.66 12/31/03 14,374,425
---------------
PUBLISHING - NEWSPAPER (1.2%)
5,000 21st Century Newspapers, Inc. .............................. 8.44 09/15/05 5,000,000
11,000 Newsquest Media Group, Ltd. ................................ 8.16 12/31/04 11,000,000
---------------
16,000,000
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RECORD & TAPE DISTRIBUTION (0.2%)
$ 4,876 Camelot Music, Inc. (c)..................................... 10.00% 02/28/01 $ 3,022,500
---------------
RESTAURANTS (0.6%)
8,645 Houlihan's Restaurants, Inc. ............................... 9.54 to 11.00 04/15/04 8,644,913
---------------
RETAIL - DEPARTMENT STORES (0.8%)
10,198 The Caldor Corp. (Revolver)................................. 6.69 to 8.75 12/31/98 10,198,312
---------------
SEMICONDUCTORS (0.5%)
7,417 Fairchild Semiconductor Corp. .............................. 8.75 to 9.04 03/11/03 7,416,695
---------------
SPECIALTY PACKAGING (0.8%)
5,880 Calmar, Inc. ............................................... 8.72 to 10.50 09/15/03 5,879,006
4,410 Calmar, Inc. ............................................... 8.97 to 10.75 03/15/04 4,409,208
---------------
10,288,214
---------------
SPORTING GOODS (2.1%)
4,117 E & S Holdings Corp. ....................................... 7.91 09/30/03 4,117,606
645 E & S Holdings Corp. (Revolver)............................. 7.91 to 9.75 09/30/03 644,706
7,000 E & S Holdings Corp. ....................................... 8.41 09/30/04 6,999,973
7,000 E & S Holdings Corp. ....................................... 8.91 09/30/05 6,999,930
4,000 E & S Holdings Corp. ....................................... 9.41 03/30/06 3,999,960
897 Worldwide Sports & Recreation, Inc. ........................ 8.81 04/26/00 897,215
4,903 Worldwide Sports & Recreation, Inc. ........................ 9.25 04/26/01 4,902,921
---------------
28,562,311
---------------
SUPERMARKETS (2.0%)
5,333 Itaperuna Participacoes S.A. ............................... 10.75 06/02/02 5,332,427
1,173 Ralph's Grocery Company..................................... 7.50 02/15/03 1,173,321
616 Ralph's Grocery Company (Revolver).......................... 7.44 to 7.50 02/15/03 615,981
3,973 Ralph's Grocery Company..................................... 8.00 02/15/04 3,972,439
6,903 Ralph's Grocery Company (Participation: Bankers Trust)
(d)....................................................... 8.00 02/15/04 6,902,726
3,766 Star Markets Company, Inc. ................................. 8.82 12/31/01 3,764,622
2,818 Star Markets Company, Inc. ................................. 9.32 12/31/02 2,817,463
2,500 Star Markets Company, Inc. ................................. 9.32 12/31/03 2,499,150
---------------
27,078,129
---------------
TEXTILES (0.5%)
4,605 Joan Fabrics Corp. ......................................... 8.84 06/30/05 4,604,158
2,395 Joan Fabrics Corp. ......................................... 9.34 06/30/06 2,394,114
---------------
6,998,272
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TOYS (1.1%)
$ 7,223 Ritvik Toys, Inc. .......................................... 9.19% 02/08/03 $ 7,223,045
7,223 Ritvik Toys, Inc. .......................................... 9.69 02/08/04 7,222,973
---------------
14,446,018
---------------
WASTE DISPOSAL (0.4%)
5,940 Allied Waste North America, Inc. ........................... 7.69 to 8.00 12/05/03 5,939,978
---------------
WHOLESALE DISTRIBUTOR (1.4%)
14,724 American Marketing Industries, Inc. ........................ 9.13 to 9.19 11/29/02 14,724,623
3,980 American Marketing Industries, Inc. ........................ 9.19 11/30/03 3,980,000
---------------
18,704,623
---------------
WIRE & CABLE (1.0%)
12,980 International Wire Group, Inc. ............................. 7.72 to 7.82 09/30/03 12,979,328
---------------
TOTAL SENIOR COLLATERIZED TERM LOANS
(IDENTIFIED COST $1,142,983,932)...................................................... 1,140,452,162
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ----------
<C> <S> <C>
PREFERRED STOCK (b) (0.1%)
APPAREL
1,722K London Fog Industries, Inc. (Series A-1) (Restricted) ++
(IDENTIFIED COST $2,476,954)......................................................... 1,222,422
---------------
COMMON STOCKS (b) (0.0%)
APPAREL (0.0%)
1,291 London Fog Industries, Inc. (Restricted)............................................... --
---------------
FOOD SERVICES (0.0%)
4,209 Flagstar Companies, Inc. (Restricted).................................................. 1,431
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $60,507).............................................................. 1,431
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ---------- -------------- --------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (13.8%)
COMMERCIAL PAPER (e) (5.9%)
FINANCE - CONSUMER (3.7%)
$ 50,000 American Express Credit Corp. (f)........................... 5.60% 10/01/97 50,000,000
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FINANCE - DIVERSIFIED (2.2%)
$ 30,000 General Electric Capital Corp. ............................. 5.78% 10/03/97 $ 29,990,367
---------------
TOTAL COMMERICAL PAPER
(AMORTIZED COST $79,990,367)........................................................... 79,990,367
---------------
U.S. GOVERNMENT AGENCY (e) (f) (5.2%)
70,000 Federal National Mortgage Assoc. (AMORTIZED COST
$69,989,383).............................................. 5.46 10/02/97 69,989,383
---------------
REPURCHASE AGREEEMENT (2.7%)
35,607 The Bank of New York (dated 09/30/97; proceeds $35,612,669;)
(IDENTIFIED COST $35,607,476) (G)......................... 5.25 10/01/97 35,607,476
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $185,587,226)......................................................... 185,587,226
---------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $1,331,108,619) (H)..................................................... 98.7% 1,327,263,241
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES........................................... 1.3 17,339,981
-------- ---------------
NET ASSETS............................................................................... 100.0% $ 1,344,603,222
-------- ---------------
-------- ---------------
</TABLE>
- ---------------------
K In thousands.
+ Accrues interest at a rate of prime plus 1% with 3% paid in cash and the
remainder to be paid-in-kind; converts to prime plus 1 percent cash payment
on May 31, 2000.
++ Payment-in-kind security.
(a) Floating rate securities. Interest rates shown are those in effect at
September 30, 1997.
(b) Non-income producing securities.
(c) Non-income producing security; issuer in bankruptcy.
(d) Participation interests were acquired through the financial institutions
indicated parenthetically.
(e) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(f) All or a portion of these securities are segregated in connection with
unfunded loan commitments.
(g) Collateralized by $35,012,159 U.S. Treasury Note 6.75% due 05/31/99 valued
at $36,319,625 and $244 U.S. Treasury Bond 11.625% due 11/15/04 valued at
$331.
(h) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $779,103 and the
aggregate gross unrealized depreciation is $4,624,481, resulting in net
unrealized depreciation of $3,845,378.
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,331,108,619).......................................................... $1,327,263,241
Cash........................................................................................ 12,028,239
Receivable for:
Interest................................................................................ 7,764,950
Shares of beneficial interest sold...................................................... 4,053,596
Investments sold........................................................................ 245,000
Prepaid expenses and other assets........................................................... 434,146
--------------
TOTAL ASSETS........................................................................... 1,351,789,172
--------------
LIABILITIES:
Payable for:
Dividends to shareholders............................................................... 1,225,158
Investment advisory fee................................................................. 1,022,134
Administration fee...................................................................... 294,181
Accrued expenses and other payables......................................................... 269,016
Deferred loan fees.......................................................................... 4,375,461
Commitment and contingencies (Note 7)....................................................... --
--------------
TOTAL LIABILITIES...................................................................... 7,185,950
--------------
NET ASSETS............................................................................. $1,344,603,222
--------------
--------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................. $1,348,358,142
Net unrealized depreciation................................................................. (3,845,378)
Accumulated undistributed net investment income............................................. 526,876
Accumulated net realized loss............................................................... (436,418)
--------------
NET ASSETS............................................................................. $1,344,603,222
--------------
--------------
NET ASSET VALUE PER SHARE,
135,154,983 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)............ $9.95
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest...................................................................................... $ 97,732,391
Facility, amendment and other loan fees....................................................... 4,137,689
Other income.................................................................................. 441,233
------------
TOTAL INCOME............................................................................. 102,311,313
------------
EXPENSES
Investment advisory fee....................................................................... 9,981,012
Administration fee............................................................................ 2,862,062
Professional fees............................................................................. 978,890
Facility fees................................................................................. 971,755
Transfer agent fees and expenses.............................................................. 600,085
Shareholder reports and notices............................................................... 269,479
Registration fees............................................................................. 204,234
Custodian fees................................................................................ 76,302
Trustees' fees and expenses................................................................... 15,441
Other......................................................................................... 102,538
------------
TOTAL EXPENSES........................................................................... 16,061,798
------------
NET INVESTMENT INCOME.................................................................... 86,249,515
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain............................................................................. 3,073,930
Net change in unrealized depreciation......................................................... (3,410,252)
------------
NET LOSS................................................................................. (336,322)
------------
NET INCREASE.................................................................................. $ 85,913,193
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 86,249,515 $ 55,337,469
Net realized gain (loss).......................... 3,073,930 (1,507,802)
Net change in unrealized depreciation............. (3,410,252) (2,222,920)
------------------ ------------------
NET INCREASE................................. 85,913,193 51,606,747
Dividends from net investment income.............. (84,598,513) (55,512,316)
Net increase from transactions in shares of
beneficial interest............................. 403,817,997 422,015,153
------------------ ------------------
NET INCREASE................................. 405,132,677 418,109,584
NET ASSETS:
Beginning of period............................... 939,470,545 521,360,961
------------------ ------------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME
OF $526,876 AND $238,827, RESPECTIVELY)....... $1,344,603,222 $939,470,545
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income.............................................................. $ 86,249,515
Adjustments to reconcile net investment income to net cash provided by operating
activities:
Increase in receivables and other assets related to operations..................... (1,042,457)
Increase in payables related to operations......................................... 492,678
Net loan fees received............................................................. 4,280,984
Amortization of loan fees.......................................................... (5,540,967)
Accretion of discounts............................................................. (1,146,844)
------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................................... 83,292,909
------------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of investments........................................................... (1,112,239,537)
Principal repayments/sales of investments.......................................... 846,513,445
Net purchases of short-term investments............................................ (128,720,350)
------------------
NET CASH USED FOR INVESTING ACTIVITIES........................................ (394,446,442)
------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Shares of beneficial interest sold................................................. 450,036,220
Shares tendered.................................................................... (86,013,853)
Dividends from net investment income (net of reinvested dividends of
$39,655,716)...................................................................... (44,549,772)
------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES..................................... 319,472,595
------------------
NET INCREASE IN CASH............................................................... 8,319,062
CASH BALANCE AT BEGINNING OF YEAR.................................................. 3,709,177
------------------
CASH BALANCE AT END OF YEAR........................................................ $ 12,028,239
------------------
------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997
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's investment objective is to provide a high level of current
income consistent with the preservation of capital. 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 preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
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 using 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. The
fair values determined in accordance with these procedures may differ
significantly from the market values that would have been used had a ready
market for the Senior Loans existed; (2) portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price; (3) 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; and (4) 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
65
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
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.
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.
Interest income is accrued daily except where collection is not expected. 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 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 and accrues the commitment 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, Senior Loans are not readily marketable and
are often subject to restrictions on resale.
Some of the Trust's Senior Loans are "Revolver Loans." For these loans, the
Trust commits to provide funding up to the face amount of the loan. The amount
drawn down by the borrower may vary during the term of the loan.
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
66
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
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.
2. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with Dean Witter InterCapital Inc.
(the "Investment Adviser"), the Trust 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"), an affiliate of the Investment Adviser, the Trust pays an
administration fee, calculated daily and payable monthly, by applying the annual
rate of 0.25% to the Trust's 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/principal repayments of portfolio
securities, excluding short-term investments, for the year ended September 30,
1997 aggregated $1,112,239,537 and $846,758,445, 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,
67
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
the Investment Adviser and the Distributor, the Investment Adviser compensates
the Distributor at a 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. An early
withdrawal charge payable to the Investment Adviser to defray distribution
expenses will be charged to the shareholder in connection with shares held for
four years or less which are accepted by the Trust for repurchase pursuant to
tender offers. For the year ended September 30, 1997, the Investment Adviser has
informed the Trust that it received approximately $1,296,000 in early withdrawal
charges.
Dean Witter Trust FSB, an affiliate of the Investment Adviser and Administrator,
is the Trust's transfer agent. At September 30, 1997, the Trust had transfer
agent fees and expenses payable of approximately $7,000.
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, 1997
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,567. At September 30, 1997, the Trust had an accrued pension liability of
$48,094 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, 1995................................. 52,197,974 $ 522,524,992
Shares sold................................................. 45,304,780 451,573,849
Shares issued to shareholders for reinvestment of
dividends.................................................. 2,706,326 26,959,275
Shares tendered (four quarterly tender offers).............. (5,673,770) (56,517,971)
------------- ---------------
Balance, September 30, 1996................................. 94,535,310 944,540,145
Shares sold................................................. 45,281,310 450,176,134
Shares issued to shareholders for reinvestment of
dividends.................................................. 3,988,872 39,655,716
Shares tendered (four quarterly tender offers).............. (8,650,509) (86,013,853)
------------- ---------------
Balance, September 30, 1997................................. 135,154,983 $ 1,348,358,142
------------- ---------------
------------- ---------------
</TABLE>
On October 23, 1997, the Trustees approved a tender offer to purchase up to 4
million shares of beneficial interest to commence on November 19, 1997.
68
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
6. FEDERAL INCOME TAX STATUS
During the year ended September 30, 1997, the Trust utilized approximately
$3,527,000 of its net capital loss carryover. At September 30, 1997, the Trust
had a net capital loss carryover of approximately $208,000 available through
September 30, 2004 to offset future capital gains to the extent provided by
regulations.
As of September 30, 1997, the Trust had temporary book/tax differences primarily
attributable to dividends payable and permanent book/tax differences
attributable to tax adjustments on revolver loans sold by the Trust. To reflect
reclassifications arising from the permanent differences, accumulated
undistributed net investment income was charged and accumulated net realized
loss was credited $1,362,953.
7. COMMITMENTS AND CONTINGENCIES
As of September 30, 1997, the Trust had unfunded loan commitments pursuant to
the following loan agreements:
<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENT
- ----------------------------------------------------------------- --------------
<S> <C>
American Italian Pasta Co........................................ $ 6,000,000
Caldor Corp...................................................... 7,131,181
Capstar Hotels Company........................................... 3,125,000
Chancellor Media Corp............................................ 3,650,500
Chatham Technologies............................................. 5,189,917
ComNet Cellular.................................................. 15,000,000
Crown Paper Co................................................... 5,244,074
Dade International, Inc.......................................... 2,693,548
E & S Holdings Corp.............................................. 5,237,647
Fairchild Holding Corp........................................... 4,365,079
Hard Rock Hotel.................................................. 8,000,000
Jet Plastica Industries.......................................... 2,702,703
Leons Bakery, Inc................................................ 2,529,412
Mafco Finance Corp............................................... 2,720,000
Ralph's Grocery Company, Inc..................................... 1,290,667
Stroh Brewery, Inc............................................... 550,000
UIH Latin America................................................ 1,800,000
--------------
$ 77,229,728
--------------
--------------
</TABLE>
Total value of securities segregated for unfunded loan commitments were
$81,989,383.
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
69
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1997, CONTINUED
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 and brokerage industry. At September 30, 1997, such
Participations had a fair value of $21,492,832.
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.
70
<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
1997 1996 1995 1994 1993 1992 1991 30, 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period....................... $ 9.94 $ 9.99 $ 10.00 $ 9.91 $ 9.99 $ 10.00 $ 10.00 $ 10.00
---------- --------- --------- ---------- --------- --------- ---------- ----------
Net investment income......... 0.75 0.74 0.82 0.62 0.55 0.62 0.84 0.74
Net realized and unrealized
gain (loss).................. -- (0.04) 0.01 0.09 (0.08) (0.01) -- (0.01)
---------- --------- --------- ---------- --------- --------- ---------- ----------
Total from investment
operations................... 0.75 0.70 0.83 0.71 0.47 0.61 0.84 0.73
---------- --------- --------- ---------- --------- --------- ---------- ----------
Less dividends and
distributions from:
Net investment income...... (0.74) (0.75) (0.81) (0.62) (0.55) (0.62) (0.84) (0.73)
Net realized gain.......... -- -- (0.03) -- -- -- -- --
---------- --------- --------- ---------- --------- --------- ---------- ----------
Total dividends and
distributions................ (0.74) (0.75) (0.84) (0.62) (0.55) (0.62) (0.84) (0.73)
---------- --------- --------- ---------- --------- --------- ---------- ----------
Net asset value, end of
period....................... $ 9.95 $ 9.94 $ 9.99 $ 10.00 $ 9.91 $ 9.99 $ 10.00 $ 10.00
---------- --------- --------- ---------- --------- --------- ---------- ----------
---------- --------- --------- ---------- --------- --------- ---------- ----------
TOTAL INVESTMENT RETURN+...... 7.78% 7.25% 8.57% 7.32% 4.85% 6.23% 8.77% 7.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 1.40% 1.46% 1.52% 1.60% 1.45% 1.47% 1.52% 1.48%(2)
Net investment income......... 7.53% 7.50% 8.11% 6.14% 5.53% 6.14% 8.23% 8.95%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.................... $1,344,603 $939,471 $521,361 $305,034 $311,479 $413,497 $479,941 $328,189
Portfolio turnover rate....... 86% 72% 102% 147% 92% 46% 42% 35%(1)
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
Dividends and distributions are assumed to be reinvested at the prices
obtained under the Trust's dividend reinvestment plan.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
71
<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.
72
<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 portfolio 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.
73
<PAGE>
Prime Income Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
- ----------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John H. Haire
Wayne E. Hedien
Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ----------------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
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 FSB
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 (commencement of operations) through September
30, 1990 and for the years ended September 30, 1991,
1992, 1993, 1994, 1995, 1996, and 1997. . . . . . . . . . . . . 4
Portfolio of Investments at September 30, 1997. . . . . . . . . 51
Statement of assets and liabilities at September 30, 1997. . . 61
Statement of operations for the year ended September 30, 1997 . 62
Statement of changes in net assets for the fiscal
years ended September 30, 1996 and September 30, 1997 . . . . . 63
Notes to Financial Statements . . . . . . . . . . . . . . . . . 65
Financial highlights for the period November 30,
1989 through September 30, 1990 and for the years
ended 1991, 1992, 1993, 1994, 1995, 1996 and 1997 . . . . . . . 71
(2) Financial statements included in the Statement of
Additional Information (Part B):
None
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
2. -- Amended and Restated By-Laws of the Registrant.
7. -- Form of Investment Advisory Agreement.
1
<PAGE>
8. -- Form of Distribution Agreement.
10. -- Form of Amended and Restated Transfer Agency and
Service Agreement.
14. -- Consent of Independent Accountants
15.(a) -- Schedule for Computation of Performance Quotations
15.(b) -- Financial Data Schedule
Other -- Power of Attorney.
- ----------------------
All other exhibits were previously filed via EDGAR and are hereby incorporated
by reference.
Item 25. MARKETING ARRANGEMENTS.
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 November 30, 1997
-------------- ------------------------
Shares of Beneficial Interest 59,351
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 Management Agreement, neither the
Investment Manager 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.
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 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 Morgan Stanley, 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
3
<PAGE>
(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
(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 Global Asset Allocation Fund
(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 Short-Term U.S. Treasury Trust
4
<PAGE>
(32) Dean Witter Diversified Income Trust
(33) Dean Witter U.S. Government Money Market Trust
(34) Dean Witter Global Dividend Growth Securities
(35) Active Assets California Tax-Free Trust
(36) Dean Witter Natural Resource Development Securities Inc.
(37) Active Assets Government Securities Trust
(38) Active Assets Money Trust
(39) Active Assets Tax-Free Trust
(40) Dean Witter Limited Term Municipal Trust
(41) Dean Witter Variable Investment Series
(42) Dean Witter Value-Added Market Series
(43) Dean Witter Global Utilities Fund
(44) Dean Witter International SmallCap Fund
(45) Dean Witter Mid-Cap Growth Fund
(46) Dean Witter Select Dimensions Investment Series
(47) Dean Witter Balanced Growth Fund
(48) Dean Witter Balanced Income Fund
(49) Dean Witter Hawaii Municipal Trust
(50) Dean Witter Capital Appreciation Fund
(51) Dean Witter Intermediate Term U.S. Treasury Trust
(52) Dean Witter Information Fund
(53) Dean Witter Japan Fund
(54) Dean Witter Income Builder Fund
(55) Dean Witter Special Value Fund
(56) Dean Witter Financial Services Trust
(57) Dean Witter Market Leader Trust
(58) Dean Witter S&P 500 Index Fund
(59) Dean Witter Fund of Funds
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) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10)TCW/DW Strategic Income 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
5
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ----------------------------------------------------------
<S> <C>
Charles A. Fiumefreddo Executive Vice President and Director of Dean Witter Reynolds Inc.
Chairman, Chief Executive ("DWR"); Chairman, Chief Executive Officer and Director of Dean Witter
Officer and Director Distributors Inc. ("Distributors") and Dean Witter Services Company Inc.
("DWSC"); Chairman and Director of Dean Witter Trust FSB ("DWT"); 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;
Director and/or officer of various Morgan Stanley, Dean Witter, Discover &
Co. ("MSDWD") subsidiaries; formerly Executive Vice President and Director of
Dean Witter, Discover & Co.
Philip J. Purcell Chairman, Chief Executive Officer and Director
Director of MSDWD and DWR; Director of DWSC and Distributors; Director or Trustee of
the Dean Witter Funds; Director and/or officer of various MSDWD subsidiaries.
Richard M. DeMartini President and Chief Operating Officer of Dean Witter
Director Capital, a division of DWR; Director of DWR, DWSC, Distributors and DWT;
Trustee of the TCW/DW Funds.
James F. Higgins President and Chief Operating Officer of Dean Witter
Director Financial; Director of DWR, DWSC, Distributors and DWT.
Thomas C. Schneider Executive Vice President and Chief Strategic and
Executive Vice President, Administrative Officer of MSDWD; Executive Vice
Chief Financial Officer and President and Chief Financial Officer of DWSC and
Director Distributors; Director of DWR, DWSC, Distributors, and MSDWD.
Christine A. Edwards Executive Vice President, Chief Legal Officer and
Director Secretary of MSDWD; 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, Executive
President and Chief Vice President of Distributors; Executive Vice President
Operating Officer and Director of DWT; Vice President of the Dean Witter Funds and the TCW/DW
Funds.
Mitchell M. Merin President and Chief Strategic Officer of DWSC, Executive
President and Chief Vice President of Distributors; Executive Vice President
Strategic Officer and Director of DWT; Executive Vice President and Director of DWR; Director
of SPS Transaction Services, Inc. and various other MSDWD subsidiaries.
Joseph J. McAlinden Vice President of the Dean Witter Funds and
Executive Vice President Director of DWT.
and Chief Investment
Officer
Edward C. Oelsner III
Executive Vice President
John B. Van Heuvelen President, Chief Operating Officer and Director of DWT.
Executive Vice President
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
- ----------------- ----------------------------------------------------------
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
Secretary and General President, Assistant Secretary and Assistant
Counsel General Counsel of Distributors; 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 F. Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone Senior Vice President of DWSC, Distributors
Senior Vice President and DWT and Director of DWT; Vice President
of the Dean Witter Funds and the TCW/DW Funds.
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
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones Vice President of Dean Witter Special Value Fund.
Senior Vice President
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
- ----------------- ----------------------------------------------------------
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita H. Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. Ross
Senior Vice President Vice President of various Dean Witter Funds.
Guy G. Rutherfurd, Jr. Vice President of Dean Witter Market Leader
Senior Vice President Trust.
Rafael Scolari Vice President of Prime Income Trust.
Senior Vice President
Rochelle G. Siegel Vice President of various Dean Witter Funds.
Senior Vice President
Jayne M. Stevlingson Vice President of various Dean Witter Funds.
Senior Vice President
Paul D. Vance Vice President of various Dean Witter Funds.
Senior Vice President
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel Vice President of various Dean Witter Funds.
Senior Vice President
Douglas Brown
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC; Treasurer of the Dean Witter Funds and
and Assistant Treasurer 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
- ----------------- ---------------------------------------------------------
Thomas Chronert
First Vice President
Rosalie Clough
First Vice President
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.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors; First Vice
and Controller President and Treasurer of DWT.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Robert Zimmerman
First Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Dean Witter Funds.
Vice President
Kirk Balzer Vice President of various Dean Witter Funds.
Vice President
Nancy Belza
Vice President
Dale Boettcher
Vice President
Joseph Cardwell
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
- ----------------- ---------------------------------------------------------
Philip Casparius
Vice President
B. Catherine Connelly
Vice President
Salvatore DeSteno Vice President of DWSC.
Vice President
Frank J. DeVito Vice President of DWSC.
Vice President
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Michael Geringer
Vice President
Stephen Greenhut
Vice President
Peter W. Gurman
Vice President
Matthew Haynes Vice President of Dean Witter Variable Investment Series.
Vice President
Peter Hermann Vice President of various Dean Witter Funds.
Vice President
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
Christopher Jones
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
- ----------------- ---------------------------------------------------------
James P. Kastberg
Vice President
Michelle Kaufman Vice President of various Dean Witter Funds.
Vice President
Michael Knox Vice President of various Dean Witter Funds.
Vice President
Paula LaCosta Vice President of various Dean Witter Funds.
Vice President
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Dean Witter Funds.
Vice President
Catherine Maniscalco Vice President of Dean Witter Natural Resource
Vice President Development Securities Inc.
Albert McGarity
Vice President
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary of the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Dean Witter Natural
Vice President Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
11
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ---------------------------------------------------------
Carsten Otto Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
George Paoletti
Vice President
Anne Pickrell Vice President of Dean Witter Global Short-
Vice President Term Income Fund Inc.
Michael Roan
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of Dean Witter Precious Metals and
Vice President Minerals Trust.
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary of the TCW/DW Funds.
Carl F. Sadler
Vice President
Peter Seeley Vice President of Dean Witter World Wide
Vice President Income Trust
Naomi Stein
Vice President
Kathleen H. Stromberg
Vice President Vice President of various Dean Witter Funds.
Marybeth Swisher
Vice President
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Robert Vanden Assem
Vice President
James P. Wallin
Vice President
12
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- ---------------------------------------------------------
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
</TABLE>
Item 30. PRINCIPAL UNDERWRITERS
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware corporation, is
the principal underwriter of the Registrant. Distributors is the principal
underwriter of the following investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Dean Witter European Growth Fund Inc.
(29) Dean Witter Developing Growth Securities Trust
(30) Dean Witter Precious Metals and Minerals Trust
(31) Dean Witter Pacific Growth Fund Inc.
(32) Dean Witter Multi-State Municipal Series Trust
(33) Dean Witter Federal Securities Trust
(34) Dean Witter Short-Term U.S. Treasury Trust
(35) Dean Witter Diversified Income Trust
(36) Dean Witter Health Sciences Trust
13
<PAGE>
(37) Dean Witter Global Dividend Growth Securities
(38) Dean Witter American Value Fund
(39) Dean Witter U.S. Government Money Market Trust
(40) Dean Witter Global Short-Term Income Fund Inc.
(41) Dean Witter Value-Added Market Series
(42) Dean Witter Global Utilities Fund
(43) Dean Witter International SmallCap Fund
(44) Dean Witter Balanced Growth Fund
(45) Dean Witter Balanced Income Fund
(46) Dean Witter Hawaii Municipal Trust
(47) Dean Witter Variable Investment Series
(48) Dean Witter Capital Appreciation Fund
(49) Dean Witter Intermediate Term U.S. Treasury Trust
(50) Dean Witter Information Fund
(51) Dean Witter Japan Fund
(52) Dean Witter Income Builder Fund
(53) Dean Witter Special Value Fund
(54) Dean Witter Financial Services Trust
(55) Dean Witter Market Leader Trust
(56) Dean Witter S&P 500 Index Fund
(57) Dean Witter Fund of Funds
(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) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048. None
of the following persons has any position or office with the Registrant.
NAME POSITIONS AND OFFICE WITH DISTRIBUTORS
- ----- --------------------------------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
14
<PAGE>
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.
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.
15
<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 Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
30th day of December, 1997.
PRIME INCOME TRUST
By /s/ Barry Fink
--------------
Barry Fink
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.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 12/30/97
---------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 12/30/97
---------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 12/30/97
--------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
Wayne E. Hedien
By /s/ David M. Butowsky 12/30/97
-----------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
2. -- Amended and Restated By-Laws of the Registrant.
7. -- Form of Investment Advisory Agreement.
8. -- Form of Distribution Agreement.
10. -- Form of Amended and Restated Transfer Agency and
Service Agreement.
14. -- Consent of Independent Accountants.
15.(a) -- Schedule for Computation of Performance Quotations.
15.(b) -- Financial Data Schedule.
Other -- Power of Attorney.
<PAGE>
BY-LAWS
OF
PRIME INCOME TRUST
AMENDED AND RESTATED AS OF OCTOBER 23, 1997
ARTICLE I
DEFINITIONS
The terms "COMMISSION," "DECLARATION," "DISTRIBUTOR," "INVESTMENT
ADVISER," "MAJORITY SHAREHOLDER VOTE," "1940 ACT," "SHAREHOLDER," "SHARES,"
"TRANSFER AGENT," "TRUST," "TRUST PROPERTY," and "TRUSTEES" have the
respective meanings given them in the Declaration of Trust of Prime Income
Trust dated August 17, 1989, as amended from time to time.
ARTICLE II
OFFICES
SECTION 2.1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be
in the City of Boston, County of Suffolk.
SECTION 2.2. OTHER OFFICES. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or
the business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. MEETINGS. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the
provisions of Section 16(a) of the 1940 Act, for that purpose. Special
meetings of Shareholders shall also be called by the Secretary upon the
written request of the holders of Shares entitled to vote not less than
twenty-five percent (25%) of all votes entitled to be cast at such meeting,
except to the extent otherwise required by Section 16(c) of the 1940 Act, as
made applicable to the Trust by the provisions of Section 2.3 of the
Declaration. Such request shall state the purpose or purposes of such meeting
and the matters proposed to be acted on thereat. Except to the extent
otherwise required by Section 16(c) of the 1940 Act, as made applicable to
the Trust by the provisions of Section 2.3 of the Declaration, the Secretary
shall inform such Shareholders of the reasonable estimated cost of preparing
and mailing such notice of the meeting, and upon payment to the Trust of such
costs, the Secretary shall give notice stating the purpose or purposes of the
meeting to all entitled to vote at such meeting. No meeting need be called
upon the request of the holders of Shares entitled to cast less than a
majority of all votes entitled to be cast at such meeting, to consider any
matter which is substantially the same as a matter voted upon at any meeting
of Shareholders held during the preceding twelve months.
SECTION 3.3. NOTICE OF MEETINGS. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes
thereof, shall be given by the Secretary not less than ten (10) nor more than
ninety (90) days before such meeting to each Shareholder entitled to vote at
such meeting. Such notice shall be deemed to be given when deposited in the
United States mail, postage prepaid, directed to the Shareholder at his
address as it appears on the records of the Trust.
<PAGE>
SECTION 3.4. QUORUM AND ADJOURNMENT OF MEETINGS. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy,
shall be requisite and shall constitute a quorum for the transaction of
business. In the absence of a quorum, the Shareholders present or represented
by proxy and entitled to vote thereat shall have the power to adjourn the
meeting from time to time. The Shareholders present in person or represented
by proxy at any meeting and entitled to vote thereat also shall have the
power to adjourn the meeting from time to time if the vote required to
approve or reject any proposal described in the original notice of such
meeting is not obtained (with proxies being voted for or against adjournment
consistent with the votes for and against the proposal for which the required
vote has not been obtained). The affirmative vote of the holders of a
majority of the Shares then present in person or represented by proxy shall
be required to adjourn any meeting. Any adjourned meeting may be reconvened
without further notice or change in record date. At any reconvened meeting at
which a quorum shall be present, any business may be transacted that might
have been transacted at the meeting as originally called.
SECTION 3.5. VOTING RIGHTS, PROXIES. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his
duly authorized attorney-in-fact, for each Share of beneficial interest of
the Trust and for the fractional portion of one vote for each fractional
Share entitled to vote so registered in his name on the records of the Trust
on the date fixed as the record date for the determination of Shareholders
entitled to vote at such meeting. No proxy shall be valid after eleven months
from its date, unless otherwise provided in the proxy. At all meetings of
Shareholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting. Pursuant to a resolution of a majority of the Trustees, proxies may
be solicited in the name of one or more Trustees or Officers of the Trust.
SECTION 3.6. VOTE REQUIRED. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority
Shareholder Vote.
SECTION 3.7. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election
of the meeting. In case any person appointed as Inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies,
shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results,
and do such other acts as may be proper to conduct the election or vote with
fairness to all Shareholders. On request of the chairman of the meeting, or
of any Shareholder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them
and shall execute a certificate of any facts found by them.
SECTION 3.8. INSPECTION OF BOOKS AND RECORDS. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under the laws of the Commonwealth of
Massachusetts.
SECTION 3.9. ACTION BY SHAREHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting
of Shareholders.
2
<PAGE>
SECTION 3.10. PRESENCE AT MEETINGS. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
ARTICLE IV
TRUSTEES
SECTION 4.1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall
be called by the President or the Secretary upon the written request of any
two (2) Trustees.
SECTION 4.2. NOTICE OF SPECIAL MEETINGS. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage prepaid,
directed to the Trustee at his address as it appears on the records of the
Trust. Subject to the provisions of the 1940 Act, notice or waiver of notice
need not specify the purpose of any special meeting.
SECTION 4.3. TELEPHONE MEETINGS. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such
committee, as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. QUORUM, VOTING AND ADJOURNMENT OF MEETINGS. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act
of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall have been
obtained.
SECTION 4.5. ACTION BY TRUSTEES WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of the Trustees may be taken without a meeting if a consent in
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.
SECTION 4.6. EXPENSES AND FEES. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of
said persons shall receive for services rendered as a Trustee of the Trust
such compensation as may be fixed by the Trustees. Nothing herein contained
shall be construed to preclude any Trustee from serving the Trust in any
other capacity and receiving compensation therefor.
SECTION 4.7. EXECUTION OF INSTRUMENTS AND DOCUMENTS AND SIGNING OF CHECKS
AND OTHER OBLIGATIONS AND TRANSFERS. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all
checks, notes, drafts and other obligations for the payment of money by the
Trust shall be signed, and all transfer of securities standing in the name of
the Trust shall be executed, by the Chairman, the President, any Vice
President or the Treasurer or by any one or more officers or agents of the
Trust as shall be designated for that purpose by vote of the Trustees;
notwithstanding the above, nothing in this Section 4.7 shall be deemed to
preclude the electronic authorization, by designated persons, of the Trust's
Custodian (as described herein in Section 9.1) to transfer assets of the
Trust, as provided for herein in Section 9.1.
3
<PAGE>
SECTION 4.8. INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement, actually
and reasonably incurred by him in connection with the action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or on behalf of the Trust to obtain a judgment or decree in its
favor by reason of the fact that he is or was a Trustee, officer, employee,
or agent of the Trust. The indemnification shall be against expenses,
including attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust; except that no indemnification shall be
made in respect of any claim, issue, or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Trust, except to the extent that the court in which the
action or suit was brought, or a court of equity in the county in which the
Trust has its principal office, determines upon application that, despite the
adjudication of liability but in view of all circumstances of the case, the
person is fairly and reasonably entitled to indemnity for those expenses
which the court shall deem proper, provided such Trustee, officer, employee
or agent is not adjudged to be liable by reason of his willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) or (b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists of
Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person shall
be entitled to indemnification for any liability, whether or not there is
an adjudication of liability, arising by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties as described
in Section 17(h) and (i) of the Investment Company Act of 1940
("disabling conduct"). A person shall be deemed not liable by reason of
disabling conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
4
<PAGE>
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither "interested
persons" of the Trust, as defined in Section 2(a)(19) of the
Investment Company Act of 1940, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit
or proceeding may be paid by the Trust in advance of the final disposition
thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by
the Trust; and
(3) either, (i) such person provides a security for his undertaking,
or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately
will be found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to a person
who has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders 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.
ARTICLE V
COMMITTEES
SECTION 5.1. EXECUTIVE AND OTHER COMMITTEEs. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the
Trustees of the Trust and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Trust. In the absence of
any member of any such committee, the members thereof present
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at any meeting, whether or not they constitute a quorum, may appoint a
Trustee to act in place of such absent member. Each such committee shall keep
a record of its proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. ADVISORY COMMITTEE. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in
any other capacity and which shall have advisory functions with respect to
the investments of the Trust but which shall have no power to determine that
any security or other investment shall be purchased, sold or otherwise
disposed of by the Trust. The number of persons constituting any such
advisory committee shall be determined from time to time by the Trustees. The
members of any such advisory committee may receive compensation for their
services and may be allowed such fees and expenses for the attendance at
meetings as the Trustees may from time to time determine to be appropriate.
SECTION 5.3. COMMITTEE ACTION WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Trustees appointed pursuant to Section
5.1 of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. EXECUTIVE OFFICERS. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more
than one capacity. The executive officers of the Trust shall be elected
annually by the Trustees and each executive officer so elected shall hold
office until his successor is elected and has qualified.
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the President the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.
SECTION 6.3. TERM AND REMOVAL AND VACANCIES. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any
officer or agent of the Trust may be removed by the Trustees whenever, in
their judgment, the best interests of the Trust will be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed.
SECTION 6.4. COMPENSATION OF OFFICERS. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the President to
the extent provided by the Trustees with respect to officers appointed by the
President.
SECTION 6.5. POWER AND DUTIES. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
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SECTION 6.6. THE CHAIRMAN. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees, he shall be a signatory on all Annual
and Semi-Annual Reports as may be sent to shareholders, and he shall perform
such other duties as the Trustees may from time to time prescribe.
SECTION 6.7. THE PRESIDENT. (a) The President shall be the chief
executive officer of the Trust; he shall have general and active management
of the business of the Trust, shall see that all orders and resolutions of
the Board of Trustees are carried into effect, and, in connection therewith,
shall be authorized to delegate to one or more Vice Presidents such of his
powers and duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
SECTION 6.8. THE VICE PRESIDENTS. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by
the Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President,
and he or they shall perform such other duties as the Trustees or the
President may from time to time prescribe.
SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the President.
SECTION 6.10. THE SECRETARY. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or
by the signature of an Assistant Secretary.
SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and
he shall render to the Trustees and the President, whenever any of them
require it, an account of his transactions as Treasurer and of the financial
condition of the Trust; and he shall perform such other duties as the
Trustees, or the President, may from time to time prescribe.
SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order
determined by the Trustees or the President, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers
as the Trustees, or the President, may from time to time prescribe.
SECTION 6.14. DELEGATION OF DUTIES. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
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ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from
time to time determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary
from the computation thereof on the records of the Trust, the Trustees shall
have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the
Trust to avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. CERTIFICATES OF SHARES. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the President, or a Vice President, and countersigned by the
Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option,
determine not to issue a certificate or certificates to evidence Shares owned
of record by any Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Trust, such certificate or certificates
shall, nevertheless, be adopted by the Trust and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures shall appear therein had not ceased
to be such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The
Trustees may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Trust alleged to
have been lost, stolen or destroyed, upon satisfactory proof of such loss,
theft, or destruction; and the Trustees may, in their discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal
representative, to give to the Trust and to such Registrar, Transfer Agent
and/or Transfer Clerk as may be authorized or required to countersign such
new certificate or certificates, a bond in such sum and of such type as they
may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be against them or any of them on
account of or in connection with the alleged loss, theft or destruction of
any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. APPOINTMENT AND DUTIES. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at
least five million dollars ($5,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in these By-Laws and the 1940 Act:
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(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it
as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery
of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting of
shareholders, Trustees or committee, as the case may be, in person, shall be
deemed equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. LOCATION OF BOOKS AND RECORDS. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2. RECORD DATE. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii)
receive payment of any dividend or the allotment of any rights, or in order
to make a determination of Shareholders for any other proper purpose. The
record date, in any case, shall not be more than one hundred eighty (180)
days, and in the case of a meeting of Shareholders not less than ten (10)
days, prior to the date on which such meeting is to be held or the date on
which such other particular action requiring determination of Shareholders is
to be taken, as the case may be. In the case of a meeting of Shareholders,
the meeting date set forth in the notice to Shareholders accompanying the
proxy statement shall be the date used for purposes of calculating the 180
day or 10 day period, and any adjourned meeting may be reconvened without a
change in record date. In lieu of fixing a record date, the Trustees may
provide that the transfer books shall be closed for a stated period but not
to exceed, in any case, twenty (20) days. If the transfer books are closed
for the purpose of determining Shareholders entitled to notice of a vote at a
meeting of Shareholders, such books shall be closed for at least ten (10)
days immediately preceding the meeting.
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SECTION 11.3. SEAL. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from
time to time provide. The seal of the Trust may be affixed to any document,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation under Massachusetts law.
SECTION 11.4. FISCAL YEAR. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. ORDERS FOR PAYMENT OF MONEY. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement
between the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees;
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration, or these By-Laws, a vote of the Shareholders. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration, and any
apparent inconsistency shall be construed in favor of the related provisions
in the Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Prime Income Trust, dated August 17,
1989, a copy of which is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Prime Income Trust
(formerly known as Allstate Prime Income Trust) refers to the Trustees under
the Declaration collectively as Trustees, but not as individuals or
personally; and no Trustee, Shareholder, officer, employee or agent of Prime
Income Trust shall be held to any personal liability, nor shall resort be had
to their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said Prime Income Trust, but the
Trust Estate only shall be liable.
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INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 31st day of May, 1997 by and between Prime Income
Trust, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter called the "Fund"), and Dean
Witter InterCapital Inc., a Delaware corporation (hereinafter called the
"Investment Adviser"):
WHEREAS, The Fund is engaged in business as a closed-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (the "Act"); and
WHEREAS, The Investment Adviser is registered as an investment adviser
under the Investment Advisers Act of 1940 (the "Advisers Act"), and engages
in the business of acting as investment adviser; and
WHEREAS, The Fund desires to retain the Investment Adviser to render
investment advisory services in the manner and on the terms and conditions
hereinafter set forth; and
WHEREAS, The Investment Adviser desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
That in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Adviser agree as follows:
1. The Fund hereby retains the Investment Adviser to act as investment
manager of the Fund and, subject to the supervision of the Trustees of the
Fund (the "Trustees"), to supervise the investment activities of the Fund as
hereinafter set forth. Without limiting the generality of the foregoing, the
Investment Adviser shall obtain and evaluate such information and advice
relating to the economy, securities and commodities markets and securities
and commodities as it deems necessary or useful to discharge its duties
hereunder; shall continuously manage the assets of the Fund in a manner
consistent with the investment objectives and policies of the Fund; shall
determine the securities and commodities to be purchased, sold or otherwise
disposed of by the Fund and the timing of such purchases, sales and
dispositions; and shall take such further action, including the placing of
purchase and sale orders on behalf of the Fund, as the Investment Adviser
shall deem necessary or appropriate. The Investment Adviser shall also
furnish to or place at the disposal of the Fund such of the information,
evaluations, analyses and opinions formulated or obtained by the Investment
Adviser in the discharge of its duties as the Fund may, from time to time,
reasonably request.
2. The Investment Adviser shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Investment
Adviser shall be deemed to include persons employed or otherwise retained by
the Investment Adviser to furnish statistical and other factual data, advice
regarding economic factors and trends, information with respect to technical
and scientific developments, and such other information, advice and
assistance as the Investment Adviser may desire. The Investment Adviser
shall, as agent for the Fund, maintain the Fund's records required in
connection with the performance of its obligations under this Agreement and
required to be maintained under the Act. All such records so maintained shall
be the property of the Fund and, upon request therefor, the Investment
Adviser shall surrender to the Fund such of the records so requested.
3. The Fund will, from time to time, furnish or otherwise make available
to the Investment Adviser such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the
Investment Adviser may reasonably require in order to discharge its duties
and obligations hereunder.
4. The Investment Adviser shall bear the cost of rendering the investment
advisory services to be performed by it under this Agreement, and shall, at
its own expense, pay the compensation of its officers and employees, if any,
who are also officers of the Fund.
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5. The Fund assumes and shall pay or cause to be paid all other expenses
of the Fund, including without limitation: the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities or commodities and other
property, and any stock transfer or dividend agent or agents appointed by the
Fund; brokers' commissions chargeable to the Fund in connection with
portfolio transactions to which the Fund is a party; all taxes, including
securities or commodities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the cost and
expense of engraving or printing certificates representing shares of the
Fund; all costs and expenses in connection with the registration and
maintenance of registration of the Fund and its shares with the Securities
and Exchange Commission and various states and other jurisdictions (including
filing fees and legal fees and disbursements of counsel and the costs and
expenses of preparing, printing, including typesetting, and distributing
prospectuses for such purposes); 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 of the Investment Adviser
or the Fund's administrator or any corporate affiliate of either of them; all
expenses incident to the payment of any dividend or distribution program;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the
Trustees of the Fund who are not interested persons (as defined in the Act)
of the Fund or the Investment Adviser or the Fund's administrator, and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund
borrowings; fees and expenses incident to the listing of the Fund's shares on
any stock exchange; postage; insurance premiums on property or personnel
(including officers and Trustees) of the Fund which inure to its benefit;
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto);
and all other charges and costs of the Fund's operation unless otherwise
explicitly provided herein.
6. For the services to be rendered by the Investment Adviser, the Fund
shall pay to the Investment Adviser monthly compensation determined by
applying the following annual rates to the Fund's average daily net assets:
0.90% of daily net assets up to $500 million; and 0.85% of daily net assets
over $500 million. Such calculations shall be made by applying 1/365ths of
the annual rate to the Fund's net assets each day determined as of the close
of business on that day or the last previous business day. If this Agreement
becomes effective subsequent to the first day of a month or shall terminate
before the last day of a month, compensation for the part of the month this
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fees as set forth above.
7. In the event the operating expenses of the Fund, including amounts
payable to the Investment Adviser pursuant to paragraph 6 hereof, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund imposed by state securities laws
or regulations thereunder, as such limitations may be raised or lowered from
time to time, the Investment Adviser shall reduce its advisory fee to the
extent of such excess and, if required, pursuant to any such laws or
regulations, will reimburse the Fund or annual operating expenses in excess
of any expense limitation that may be applicable; provided, however, there
shall be excluded from such expenses the amount of any interest, taxes,
brokerage commissions and extraordinary expenses (including but not limited
to legal claims and liabilities and litigations costs and any indemnification
related thereto) paid or payable by the Fund. Such reduction, if any, shall
be computed and accrued weekly, shall be settled on a monthly basis, and
shall be based upon the expense limitation applicable to the Fund as at the
end of the last business day of the month. Should two or more such expense
limitations be applicable as at the end of the last full week of the month,
that expense limitation which results in the largest reduction in the
Investment Adviser's fees shall be applicable.
For purposes of this provision, should any applicable expense limitation
be based upon the gross income of the Fund, such gross income shall include,
but not be limited to, interest on debt securities in the Fund's portfolio
accrued to and including the last day of the Fund's fiscal year, and
dividends declared on equity securities in the Fund's portfolio, the record
dates for which fall on or prior to the last day of such fiscal year, but
shall not include gains from the sale of securities.
8. The Investment Adviser will use its best efforts in the management of
the investment activities of the Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Investment Adviser shall not be liable to the Fund
or any of its investors for any error of judgment or mistake of law or for
any act or omission by the Investment Adviser or for any losses sustained by
the Fund or its investors.
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9. Nothing contained in this Agreement shall prevent the Investment
Adviser or any affiliated person of the Investment Adviser from acting as
investment adviser or manager for any other person, firm or corporation
(including any other investment company), whether or not the investment
objectives or policies of any such other person, firm or corporation are
similar to those of the Fund, and shall not in any way bind or restrict the
Investment Adviser or any such affiliated person from buying, selling or
trading any securities or commodities for their own accounts or for the
account of others for whom the Investment Adviser or any such affiliated
person may be acting. Nothing in this Agreement shall limit or restrict the
right of any Trustee, officer or employee of the Investment Adviser to engage
in any other business or to devote his or her time and attention in part to
the management or other aspects of any other business whether of a similar or
dissimilar nature.
10. This Agreement shall remain in effect until April 30, 1999 and from
year to year thereafter provided such continuance is approved at least
annually by the vote of holders of a majority, as defined in the Act, of the
outstanding voting securities of the Fund or by the Board of Trustees of the
Fund; provided that in either event such continuance is also approved
annually by the vote of a majority of the Trustees of the Fund who are not
parties to this Agreement or "interested persons" (as defined in the Act) of
any such party, which vote must be cast in person at a meeting called for the
purpose of voting on such approval; provided, however, that: (a) the Fund
may, at any time and without the payment of any penalty, terminate this
Agreement upon thirty days' written notice to the Investment Adviser, either
by majority vote of the Trustees of the Fund or by the vote of a majority of
the outstanding voting securities of the Fund; (b) this Agreement shall
immediately terminate in the event of its assignment (to the extent required
by the Act and the rules thereunder) unless such automatic terminations shall
be prevented by an exemptive order of the Securities and Exchange Commission;
and (c) the Investment Adviser may terminate this Agreement without payment
of penalty on thirty days' written notice to the Fund. Any notice under this
Agreement shall be given in writing, addressed and delivered, or mailed
postpaid, to the other party at the principal office of such party.
11. This Agreement may be amended by the parties without the vote or
consent of the shareholders of the Fund to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to conform this Agreement to the
requirements of applicable federal laws or regulations, but neither the Fund
nor the Investment Adviser shall be liable for failing to do so.
12. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the Advisers Act or any
rules, regulations or orders of the Securities and Exchange Commission, the
latter shall control.
13. The Declaration of Trust establishing Prime Income Trust, dated August
17, 1989, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name Prime Income Trust refers to the
Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of Prime Income Trust shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said
Prime Income Trust, but the Trust Estate only shall be liable.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in New York, New York.
PRIME INCOME TRUST
By: .............................
Attest:
............................................
DEAN WITTER INTERCAPITAL INC.
By: .............................
Attest:
............................................
4
<PAGE>
PRIME INCOME TRUST
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 31st day of May, 1997 between Prime Income
Trust, an unincorporated business trust organized under the laws of the
Commonwealth of Massachusetts (the "Fund"), and Dean Witter Distributors
Inc., a Delaware corporation (the "Distributor"), and Dean Witter
InterCapital Inc., a Delaware corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a non-diversified closed-end investment
company and it is in the interest of the Fund to offer its shares of
beneficial interest, par value $.01 per share (the "Shares"), for sale
continuously; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
one another with respect to the continuous offering of the Shares in order to
promote the growth of the Fund and facilitate the distribution of its Shares,
and
WHEREAS, the Adviser is the investment adviser to the Fund and is
registered as an investment adviser under the Investment Advisers Act of
1940.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. APPOINTMENT OF THE DISTRIBUTOR. (a) The Fund hereby appoints
the Distributor as the principal underwriter of the Fund to sell Shares to
the public on the terms set forth in this Agreement and the Fund's prospectus
and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund, during the term of this Agreement, shall sell Shares to
the Distributor upon the terms and conditions set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from the Fund and to sell Shares as principal to investors and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate
of the Distributor and the Adviser, upon the terms described herein and in
the Fund's prospectus (the "Prospectus") included in the Fund's registration
statement (the "Registration Statement") most recently filed from time to
time with the Securities and Exchange Commission (the "SEC") and effective
under the Securities Act of 1933, as amended (the "1933 Act") and the 1940
Act or as said Prospectus may be otherwise amended or supplemented and filed
with the SEC pursuant to Rule 497 under the 1933 Act.
(c) The Distributor agrees not to make a secondary market in the Shares or
purchase or hold Shares in inventory for purposes of resale and pursuant to
the terms of selected dealer agreements referred to in Section 7 below,
selected dealers will similarly agree.
SECTION 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall be the
exclusive principal underwriter and distributor of the Fund, except that the
exclusive rights granted to the Distributor to sell the Shares shall not
apply to Shares issued by the Fund: (i) in connection with the merger or
consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company
by the Fund; or (ii) pursuant to reinvestment of dividends or capital gains
distributions.
SECTION 3. PURCHASE OF SHARES FROM THE FUND. (a) The Distributor shall
have the right to buy from the Fund the Shares needed, but not more than the
Shares needed (except for clerical errors in transmission), to fill
unconditional orders for Shares placed with the Distributor by investors and
securities dealers. The price which the Distributor shall pay for the Shares
so purchased from the Fund shall be the net asset value, determined as set
forth in the Prospectus used in determining the public offering price on
which such orders were based.
(b) The Shares are to be resold by the Distributor at the public offering
price, as set forth in the Prospectus to investors or to securities dealers
including DWR, who have entered into selected dealer agreements with the
Distributor pursuant to Section 7 ("Selected Dealers").
(c) The Adviser shall pay, or cause an affiliate to pay, the Distributor a
fee equal to 2.75% of the per share net asset value, determined as set forth
in the Prospectus, of Shares purchased from the Fund and
1
<PAGE>
sold by the Distributor in the continuous offering. Pursuant to the selected
dealer agreements referred to in Section 7 below, the Distributor shall pay
Selected Dealers any amounts due to them in connection with the sale of
Shares in the continuous offering. If Shares remain outstanding after one
year from the date of their initial purchase, the Adviser will compensate, or
cause an affiliate to compensate, the Distributor and Selected Dealers at an
annual rate, paid annually, equal to 0.10% of the value of Shares sold by the
Distributor or selected dealers and remaining outstanding. The 0.10% fee
referred to in the preceding sentence will begin accruing after one year from
the date of initial purchase of the Shares. The compensation paid to the
Distributor and Selected Dealers under this Section 3(c) and the early
withdrawal charge, if any, referred to in Section 4(a) will not in the
aggregate exceed the applicable limit (currently 7.25%) as determined from
time to time by the Association of the National Association of Securities
Dealers, Inc. (the "NASD").
(d) The Fund shall have the right to suspend the sale of the Shares if
trading on the New York Stock Exchange shall have been suspended, if a
banking moratorium shall have been declared by federal or New York
authorities, if such suspension is required in order to comply with the rules
and regulations of the SEC, including Rule 10b-6 under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if such suspension is
required in response to general market conditions in the portfolio securities
of the Fund, or if there shall have been some other event which, in the
judgment of the Fund, makes it impracticable or inadvisable to sell the
Shares.
(e) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept
orders for the purchase of Shares. The Distributor will confirm orders upon
their receipt, and the Fund (or its agent) upon receipt of payment therefor
and instructions will deliver share certificates for such Shares or a
statement confirming the issuance of Shares. Payment shall be made to the
Fund in New York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the Fund (or its
agent).
(f) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct the Fund's transfer agent to receive instructions
directly from the Selected Dealer on behalf of the Distributor as to
registration of Shares in the names of investors and to confirm issuance of
the Shares to such investors. The Distributor is also authorized to instruct
the transfer agent to receive payment directly from the Selected Dealer on
behalf of the Distributor, for prompt transmittal to the Fund's custodian, of
the purchase price of the Shares. In such event the Distributor shall obtain
from the Selected Dealer and maintain a record of such registration
instructions and payments.
SECTION 4. REPURCHASE OF SHARES BY THE FUND. (a) Any of the outstanding
Shares may be tendered for repurchase pursuant to a tender offer made by the
Fund, and the Fund agrees to repurchase the Shares so tendered in accordance
with the requirements of the 1934 Act and the rules and regulations
thereunder and the applicable tender offer provisions set forth in the
Prospectus of the Fund. The price to be paid to repurchase the Shares shall
be equal to the net asset value, determined as set forth in the Prospectus,
less the early withdrawal charge, if any, as described in the Prospectus. All
payments by the Fund hereunder shall be made in the manner set forth below.
The Fund shall pay the total amount of the repurchase price as defined in
the above paragraph pursuant to the instructions of the Distributor or return
the tendered shares promptly following the termination or withdrawal of the
tender offer.
The proceeds of any repurchase of shares shall be paid by the Fund as
follows: (i) any applicable early withdrawal charge shall be paid to the
Adviser and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
Prospectus.
(b) Repurchases of Shares pursuant to a tender offer or payment may be
suspended at such times as may be determined by the Board of Trustees of the
Fund as set forth in the Prospectus including, without limitation, in order
to comply with Rule 10b-6 under the 1934 Act.
(c) With respect to Shares tendered for redemption or repurchase by any
Selected Dealer on behalf of its customers, the Distributor is authorized to
instruct the transfer agent of the Fund to accept orders
2
<PAGE>
for redemption or repurchase directly from the Selected Dealer on behalf of
the Distributor and to instruct the Fund to transmit payments for such
redemptions and repurchases directly to the Selected Dealer on behalf of the
Distributor for the account of the shareholder. The Distributor shall obtain
from the Selected Dealer, and shall maintain, a record of such orders. The
Distributor is further authorized to obtain from the Fund, and shall
maintain, a record of payments made directly to the Selected Dealer on behalf
of the Distributor.
SECTION 5. DUTIES OF THE FUND. (a) The Fund shall furnish to the
Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of the Shares, including one certified copy, upon request by the
Distributor, of all financial statements prepared by the Fund and examined by
independent accountants. The Fund shall, at the expense of the Distributor,
make available to the Distributor such number of copies of the Prospectus as
the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to register Shares under
the 1933 Act, to the end that there will be available for sale such number of
Shares as investors may reasonably be expected to purchase.
(c) The Fund shall use its best efforts to pay the filing fees for an
appropriate number of the Shares for sale under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by the Fund at
any time in its discretion. As provided in Section 8(c) hereof, such filing
fees shall be borne by the Fund. The Distributor shall furnish any
information and other material relating to its affairs and activities as may
be required by the Fund in connection with the sale of its Shares in any
state.
(d) The Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of annual and
interim reports by the Fund.
SECTION 6. DUTIES OF THE DISTRIBUTOR. (a) The Distributor shall sell
Shares of the Fund through DWR and may sell Shares through other securities
dealers and its own Account Executives and shall devote reasonable time and
effort to promote and sell any specific number of Shares. The services of the
Distributor hereunder are not exclusive and it is understood that the
Distributor may act as principal underwriter for other registered investment
companies so long as the performance of its obligations hereunder is not
impaired hereby. It is also understood that Selected Dealers, including DWR,
may also sell shares for other registered investment companies.
(b) Neither the Distributor nor any Selected Dealers shall give any
information or make any representations, other than those contained in the
Registration Statement or related Prospectus and any sales literature
specifically approved by the Fund.
(c) The Distributor agrees that it will comply with the applicable terms
and limitations of the Rules of the NASD.
SECTION 7. SELECTED DEALER AGREEMENTS. (a) The Distributor shall have the
right to enter into selected dealer agreements with Securities Dealers for
the sale of the Shares; provided, that the Fund shall approve the forms of
agreements with dealers. Shares sold to Selected Dealers shall be for resale
by such dealers only at the public offering price as set forth in the
Prospectus.
(b) Within the United States, the Distributor shall offer and sell shares
only to Selected Dealers that are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by the
Fund, for the confirmation of sales of Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers
on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the NASD, as such requirements
may from time to time exist.
SECTION 8. PAYMENT OF EXPENSES. (a) The Distributor shall bear all
expenses incurred by it in connection with its duties and activities under
this Agreement including the payment to Selected Dealers
3
<PAGE>
of any sales commissions for sales of the Fund's Shares (except such expenses
as are specifically undertaken herein by the Fund). It is understood and
agreed that any expenses incurred by the Distributor hereunder may be paid
from amounts received by it from the Adviser pursuant to Section 3(c) hereof.
(b) The Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of legal counsel including counsel to the Trustees of the
Fund who are not interested persons (as defined in the 1940 Act) of the Fund
or the Distributor, and independent accountants, in connection with the
preparation and filing of any required Registration Statements and
Prospectuses and all amendments and supplements thereto, and the expenses of
preparing, printing, mailing and otherwise distributing prospectuses and
statements of additional information, annual or interim reports or proxy
materials to shareholders.
(c) The Fund shall pay the filing fees, and, if necessary or advisable in
connection therewith, bear the cost and expense of qualifying the Fund as a
broker or dealer, in such states of the United States or other jurisdictions
as shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing to
offer Shares therein until the Fund decides to discontinue selling Shares
pursuant to Section 5(c) hereof.
SECTION 9. INDEMNIFICATION. (a) The Fund shall indemnify and hold harmless
the Distributor and each person, if any, who controls the Distributor against
any loss, liability, claim, damage or expense (including the reasonable cost
of investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Shares, which may be
based upon the 1933 Act, or on any other statute or at common law, on the
ground that the Registration Statement or related Prospectus, as from time to
time amended and supplemented, or an annual or interim report to shareholders
of the Fund, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, unless such statement or omission
was made in reliance upon, and in conformity with, information furnished to
the Fund in connection therewith by or on behalf of the Distributor;
provided, however, that in no case (i) is the indemnity of the Fund in favor
of the Distributor and any such controlling persons to be deemed to protect
the Distributor or any such controlling persons thereof against any liability
to the Fund or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties
or by reason of reckless disregard of its obligations and duties under this
Agreement; or (ii) is the Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Fund will be entitled to participate at its
own expense in the defense or if it so elects, to assume the defense, of any
suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but,
in case the Fund does not elect to assume the defense of any such suit, it
will reimburse the Distributor or such controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of
any counsel retained by them. The Fund shall promptly notify the Distributor
of the commencement of any litigation or proceedings against it or any of its
officers or trustees in connection with the issuance or sale of the Shares.
(b) (i) The Distributor shall indemnify and hold harmless the Fund and
each of its trustees and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or
4
<PAGE>
expense, as incurred, described in the foregoing indemnity contained in
subsection (a) of this Section, but only with respect to statements or
omissions made in reliance upon, and in conformity with, information
furnished to the Fund in writing by or on behalf of the Distributor for use
in connection with the Registration Statement or related Prospectus, as from
time to time may be amended, or the annual or interim reports to
shareholders.
(b)(ii) The Distributor shall indemnify and hold harmless the Fund and the
Fund's transfer agent, individually and in its capacity as the Fund's
transfer agent, from and against any claims, damages and liabilities which
arise as a result of actions taken pursuant to instructions from, or on
behalf of, the Distributor to: (1) redeem all or a part of shareholder
accounts in the Fund pursuant to Section 4(c) hereof and pay the proceeds to,
or as directed by, the Distributor for the account of each shareholder whose
Shares are so redeemed and (2) register Shares in the names of investors,
confirm the issuance thereof and receive payment therefor pursuant to Section
3(f).
(b)(iii) In case any action shall be brought against the Fund or any
person so indemnified by this subsection 9(b) in respect of which indemnity
may be sought against the Distributor, the Distributor shall have the rights
and duties given to the Fund, and the Fund and each person so indemnified
shall have the rights and duties given to the Distributor by the provisions
of subsection (a) of this Section 9.
(c) If the indemnification provided for in this Section 9 is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages, liabilities or expenses
(or actions in respect thereof) referred to herein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Fund on the one hand and the
Distributor on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Fund on the one hand and the Distributor on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Fund on the one hand and the Distributor on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Fund bear to the total
compensation received by the Distributor, in each case as set forth in the
Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Fund or the Distributor and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Fund and the Distributor agree that
it would not be just and equitable if contribution were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to above
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
claim. Notwithstanding the provisions of this subsection (c), the Distributor
shall not be required to contribute any amount in excess of the amount by
which the total price at which the Shares distributed by it to the public
were offered to the public exceeds the amount of any damages which it has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement
shall become effective as of the date first above written and shall remain in
force until April 30, 1998 and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Trustees of
the Fund, or by the vote of a majority of the outstanding voting securities
of the Fund, cast in person or by proxy, and (ii) a majority of those
Trustees who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting upon
such approval.
5
<PAGE>
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees of the Fund, by a majority of the Trustees of the
Fund who are not interested persons of the Fund, or by vote of a majority of
the outstanding voting securities of the Fund, or by the Distributor on sixty
days' written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment. The terms "vote of a majority of
the outstanding voting securities," "assignment" and "interested person,"
when used in this Agreement, shall have the respective meanings specified in
the 1940 Act.
SECTION 11. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Trustees of the Fund, or by the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Trustees of the Fund who
are not parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on such
approval.
SECTION 12. GOVERNING LAW. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the
1940 Act. To the extent that the applicable law of the State of New York, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
SECTION 13. PERSONAL LIABILITY. The Declaration of Trust establishing
Prime Income Trust, under the name "Allstate Prime Income Trust," dated
August 17, 1989, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name Allstate Prime Trust refers to the
Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, shareholder, officer, employee or
agent of Prime Income Trust shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said
Prime Income Trust, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
PRIME INCOME TRUST
By: ..............................
(Authorized Signature)
DEAN WITTER INTERCAPITAL INC.
By: ..............................
(Authorized Signature)
DEAN WITTER DISTRIBUTORS INC.
By: ..............................
(Authorized Signature)
6
<PAGE>
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
DEAN WITTER TRUST FSB
[closed-end funds]
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 Terms of Appointment. . . . . . . . . . . . . . . . . .1
Article 2 Fees and Expenses . . . . . . . . . . . . . . . . . . .4
Article 3 Representations and Warranties of DWTFSB. . . . . . . .5
Article 4 Representations and Warranties of the Fund. . . . . . .5
Article 5 Duty of Care and Indemnification. . . . . . . . . . . .6
Article 6 Documents and Covenants of the Fund and DWTFSB. . . . .9
Article 7 Duration and Termination of Agreement . . . . . . . . .12
Article 8 Assignment. . . . . . . . . . . . . . . . . . . . . . .13
Article 9 Affiliations. . . . . . . . . . . . . . . . . . . . . .13
Article 10 Amendment . . . . . . . . . . . . . . . . . . . . . . .14
Article 11 Applicable Law. . . . . . . . . . . . . . . . . . . . .14
Article 12 Miscellaneous . . . . . . . . . . . . . . . . . . . . .14
Article 13 Merger of Agreement . . . . . . . . . . . . . . . . . .16
Article 14 Personal Liability. . . . . . . . . . . . . . . . . . .16
-i-
<PAGE>
AMENDEND AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the first day of August,
1997 by and between each of the Funds listed on the signature page hereof, each
of such Funds acting severally on its own behalf and not jointly with any of
such other Funds (each such Fund hereinafter referred to as the "Fund"), each
such Fund having its principal office and place of business at Two World Trade
Center, New York, New York, 10048, and DEAN WITTER TRUST FSB ("DWTFSB"), a
federally chartered savings bank, having its principal office and place of
business at Harborside Financial Center, Plaza Two, Jersey City, New Jersey
07311.
WHEREAS, the Fund desires to appoint DWTFSB as its transfer agent,
dividend disbursing agent, shareholder servicing agent, registrar and agent in
connection with the Fund's Dividend Reinvestment Plan and DWTFSB desires to
accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF DWTFSB
1.1 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints DWTFSB to act as, and DWTFSB
agrees to act as, the transfer agent for each series and class of shares of the
Fund ("Shares"), dividend disbursing agent, shareholder servicing agent,
registrar and agent in connection with the Fund's Dividend Reinvestment Plan
(the "Plan").
<PAGE>
1.2 DWTFSB agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by agreement between the Fund and DWTFSB shall:
(i) In accordance with instructions from the Fund given by
Certificate of the Secretary of the Fund, issue Shares upon receipt of payment
therefor, and issue certificates therefore or hold such Shares in book form in
the appropriate Shareholder account;
(ii) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(iii) Prepare and transmit payments for dividends and
distributions declared by the Fund in accordance with instructions and serve as
the plan agent for the Plan and purchase and issue shares in accordance with
such Plan;
(iv) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing;
(v) Record the issuance of Shares of the Fund and maintain
pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934
Act") a record of the total number of Shares of the Fund which are authorized,
based upon data provided to it by the Fund, and issued and outstanding. DWTFSB
shall also provide to the Fund on a regular basis the total number of Shares
which are authorized, issued and outstanding and shall notify the Fund in case
any proposed issue of Shares by the Fund would result in an overissue. In case
any issue of
-2-
<PAGE>
Shares would result in an overissue, DWTFSB shall refuse to issue such Shares
and shall not countersign and issue any certificates requested for such Shares.
When recording the issuance of Shares, DWTFSB shall have no obligation to take
cognizance of any Blue Sky laws relating to the issue of sale of such Shares,
which functions shall be the sole responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in
the above paragraph (a), DWTFSB shall:
(i) perform all of the customary services of a transfer agent,
dividend disbursing agent, registrar and, as relevant, shareholder servicing
agent, including but not limited to, maintaining all Shareholder accounts,
preparing Shareholder meeting lists, mailing proxies, receiving and tabulating
proxies, mailing shareholder reports, withholding taxes on U.S. resident and
non-resident alien accounts, preparing and filing appropriate forms required
with respect to dividends and distributions by federal tax authorities for all
Shareholders, and providing Shareholder account information;
(ii) open any and all bank accounts which may be necessary or
appropriate in order to provide the foregoing services; and
(iii) provide a system that will enable the Fund to monitor the
total number of Shares sold in each State or other jurisdiction.
(c) DWTFSB shall provide such additional services and functions
not specifically described herein as may be mutually agreed between DWTFSB and
the Fund. Procedures applicable to such services may be established from time
to time by agreement between the Fund and DWTFSB.
-3-
<PAGE>
Article 2 FEES AND EXPENSES
2.1 For performance by DWTFSB pursuant to this Agreement, each
Fund agrees to pay DWTFSB an annual maintenance fee for each Shareholder account
and certain transactional fees, if applicable, as set out in the respective fee
schedule attached hereto as Schedule A. Such fees and out-of-pocket expenses
and advances identified under Section 2.2 below may be changed from time to time
subject to mutual written agreement between the Fund and DWTFSB.
2.2 In addition to the fees paid under Section 2.1 above, the
Fund agrees to reimburse DWTFSB for out-of-pocket expenses or advances incurred
by DWTFSB in connection with the services rendered by DWTFSB hereunder. In
addition, any other expenses incurred by DWTFSB at the request or with the
consent of the Fund will be reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and reimbursable expenses
within a reasonable period of time following the mailing of the respective
billing notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all Shareholder accounts shall be advanced to DWTFSB by the
Fund upon request prior to the mailing date of such materials.
-4-
<PAGE>
Article 3 REPRESENTATIONS AND WARRANTIES OF DWTFSB
DWTFSB represents and warrants to the Fund that:
3.1 It is a federally chartered savings bank whose principal
office is in New Jersey.
3.2 It is and will remain registered with the U.S. Securities
and Exchange Commission ("SEC") as a Transfer Agent pursuant to the requirements
of Section 17A of the 1934 Act.
3.3 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
3.6 It complies and will continue to comply with New York Stock
Exchange Rule 496.
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to DWTFSB that:
4.1 It is a corporation duly organized and existing and in good
standing
-5-
<PAGE>
under the laws of Maryland or a trust duly organized and existing and in good
standing under the laws of Massachusetts, as the case may be.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation or Declaration of Trust, as the case may be, and under its By-Laws
to enter into and perform this Agreement.
4.3 All corporate proceedings necessary to authorize it to enter
into and perform this Agreement have been taken.
4.4 It is a closed-end investment company registered with the
SEC under the Investment Company Act of 1940, as amended (the "1940 Act").
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.1 DWTFSB shall not be responsible for, and the Fund shall
indemnify and hold DWTFSB harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability arising
out of or attributable to:
(a) All actions of DWTFSB or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of
this Agreement, or which arise out of the Fund's lack of good faith, negligence
or willful misconduct or which arise out of breach of any representation or
warranty of the Fund hereunder.
-6-
<PAGE>
(c) The reliance on or use by DWTFSB or its agents or
subcontractors of information, records and documents which (i) are received by
DWTFSB or its agents or subcontractors and furnished to it by or on behalf of
the Fund, and (ii) have been prepared and/or maintained by the Fund or any other
person of firm on behalf of the Fund.
(d) The reliance on, or the carrying out by DWTFSB or its agents
or subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities or Blue Sky
laws of any State or other jurisdiction that such Shares be registered in such
State or other jurisdiction or in violation of any stop order or other
determination or ruling by any federal agency or any State or other jurisdiction
with respect to the offer or sale of such Shares in such State or other
jurisdiction.
5.2 DWTFSB shall indemnify and hold the Fund harmless from or
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by DWTFSB as a result of the lack of good faith, negligence
or willful misconduct of DWTFSB, its officers, employees or agents.
5.3 At any time DWTFSB may apply to any officer of the Fund for
instructions, and may consult with legal counsel to the Fund, with respect to
any matter arising in connection with the services to be performed by DWTFSB
under this Agreement, and DWTFSB
-7-
<PAGE>
and its agents or subcontractors shall not be liable and shall be indemnified by
the Fund for any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel. DWTFSB, its agents and
subcontractors shall be protected and indemnified in acting upon any paper or
document furnished by or on behalf of the Fund, reasonably believed to be
genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided to DWTFSB or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. DWTFSB, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signature of the officers of the
Fund, and the proper countersignature of any former transfer agent or registrar,
or of a co-transfer agent or co-registrar.
5.4 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes.
5.5 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
act or failure to act hereunder.
-8-
<PAGE>
5.6 In order that the indemnification provisions contained in
this Article 5 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 DOCUMENTS AND COVENANTS OF THE FUND AND DWTFSB
6.1 The Fund shall promptly furnish to DWTFSB the following,
unless previously furnished to Dean Witter Trust Company, the prior transfer
agent of the Fund:
(a) If a corporation:
(i) A certified copy of the resolution of the Board of Directors
of the Fund authorizing the appointment of DWTFSB and the execution and delivery
of this Agreement;
(ii) A certified copy of the Articles of Incorporation and
By-Laws of the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Directors
designating
-9-
<PAGE>
persons authorized to give instructions on behalf of the Fund and signature
cards bearing the signature of any officer of the Fund or any other person
authorized to sign written instructions on behalf of the Fund.
(iv) A specimen of the certificate for Shares of the Fund in the
form approved by the Board of Directors, with a certificate of the Secretary of
the Fund as to such approval;
(b) If a business trust:
(i) a certified copy of the resolution of the Board of Trustees
of the Fund authorizing the appointment of DWTFSB and the execution and delivery
of this agreement;
(ii) A certified copy of the Declaration of Trust and By-Laws of
the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Trustees
designating persons authorized to give instructions on behalf of the Fund and
signature cards bearing the signature of any officer of the Fund or any other
person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund in the
form approved by the Board of Trustees, with a certificate of the Secretary of
the Fund as to such approval;
-10-
<PAGE>
(c) The registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act and the 1940 Act;
(d) All account application forms, if any, or other documents
relating to Shareholder accounts and/or relating to any dividend reinvestment
plan or other service offered or to be offered by the Fund; and
(e) Such other certificates, documents or opinions as DWTFSB
deems to be appropriate or necessary for the proper performance of its duties.
6.2 DWTFSB hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping of Share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
6.3 DWTFSB shall prepare and keep records relating to the
services to be performed hereunder, in the form and manner as it may deem
advisable and as required by applicable laws and regulations. To the extent
required by Section 31 of the 1940 Act, and the Rules and Regulations
thereunder, DWTFSB agrees that all such records prepared or maintained by DWTFSB
relating to the services to be performed by DWTFSB hereunder are the property of
the Fund and will be preserved, maintained and made available in accordance with
such Section 31 of the 1940 Act, and the rules and regulations thereunder, and
will be surrendered promptly to the Fund on and in accordance with its request.
-11-
<PAGE>
6.4 DWTFSB and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential and shall not be voluntarily disclosed to
any other person except as may be required by law or with the prior consent of
DWTFSB and the Fund.
6.5 In case of any request or demands for the inspection of the
Shareholder records of the Fund, DWTFSB will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. DWTFSB reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 DURATION AND TERMINATION OF AGREEMENT
7.1 This Agreement shall remain in full force and effect until
August 1, 2000 and from year-to-year thereafter unless terminated by either
party as provided in Section 7.2 hereof.
7.2 This Agreement may be terminated by the Fund on 60 days
written notice and by DWTFSB on 90 days written notice to the other party
without payment of any penalty.
7.3 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and other
materials will be borne by the Fund. Additionally, DWTFSB reserves the right to
charge for any other reasonable fees and expenses
-12-
<PAGE>
associated with such termination.
Article 8 ASSIGNMENT
8.1 Except as provided in Section 8.3 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
8.2 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
8.3 DWTFSB may, in its sole discretion and without further
consent by the Fund, subcontract, in whole or in part, for the performance of
its obligations and duties hereunder with any person or entity including but not
limited to companies which are affiliated with DWTFSB; PROVIDED, HOWEVER, that
such person or entity has and maintains the qualifications, if any, required to
perform such obligations and duties and that DWTFSB shall be as fully
responsible to the Fund for the acts and omissions of any agent or subcontractor
as it is for its own acts or omissions under this Agreement.
Article 9 AFFILIATIONS
9.1 DWTFSB may now or hereafter, without the consent of or
notice to the Fund, function as transfer agent, registrar and/or shareholder
servicing agent for any other investment company registered with the SEC under
the 1940 Act and for any other issuer, including without limitation any
investment company whose adviser, administrator, sponsor or principal
underwriter is or may become affiliated with Morgan Stanley, Dean Witter,
Discover &
-13-
<PAGE>
Co. or any of its direct or indirect subsidiaries or affiliates.
9.2 It is understood and agreed that the Directors or Trustees
(as the case may be), officers, employees, agents and shareholders of the Fund,
and the directors, officers, employees, agents and shareholders of the Fund's
investment adviser and/or distributor, are or may be interested in DWTFSB as
directors, officers, employees, agents and shareholders or otherwise, and that
the directors, officers, employees, agents and shareholders of DWTFSB may be
interested in the Fund as Directors or Trustees (as the case may be), officers,
under the laws of Maryland or a trust duly organized and existing and in good
standing under the laws of Massachusetts, as the case may be. employees, agents
and shareholders or otherwise, or in the investment adviser and/or distributor
as directors, officers, employees, agents, shareholders or otherwise.
Article 10 AMENDMENT
10.1 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors or the Board of Trustees (as the case may be) of the
Fund.
Article 11 APPLICABLE LAW
11.1 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the State of New
York.
Article 12 MISCELLANEOUS
12.1 In the event that one or more additional investment
companies managed or administered by Dean Witter InterCapital Inc. ("Additional
Dean Witter Funds") desires to retain DWTFSB to act as transfer agent, dividend
disbursing agent and/or shareholder
-14-
<PAGE>
servicing agent, and DWTFSB desires to render such services, such services shall
be provided pursuant to a letter agreement, substantially in the form of Exhibit
A hereto, between DWTFSB and each Additional Dean Witter Fund.
12.2 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to DWTFSB an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to DWTFSB and the Fund issued by a
surety company satisfactory to DWTFSB, except that DWTFSB may accept an
affidavit of loss and indemnity agreement executed by the registered holder (or
legal representative) without surety in such form as DWTFSB deems appropriate
indemnifying DWTFSB and the Fund for the issuance of a replacement certificate,
in cases where the alleged loss is in the amount of $1,000 or less.
12.3 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to DWTFSB shall be sufficiently
given if addressed to that party and received by it at its office set forth
below or at such other place as it may from time to time designate in writing.
-15-
<PAGE>
To the Fund:
[Name of Fund]
Two World Trade Center
New York, New York 10048
Attention: General Counsel
To DWTFSB:
Dean Witter Trust FSB
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
Attention: President
Article 13 MERGER OF AGREEMENT
13.1 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
Article 14 PERSONAL LIABILITY
14.1 In the case of a Fund organized as a Massachusetts business
trust, 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
-16-
<PAGE>
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
1. High Income Advantage Trust
2. High Income Advantage Trust II
3. High Income Advantage Trust III
4. Prime Income Trust
5. InterCapital Income Securities Inc.
6. Dean Witter Government Income Trust
7. InterCapital Insured Municipal Bond Trust
8. InterCapital Insured Municipal Trust
9. InterCapital Insured Municipal Income Trust
10. InterCapital Insured Municipal Securities
11. InterCapital California Insured Municipal Income Trust
12. InterCapital Insured California Municipal Securities
13. InterCapital Quality Municipal Investment Trust
14. InterCapital Quality Municipal Income Trust
15. InterCapital Quality Municipal Securities
16. InterCapital California Quality Municipal Securities
17. InterCapital New York Quality Municipal Securities
18. Municipal Income Trust
19. Municipal Income Trust II
20. Municipal Income Trust III
21. Municipal Income Opportunities Trust
22. Municipal Income Opportunities Trust II
23. Municipal Income Opportunities Trust III
24. Municipal Premium Income Trust
25. TCW/DW Term Trust 2000
26. TCW/DW Term Trust 2002
-17-
<PAGE>
27. TCW/DW Term Trust 2003
28. TCW/DW Emerging Markets Opportunities Trust
By:
-----------------------------
Barry Fink
Vice President, Secretary and
General Counsel
ATTEST:
- ---------------------------------
Assistant Secretary
DEAN WITTER TRUST FSB
BY:
-----------------------
John Van Heuvelen
President
ATTEST:
- ---------------------------------
Executive Vice President
-18-
<PAGE>
EXHIBIT A
Dean Witter Trust FSB
Harborside Financial Center, Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, (NAME OF INVESTMENT COMPANY), a (Maryland
corporation/Massachusetts business trust) (the "Fund"), desires to employ and
appoint Dean Witter Trust FSB ("DWTFSB") to act as transfer agent for each
series and class of shares of the Fund, dividend disbursing agent shareholder
servicing agent, registrar and agent in connection with the Fund's Dividend
Reinvestment Plan.
The Fund hereby agrees that, in consideration for the payment by the
Fund to DWTFSB of fees as set out in the fee schedule attached hereto as
Schedule A, DWTFSB shall provide such services to the Fund pursuant to the terms
and conditions set forth in the Transfer Agency and Service Agreement annexed
hereto, as if the Fund was a signatory thereto.
Please indicate DWTFSB's acceptance of employment and appointment by
the Fund in the capacities set forth above by so indicating in the space
provided below.
Very truly yours,
(NAME OF FUND)
By:
---------------------------
ACCEPTED AND AGREED TO:
DEAN WITTER TRUST FSB
By:
-------------------
Its:
------------------
Date:
-----------------
-19-
<PAGE>
SCHEDULE A
Fund: Prime Income Trust
Fees: (1) Annual maintenance fee of $10.00 per shareholder account,
payable monthly.
(2) A fee equal to 1/12 of the fee set forth in (1) above, for
providing Forms 1099 for accounts closed during the year, payable
following the end of the calendar year.
(3) Out-of-pocket expenses in accordance with Section 2.2 of the
Agreement.
(4) Fees for additional services not set forth in this Agreement
shall be as negotiated between the parties.
<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
(Securities Act File No. 33-37819) of our report dated November 12, 1997,
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 19, 1997
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
PRIME INCOME TRUST
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ___________________ |
FORMULA: | | |
T - |/\ n| ERV |
| \ | ----- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 30-Sep-97 TOTAL RETURN YEARS - n COMPOUND RETURN - T
- ------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
30-Sep-96 $1,047.80 4.78% 1.00 4.78%
30-Sep-92 $1,412.30 41.23% 5.00 7.15%
30-Nov-89 $1,755.30 75.53% 7.83 7.45%
</TABLE>
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ___________________ |
FORMULA: | | |
t - |/\ n| EV |
| \ | ----- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 30-Sep-97 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
30-Sep-96 $1,077.80 7.78% 1.00 7.78%
30-Sep-92 $1,412.30 41.23% 5.00 7.15%
30-Nov-89 $1,755.30 75.53% 7.83 7.45%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
(D) (E) (F)
$10,000 TOTAL GROWTH OF GROWTH OF GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------------- ------------------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
30-Nov-89 75.53 $17,553 $87,765 $175,530
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 1,331,108,619
<INVESTMENTS-AT-VALUE> 1,327,263,241
<RECEIVABLES> 12,063,546
<ASSETS-OTHER> 12,028,239
<OTHER-ITEMS-ASSETS> 434,146
<TOTAL-ASSETS> 1,351,789,172
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,185,950
<TOTAL-LIABILITIES> 7,185,950
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,348,358,142
<SHARES-COMMON-STOCK> 135,154,983
<SHARES-COMMON-PRIOR> 94,535,310
<ACCUMULATED-NII-CURRENT> 526,876
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (436,418)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,845,378)
<NET-ASSETS> 1,344,603,222
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 96,329,113
<OTHER-INCOME> 5,982,200
<EXPENSES-NET> 16,061,798
<NET-INVESTMENT-INCOME> 86,249,515
<REALIZED-GAINS-CURRENT> 3,073,930
<APPREC-INCREASE-CURRENT> (3,410,252)
<NET-CHANGE-FROM-OPS> 85,913,193
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (85,598,513)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 45,281,310
<NUMBER-OF-SHARES-REDEEMED> (8,650,509)
<SHARES-REINVESTED> 3,988,872
<NET-CHANGE-IN-ASSETS> 405,132,677
<ACCUMULATED-NII-PRIOR> 238,827
<ACCUMULATED-GAINS-PRIOR> (4,873,301)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,981,012
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,061,798
<AVERAGE-NET-ASSETS> 1,144,824,828
<PER-SHARE-NAV-BEGIN> 9.94
<PER-SHARE-NII> .75
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.74)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.95
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that WAYNE E. HEDIEN, whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald Feiman and
Stuart Strauss, or any of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of ANY OF THE
DEAN WITTER FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: September 1, 1997
/s/ Wayne E. Hedien
------------------------------
Wayne E. Hedien
<PAGE>
Schedule A
<TABLE>
<C> <S>
1. Active Assets Money Trust
2. Active Assets Tax-Free Trust
3. Active Assets Government Securities Trust
4. Active Assets California Tax-Free Trust
5. Dean Witter New York Municipal Money Market Trust
6. Dean Witter American Value Fund
7. Dean Witter Tax-Exempt Securities Trust
8. Dean Witter Tax-Free Daily Income Trust
9. Dean Witter Capital Growth Securities
10. Dean Witter U.S. Government Money Market Trust
11. Dean Witter Precious Metals and Minerals Trust
12. Dean Witter Developing Growth Securities Trust
13. Dean Witter World Wide Investment Trust
14. Dean Witter Value-Added Market Series
15. Dean Witter Utilities Fund
16. Dean Witter Strategist Fund
17. Dean Witter California Tax-Free Daily Income Trust
18. Dean Witter Convertible Securities Trust
19. Dean Witter Intermediate Income Securities
20. Dean Witter World Wide Income Trust
21. Dean Witter S&P 500 Index Fund
22. Dean Witter U.S. Government Securities Trust
23. Dean Witter Federal Securities Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter California Tax-Free Income Fund
26. Dean Witter New York Tax-Free Income Fund
27. Dean Witter Select Municipal Reinvestment Fund
28. Dean Witter Variable Investment Series
29. High Income Advantage Trust
30. High Income Advantage Trust II
31. High Income Advantage Trust III
32. InterCapital Insured Municipal Bond Trust
33. InterCapital Insured Municipal Trust
34. InterCapital Insured Municipal Income Trust
35. InterCapital Quality Municipal Investment Trust
36. InterCapital Quality Municipal Income Trust
37. Dean Witter Government Income Trust
38. Municipal Income Trust
39. Municipal Income Trust II
40. Municipal Income Trust III
41. Municipal Income Opportunities Trust
42. Municipal Income Opportunities Trust II
43. Municipal Income Opportunities Trust III
44. Municipal Premium Income Trust
45. Prime Income Trust
46. Dean Witter Short-Term U.S. Treasury Trust
47. Dean Witter Diversified Income Trust
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48. InterCapital California Insured Municipal Income Trust
49. Dean Witter Health Sciences Trust
50. Dean Witter Global Dividend Growth Securities
51. InterCapital Quality Municipal Securities
52. InterCapital California Quality Municipal Securities
53. InterCapital New York Quality Municipal Securities
54. Dean Witter Retirement Series
55. Dean Witter Limited Term Municipal Trust
56. Dean Witter Short-Term Bond Fund
57. Dean Witter Global Utilities Fund
58. InterCapital Insured Municipal Securities
59. InterCapital Insured California Municipal Securities
60. Dean Witter High Income Securities
61. Dean Witter National Municipal Trust
62. Dean Witter International SmallCap Fund
63. Dean Witter Mid-Cap Growth Fund
64. Dean Witter Select Dimensions Investment Series
65. Dean Witter Global Asset Allocation Fund
66. Dean Witter Balanced Growth Fund
67. Dean Witter Balanced Income Fund
68. Dean Witter Intermediate Term U.S. Treasury Trust
69. Dean Witter Hawaii Municipal Trust
70. Dean Witter Japan Fund
71. Dean Witter Capital Appreciation Fund
72. Dean Witter Information Fund
73. Dean Witter Fund of Funds
74. Dean Witter Special Value Fund
75. Dean Witter Income Builder Fund
76. Dean Witter Financial Services Trust
77. Dean Witter Market Leader Trust
78. Dean Witter Managers' Select Fund
79. Dean Witter Liquid Asset Fund Inc.
80. Dean Witter Natural Resource Development Securities Inc.
81. Dean Witter Dividend Growth Securities Inc.
82. Dean Witter European Growth Fund Inc.
83. Dean Witter Pacific Growth Fund Inc.
84. Dean Witter High Yield Securities Inc.
85. Dean Witter Global Short-Term Income Fund Inc.
86. InterCapital Income Securities Inc.
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