<PAGE>
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST TWO WORLD TRADE CENTER,
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1999 NEW YORK, NEW YORK 10048
</TABLE>
DEAR SHAREHOLDER:
During the twelve-month period ended September 30, 1999, the U.S. economy
continued its path of strength and vigor propelled by a rising stock market, low
unemployment, consumer confidence and increased liquidity provided by the
Federal Reserve Board. Early in the period, the Fed eased the federal-funds rate
50 basis points, for a total of 75 basis points during 1998. With the rate at
4.75 percent, the liquidity concerns brought about from international banks'
exposure to Asia and Russia diminished greatly. As 1999 emerged, interest rates
began their steady climb as investors displayed renewed confidence and appeared
less risk averse. With this renewed strength in the world economy and the threat
of inflation looming, the Federal Reserve twice raised the federal-funds rate in
the summer, to 5.25 percent.
Interest rates on intermediate-term U.S. Treasuries were highly volatile during
this period. Five-year Treasuries ranged in yield between 3.97 percent and 6.03
percent. On September 30, 1999, the five-year Treasury note was yielding 5.75
percent, compared to 4.22 percent one year earlier. As interest rates drifted
higher during 1999, the London Interbank Offered Rate (LIBOR) rose by
approximately 75 basis points.
LOAN SYNDICATION MARKET OVERVIEW
The syndicated loan market offered investors a unique opportunity throughout the
year ended September 30, 1999. As interest rates climbed steadily during the
first nine months of 1999, the loan syndication market outperformed most other
fixed-income securities, due primarily to the floating-rate mechanism of senior
loans.
More recently, however, the senior loan sector has been experiencing some
deterioration. There has been a rise in defaults and bankruptcy filings by
corporate borrowers in recent months, which could result in a weakening in the
quality of some borrowers and greater fluctuations in the valuations of senior
loans.
The syndicated loan market continued to grow over the twelve-month period ended
September 30, 1999. New issuance remained robust, with $305 billion brought to
market during this period. Demand for senior loans also increased as the number
of loan participation funds increased from 15 to 23 over the period.
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1999, CONTINUED
PERFORMANCE
For the fiscal year ended September 30, 1999, Morgan Stanley Dean Witter Prime
Income Trust posted a total return of 6.72 percent, compared to 6.62 percent for
the Lipper Loan Participation Funds Average. We believe the Fund's yield for the
trailing twelve months of 7.53 percent continues to provide a high level of
current income to investors. During the fiscal year, the Trust's net asset value
declined from $9.91 per share to $9.87 per share.
The Trust's net assets were over $2.5 billion on September 30, 1999, with new
subscriptions totaling $645.7 million for this period. The Trust conducted
quarterly tender offers during the fiscal year, totaling $188.1 million, or 7.5
percent of net assets.
PORTFOLIO STRATEGY
The Trust's investment objective is to provide a high level of current income
consistent with the preservation of capital. The Trust seeks to achieve its
objective by investing primarily in Senior Loans, which generally pay interest
at rates that 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 Trust is a widely diversified portfolio that utilizes credit analysis as the
cornerstone of its investment process. On September 30, 1999, the Trust had
exposure to 189 issuers across more than 65 industry segments. The highest
industry concentrations continued to be in sectors we believe are capable of
achieving sustained growth and solid earnings performance such as broadcast,
media and telecom. The Trust's management maintained its discipline of strict
credit analysis with a focus on borrowers' leverage levels and liquidity.
LOOKING AHEAD
Our economic outlook continues to call for moderate growth for the remainder of
1999. The rate of increase in corporate earnings declined over the last year;
however, the outlook is still positive for earnings growth. We expect interest
rates to remain in the current range for the near term.
Going forward, we will keep a watchful eye on the credit conditions of the
senior loan sector. In addition, we will continue to scrutinize the financial
position of the Trust's borrowers and uphold our strict screening process for
credit approval both for positions owned and for potential investments.
2
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1999, CONTINUED
We appreciate your ongoing support of Morgan Stanley Dean Witter Prime Income
Trust and look forward to continuing to serve your investment needs.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
[SIGNATURE]
MITCHELL M. MERIN
PRESIDENT
3
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SENIOR COLLATERALIZED TERM LOANS (a) (b) (95.0%)
ACCIDENT & HEALTH INSURANCE (0.2%)
$ 2,475 BRW Acquisition, Inc.............................................. 7.25% 07/10/06 $ 2,471,634
2,475 BRW Acquisition, Inc.............................................. 7.50 07/10/07 2,471,560
--------------
4,943,194
--------------
AEROSPACE (1.5%)
14,813 Avborne, Inc...................................................... 8.56 to 8.75 06/30/05 14,805,346
6,965 Decrane Aircraft Holdings, Inc.................................... 8.76 04/23/06 6,956,851
17,382 Fairchild Holding Corp............................................ 8.63 to 8.68 04/30/06 17,380,511
--------------
39,142,708
--------------
AIR FREIGHT/DELIVERY SERVICES (1.6%)
12,882 Atlas Freighter Leasing II, Inc................................... 7.50 05/29/04 12,867,858
8,531 Erickson Air-Crane Co., L.L.C..................................... 9.01 12/31/04 8,520,756
3,883 Evergreen International Aviation, Inc............................. 8.62 05/31/02 3,881,840
6,201 Evergreen International Aviation, Inc............................. 8.54 05/07/03 6,200,382
8,447 First Security Bank, National Association as Owner Trustee........ 8.68 05/07/03 8,445,753
--------------
39,916,589
--------------
APPAREL (2.3%)
14,462 American Marketing Industries, Inc................................ 9.06 to 9.25 11/29/02 14,458,548
3,900 American Marketing Industries, Inc................................ 9.06 to 9.25 11/30/03 3,899,086
2,709 American Marketing Industries, Inc................................ 9.06 to 9.25 11/30/04 2,708,138
4,186 American Marketing Industries, Inc................................ 9.06 to 9.25 11/30/05 4,185,358
7,039 Arena Brands, Inc................................................. 8.66 to 9.39 06/01/02 7,027,781
1,038 Arena Brands, Inc. (Revolver)..................................... 8.62 to 11.00 06/01/02 1,038,320
18,000 St. John Knits International,
Inc............................................................. 9.38 07/31/07 17,985,780
5,985 The William Carter Co............................................. 7.79 to 7.97 10/30/03 5,980,940
--------------
57,283,951
--------------
AUTO PARTS - O.E.M. (2.5%)
9,900 Accuride Corp..................................................... 7.06 01/21/06 9,898,911
7,500 Accuride Corp..................................................... 7.81 01/21/07 7,499,025
11,542 AP Automotive Systems, Inc........................................ 7.56 to 7.69 12/19/05 11,541,601
6,316 J.L. French Automotive Castings, Inc.............................. 8.13 10/21/06 6,315,788
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 15,000 Meridian Automotive Systems, Inc.................................. 8.25% 05/25/06 $ 14,972,400
5,960 Special Devices, Inc.............................................. 8.56 12/15/05 5,959,167
7,940 Stoneridge, Inc................................................... 9.01 12/31/05 7,930,710
--------------
64,117,602
--------------
AUTOMOTIVE AFTERMARKET (0.2%)
2,056 Safelite Glass Corp............................................... 8.50 12/23/04 2,053,787
2,056 Safelite Glass Corp............................................... 8.75 12/23/05 2,053,807
--------------
4,107,594
--------------
BOOKS/MAGAZINE (1.9%)
18,886 Advanstar Communications,
Inc............................................................. 7.88 04/30/05 18,885,622
4,991 Advanstar Communications,
Inc............................................................. 8.38 06/30/07 4,990,842
25,000 Ziff-Davis, Inc................................................... 8.81 03/31/06 24,996,000
--------------
48,872,464
--------------
BROADCAST/MEDIA (4.8%)
20,000 Benedek Broadcasting Corp......................................... 8.69 to 8.70 11/20/07 19,964,741
10,000 Black Entertainment Television, Inc............................... 6.94 06/30/06 9,998,800
9,750 Capstar Broadcasting Partners,
Inc............................................................. 7.31 to 7.38 11/30/04 9,693,758
9,800 Capstar Broadcasting Partners,
Inc............................................................. 7.69 05/31/05 9,799,496
6,400 Chancellor Media Corp............................................. 7.56 06/30/05 6,400,103
1,339 Chancellor Media Corp. (Revolver)................................. 7.56 to 9.38 06/30/05 1,338,750
2,850 Cumulus Media, Inc................................................ 8.38 09/30/07 2,849,971
1,900 Cumulus Media, Inc................................................ 8.51 02/28/08 1,899,981
15,000 Emmis Communications Corp......................................... 7.94 02/28/07 14,846,700
6,579 Latin Communications, Inc......................................... 13.00 02/28/04 6,578,804
19,000 Sinclair Broadcast Group, Inc..................................... 6.56 09/15/05 18,996,580
7,425 Spartan Communications, Inc....................................... 8.63 06/30/05 7,424,852
10,000 Susquehanna Media Co.............................................. 7.94 06/30/08 10,000,100
--------------
119,792,636
--------------
BUILDING MATERIALS (0.5%)
3,011 Atrium Co., Inc................................................... 8.53 06/30/05 3,007,328
4,316 Atrium Co., Inc................................................... 8.56 to 8.78 06/30/06 4,314,591
6,000 Dayton Superior Corp.............................................. 8.13 09/29/05 5,999,880
--------------
13,321,799
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CABLE TELEVISION (3.6%)
$ 45,000 Charter Communications Operating, LLC............................. 7.81 to 7.89% 03/18/08 $ 44,996,911
10,750 Classic Cable, Inc................................................ 8.00 to 8.25 01/31/08 10,749,770
17,500 General Cable Corp................................................ 8.25 05/27/07 17,481,100
15,000 RCN Corp.......................................................... 8.88 06/03/07 14,996,550
4,000 TWFanch-One Co.................................................... 8.00 12/31/07 3,990,520
--------------
92,214,851
--------------
CASINO/GAMBLING (0.9%)
5,519 Alliance Gaming Corp.............................................. 8.56 to 8.62 01/31/05 5,517,653
2,203 Alliance Gaming Corp.............................................. 8.81 to 8.87 07/31/05 2,202,624
5,000 Harrah's Jazz Co.................................................. 6.06 04/30/05 4,997,450
10,000 Palace Station Hotel & Casino, Inc................................ 7.87 12/31/05 9,999,900
--------------
22,717,627
--------------
CELLULAR TELEPHONE (1.8%)
7,444 Centenial Cellular Operating
Co. LLC......................................................... 8.64 05/31/07 7,408,988
7,444 Centenial Cellular Operating
Co. LLC......................................................... 8.89 11/30/07 7,408,839
30,602 Microcell Connexions, Inc......................................... 8.51 to 8.63 03/01/06 30,594,521
--------------
45,412,348
--------------
COAL MINING (0.6%)
14,813 Quaker Coal Company, Inc.......................................... 11.75 06/30/06 14,812,500
--------------
CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (0.4%)
10,000 Terex Corp........................................................ 8.68 03/06/06 10,000,000
--------------
CONSUMER SPECIALTIES (1.0%)
2,375 American Safety Razor Co.......................................... 9.12 to 9.20 04/30/07 2,374,522
8,307 Amscan Holdings, Inc.............................................. 7.75 to 7.91 12/31/04 8,298,994
5,563 Jet Plastica Industries, Inc...................................... 7.69 to 8.00 12/31/02 5,558,935
8,891 Jet Plastica Industries, Inc...................................... 8.19 to 8.50 12/31/04 8,882,738
--------------
25,115,189
--------------
CONSUMER SUNDRIES (0.8%)
324 Corning Consumer Products
Co. (Revolver).................................................. 7.00 to 7.51 04/09/05 323,527
15,840 Corning Consumer Products
Co.............................................................. 7.38 10/09/06 15,837,624
3,055 The Boyds Collection, Ltd......................................... 7.00 to 7.56 04/21/06 3,053,528
--------------
19,214,679
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER/BUSINESS SERVICES (2.7%)
$ 16,951 Bridge Information Systems,
Inc............................................................. 8.06 to 8.19% 05/29/03 $ 16,951,111
2,556 Bridge Information Systems,
Inc. (Revolver)................................................. 8.19 to 9.50 05/29/03 2,555,572
19,950 Bridge Information Systems, Inc................................... 8.06 to 8.31 05/29/05 19,949,202
9,381 InfoUSA, Inc...................................................... 8.94 06/30/06 9,381,102
4,833 Prime Succession, Inc............................................. 8.94 to 9.25 08/01/03 4,833,602
4,833 Prime Succession, Inc. (Participation: Goldman Sachs &
Co.) (d)........................................................ 8.94 to 9.25 08/01/03 4,833,602
9,601 Rose Hills Co..................................................... 8.31 12/01/03 9,590,387
--------------
68,094,578
--------------
CONTAINERS/PACKAGING (2.0%)
1,778 Graham Packaging Co............................................... 8.25 01/31/06 1,774,540
8,172 Graham Packaging Co............................................... 8.38 to 8.81 01/31/07 8,162,509
7,500 Impaxx, Inc....................................................... 8.81 to 9.13 12/31/05 7,494,075
10,000 LLS Corp.......................................................... 8.30 to 8.75 07/31/06 9,994,363
4,987 Mediapak Corp..................................................... 8.77 to 10.25 12/31/05 4,980,708
4,987 Mediapak Corp..................................................... 8.88 to 10.50 12/31/06 4,981,490
4,822 MPC Packaging Corp................................................ 10.13 05/30/04 4,822,454
9,174 Packaging Corporation of America.................................. 8.63 to 9.50 04/12/07 9,172,115
--------------
51,382,254
--------------
DISCOUNT CHAINS (0.5%)
11,528 Tuesday Morning Corp.............................................. 7.88 12/29/04 11,527,594
--------------
DIVERSIFIED COMMERCIAL SERVICES (0.4%)
9,950 Building One Services Corp........................................ 8.31 to 8.50 04/30/04 9,931,582
--------------
DIVERSIFIED MANUFACTURING (1.6%)
6,197 Chatham Technologies, Inc......................................... 8.44 08/18/03 6,196,703
7,914 Chatham Technologies, Inc......................................... 8.94 08/18/05 7,914,649
3,000 Desa International, Inc........................................... 8.98 11/26/03 2,999,670
6,755 Desa International, Inc........................................... 9.00 11/26/04 6,747,772
6,860 Doskocil Manufacturing Co......................................... 9.38 09/30/04 6,858,559
9,554 Insilco Corp...................................................... 9.13 11/24/05 9,554,029
--------------
40,271,382
--------------
DRUGSTORE CHAINS (0.7%)
9,850 Duane Reade, Inc.................................................. 8.06 02/15/05 9,849,015
6,683 Duane Reade, Inc.................................................. 8.31 to 8.56 02/15/06 6,681,897
--------------
16,530,912
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
E.D.P. SERVICES (0.3%)
$ 14,738 DecisionOne Corp.................................................. 10.00% 08/07/04 $ 8,105,625
--------------
EDUCATION (0.4%)
9,258 Children's Discovery Centers of America........................... 7.81 to 7.94 06/30/05 9,235,720
--------------
ELECTRONIC COMPONENTS (1.9%)
7,481 Communications Instruments,
Inc............................................................. 8.63 to 8.69 03/15/04 7,480,964
13,944 Dynamic Details, Inc.............................................. 7.88 04/22/05 13,943,721
7,000 Knowles Electronics, Inc.......................................... 8.60 06/29/07 6,987,680
2,968 Viasystems Group, Inc............................................. 8.75 03/31/04 2,964,622
2,443 Viasystems Group, Inc............................................. 8.79 06/30/04 2,440,274
14,000 Viasystems Group, Inc............................................. 9.18 to 9.19 06/30/05 13,997,495
--------------
47,814,756
--------------
ELECTRONIC PRODUCTION EQUIPMENT (0.2%)
5,706 Telex Communications, Inc......................................... 8.96 to 8.98 11/06/04 5,704,728
--------------
ENERGY (0.6%)
15,000 AES Texas Funding, LLC............................................ 8.13 03/06/00 14,999,700
--------------
ENTERTAINMENT & LEISURE (1.1%)
7,500 MGM Studios, Inc.................................................. 8.25 03/31/06 7,499,475
5,354 Premier Parks, Inc................................................ 7.44 to 9.00 03/31/06 5,354,483
16,038 Six Flag Theme Parks, Inc......................................... 8.19 11/30/04 16,037,256
--------------
28,891,214
--------------
ENVIRONMENTAL SERVICES (2.5%)
22,727 Allied Waste Industries, Inc...................................... 8.19 07/30/06 22,727,273
27,273 Allied Waste Industries, Inc...................................... 8.44 07/30/07 27,272,763
12,903 Environmental Systems Products Holdings, Inc...................... 9.51 09/30/05 12,887,404
--------------
62,887,440
--------------
FINANCE (0.7%)
8,990 Blackstone Capital
Company II, L.L.C............................................... 11.75 11/30/00 8,990,066
8,830 Wasserstein/C&A Holdings, L.L.C................................... 10.00 11/30/00 8,813,283
--------------
17,803,349
--------------
FLUID CONTROLS (0.4%)
4,988 Mueller Group, Inc................................................ 8.69 08/16/06 4,979,520
4,988 Mueller Group, Inc................................................ 8.94 08/16/07 4,979,520
--------------
9,959,040
--------------
FOOD CHAINS (0.5%)
12,438 Big V Supermarkets, Inc........................................... 8.94 08/10/03 12,437,624
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOOD & BEVERAGES (2.2%)
$ 9,250 B&G Foods, Inc.................................................... 8.63% 03/03/06 $ 9,249,815
7,425 Eagle Family Foods, Inc........................................... 8.69 to 9.01 12/31/05 7,424,421
8,415 Favorite Brands International, Inc................................ 8.81 05/19/05 8,404,525
12,375 Leon's Bakery, Inc................................................ 8.38 06/03/05 12,374,752
6,252 Specialty Food Corp. (Revolver)................................... 8.63 to 8.64 01/31/01 6,251,958
10,725 Specialty Food Corp............................................... 9.91 01/31/01 10,723,961
--------------
54,429,432
--------------
HOME FURNISHINGS (0.5%)
3,005 Sealy Mattress Co................................................. 7.88 12/15/04 3,001,814
2,165 Sealy Mattress Co................................................. 8.13 12/15/05 2,162,662
2,766 Sealy Mattress Co................................................. 8.38 12/15/06 2,763,872
1,424 Simmons Co........................................................ 8.69 10/29/05 1,424,533
3,563 Simmons Co........................................................ 8.94 10/29/06 3,562,606
--------------
12,915,487
--------------
HOSPITAL/NURSING MANAGEMENT (3.6%)
5,969 Columbia - HealthONE, LLC......................................... 8.88 06/30/05 5,968,846
7,014 Community Health Systems, Inc..................................... 8.50 12/31/03 7,005,352
7,014 Community Health Systems, Inc..................................... 9.00 12/31/04 7,005,352
5,232 Community Health Systems, Inc..................................... 9.25 12/31/05 5,226,650
4,410 GEAC/Multicare Co., Inc........................................... 9.49 to 9.51 09/30/04 4,404,957
1,466 GEAC/Multicare Co., Inc........................................... 9.74 06/01/05 1,466,089
4,300 Genesis Health Ventures, Inc...................................... 8.73 to 8.81 09/30/04 4,299,431
4,290 Genesis Health Ventures, Inc...................................... 8.98 to 9.06 06/01/05 4,289,289
17,194 Integrated Health Services, Inc................................... 8.56 to 8.88 09/30/04 17,181,195
3,684 Magellan Health Services, Inc..................................... 8.00 02/12/05 3,680,985
3,684 Magellan Health Services, Inc..................................... 8.25 02/12/06 3,680,949
5,011 Paracelsus Healthcare Corp........................................ 8.38 03/31/03 5,011,011
7,943 Paracelsus Healthcare Corp........................................ 8.63 03/31/04 7,942,698
14,552 Ventas Realty Limited Partnership................................. 8.14 10/30/99 14,551,938
--------------
91,714,742
--------------
HOTELS/RESORTS (3.0%)
15,000 Felcor Lodging Trust, Inc......................................... 7.88 03/31/04 14,999,850
10,395 Meristar Hospitality Operating Partnership, L.P................... 7.38 01/31/04 10,394,896
4,727 Pebble Beach Company.............................................. 8.63 07/30/06 4,727,226
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 20,000 Starwood Hotels & Resorts Worldwide, Inc.......................... 9.13% 02/23/03 $ 19,999,600
10,000 Wyndham International, Inc........................................ 8.81 06/30/04 9,999,400
15,000 Wyndham International, Inc........................................ 9.06 06/30/06 14,999,250
--------------
75,120,222
--------------
INDUSTRIAL SPECIALTIES (0.8%)
13,301 Advanced Glassfiber Yarns
LLC............................................................. 9.01 09/30/05 13,285,848
5,955 Panolam Industries International, Inc............................. 8.88 to 8.98 12/31/05 5,954,395
--------------
19,240,243
--------------
INSURANCE BROKERS/SERVICES (0.5%)
7,271 Acordia, Inc...................................................... 7.69 12/31/04 7,257,849
2,910 Willis Corroon Corp............................................... 7.98 11/19/07 2,909,738
2,910 Willis Corroon Corp............................................... 8.23 02/19/08 2,909,709
--------------
13,077,296
--------------
MAJOR CHEMICALS (0.6%)
7,500 Huntsman ICI Chemicals LLC........................................ 8.50 06/30/07 7,491,075
7,500 Huntsman ICI Chemicals LLC........................................ 8.63 06/30/08 7,499,850
--------------
14,990,925
--------------
MANAGED HEALTH CARE (0.5%)
9,595 Interim Healthcare, Inc........................................... 8.64 to 9.24 02/29/04 9,590,068
3,559 Interim Healthcare, Inc........................................... 9.03 to 9.49 02/28/05 3,554,500
--------------
13,144,568
--------------
MEDICAL SPECIALTIES (1.3%)
2,954 Alaris Medical Systems, Inc....................................... 7.94 11/01/03 2,953,183
2,954 Alaris Medical Systems, Inc....................................... 7.94 11/01/04 2,953,183
4,641 Alaris Medical Systems, Inc....................................... 7.94 05/01/05 4,640,275
6,234 Dade Behring, Inc................................................. 8.24 to 10.13 06/30/06 6,233,813
6,234 Dade Behring, Inc................................................. 8.44 to 10.38 06/30/07 6,233,532
2,455 Medical Specialties Group, Inc.................................... 8.88 06/30/01 2,454,496
7,136 Medical Specialties Group, Inc.................................... 9.63 06/30/04 7,136,221
--------------
32,604,703
--------------
MEDICAL/NURSING SERVICES (2.5%)
1,965 Alliance Imaging, Inc............................................. 7.88 to 8.00 12/18/03 1,964,927
4,913 Alliance Imaging, Inc............................................. 7.88 to 8.44 06/18/04 4,910,574
12,902 Alliance Imaging, Inc............................................. 7.88 to 8.44 12/18/04 12,901,416
6,983 Alliance Imaging, Inc............................................. 8.13 to 8.69 06/18/05 6,979,654
8,147 FHC Health Systems, Inc........................................... 7.81 04/30/05 8,145,572
8,147 FHC Health Systems, Inc........................................... 8.06 04/30/06 8,145,572
10,400 Quest Diagnostics, Inc............................................ 8.72 08/16/06 10,398,752
9,600 Quest Diagnostics, Inc............................................ 9.27 to 9.7 08/16/07 9,592,944
--------------
63,039,411
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MOTOR VEHICLES (0.1%)
$ 3,400 Asbury Automotive Texas Holdings L.L.C............................ 9.06% 03/31/05 $ 3,399,830
--------------
MOVIES/ENTERTAINMENT (1.3%)
9,967 Panavision, Inc................................................... 8.79 to 8.94 03/31/05 9,947,948
8,904 United Artists Theatre Co......................................... 9.69 to 11.50 04/21/06 8,903,589
13,355 United Artists Theatre Co......................................... 9.69 to 11.50 04/21/07 13,341,088
--------------
32,192,625
--------------
MULTI-SECTOR COMPANIES (1.1%)
2,205 Mafco Finance Corp. (Revolver).................................... 9.31 to 9.52 04/28/00 2,202,735
25,442 Mafco Finance Corp................................................ 9.52 04/28/00 25,413,304
--------------
27,616,039
--------------
NEWSPAPERS (0.2%)
4,925 21st Century Newspapers, Inc...................................... 7.81 09/15/05 4,924,557
--------------
OFFICE EQUIPMENT/SUPPLIES (1.4%)
14,962 Global Imaging Systems, Inc....................................... 8.63 06/30/06 14,962,201
19,970 US Office Products Co............................................. 7.89 06/09/06 19,970,170
--------------
34,932,371
--------------
OILFIELD SERVICES/EQUIPMENT (1.8%)
20,000 Plains Scurlock Permian, L.P...................................... 8.47 05/12/04 19,997,600
15,000 Transmontaigne, Inc............................................... 8.69 06/30/06 15,000,450
10,000 US Synthetic Corp................................................. 8.81 to 9.02 05/31/05 9,989,679
--------------
44,987,729
--------------
OTHER CONSUMER SERVICES (0.6%)
7,800 PCA International, Inc............................................ 8.76 08/25/05 7,791,576
7,882 Volume - Services, Inc............................................ 9.31 12/31/06 7,872,395
--------------
15,663,971
--------------
OTHER METALS/MINERALS (1.2%)
7,635 CII Carbon, Inc................................................... 8.52 06/25/08 7,625,477
1,699 U.S. Silica Corp. (Revolver)...................................... 7.56 to 9.00 06/30/04 1,697,835
14,966 U.S. Silica Corp.................................................. 7.93 06/30/06 14,956,589
5,000 U.S. Silica Corp.................................................. 8.88 12/31/06 4,999,900
--------------
29,279,801
--------------
OTHER PHARMACEUTICALS (0.8%)
19,838 King Pharmaceuticals, Inc......................................... 9.24 12/22/06 19,815,543
--------------
OTHER SPECIALTY STORES (1.3%)
4,900 Caribbean Petroleum, LP........................................... 8.81 09/30/05 4,894,855
5,045 Cumberland Farms, Inc. (Participation Merrill Lynch
& Co., Inc.) (c)................................................ 9.75 12/31/00 5,045,019
7,500 Petro Stopping Centers, L.P....................................... 8.56 07/23/06 7,492,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 14,924 The Pantry, Inc................................................... 8.89% 01/31/06 $ 14,924,113
--------------
32,356,112
--------------
PACKAGED FOODS (0.5%)
9,607 Formax, Inc....................................................... 8.19 to 10.00 06/30/05 9,591,799
2,612 Southern Foods Group, L.P......................................... 8.44 03/04/06 2,611,925
--------------
12,203,724
--------------
PAINTS/COATINGS (0.3%)
7,500 Metokote Corp..................................................... 9.26 11/02/05 7,490,175
--------------
PAPER (1.6%)
7,149 Alabama Pine Pulp Co.,
Inc. (d)........................................................ 9.38 06/30/03 6,791,064
3,325 Alabama Pine Pulp Co.,
Inc. (d)........................................................ 9.38 06/30/05 1,866,237
4,429 Alabama Pine Pulp Co.,
Inc. (d)........................................................ 10.75 12/31/08 182,934
8,524 Alabama River Newsprint Co. (Participation: Toronto Dominion
Bank) (c)....................................................... 7.38 to 7.63 12/31/02 8,103,527
8,872 Bear Island Paper Company, LLC.................................... 8.38 12/31/05 8,871,846
5,655 Crown Paper Co. (Revolver)........................................ 8.25 to 10.00 08/22/02 5,655,170
8,103 Crown Paper Co.................................................... 8.81 to 10.50 08/22/03 8,102,432
--------------
39,573,210
--------------
PRECISION INSTRUMENTS(0.6%)
4,892 Dynatech Corp..................................................... 7.75 03/31/05 4,886,293
4,892 Dynatech Corp..................................................... 8.00 03/31/06 4,886,293
4,892 Dynatech Corp..................................................... 8.25 03/31/07 4,886,293
--------------
14,658,879
--------------
PRINTING/PUBLISHING (2.3%)
5,000 American Media Operations, Inc.................................... 8.63 to 8.88 04/01/07 4,998,050
10,656 Cygnus Publishing, Inc............................................ 8.24 06/05/05 10,655,504
17,500 Hollinger International Publishing, Inc........................... 10.25 12/31/04 17,500,000
10,879 The Sheridan Group, Inc........................................... 8.31 01/30/05 10,878,036
3,292 Von Hoffman Press, Inc............................................ 7.76 05/30/04 3,287,221
10,690 Von Hoffman Press, Inc............................................ 7.76 05/30/05 10,677,671
--------------
57,996,482
--------------
RECREATIONAL PRODUCTS/TOYS (0.9%)
7,205 Ritvik Toys, Inc.................................................. 8.75 02/08/03 7,203,419
7,205 Ritvik Toys, Inc.................................................. 9.38 02/08/04 7,203,346
913 Spalding Holdings Corp............................................ 7.79 09/30/03 912,607
3,494 Spalding Holdings Corp. (Revolver)................................ 7.79 to 9.75 09/30/03 3,493,695
1,828 Spalding Holdings Corp............................................ 8.23 09/30/04 1,827,458
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,828 Spalding Holdings Corp............................................ 8.79% 09/30/05 $ 1,827,440
1,052 Spalding Holdings Corp............................................ 9.29 03/30/06 1,052,092
--------------
23,520,057
--------------
RENTAL/LEASING COMPANIES (2.7%)
12,500 Avis Rent A Car, Inc.............................................. 8.56 06/30/06 12,496,750
12,500 Avis Rent A Car, Inc.............................................. 8.81 06/30/07 12,496,750
15,000 NationsRent, Inc.................................................. 8.38 07/20/06 14,999,700
5,573 Rent-A-Center, Inc................................................ 7.63 to 7.64 01/31/06 5,572,900
6,816 Rent-A-Center, Inc................................................ 7.88 to 7.89 01/31/07 6,815,912
14,963 United Rentals, Inc............................................... 7.72 06/30/05 14,961,004
--------------
67,343,016
--------------
RESTAURANTS (0.3%)
6,825 Shoney's, Inc..................................................... 8.08 to 10.50 04/30/02 6,824,041
--------------
RETAIL-SPECIALTY (1.1%)
12,492 CSK Auto, Inc..................................................... 7.38 10/31/03 12,489,876
8,791 HMV Media Group PLC............................................... 8.26 02/25/06 8,787,684
6,059 HMV Media Group PLC............................................... 8.58 08/25/06 6,053,044
--------------
27,330,604
--------------
SEMICONDUCTORS (1.5%)
9,043 Fairchild Semiconductor Corp...................................... 8.63 12/15/04 9,043,070
10,000 Intersil Corp..................................................... 9.53 06/30/05 9,988,400
3,925 Mitel Corp........................................................ 7.81 12/26/03 3,920,220
7,222 Semiconductor Components Industries, LLC.......................... 9.31 08/04/06 7,214,928
7,778 Semiconductor Components Industries, LLC.......................... 9.56 08/04/07 7,769,688
--------------
37,936,306
--------------
SPECIALTY CHEMICALS (1.9%)
10,000 Lyondell Petrochemical Co......................................... 8.67 to 8.69 06/30/03 9,888,815
14,925 Lyondell Petrochemical Co......................................... 9.36 05/17/06 14,923,060
6,842 Pioneer America Acqusitions
Corp............................................................ 7.86 to 8.54 12/05/06 6,836,940
8,100 Pioneer Americas, Inc............................................. 7.88 to 8.66 12/05/06 8,092,032
8,080 Vining Industries, Inc............................................ 8.57 03/31/05 8,071,352
--------------
47,812,199
--------------
SPECIALTY STEELS (0.8%)
9,875 ISPAT Inland, L.P................................................. 7.69 to 7.76 07/16/05 9,859,211
9,875 ISPAT Inland, L.P................................................. 8.19 to 8.26 07/16/06 9,859,211
--------------
19,718,422
--------------
TELECOMMUNICATION EQUIPMENT (1.6%)
4,466 Channel Master, Inc............................................... 9.06 to 9.34 10/10/05 4,461,233
13,000 Pinnacle Towers, Inc.............................................. 8.52 06/30/07 12,982,840
22,063 Superior Telecom, Inc............................................. 9.06 to 9.13 11/27/05 21,943,619
--------------
39,387,692
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (5.2%)
$ 10,526 Alaska Communications Systems Holdings, Inc....................... 8.50% 11/14/07 $ 10,525,579
9,474 Alaska Communications Systems Holdings, Inc....................... 8.75 05/14/08 9,472,926
7,450 Davel Financing Co., LLC.......................................... 9.72 to 9.76 06/23/05 7,435,959
25,000 Global Crossing Holdings,
Ltd............................................................. 8.26 07/02/07 25,000,000
15,000 IDT Corp.......................................................... 8.75 05/10/04 14,971,200
9,975 Infonet Sevice Corp............................................... 8.26 06/30/06 9,962,033
25,000 KMC Telecom, Inc.................................................. 9.31 07/01/07 24,995,250
10,000 Level 3 Communications, Inc....................................... 10.75 01/15/08 10,000,000
7,528 MJD Communications, Inc........................................... 8.13 to 8.25 03/31/06 7,522,909
9,850 MJD Communications, Inc........................................... 8.50 to 10.25 03/31/07 9,838,155
--------------
129,724,011
--------------
TEXTILES (1.0%)
8,000 Globe Manufacturing, Inc.......................................... 8.57 to 9.32 07/31/06 7,993,389
4,532 Joan Fabrics Corp................................................. 8.16 06/30/05 4,532,055
2,351 Joan Fabrics Corp................................................. 8.66 06/30/06 2,350,715
10,897 Polymer Group, Inc................................................ 7.88 to 7.94 12/20/05 10,889,226
--------------
25,765,385
--------------
TRANSPORTATION (1.4%)
6,310 American Commercial Lines,
LLC............................................................. 7.56 06/30/06 6,307,547
8,604 American Commercial Lines,
LLC............................................................. 7.81 06/30/07 8,600,853
5,284 MTL, Inc.......................................................... 7.63 02/28/05 5,284,222
4,528 MTL, Inc.......................................................... 7.88 02/28/06 4,529,333
7,368 North American Van Lines, Inc..................................... 8.27 03/31/06 7,360,497
3,591 Transportacion Ferroviaria Mexicana, S.A. de C.V.................. 9.72 12/23/02 3,591,036
--------------
35,673,488
--------------
WIRELESS COMMUNICATIONS (4.9%)
13,684 Arch Paging, Inc.................................................. 12.19 06/30/06 13,682,707
10,000 Nextel Communications, Inc........................................ 9.06 03/31/07 9,874,400
20,000 Nextel Finance Co................................................. 8.31 09/30/06 19,977,600
15,000 Nextel Partners Operating
Corp............................................................ 10.19 01/29/08 14,836,350
10,000 Nextel Partners Operating
Corp............................................................ 9.77 07/29/08 9,988,200
19,938 Omnipoint Communications,
Inc............................................................. 8.69 to 8.72 02/17/06 19,871,863
11,000 Powertel PCS, Inc................................................. 8.56 12/31/08 10,988,560
14,000 Powertel PCS, Inc. (Participation: Goldman Sachs & Co.) (c)....... 8.38 to 8.56 12/31/08 13,985,300
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 10,000 Teligent, Inc..................................................... 8.45% 06/30/06 $ 9,992,100
--------------
123,197,080
--------------
TOTAL SENIOR COLLATERALIZED TERM LOANS
(IDENTIFIED COST $2,397,386,167)............................................................... 2,388,163,607
--------------
SENIOR NOTES (0.4%)
1,613 London Fog Industries, Inc. (e)................................... 10.00 02/27/03 629,121
9,563 Supercanal Holdings S.A. (Argentina).............................. 9.81 10/12/02 9,561,459
--------------
TOTAL SENIOR NOTES
(IDENTIFIED COST $11,452,484).................................................................. 10,190,580
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- ----------
<C> <S> <C> <C> <C>
COMMON STOCK (a) (f) (0.0%)
APPAREL
129,050 London Fog Industries, Inc. (Restricted)
(IDENTIFIED COST $2,258,908).................................... --
--------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ---------- ----------
<C> <S> <C> <C>
WARRANT (a) (f) (0.0%)
7,931 London Fog Industries, Inc. (Restricted)
(IDENTIFIED COST $1,722,237)..................................................... 02/27/05 --
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ---------- ---------- --------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (4.0%)
COMMERCIAL PAPER (g) (3.6%)
FINANCE - CONSUMER
$ 22,000 American Express Credit Corp....................................................... 5.44 10/01/99
27,000 American Express Credit Corp. (h).................................................. 5.40 10/04/99
40,000 American Express Credit Corp. (h).................................................. 5.28 10/08/99
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $88,946,783).............................................................................
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ----------
<C> <C>
$ 22,000 22,000,000
27,000 26,987,850
40,000 39,958,933
--------------
88,946,783
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT (0.4%)
$ 11,004 The Bank of New York (dated 09/30/99; proceeds $11,005,055) (i)
(IDENTIFIED COST $11,003,527).................................................. 5.00% 10/01/99
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $99,950,310)............................................................................
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------
<C> <C>
$ 11,004
$ 11,003,527
--------------
99,950,310
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $2,512,770,106) (J)............................................................... 99.4% 2,498,304,497
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 0.6 15,654,526
------ --------------
NET ASSETS......................................................................................... 100.0% $2,513,959,023
------ --------------
------ --------------
</TABLE>
- ---------------------
(a) Valued using fair value procedures - total aggregate value is
$2,398,354,187.
(b) Floating rate securities. Interest rates shown are those in effect at
September 30, 1999.
(c) Participation interests were acquired through the financial institutions
indicated parenthetically.
(d) Payment in kind security.
(e) Non-income producing security; note in default.
(f) Non-income producing securities.
(g) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(h) All or a portion of these securities are segregated in connection with
unfunded loan commitments.
(i) Collateralized by $11,247,330 U.S. Treasury Note 5.375% due 06/30/03 valued
at $11,227,999.
(j) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $2,632,462 and the
aggregate gross unrealized depreciation is $17,098,071, resulting in net
unrealized depreciation of $14,465,609.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $2,512,770,106).......................... $2,498,304,497
Cash........................................................ 3,735,088
Receivable for:
Interest................................................ 17,078,683
Shares of beneficial interest sold...................... 5,126,064
Investments sold........................................ 435,434
Prepaid expenses and other assets........................... 1,011,737
--------------
TOTAL ASSETS........................................... 2,525,691,503
--------------
LIABILITIES:
Payable for:
Investment advisory fee................................. 1,757,262
Dividends to shareholders............................... 1,220,374
Administration fee...................................... 517,047
Accrued expenses and other payables......................... 304,585
Deferred loan fees.......................................... 7,933,212
Commitments and contingencies (Note 7)...................... --
--------------
TOTAL LIABILITIES...................................... 11,732,480
--------------
NET ASSETS............................................. $2,513,959,023
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $2,536,180,951
Net unrealized depreciation................................. (14,465,609)
Accumulated undistributed net investment income............. 704,520
Accumulated net realized loss............................... (8,460,839)
--------------
NET ASSETS............................................. $2,513,959,023
==============
NET ASSET VALUE PER SHARE,
254,813,996 SHARES OUTSTANDING
(UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)........... $9.87
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $183,155,103
Facility, amendment and other loan fees..................... 5,258,883
Other income................................................ 823,457
------------
TOTAL INCOME........................................... 189,237,443
------------
EXPENSES
Investment advisory fee..................................... 19,568,322
Administration fee.......................................... 5,740,526
Transfer agent fees and expenses............................ 1,008,446
Professional fees........................................... 616,632
Registration fees........................................... 407,360
Shareholder reports and notices............................. 353,753
Facility fees............................................... 144,412
Custodian fees.............................................. 115,375
Trustees' fees and expenses................................. 16,145
Other....................................................... 151,925
------------
TOTAL EXPENSES......................................... 28,122,896
Less: expense offset........................................ (33,238)
------------
NET EXPENSES........................................... 28,089,658
------------
NET INVESTMENT INCOME.................................. 161,147,785
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 1,067,708
Net change in unrealized depreciation....................... (13,449,451)
------------
NET LOSS............................................... (12,381,743)
------------
NET INCREASE................................................ $148,766,042
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income......................... $ 161,147,785 $ 119,953,468
Net realized gain (loss)...................... 1,067,708 (10,227,863)
Net change in unrealized depreciation......... (13,449,451) 2,829,220
-------------- --------------
NET INCREASE............................. 148,766,042 112,554,825
Dividends from net investment income.......... (159,065,743) (120,722,134)
Net increase from transactions in shares of
beneficial interest......................... 527,549,296 660,273,515
-------------- --------------
NET INCREASE............................. 517,249,595 652,106,206
NET ASSETS:
Beginning of period........................... 1,996,709,428 1,344,603,222
-------------- --------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $704,520 AND DIVIDENDS IN EXCESS
OF NET INVESTMENT INCOME OF $552,409,
RESPECTIVELY)............................. $2,513,959,023 $1,996,709,428
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income....................................... $ 161,147,785
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Increase in receivables and other assets related to
operations................................................ (4,819,335)
Increase in payables related to operations.................. 239,476
Net loan fees received...................................... 8,407,380
Amortization of loan fees................................... (5,258,883)
Accretion of discounts...................................... (399,778)
---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 159,316,645
---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of investments.................................... (1,547,470,530)
Principal repayments/sales of investments................... 904,621,846
Net sales/maturities of short-term investments.............. 113,054,438
---------------
NET CASH USED FOR INVESTING ACTIVITIES................. (529,794,246)
---------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Shares of beneficial interest sold.......................... 649,548,611
Shares tendered............................................. (188,124,450)
Dividends from net investment income (net of reinvested
dividends of $69,946,361)................................. (88,658,423)
---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 372,765,738
---------------
NET INCREASE IN CASH........................................ 2,288,137
CASH BALANCE AT BEGINNING OF YEAR........................... 1,446,951
---------------
CASH BALANCE AT END OF YEAR................................. $ 3,735,088
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter 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
21
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999, 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
distributions which exceed net investment income and net realized capital gains
for financial
22
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999, CONTINUED
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 Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Advisor"), 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; 0.85% to the
portion of the daily net assets exceeding $500 million but not exceeding $1.5
billion; and 0.825% to the portion of daily net assets exceeding $1.5 billion.
Effective May 1, 1999 the Agreement was amended to reduce the annual rate to
0.80% of the portion of daily net assets in excess of $2.5 billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Advisor pays the salaries of all personnel,
including officers of the Trust, who are employees of the Investment Advisor.
3. ADMINISTRATION AGREEMENT
Pursuant to an Administration Agreement with Morgan Stanley Dean Witter Services
Company Inc. (the "Administrator"), an affiliate of the Investment Advisor, 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,
1999 aggregated $1,547,470,530 and $905,057,280, respectively.
23
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999, CONTINUED
Shares of the Trust are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Advisor and
Administrator. Pursuant to a Distribution Agreement between the Trust, the
Investment Advisor and the Distributor, the Investment Advisor compensates the
Distributor at an annual rate of 2.75% of the purchase price of shares purchased
from the Trust. The Investment Advisor will compensate the Distributor at an
annual rate of 0.10% of the value of shares sold for any shares that remain
outstanding after one year from the date of their initial purchase. Any early
withdrawal charge to defray distribution expenses will be charged 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, 1999, the Investment Advisor has informed the Trust that it
received approximately $2,651,000 in early withdrawal charges.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor and
Administrator, is the Trust's transfer agent. At September 30, 1999, the Trust
had transfer agent fees and expenses payable of approximately $8,300.
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, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $5,742. At September 30, 1999, the Trust had an accrued pension liability of
$52,116 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
At September 30, 1999, the Trust had a net capital loss carryover of
approximately $7,723,000 of which $62,000 will be available through
September 30, 2004 and $7,661,000 will be available through September 30, 2007
to offset future capital gains to the extent provided by regulations.
As of September 30, 1999, the Trust had temporary book/tax differences primarily
attributable to dividends payable and tax adjustments on revolver loans held by
the Trust and permanent book/tax differences attributable to revolver loans sold
by the Trust. To reflect reclassifications arising from the permanent
differences, accumulated undistributed net investment income was charged
$825,113 and accumulated net realized loss was credited $825,113.
24
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999, CONTINUED
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------- --------------
<S> <C> <C>
Balance, September 30, 1997................................. 135,154,983 $1,348,358,142
Shares sold................................................. 73,974,045 735,805,027
Shares issued to shareholders for reinvestment of
dividends.................................................. 5,468,432 54,381,913
Shares tendered (four quarterly tender offers).............. (13,071,383) (129,913,425)
----------- --------------
Balance, September 30, 1998................................. 201,526,077 2,008,631,657
Shares sold................................................. 65,236,515 645,727,385
Shares issued to shareholders for reinvestment of
dividends.................................................. 7,070,460 69,946,361
Shares tendered (four quarterly tender offers).............. (19,019,056) (188,124,450)
----------- --------------
Balance, September 30, 1999................................. 254,813,996 $2,536,180,953
=========== ==============
</TABLE>
On October 20, 1999, the Trustees approved a tender offer to purchase up to 12
million shares of beneficial interest to commence on November 17, 1999.
7. COMMITMENTS AND CONTINGENCIES
As of September 30, 1999, the Trust had unfunded loan commitments pursuant to
the following loan agreements:
<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENT
- -------- -----------
<S> <C>
Arena Brands, Inc........................................... $ 1,045,000
Bridge Information Systems, Inc............................. 222,222
Chancellor Media Corp....................................... 4,261,250
Corning Consumer Products Co................................ 676,364
Crown Paper Co.............................................. 2,056,500
Jet Plastica Industries, Inc................................ 2,702,703
Mafco Finance Corp.......................................... 3,246,923
Spalding Holdings Corp...................................... 2,388,235
Spectrasite Communications, Inc. (Revolver)................. 714,286
Spectrasite Communications, Inc. (Term Loan)................ 4,285,714
Teligent, Inc. (Multi-Draw)................................. 6,666,667
Teligent, Inc. (Revolver)................................... 3,333,333
Tenneco Automotive.......................................... 10,000,000
U.S. Silica Co. (Working Capital)........................... 1,302,000
-----------
$42,901,197
===========
</TABLE>
The total value of securities segregated for unfunded loan commitments was
$49,954,433.
25
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 30,
1989*
FOR THE YEAR ENDED SEPTEMBER 30, THROUGH
--------------------------------------------------------------------------------------- SEPTEMBER 30,
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value,
beginning of
period........... $ 9.91 $ 9.95 $ 9.94 $9.99 $10.00 $9.91 $9.99 $10.00 $10.00 $ 10.00
-------- -------- -------- ----- ----- ----- ----- ----- ----- ---------------
Income (loss) from
investment
operations:
Net investment
income......... 0.70 0.71 0.75 0.74 0.82 0.62 0.55 0.62 0.84 0.74
Net realized
and unrealized
gain (loss).... (0.05) (0.03) -- (0.04) 0.01 0.09 (0.08) (0.01) -- (0.01)
-------- -------- -------- ----- ----- ----- ----- ----- ----- ---------------
Total income from
investment
operations....... 0.65 0.68 0.75 0.70 0.83 0.71 0.47 0.61 0.84 0.73
-------- -------- -------- ----- ----- ----- ----- ----- ----- ---------------
Less dividends and
distributions
from:
Net investment
income......... (0.69) (0.72) (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.... (0.69) (0.72) (0.74) (0.75) (0.84) (0.62) (0.55) (0.62) (0.84) (0.73)
-------- -------- -------- ----- ----- ----- ----- ----- ----- ---------------
Net asset value,
end of period.... $ 9.87 $ 9.91 $ 9.95 $9.94 $9.99 $10.00 $9.91 $9.99 $10.00 $ 10.00
======== ======== ======== ===== ===== ===== ===== ===== ===== ===============
TOTAL RETURN+..... 6.72% 7.14% 7.78% 7.25% 8.57% 7.32% 4.85% 6.23% 8.77% 7.57%(1)
RATIOS TO AVERAGE
NET ASSETS:
Expenses.......... 1.22% 1.29% 1.40% 1.46% 1.52% 1.60% 1.45% 1.47% 1.52% 1.48%(2)
Net investment
income........... 7.02% 7.17% 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........ $2,513,959 $1,996,709 $1,344,603 $939,471 $521,361 $305,034 $311,479 $413,497 $479,941 $328,189
Portfolio turnover
rate............. 44% 68% 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.
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER 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 Morgan Stanley Dean
Witter Prime Income Trust (the "Trust") at September 30, 1999, 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 nine 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, 1999 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.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
NOVEMBER 15, 1999
27
<PAGE>
TRUSTEES
- ------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L Schroeder
OFFICERS
- ------------------------------------------
Charles A. Fiumefreddo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mitchell M. Merin
PRESIDENT
Barry Fink
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
Rajesh K. Gupta
VICE PRESIDENT
Sheila A. Finnerty
VICE PRESIDENT
Peter Gewirtz
ASSISTANT VICE PRESIDENT
Thomas F. Caloia
TREASURER
TRANSFER AGENT
- ------------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ------------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISOR
- ------------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Trust, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Trust.
This report is not authorized for distribution to prospective investors in
the Trust unless preceded or accompanied by an effective prospectus. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
PRIME INCOME TRUST
[graphic]
ANNUAL REPORT
SEPTEMBER 30, 1999
