<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1999
SECURITIES ACT FILE NO. 333-67701
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. 14 /X/
----------------------
MORGAN STANLEY DEAN WITTER 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:
STUART M. STRAUSS, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019-5820
----------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the registration statement
----------------------
If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment plan,
check the following box..................................................... / /
It is proposed that this filing will become effective (check appropriate
box)
/X/ when declared effective pursuant to section 8(c)
The following boxes should only be included and completed if the registrant
is a registered closed-end management investment company or business development
company which makes periodic repurchase offers under Rule 23c-3 under the
Investment Company Act and is making this filing in accordance with Rule 486
under the Securities Act.
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a)
If appropriate, check the following box:
/ / this [post-effective] amendment designates a new effective date for a
previously filed [post-effective amendment] [registration statement].
/ / This form is filed to register an additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is ______.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY DEAN WITTER 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
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
-----------
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST (THE "TRUST") IS AN INVESTMENT
COMPANY WHICH SEEKS 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 SENIOR LOANS. SENIOR LOANS ARE LOANS MADE TO
CORPORATIONS, PARTNERSHIPS AND OTHER ENTITIES, THAT HOLD THE MOST SENIOR
POSITIONS IN A BORROWER'S CAPITAL STRUCTURE. THE SENIOR LOANS IN WHICH THE TRUST
INVESTS ARE SECURED BY COLLATERAL THAT THE INVESTMENT ADVISOR BELIEVES TO HAVE A
MARKET VALUE AT THE TIME OF THE LOAN THAT EQUALS OR EXCEEDS THE AMOUNT OF THE
SENIOR LOAN.
--------------------
THE INTEREST RATE ON SENIOR LOANS GENERALLY WILL FLOAT OR RESET AT A
SPECIFIED LEVEL ABOVE A GENERALLY RECOGNIZED BASE LENDING RATE SUCH AS THE PRIME
RATE OR LIBOR. THE INVESTMENT ADVISOR BELIEVES THAT OVER TIME, THE EFFECTIVE
YIELD OF THE TRUST WILL EXCEED MONEY MARKET RATES AND WILL TRACK THE MOVEMENT OF
THE PUBLISHED PRIME RATE OF MAJOR U.S. BANKS.
--------------------
SHARES OF THE TRUST ARE CONTINUOUSLY OFFERED AT A PRICE EQUAL TO THE THEN
CURRENT NET ASSET VALUE PER SHARE WITHOUT AN INITIAL SALES CHARGE.
--------------------
SHARES ARE NOT REDEEMABLE AND THERE IS NO SECONDARY MARKET FOR THE SHARES.
THE BOARD OF TRUSTEES CURRENTLY INTENDS TO CONSIDER THE MAKING OF TENDER OFFERS
ON A QUARTERLY BASIS TO REPURCHASE ALL OR A PORTION OF THE SHARES FROM
SHAREHOLDERS AT THE THEN CURRENT NET ASSET VALUE PER SHARE. SHARES TENDERED THAT
WERE HELD FOR LESS THAN FOUR YEARS ARE GENERALLY SUBJECT TO AN EARLY WITHDRAWAL
CHARGE OF UP TO 3% OF THE ORIGINAL PURCHASE PRICE.
--------------------
INVESTMENT IN THE TRUST INVOLVES A VARIETY OF RISKS WHICH YOU SHOULD
CONSIDER PRIOR TO INVESTMENT. SEE "RISK FACTORS."
--------------------
MORGAN STANLEY DEAN WITTER ADVISORS INC. IS THE INVESTMENT ADVISOR TO THE
TRUST. THE ADDRESS OF THE TRUST IS TWO WORLD TRADE CENTER, NEW YORK, NY 10048.
THE TRUST'S TELEPHONE NUMBER IS (212) 392-2550 OR (800) 869-NEWS. YOU SHOULD
READ THIS PROSPECTUS CAREFULLY BEFORE INVESTING.
--------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS.
--------------------
<TABLE>
==================================================================================================
PRICE TO PROCEEDS TO
PUBLIC (1) SALES LOAD (1) THE TRUST (2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE $ NONE $
TOTAL (3) $ NONE $
==================================================================================================
</TABLE>
(SEE FOOTNOTES ON INSIDE FRONT COVER)
--------------------
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
DECEMBER , 1999
<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 AS OF THE DATE OF THE PROSPECTUS IS $ .
(2) BEFORE DEDUCTION OF REGISTRATION FEES PAYABLE BY THE TRUST IN THE AMOUNT OF
$ , WHICH WILL BE AMORTIZED DURING THE PERIOD IN WHICH THE SHARES ARE
SUBSCRIBED AND CHARGED AS AN EXPENSE AGAINST THE INCOME OF THE TRUST.
(3) ASSUMING ALL SHARES CURRENTLY REGISTERED (INCLUDING PREVIOUSLY
REGISTERED BUT UNSOLD SHARES) ARE SOLD PURSUANT TO THIS CONTINUOUS OFFERING
AT A PRICE OF $ 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
Prospectus Summary...................................................... 4
Financial Highlights.................................................... 7
The Trust and its Advisor............................................... 8
Investment Objective and Policies....................................... 11
Risk Factors............................................................ 15
Investment Practices.................................................... 19
Investment Restrictions................................................. 21
Trustees and Officers................................................... 24
Investment Advisory Agreement........................................... 31
Administrator and Administration Agreement.............................. 33
Portfolio Transactions.................................................. 34
Determination of Net Asset Value........................................ 35
Dividends and Distributions............................................. 36
Taxation................................................................ 37
Description of Shares................................................... 39
Share Repurchases and Tenders........................................... 41
Purchase of Shares...................................................... 43
Yield Information....................................................... 44
Custodian, Dividend Disbursing and Transfer Agent....................... 44
Reports to Shareholders................................................. 45
Legal Counsel........................................................... 45
Experts................................................................. 45
Additional Information.................................................. 45
Report of Independent Accountants....................................... 46
Financial Statements--September 30, 1999................................ 47
Appendix A.............................................................. 69
</TABLE>
------------------------
2
<PAGE>
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
The expenses and fees set forth in the table are for the fiscal year ended
September 30, 1999.
<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.................................... 0.85%
Interest Payments on Borrowed Funds......................... None
Sum of Other Expenses....................................... 0.37%
Total Annual Expenses....................................... 1.22%
</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:................... $ 42 $59 $67 $148
You would pay the following expenses on
the same investment, assuming no
tender:................................ $ 12 $39 $67 $148
</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>
PROSPECTUS SUMMARY
KEY INFORMATION ABOUT THE TRUST IS SUMMARIZED BELOW. YOU SHOULD READ IT IN
LIGHT OF THE MORE DETAILED INFORMATION SET FORTH LATER IN THIS PROSPECTUS.
<TABLE>
<S> <C>
PURCHASE OF SHARES........... Shares of the Trust are continuously offered for sale at the
then net asset value per share without an initial sales
charge. The minimum initial investment in the Trust is
$1,000. Subsequent investments must be at least $100. Shares
may be purchased through Dean Witter Reynolds Inc. and other
selected broker-dealers.
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 Senior Loans. There is no assurance
that the Trust will achieve this objective.
Senior Loans are loans made to corporations, partnerships
and other entities which hold the most senior position in a
borrower's capital structure. The Senior Loans in which the
Trust invests are secured by collateral that the Investment
Advisor believes to have a market value at the time of the
loan which equals or exceeds the amount of the Senior Loan.
The interest rate on Senior Loans generally will float or
reset at a specified level above a generally recognized base
lending rate such as the prime rate quoted by a major U.S.
bank ("Prime Rate") or the London Inter-Bank Offered Rate
("LIBOR").
The Trust invests, under normal market conditions, at least
80% of its total assets in Senior Loans. The remainder of
its assets are invested in cash or short-term high quality
money market instruments. Senior Loans in which the Trust
may invest typically are originated, negotiated and
structured by a syndicate of lenders ("Lenders") and
administered on behalf of the Lenders by an agent bank
("Agent"). The terms of the loan are set forth in a loan
agreement (the "Loan Agreement"). The Trust may acquire such
syndicated Senior Loans ("Syndicated Loans") in one of three
ways: (i) it may act as a Lender; (ii) it may acquire an
Assignment; or (iii) it may acquire a Participation. Senior
Loans may also take the form of debt obligations of
Borrowers issued directly to investors in the form of debt
securities ("Senior Notes").
An Assignment is a sale by a Lender or other third party of
its rights in a Senior Loan. Generally, when the Trust
purchases an Assignment, it obtains all of the rights of a
Lender. In some cases, however, the Assignment may be of a
more limited nature and the Trust may have no contractual
relationship with the Borrower. In such instances, the Trust
would be required to rely on the Lender or other third party
from which it acquired the Assignment to demand payment and
enforce its rights under the Senior Loan.
A Participation is an interest in a Senior Loan acquired
from a Lender or other third party (the "Selling
Participant"). Payment of principal and interest received by
the Selling Participant are passed through to the holder of
the Participation. When the Trust acquires a Participation
it will
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
have a contractual relationship with the Selling Participant
but not the Borrower. As a result, the Trust assumes the
credit risk of the Borrower, the Selling Participant and any
other prior Selling Participant.
INVESTMENT ADVISOR........... Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or
the "Investment Advisor") is the Trust's Investment Advisor.
The Investment Advisor is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & 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 Advisor and its wholly-owned subsidiary,
Morgan Stanley Dean Witter Services Company Inc., serve in
various investment management, advisory, management, and
administrative capacities to 107 investment companies, 28 of
which are listed on the New York Stock Exchange, with
combined assets of approximately $ billion as of
November 30, 1999. The Investment Advisor also manages and
advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $ billion at
such date.
ADVISORY FEE................. The Trust pays the Investment Advisor an advisory fee
calculated at an annual rate of 0.90% of average daily net
assets on assets of the Trust up to $500 million, at an
annual rate of 0.85% of average daily net assets on assets
of the Trust exceeding $500 million up to $1.5 billion, at
an annual rate of 0.825% of average daily net assets on
assets of the Trust exceeding $1.5 billion up to
$2.5 billion and at an annual rate of 0.80% of the average
daily net assets of the Trust exceeding $2.5 billion.
ADMINISTRATOR................ Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services" or the "Administrator"), a wholly-owned subsidiary
of MSDW Advisors, the Investment Advisor of the Trust, is
the Administrator of the Trust. See "Administrator and
Administration Agreement" and "Purchase of Shares."
ADMINISTRATION FEE........... The Trust pays the Administrator a monthly fee at an annual
rate of 0.25% of the Trust's 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 you
elect 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 Advisor 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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
less. There is no guarantee that the Trust will in fact make
a tender offer for any of its Shares or that if a tender
offer is made, all or any Shares tendered will be purchased
by the Trust. If a tender offer is not made or Shares are
not purchased pursuant to a tender offer you may not be able
to sell your Shares. The Trust may borrow to finance tender
offers.
CUSTODIAN.................... The Bank of New York serves as Custodian of the Trust's
assets. See "Custodian, Dividend Disbursing and Transfer
Agent."
RISK FACTORS................. An investment in the Trust involves a number of risks. The
Borrower, under a Senior Loan, may fail to make scheduled
payments of principal and interest, which could result in a
decline in net asset value and a reduction of the Trust's
yield. While each Senior Loan will be collateralized, there
is no guarantee that the collateral securing a Senior Loan
will be sufficient to protect the Trust against losses or a
decline in income in the event of a Borrower's non-payment
of principal and/or interest. The Trust may invest in Senior
Loans made in connection with leveraged buyout transactions,
recapitalizations, and other highly leveraged transactions.
These types of Senior Loans are subject to greater risks
than are other Senior Loans in which the Trust may invest.
Senior Loans are not traded on an exchange nor is there any
regular secondary market. Due to the illiquidity of Senior
Loans, the Trust may not be able to dispose of its
investment in Senior Loans in a timely fashion and at a fair
price. The Trust may invest in Senior Loans made to non U.S.
borrowers, provided the Senior Loans are U.S. dollar-
denominated. Loans to non-U.S. borrowers, involve a variety
of risks not present in the case of Senior Loans to U.S.
borrowers.
A substantial portion of the Senior Loans in which the Trust
invests may be rated by a national statistical rating
organization below investment grade.
An investment in the Shares should be considered illiquid.
There is no secondary market for the Shares and none is
expected to develop.
The above risks and others to which the Trust is subject,
are discussed in greater detail under the heading "Risk
Factors."
ANTI-TAKEOVER PROVISIONS..... The Trust's Declaration of Trust includes anti-takeover
provisions. These include the requirement for a 66%
shareholder vote to remove Trustees and for certain mergers,
issuances of Shares and asset acquisitions. These provisions
could have the effect of limiting the ability of other
persons or entities to acquire control of the Trust and 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."
</TABLE>
6
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by PricewaterhouseCoopers
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 46. As noted in the financial statements 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 YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
<S> <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
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
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
Net realized and
unrealized gain
(loss)................. (0.05) (0.03) -- (0.04) 0.01 0.09 (0.08) (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
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
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)
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)
---------- ---------- ---------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period................... $ 9.87 $ 9.91 $ 9.95 $ 9.94 $ 9.99 $ 10.00 $ 9.91 $ 9.99 $ 10.00
========== ========== ========== ======== ======== ======== ======== ======== ========
TOTAL RETURN+............. 6.72% 7.14% 7.78% 7.25% 8.57% 7.32% 4.85% 6.23% 8.77%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 1.22% 1.29% 1.40% 1.46% 1.52% 1.60% 1.45% 1.47% 1.52%
Net investment income... 7.02% 7.17% 7.53% 7.50% 8.11% 6.14% 5.53% 6.14% 8.23%
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
Portfolio turnover
rate................... 44% 68% 86% 72% 102% 147% 92% 46% 42%
<CAPTION>
FOR THE PERIOD
NOVEMBER 30, 1989*
THROUGH
SEPTEMBER 30, 1990
-------------------
<S> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning
of period................ $ 10.00
--------
Income (loss) from
investment operations:
Net investment income... 0.74
Net realized and
unrealized gain
(loss)................. (0.01)
--------
Total income from
investment operations.... 0.73
--------
Less dividends and
distributions from:
Net investment income... (0.73)
Net realized gain....... --
--------
Total dividends and
distributions............ (0.73)
--------
Net asset value, end of
period................... $ 10.00
========
TOTAL RETURN+............. 7.57%(1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 1.48%(2)
Net investment income... 8.95%(2)
SUPPLEMENTAL DATA:
Net assets, end of
period, in thousands... $328,189
Portfolio turnover
rate................... 35%(1)
</TABLE>
- ----------------------------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. 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.
7
<PAGE>
THE TRUST AND ITS ADVISOR
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter 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 MSDW Advisors. On June 22, 1998, the Trustees of the
Trust adopted an Amendment to the Trust's Declaration of Trust changing its name
to "Morgan Stanley Dean Witter Prime Income Trust." 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) 392-2550 or
(800) 869-NEWS. 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 Advisor 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 MSDW Advisors 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
MSDW Advisors at a Special Meeting of Shareholders held on May 20, 1997. The
Advisory Agreement took effect on May 31, 1997 upon the consummation of the
Merger. MSDW Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter
& Co. ("MSDW"). 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 MSDW Advisors as a consequence of the withdrawal of
Allstate Investment Management Company from its investment company advisory
activities and its concomitant resignation as the Trust's Investment Advisor.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc., serve in various investment management, advisory,
management and administrative capacities to 97 investment companies, 28 of which
are listed on the New York Stock Exchange, with combined
8
<PAGE>
assets of approximately $ billion at November 30, 1999. MSDW Advisors also
manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $ billion at such date.
The Trust is managed within MSDW Advisors' Taxable Fixed-Income Group.
Rajesh K. Gupta, Senior Vice President of MSDW Advisors and Director of the
Taxable Fixed-Income Group and Chief Administrative Officer of Investments of
MSDW Advisors, Sheila A. Finnerty, Vice President of MSDW Advisors, and Peter
Gewirtz, an Assistant Vice President of MSDW Advisors, have been the primary
portfolio managers primarily responsible for the management of the Trust's
portfolio since February, 1998.
MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Morgan Stanley Dean Witter American Opportunities Fund
6 Morgan Stanley Dean Witter Aggressive Equity Fund
7 Morgan Stanley Dean Witter Balanced Growth Fund
8 Morgan Stanley Dean Witter Balanced Income Fund
Morgan Stanley Dean Witter California Tax-Free Daily Income
9 Trust
10 Morgan Stanley Dean Witter California Tax-Free Income Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
Morgan Stanley Dean Witter Competitive Edge Fund, "BEST
12 IDEAS" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
Morgan Stanley Dean Witter Developing Growth Securities
14 Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Morgan Stanley Dean Witter Global Dividend Growth Securities
23 Morgan Stanley Dean Witter Global Utilities Fund
24 Morgan Stanley Dean Witter Growth Fund
25 Morgan Stanley Dean Witter Hawaii Municipal Trust
26 Morgan Stanley Dean Witter Health Sciences Trust
27 Morgan Stanley Dean Witter High Yield Securities Inc.
28 Morgan Stanley Dean Witter Income Builder Fund
29 Morgan Stanley Dean Witter Information Fund
30 Morgan Stanley Dean Witter Intermediate Income Securities
31 Morgan Stanley Dean Witter International Fund
32 Morgan Stanley Dean Witter International SmallCap Fund
33 Morgan Stanley Dean Witter Japan Fund
</TABLE>
9
<PAGE>
<TABLE>
<C> <S>
34 Morgan Stanley Dean Witter Latin American Growth Fund
35 Morgan Stanley Dean Witter Limited Term Municipal Trust
36 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
37 Morgan Stanley Dean Witter Market Leader Trust
Morgan Stanley Dean Witter Mid-Cap Dividend Growth
38 Securities
39 Morgan Stanley Dean Witter Mid-Cap Equity Trust
Morgan Stanley Dean Witter Multi-State Municipal
40 Series Trust
Morgan Stanley Dean Witter Natural Resource Development
41 Securities Inc.
Morgan Stanley Dean Witter New York Municipal Money Market
42 Trust
43 Morgan Stanley Dean Witter New York Tax-Free Income Fund
44 Morgan Stanley Dean Witter Next Generation Trust
Morgan Stanley Dean Witter North American Government Income
45 Trust
46 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
Morgan Stanley Dean Witter Precious Metals and Minerals
47 Trust
48 Morgan Stanley Dean Witter Real Estate Fund
Morgan Stanley Dean Witter Select Dimensions Investment
49 Series
Morgan Stanley Dean Witter Select Municipal Reinvestment
50 Fund
51 Morgan Stanley Dean Witter Short-Term Bond Fund
52 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53 Morgan Stanley Dean Witter SmallCap Growth Fund
54 Morgan Stanley Dean Witter Special Value Fund
55 Morgan Stanley Dean Witter Strategist Fund
56 Morgan Stanley Dean Witter S&P 500 Index Fund
57 Morgan Stanley Dean Witter S&P 500 Select Fund
58 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
59 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
60 Morgan Stanley Dean Witter Total Market Index Fund
61 Morgan Stanley Dean Witter Total Return Trust
Morgan Stanley Dean Witter U.S. Government Money Market
62 Trust
63 Morgan Stanley Dean Witter U.S. Government Securities Trust
64 Morgan Stanley Dean Witter Utilities Fund
65 Morgan Stanley Dean Witter Value-Added Market Series
66 Morgan Stanley Dean Witter Value Fund
67 Morgan Stanley Dean Witter Variable Investment Series
68 Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
<TABLE>
<CAPTION>
CLOSED-END FUNDS
<C> <S>
Morgan Stanley Dean Witter California Insured Municipal
1 Income Trust
Morgan Stanley Dean Witter California Quality Municipal
2 Securities
3 Morgan Stanley Dean Witter Government Income Trust
4 Morgan Stanley Dean Witter High Income Advantage Trust
5 Morgan Stanley Dean Witter High Income Advantage Trust II
6 Morgan Stanley Dean Witter High Income Advantage Trust III
7 Morgan Stanley Dean Witter Income Securities Inc.
Morgan Stanley Dean Witter Insured California Municipal
8 Securities
</TABLE>
10
<PAGE>
<TABLE>
<C> <S>
9 Morgan Stanley Dean Witter Insured Municipal Bond Trust
10 Morgan Stanley Dean Witter Insured Municipal Income Trust
11 Morgan Stanley Dean Witter Insured Municipal Securities
12 Morgan Stanley Dean Witter Insured Municipal Trust
Morgan Stanley Dean Witter Municipal Income Opportunities
13 Trust
Morgan Stanley Dean Witter Municipal Income Opportunities
14 Trust II
Morgan Stanley Dean Witter Municipal Income Opportunities
15 Trust III
16 Morgan Stanley Dean Witter Municipal Income Trust
17 Morgan Stanley Dean Witter Municipal Income Trust II
18 Morgan Stanley Dean Witter Municipal Income Trust III
19 Morgan Stanley Dean Witter Municipal Premium Income Trust
Morgan Stanley Dean Witter New York Quality Municipal
20 Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 Morgan Stanley Dean Witter Quality Municipal Income Trust
Morgan Stanley Dean Witter Quality Municipal Investment
23 Trust
24 Morgan Stanley Dean Witter Quality Municipal Securities
</TABLE>
In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is the
investment advisor (the "TCW/DW Term Trusts"):
<TABLE>
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
</TABLE>
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company and; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company.
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 Advisor 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.
11
<PAGE>
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 Advisor 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 Advisor, 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
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 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 Advisor for
U.S. Borrowers.
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 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
Advisor 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
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<PAGE>
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.
Nationally recognized rating agencies have begun assigning ratings to an
increasing number of Senior Loans and a substantial portion of the Fund's
investments in Senior Loans may be rated below investment grade. Debt securities
rated below investment grade are viewed by the rating agencies as having
speculative characteristics and are commonly known as "junk bonds." While the
Investment Advisor may consider such ratings when determining whether to invest
in a Senior Loan, it does not view ratings as a determinative factor in its
investment decisions. Rather, the Investment Advisor 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 Advisor, 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 Advisor
believes that the market value of the collateral at the time of investment
equals or exceeds the amount of the Senior Loan. The Investment Advisor 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 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 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, or (iii) it may act as one of the group of Lenders originating a
Senior Loan.
When the Trust is a Lender, or assumes all of the rights of a Lender through
an assignment 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.
13
<PAGE>
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 Advisor 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 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 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 Advisor 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.
14
<PAGE>
The investment objective of the Trust and its policy to invest, under normal
market conditions, at least 80% of its total assets in Senior Loans, are
fundamental policies of the Trust and may not be changed without the approval of
a majority of the outstanding voting securities of the Trust, as defined in the
1940 Act. Such a majority is defined as the lesser of (i) 67% or more of the
Trust's Shares present at a meeting of shareholders, if the holders of more than
50% of the outstanding Shares of the Trust are present or represented by proxy,
or (ii) more than 50% of the outstanding Shares of the Trust. Except as
otherwise specified, all other investment policies of the Trust are not
fundamental and may be changed by the Board of Trustees without shareholder
approval.
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
Advisor currently anticipates that the Trust will continue to receive and/or pay
fees and commissions in a majority of the transactions involving Senior Loans.
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 maintain on its books 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.
RISK FACTORS
- --------------------------------------------------------------------------------
GENERAL
The Trust invests primarily in Senior Loans on which the interest rate is
periodically adjusted in response to interest rate changes on short-term
investments. This policy should result in a net asset value which fluctuates
less than would a portfolio consisting primarily of fixed rate obligations. A
number of factors may, however, cause a decline in net asset value, including a
default on a Senior Loan, a material deterioration of a Borrower's perceived or
actual credit worthiness, and/or an increase in interest rates not immediately
reflected in the interest rate payable on Senior Loans. A sudden and extreme
increase in interest rates is particularly likely to cause a decline in net
asset value. Also, a change in the manner in which interest rates on Senior
Loans are set (E.G., interest rates are set at a higher or lower margin above
the Prime Rate, LIBOR, or other base lending rate) or other changes in pricing
parameters for Senior Loans, may also cause the Trust's net asset value to
fluctuate.
ILLIQUIDITY OF SHARES
An investment in the Shares should be considered illiquid. There is no
secondary market for the Shares and none is expected to develop.
15
<PAGE>
CREDIT RISK
Senior Loans are subject to credit risks. Credit risk is the risk that the
Borrower will fail to make timely payments of principal and/or interest. The
non-receipt of scheduled payments of principal or interest, either because of a
default, bankruptcy or other reason, could result in a reduction of the Trust's
yield and a decline in net asset value.
The Trust may invest in Senior Loans made in connection with leveraged
buy-out transactions, recapitalizations and other highly leveraged transaction.
These types of Senior Loans are subject to greater risks than are other kinds of
Senior Loans in which the Trust may invest. The value of such loans may also be
subject to a greater degree of volatility in response to interest rate
fluctuations.
The Investment Advisor will invest only in Senior Loans secured by
collateral with a value, in its view, of at least equal to the amount of the
Senior Loan. There is no guarantee, however, that the collateral securing a
Senior Loan will be sufficient to protect the Trust against losses or a decline
in income in the event of the Borrower's non-payment of principal and/or
interest. For example, the value of the collateral could, subsequent to the
Trust's investment in the Senior Loan, decline below the amount of the Senior
Loan. In addition, it may not be possible to liquidate the collateral promptly.
Also, in the event that a Borrower declares bankruptcy, a court could invalidate
the Trust's security interest in the loan collateral, or subordinate the Trust's
rights under the Senior Loan to other creditors of the Borrower.
LOWER-RATED SECURITIES
A substantial portion of the Senior Loans in which the Trust invests may be
rated by a national statistical rating organization below investment grade, or
if unrated, of comparable quality. Debt securities rated below investment grade,
or if unrated, of comparable quality, are commonly referred to as "junk bonds."
Junk bonds are regarded by the rating agencies as having speculative
characteristics. The prices of junk bonds are more sensitive to negative
corporate developments such as a decline in profits or adverse economic
conditions such as a recession than are the prices of higher rated securities.
LIMITED PUBLIC INFORMATION
The amount of public information with respect to Senior Loans will generally
be less extensive than that available for securities registered with the
Securities and Exchange Commission and/or listed on a national securities
exchange. As a result, the performance of the Trust and its ability to meet its
investment objective is more dependent upon the analytical ability of the
Investment Advisor than would be the case for an investment company that invests
primarily in registered and/or exchange listed securities.
ILLIQUIDITY OF SENIOR LOANS
Senior Loans may be transferable among financial institutions, however, they
do not, at present, have the liquidity of conventional debt securities and are
often subject to restrictions on resale. For example, bank approval is often
required for the resale of interests in Senior Loans. Due to the illiquidity of
Senior Loans the Trust may not be able to dispose of its investments in Senior
Loans in a timely fashion and at a fair price. The inability to do so could
result in losses to the Trust.
RELIANCE UPON AGENT
An Agent typically administers a Senior Loan and is responsible for the
collection of principal and interest payments from the Borrower. The Trust will
generally rely on the Agent to collect and to transmit to the Trust its portion
of the payments on the Senior Loan. The Trust also generally will rely on the
Agent to monitor compliance by the Borrower with the terms of the Loan Agreement
and to notify the Trust of
16
<PAGE>
any adverse change in the Borrower's financial condition or any declaration of
insolvency. In addition, the Trust will rely on the Agent to use appropriate
creditor remedies against the Borrower in the event of a default. Accordingly,
the Trust's success may be dependent in part upon the skill of Agents in
administering the terms of Loan Agreements, monitoring Borrower compliance,
collecting principal, interest and fee payments from Borrowers, and where
necessary, enforcing creditors remedies against Borrowers.
The Agent's appointment may be terminated if the Agent becomes insolvent,
goes into bankruptcy, or has a receiver, conservator, or similar official
appointed for it by the appropriate bank regulatory authority. In such event, a
successor agent would be appointed. Assets held by the Agent under the Loan
Agreement should remain available to holders of Loans. However, if assets held
by the Agent for the benefit of the Trust were determined by an appropriate
regulatory authority or court to be subject to the claims of the Agent's general
or secured creditors, the Trust might incur certain costs and delays in
realizing payment on a Senior Loan or suffer a loss of principal and/or
interest. Furthermore, in the event of the Borrower's bankruptcy or insolvency,
the Borrower's obligation to repay the Loan may be subject to certain defenses
that the Borrower can assert as a result of improper conduct by the Agent.
PARTICIPATIONS
The Trust may invest in Participations. Because the holder of a
Participation generally has no contractual relationship with the Borrower, the
Trust will have to rely upon a Selling Participant and/or Intermediate
Participant to pursue appropriate remedies against a Borrower in the event of a
default. As a result, the Trust may be subject to delays, expenses and risks
that are greater than those that would be involved if the Trust could enforce
its rights directly against the Borrower or through the Agent.
A Participation also involves the risks that the Trust may be regarded as a
creditor of a Selling Participant and/or Intermediate Participant rather than of
the Borrower. If so, the Trust would be subject to the risk that a Selling
Participant may become insolvent.
PREPAYMENTS
The Borrower of a Senior Loan, in some cases, may prepay the Senior Loan.
Prepayments could adversely affect the Trust's yield to the extent that the
Trust is unable to reinvest promptly payments in Senior Loans or if such
prepayments were made during a period of declining interest rates.
LOANS TO FOREIGN BORROWERS
The Trust may invest in U.S. dollar denominated Senior Loans made to non
U.S. Borrowers. These Senior Loans may involve additional risks. Foreign
companies are not generally subject to uniform accounting and financial
reporting standards comparable to those applicable to U.S. borrowers. It may be
more difficult to value and monitor the value of collateral underlying Senior
Loans to non U.S. Borrowers. In addition, there is generally less government
supervision and regulation of financial markets and listed companies in foreign
countries than in the U.S. Investments in Senior Loans to non U.S. borrowers
also involves the risks of adverse political and economic developments. In
addition, such loans involve foreign currency 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 make timely payments of principal and/or interest on a
Senior Loan.
CONCENTRATION
The Trust will treat the Borrower and the Agent Bank, and, with respect to
Participations, each financial institution interposed between the Borrower and
the Trust, as an issuer of a Senior Loan or Participation for the purpose of
determining the Trust's concentration in a particular industry. As a result,
17
<PAGE>
more than 25% of the Trust's assets will be invested in the industry group
consisting of financial institutions and their holding companies. 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 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.
NON-DIVERSIFICATION
The Trust may invest up to 10% of its assets in Senior Loans made to any
single Borrower. To the extent that the Trust invests a relatively high
percentage of its assets in the obligations of a limited number of issuers, the
value of the Trust's investments may be more affected by any single adverse
economic, political or regulatory event than will the value of the investments
of a more diversified investment company.
SENIOR NOTES
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.
YEAR 2000
The investment management services provided to the Fund by the Investment
Manager and the services provided to shareholders by the Distributor and the
Transfer Agent depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were encoded
and calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Investment Manager, the
Distributor and the Transfer Agent have been actively working on necessary
changes to their own computer systems to prepare for the year 2000 and expect
that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
18
<PAGE>
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues.
Corporate and governmental data processing errors may result in production
problems for individual companies and overall economic uncertainties. Earnings
of individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
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.
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 designed to minimize such risks. These procedures include effecting
repurchase transactions only with
19
<PAGE>
large, well-capitalized and well-established financial institutions, whose
financial condition will be continually monitored by the Investment Advisor. 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 Advisor to be creditworthy and when the income which can be
earned from such loans justifies the attendant risks. Upon termination of the
loan, the borrower is required to return the securities to the Trust. Any gain
or loss in the market price during the loan period would inure to the Trust. The
20
<PAGE>
creditworthiness of firms to which the Trust lends its portfolio securities will
be monitored on an ongoing basis by the Investment Advisor 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 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.
21
<PAGE>
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
Advisor 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.
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
22
<PAGE>
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.
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
23
<PAGE>
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, 1999 was 44%.
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 MSDW Advisors and with the 92 Morgan Stanley Dean Witter Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Michael Bozic (58) .......................... Vice Chairman of Kmart Corporation (Since
Trustee December 1998); Director or Trustee of the
c/o Kmart Corporation Morgan Stanley Dean Witter Funds; formerly
3100 West Big Beaver Road Chairman and Chief Executive Officer of
Troy, Michigan Levitz Furniture Corporation (November
1995-November 1998) and President and Chief
Executive Officer of Hills Department Stores
(May 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. and Weirton Steel Corporation.
Charles A. Fiumefreddo* (66) ................ Chairman, Director or Trustee and Chief
Chairman of the Board, Executive Officer of the Morgan Stanley Dean
Chief Executive Officer and Trustee Witter Funds; formerly Chairman, Chief
Two World Trade Center Executive Officer and Director of MSDW
New York, New York Advisors, Morgan Stanley Dean Witter
Distributors Inc. ("MSDW Distributors") and
MSDW Services, Executive Vice President and
Director of Dean Witter Reynolds Inc.
("DWR"), Chairman and Director of Morgan
Stanley Dean Witter Trust FSB ("MSDW Trust"),
and Director and/or officer of various MSDW
subsidiaries (until June 1998).
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Edwin J. Garn (67) .......................... Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; formerly United States
c/o Huntsman Corporation Senator (R- Utah) (1974-1992) and Chairman,
500 Huntsman Way Senate Banking Committee (1980-1986);
Salt Lake City, Utah formerly Mayor of Salt Lake City, Utah
(1971-1974); formerly Astronaut, Space
Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation (chemical
company); Director of Franklin Covey (time
management systems), BMW Bank of North
America, Inc. (industrial loan corporation),
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.
Wayne E. Hedien (65) ........................ Retired; Director or Trustee of the Morgan
Trustee Stanley Dean Witter Funds; Director of the
c/o Mayer, Brown & Platt PMI Group, Inc. (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of the Field Museum
1675 Broadway of Natural History; formerly associated with
New York, New York the Allstate Companies (1966-1994), most
recently as Chairman of the Allstate
Corporation (March 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 (50) .................. Senior Partner, Johnson Smick International,
Trustee Inc., a consulting firm; Co-Chairman and a
c/o Johnson Smick International, Inc. founder of the Group of Seven Council (G7C),
1133 Connecticut Avenue, N.W. an international economic commission;
Washington, D.C. Chairman of the Audit Committee and Director
or Trustee of the Morgan Stanley Dean Witter
Funds; Director of Greenwich Capital Markets,
Inc. (broker-dealer) and NVR, Inc. (home
construction); 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).
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Michael E. Nugent (63) ...................... General Partner, Triumph Capital, L.P., a
Trustee private investment partnership; Chairman of
c/o Triumph Capital, L.P. the Insurance Committee and Director or
237 Park Avenue Trustee of the Morgan Stanley Dean Witter
New York, New York Funds; formerly Vice President, Bankers Trust
Company and BT Capital Corporation
(1984-1988); director of various business
organizations.
Philip J. Purcell* (56) ..................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, DWR and Novus
1585 Broadway Credit Services Inc.; Director of MSDW
New York, New York Distributors; Director or Trustee of the
Morgan Stanley Dean Witter Funds; Director
and/or officer of various MSDW subsidiaries.
John L. Schroeder (69) ...................... Retired; Chairman of the Derivatives
Trustee Committee and Director or Trustee of the
c/o Mayer, Brown & Platt Morgan Stanley Dean Witter Funds; Director of
Counsel to the Independent Trustees Citizens Utilities Company
1675 Broadway (telecommunications, gas, electric and water
New York, New York utility company); formerly, Executive Vice
President and Chief Investment Officer of the
Home Insurance Company (August 1991-September
1995).
Mitchell M. Merin (46) ...................... President and Chief Operating Officer of
President Asset Management of MSDW (since December
Two World Trade Center 1998); President and Director (since April
New York, New York 1997) and Chief Executive Officer (since June
1998) of the Investment Manager and MSDW
Services Company; Chairman, Chief Executive
Officer and Director of the Distributor
(since June 1998); Chairman and Chief
Executive Officer (since June 1998) and
Director (since January 1998) of MSDW Trust;
Director of various MSDW subsidiaries;
President of the Morgan Stanley Dean Witter
Funds (since May 1999); previously Chief
Strategic Officer of the Investment Manager
and MSDW Services Company and Executive Vice
President of the Distributor (April 1997-June
1998), Vice President of the Morgan Stanley
Dean Witter Funds (May 1997-April 1999), and
Executive Vice President of Dean Witter,
Discover & Co.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH THE TRUST
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- ---------------------------------------------
<S> <C>
Barry Fink (44) ............................. Senior Vice President (since March 1997), and
Vice President, Secretary and General Counsel Secretary and General Counsel (since February
Two World Trade Center 1997) and Director (since July 1998) of MSDW
New York, New York Advisors and MSDW Services; Senior Vice
President (since March 1997) and Assistant
Secretary and Assistant General Counsel
(since February 1997) of MSDW Distributors;
Assistant Secretary of DWR (since August
1996); Vice President, Secretary and General
Counsel of the Morgan Stanley Dean Witter
Funds (since February 1997); previously First
Vice President (June 1993-February 1997),
Vice President and Assistant Secretary and
Assistant General Counsel of MSDW Advisors
and MSDW Services and Assistant Secretary of
the Morgan Stanley Dean Witter Funds.
Rajesh K. Gupta (39) ........................ Senior Vice President of MSDW Advisors,
Vice President Director of the Taxable Fixed-Income Group
Two World Trade Center and Chief Administrative Officer of
New York, New York Investments of MSDW Advisors; Vice President
of various Morgan Stanley Dean Witter Funds.
Sheila A. Finnerty (34) ..................... Vice President of MSDW Advisors (since May
Assistant Vice President 1998); previously Assistant Vice President
Two World Trade Center (May 1995-May 1998) and Senior Research
New York, New York Analyst (May 1993-May 1995) with MSDW
Advisors.
Peter Gewirtz (34) .......................... Assistant Vice President of MSDW Advisors
Assistant Vice President (since May 1998); previously Senior Research
Two World Trade Center Analyst with MSDW Advisors (October 1996-May
New York, New York 1998) and prior thereto Assistant Vice
President of Industrial Bank of Japan
(February 1994-October 1996).
Thomas F. Caloia (52) ....................... First Vice President and Assistant Treasurer
Treasurer of MSDW Advisors, MSDW Distributors and MSDW
Two World Trade Center Services; Treasurer of the Morgan Stanley
New York, New York Dean Witter Funds.
</TABLE>
- ------------------------
* Denotes Trustees who are "interested persons" of the Trust, as defined in
the 1940 Act.
In addition, RONALD E. ROBISON, Executive Vice President, Chief
Administrative Officer and Director of MSDW Advisors and MSDW Services,
ROBERT S. GIAMBRONE, Senior Vice President of MSDW Advisors, MSDW Services, MSDW
Distributors and MSDW Trust and Director of MSDW Trust, and JOSEPH J. MCALINDEN,
Executive Vice President and Chief Investment Officer of MSDW Advisors and
Director of MSDW Trust are Vice Presidents of the Fund.
27
<PAGE>
In addition, MARILYN K. CRANNEY, LOU ANNE D. MCINNIS, CARSTEN OTTO, AND RUTH
ROSSI, First Vice Presidents and Assistant General Counsels of MSDW Advisors and
MSDW Services, TODD LEBO, Vice President and Assistant General Counsel of MSDW
Advisors and MSDW Services, and NATASHA KASSIAN, a Staff Attorney with MSDW
Advisors, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of eight (8) trustees. These same individuals
also serve as directors or trustees for all of the Morgan Stanley 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 92 Morgan Stanley Dean
Witter Funds, comprised of 127 portfolios. As of November 30, 1999, the Morgan
Stanley Dean Witter Funds had total net assets of approximately $ billion and
more than six million shareholders.
Six Trustees (75% of the total number) have no affiliation or business
connection with MSDW Advisors or any of its affiliated persons and do not own
any stock or other securities issued by MSDW Advisors' parent company, MSDW.
These are the "disinterested" or "independent" Trustees.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Morgan Stanley 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.
All of the Independent Trustees serve as members of the Audit Committee. In
addition, three of the Trustees, including two Independent Trustees, serve as
members of the Derivatives Committee and the Insurance Committee. During the
calendar year ended December 31, 1998, the Audit Committee, the Derivatives
Committee, the Insurance Committee and the Independent Trustees held a combined
total of twelve meetings.
The Independent Trustees are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill any
Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1 plan
of distribution. Most of the Morgan Stanley Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Trust'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; and reviewing the adequacy of the Trust's system of internal
controls.
The Board of each Fund has formed a Derivatives Committee to approve
parameters for and monitor the activities of the Trust with respect to
derivative investments, if any, made by the Trust.
Finally, the Board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
28
<PAGE>
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Morgan Stanley Dean Witter Funds
avoids the duplication of effort that would arise from having different groups
of individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION.
The Fund's Declaration of Trust provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his/her or
its own bad faith, willful misfeasance, gross negligence or reckless disregard
of his/her or its duties. It also provides that all third persons shall look
solely to the Fund property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
COMPENSATION OF INDEPENDENT TRUSTEES
The Trust pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by the Trust. The Trust 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 Trust who are or have been employed by
the Investment Manager or an affiliated company receive no compensation or
expense reimbursement from the Trust for their services as Trustee.
The following table illustrates the compensation paid to the Trust's
Independent Trustees by the Fund for the fiscal year ended September 30, 1999.
TRUST COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- --------------
<S> <C>
Michael Bozic................................................. $1,550
Edwin J. Garn................................................. 1,600
Wayne E. Hedien............................................... 1,650
Dr. Manuel H. Johnson......................................... 2,100
Michael E. Nugent............................................. 1,933
John L. Schroeder............................................. 1,933
</TABLE>
29
<PAGE>
The following table illustrates the compensation paid to the Trust's
Independent Trustees for the calendar year ended December 31, 1998 for services
to the 90 Morgan Stanley Dean Witter Funds that were in operation at
December 31, 1998.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION FOR
SERVICES TO 90
MORGAN STANLEY
NAME OF DEAN WITTER
INDEPENDENT TRUSTEE FUNDS
- ------------------- ----------------
<S> <C>
Michael Bozic.............. $120,150
Edwin J. Garn.............. 132,450
Wayne E. Hedien............ 132,350
Dr. Manuel H. Johnson...... 155,681
Michael E. Nugent.......... 159,731
John L. Schroeder.......... 160,731
</TABLE>
As of the date of this PROSPECTUS, 55 of the Morgan Stanley Dean Witter
Funds, including the Trust, 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 Morgan Stanley 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 30.22% of his or
her Eligible Compensation plus 0.5036667% 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 60.44% 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 accrued as expenses on the books of the Adopting Funds. Such benefits are
not secured or funded by the Adopting Funds.
- ------------------------
(1) An Eligible Trustee may elect alternative payments of his or her retirement
benefits based upon the combined life expectancy of the Eligible Trustee and
his or her spouse on the date of such Eligible Trustee's retirement. In
addition, the Eligible Trustee may elect that the surviving spouse's
periodic payment of benefits will be equal to a lower percentage of the
periodic amount when both spouses were alive. The amount estimated to be
payable under this method, through the remainder of the later of the lives
of the Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit.
30
<PAGE>
The following table illustrates the retirement benefits accrued to the
Trust's Independent Trustees by the Fund for the fiscal year ended
September 30, 1999 and by the 55 Morgan Stanley Dean Witter Funds (including the
Fund) for the year ended December 31, 1998, and the estimated retirement
benefits for the Fund's Independent Trustees, to commence upon their retirement,
from the Trust as of September 30, 1999 and from the 55 Morgan Stanley Dean
Witter Funds as of December 31, 1998.
RETIREMENT BENEFITS FROM THE TRUST AND ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT ESTIMATED ANNUAL
----------------------------- BENEFITS BENEFITS
ESTIMATED ACCRUED AS UPON
CREDITED EXPENSES RETIREMENT(2)
YEARS ESTIMATED --------------------- --------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION TRUST FUNDS TRUST FUNDS
- --------------------------- ------------- ------------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic................... 10 60.44% $384 $22,377 $ 937 $ 50,850
Edwin J. Garn................... 10 60.44 567 35,225 937 50,850
Wayne E. Hedien................. 9 51.37 725 41,979 796 43,225
Dr. Manuel H. Johnson........... 10 60.44 234 14,047 937 50,850
Michael E. Nugent............... 10 60.44 400 25,336 937 50,850
John L. Schroeder............... 8 50.37 761 45,117 801 43,157
</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 PROSPECTUS, the aggregate number of shares of
beneficial interest of the Trust owned by the Trust's officers and Trustees as a
group was less than 1 percent of the Trust's shares of beneficial interest
outstanding.
INVESTMENT ADVISORY AGREEMENT
- --------------------------------------------------------------------------------
The Trust has retained the Investment Advisor 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 MSDW Advisors (the
"Advisory Agreement"). See "The Trust and Its Advisor" for a detailed
description of the Advisory Agreement.
The Investment Advisor 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
Advisor 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 Advisor pays the salaries of all personnel, including officers of the
Trust, who are employees of the Investment Advisor.
Expenses not expressly assumed by the Investment Advisor 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
31
<PAGE>
members of any advisory board or committee who are not employees or retired
employees of the Investment Advisor 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 Advisor (not including
compensation or expenses of attorneys who are employees of the Investment
Advisor) 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
MSDW Advisors 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, at an annual rate of 0.85% of average
daily net assets on assets of the Trust exceeding $500 million up to
$1.5 billion, at an annual rate of 0.825% of average daily net assets on assets
of the Trust exceeding $1.5 billion up to $2.5 billion and at an annual rate of
0.80% of average daily net assets on assets of the trust exceeding
$2.5 billion. 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, 1997, 1998 and 1999, the
Trust accrued to MSDW Advisors total compensation of $9,981,012, $14,434,352 and
$19,568,322, 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 Advisor is not liable to the Trust or any of its shareholders for
any act or omission by the Investment Advisor or for any losses sustained by the
Trust or its shareholders. The Advisory Agreement in no way restricts the
Investment Advisor from acting as investment manager or advisor 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 20, 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 Advisor. 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 MSDW Advisors 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. At their meeting held on
April 22, 1999, the Trust's Board of Trustees, including all of the Independent
Trustees, approved continuation of the Advisory Agreement until April 30, 2000.
32
<PAGE>
ADMINISTRATOR AND ADMINISTRATION AGREEMENT
- --------------------------------------------------------------------------------
On December 31, 1993, MSDW Advisors effected an internal reorganization
pursuant to which certain administrative activities previously performed by MSDW
Advisors would instead be performed by Morgan Stanley Dean Witter Services
Company Inc. (the "Administrator" or "MSDW Services"), a wholly-owned subsidiary
of MSDW Advisors. Accordingly, the Administration Agreement between MSDW
Advisors 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 administrative 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 MSDW Advisors prior to this reorganization and to
MSDW Services after December 31, 1993. Morgan Stanley Dean Witter Distributors
Inc., the Distributor of the Trust's shares, is an affiliate of MSDW Advisors
and MSDW Services and a wholly-owned subsidiary of MSDW.
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, Morgan Stanley Dean Witter Advisors Inc.,
and the share distribution activities that had been performed by DWR were
assumed by a separate new company, Morgan Stanley Dean Witter Distributors Inc.
MSDW Advisors refers to the MSDW Advisor Division of DWR prior to the internal
reorganization and to Morgan Stanley Dean Witter Advisors 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, 1997, 1998 and 1999, total accrued compensation amounted to
$2,862,062, $4,183,528 and $5,740,526, 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 advisor to others.
33
<PAGE>
The Administration Agreement was initially approved by the Trustees on
April 17, 1996, in connection with the reincorporation of MSDW Services in the
State of Delaware. The Administration Agreement is substantially identical to
the prior administration agreement, initially approved by the Trustees on
October 10, 1989, by the Investment Advisor 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 MSDW Advisors 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 MSDW Services 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 22, 1999, the Trust's Board of
Trustees, including all of the Independent Trustees, approved continuation of
the Administration Agreement until April 30, 2000.
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the Investment
Advisor 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 Advisor 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 Advisor 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 Advisor 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
34
<PAGE>
as the underwriter's concession or discount. On occasion, the Trust may also
purchase certain money market instruments directly from an issuer, in which case
no commissions or discounts are paid. During the fiscal years ended
September 30, 1997, 1998 and 1999 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
Advisor will effect transactions with those banks, brokers and dealers which the
Investment Advisor believes provide the most favorable prices and who are
capable of providing efficient executions. If the Investment Advisor 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 Advisor. 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 Advisor from banks,
brokers and dealers may be of benefit to the Investment Advisor 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 Advisor and thus reduce its expenses, it
is of indeterminable value and the advisory fee paid to the Investment Advisor
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 listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.") and other
affiliated brokers and dealers. In order for an affiliated broker or dealer to
effect any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by the affiliated broker or dealer 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 the affiliated broker or dealer 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 Board of Trustees of
the Fund, including a majority of the Trustees who are not "interested" persons
of the Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer 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.
35
<PAGE>
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 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.
36
<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. The maximum tax on
long-term capital gains applicable to individuals is 20%. Capital gains
distributions are not eligible for the dividends-received deduction.
Any distribution in excess of the Trust's earnings and profits will first
reduce a shareholder's adjusted basis in his Shares to zero and, after such
basis is reduced to zero, will constitute gain to the shareholder from the sale
of Shares.
A holder of Shares who either sells his Shares or, pursuant to a tender
offer, tenders all Shares owned by such shareholder and any Shares considered
owned by such shareholder under attribution rules contained in the Code will
realize a taxable gain or loss depending upon such shareholder's basis in the
Shares. Such gain or loss will generally be treated as capital gain or loss and
will be long-term capital gain or loss if the Shares are held for more than one
year. However, any loss on a sale or exchange of Shares held for six months or
less will be treated as long-term capital loss to the extent of any long-term
capital gain distribution with respect to such Shares.
If a tendering holder of Shares tenders less than all Shares owned by or
attributed to such shareholder, and if the distribution to such shareholder does
not otherwise qualify as a payment in exchange for stock, the proceeds received
will be treated as a taxable dividend, return of capital or capital gain
depending on the Trust's earnings and profits and the shareholder's basis in the
tendered Shares. Also, if some tendering holders of Shares receive taxable
dividends, there is a risk that non-tendering holders of Shares may be
considered to have received a deemed distribution which may be a taxable
dividend in whole or in part.
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined, in general, on an October 31 year end,
plus certain undistributed amounts from previous years. The Trust anticipates
that it will make sufficient timely distributions to avoid imposition of the
excise tax. If the Trust pays a dividend in January
37
<PAGE>
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.
After the end of each calendar year, shareholders will receive full
information on their dividends and capital gains distributions for tax purposes.
Shareholders who receive distributions of Shares which are automatically
reinvested will generally be viewed as receiving a distribution equal to the
fair market value of such Shares.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
38
<PAGE>
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 advisors 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
advisors regarding specific questions as to state or local taxes and as to the
applicability of the foregoing to their current federal tax situation.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
GENERAL
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest, of $.01 par value
("Shares"). Share certificates will be issued to the holder of record of Shares
upon request. Currently, Shares will be required to be held of record by the
investor. The investor's broker may not be reflected as the record holder;
however, arrangements for Shares to be held in "street name" may be implemented
in the future.
Shareholders are entitled to one vote for each Share held and to vote on
matters submitted to meetings of shareholders. No material amendment may be made
to the Trust's Declaration of Trust without the affirmative vote of at least a
majority of its Shares represented in person or by proxy at a meeting at which a
quorum is present or by written consent without a meeting. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove the
Trustees. Shares have no preemptive or conversion rights and when issued are
fully paid and non-assessable.
The Trust's Declaration of Trust permits the Trustees to divide or combine
the Shares into a greater or lesser number of Shares without thereby changing
the proportionate beneficial interests in the Trust. Each Share represents an
equal proportionate interest in the Trust with each other Share.
The Trust may be terminated (i) by the affirmative vote of the holders of
66% of its outstanding Shares or (ii) by an instrument signed by a majority of
the Trustees and consented to by the holders of two-thirds of the Trust's
outstanding Shares. Upon termination of the Trust, the Trustees will wind up the
affairs of the Trust, the Trust's business will be liquidated and the Trust's
net assets will be distributed to the Trust's shareholders on a pro rata basis.
If not so terminated, the Trust will continue indefinitely.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust, requires that Trust
documents include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Trust's property for any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations. Given the nature of the Trust's assets and operations, the
possibility of the Trust being unable to meet its obligations is remote. Given
the above limitations on
39
<PAGE>
shareholders' personal liability and the Trust's ability to meet its
indemnification obligations, in the opinion of Massachusetts counsel to the
Trust, the risk to Trust shareholders of personal liability is remote.
The Declaration of Trust further provides that obligations of the Trust are
not binding upon the Trustees individually but only upon the property of the
Trust. Accordingly, the Trustees will not be liable for errors of judgment or
mistakes of fact or law, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
ANTI-TAKEOVER PROVISIONS
The Trust presently has certain anti-takeover provisions in its Declaration
of Trust which could have the effect of limiting the ability of other entities
or persons to acquire control of the Trust, to cause it to engage in certain
transactions or to modify its structure. A Trustee may be removed from office by
a written instrument signed by at least two-thirds of the remaining trustees or
by a vote of the holders of at least 66% of the Shares. In addition, the
affirmative vote or consent of the holders of 66% of the Shares of the Trust (a
greater vote than that required by the 1940 Act and greater than the required
vote applicable to business corporations under state law) is required to
authorize the conversion of the Trust from a closed-end to an open-end
investment company, or generally to authorize any of the following transactions:
(i) merger or consolidation of the Trust with or into any other
corporation, association, trust or other organization;
(ii) issuance of any securities of the Trust to any person or entity for
cash;
(iii) sale, lease or exchange of all or any substantial part of the
assets of the Trust, to any entity or person (except assets having an
aggregate fair market value of less than $1,000,000, aggregating similar
transactions over a twelve-month period); or
(iv) sale, lease or exchange to the Trust, in exchange for securities of
the Trust, of any assets of any entity or person (except assets having an
aggregate fair market value of less than $1,000,000, aggregating similar
transactions over a twelve-month period)
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of 5% or more of the outstanding shares of the
Trust. However, such 66% vote or consent will not be required with respect to
the foregoing transactions where the Board of Trustees under certain conditions
approves the transaction, in which case, with respect to (i) and (iii) above, a
majority shareholder vote or consent will be required, and, with respect to (ii)
and (iv) above, a shareholder vote or consent would be required. Furthermore,
any amendment to the provisions in the Declaration of Trust requiring a 66%
shareholder vote or consent for the foregoing transactions similarly requires a
66% shareholder vote or consent.
The foregoing provisions will make more difficult a change in the Trust's
management, or consummation of the foregoing transactions without the Trustee's
approval, and would, in the event a secondary market were to develop in the
Shares, have the effect of depriving shareholders of an opportunity to sell
their shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Trust in a tender offer or similar
transaction. However, the Board of Trustees has considered these anti-takeover
provisions and believes that they are in the shareholders' best interests
40
<PAGE>
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.
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 Advisor anticipates potential difficulty in disposing of portfolio
securities in order to consummate tender offers for the Shares. As a result, the
Trust may be required to borrow money in order to finance repurchases and
tenders. The Trust's Declaration of Trust authorizes the Trust to borrow money
for such purposes.
Even if a tender offer has been made, the Trustees' announced policy, which
may be changed by the Trustees, is that the Trust cannot accept tenders if
(1) such transactions, if consummated, would (a) impair the Trust's status as a
regulated investment company under the Code (which would make the Trust a
taxable entity, causing the Trust's taxable income to be taxed at the Trust
level) or (b) result in a failure to comply with applicable asset coverage
requirements or (2) there is, in the judgment of the Trustees, any (a) material
legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting the Trust,
(b) suspension of or limitation on prices for trading securities generally on
the New York Stock Exchange, (c) declaration of a banking moratorium by federal
or state authorities or any suspension of payment by banks in the United States
or New York State, (d) limitation affecting the Trust or the issuers of its
portfolio securities imposed by federal or state authorities on the extension of
credit by lending institutions, (e) commencement of war, armed hostilities or
other international or national calamity directly or indirectly involving the
United States or (f) other event or condition which would have a material
adverse effect on the Trust or the holders of its Shares if Shares were
repurchased. The Trustees may modify these conditions in light of experience.
Any tender offer made by the Trust for its Shares will be at a price equal
to the net asset value of the Shares determined at the close of business on the
day the offer ends. During the pendency of any tender offer by the Trust, the
Trust will establish procedures which will be specified in the tender offer
documents to enable holders of Shares to ascertain readily such net asset value.
Each offer will be made and holders of Shares notified in accordance with the
requirements of the 1934 Act and the 1940 Act, either by publication or mailing
or both. Each offering document will contain such information as is prescribed
by such laws and the rules and regulations promulgated thereunder. If any tender
offer, after consideration and approval by the Trustees, is undertaken by the
Trust, the terms of such tender offer will set forth the maximum number of
Shares (if less than all) that the Trust is willing to purchase pursuant to the
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
41
<PAGE>
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, 1998 through September 30, 1999, the Trust
completed four tender offers. The first tender offer commenced on November 18,
1998 and resulted in the tender of 3,883,009 Shares. The second tender offer
commenced on February 17, 1999 and resulted in the tender of 4,537,358 Shares.
The third tender offer commenced on May 17, 1999 and resulted in the tender of
5,125,270 Shares. The fourth tender offer commenced on August 18, 1999 and
resulted in the tender of 5,473,419 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 (calculated from the last
day of the month in which the Shares were purchased) 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 Advisor. In determining whether an early withdrawal charge is
payable, it is assumed that the acceptance of a repurchase offer would be made
from the earliest purchase of Shares. Any early withdrawal charge which is
required to be imposed will be made in accordance with the following schedule.
<TABLE>
<CAPTION>
YEAR OF REPURCHASE EARLY WITHDRAWAL
AFTER PURCHASE CHARGE
- ------------------ ------
<S> <C>
First................................ 3.0%
Second............................... 2.5%
Third................................ 2.0%
Fourth............................... 1.0%
Fifth and following.................. 0.0%
</TABLE>
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, 1997,
1998 and 1999, MSDW Advisors informed the Trust that it received approximately
$1,296,000, $2,085,000 and $2,651,000, respectively, in withdrawal fees.
42
<PAGE>
PURCHASE OF SHARES
- --------------------------------------------------------------------------------
The Trust continuously offers Shares through Morgan Stanley 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.
Morgan Stanley 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 22, 1999, the Trustees, including all of the Independent Trustees,
approved the continuation of the Distribution Agreement until April 30, 2000.
None of the Trust, the Distributor or the Investment Advisor 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 Morgan Stanley Dean Witter
Prime Income Trust, directly to Morgan Stanley Dean Witter Trust FSB, an
affiliate of the Distributor (the "Transfer Agent") at P.O. Box 1040, Jersey
City, NJ 07303 or by contacting a Financial Advisor of DWR or other Selected
Broker-Dealer representative. Certificates for Shares purchased will not be
issued unless a request is made by the shareholder in writing to the Transfer
Agent.
Shares of the Trust are sold through Morgan Stanley 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 Advisor 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 Advisor 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
Advisor 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 Advisor 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
43
<PAGE>
and the early withdrawal charge, if any, described above, will not in the
aggregate exceed the applicable limit (currently 7.25% of shareholders'
purchases of Shares of the Trust) 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, 1999, the
Trust's yield, calculated pursuant to this formula, was 7.35%.
On occasion, the Trust may compare its yield to (i) the Prime Rate, quoted
daily in THE WALL STREET JOURNAL as the base rate on corporate loans at large
U.S. money center commercial banks, (ii) one or more averages compiled by
DONOGHUE'S MONEY FUND REPORT, a widely recognized independent publication that
monitors the performance of money market mutual funds, (iii) the average yield
reported by the BANK RATE MONITOR NATIONAL INDEX for money market deposit
accounts offered by the 100 leading banks and thrift institutions in the ten
largest standard metropolitan statistical areas, (iv) yield data published by
Lipper Analytical Services, Inc., or (v) the yield on an investment in 90-day
Treasury bills on a rolling basis, assuming quarterly compounding. In addition,
the Trust may compare the Prime Rate, the DONOGHUE'S averages and the other
yield data described above to each other. As with yield quotations, yield
comparisons should not be considered representative of the Trust's yield or
relative performance for any future period.
CUSTODIAN, DIVIDEND DISBURSING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 100 Church Street, New York, New York 10007, 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.
Morgan Stanley Dean Witter Trust FSB, Harborside Financial Center, Plaza
Two, Jersey City, New Jersey 07311, an affiliate of Morgan Stanley Dean Witter
Advisors Inc., the Trust's Investment Advisor, Morgan Stanley Dean Witter
Services Company Inc., the Trust's Administrator and Morgan Stanley Dean Witter
Distributors Inc., the Trust's Distributor, is the dividend disbursing and
transfer agent of the Trust. Morgan Stanley Dean Witter Trust FSB charges the
Trust an annual per shareholder account fee and is reimbursed for its
out-of-pocket expenses.
44
<PAGE>
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 Advisor, is an officer and the General Counsel of the Trust.
EXPERTS
- --------------------------------------------------------------------------------
The September 30, 1999 financial statements of the Trust, included herein,
have been so included in reliance upon the report of PricewaterhouseCoopers 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 MSDW Advisors, MSDW Services and MSDW
Distributors are subject to a strict Code of Ethics adopted by those companies.
The Code of Ethics is intended to ensure that the interests of shareholders and
other clients are placed ahead of any personal interest, that no undue personal
benefit is obtained from a person's employment activities and that actual and
potential conflicts of interest are avoided. To achieve these goals and comply
with regulatory requirements, the Code of Ethics requires, among other things,
that personal securities transactions by employees of the companies be subject
to an advance clearance process to monitor that no Morgan Stanley 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 Morgan Stanley 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.
45
<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 (which
appear under the heading "Financial Highlights" on page 7 of this Prospectus)
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
46
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999
<TABLE>
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
47
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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
48
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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
49
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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
50
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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
51
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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
52
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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
53
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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
54
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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
55
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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
56
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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
57
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
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>
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> <C>
SHORT-TERM INVESTMENTS (4.0%)
COMMERCIAL PAPER (g) (3.6%)
FINANCE - CONSUMER
$22,000 American Express Credit Corp.................................... 5.44 10/01/99 22,000,000
27,000 American Express Credit Corp. (h)............................... 5.40 10/04/99 26,987,850
40,000 American Express Credit Corp. (h)............................... 5.28 10/08/99 39,958,933
--------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $88,946,783).......................................................... 88,946,783
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999, CONTINUED
<TABLE>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <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 $ 11,003,527
--------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $99,950,310)......................................................... 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
59
<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
60
<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
61
<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, 1999 SEPTEMBER 30, 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
62
<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
63
<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
64
<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
65
<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.
66
<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.
67
<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.
68
<PAGE>
APPENDIX A
HEDGING TRANSACTIONS
- --------------------------------------------------------------------------------
INTEREST RATE AND OTHER HEDGING TRANSACTIONS. The Trust may in the future
enter into various interest rate hedging and risk management transactions;
however, it does not presently intend to engage in such transactions and will do
so only after providing 30 days' written notice to shareholders. If in the
future the Trust were to engage in such transactions, it expects to do so
primarily to seek to preserve a return on a particular investment or portion of
its portfolio, and may also enter into such transactions to seek to protect
against decreases in the anticipated rate of return on floating or variable rate
financial instruments the Trust owns or anticipates purchasing at a later date,
or for other risk management strategies such as managing the effective
dollar-weighted average duration of the Trust's portfolio. In addition, with
respect to fixed-income securities in the Trust's portfolio or to the extent an
active secondary market develops in interests in Senior Loans in which the Trust
may invest, the Trust may also engage in hedging transactions to seek to protect
the value of its portfolio against declines in net asset value resulting from
changes in interest rates or other market changes. The Trust will not engage in
any of the transactions for speculative purposes and will use them only as a
means to hedge or manage the risks associated with assets held in, or
anticipated to be purchased for, the Trust's portfolio or obligations incurred
by the Trust. The successful utilization of hedging and risk management
transactions requires skills different from those needed in the selection of the
Trust's portfolio securities. The Investment Advisor currently actively utilizes
various hedging techniques in connection with its management of other fixed
income portfolios and the Trust believes that the Investment Advisor 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 Advisor anticipates that interest
rates will decline, the Trust might, for example, enter into an interest rate
swap as the floating rate payor. In the case where the Trust purchases such an
interest rate swap, if the floating rate payments fell below the level of the
fixed rate payment set in the swap agreement, the Trust's counterparty would pay
the Trust amounts equal to interest computed at the difference between the fixed
and floating rates over the notional principal amount. Such payments would
offset or partially offset the decrease in the payments the Trust would receive
in respect of floating rate assets being hedged. In the case of purchasing an
interest rate floor, if interest rates declined below the floor rate, the Trust
would receive payments from its counterparty which would wholly or partially
offset the decrease in the payments it would receive in respect of the financial
instruments being hedged.
69
<PAGE>
The successful use of swaps, caps and floors to preserve the rate of return
on a portfolio of financial instruments depends on the Investment Advisor'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 Advisor'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 Advisor 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 Advisor pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board of Trustees of the Trust. If a default occurs by the other
party to such transaction, the Trust will have contractual remedies pursuant to
the agreements related to the transaction but such remedies may be subject to
bankruptcy and insolvency laws which could affect the Trust's rights as a
creditor. The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively liquid. Caps and floors are more recent innovations and
they are less liquid than swaps.
The Trust is also authorized to enter into hedging transactions involving
financial futures and options, but presently believes it is unlikely that it
would enter into such transactions. The Trust may also invest in any new
financial products which may be developed to the extent determined by the Board
of Trustees to be consistent with its investment objective and otherwise in the
best interests of the Trust and its shareholders. The Trust will engage in such
transactions only to the extent permitted under applicable law and after
providing 30 days' written notice to shareholders.
70
<PAGE>
Morgan Stanley Dean Witter Prime Income Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
- ---------------------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Rajesh K. Gupta
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
- ---------------------------------------------
The Bank of New York
100 Church Street
New York, New York 10007
TRANSFER AGENT AND
DIVIDEND DISBURSING 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
ADMINISTRATOR
- ---------------------------------------------
Morgan Stanley Dean Witter Services Company Inc.
Two World Trade Center
New York, New York 10048
DISTRIBUTOR
- ---------------------------------------------
Morgan Stanley Dean Witter Distributors Inc.
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
DEAN WITTER
PRIME INCOME TRUST
[PHOTO]
PROSPECTUS -- DECEMBER , 1999
<PAGE>
MORGAN STANLEY DEAN WITTER 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,
1997, 1998 and 1999.......................................... 7
Portfolio of Investments at September 30, 1999............... 47
Statement of Assets and Liabilities at September 30, 1999.... 60
Statement of Operations for the year ended
September 30, 1999........................................... 61
Statement of Changes in Net Assets for the fiscal years
ended September 30, 1998 and September 30, 1999 ............. 62
Statement of Cash Flows at September 30, 1999................ 63
Notes to Financial Statements................................ 64
(2) Financial statements included in the Statement of Additional
Information (Part B):
None
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
1(a). Declaration of Trust of the Registrant, dated August 17, 1989 is
incorporated by reference to Exhibit 2(a) of Post-Effective
Amendment No. 1 to the Registration Statement on Form N-2, filed
on December 28. 1995.
1(b). Amendment, dated September 12, 1989 to the Declaration of Trust
of the Registrant is incorporated by reference to Exhibit 2(a)
of Post-Effective Amendment No. 1 to the Registration Statement
on Form N-2, filed on December 28, 1995.
1
<PAGE>
1(c). Amendment, dated September 28, 1989, to the Declaration of Trust
of the Registrant is incorporated by reference to Exhibit 2(a)
of Post-Effective Amendment No. 1 to the Registration Statement
on Form N-2, filed on December 28, 1995.
1(d). Amendment, dated February 26, 1993, to the Declaration of Trust
of the Registrant is incorporated by reference to Exhibit 2(a)
of Post-Effective Amendment No. 1 to the Registration Statement
on Form N-2, filed on December 28, 1995.
1(e). Amendment, dated June 22, 1998, to the Declaration of Trust of
the Registrant is incorporated by reference to Exhibit 1 to the
Registration Statement on Form N-2, filed on November 20, 1998.
2. Amended and Restated By-Laws of the Registrant dated
May 1, 1999, filed herein.
3. Not applicable.
4. Not applicable.
5. Not applicable.
6. Not applicable.
7. Amended Investment Advisory Agreement between the Registrant
and Morgan Stanley Dean Witter Advisors Inc., dated May 1, 1998,
is incorporated by reference to Exhibit 7 to the Registration
Statement on Form N-2, filed on November 20, 1998.
8(a). Distribution Agreement between the Registrant and Morgan Stanley
Dean Witter Distributors Inc., dated May 31, 1997, is
incorporated by reference to Exhibit 8 of Post-Effective
Amendment No. 1 to the Registration Statement on Form N-2, filed
on December 30, 1997.
8(b) Selected Dealer Agreement between Morgan Stanley Dean Witter
Distributors Inc. and Dean Witter Reynolds Inc., dated
January 4, 1993, is incorporated by reference to Exhibit 8 of
Post-Effective Amendment No. 4 to the Registration Statement
on Form N-2, filed on November 17, 1994.
9. Amended and Restated Retirement Plan for Non-Interested Trustees
or Directors, dated May 8, 1997, filed herein.
10(a) Custodian Agreement between The Bank of New York and the
Registrant, dated September 20, 1991, is incorporated by
reference to Exhibit 8 of Post-Effective Amendment No. 1 to
the Registration Statement on Form N-2, filed on
December 28, 1995.
2
<PAGE>
10(b). Amendment to the Custody Agreement, dated April 17, 1996, is
incorporated by reference to Exhibit 8 to the Registration
Statement on Form N-2, filed on December 30, 1996.
10(c). Depositary Agreement between the Morgan Stanley Dean Witter
Trust FSB and the Registrant is incorporated by reference to
Exhibit (c)(2) of Schedule 13E-4, filed on November 16, 1999.
11(a). Amended and Restated Transfer Agency Agreement between the
Registrant and Morgan Stanley Dean Witter Trust FSB, dated
June 22, 1998, is incorporated by reference to Exhibit 10 to
the Registration Statement on Form N-2, filed on
November 20, 1998.
11(b). Amended Administration Agreement between the Registrant and
Morgan Stanley Dean Witter Services Company Inc., is
incorporated by reference to Exhibit (c)(4) of Schedule 13E-4,
filed on August 14, 1998.
12(a). Opinion of Barry Fink, dated November 20, 1998, is incorporated
by reference to Exhibit 12(a) to the Registration Statement,
filed on November 20, 1998.
12(b). Opinion of Lane Altman & Owens LLP, dated November 20, 1998,
is incorporated by reference to Exhibit 12(b) to the
Registration Statement, filed on November 20, 1998.
13. Not applicable
14. Consent of Independent Accountants, filed herein.
15. Not applicable
16. Not applicable
17. Not applicable
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
3
<PAGE>
Item 28. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AT OCTOBER 31, 1999
Shares of Beneficial Interest 82,391
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.
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
4
<PAGE>
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 ADVISOR.
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment advisor. The following information is given regarding officers
of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW Advisors is
a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(2) Morgan Stanley Dean Witter California Quality Municipal Securities
(3) Morgan Stanley Dean Witter Government Income Trust
(4) Morgan Stanley Dean Witter High Income Advantage Trust
(5) Morgan Stanley Dean Witter High Income Advantage Trust II
(6) Morgan Stanley Dean Witter High Income Advantage Trust III
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
(12) Morgan Stanley Dean Witter Insured Municipal Trust
(13) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
(14) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
(15) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
(16) Morgan Stanley Dean Witter Municipal Income Trust
(17) Morgan Stanley Dean Witter Municipal Income Trust II
(18) Morgan Stanley Dean Witter Municipal Income Trust III
(19) Morgan Stanley Dean Witter Municipal Premium Income Trust
(20) Morgan Stanley Dean Witter New York Quality Municipal Securities
(21) Morgan Stanley Dean Witter Prime Income Trust
(22) Morgan Stanley Dean Witter Quality Municipal Income Trust
(23) Morgan Stanley Dean Witter Quality Municipal Investment Trust
(24) Morgan Stanley Dean Witter Quality Municipal Securities
OPEN-END INVESTMENT COMPANIES
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
5
<PAGE>
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital Growth Securities
(12) Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas Portfolio"
(13) Morgan Stanley Dean Witter Convertible Securities Trust
(14) Morgan Stanley Dean Witter Developing Growth Securities Trust
(15) Morgan Stanley Dean Witter Diversified Income Trust
(16) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(17) Morgan Stanley Dean Witter Equity Fund
(18) Morgan Stanley Dean Witter European Growth Fund Inc.
(19) Morgan Stanley Dean Witter Federal Securities Trust
(20) Morgan Stanley Dean Witter Financial Services Trust
(21) Morgan Stanley Dean Witter Fund of Funds
(22) Morgan Stanley Dean Witter Global Dividend Growth Securities
(23) Morgan Stanley Dean Witter Global Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International Fund
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
(34) Morgan Stanley Dean Witter Latin American Growth Fund
(35) Morgan Stanley Dean Witter Limited Term Municipal Trust
(36) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(37) Morgan Stanley Dean Witter Market Leader Trust
(38) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(39) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(40) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(41) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(42) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(43) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(44) Morgan Stanley Dean Witter Next Generation Trust
(45) Morgan Stanley Dean Witter North American Government Income Trust
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter Real Estate Fund
(49) Morgan Stanley Dean Witter S&P 500 Index Fund
(50) Morgan Stanley Dean Witter S&P 500 Select Fund
(51) Morgan Stanley Dean Witter Select Dimensions Investment Series
(52) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(53) Morgan Stanley Dean Witter Short-Term Bond Fund
(54) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(55) Morgan Stanley Dean Witter Small Cap Growth Fund
(56) Morgan Stanley Dean Witter Special Value Fund
6
<PAGE>
(57) Morgan Stanley Dean Witter Strategist Fund
(58) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(59) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(60) Morgan Stanley Dean Witter Total Market Index Fund
(61) Morgan Stanley Dean Witter Total Return Trust
(62) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(63) Morgan Stanley Dean Witter U.S. Government Securities Trust
(64) Morgan Stanley Dean Witter Utilities Fund
(65) Morgan Stanley Dean Witter Value-Added Market Series
(66) Morgan Stanley Dean Witter Value Fund
(67) Morgan Stanley Dean Witter Variable Investment Series
(68) Morgan Stanley Dean Witter World Wide Income Trust
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- ------------------------------------------------
<S> <C>
Mitchell M. Merin President and Chief Operating Officer of Asset
President, Chief Management of Morgan Stanley Dean Witter & Co.
Executive Officer and ("MSDW); Chairman, Chief Executive Officer and Director
Director of Morgan Stanley Dean Witter Distributors Inc. ("MSDW
Distributors") and Morgan Stanley Dean Witter Trust FSB
("MSDW Trust"); President, Chief Executive Officer and
Director of Morgan Stanley Dean Witter Services Company
Inc. ("MSDW Services"); President of the Morgan Stanley
Dean Witter Funds; Executive Vice President and Director
of Dean Witter Reynolds Inc. ("DWR"); Director of various
MSDW subsidiaries.
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds;
Executive Vice President Director of MSDW Trust.
and Chief Investment
Officer
Ronald E. Robison President MSDW Trust; Executive Vice President, Chief
Executive Vice President, Administrative Officer and Director of MSDW Services;
Chief Administrative Vice President of the Morgan Stanley Dean Witter Funds.
Officer and Director
Edward C. Oelsner, III
Executive Vice President
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Senior Vice President, Assistant Secretary and
Counsel and Director Assistant General Counsel of MSDW Distributors; Vice
President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds.
7
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- ------------------------------------------------
<S> <C>
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the High
Yield Group
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
Senior Vice President
Rosalie Clough
Senior Vice President
and Director of Marketing
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW Trust;
Vice President of the Morgan Stanley Dean Witter Funds.
Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President, Funds.
Director of the Taxable
Fixed Income Group and
Chief Administrative Officer -
Investments
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
8
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- ------------------------------------------------
<S> <C>
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of Sector
Rotation
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
Group
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
James Solloway
Senior Vice President
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
and Income Group
Elizabeth A. Vetell
Senior Vice President
and Director of Shareholder
Communication
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the
Tax-Exempt Fixed
Income Group
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial and Accounting
Treasurer Officer of the Morgan Stanley Dean Witter Funds.
Thomas Chronert
First Vice President
9
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- ------------------------------------------------
<S> <C>
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of MSDW Distributors and the Morgan Stanley
Dean Witter Funds.
Salvatore DeSteno First Vice President of MSDW Services.
First Vice President
Peter W. Gurman
First Vice President
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Lou Anne D. McInnis First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of MSDW Distributors and
and Assistant Secretary the Morgan Stanley Dean Witter Funds.
Ruth Rossi First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
James P. Wallin
First Vice President
Robert Abreu
Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
10
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- ------------------------------------------------
<S> <C>
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Armon Bar-Tur Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Raymond Basile
Vice President
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
Dale Boettcher
Vice President
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Liam Carroll
Vice President
Philip Casparius
Vice President
Aaron Clark
Vice President
William Connerly
Vice President
David Dineen
Vice President
Sheila Finnerty Vice President of Morgan Stanley Dean Witter Prime
Vice President Income Trust
11
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- ------------------------------------------------
<S> <C>
Jeffrey D. Geffen
Vice President
Sandra Gelpieryn
Vice President
Charmaine George
Vice President
Michael Geringer
Vice President
Gail Gerrity
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Trey Hancock
Vice President
Matthew Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
David T. Hoffman
Vice President
Kevin Jung Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carol Espejo-Kane
Vice President
Nancy Karole-Kennedy
Vice President
Doug Ketterer
Vice President
12
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- ------------------------------------------------
<S> <C>
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Kimberly LaHart
Vice President
Thomas Lawlor
Vice President
Todd Lebo Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Login
Vice President
Sharon Loguercio
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Albert McGarity
Vice President
Teresa McRoberts Vice President of Morgan Stanley Dean Witter S&P 500
Vice President Select Fund.
Mark Mitchell
Vice President
Julie Morrone Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
13
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- ------------------------------------------------
<S> <C>
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell
Vice President
Dawn Rorke
Vice President
John Roscoe Vice President of Morgan Stanley Dean Witter
Vice President Real Estate Fund
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
Patrice Saunders
Vice President
Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
Michael Strayhorn
Vice President
14
<PAGE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- ------------------------------------------------
<S> <C>
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Marybeth Swisher
Vice President
Michael Thayer
Vice President
Robert Vanden Assem
Vice President
David Walsh
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
</TABLE>
The principal address of MSDW Advisors, MSDW Services, MSDW Distributors,
DWR, and the Morgan Stanley Dean Witter Funds is Two World Trade Center, New
York, New York 10048. The principal address of MSDW is 1585 Broadway, New York,
New York 10036. The principal address of MSDW Trust is 2 Harborside Financial
Center, Jersey City, New Jersey 07311.
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
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offer or sales are being
made, a post-effective amendment to this registration statement:
15
<PAGE>
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and the State of
New York on the 24th day of November, 1999.
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
By: /s/ Barry Fink
-------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
(1) Principal Executive Officer Chairman, Chief Executive
Officer and Trustee
By /s/ Charles A. Fiumefreddo 11/24/99
--------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 11/24/99
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 11/24/99
--------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien John L. Schroeder
By /s/ David M. Butowsky 11/24/99
--------------------------
David M. Butowsky
Attorney-in-Fact
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
EXHIBIT INDEX
2. Amended and Restated By-Laws of the Registrant dated May 1, 1999
9. Amended and Restated Retirement Plan for Non-Interested Trustees or
Directors, dated May 8, 1997
14. Consent of Independent Accountants
<PAGE>
BY-LAWS
OF
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
AMENDED AND RESTATED AS OF MAY 1, 1999
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 Morgan Stanley Dean Witter 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 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 or her 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. Without limiting the manner in which a Shareholder may
authorize another person or persons to act for such Shareholder as proxy
pursuant hereto, the following shall constitute a valid means by which a
Shareholder may grant such authority:
(i) A Shareholder may execute a writing authorizing another person or
persons to act for such Shareholder as proxy. Execution may be accomplished
by the Shareholder or such Shareholder's authorized officer, director,
employee, attorney-in-fact or another agent signing such writing or causing
such person's signature to be affixed to such writing by any reasonable
means including, but not limited to, by facsimile or telecopy signature. No
written evidence of authority of a Shareholder's authorized officer,
director, employee, attorney-in-fact or other agent shall be required; and
(ii) A Shareholder may authorize another person or persons to act for such
Shareholder as proxy by transmitting or authorizing the transmission of a
telegram or cablegram or by other means of telephonic, electronic or
computer transmission to the person who will be the holder of the proxy or
to a proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram or cablegram or
other means of telephonic, electronic or computer transmission must either
set forth or be submitted with information from which it can be determined
that the telegram, cablegram or other transmission was authorized by the
Shareholder.
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. In determining whether a telegram,
cablegram or other electronic transmission is valid, the chairman or inspector,
as the case may be, shall specify the information upon which he or she relied.
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. Proxy
solicitations may be made in writing or by using telephonic or other electronic
solicitation procedures that include appropriate methods of verifying the
identity of the Shareholder and confirming any instructions given thereby.
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
2
<PAGE>
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 Section 32 of the Business Corporation Law 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.
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
3
<PAGE>
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.
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).
4
<PAGE>
(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
(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
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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 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 or
her 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 Chairman the power to appoint, such other
officers and agents as the Trustees shall at any time or from time to time deem
advisable.
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SECTION 6.3. TERM AND REMOVAL AND VACANCIES. Each officer of the Trust
shall hold office until his or her 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 Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.
SECTION 6.5. POWERS 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 such third party has knowledge
thereof.
SECTION 6.6. THE CHAIRMAN. The Chairman shall be the chief executive
officer of the Trust, shall preside at all meetings of the Shareholders and of
the Trustees, shall have general and active management of the business of the
Trust, shall see that all orders and resolutions of the Trustees are carried
into effect and, in connection therewith, shall be authorized to delegate to the
President or to one or more Vice Presidents such of his or her powers and duties
at such times and in such manner as he or she may deem advisable, shall be a
signatory on all Annual and Semi-Annual Reports as may be sent to Shareholders,
and shall perform such other duties as the Trustees may from time to time
prescribe.
SECTION 6.7. THE PRESIDENT. The President shall perform such duties as the
Trustees and the Chairman may from time to time prescribe and shall, in the
absence or disability of the Chairman, exercise the powers and perform the
duties of the Chairman. The President shall be authorized to delegate to one or
more Vice Presidents such of his or her powers and duties at such times and in
such manner as he or she may deem advisable.
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 shall be more than one, the Vice
Presidents in such order as may be determined from time to time by the Trustees
or the Chairman, shall, in the absence or disability of the President, exercise
the powers and perform the duties of the President, and shall perform such other
duties as the Trustees or the Chairman may from time to time prescribe.
SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there shall be more than one, the Assistant Vice Presidents in such order
as may be determined from time to time by the Trustees or the Chairman, shall
perform such duties and have such powers as may be assigned them from time to
time by the Trustees or the Chairman.
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 or she 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 Chairman may from time
to time prescribe. He or she 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 or her signature or by the
signature of an Assistant Secretary.
SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there shall be more than one, the Assistant Secretaries in such order as may be
determined from time to time by the Trustees or the Chairman, 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 Chairman may from time to time prescribe.
SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He or she shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and he
or she shall render to the Trustees and the Chairman, whenever any of them
require it, an account of his or her transactions as Treasurer and of the
financial condition of the Trust, and he or she shall perform such other duties
as the Trustees or the Chairman may from time to time prescribe.
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SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in such order as may be
determined from time to time by the Trustees or the Chairman, 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 Chairman 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.
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.
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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:
(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
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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.
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 Morgan Stanley Dean Witter Prime
Income Trust, dated August 17, 1989, a copy of which, together with all
amendments thereto, is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Morgan Stanley Dean Witter
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 Morgan Stanley Dean Witter 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 Morgan Stanley Dean Witter Prime Income
Trust, but the Trust Estate only shall be liable.
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SECOND AMENDED AND RESTATED
RETIREMENT PLAN FOR
NON-INTERESTED TRUSTEES
OR DIRECTORS
Certain of the investment companies for which Morgan Stanley Dean Witter
Advisors Inc. ("MSDW Advisors") currently acts as manager or adviser adopted a
Retirement Plan for Non-Interested Trustees and Directors (the "Original Plan")
on February 21, 1991 (the "Commencement Date"). The Original Plan was amended
and restated on October 22, 1993, effective January 1, 1994 and further amended
by First Amendment dated December 19, 1995 and by Second Amendment dated May 8,
1997. The participating Funds now desire to amend and restate the Plan further
as provided herein effective as of the Commencement Date (as so amended, the
"Plan"), for the purposes of expanding the flexibility of Non-Interested
Trustees and Directors to make and change their elections of benefits.
1. DEFINITIONS
(a) "Independent Board Member" shall mean (i) a Trustee of an Adopting Fund
if the Adopting Fund is organized as a Massachusetts business trust, (ii) a
Director of an Adopting Fund if the Adopting Fund is organized as a corporation,
and (iii) a "director" (as such term is defined in Section 2(a)(12) of the
Investment Company Act of 1940, as amended [the "Act"]) of an Adopting Fund if
the Adopting Fund is any other type of organization, who in any such case is not
an interested person (as such term is defined in Section 2(a)(19) of the Act) of
MSDW Advisors.
(b) "Eligible Board Member" shall mean an Independent Board Member who at
the time of Retirement (as hereinafter defined) has served as an Independent
Board Member of any Adopting Fund for at least five years, or such lesser period
as may be determined by the Board.
(c) "Eligible Service" shall mean service as an Independent Board Member.
(d) "Eligible Retirement Date" shall mean, with respect to any Independent
Board Member, the later of (i) January 1, 1993, (ii) the first day of the
calendar month following the month in which such Independent Board Member's
seventy-second birthday occurs, or (iii) such later date as the Board may
establish as his or her "Eligible Retirement Date."
(e) "Retirement" shall mean any termination of service of an Independent
Board Member except any termination which the Board determines to have resulted
from the Independent Board Member's willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Independent Board Member.
(f) "Benefit" shall mean with respect to any Eligible Board Member, (i) the
Regular Benefit, unless the Alternate Benefit has been elected or the Early
Benefit granted, (ii) the Alternate Benefit, if elected by such Eligible Board
Member, unless the Early Benefit has been granted, or (iii) the Early Benefit,
if granted by the Board.
(g) "Eligible Compensation" shall mean, with respect to any Eligible Board
Member of any Adopting Fund, an amount equal to one-fifth of the total
compensation, inclusive of compensation as a member of the Board or of a Board
Committee or as chairperson of a Board Committee, earned by such Eligible Board
Member for Eligible Service with respect to such Adopting Fund (other than under
this Plan) in the five year period prior to the date of his or her Retirement.
(h) "Actuarial Equivalent" shall mean an actuarially equivalent benefit, as
computed by the Board with the advice of an enrolled actuary (as defined in the
Employee Retirement Income Security Act of 1974, as amended ["ERISA"]), using
assumptions determined by the Board at the time of the computation.
(i) "Board" shall mean, with respect to any Adopting Fund, the Board of
Directors or Trustee or "directors," (as such term is defined in Section
2(a)(12) of the Act, of such Adopting Fund.
(j) "Adoption Date" shall mean February 21, 1991.
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2. ELIGIBILITY
Each Eligible Board Member will be eligible to receive a Benefit from each
Adopting Fund commencing on such Eligible Board Member's Eligible Retirement
Date.
3. RETIREMENT DATE; AMOUNT OF BENEFIT
(a) RETIREMENT. Each Independent Board Member will retire not later than his
or her Eligible Retirement Date. The foregoing provision shall be deemed by the
adoption of this Plan by any Fund to be an amendment of such Fund's by-laws
superseding any provision therein that an Independent Board Member shall serve
until his or her successor shall have been elected and qualified.
Notwithstanding the foregoing, the Board of any Adopting Fund may, to avoid the
simultaneous retirement of more than one of the Independent Board Members or for
any other appropriate reason, waive the obligation of any Independent Board
Member to retire on such date and may establish a later date as his or her
"Eligible Retirement Date." Any establishment of an Eligible Retirement Date may
be further extended by the Board.
(b) REGULAR RETIREMENT BENEFIT. Upon Retirement, each Eligible Board Member
will receive, commencing as of such Eligible Board Member's Eligible Retirement
Date and continuing for the remainder of the Eligible Board Member's life, from
each Adopting Fund a retirement benefit (the "Regular Benefit") paid at an
annual rate equal to the percentage of his or her Eligible Compensation
established by resolution of the Board of such Adopting Fund most recently
adopted prior to the date of his or her retirement (the "Most Recent
Resolution") as the "Minimum Percentage," PLUS an additional percentage of such
Eligible Compensation for each full month of Eligible Service for any of the
Adopting Funds in excess of five years established by the Most Recent Resolution
as the "Monthly Additional Percentage," up to the percentage established by the
Most Recent Resolution as the "Maximum Percentage" of such Eligible Compensation
for ten or more years of Eligible Service for any of the Adopting Funds.
(c) ELECTION OF ALTERNATE PAYMENT OF BENEFIT. Each Independent Board Member
shall have the option, exercisable at any time, and revisable at any time and
from time to time, prior to his or her first acceptance of benefits under the
Plan to elect (i) to receive, subject to being or becoming an Eligible Board
Member, a retirement benefit (the "Alternate Benefit") based upon the combined
life expectancy of such Eligible Board Member and his or her spouse on the date
of such Eligible Board Member's Retirement (rather than solely upon such
Eligible Board Member's own life, as shall be the case unless such Eligible
Board Member shall otherwise elect as provided in this Section 3(c)), and (ii)
if the Independent Board Member elects to receive the Alternate Benefit, to
elect a benefit either (x) to the last survivor of the Eligible Board Member or
spouse, whether the Eligible Board Member or spouse is the last survivor (a
"joint and last survivor" benefit) or (y) to the Eligible Board Member's spouse
if the spouse survives the Eligible Board Member (a "joint and contingent
survivor" benefit) equal in periodic amount to a percentage (the "Designated
Survivor's Percentage") of the periodic amount that would be, or would be
assumed to be, in effect while both the Eligible Board Member and spouse were
alive. The Designated Survivor's Percentage shall be the percentage stated in
the most recently delivered notice of election given by such Independent Board
Member, or, if no percentage is stated in any such notice, 100%. Payment of the
Alternate Benefit shall commence on the later of such Eligible Board Member's
Eligible Retirement Date or the date of his or her Retirement, shall be reduced
to the Designated Survivor's Percentage (if less than 100%) upon the earlier of
the deceases of the Eligible Board Member and spouse in the case of a joint and
last survivor benefit, or of the Eligible Board Member in the case of a joint
and contingent survivor benefit, and shall be payable through the remainder of
the life of the survivor of such Eligible Board Member and spouse. The Alternate
Benefit shall be the Actuarial Equivalent of the Regular Benefit provided under
paragraph 3(b). In the event of the death of an Eligible Board Member who has
chosen the Alternate Benefit prior to such Eligible Board Member's Retirement,
his or her spouse shall be entitled to a retirement benefit, commencing upon
such death, which shall be the Actuarial Equivalent of the benefit such spouse
would have received had such Eligible Board Member died on his or her Eligible
Retirement Date.
(d) EARLY PAYMENT OF BENEFIT. An Eligible Board Member for good cause may
apply to the Board of any Adopting Fund for, and, at the discretion of such
Board, may be granted, a retirement benefit (the "Early Benefit") which is the
Actuarial Equivalent of the Regular Benefit or Alternate Benefit previously
elected
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by such Eligible Board Member. Payment of the Early Benefit shall commence on a
date fixed by the Board in its sole discretion as such Eligible Board Member's
Eligible Retirement Date and shall be payable through the remainder of such
Eligible Board Member's life, or, if the Alternate Benefit had been elected, the
later of the lives of such Eligible Board Member and spouse. Good cause for
these purposes may include (but is not limited to) the permanent disability of
the Eligible Board Member.
(e) Anything contained herein to the contrary notwithstanding, upon the
adoption by an Adopting Fund of a plan of liquidation, such Adopting Fund shall
pay to each Eligible Board Member who has retired, in lieu of his or her Benefit
from such Adopting Fund, an amount (the "Lump Sum") equal to the then present
value of the Benefit, using a discount rate determined by the Board at the time
of the computation. The Lump Sum shall be paid by such Adopting Fund at or
before the final liquidation and dissolution of such Adopting Fund.
4. TIME OF PAYMENT
The Benefit to each Eligible Board Member or his or her spouse will, except
as provided in Section 3(c), 3(d) or 3(e) hereof, commence on such Eligible
Board Member's Eligible Retirement Date and will be paid each year in quarterly
installments that are as nearly equal as possible on the first day of each
calendar quarter.
5. PAYMENT OF BENEFIT; ALLOCATION OF COSTS
Each Adopting Fund is responsible for the payment of Benefits based upon
Eligible Compensation from such Adopting Fund, as well as its proportionate
share of all expenses of administration of the Plan, including without
limitation all accounting and legal fees and expenses and fees and expenses of
any enrolled actuary. The obligations of each Adopting Fund to pay such benefits
and expenses will not be secured or funded in any manner, and such obligations
will not have any preference over the lawful claims of the Adopting Funds'
creditors and stockholders, shareholders, beneficiaries or limited partners, as
the case may be. To the extent that an Adopting Fund consists of one or more
separate portfolios, such costs and expenses will be allocated among such
portfolios in the proportion that compensation of Independent Board Members is
allocated among such portfolios.
6. ADMINISTRATION
(a) ADMINISTRATION. Any question involving entitlement to payments under or
the administration of the Plan will be referred to the Board, which shall make
all interpretations and determinations necessary or desirable for the Plan's
administration (such interpretations and determinations to be final and
conclusive) and shall cause such records to be kept as may be necessary for the
administration of the Plan.
7. MISCELLANEOUS
(a) RIGHTS NOT ASSIGNABLE. The right to receive any payment under the Plan
is not transferable or assignable. Except as otherwise provided herein with
respect to the Alternate Benefit, the Plan shall not create any benefit, cause
of action, right of sale, transfer, assignment, pledge, encumbrance, or other
such right in any spouse or heirs or the estate of any Eligible Board Member or
retired Eligible Board Member.
(b) AMENDMENT, ETC. With respect to each Adopting Fund, the Board, including
a majority of the Independent Board Members of such Board, may at any time amend
or terminate the Plan or waive any provision of the Plan, PROVIDED, that except
as otherwise provided herein, no amendment, termination or waiver will impair
the rights of an Independent Board Member to receive upon Retirement the
payments which would have been made to such Independent Board Member had there
been no such amendment, termination or waiver (based upon such Board Member's
Eligible Service to the date of such amendment, termination or waiver) or the
rights of a retired Eligible Board Member to receive any Benefit due under the
Plan, without the consent of such Independent Board Member or Eligible Board
Member. Notwithstanding any provision to the contrary, the Board, with the
concurrence of a majority of the Independent Board Members of such Board and
without the consent of any individual Independent Board Member, may at any time
(i) amend or terminate the Plan to comply with any applicable provision of law
or any rule or regulation adopted, or proposed to be adopted, by any
governmental agency or any decision of any court or administrative agency, (ii)
change any assumptions used to determine what benefit may be an
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Actuarial Equivalent, or (iii) terminate the Plan of an Adopting Fund (an
"Acquired Adopting Fund") substantially all the assets of which are acquired by
an entity which is itself an Adopting Fund (the "Acquiring Adopting Fund")
pursuant to a plan of reorganization between the Acquired Adopting Fund and the
Acquiring Adopting Fund (the "Reorganization Plan"), such termination to be
deemed approved upon adoption of the Reorganization Plan and to be effective
upon the effectiveness of the reorganization contemplated thereby without
liability or further obligation for any benefits accrued or otherwise payable to
an Independent Board Member by the Acquired Adopting Fund.
(c) NO RIGHT TO REELECTION. Nothing in the Plan will create any obligation
on the part of the Board to nominate any Independent Board Member for
reelection.
(d) VACANCIES. Although the Board will retain the right to increase or
decrease its size, it shall be the general policy to replace each retired
Independent Board Member by selecting a new Independent Board Member from
candidates recommended by the remaining Independent Board Members.
(e) CONSULTING. Each retired Eligible Board Member may render such services
for any of the Adopting Funds, for such compensation, as may be agreed upon from
time to time by such retired Eligible Board Member and the Board.
(f) EFFECTIVENESS. The Plan will be effective for all Independent Board
Members who have dates of Retirement occurring on or after the Adoption Date.
Periods of Eligible Service shall include periods commencing prior to such date.
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MORGAN STANLEY DEAN WITTER FUNDS:
FUNDS THAT HAVE ADOPTED THE RETIREMENT PLAN
FOR NON-INTERESTED TRUSTEES OR DIRECTORS
SCHEDULE A
MARCH 1999
<TABLE>
<S> <C>
1) Active Assets California Tax-Free Trust
2) Active Assets Government Securities Trust
3) Active Assets Money Trust
4) Active Assets Tax-Free Trust
5) Morgan Stanley Dean Witter American Value Fund
6) Morgan Stanley Dean Witter California Insured Municipal Income Trust
7) Morgan Stanley Dean Witter California Quality Municipal Securities
8) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9) Morgan Stanley Dean Witter California Tax-Free Income Fund
10) Morgan Stanley Dean Witter Capital Growth Securities
11) Morgan Stanley Dean Witter Convertible Securities Trust
12) Morgan Stanley Dean Witter Developing Growth Securities Trust
13) Morgan Stanley Dean Witter Diversified Income Trust
14) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
15) Morgan Stanley Dean Witter European Growth Fund Inc.
16) Morgan Stanley Dean Witter Federal Securities Trust
17) Morgan Stanley Dean Witter Global Dividend Growth Securities
18) Morgan Stanley Dean Witter Government Income Trust
19) Morgan Stanley Dean Witter Health Sciences Trust
20) Morgan Stanley Dean Witter High Income Advantage Trust
21) Morgan Stanley Dean Witter High Income Advantage Trust II
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Securities Inc.
24) Morgan Stanley Dean Witter Insured Municipal Bond Trust
25) Morgan Stanley Dean Witter Insured Municipal Income Trust
26) Morgan Stanley Dean Witter Insured Municipal Securities
27) Morgan Stanley Dean Witter Insured Municipal Trust
28) Morgan Stanley Dean Witter Intermediate Income Securities
29) Morgan Stanley Dean Witter Limited Term Municipal Trust
30) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
31) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
32) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
33) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
34) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
35) Morgan Stanley Dean Witter Municipal Income Trust
36) Morgan Stanley Dean Witter Municipal Income Trust II
37) Morgan Stanley Dean Witter Municipal Premium Income Trust
38) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
39) Morgan Stanley Dean Witter New York Municipal Money Market Trust
40) Morgan Stanley Dean Witter New York Tax-Free Income Fund
41) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
42) Morgan Stanley Dean Witter Prime Income Trust
43) Morgan Stanley Dean Witter Quality Municipal Income Trust
44) Morgan Stanley Dean Witter Quality Municipal Investment Trust
45) Morgan Stanley Dean Witter Quality Municipal Securities
46) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
47) Morgan Stanley Dean Witter Strategist Fund
</TABLE>
5
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<TABLE>
<S> <C>
48) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
49) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
50) Morgan Stanley Dean Witter U.S. Government Money Market Trust
51) Morgan Stanley Dean Witter U.S. Government Securities Trust
52) Morgan Stanley Dean Witter Utilities Fund
53) Morgan Stanley Dean Witter Value-Added Market Series
54) Morgan Stanley Dean Witter Variable Investment Series
55) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
registration statement on Form N-2 of our report dated November 15, 1999,
relating to the financial statements and financial highlights of Morgan
Stanley Dean Witter 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 15, 1999
