<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST TWO WORLD TRADE CENTER,
LETTER TO THE SHAREHOLDERS MARCH 31, 2000 NEW YORK, NEW YORK 10048
DEAR SHAREHOLDER:
During the six-month period ended March 31, 2000, the U.S. economy continued to
exhibit very strong growth with only moderate inflationary pressure. Concerned
about the economy's strength and its own heightened fear of inflationary
pressure, the Federal Reserve Board continued its monetary policy by
incrementally raising the federal funds rate to 6.00 percent -- a total increase
of 125 basis points (1.25 percentage points) since their first move in February
1999. Earlier in the period, the Fed added substantial liquidity to the
marketplace in response to concerns surrounding the Y2K bug. This action fueled
the equity markets to new heights during the final months of 1999, as interest
rates rose to their highest levels in several years. As a result, interest rates
on intermediate Treasuries were highly volatile, with yields on five-year
Treasuries ranging between 5.75 percent and 6.77 percent. On March 31, 2000, the
five-year Treasury note was yielding 6.31 percent compared to 5.75 percent six
months ago.
LOAN SYNDICATION OVERVIEW
Over the past six months, the syndicated loan market grew, albeit at a slower
rate primarily as a result of the default rates and new-issue flow. High-yield
corporate default rates rose throughout the fourth quarter of 1999, ending the
year at 3.85 percent. The trend, however, seems to have reversed during the
first quarter of 2000, closing at 3.58 percent. Although the senior secured
status of the loans somewhat insulates the asset class, its volatility has
increased somewhat. New issuance slowed at year-end, mostly due to Y2K concerns
and throughout the first quarter due to continued weakness in the high-yield
market.
PERFORMANCE
For the six-month period ended March 31, 2000, Morgan Stanley Dean Witter Prime
Income Trust posted a total return of 3.72 percent. The Fund's yield for the
trailing 12 months of 8.14 percent continues to
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
LETTER TO THE SHAREHOLDERS MARCH 31, 2000, CONTINUED
provide a 200- to 300-basis-point yield advantage over short-term instruments.
Prime Income Trust's net asset value (NAV) was $9.84 on March 31, 2000, compared
to $9.87 at September 30, 1999.
On March 31, 2000, the Trust's total net assets exceeded $2.6 billion, an
increase of 6.5 percent over the six-month period. Assets of the Trust continued
to grow, due in large part to new subscriptions totaling $270 million. The Trust
is a continuously offered closed-end fund. Currently, the Trust intends to
consider conducting quarterly tender offers. For the six-month period ended
March 31, 2000, there were two quarterly tender offers totaling $144 million, or
5.5 percent of net assets.
PORTFOLIO STRATEGY
The Trust's investment objective is to provide a high level of current income
consistent with the preservation of capital. The Trust seeks to achieve this
objective by investing primarily in senior loans, which generally pay interest
at rates that float or are reset at a margin above a generally recognized
base-lending rate, such as the London Interbank Offered Rate (LIBOR), the prime
rate or other base lending rates used by commercial lenders.
The Trust is a widely diversified portfolio that utilizes credit analysis as the
cornerstone of its investment process. On March 31, 2000, the Trust had exposure
to more than 180 issuers across more than 90 industries. The highest industry
concentrations continued to be in sectors we believe capable of achieving
sustained growth and solid earnings performance such as broadcasting, media and
telecommunications. The Trust's management maintained its discipline of strict
credit analysis with a focus on borrowers' leverage levels and liquidity.
LOOKING AHEAD
U.S. economic growth is likely to moderate while inflation remains at acceptable
levels. However, should our economy continue to display inordinately strong
growth coupled with accelerating inflation, the Federal Reserve may need to
address its current stance on monetary policy more aggressively. Corporate
earnings are expected to remain moderate, and high-yield default rates should
return to a lower 2.00 percent to 2.50 percent by year-end.
Going forward we will continue to maintain a watchful eye on the credit
conditions in the senior loan sector. In addition, we will continue to
scrutinize the financial position of the Trust's borrowers and uphold our strict
screening process for credit approval, both for positions owned and for
potential investments.
2
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
LETTER TO THE SHAREHOLDERS MARCH 31, 2000, CONTINUED
We appreciate your ongoing support of Morgan Stanley Dean Witter Prime Income
Trust and look forward to continuing to serve your investment needs.
Very truly yours,
[/S/ CHARLES A. FIUMEFREDDO] [/S/ MITCHELL M. MERIN]
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
CHAIRMAN OF THE BOARD PRESIDENT
3
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SENIOR COLLATERALIZED TERM LOANS (a) (88.4%)
ACCIDENT & HEALTH INSURANCE (0.2%)
$ 2,475 BRW Acquisition, Inc. (b)............................................. 8.42% 07/10/06 $ 2,472,624
2,475 BRW Acquisition, Inc. (b)............................................. 8.67 07/10/07 2,472,550
--------------
4,945,174
--------------
AEROSPACE (1.4%)
14,738 Avborne, Inc. (b)..................................................... 9.81 - 9.94 06/30/05 14,733,872
6,930 Decrane Aircraft Holdings,
Inc. (b)............................................................ 9.43 04/23/06 6,928,129
16,667 Fairchild Holding Corp. (b)........................................... 9.37 - 9.38 04/30/06 16,666,447
--------------
38,328,448
--------------
AIR FREIGHT/DELIVERY SERVICES (1.0%)
8,460 Erickson Air-Crane Co.,
L.L.C. (b).......................................................... 10.14 12/31/04 8,456,934
3,172 Evergreen International Aviation, Inc................................. 9.32 05/31/02 3,165,001
6,201 Evergreen International Aviation, Inc................................. 9.37 05/07/03 6,187,111
8,447 First Security Bank, National Association as Owner Trustee............ 9.25 05/07/03 8,427,845
--------------
26,236,891
--------------
APPAREL (2.0 %)
14,387 American Marketing Industries, Inc. (b)............................... 9.69 - 10.06 11/29/02 14,385,142
3,880 American Marketing Industries, Inc. (b)............................... 9.69 - 10.06 11/30/03 3,879,707
2,695 American Marketing Industries, Inc. (b)............................... 9.88 - 10.06 11/30/04 2,694,675
4,165 American Marketing Industries, Inc. (b)............................... 9.88 - 10.06 11/30/05 4,164,569
6,748 Arena Brands, Inc. (b)................................................ 9.35 - 9.97 06/01/02 6,741,298
808 Arena Brands, Inc.
(Revolver) (b)...................................................... 9.18 - 11.25 06/01/02 808,298
16,094 St. John Knits International,
Inc. (b)............................................................ 9.38 07/31/07 16,085,550
5,922 The William Carter Co................................................. 8.07 - 8.44 10/30/03 5,919,513
--------------
54,678,752
--------------
AUTO PARTS - O.E.M. (3.0%)
9,700 Accuride Corp......................................................... 7.78 01/21/06 9,615,125
7,350 Accuride Corp. (b).................................................... 8.28 01/21/07 7,349,780
6,283 J.L. French Automotive Castings, Inc.................................. 8.91 - 9.04 10/21/06 6,288,294
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 15,000 Meridian Automotive Systems, Inc. (b)................................. 8.94% 05/25/06 $ 14,999,400
7,000 Polypore Inc. (b)..................................................... 9.63 12/31/06 6,999,860
5,925 Special Devices, Inc. (b)............................................. 9.56 12/15/05 5,924,052
7,900 Stoneridge, Inc....................................................... 9.78 12/31/05 7,929,625
5,000 Tenneco, Inc.......................................................... 9.35 11/04/07 5,024,050
5,000 Tenneco, Inc.......................................................... 9.60 05/04/08 5,024,050
10,000 Transportation Technologies Industries, Inc. (b)...................... 9.74 - 9.89 03/31/07 9,997,700
--------------
79,151,936
--------------
AUTOMOTIVE AFTERMARKET (0.2%)
2,046 Safelite Glass Corp. (b).............................................. 9.31 12/23/04 2,045,681
2,046 Safelite Glass Corp. (b).............................................. 9.56 12/23/05 2,045,681
--------------
4,091,362
--------------
BEVERAGES - NON-ALCOHOLIC (0.4%)
9,453 The American Bottling Co.............................................. 9.06 10/07/07 9,478,116
--------------
BOOKS/MAGAZINE (1.1%)
18,648 Advanstar Communications, Inc......................................... 8.63 04/30/05 18,624,963
4,929 Advanstar Communications, Inc......................................... 9.13 06/30/07 4,934,219
4,750 Ziff Davis, Inc....................................................... 11.38 03/31/06 4,748,813
--------------
28,307,995
--------------
BROADCAST/MEDIA (2.5%)
20,000 Benedek Broadcasting
Corp. (b)........................................................... 9.43 - 9.53 11/20/07 19,995,236
9,960 Black Entertainment Television, Inc................................... 7.81 - 7.94 06/30/06 9,843,767
2,850 Cumulus Media, Inc. (b)............................................... 9.19 09/30/07 2,849,288
1,900 Cumulus Media, Inc. (b)............................................... 9.32 02/28/08 1,899,525
5,000 Gray Communications Systems, Inc. (b)................................. 9.25 12/31/05 4,999,800
18,167 Sinclair Broadcast Group,
Inc. (b)............................................................ 7.68 09/15/05 18,158,673
10,000 Susquehanna Media Co.................................................. 8.50 - 8.75 06/30/08 10,033,300
--------------
67,779,589
--------------
BUILDING MATERIALS (0.6%)
6,000 Dayton Superior Corp.................................................. 8.72 09/29/05 5,997,480
9,000 Onex ABCO Limited
Partnership (b)..................................................... 9.55 - 9.59 11/15/05 8,996,005
--------------
14,993,485
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CABLE TELEVISION (2.4%)
$ 30,000 Charter Communications Operating, LLC................................. 8.54 - 8.58 % 03/18/08 $ 29,832,600
9,336 Classic Cable, Inc.................................................... 8.75 - 8.81 01/31/08 9,335,943
10,657 General Cable Corp.................................................... 9.00 05/27/07 10,635,398
15,000 RCN Corp.............................................................. 9.63 06/03/07 15,089,700
--------------
64,893,641
--------------
CASINO/GAMBLING (1.0%)
5,401 Alliance Gaming Corp. (b)............................................. 9.29 - 9.34 01/31/05 5,396,176
2,155 Alliance Gaming Corp. (b)............................................. 9.54 - 9.59 07/31/05 2,153,022
5,000 Harrah's Jazz Co. (b)................................................. 7.13 04/30/05 4,995,150
2,667 Isle of Capri Casinos, Inc............................................ 9.37 - 9.59 03/02/06 2,676,667
2,333 Isle of Capri Casinos, Inc............................................ 9.49 03/02/07 2,342,083
9,975 Palace Station Hotel & Casino, Inc. (b)............................... 8.60 12/31/05 9,972,900
--------------
27,535,998
--------------
CELLULAR TELEPHONE (2.1%)
12,406 Centennial Puerto Rico Operating Corp................................. 9.18 05/31/07 12,437,886
7,406 Centennial Puerto Rico Operating Corp................................. 9.43 11/30/07 7,427,062
35,602 Microcell Connexions, Inc............................................. 9.24 - 9.28 03/01/06 35,598,543
--------------
55,463,491
--------------
COAL MINING (0.5%)
14,717 Quaker Coal Company, Inc.............................................. 10.50 06/30/06 14,717,272
--------------
CONSUMER SPECIALTIES (0.9%)
2,369 American Safety Razor Co.............................................. 9.79 - 9.91 04/30/07 2,368,565
8,196 Amscan Holdings, Inc. (b)............................................. 8.41 - 10.38 12/31/04 8,194,827
5,428 Jet Plastica Industries, Inc. (b)..................................... 8.50 - 8.81 12/31/02 5,428,203
8,891 Jet Plastica Industries, Inc. (b)..................................... 9.31 12/31/04 8,888,472
541 Jet Plastica Industries, Inc. (Revolver) (b).......................... 10.63 12/31/04 540,540
--------------
25,420,607
--------------
CONSUMER SUNDRIES (0.7%)
1,633 The Boyds Collection, Ltd............................................. 8.06 - 8.13 04/21/06 1,620,822
698 World Kitchen, Inc.
(Revolver) (b)...................................................... 8.49 - 8.94 04/09/05 697,779
15,680 World Kitchen, Inc. (b)............................................... 8.89 - 9.10 10/09/06 15,677,907
--------------
17,996,508
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER/BUSINESS SERVICES (3.2%)
$ 13,848 Bridge Information Systems,
Inc. (b)............................................................ 9.63 - 9.81 % 05/29/03 $ 13,839,876
2,556 Bridge Information Systems, Inc. (Revolver) (b)....................... 9.56 - 9.69 05/29/03 2,554,320
16,904 Bridge Information Systems,
Inc. (b)............................................................ 10.06 05/29/05 16,901,566
24,631 Buhrmann US Inc....................................................... 9.63 10/26/07 24,735,078
8,472 InfoUSA, Inc. (b)..................................................... 9.50 06/30/06 8,469,715
4,722 Prime Succession, Inc. (b)............................................ 9.69 08/01/03 4,719,814
4,722 Prime Succession, Inc. (Participation: Goldman
Sachs & Co.) (b) (c)................................................ 9.69 08/01/03 4,719,814
9,535 Rose Hills Co. (b).................................................... 8.88 - 9.13 12/01/03 9,527,246
--------------
85,467,429
--------------
CONTAINERS/PACKAGING (1.5%)
1,768 Graham Packaging Co................................................... 8.81 01/31/06 1,766,181
8,131 Graham Packaging Co................................................... 9.06 - 9.38 01/31/07 8,124,059
14,000 LLS Corp. (b)......................................................... 9.01 - 9.12 07/31/06 13,987,768
4,962 Mediapak Corp. (b).................................................... 9.44 - 11.00 12/31/05 4,961,092
4,962 Mediapak Corp. (b).................................................... 9.69 - 11.25 12/31/06 4,961,092
6,331 Packaging Corporation of America...................................... 9.25 - 9.69 04/12/07 6,355,664
--------------
40,155,856
--------------
DISCOUNT CHAINS (0.4%)
11,446 Tuesday Morning Corp. (b)............................................. 8.54 12/29/04 11,445,380
--------------
DIVERSIFIED MANUFACTURING (1.8%)
5,037 Chatham Technologies, Inc. (b)........................................ 8.94 08/18/03 5,037,001
6,604 Chatham Technologies, Inc. (b)........................................ 9.69 08/18/05 6,604,037
10,000 Citation Corp. (b).................................................... 9.88 12/01/07 9,995,800
2,813 Desa International, Inc............................................... 9.34 11/26/03 2,762,880
6,685 Desa International, Inc............................................... 9.35 11/26/04 6,602,841
6,398 Doskocil Manufacturing Co. (b)........................................ 10.00 09/30/04 6,395,804
9,504 Insilco Corp. (b)..................................................... 9.79 - 9.84 11/24/05 9,502,304
--------------
46,900,667
--------------
DRUGSTORE CHAINS (0.6%)
9,800 Duane Reade, Inc. (b)................................................. 8.75 02/15/05 9,799,314
6,649 Duane Reade, Inc. (b)................................................. 9.00 02/15/06 6,648,390
--------------
16,447,704
--------------
E.D.P. SERVICES (0.3%)
14,738 DecisionOne Corp. (b)................................................. 10.75 08/07/04 8,105,625
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
EDUCATION (0.3%)
$ 9,211 Children's Discovery Centers of America (b)........................... 9.00 - 9.06 % 06/30/05 $ 9,203,629
--------------
ELECTRONIC COMPONENTS (1.1%)
7,366 Communications Instruments, Inc. (b).................................. 9.56 - 9.81 03/15/04 7,364,776
13,888 Dynamic Details, Inc. (b)............................................. 8.63 04/22/05 13,888,000
7,000 Knowles Electronics, Inc. (b)......................................... 9.06 06/29/07 6,998,320
--------------
28,251,096
--------------
ELECTRONIC PRODUCTION EQUIPMENT (0.2%)
5,683 Telex Communications, Inc. (b)........................................ 9.79 - 11.50 11/06/04 5,682,939
--------------
ENERGY (0.6%)
15,000 AES Texas Funding II, LLC (b)......................................... 8.94 04/24/01 14,995,650
--------------
ENTERTAINMENT & LEISURE (1.2%)
7,500 MGM Studios, Inc...................................................... 8.88 03/31/06 7,431,600
10,000 Premier Parks, Inc.................................................... 9.19 - 9.37 09/30/05 10,050,800
15,000 SFX Entertainment, Inc................................................ 9.56 06/30/06 15,016,800
--------------
32,499,200
--------------
ENVIRONMENTAL SERVICES (2.7%)
22,727 Allied Waste Industries,
Inc. (b)............................................................ 8.94 07/30/06 22,720,682
27,273 Allied Waste Industries,
Inc. (b)............................................................ 9.13 - 9.19 07/30/07 27,264,236
6,000 Casella Waste Systems,
Inc. (b)............................................................ 9.47 12/14/06 5,997,240
12,837 Environmental Systems Products Holdings, Inc. (b)..................... 10.28 09/30/05 12,834,103
3,990 Stericycle, Inc....................................................... 9.48 - 12.50 11/10/06 4,001,880
--------------
72,818,141
--------------
FINANCE - COMMERCIAL (0.4%)
9,975 Outsourcing Solutions, Inc............................................ 9.97 06/10/06 9,959,439
--------------
FINANCE (0.7%)
8,990 Blackstone Capital Company II, LLC (b)................................ 10.63 11/30/00 8,986,021
8,830 Wasserstein/C & A Holdings, LLC (b)................................... 10.69 11/30/00 8,819,199
--------------
17,805,220
--------------
FINANCIAL PUBLISHING/SERVICES (0.2%)
5,985 Merrill Communications
LLC (b)............................................................. 9.93 - 12.25 11/23/07 5,983,328
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLUID CONTROLS (0.4%)
$ 4,963 Mueller Group, Inc.................................................... 9.29 - 9.47 % 08/16/06 $ 4,979,571
4,963 Mueller Group, Inc.................................................... 9.64 - 9.72 08/16/07 4,979,571
--------------
9,959,142
--------------
FOOD CHAINS (0.6%)
12,406 Big V Supermarkets, Inc............................................... 9.74 - 11.75 08/10/03 12,271,890
4,988 Big V Supermarkets, Inc. (b).......................................... 9.99 11/10/03 4,951,291
--------------
17,223,181
--------------
FOOD & BEVERAGES (1.6%)
6,965 Aurora Foods, Inc. (b)................................................ 10.36 09/30/06 6,962,074
9,250 B&G Foods, Inc........................................................ 9.35 03/03/06 9,226,875
7,404 Eagle Family Foods, Inc. (b).......................................... 9.53 - 9.78 12/31/05 7,403,196
12,250 Leon's Bakery, Inc. (b)............................................... 9.00 06/03/05 12,249,143
8,000 Merisant Company (b).................................................. 9.50 03/31/07 7,998,880
--------------
43,840,168
--------------
HOME FURNISHINGS (0.4%)
2,606 Sealy Mattress Co..................................................... 8.19 12/15/04 2,609,495
1,878 Sealy Mattress Co..................................................... 8.44 12/15/05 1,881,145
2,400 Sealy Mattress Co..................................................... 8.69 12/15/06 2,403,205
1,424 Simmons Co............................................................ 9.25 10/29/05 1,425,373
3,562 Simmons Co............................................................ 9.50 10/29/06 3,564,709
--------------
11,883,927
--------------
HOSPITAL/NURSING MANAGEMENT (2.6%)
5,948 Columbia - HealthOne, LLC............................................. 9.64 06/30/05 5,922,222
6,959 Community Health Systems, Inc......................................... 9.29 12/31/03 6,921,604
6,959 Community Health Systems, Inc......................................... 9.79 12/31/04 6,927,867
5,178 Community Health Systems, Inc......................................... 10.04 12/31/05 5,158,664
4,377 GEAC/Multicare Co., Inc. (b).......................................... 10.10 - 10.25 09/30/04 3,869,074
1,451 GEAC/Multicare Co., Inc. (b).......................................... 10.36 06/01/05 1,283,095
5,361 Genesis Health Ventures,
Inc. (b)............................................................ 9.53 - 10.25 09/30/04 4,738,718
3,197 Genesis Health Ventures,
Inc. (b)............................................................ 9.78 - 10.50 06/01/05 2,825,776
17,194 Integrated Health Services,
Inc. (b) (d)........................................................ 11.06 - 11.13 09/30/04 12,534,244
3,462 Magellan Health Services,
Inc. (b)............................................................ 8.69 02/12/05 3,461,996
3,462 Magellan Health Services,
Inc. (b)............................................................ 8.94 02/12/06 3,461,996
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 7,938 Ventas Realty, Limited Partnership (b)................................ 8.69% 12/31/02 $ 7,937,183
3,969 Ventas Realty, Limited Partnership (b)................................ 9.69 12/31/05 3,968,591
--------------
69,011,030
--------------
HOTELS/RESORTS (2.8%)
15,000 Felcor Lodging Trust, Inc............................................. 8.52 03/31/04 14,950,050
5,343 Meristar Hospitality Operating Partnership, L.P....................... 7.91 01/31/04 5,338,066
3,865 Pebble Beach Co....................................................... 9.08 07/30/06 3,884,163
15,000 Starwood Hotels & Resorts Worldwide, Inc.............................. 8.72 - 8.86 02/23/03 15,045,000
12,469 Strategic Hotel Funding, L.L.C........................................ 9.82 11/16/04 12,510,271
10,000 Wyndham International,
Inc. (b)............................................................ 10.50 06/30/04 9,999,600
15,000 Wyndham International, Inc............................................ 9.69 06/30/06 14,512,500
--------------
76,239,650
--------------
INDUSTRIAL MACHINERY/COMPONENTS (0.4%)
9,975 SPX Corp.............................................................. 8.25 - 8.44 12/31/06 10,017,095
--------------
INDUSTRIAL SPECIALTIES (1.2%)
11,563 Advanced Glassfiber Yarns,
LLC (b)............................................................. 10.03 09/30/05 11,560,173
15,724 Panolam Industries International, Inc. and Panolam Industries, Ltd.
(b)................................................................. 9.44 11/24/06 15,719,625
5,000 UCAR Finance, Inc..................................................... 8.88 12/31/07 5,020,850
--------------
32,300,648
--------------
INSURANCE BROKERS/SERVICES (0.5%)
7,234 Acordia, Inc. (b)..................................................... 8.42 12/31/04 7,226,628
2,910 Willis North America, Inc............................................. 8.61 11/19/07 2,902,725
2,910 Willis North America, Inc............................................. 8.86 02/19/08 2,903,336
--------------
13,032,689
--------------
MAJOR CHEMICALS (0.9%)
9,975 Georgia Gulf Corp..................................................... 8.84 11/12/06 10,024,853
7,500 Huntsman ICI Chemicals LLC............................................ 9.19 06/30/07 7,541,550
7,500 Huntsman ICI Chemicals LLC............................................ 9.25 - 9.44 06/30/08 7,541,550
--------------
25,107,953
--------------
MANAGED HEALTH CARE (0.5%)
9,468 Interim Healthcare, Inc. (b).......................................... 9.27 - 9.37 02/29/04 9,464,268
3,495 Interim Healthcare, Inc. (b).......................................... 9.52 02/28/05 3,493,495
--------------
12,957,763
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MEDICAL SPECIALTIES (1.4%)
$ 2,954 Alaris Medical Systems,
Inc. (b)............................................................ 9.63% 11/01/03 $ 2,953,065
2,954 Alaris Medical Systems,
Inc. (b)............................................................ 9.63 11/01/04 2,953,065
4,641 Alaris Medical Systems,
Inc. (b)............................................................ 9.63 05/01/05 4,640,088
6,203 Dade Behring, Inc..................................................... 9.00 - 9.16 06/30/06 6,209,204
6,203 Dade Behring, Inc..................................................... 9.25 - 9.41 06/30/07 6,209,204
4,988 Inamed Corp. (b)...................................................... 10.07 01/31/05 4,982,912
2,455 Medical Specialties Group,
Inc. (b)............................................................ 9.63 - 11.50 06/30/01 2,454,528
7,136 Medical Specialties Group,
Inc. (b)............................................................ 10.38 - 12.25 06/30/04 7,136,294
--------------
37,538,360
--------------
MEDICAL/NURSING SERVICES (2.9%)
11,194 Alliance Imaging, Inc................................................. 9.50 11/02/07 11,112,425
13,806 Alliance Imaging, Inc................................................. 9.75 11/02/08 13,705,325
8,106 FHC Health Systems, Inc. (b).......................................... 9.29 04/30/05 8,104,085
8,106 FHC Health Systems, Inc. (b).......................................... 9.54 04/30/06 8,104,004
19,467 Quest Diagnostics, Inc................................................ 9.27 - 9.87 06/15/06 19,526,242
17,413 Unilab Corp. (b)...................................................... 10.00 11/23/06 17,405,361
--------------
77,957,442
--------------
MOTOR VEHICLES (0.1%)
3,366 Asbury Automotive Texas Holdings L.L.C. (b)........................... 9.88 03/31/05 3,363,786
--------------
MOVIES/ENTERTAINMENT (1.1%)
9,933 Panavision, Inc. (b).................................................. 9.57 - 9.78 03/31/05 9,924,255
8,859 United Artists Theatre Co. (b)........................................ 10.31 - 12.25 04/21/05 7,467,847
13,288 United Artists Theatre Co. (b)........................................ 10.38 - 12.25 04/21/05 11,201,770
--------------
28,593,872
--------------
MULTI-SECTOR COMPANIES (1.1%)
25,442 Mafco Finance Corp. (b)............................................... 11.75 04/28/00 25,432,640
3,938 Mafco Finance Corp.
(Revolver) (b)...................................................... 11.75 - 11.88 04/28/00 3,937,048
--------------
29,369,688
--------------
NEWSPAPERS (0.2%)
4,900 21st Century Newspapers,
Inc. (b)............................................................ 8.56 09/15/05 4,899,559
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OFFICE EQUIPMENT/SUPPLIES (1.2%)
$ 14,888 Global Imaging Systems,
Inc. (b)............................................................ 9.44% 06/30/06 $ 14,883,778
17,621 US Office Products Co. (b)............................................ 8.63 06/09/06 17,620,419
--------------
32,504,197
--------------
OILFIELD SERVICES/EQUIPMENT (1.1%)
13,049 Plains Scurlock Permian,
L.P. (b)............................................................ 9.06 05/12/04 13,045,189
7,125 Transmontaigne, Inc. (b).............................................. 9.59 06/30/06 7,124,715
10,000 US Synthetic Corp. (b)................................................ 9.61 05/31/05 9,995,600
--------------
30,165,504
--------------
OTHER CONSUMER SERVICES (0.6%)
7,800 PCA International, Inc. (b)........................................... 9.36 08/25/05 7,796,646
7,842 Volume - Services, Inc. (b)........................................... 9.94 12/03/06 7,840,264
--------------
15,636,910
--------------
OTHER METALS/MINERALS (0.7%)
9,947 Better Minerals & Aggregates Company (b).............................. 9.53 09/30/07 9,946,274
7,590 CII Carbon, Inc. (b).................................................. 8.59 06/25/08 7,588,353
--------------
17,534,627
--------------
OTHER PHARMACEUTICALS (0.7%)
19,738 King Pharmaceuticals, Inc............................................. 9.88 12/22/06 19,727,362
--------------
OTHER SPECIALTY STORES (1.3%)
4,875 Caribbean Petroleum, LP (b)........................................... 9.50 09/30/05 4,873,538
4,320 Cumberland Farms, Inc. (Participation Merrill Lynch & Co., Inc.) (b)
(c)................................................................. 10.50 12/31/00 4,320,264
7,500 Petro Stopping Centers,
L.P. (b)............................................................ 9.16 - 9.25 07/23/06 7,494,900
15,845 The Pantry, Inc....................................................... 9.64 01/31/06 15,835,043
3,000 The Pantry, Inc....................................................... 9.81 - 9.89 07/31/06 3,001,860
--------------
35,525,605
--------------
PACKAGED FOODS (0.3%)
9,062 Formax, Inc. (b)...................................................... 8.63 - 10.50 06/30/05 9,059,778
--------------
PAINTS/COATINGS (0.3%)
7,481 Metokote Corp. (b).................................................... 9.88 - 9.93 11/02/05 7,480,243
--------------
PAPER (1.2%)
7,511 Alabama Pine Pulp Co.,
Inc. (b) (e)........................................................ 10.13 06/30/03 7,135,259
3,492 Alabama Pine Pulp Co.,
Inc. (b) (e)........................................................ 10.13 06/30/05 1,183,076
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,673 Alabama Pine Pulp Co.,
Inc. (b) (e)........................................................ 10.75% 12/31/08 $ 192,986
8,156 Alabama River Newsprint Co. (Participation: Toronto Dominion Bank) (b)
(c)................................................................. 7.94 - 8.25 12/31/02 7,816,515
101 Crown Paper Co. (b)................................................... 11.75 08/22/02 101,010
6,311 Crown Paper Co.
(Revolver) (b)...................................................... 11.50 08/22/02 6,310,883
7,981 Crown Paper Co. (b)................................................... 11.75 08/22/03 7,980,526
--------------
30,720,255
--------------
PRECISION INSTRUMENTS (0.5%)
4,856 Dynatech Corp......................................................... 8.31 03/31/05 4,794,962
4,856 Dynatech Corp......................................................... 8.56 03/31/06 4,794,962
4,856 Dynatech Corp......................................................... 8.81 03/31/07 4,794,962
--------------
14,384,886
--------------
PRINTING/PUBLISHING (3.5%)
10,000 American Media Operations, Inc........................................ 9.51 - 9.88 04/01/07 10,012,500
19,983 Big Flower Press Holdings,
Inc. (b)............................................................ 9.81 - 9.94 12/07/08 19,982,452
13,519 Cygnus Publishing, Inc. (b)........................................... 8.86 - 9.11 06/05/05 13,513,042
17,500 Hollinger International Publishing, Inc. (b).......................... 9.00 12/31/04 17,499,300
7,500 Mail-Well I Corp. (b)................................................. 8.45 02/22/07 7,499,700
10,826 The Sheridan Group, Inc. (b).......................................... 9.19 01/30/05 10,825,137
3,273 Von Hoffman Press, Inc. (b)........................................... 8.53 05/30/04 3,272,494
10,635 Von Hoffman Press, Inc. (b)........................................... 8.53 05/30/05 10,632,482
--------------
93,237,107
--------------
RAILROADS (0.2%)
4,988 RailAmerica, Inc...................................................... 9.25 - 9.38 12/31/06 5,006,203
--------------
RECREATIONAL PRODUCTS/TOYS (0.9%)
7,196 Ritvik Toys, Inc. (b)................................................. 9.56 02/08/03 7,193,788
7,196 Ritvik Toys, Inc. (b)................................................. 10.06 02/08/04 7,193,716
372 Spalding Holdings Corp. (b)........................................... 8.53 09/30/03 371,339
4,000 Spalding Holdings Corp. (Revolver) (b)................................ 8.50 - 8.63 09/30/03 3,997,680
1,828 Spalding Holdings Corp. (b)........................................... 9.03 09/30/04 1,826,508
1,828 Spalding Holdings Corp. (b)........................................... 9.53 09/30/05 1,826,416
1,052 Spalding Holdings Corp. (b)........................................... 10.03 03/30/06 1,051,471
--------------
23,460,918
--------------
RENTAL/LEASING COMPANIES (2.7%)
12,492 Avis Rent A Car, Inc.................................................. 9.44 06/30/06 12,546,380
12,492 Avis Rent A Car, Inc.................................................. 9.44 06/30/07 12,547,005
15,000 NationsRent, Inc...................................................... 9.00 07/20/06 14,987,550
5,531 Rent-A-Center, Inc.................................................... 8.22 - 8.39 01/31/06 5,493,381
6,770 Rent-A-Center, Inc.................................................... 8.47 - 8.64 01/31/07 6,723,262
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 14,888 United Rentals, Inc................................................... 8.32% 06/30/05 $ 14,899,857
6,000 United Rentals, Inc................................................... 8.57 06/30/06 5,991,540
--------------
73,188,975
--------------
RESTAURANTS (0.2%)
5,500 Shoney's, Inc. (b).................................................... 8.99 - 11.00 04/30/02 5,499,122
--------------
RETAIL-SPECIALTY (0.8%)
7,456 CSK Auto, Inc......................................................... 8.06 10/31/03 7,431,172
8,702 HMV Media Group PLC (b)............................................... 8.89 02/25/06 8,699,093
5,998 HMV Media Group PLC (b)............................................... 9.34 08/25/06 5,991,962
--------------
22,122,227
--------------
SEMICONDUCTORS (0.6%)
7,222 Semiconductor Components Industries, LLC.............................. 9.63 08/04/06 7,281,806
7,778 Semiconductor Components Industries, LLC.............................. 9.88 08/04/07 7,841,944
--------------
15,123,750
--------------
SPECIALTY CHEMICALS (1.5%)
879 Lyondell Chemical Company............................................. 9.38 06/30/03 879,095
14,940 Lyondell Chemical Company............................................. 9.88 06/30/05 15,090,080
6,808 Pioneer America Acqusitions Corp. (b)................................. 8.19 - 8.94 12/05/06 6,800,677
8,050 Pioneer Americas, Inc. (b)............................................ 8.67 - 10.63 12/05/06 8,042,735
8,040 Vining Industries, Inc. (b)........................................... 9.25 - 9.32 03/31/05 8,038,805
--------------
38,851,392
--------------
SPECIALTY STEELS (0.9%)
12,306 ISPAT Inland, L.P..................................................... 8.35 07/16/05 12,241,085
12,306 ISPAT Inland, L.P..................................................... 8.85 07/16/06 12,241,085
--------------
24,482,170
--------------
TELECOMMUNICATION EQUIPMENT (3.1%)
15,000 American Tower, L.P., American Towers, Inc. and ATC Teleports, Inc.... 9.24 - 9.28 12/31/07 15,078,450
4,371 Channel Master, Inc. (b).............................................. 9.84 - 9.91 10/10/05 4,370,296
10,000 Charter Communications Operating, LLC (b)............................. 8.54 09/18/08 9,923,200
12,000 Crown Castle Operating Co............................................. 8.91 03/15/08 12,016,560
21,000 Pinnacle Towers, Inc. (b)............................................. 9.24 06/30/07 20,996,640
21,800 Superior Telecom, Inc................................................. 9.94 11/27/05 21,761,536
--------------
84,146,682
--------------
TELECOMMUNICATIONS (3.3%)
10,526 Alaska Communications Systems Holdings, Inc........................... 9.19 11/14/07 10,552,632
9,474 Alaska Communications Systems Holdings, Inc........................... 9.44 05/14/08 9,497,368
7,406 Davel Financing Co., LLC (b).......................................... 10.39 06/23/05 7,406,324
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 9,925 Infonet Sevice Corp. (b).............................................. 8.88% 06/30/06 $ 9,925,000
25,000 KMC Telecom, Inc. (b)................................................. 10.06 07/01/07 24,995,250
10,000 Level 3 Communications,
Inc. (b)............................................................ 9.50 01/15/08 10,054,500
7,490 MJD Communications, Inc. (b).......................................... 8.56 - 8.88 03/31/06 7,486,852
9,800 MJD Communications, Inc. (b).......................................... 9.06 - 10.75 03/31/07 9,798,629
--------------
89,716,555
--------------
TEXTILES (0.9%)
7,960 Globe Manufacturing, Inc. (b)......................................... 9.94 - 10.08 07/31/06 7,951,869
4,216 Joan Fabrics Corp..................................................... 9.03 06/30/05 4,205,079
2,185 Joan Fabrics Corp..................................................... 9.53 06/30/06 2,179,368
10,850 Polymer Group, Inc. (b)............................................... 8.63 12/20/05 10,849,492
--------------
25,185,808
--------------
TRANSPORTATION (0.9%)
9,975 Allied Worldwide, Inc. (b)............................................ 10.00 11/18/07 9,971,808
5,258 Quality Distribution, Inc. (b)........................................ 8.43 02/28/05 5,224,712
4,506 Quality Distribution, Inc. (b)........................................ 8.63 02/28/06 4,478,324
3,573 Transportacion Ferroviaria Mexicana, S.A. de C.V. (b)................. 10.38 12/23/02 3,573,000
--------------
23,247,844
--------------
WIRELESS COMMUNICATIONS (7.1%)
7,000 American Cellular Corp................................................ 9.01 03/31/08 7,005,110
8,000 American Cellular Corp................................................ 9.26 03/31/09 8,005,840
13,547 Arch Paging, Inc. (b)................................................. 12.94 06/30/06 13,545,204
4,987 Dobson Operating Co., L.L.C........................................... 9.00 12/31/07 4,998,950
25,000 Nextel Finance Co..................................................... 9.44 06/30/08 25,045,750
25,000 Nextel Finance Co..................................................... 9.75 12/31/08 25,045,750
15,000 Nextel Partners Operating Corp........................................ 10.92 01/29/08 14,969,550
10,000 Nextel Partners Operating Corp........................................ 10.34 07/29/08 10,025,000
7,000 Nextlink Communications, Inc.......................................... 9.31 06/30/07 7,035,000
9,785 Powertel PCS, Inc. (b)................................................ 9.31 12/31/08 10,783,571
13,935 Powertel PCS, Inc. (Participation: Goldman
Sachs & Co.) (c).................................................... 9.31 12/31/08 13,933,538
10,000 Teligent, Inc. (b).................................................... 9.16 06/30/06 9,989,400
40,000 Voicestream PCS Holding L.L.C. & Omnipoint Finance, LLC............... 8.91 02/25/09 39,694,400
--------------
190,077,063
--------------
TOTAL SENIOR COLLATERALIZED TERM LOANS
(IDENTIFIED COST $2,388,867,735)....................................................................... 2,369,121,704
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SENIOR NOTES (0.4%)
APPAREL (0.0%)
$ 1,613 London Fog Industries,
Inc. (b) (f)........................................................ 10.00% 02/27/03 $ 629,121
--------------
CABLE/TELEVISION (0.4%)
9,563 Supercanal Holdings S.A. (Argentina) (b).............................. 10.56 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>
COMMON STOCK (b) (g) (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 (b) (g) (0.0%)
APPAREL
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 (10.6%)
COMMERCIAL PAPER (h) (9.5%)
DIVERSIFIED FINANCIAL SERVICES (4.0%)
$ 82,000 General Electric Capital Corp........................................... 5.95 % 04/03/00 81,972,894
25,000 General Electric Capital Corp. (i)...................................... 6.05 04/17/00 24,932,778
--------------
106,905,672
--------------
FINANCE - CONSUMER (2.2%)
60,000 American Express Credit Corp............................................ 6.06 04/04/00 59,969,700
--------------
FINANCE - AUTOMOTIVE (3.3%)
87,000 Ford Motor Credit Co.................................................... 6.05 04/10/00 86,868,413
--------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $253,743,785)............................................................. 253,743,785
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT (1.1%)
$ 29,185 The Bank of New York (dated 03/31/00; proceeds $29,186,692) (j)
(IDENTIFIED COST $29,184,674)......................................... 6.06 % 04/03/00 $ 29,184,674
--------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $282,928,459)............................................................ 282,928,459
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $2,687,229,823) (K).................................................... 99.4% 2,662,240,743
OTHER ASSETS IN EXCESS OF LIABILITIES................................................... 0.6 16,400,200
----- ---------------
NET ASSETS.............................................................................. 100.0% $ 2,678,640,943
----- ---------------
----- ---------------
</TABLE>
- ---------------------
(a) Floating rate securities. Interest rates shown are those in effect at March
31, 2000.
(b) Valued using fair value procedures -- total aggregate value is
$1,344,741,672.
(c) Participation interests were acquired through the financial institutions
indicated parenthetically.
(d) Non-income producing security; loan in default.
(e) Payment-in-kind security.
(f) Non-income producing security; note in default.
(g) Non-income producing securities.
(h) Purchased on a discount basis. The interest rate shown has been adjusted to
reflect a money market equivalent yield.
(i) This security is segregated in connection with unfunded loan commitments.
(j) Collateralized by $29,505,634 U.S. Treasury Note 6.125% due 6/30/01 valued
at $29,768,396.
(k) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $4,691,233 and the
aggregate gross unrealized depreciation is $29,680,313, resulting in net
unrealized depreciation of $24,989,080.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $2,687,229,823).......................................................... $2,662,240,743
Cash........................................................................................ 2,446,586
Receivable for:
Interest................................................................................ 18,212,312
Shares of beneficial interest sold...................................................... 7,027,794
Prepaid expenses and other assets........................................................... 1,004,101
--------------
TOTAL ASSETS........................................................................... 2,690,931,536
--------------
LIABILITIES:
Payable for:
Investment advisory fee................................................................. 1,925,208
Dividends to shareholders............................................................... 1,206,292
Administration fee...................................................................... 568,542
Payable to bank............................................................................. 80,980
Accrued expenses and other payables......................................................... 214,452
Deferred loan fees.......................................................................... 8,295,119
Commitments and contingencies (Note 6)...................................................... --
--------------
TOTAL LIABILITIES...................................................................... 12,290,593
--------------
NET ASSETS............................................................................. $2,678,640,943
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................. $2,707,995,641
Net unrealized depreciation................................................................. (24,989,080)
Accumulated undistributed net investment income............................................. 1,951,631
Accumulated net realized loss............................................................... (6,317,249)
--------------
NET ASSETS............................................................................. $2,678,640,943
==============
NET ASSET VALUE PER SHARE,
272,253,076 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)............ $9.84
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest...................................................................................... $116,950,567
Facility, amendment and other loan fees....................................................... 3,346,847
Other......................................................................................... 87,744
------------
TOTAL INCOME............................................................................. 120,385,158
------------
EXPENSES
Investment advisory fee....................................................................... 11,077,775
Administration fee............................................................................ 3,266,492
Transfer agent fees and expenses.............................................................. 518,426
Professional fees............................................................................. 309,088
Registration fees............................................................................. 158,456
Facility fees................................................................................. 153,942
Shareholder reports and notices............................................................... 142,002
Custodian fees................................................................................ 68,365
Trustees' fees and expenses................................................................... 8,832
Other......................................................................................... 104,626
------------
TOTAL EXPENSES........................................................................... 15,808,004
Less: expense offset.......................................................................... (66,514)
------------
NET EXPENSES............................................................................. 15,741,490
------------
NET INVESTMENT INCOME.................................................................... 104,643,668
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain............................................................................. 2,143,590
Net change in unrealized depreciation......................................................... (10,523,471)
------------
NET LOSS................................................................................. (8,379,881)
------------
NET INCREASE.................................................................................. $ 96,263,787
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
- ------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................... $ 104,643,668 $ 161,147,785
Net realized gain....................................................... 2,143,590 1,067,708
Net change in unrealized depreciation................................... (10,523,471) (13,449,451)
-------------- --------------
NET INCREASE....................................................... 96,263,787 148,766,042
Dividends from net investment income.................................... (103,396,557) (159,065,743)
Net increase from transactions in shares of beneficial interest......... 171,814,690 527,549,296
-------------- --------------
NET INCREASE....................................................... 164,681,920 517,249,595
NET ASSETS:
Beginning of period..................................................... 2,513,959,023 1,996,709,428
-------------- --------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $1,951,631 AND
$704,520, RESPECTIVELY)............................................. $2,678,640,943 $2,513,959,023
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income........................................................................ $ 104,643,668
Adjustments to reconcile net investment income to net cash provided by operating activities:
Increase in receivables and other assets related to operations............................... (1,125,992)
Increase in payables related to operations................................................... 210,287
Net loan fees received....................................................................... 3,708,755
Amortization of loan fees.................................................................... (3,346,848)
Accretion of discounts....................................................................... (138,850)
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................................... 103,951,020
-------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of investments..................................................................... (615,708,560)
Principal repayments/sales of investments.................................................... 626,944,866
Net purchases of short-term investments...................................................... (182,978,149)
-------------
NET CASH USED FOR INVESTING ACTIVITIES.................................................. (171,741,843)
-------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Shares of beneficial interest sold........................................................... 268,473,306
Shares tendered.............................................................................. (143,951,874)
Dividends from net investment income (net of reinvested dividends of $45,391,528)............ (58,019,111)
-------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................................... 66,502,321
-------------
NET DECREASE IN CASH......................................................................... (1,288,502)
CASH BALANCE AT BEGINNING OF YEAR............................................................ 3,735,088
-------------
CASH BALANCE AT END OF YEAR.................................................................. $ 2,446,586
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 2000 (UNAUDITED)
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) Certain senior collateralized loans ("Senior
Loans") are valued based on quotations received from an independent pricing
service; (2) all other Senior Loans 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
of the Senior Loan. 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 these Senior Loans existed; (3) portfolio securities
for which over-the-counter market quotations are readily available are valued at
the latest bid price; (4) all other securities and other assets are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Trustees; and (5) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
22
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
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 reporting purposes but not for tax purposes are reported as
dividends in excess of net investment
23
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
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/ADMINISTRATION AGREEMENTS
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; 0.825% to the portion of daily net assets exceeding $1.5 billion but
not exceeding $2.5 billion; and 0.80% of the portion of daily net assets in
excess of $2.5 billion.
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.
3. 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 six months ended
March 31, 2000 aggregated $615,708,560 and $626,509,432, respectively.
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 six
months ended March 31, 2000, the Investment Advisor has informed the Trust that
it received approximately $3,232,000 in early withdrawal charges.
24
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Advisor,
Administrator and Distributor, is the Trust's transfer agent.
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 six months ended March 31, 2000
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,932. At March 31, 2000, the Trust had an accrued pension liability of
$52,170 which is included in accrued expenses in the Statement of Assets and
Liabilities.
4. 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.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------- --------------
<S> <C> <C>
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
Shares sold...................................................... 27,451,387 270,375,036
Shares issued to shareholders for reinvestment of dividends...... 4,609,187 45,391,528
Shares tendered (four quarterly tender offers)................... (14,621,494) (143,951,874)
----------- --------------
Balance, March 31, 2000.......................................... 272,253,076 $2,707,995,643
=========== ==============
</TABLE>
On April 27, 2000, the Trustees approved a tender offer to purchase up to 15
million shares of beneficial interest to commence on May 17, 2000.
25
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS MARCH 31, 2000 (UNAUDITED) CONTINUED
6. COMMITMENTS AND CONTINGENCIES
As of March 31, 2000, the Trust had unfunded loan commitments pursuant to the
following loan agreements:
<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENT
- -------- -----------
<S> <C>
Arena Brands, Inc................................................ $ 1,275,000
Bridge Information Systems, Inc.................................. 222,222
Crown Paper Co................................................... 1,400,991
Jet Plastica Industries, Inc..................................... 2,162,162
Mafco Finance Corp............................................... 1,514,423
Spalding Holdings Corp........................................... 1,882,353
Teligent, Inc. (Multi-Draw)...................................... 6,666,667
Teligent, Inc. (Revolver)........................................ 3,333,333
World Kitchen Consumer Products, Inc............................. 301,818
-----------
$18,758,969
===========
</TABLE>
The total value of securities segregated for unfunded loan commitments was
$24,932,778.
26
<PAGE>
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED SEPTEMBER 30,
MONTHS ENDED ---------------------------------------------------------------
MARCH 31, 2000 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period......... $ 9.87 $ 9.91 $ 9.95 $ 9.94 $ 9.99 $ 10.00
---------- ---------- ---------- ---------- -------- --------
Income (loss) from investment operations:
Net investment income..................... 0.39 0.70 0.71 0.75 0.74 0.82
Net realized and unrealized gain (loss)... (0.03) (0.05) (0.03) -- (0.04) 0.01
---------- ---------- ---------- ---------- -------- --------
Total income from investment operations...... 0.36 0.65 0.68 0.75 0.70 0.83
---------- ---------- ---------- ---------- -------- --------
Less dividends and distributions from:
Net investment income..................... (0.39) (0.69) (0.72) (0.74) (0.75) (0.81)
Net realized gain......................... -- -- -- -- -- (0.03)
---------- ---------- ---------- ---------- -------- --------
Total dividends and distributions............ (0.39) (0.69) (0.72) (0.74) (0.75) (0.84)
---------- ---------- ---------- ---------- -------- --------
Net asset value, end of period............... $ 9.84 $ 9.87 $ 9.91 $ 9.95 $ 9.94 $ 9.99
========== ========== ========== ========== ======== ========
TOTAL RETURN+................................ 3.72%(1) 6.72% 7.14% 7.78% 7.25% 8.57%
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... 1.21%(2)(3) 1.22% 1.29% 1.40% 1.46% 1.52%
Net investment income........................ 7.99%(2) 7.02% 7.17% 7.53% 7.50% 8.11%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...... $2,678,641 $2,513,959 $1,996,709 $1,344,603 $939,471 $521,361
Portfolio turnover rate...................... 28%(1) 44% 68% 86% 72% 102%
</TABLE>
- ---------------------
+ 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.
(3) Does not reflect the effect of expense offset of 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mitchell M. Merin
PRESIDENT
Barry Fink
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
Rajesh K. Gupta
VICE PRESIDENT
Sheila A. Finnerty
VICE PRESIDENT
Peter Gewirtz
ASSISTANT VICE PRESIDENT
Thomas F. Caloia
TREASURER
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISOR
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Trust without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Trust. For more detailed information about the Trust, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Trust.
This report is not authorized for distribution to prospective investors
in the Trust unless preceded or accompanied by an effective prospectus.
Read the prospectus carefully before investing.
Morgan Stanley Dean Witter Distributors Inc., member NASD.
MORGAN STANLEY
DEAN WITTER
PRIME INCOME TRUST
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SEMIANNUAL REPORT
MARCH 31, 2000
