<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1995
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO. )
PRIME INCOME TRUST
(Name of Issuer)
PRIME INCOME TRUST
(Name of Person(s) Filing Statement)
COMMON SHARES OF BENEFICIAL INTEREST, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
920914-108
(CUSIP Number of Class of Securities)
Sheldon Curtis, Esq.
Prime Income Trust
Two World Trade Center
New York, N.Y. 10048
(212) 392-1600
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
------------------------
AUGUST 16, 1995
(Date Tender Offer First Published,
Sent or Given to Security Holders)
------------------------
CALCULATION OF FILING FEE
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TRANSACTION VALUATION $39,880,000 (A) AMOUNT OF FILING FEE: $7,976 (B)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(a) Calculated as the aggregate maximum purchase price to be paid for 4,000,000
shares in the offer.
(b) Calculated as 1/50 of 1% of the Transaction Valuation.
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: ____________________________________________________
Form or Registration No.: __________________________________________________
Filing Party: ______________________________________________________________
Date Filed: ________________________________________________________________
Exhibit Index
Located on Page 5
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Prime Income Trust, a non-diversified,
closed-end management investment company organized as a Massachusetts business
trust (the "Trust") under the name "Allstate Prime Income Trust". The name was
changed to its present form effective March 1, 1993. The principal executive
offices of the Trust are located at Two World Trade Center, New York, N.Y.
10048.
(b) The title of the securities being sought is common shares of beneficial
interest, par value $.01 per share (the "Common Shares"). As of August 4, 1995
there were approximately 47,711,180 Common Shares issued and outstanding.
The Trust is seeking tenders for up to 4,000,000 Common Shares, at the net
asset value per Common Share, calculated on the day the tender offer expires,
upon the terms and subject to the conditions set forth in the Offer to Purchase,
dated August 16, 1995 (the "Offer to Purchase"), and the related Letter of
Transmittal (which together constitute the "Offer"). An "Early Withdrawal
Charge" will be imposed on most Common Shares accepted for payment. A copy of
each of the Offer to Purchase and the Letter of Transmittal is attached hereto
as Exhibit (a)(1)(ii) and Exhibit (a)(2), respectively. Reference is hereby made
to the Cover Page and Section 1 "Price; Number of Common Shares" of the Offer to
Purchase, which are incorporated herein by reference. The Trust has been
informed that no trustees, officers or affiliates of the Trust intend to tender
Common Shares pursuant to the Offer.
(c) The Common Shares are not currently traded on an established trading
market.
(d) Not Applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) Reference is hereby made to Section 12 "Source and Amount of Funds"
of the Offer to Purchase, which is incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
Reference is hereby made to Section 7 "Purpose of the Offer," Section 8
"Plans or Proposals of the Trust," Section 11 "Certain Effects of the Offer" and
Section 12 "Source and Amount of Funds" of the Offer to Purchase, which are
incorporated herein by reference. In addition, the Trust regularly purchases and
sells assets in its ordinary course of business. Except as set forth above, the
Trust has no plans or proposals which relate to or would result in (a) the
acquisition by any person of additional securities of the Trust or the
disposition of securities of the Trust; (b) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Trust; (c) a sale or transfer of a material amount of assets of the Trust; (d)
any change in the present Board of Trustees or management of the Trust,
including, but not limited to, any plans or proposals to change the number or
the term of Trustees, or to fill any existing vacancy on the Board of Trustees
or to change any material term of the employment contract of any executive
officer of the Trust; (e) any material change in the present dividend rate or
policy, or indebtedness or capitalization of the Trust; (f) any other material
change in the Trust's structure or business, including any plans or proposals to
make any changes in its investment policy for which a vote would be required by
Section 13 of the Investment Company Act of 1940; (g) any changes in the Trust's
declaration of trust, bylaws or instruments corresponding thereto or other
actions which may impede the acquisition of control of the Trust by any person;
(h) a class of equity securities of the Trust being delisted from a national
securities exchange or ceasing to be authorized to be quoted on an inter-dealer
quotation system of a registered national securities association; (i) a class of
equity security of the Trust becoming eligible for termination of registration
under the Investment Company Act of 1940; or (j) the suspension of the Trust's
obligation to file reports pursuant to Section 15(d) of the Securities Exchange
Act of 1934.
2
<PAGE>
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Reference is hereby made to Section 10 "Interest of Trustees and Executive
Officers; Transactions and Arrangements Concerning the Common Shares" of the
Offer to Purchase and the financial statements included as part of Exhibit
(a)(1)(ii) attached hereto, which are incorporated herein by reference. Except
as set forth therein, there have not been any transactions involving the Common
Shares of the Trust that were effected during the past 40 business days by the
Trust, any executive officer or Trustee of the Trust, any person controlling the
Trust, any executive officer or director of any corporation ultimately in
control of the Trust or by any associate or subsidiary of any of the foregoing,
including any executive officer or director of any such subsidiary.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
Reference is hereby made to Section 10 "Interest of Trustees and Executive
Officers; Transactions and Arrangements Concerning the Common Shares" of the
Offer to Purchase which is incorporated herein by reference. Except as set forth
therein, the Trust does not know of any contract, arrangement, understanding or
relationship relating, directly or indirectly, to the Offer (whether or not
legally enforceable) between the Trust, any of the Trust's executive officers or
Trustees, any person controlling the Trust or any officer or director of any
corporation ultimately in control of the Trust and any person with respect to
any securities of the Trust (including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any such securities, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss, or the giving or
withholding of proxies, consents or authorizations).
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
No persons have been employed, retained or are to be compensated by or on
behalf of the Trust to make solicitations or recommendations in connection with
the Offer.
ITEM 7. FINANCIAL INFORMATION.
(a)-(b) Reference is hereby made to the financial statements included as
part of Exhibit (a)(1)(ii) attached hereto, which are incorporated herein by
reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Reference is hereby made to Section 10 "Interests of Trustees and
Executive Officers; Transactions and Arrangements Concerning the Common Shares"
of the Offer to Purchase which is incorporated herein by reference.
(b)-(d) Not applicable.
(e) The Offer to Purchase, attached hereto as Exhibit (a)(1)(ii), is
incorporated herein by reference in its entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1)(i) Advertisement printed in THE WALL STREET JOURNAL National Edition.
(ii) Offer to Purchase (including Financial Statements).
(iii) Form of Letter to Shareholders who have requested Offer to Purchase.
(a)(2) Form of Letter of Transmittal (including Guidelines for Certification
of Taxpayer Identification Number).
(b) Not applicable.
(c)(1) Hold Harmless Agreement between the Trust and Dean Witter Reynolds
Inc. dated May 2, 1990 previously filed as Exhibit (c)(1) to the
Trust's Schedule 13E-4 on May 22, 1990 and via EDGAR on December 20,
1993.
(c)(2) Form of Depositary Agreement between the Trust and Dean Witter Trust
Company dated as of August 4, 1995.
(c)(4) Form of Administration Agreement dated December 31, 1993 previously
filed via EDGAR on February 14, 1994.
(d)-(f) Not applicable.
3
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
PRIME INCOME TRUST
/s/ SHELDON CURTIS
--------------------------------------
Sheldon Curtis
Vice President and Secretary
August 14, 1995
4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
--------------- ------------------------------------------------------------ -----
<S> <C> <C>
(a)(1)(i) Advertisement printed in THE WALL STREET JOURNAL National
Edition....................................................
(a)(1)(ii) Offer to Purchase (including Financial Statements)..........
(a)(1)(iii) Form of Letter to Shareholders who have requested Offer to
Purchase...................................................
(a)(2) Form of Letter of Transmittal (including Guidelines for
Certification of Tax Identification Number)................
(c)(1)* Hold Harmless Agreement.....................................
(c)(2) Form of Depositary Agreement between the Trust and Dean
Witter Trust Company.......................................
(c)(3)** Form of New Investment Advisory Agreement dated June 30,
1993.......................................................
(c)(4)*** Form of Administration Agreement dated December 31, 1993....
(c)(5)** Form of New Distribution Agreement dated June 30, 1993......
<FN>
------------------------
*Previously filed by the Trust as an exhibit to Schedule 13E-4 which was
filed with the Commission on May 22, 1990 and via EDGAR on December 20,
1993.
**Previously filed as an exhibit to Schedule 13E-4 via EDGAR on August 17,
1993.
***Previously filed as an exhibit to Schedule 13E-4 via EDGAR on February 14,
1994.
</TABLE>
5
<PAGE>
================================================================================
THIS ANNOUNCEMENT IS NOT AN OFFER TO PURCHASE OR A SOLICITATION OF AN OFFER TO
SELL COMMON SHARES. THE OFFER IS MADE ONLY BY THE OFFER TO PURCHASE DATED AUGUST
16, 1995, AND THE RELATED LETTER OF TRANSMITTAL. THE OFFER IS NOT BEING MADE TO,
NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF COMMON SHARES IN
ANY JURISDICTION IN WHICH MAKING OR ACCEPTING THE OFFER WOULD VIOLATE THAT
JURISDICTION'S LAWS.
PRIME INCOME TRUST
NOTICE OF OFFER TO PURCHASE FOR CASH
4,000,000 OF ITS ISSUED AND OUTSTANDING COMMON SHARES
AT NET ASSET VALUE PER COMMON SHARE
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 4:00 P.M.
NEW YORK CITY TIME ON SEPTEMBER 15, 1995, UNLESS THE OFFER IS EXTENDED.
Prime Income Trust (the "Trust") is offering to purchase 4,000,000 of its
issued and outstanding common shares of beneficial interest, par value of $.01
per share ("Common Shares") at a price equal to their net asset value ("NAV")
computed as of 4:00 P.M. New York City time on September 15, 1995, the
Expiration Date, unless extended, upon the terms and conditions set forth in
the Offer to Purchase dated August 16, 1995 and the related Letter of
Transmittal (which together constitute the "Offer"). An "Early Withdrawal
Charge" will be imposed on most Common Shares accepted for payment that have
been held for four years or less. The NAV on August 4, 1995, was $9.97 per
Common Share. The purpose of the Offer is to provide liquidity to shareholders
since the Trust is unaware of any secondary market which exists for the Common
Shares. The Offer is not conditioned upon the tender of any minimum number of
Common Shares.
If more than 4,000,000 Common Shares are duly tendered prior to the
expiration of the Offer, assuming no changes in the factors originally
considered by the Board of Trustees when it determined to make the Offer and
subject to the other conditions set forth in the Offer, the Trust will either
extend the Offer, if necessary, and increase the number of Common Shares that
the Trust is offering to purchase to an amount which it believes will be
sufficient to accommodate the excess Common Shares tendered as well as any
Common Shares tendered during the extended offer period or purchase 4,000,000
(or such larger number of Common Shares sought) of the Common Shares tendered on
a pro rata basis.
Common Shares tendered pursuant to the Offer may be withdrawn at any time
prior to 4:00 P.M. New York City time on September 15, 1995, and, if not yet
accepted for payment by the Trust, Common Shares may also be withdrawn after
October 13, 1995. To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by Dean Witter Trust
Company, the Depositary. Any notice of withdrawal must specify the name of the
person having tendered the Common Shares to be withdrawn, the number of Common
Shares to be withdrawn, and, if certificates representing such Common Shares
have been delivered or otherwise identified to the Depositary, the name of the
registered holder(s) of such Common Shares as set forth in such certificates if
different from the name of the person tendering such Common Shares. If
certificates have been delivered to the Depositary, then, prior to the release
of such certificates, the Shareholder must also submit the certificate numbers
shown on the particular certificates evidencing such Common Shares and the
signature on the notice of withdrawal must be guaranteed by an eligible
guarantor acceptable to the Depositary. Any Common Shares tendered on behalf of
a shareholder by Dean Witter Reynolds Inc. may be withdrawn by Dean Witter
Reynolds Inc.
The Information required to be disclosed by paragraph (d)(1) of Rule 13e-4
under the Securities Exchange Act of 1934, as amended, is contained in the Offer
to Purchase and is incorporated herein by reference.
NEITHER THE TRUST NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO ANY
SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF SUCH
SHAREHOLDER'S COMMON SHARES. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL
INFORMATION IN THE OFFER TO PURCHASE, CONSULT THEIR OWN INVESTMENT AND TAX
ADVISERS AND MAKE THEIR OWN DECISIONS WHETHER TO TENDER COMMON SHARES AND, IF
SO, HOW MANY COMMON SHARES TO TENDER.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
Questions and requests for assistance or current NAV quotations may be
directed to Dean Witter InterCapital Inc., Two World Trade Center, New York, NY
10048, telephone 800-869-3863 extension 61. Requests for copies of the Offer to
Purchase, Letter of Transmittal and any other tender offer documents may be
directed to Dean Witter Trust Company at the address and telephone number below.
Copies will be furnished promptly at no expense to you.
DEAN WITTER TRUST COMPANY
BY MAIL: BY HAND DELIVERY OR COURIER:
P.O. BOX 984 HARBORSIDE FINANCIAL CENTER
JERSEY CITY, NEW JERSEY 07303 PLAZA TWO
JERSEY CITY, NEW JERSEY 07311
ATTN: PRIME INCOME TRUST
(800) 526-3143 EXTENSION 6097
AUGUST 16, 1995
================================================================================
<PAGE>
PRIME INCOME TRUST
OFFER TO PURCHASE FOR CASH 4,000,000
OF ITS ISSUED AND OUTSTANDING COMMON SHARES
AT NET ASSET VALUE PER COMMON SHARE
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS
WILL EXPIRE AT 4:00 P.M. NEW YORK CITY TIME
ON SEPTEMBER 15, 1995, UNLESS THE OFFER IS EXTENDED.
To the Holders of Common Shares of
PRIME INCOME TRUST:
Prime Income Trust, a non-diversified, closed-end management investment
company organized as a Massachusetts business trust (the "Trust") under the name
"Allstate Prime Income Trust," is offering to purchase up to 4,000,000 of its
common shares of beneficial interest, with par value of $.01 per share ("Common
Shares"), for cash at a price (the "Purchase Price") equal to their net asset
value ("NAV") computed as of 4:00 P.M. New York City time on September 15, 1995
(the "Initial Expiration Date"), unless extended (the Initial Expiration Date or
the latest date to which the Offer is extended, the "Expiration Date"), upon the
terms and conditions set forth in this Offer to Purchase and the related Letter
of Transmittal (which together constitute the "Offer"). An Early Withdrawal
Charge (as defined in Section 3) will be imposed on most Common Shares accepted
for payment that have been held for four years or less. The Common Shares are
not currently traded on an established trading market. The NAV on August 4, 1995
was $9.97 per Common Share. Through the Expiration Date, you can obtain current
NAV quotations from Dean Witter InterCapital Inc. ("InterCapital") by calling
(800) 869-3863 extension 61 between the hours of 8:30 A.M. and 6:00 P.M. New
York City time, Monday through Friday, except holidays. See Section 9.
The Offer is not conditioned upon the tender of any minimum number of Common
Shares. If more than 4,000,000 Common Shares are tendered, no Common Shares may
be purchased if (a) the Offer is not extended and the number of Common Shares
for which tenders are sought is not increased to allow the purchase of such
additional Common Shares or (b) the Trust elects not to purchase 4,000,000 of
the tendered Common Shares on a pro rata basis. If more than 4,000,000 Common
Shares are duly tendered prior to the expiration of the Offer, subject to the
condition that there have been no material changes in the factors originally
considered by the Board of Trustees when it determined to make the Offer and in
the other conditions set forth in Section 6, the Trust will either extend the
Offer period, if necessary, and increase the number of Common Shares that the
Trust is offering to purchase to an amount which it believes will be sufficient
to accommodate the excess Common Shares tendered as well as any Common Shares
tendered during the extended Offer period or purchase 4,000,000 (or such larger
number of Common Shares sought) of the Common Shares tendered on a pro rata
basis.
THIS OFFER IS BEING MADE TO ALL SHAREHOLDERS
OF THE TRUST AND IS NOT CONDITIONED UPON ANY
MINIMUM NUMBER OF COMMON SHARES BEING TENDERED.
THIS OFFER IS SUBJECT TO
CERTAIN CONDITIONS. SEE SECTION 6.
IMPORTANT
If you desire to tender Common Shares, have a brokerage account at Dean
Witter Reynolds Inc. ("DWR") and your Common Shares are not evidenced by
certificates in your possession you may, if you wish, contact your account
executive and request that he or she effect the tender on your behalf. If you
elect to tender Common Shares through your account executive, you do NOT have to
complete the Letter of Transmittal. If you do not have a brokerage account at
DWR or if your Common Shares are evidenced by
<PAGE>
certificates in your possession or you do not wish to tender Common Shares
through your account executive, all or any portion of your Common Shares may be
tendered only by completing and signing the Letter of Transmittal and mailing or
delivering it along with any Common Share certificate(s) and any other required
documents to Dean Witter Trust Company (the "Depositary").
NEITHER THE TRUST NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO ANY
SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF SUCH
SHAREHOLDER'S COMMON SHARES. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL
INFORMATION IN THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISERS AND MAKE
THEIR OWN DECISIONS WHETHER TO TENDER COMMON SHARES AND, IF SO, HOW MANY COMMON
SHARES TO TENDER.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
TRUST AS TO WHETHER SHAREHOLDERS SHOULD TENDER COMMON SHARES PURSUANT TO THE
OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST.
Requests for additional copies of this Offer to Purchase and the Letter of
Transmittal should be directed to Dean Witter Trust Company at the addresses and
telephone number set forth below. Questions and requests for assistance may be
directed to DWR at the telephone number set forth below.
August 16, 1995 PRIME INCOME TRUST
Dean Witter InterCapital Inc. Depositary: Dean Witter Trust Company
(800) 869-3863
extension 61 By Mail:
Dean Witter Trust Company
P.O. Box 984
Jersey City, New Jersey 07303
By Hand Delivery or Courier:
Dean Witter Trust Company
Harborside Financial Center,
Plaza Two
Jersey City, New Jersey 07311
Attn: Prime Income Trust
Telephone: (800) 526-3143
extension 6097
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
-------- -----
<C> <S> <C>
1. Price; Number of Common Shares.................... 4
2. Procedure for Tendering Common Shares............. 4
3. Early Withdrawal Charge........................... 6
4. Withdrawal Rights................................. 7
5. Payment for Shares................................ 7
6. Certain Conditions of the Offer................... 8
7. Purpose of the Offer.............................. 8
8. Plans or Proposals of the Trust................... 9
9. Price Range of Common Shares; Dividends........... 9
10. Interest of Trustees and Executive Officers;
Transactions and Arrangements Concerning the
Common Shares.................................... 9
11. Certain Effects of the Offer...................... 10
12. Source and Amount of Funds........................ 10
13. Certain Information about the Trust............... 10
14. Additional Information............................ 11
15. Certain Federal Income Tax Consequences........... 11
16. Extension of Tender Period; Termination;
Amendments....................................... 11
17. Miscellaneous..................................... 12
18. Financial Statements--March 31, 1995
(unaudited)...................................... 13
19. Financial Statements--September 30, 1994.......... 27
20. Financial Statements--September 30, 1993.......... 39
</TABLE>
3
<PAGE>
1. PRICE; NUMBER OF COMMON SHARES. The Trust will, upon the terms and
subject to the conditions of the Offer, accept for payment (and thereby
purchase) 4,000,000 or such lesser number of its issued and outstanding Common
Shares which are properly tendered (and not withdrawn in accordance with Section
4) prior to 4:00 P.M. New York City time, on September 15, 1995 (such time and
date being hereinafter called the "Initial Expiration Date"). The Trust reserves
the right to extend the Offer. See Section 16. The later of the Initial
Expiration Date or the latest time and date to which the Offer is extended is
hereinafter called the "Expiration Date." The purchase price of the Common
Shares will be their NAV computed as of 4:00 P.M. New York City time on the
Expiration Date. The NAV on August 4, 1995 was $9.97 per Common Share. You can
obtain current NAV quotations from Dean Witter InterCapital Inc.
("InterCapital") by calling (800) 869-3863 extension 61 during normal business
hours. Shareholders tendering Common Shares shall be entitled to receive all
dividends declared on or before the Expiration Date, but not yet paid on Common
Shares tendered pursuant to the Offer. See Section 9. The Trust will not pay
interest on the purchase price under any circumstances. AN EARLY WITHDRAWAL
CHARGE WILL BE IMPOSED ON MOST COMMON SHARES ACCEPTED FOR PAYMENT THAT HAVE BEEN
HELD FOR FOUR YEARS OR LESS. SEE SECTION 3.
The Offer is being made to all shareholders of the Trust and is not
conditioned upon any minimum number of Common Shares being tendered. If the
number of Common Shares properly tendered prior to the Expiration Date and not
withdrawn is less than or equal to 4,000,000 Common Shares (or such greater
number of Common Shares as the Trust may elect to purchase pursuant to the
Offer), the Trust will, upon the terms and subject to the conditions of the
Offer, purchase at NAV all Common Shares so tendered. If more than 4,000,000
Common Shares are duly tendered prior to the expiration of the Offer and not
withdrawn, subject to the condition that there have been no changes in the
factors originally considered by the Board of Trustees when it determined to
make the Offer and the other conditions set forth in Section 6, the Trust will
either extend the Offer period, if necessary, and increase the number of Common
Shares that the Trust is offering to purchase to an amount which it believes
will be sufficient to accommodate the excess Common Shares tendered as well as
any Common Shares tendered during the extended Offer period or purchase
4,000,000 (or such larger number of Common Shares sought) of the Common Shares
tendered on a pro rata basis.
On August 4, 1995, there were approximately 47,711,180 Common Shares issued
and outstanding and there were approximately 25,282 holders of record of Common
Shares. The Trust has been advised that no trustees, officers or affiliates of
the Trust intend to tender any Common Shares pursuant to the Offer.
The Trust reserves the right, in its sole discretion, at any time or from
time to time, to extend the period of time during which the Offer is open by
giving oral or written notice of such extension to the Depositary and making a
public announcement thereof. See Section 16. There can be no assurance, however,
that the Trust will exercise its right to extend the Offer. If the Trust
decides, in its sole discretion, to increase (except for any increase not in
excess of 2% of the outstanding Common Shares) or decrease the number of Common
Shares being sought and, at the time that notice of such increase or decrease is
first published, sent or given to holders of Common Shares in the manner
specified below, the Offer is scheduled to expire at any time earlier than the
tenth business day from the date that such notice is first so published, sent or
given, the Offer will be extended at least until the end of such ten business
day period.
2. PROCEDURE FOR TENDERING COMMON SHARES.
PROPER TENDER OF COMMON SHARES. If you have a brokerage account at DWR and
your Common Shares are not evidenced by certificates in your possession, you may
contact your account executive and request that he or she tender your Common
Shares to the Depositary on your behalf. If you choose to have your account
executive tender your Common Shares, you do not have to submit any documents to
the Depositary. If you do not wish to have your account executive tender your
Common Shares or you do not have a brokerage account at DWR or you have
certificates for Common Shares in your possession, for Common Shares to be
properly tendered pursuant to the Offer, a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof) with any required
signature guarantees, any certificates for such Common Shares, and any other
documents required by the Letter of Transmittal, must be received on or before
the Expiration Date by the Depositary at its address set forth on page 2 of this
Offer to Purchase.
4
<PAGE>
It is a violation of Section 10(b) of the Securities Exchange Act of 1934
(the "Exchange Act"), and Rule 14e-4 promulgated thereunder, for a person to
tender Common Shares for such person's own account unless the person so
tendering (a) owns such Common Shares or (b) owns other securities convertible
into or exchangeable for such Common Shares or owns an option, warrant or right
to purchase such Common Shares and intends to acquire Common Shares for tender
by conversion, exchange or exercise of such option, warrant or right.
Section 10(b) and Rule 10b-4 provide a similar restriction applicable to the
tender or guarantee of a tender on behalf of another person.
The acceptance of Common Shares by the Trust for payment will constitute a
binding agreement between the tendering shareholder and the Trust upon the terms
and subject to the conditions of the Offer, including the tendering
shareholder's representation that (i) such shareholder owns the Common Shares
being tendered within the meaning of Rule 10b-4 promulgated under the Exchange
Act and (ii) the tender of such Common Shares complies with Rule 10b-4.
SIGNATURE GUARANTEES AND METHOD OF DELIVERY (only applicable if you are a
shareholder not tendering Common Shares through your DWR account executive).
Signatures on the Letter of Transmittal are not required to be guaranteed unless
(1) the Letter of Transmittal is signed by someone other than the registered
holder of the Common Shares tendered therewith, or (2) payment for tendered
Common Shares is to be sent to a payee other than the registered owner of such
Common Shares and/or to an address other than the registered address of the
registered owner of the Common Shares. In those instances, all signatures on the
Letter of Transmittal must be guaranteed by an eligible guarantor acceptable to
the Depositary (an "Eligible Guarantor") (shareholders should contact the
Depositary for a determination as to whether a particular institution is such an
Eligible Guarantor). If Common Shares are registered in the name of a person or
persons other than the signer of the Letter of Transmittal or if payment is to
be made to, unpurchased Common Shares are to be registered in the name of, or
any certificates for unpurchased Common Shares are to be returned to any person
other than the registered owner, then the Letter of Transmittal and, if
applicable, the tendered Common Share certificates must be endorsed or
accompanied by appropriate authorizations, in either case signed exactly as such
name or names appear on the registration of the Common Shares with the
signatures on the certificates or authorizations guaranteed by an Eligible
Guarantor. See Instructions 1 and 5 of the Letter of Transmittal.
Payment for Common Shares tendered and accepted for payment pursuant to the
Offer will be made (i) if you have tendered Common Shares directly to the
Depositary, only after receipt by the Depositary on or before the Expiration
Date of a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) and any other documents required by the
Letter of Transmittal or (ii) if you have requested DWR to tender Common Shares
on your behalf, only after receipt by the Depositary on or before the Expiration
Date of a notice from DWR containing your name and the number of Common Shares
tendered. If your Common Shares are evidenced by certificates, those
certificates must be received by the Depositary on or prior to the Expiration
Date.
The method of delivery of any documents, including certificates for Common
Shares, is at the election and risk of the party tendering Common Shares. If
documents are sent by mail, it is recommended that they be sent by registered
mail, properly insured, with return receipt requested.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tenders will be
determined by the Trust, in its sole discretion, whose determination shall be
final and binding. The Trust reserves the absolute right to reject any or all
tenders determined by it not to be in appropriate form or the acceptance of or
payment for which may, in the opinion of the Trust's counsel, be unlawful. The
Trust also reserves the absolute right to waive any of the conditions of the
Offer or any defect in any tender with respect to any particular Common Shares
or any particular shareholder, and the Trust's interpretations of the terms and
conditions of the Offer will be final and binding. Unless waived, any defects or
irregularities in connection with tenders must be cured within such times as the
Trust shall determine. Tendered Common Shares will not be accepted for payment
unless the defects or irregularities have been cured within such time or waived.
Neither the Trust, DWR, the Depositary nor any other person shall be obligated
to give notice of any defects or irregularities in tenders, nor shall any of
them incur any liability for failure to give such notice.
5
<PAGE>
FEDERAL INCOME TAX WITHHOLDING. To prevent backup federal income tax
withholding equal to 31% of the gross payments made pursuant to the Offer, each
shareholder who has not previously submitted a Substitute Form W-9 to the Trust
or does not otherwise establish an exemption from such withholding must notify
the Depositary of such shareholder's correct taxpayer identification number (or
certify that such taxpayer is awaiting a taxpayer identification number) and
provide certain other information by completing the Substitute Form W-9 included
in the Letter of Transmittal. Foreign shareholders who are individuals and who
have not previously submitted a Form W-8 to the Trust must do so in order to
avoid backup withholding.
The Depositary will withhold 30% of the gross payments payable to a foreign
shareholder unless the Depositary determines that a reduced rate of withholding
or an exemption from withholding is applicable. (Exemption from backup
withholding does not exempt a foreign shareholder from the 30% withholding). For
this purpose, a foreign shareholder, in general, is a shareholder that is not
(i) a citizen or resident of the United States, (ii) a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, or (iii) an estate or trust the income of
which is subject to United States federal income taxation regardless of the
source of such income. The Depositary will determine a shareholder's status as a
foreign shareholder and eligibility for a reduced rate of, or an exemption from,
withholding by reference to the shareholder's address and to any outstanding
certificates or statements concerning eligibility for a reduced rate of, or
exemption from, withholding unless facts and circumstances indicate that
reliance is not warranted. A foreign shareholder who has not previously
submitted the appropriate certificates or statements with respect to a reduced
rate of, or exemption from, withholding for which such shareholder may be
eligible should consider doing so in order to avoid over-withholding. A foreign
shareholder may be eligible to obtain a refund of tax withheld if such
shareholder meets one of the three tests for capital gain or loss treatment
described in Section 15 or is otherwise able to establish that no tax or a
reduced amount of tax was due.
For a discussion of certain other federal income tax consequences to
tendering shareholders, see Section 15.
3. EARLY WITHDRAWAL CHARGE. The Depositary will impose an early withdrawal
charge (the "Early Withdrawal Charge") on most Common Shares accepted for
payment which have been held for four years or less. The Early Withdrawal Charge
will be imposed on a number of Common Shares accepted for payment from a record
holder of Common Shares the value of which exceeds the aggregate value at the
time the tendered Common Shares are accepted for payment of (a) all Common
Shares owned by such holder that were purchased more than four years prior to
such acceptance, (b) all Common Shares owned by such holder that were acquired
through reinvestment of dividends and distributions, and (c) the increase, if
any, of value of all other Common Shares owned by such holder (namely, those
purchased within the four years preceding acceptance for payment) over the
purchase price of such Common Shares. The Early Withdrawal Charge will be paid
to InterCapital on behalf of the holder of the Common Shares. In determining
whether an Early Withdrawal Charge is payable, Common Shares accepted for
payment pursuant to the Offer shall be deemed to be those Common Shares
purchased earliest by the shareholder. Any Early Withdrawal Charge which is
required to be imposed will be made in accordance with the following schedule.
<TABLE>
<CAPTION>
EARLY
YEAR OF REPURCHASE 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 $1000 worth of the Trust's Common
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
worth of Common Shares without incurring an Early Withdrawal Charge. If the
investor should submit for repurchase pursuant to a
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<PAGE>
tender offer $500 worth of Common Shares, an Early Withdrawal Charge would be
imposed on $300 worth of the Common 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.
4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section 4,
tenders of Common Shares made pursuant to the Offer will be irrevocable. If you
desire to withdraw Common Shares tendered on your behalf by DWR, you may
withdraw by contacting your DWR account executive and instructing him or her to
withdraw such Common Shares. You may withdraw Common Shares tendered at any time
prior to the Expiration Date and, if the Common Shares have not yet been
accepted for payment by the Trust, at any time after 12:01 A.M., New York City
time, on October 13, 1995.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Depositary at the address
set forth on page 2 of this Offer to Purchase. Any notice of withdrawal must
specify the name of the person having tendered the Common Shares to be
withdrawn, the number of Common Shares to be withdrawn, and, if certificates
representing such Common Shares have been delivered or otherwise identified to
the Depositary, the name of the registered holder(s) of such Common Shares as
set forth in such certificates if different from the name of the person
tendering such Common Shares. If certificates have been delivered to the
Depositary, then, prior to the release of such certificates, you must also
submit the certificate numbers shown on the particular certificates evidencing
such Common Shares and the signature on the notice of withdrawal must be
guaranteed by an Eligible Guarantor.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Trust in its sole discretion,
whose determination shall be final and binding. None of the Trust, DWR, the
Depositary or any other person is or will be obligated to give any notice of any
defects or irregularities in any notice of withdrawal, and none of them will
incur any liability for failure to give any such notice. Common Shares properly
withdrawn shall not thereafter be deemed to be tendered for purposes of the
Offer. However, withdrawn Common Shares may be retendered by following the
procedures described in Section 2 prior to the Expiration Date.
5. PAYMENT FOR SHARES. For purposes of the Offer, the Trust will be deemed
to have accepted for payment (and thereby purchased) Common Shares which are
tendered and not withdrawn when, as and if it gives oral or written notice to
the Depositary of its acceptance of such Common Shares for payment pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, the Trust
will, promptly after the Expiration Date, accept for payment (and thereby
purchase) Common Shares properly tendered prior to the Expiration Date.
Payment for Common Shares purchased pursuant to the Offer will be made by
the Depositary out of funds made available to it by the Trust. The Depositary
will act as agent for tendering shareholders for the purpose of effecting
payment to the tendering shareholders. If your tender of Common Shares is
effected through DWR, payment for Common Shares will be deposited directly to
your DWR brokerage account. In all cases, payment for Common Shares accepted for
payment pursuant to the Offer will be made (i) if you have requested DWR to
tender Common Shares on your behalf, only after timely receipt by the Depositary
of a notice from DWR containing your name and the number of Common Shares
tendered or (ii) if you have tendered Common Shares directly to the Depositary,
only after timely receipt by the Depositary, as required pursuant to the Offer,
of a properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof), any certificates representing such Common Shares, if
issued, and any other required documents. Certificates for Common Shares not
purchased (see Sections 1 and 6), or for Common Shares not tendered included in
certificates forwarded to the Depositary, will be returned promptly following
the termination, expiration or withdrawal of the Offer, without expense to the
tendering shareholder.
The Trust will pay all transfer taxes, if any, payable on the transfer to it
of Common Shares purchased pursuant to the Offer. If, however, payment of the
purchase price is to be made to, or (in the circumstances permitted by the
Offer) if unpurchased Common Shares are to be registered in the name of any
person other than the registered holder, or if tendered certificates, if any,
are registered or the Common Shares tendered are held in the name of any person
other than the person signing the Letter of Transmittal, the amount of any
transfer taxes (whether imposed on the registered holder or such other person)
payable on account of the transfer to such person will be deducted from the
Purchase Price unless satisfactory evidence
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<PAGE>
of the payment of such taxes, or exemption therefrom, is submitted. Shareholders
tendering Common Shares shall be entitled to receive all dividends declared on
or before the Expiration Date, but not yet paid, on Common Shares tendered
pursuant to the Offer. The Trust will not pay any interest on the Purchase Price
under any circumstances. An Early Withdrawal Charge will be imposed on most
Common Shares accepted for payment that have been held for four years or less.
See Section 3. In addition, if certain events occur, the Trust may not be
obligated to purchase Common Shares pursuant to the Offer. See Section 6.
Any tendering shareholder or other payee who has not previously submitted a
completed and signed Substitute Form W-9 and who fails to complete fully and
sign the Substitute Form W-9 in the Letter of Transmittal may be subject to
required federal income tax withholding of 31% of the gross proceeds paid to
such shareholder or other payee pursuant to the Offer. See Section 2.
6. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of
the Offer, the Trust shall not be required to accept for payment, purchase or
pay for any Common Shares tendered, and may terminate or amend the Offer or may
postpone the acceptance for payment of, the purchase of and payment for Common
Shares tendered, if at any time at or before the time of purchase of any such
Common Shares, any of the following events shall have occurred (or shall have
been determined by the Trust to have occurred) which, in the Trust's sole
judgment in any such case and regardless of the circumstances (including any
action or omission to act by the Trust), makes it inadvisable to proceed with
the Offer or with such purchase or payment: (1) a secondary market develops for
the Common Shares; (2) in the sole and exclusive judgment of the Trustees, there
is not sufficient liquidity of the assets of the Trust; (3) such transactions,
if consummated, would (a) impair the Trust's status as a regulated investment
company under the Internal Revenue Code (which would make the Fund a taxable
entity, causing the Fund's taxable income to be taxed at the Trust level) or (b)
result in a failure to comply with applicable asset coverage requirements; or
(4) there is, in the Board of Trustees' judgment, 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 Common Shares if the tendered Common
Shares are purchased.
The foregoing conditions are for the Trust's sole benefit and may be
asserted by the Trust regardless of the circumstances giving rise to any such
condition (including any action or inaction by the Trust), and any such
condition may be waived by the Trust in whole or in part, at any time and from
time to time in its sole discretion. The Trust's failure at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right; the
waiver of any such right with respect to particular facts and circumstances
shall not be deemed a waiver with respect to any other facts or circumstances;
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time. Any determination by the Trust concerning the
events described in this Section 6 shall be final and shall be binding on all
parties.
If the Trust determines to terminate or amend the Offer or to postpone the
acceptance for payment of or payment for Common Shares tendered, it will, to the
extent necessary, extend the period of time during which the Offer is open as
provided in Section 16. Moreover, in the event any of the foregoing conditions
are modified or waived in whole or in part at any time, the Trust will promptly
make a public announcement of such waiver and may, depending on the materiality
of the modification or waiver, extend the Offer period as provided in Section
16.
7. PURPOSE OF THE OFFER. The Trust currently does not believe that an
active secondary market for its Common Shares exists or is likely to develop. In
recognition of the possibility that a secondary market may not develop for the
Common Shares of the Trust, or, if such a market were to develop, that the
Common Shares might trade at a discount, the Trustees have determined that it
would be in the best interest of its shareholders for the Trust to take action
to attempt to provide liquidity to shareholders or to reduce or eliminate any
future market value discount from NAV that might otherwise exist, respectively.
To that end, the Trustees presently intend each quarter to consider making a
tender offer to purchase Common Shares
8
<PAGE>
at their NAV. The purpose of this Offer is to attempt to provide liquidity to
the holders of Common Shares. There can be no assurance that this Offer will
provide sufficient liquidity to all holders of Common Shares that desire to sell
their Common Shares or that the Trust will make any such tender offer in the
future.
NEITHER THE TRUST NOR ITS BOARD OF TRUSTEES MAKES ANY RECOMMENDATION TO ANY
SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR ALL OF SUCH
SHAREHOLDER'S COMMON SHARES AND HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY SUCH
RECOMMENDATION. SHAREHOLDERS ARE URGED TO EVALUATE CAREFULLY ALL INFORMATION IN
THE OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISERS AND MAKE THEIR OWN
DECISIONS WHETHER TO TENDER COMMON SHARES AND, IF SO, HOW MANY COMMON SHARES TO
TENDER.
8. PLANS OR PROPOSALS OF THE TRUST. The Trust has no present plans or
proposals which relate to or would result in any extraordinary transaction such
as a merger, reorganization or liquidation involving the Trust; a sale or
transfer of a material amount of assets of the Trust other than in its ordinary
course of business; any material changes in the Trust's present capitalization
(except as resulting from the Offer or otherwise set forth herein); or any other
material changes in the Trust's structure or business.
9. PRICE RANGE OF COMMON SHARES; DIVIDENDS. The Trust's NAV per Common
Share on August 4, 1995 was $9.97. You can obtain current NAV quotations from
InterCapital by calling (800) 869-3863 extension 61. The Trust offers and sells
its Common Shares to the public on a continuous basis through Dean Witter
Distributors Inc. (the "Distributor") as principal underwriter. The Trust is not
aware of any secondary market trading for the Common Shares. Dividends on the
Common Shares are declared daily and paid monthly. Shareholders tendering Common
Shares shall be entitled to receive all dividends declared on or before the
Expiration Date, but not yet paid, on Common Shares tendered pursuant to the
Offer.
10. INTEREST OF TRUSTEES AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING THE COMMON SHARES. As of August 4, 1995 the Trustees
and executive officers of the Trust as a group beneficially owned no Common
Shares. The Trust has been informed that no Trustee or executive officer of the
Trust intends to tender any Common Shares pursuant to the Offer.
Except as set forth in this Section 10, based upon the Trust's records and
upon information provided to the Trust by its Trustees, executive officers and
affiliates (as such term is used in the Exchange Act), neither the Trust nor, to
the best of the Trust's knowledge, any of the Trustees or executive officers of
the Trust, nor any associates of any of the foregoing, has effected any
transactions in the Common Shares during the forty business day period prior to
the date hereof.
Except as set forth in this Offer to Purchase, neither the Trust nor, to the
best of the Trust's knowledge, any of its affiliates, Trustees or executive
officers, is a party to any contract, arrangement, understanding or relationship
with any other person relating, directly or indirectly, to the Offer with
respect to any securities of the Trust (including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
the voting of any such securities, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies, consents or authorizations).
The Trust is a party to a Hold Harmless Agreement with DWR pursuant to which
DWR indemnifies the Trust from any loss it may suffer as a result of the use of
DWR to effect a tender or withdrawal of Common Shares on behalf of its
customers.
The Trust and the Depositary have entered into a Depositary Agreement dated
as of August 4, 1995, pursuant to which the Depositary will perform services for
the Trust in connection with the tender and withdrawal of Common Shares pursuant
to the Offer.
The Trust currently is a party to an Investment Advisory Agreement with
InterCapital (the "Adviser") under which the Trust accrues daily and pays
monthly to the Adviser an investment advisory fee equal to 0.90% of the average
daily net assets of the Trust up to $500 million, and 0.85% of the portion of
average daily net assets over $500 million. The Trust also is a party to an
Administration Agreement with Dean
9
<PAGE>
Witter Services Company, Inc., a wholly owned subsidiary of InterCapital (the
"Administrator") and a Distribution Agreement with the Distributor. Under the
Administration Agreement, the Trust pays the Administrator a monthly fee at the
annualized rate of .25% of the Trust's average daily net assets. Under the
Distribution Agreement, the Trust offers and sells its Common Shares to the
public on a continuous basis through the Distributor as principal underwriter.
11. CERTAIN EFFECTS OF THE OFFER. The purchase of Common Shares pursuant
to the Offer will have the effect of increasing the proportionate interest in
the Trust of shareholders who do not tender their Common Shares. If you retain
your Common Shares you will be subject to any increased risks that may result
from the reduction in the Trust's aggregate assets resulting from payment for
the tendered Common Shares (e.g., greater volatility due to decreased
diversification and higher expenses). However, the Trust believes that since the
Trust is engaged in a continuous offering of the Common Shares, those risks
would be reduced to the extent new Common Shares of the Trust are sold. All
Common Shares purchased by the Trust pursuant to the Offer will be held in
treasury pending disposition.
12. SOURCE AND AMOUNT OF FUNDS. The total cost to the Trust of purchasing
4,000,000 Common Shares pursuant to the Offer will be approximately $39,880,000
(assuming a NAV of $9.97 per Common Share on the Expiration Date) plus the
expenses incurred by the Trust in connection with the Offer. The Trust
anticipates that the Purchase Price for any Common Shares acquired pursuant to
the Offer will first be derived from cash on hand, such as proceeds from sales
of new Common Shares of the Trust and specified pay-downs from the participation
interests in senior corporate loans which it has acquired, and then from the
proceeds from the sale of cash equivalents held by the Trust. Although the Trust
is authorized to borrow money to finance the repurchase of Common Shares, the
Trustees believe that the Trust has sufficient liquidity to purchase the Common
Shares tendered pursuant to the Offer without utilizing such borrowing. However,
if, in the judgment of the Trustees, there is not sufficient liquidity of the
assets of the Trust to pay for tendered Common Shares, the Trust may terminate
the Offer. See Section 6.
13. CERTAIN INFORMATION ABOUT THE TRUST. The Trust was organized as a
Massachusetts business trust, under the name "Allstate Prime Income Trust", on
August 17, 1989 and is a non-diversified, closed-end management investment
company under the Investment Company Act of 1940. The name was changed to its
present form effective March 1, 1993. The Trust seeks a high level of current
income consistent with the preservation of capital by investing in a
professionally managed portfolio of interests in floating or variable rate
senior loans ("Senior Loans") to corporations, partnerships and other entities
("Borrowers"). Senior Loans may take the form of syndicated loans or of debt
obligations of Borrowers issued directly to investors in the form of debt
securities ("Senior Notes"). Although the Trust's NAV will vary, the Trust's
policy of acquiring interests in floating or variable rate Senior Loans is
expected to minimize fluctuations in the Trust's NAV as a result of changes in
interest rates. Senior Loans in which the Trust invests generally pay interest
at rates which are periodically redetermined by reference to a base lending rate
plus a premium. These base lending rates are generally the prime rate offered by
a major United States bank ("Prime Rate"), the London Inter-Bank Offered Rate,
the certificate of deposit rate or other base lending rates used by commercial
lenders. The Trust seeks to achieve over time an effective yield that will
exceed money market rates and will track the movements in the published Prime
Rate of major United States banks, although it may not equal the Prime Rate. The
Senior Loans in the Trust's portfolio at all times have a dollar-weighted
average time until next interest rate redetermination of 90 days or less. As a
result, as short-term interest rates increase, the interest payable to the Trust
from its investments in Senior Loans should increase, and as short-term interest
rates decrease, the interest payable to the Trust on its investments in Senior
Loans should decrease. The amount of time required to pass before the Trust
realizes the effects of changing short-term market interest rates on its
portfolio varies with the dollar-weighted average time until next interest rate
redetermination on securities in the Trust's portfolio.
The Trust has registered as a "non-diversified" investment company so that,
subject to its investment restrictions, it is able to invest more than 5% of the
value of its assets in the obligations of any single issuer, including Senior
Loans of a single Borrower or participations in Senior Loans purchased from a
single lender or selling participant. However, the Trust does not intend to
invest more than 10% of the value of its total assets in interests in Senior
Loans of a single Borrower. To the extent the Trust invests its assets in
10
<PAGE>
obligations of a more limited number of issuers than a diversified investment
company, the Trust will be more susceptible than a more widely diversified
investment company to any single corporate, economic, political or regulatory
occurrence.
The principal executive offices of the Trust are located at Two World Trade
Center, New York, N.Y. 10048.
Reference is hereby made to Section 9 of this Offer to Purchase and the
financial statements attached hereto as Exhibit A which are incorporated herein
by reference.
14. ADDITIONAL INFORMATION. The Trust has filed a statement on Schedule
13E-4 with the Securities and Exchange Commission (the "Commission") which
includes certain additional information relating to the Offer. Such material may
be inspected and copied at prescribed rates at the Commission's public reference
facilities at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 10549
and 75 Park Place, New York, New York 10007. Copies of such material may also be
obtained by mail at prescribed rates from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
15. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion is a
general summary of the federal income tax consequences of a sale of Common
Shares pursuant to the Offer. Shareholders should consult their own tax advisers
regarding the tax consequences of a sale of Common Shares pursuant to the Offer,
as well as the effects of state, local and foreign tax laws. See also "Federal
Income Tax Withholding," supra.
The sale of Common Shares pursuant to the Offer will be a taxable
transaction for Federal income tax purposes, either as a "sale or exchange," or
under certain circumstances, as a "dividend." Under Section 302(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), a sale of Common Shares
pursuant to the Offer generally will be treated as a "sale or exchange" if the
receipt of cash: (a) results in a "complete termination" of the shareholder's
interest in the Trust, (b) is "substantially disproportionate" with respect to
the shareholder, or (c) is "not essentially equivalent to a dividend" with
respect to the shareholder. In determining whether any of these tests has been
met, Common Shares actually owned, as well as Common Shares considered to be
owned by the shareholder by reason of certain constructive ownership rules set
forth in Section 318 of the Code, generally must be taken into account. If any
of these three tests for "sale or exchange" treatment is met, a shareholder will
recognize gain or loss equal to the difference between the amount of cash
received pursuant to the Offer and the tax basis of the Common Shares sold. If
such Common Shares are held as a capital asset, the gain or loss will be a
capital gain or loss.
If none of the tests set forth in Section 302(b) of the Code is met, amounts
received by a shareholder who sells Common Shares pursuant to the Offer will be
taxable to the shareholder as a "dividend" to the extent of such shareholder's
allocable share of the Trust's current or accumulated earnings or profits, and
the excess of such amounts received over the portion that is taxable as a
dividend would constitute a non-taxable return of capital (to the extent of the
shareholder's tax basis in the Common Shares sold pursuant to the Offer) and any
amounts in excess of the shareholder's tax basis would constitute taxable gain.
If the amounts received by a tendering Shareholder are treated as a "dividend",
the tax basis in the Common Shares tendered to the Trust will be transferred to
any remaining Common Shares held by such shareholder. In addition, if a tender
of Common Shares is treated as a "dividend" to a tendering shareholder, the
Internal Revenue Service may take the position that a constructive distribution
under Section 305(c) of the Code may result to a shareholder whose proportionate
interest in the earnings and assets of the Trust has been increased by such
tender.
16. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS. The Trust
reserves the right, at any time and from time to time, to extend the period of
time during which the Offer is pending by making a public announcement thereof.
In the event that the Trust so elects to extend the tender period, the NAV for
the Common Shares tendered will be computed as of 4:00 P.M. New York City time
on the Expiration Date, as extended. During any such extension, all Common
Shares previously tendered and not purchased or withdrawn will remain subject to
the Offer. The Trust also reserves the right, at any time and from time to time
up to and including the Expiration Date, to (a) terminate the Offer and not to
purchase or pay for any Common Shares or, subject to applicable law, postpone
payment for Common Shares upon the occurrence of any of the conditions specified
in Section 6 and (b) amend the Offer in any respect by making a public
announcement thereof. Such public announcement will be issued no later than 9:00
A.M. New York City
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<PAGE>
time on the next business day after the previously scheduled Expiration Date and
will disclose the approximate number of Common Shares tendered as of that date.
Without limiting the manner in which the Trust may choose to make a public
announcement of extension, termination or amendment, except as provided by
applicable law (including Rule 13e-4(e)(2)), the Trust shall have no obligation
to publish, advertise or otherwise communicate any such public announcement,
other than by making a release to the Dow Jones News Service.
If the Trust materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Trust will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) promulgated under the Exchange Act. These rules require that the
minimum period during which an offer must remain open following material changes
in the terms of the offer or information concerning the offer (other than a
change in price or a change in percentage of securities sought) will depend on
the facts and circumstances, including the relative materiality of such terms or
information. If (i) the Trust increases or decreases the price to be paid for
Common Shares, or the Trust increases the number of Common Shares being sought
by an amount exceeding 2% of the outstanding Common Shares, or the Trust
decreases the number of Common Shares being sought and (ii) the Offer is
scheduled to expire at any time earlier than the expiration of a period ending
on the tenth business day from, and including, the date that notice of such
increase or decrease is first published, sent or given, the Offer will be
extended at least until the expiration of such period of ten business days.
17. MISCELLANEOUS. The Offer is not being made to, nor will the Trust
accept tenders from, owners of Common Shares in any jurisdiction in which the
Offer or its acceptance would not comply with the securities or Blue Sky laws of
such jurisdiction. The Trust is not aware of any jurisdiction in which the
making of the Offer or the tender of Common Shares would not be in compliance
with the laws of such jurisdiction. However, the Trust reserves the right to
exclude holders in any jurisdiction in which it is asserted that the Offer
cannot lawfully be made. So long as the Trust makes a good-faith effort to
comply with any state law deemed applicable to the Offer, the Trust believes
that the exclusions of holders residing in such jurisdiction is permitted under
Rule 13e-4(f)(9) promulgated under the Exchange Act. In any jurisdiction the
securities or Blue Sky laws of which require the Offer to be made by a licensed
broker or dealer, the Offer shall be deemed to be made on the Trust's behalf by
Dean Witter Reynolds Inc.
Prime Income Trust
August 16, 1995
12
<PAGE>
18. FINANCIAL STATEMENTS--MARCH 31, 1995 (UNAUDITED)
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN INTEREST
THOUSANDS) DESCRIPTION AND MATURITY DATE RATES VALUE
--------------- -------------------------------------------------- -------------------- ----------------
<C> <S> <C> <C>
SENIOR COLLATERALIZED LOANS (A) (90.8%)
AEROSPACE (1.3%)
$ 2,074 Gulfstream Aerospace Corp.
Term Loan, due 3/31/97............................ 8.88 to 10.00% $ 2,075,794
2,900 Gulfstream Aerospace Corp.
Term Loan, due 3/31/98............................ 9.88 2,901,885
----------------
4,977,679
----------------
AIRLINES (3.9%)
6,052 AeroMexico 1994 - I U.S. Receivables Trust
(Mexico)+
Term Loan, due 7/31/99............................ 10.31 6,052,098
2,377 Northwest Airlines, Inc.
(Participation: First National Bank of Chicago)(b)
Term Loan, due 9/15/97............................ 8.56 2,376,217
6,073 Northwest Airlines, Inc.
Term Loan, due 9/15/97............................ 8.56 6,071,907
----------------
14,500,222
----------------
APPAREL (5.3%)
1,000 Avil Knitwear, Inc.
Term Loan, due 2/3/01............................. 9.06 to 10.50 1,000,273
4,000 Avil Knitwear, Inc.
Term Loan, due 2/2/02............................. 9.56 to 11.00 4,000,039
10,000 Hosiery Corporation of America, Inc.
Term Loan, due 7/31/01............................ 9.44 9,998,800
5,000 London Fog Industries, Inc.
Term Loan, due 6/30/02(c)......................... 11.75 4,750,000
----------------
19,749,112
----------------
BREWERS (1.4%)
5,000 G. Heileman Brewing Company, Inc.
(Participation: Bankers Trust)(b)
Term Loan, due 12/31/00........................... 9.13 4,998,850
----------------
BROADCAST MEDIA (5.5%)
6,965 Silver King Communications, Inc.
Term Loan, due 7/31/02............................ 9.31 6,965,348
3,997 U.S. Radio Holdings, Inc.
Term Loan, due 12/31/01........................... 9.31 to 9.44 3,996,441
5,003 U.S. Radio Holdings, Inc.
Term Loan, due 9/20/03............................ 10.31 to 10.44 5,002,207
4,500 Young Broadcasting, Inc.
(Participation: Bankers Trust)(b)
Term Loan, due 12/31/01........................... 9.44 4,499,505
----------------
20,463,501
----------------
CONSUMER PRODUCTS (2.7%)
10,000 Revlon Consumer Products Corporation
Term Loan, due 6/30/97............................ 9.81 10,000,000
----------------
</TABLE>
13
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1995 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN INTEREST
THOUSANDS) DESCRIPTION AND MATURITY DATE RATES VALUE
--------------- -------------------------------------------------- -------------------- ----------------
<C> <S> <C> <C>
CONTAINERS (3.8%)
$ 4,481 Gaylord Container Corporation
Term Loan, due 9/30/97............................ 9.13 to 9.88% $ 4,480,327
9,757 Silgan Corporations
Term Loan, due 9/15/96............................ 9.44 to 11.25 9,758,465
----------------
14,238,792
----------------
CONTAINERS-PAPERS (1.3%)
5,000 Stone Container Corp.
Term Loan, due 4/1/00............................. 9.31 4,999,900
----------------
COSMETICS (1.4%)
5,000 Mary Kay Cosmetics, Inc.
Term Loan, due 12/6/02............................ 9.63 4,999,950
----------------
DRUG STORES (1.0%)
3,643 M & H Drugs, Inc.
Term Loan, due 9/1/96............................. 9.01 3,642,820
----------------
ELECTRONICS (1.1%)
4,151 Sperry Marine, Inc.
Term Loan, due 12/31/00........................... 9.50 to 10.06 4,151,242
----------------
ENTERTAINMENT (2.7%)
10,000 Harrah's Jazz Co. & Finance Corp.
Term Loan, due 9/30/99............................ 9.25 9,993,900
----------------
EQUIPMENT (2.7%)
10,000 Primeco, Inc.
Term Loan, due 12/31/00........................... 9.25 to 9.50 9,999,948
----------------
FOOD & BEVERAGES (2.0%)
7,500 Restaurants Unlimited, Inc.
Term Loan, due 6/3/00............................. 9.63 7,499,925
----------------
FOOD PROCESSING (2.9%)
5,000 American Italian Pasta Company
Term Loan, due 12/30/00........................... 10.00 4,999,650
5,709 Del Monte Corp.
Term Loan, due 12/15/97........................... 9.81 5,709,516
----------------
10,709,166
----------------
FOOD WHOLESALERS (3.5%)
13,000 Kraft Foodservice, Inc.
Term Loan, due 3/31/02............................ 9.57 13,003,380
----------------
GAS-TRUCK STOP (1.1%)
4,000 Petro PSC Properties, L.P.
Term Loan, due 5/24/01............................ 9.56 4,000,600
----------------
</TABLE>
14
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1995 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN INTEREST
THOUSANDS) DESCRIPTION AND MATURITY DATE RATES VALUE
--------------- -------------------------------------------------- -------------------- ----------------
<C> <S> <C> <C>
INDUSTRIALS (3.4%)
$ 6,094 UCAR International, Inc.
Term Loan, due 1/31/03............................ 9.31% $ 6,093,750
3,203 UCAR International, Inc.
Term Loan, due 7/31/03............................ 9.81 3,203,093
3,203 UCAR International, Inc.
Term Loan, due 1/31/04............................ 10.06 3,203,061
----------------
12,499,904
----------------
LEASING (4.2%)
16,021 GPA Group PLC (Ireland)+
(Participation: First National Bank of Chicago)(b)
Revolver, due 9/30/96............................. 7.38 to 8.00 15,701,736
----------------
MANUFACTURING (3.2%)
5,000 Desa International, Inc.
Term Loan, due 11/30/00........................... 10.06 5,003,750
2,701 Intermetro Industries Corporation
Term Loan, due 6/30/01............................ 10.00 2,704,086
4,053 Intermetro Industries Corporation
Term Loan, due 12/31/02........................... 10.50 4,057,094
----------------
11,764,930
----------------
MEDICAL PRODUCTS & SUPPLIES (1.3%)
5,000 Deknatel Holdings, Inc.
Term Loan, due 4/20/01............................ 9.81 5,000,050
----------------
PAPER PRODUCTS (4.0%)
15,000 Fort Howard Corp.
Term Loan, due 12/31/02........................... 9.13 14,999,850
----------------
PERSONAL PRODUCTS (1.3%)
4,921 Playtex Family Products Corporation
Term Loan, due 6/1/02............................. 9.63 4,921,143
----------------
PUBLISHING (4.0%)
7,721 Ziff Davis Publishing Co.
Term Loan, due 12/31/01........................... 9.44 7,717,963
7,279 Ziff Davis Publishing Co.
Term Loan, due 12/31/02........................... 9.94 7,276,937
----------------
14,994,900
----------------
RECORD & TAPE (3.4%)
4,938 Camelot Music, Inc.
Term Loan, due 2/28/01............................ 8.88 to 9.56 4,936,844
7,538 The Wherehouse Entertainment, Inc.
Term Loan, due 1/31/98............................ 9.13 7,538,347
----------------
12,475,191
----------------
RETAIL DEPARTMENT STORES (1.3%)
2,417 Saks & Company
Term Loan, due 6/30/98............................ 8.63 2,415,666
2,469 Saks & Company
Term Loan, due 6/30/00............................ 9.13 2,467,535
----------------
4,883,201
----------------
</TABLE>
15
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1995 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN INTEREST
THOUSANDS) DESCRIPTION AND MATURITY DATE RATES VALUE
--------------- -------------------------------------------------- -------------------- ----------------
<C> <S> <C> <C>
SCIENTIFIC INSTRUMENTS (0.9%)
$ 1,779 Waters Corporation
Term Loan, due 11/30/02........................... 9.94 to 10.06% $ 1,779,674
1,431 Waters Corporation
Term Loan, due 5/31/03............................ 10.31 to 10.44 1,431,018
----------------
3,210,692
----------------
SPORTING GOODS (2.0%)
7,444 Spalding & Evenflo Companies, Inc.
Term Loan, due 10/17/02........................... 9.38 7,444,409
----------------
SUPERMARKETS (9.9%)
4,105 Dominicks, Finer Foods, Inc.
Term Loan, due 3/31/02............................ 11.00 4,105,263
4,447 Dominicks, Finer Foods, Inc.
Term Loan, due 3/31/03............................ 11.50 4,447,368
4,447 Dominicks, Finer Foods, Inc.
Term Loan, due 9/30/03............................ 11.75 4,447,368
9,786 The Grand Union Company
Term Loan, due 7/30/98(c)......................... 11.00 9,541,440
1,469 Mayfair Supermarkets, Inc.
Term Loan, due 2/28/98............................ 9.06 1,469,057
969 Mayfair Supermarkets, Inc.
Term Loan, due 11/30/99........................... 9.00 to 9.06 968,671
4,950 Pathmark Stores Inc.
Term Loan, due 1/28/00............................ 9.25 4,949,901
3,789 Star Markets Company, Inc.
Term Loan, due 12/31/01........................... 9.13 3,789,398
2,842 Star Markets Company, Inc.
Term Loan, due 12/31/02........................... 9.63 2,842,048
----------------
36,560,514
----------------
TEXTILES (2.7%)
3,840 Blackstone Capital Company II, L.L.C.
Purchase Term Loan, due 1/13/97................... 9.00 3,840,078
1,160 Blackstone Capital Company II, L.L.C.
Reserve Term Loan, due 1/13/97.................... 9.00 1,160,023
3,840 Wasserstein / C&A Holdings, L.L.C.
Purchase Term Loan, due 1/13/97................... 8.38 3,838,925
1,160 Wasserstein / C&A Holdings, L.L.C.
Reserve Term Loan, due 1/13/97.................... 8.38 1,159,675
----------------
9,998,701
----------------
TEXTILES-APPAREL MANUFACTURERS (5.6%)
194 Bidermann Industries Corp.
Revolver, due 3/31/97............................. 10.50 193,785
10,412 Bidermann Industries Corp.
Term Loan, due 3/31/97............................ 11.00 10,411,889
10,000 Chicopee, Inc.
Term Loan, due 3/31/03............................ 11.00 10,000,000
----------------
20,605,674
----------------
TOTAL SENIOR COLLATERALIZED LOANS
(IDENTIFIED COST $337,647,553).......................................... 336,989,882
----------------
</TABLE>
16
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS MARCH 31, 1995 (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF INTEREST
SHARES DESCRIPTION AND MATURITY DATE RATES VALUE
--------------- -------------------------------------------------- -------------------- ----------------
<C> <S> <C> <C>
COMMON STOCK (0.0%)
FOOD SERVICES (0.0%)
4,209 Flagstar Companies (d) (Identified Cost $60,507)........................ $ 23,151
----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS)
---------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (8.6%)
COMMERCIAL PAPER (E) (0.3%)
FINANCE-DIVERSIFIED (0.3%)
$ 1,000 General Electric Credit Corp.
due 4/20/95 ++ (Amortized Cost $996,876).......... 5.92% 996,876
----------------
U.S. GOVERNMENT AGENCIES (E) (6.3%)
4,000 Federal Home Loan Mortgage Corporation
due 4/20/95 ++.................................... 5.92 3,987,502
1,400 Federal Home Loan Mortgage Corporation
due 4/28/95 ++.................................... 5.94 1,393,763
18,000 Tennessee Valley Authority
due 4/03/95....................................... 6.00 17,994,000
----------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $23,375,265)............................................ 23,375,265
----------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
REPURCHASE AGREEMENT (2.0%)
7,554 The Bank of New York 5.875% due 4/03/95 (dated 3/31/95;
proceeds $7,557,343, collateralized by $7,808,086 U.S.
Treasury Bill 5.76% due 9/07/95, valued at $7,610,297)
(Identified Cost $7,553,645)............................................ 7,553,645
----------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $31,925,786)........................................... 31,925,786
----------------
TOTAL INVESTMENTS
(IDENTIFIED COST $369,633,846) (F)................ 99.4 368,938,819
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.... 0.6 2,027,976
---------- ----------------
NET ASSETS........................................ 100.0% $ 370,966,795
----------
---------- ----------------
----------------
<FN>
------------------------------
+ SENIOR NOTE.
++ ALL OR A PORTION OF THESE SECURITIES ARE SEGREGATED IN CONNECTION WITH
UNFUNDED LOAN COMMITMENTS.
(A) FLOATING RATE SECURITIES. INTEREST RATES RESET PERIODICALLY. INTEREST RATES
SHOWN ARE THOSE IN EFFECT AT MARCH 31, 1995.
(B) PARTICIPATION; PARTICIPATION INTERESTS WERE ACQUIRED THROUGH THE FINANCIAL
INSTITUTIONS INDICATED PARENTHETICALLY.
(C) NON-INCOME PRODUCING SECURITY
(D) NON-INCOME PRODUCING SECURITY. RESALE IS RESTRICTED TO QUALIFIED
INSTITUTIONAL INVESTORS.
(E) SECURITIES WERE PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATES SHOWN
HAVE BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(F) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $369,633,846; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $180,681 AND THE AGGREGATE GROSS
UNREALIZED DEPRECIATION IS $875,708, RESULTING IN NET UNREALIZED
DEPRECIATION OF $695,027.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $369,633,846).................................. $368,938,819
Cash............................................................. 128,284
Receivable for:
Shares of beneficial interest sold............................. 2,879,565
Interest....................................................... 2,732,540
Investments sold............................................... 433,096
Prepaid expenses and other assets................................ 83,463
------------
TOTAL ASSETS............................................... 375,195,767
------------
LIABILITIES:
Payable for:
Investment advisory fee........................................ 281,214
Dividends to shareholders...................................... 165,875
Investments purchased.......................................... 161,406
Administration fee............................................. 78,115
Accrued expenses and other payables.............................. 263,973
Deferred facility fees........................................... 3,278,389
Commitments and contingencies (Note 7)...........................
------------
TOTAL LIABILITIES.......................................... 4,228,972
------------
NET ASSETS:
Paid-in-capital.................................................. 372,458,065
Accumulated undistributed net investment income.................. 59,714
Net unrealized depreciation...................................... (695,027)
Accumulated net realized loss.................................... (855,957)
------------
NET ASSETS................................................. $370,966,795
------------
------------
NET ASSET VALUE PER SHARE,
37,158,902 shares outstanding (unlimited
shares authorized of $.01 par value)............................ $9.98
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest..................................................... $ 14,898,648
Facility fees earned......................................... 1,182,462
Other........................................................ 102,582
------------
TOTAL INCOME............................................... 16,183,692
------------
EXPENSES
Investment advisory fee...................................... 1,536,910
Administration fee........................................... 426,919
Professional fees............................................ 265,547
Shareholder reports and notices.............................. 137,319
Transfer agent fees and expenses............................. 120,130
Custodian fees............................................... 38,940
Registration fees............................................ 37,360
Trustees' fees and expenses.................................. 14,279
Organizational expenses...................................... 8,018
Other........................................................ 12,738
------------
TOTAL EXPENSES............................................. 2,598,160
------------
NET INVESTMENT INCOME.................................... 13,585,532
------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized loss.............................................. (61,785)
Net change in unrealized depreciation.......................... 234,177
------------
NET GAIN................................................... 172,392
------------
NET INCREASE............................................. $ 13,757,924
------------
------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
MARCH 31, 1995 YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) SEPTEMBER 30, 1994
-------------- ------------------
<S> <C> <C>
Operations:
Net investment income............... $ 13,585,532 $ 17,647,052
Net realized gain (loss)............ (61,785) 596,754
Net change in unrealized
depreciation....................... 234,177 2,033,215
-------------- ------------------
Net increase.................... 13,757,924 20,277,021
-------------- ------------------
Dividends and distributions to
shareholders from:
Net investment income............... (13,526,408) (17,652,279)
Net realized gain................... (957,284) --
-------------- ------------------
Total........................... (14,483,692) (17,652,279)
-------------- ------------------
Net increase (decrease) from
transactions in shares of beneficial
interest............................. 66,658,149 (9,069,554)
-------------- ------------------
Total increase (decrease)....... 65,932,381 (6,444,812)
NET ASSETS:
Beginning of period................... 305,034,414 311,479,226
-------------- ------------------
END OF PERIOD (including undistributed
net investment income of
$59,714 and $590, respectively)...... $370,966,795 $305,034,414
-------------- ------------------
-------------- ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 1995 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income..................................... $ 13,585,532
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Increase in receivables and other assets related to
operations............................................. (789,926)
Increase in payables related to operations.............. 1,180,671
-----------------
Net cash from operating activities.................... 13,976,277
-----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments................................... (232,998,621)
Principal repayments/sales of investments................. 172,944,762
Net sales/maturities of short-term investments............ (7,007,289)
-----------------
Net cash used in investing activities................. (67,061,148)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares of beneficial interest sold........................ 80,823,149
Shares tendered........................................... (20,494,472)
Dividends to shareholders (net of reinvested dividends of
$6,983,471).............................................. (7,424,140)
-----------------
Net cash from financing activities.................... 52,904,537
-----------------
Net decrease in cash........................................ (180,334)
Cash at beginning of period................................. 308,618
-----------------
CASH AT END OF PERIOD....................................... $ 128,284
-----------------
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- Prime Income Trust (the "Trust") is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company. The Trust was
organized as a Massachusetts business trust on August 17, 1989 and commenced
operations on November 30, 1989.
The Trust offers and sells its shares to the public on a continuous basis.
The Trustees intend, each quarter, to consider authorizing the Trust to make
tender offers for all or a portion of its outstanding shares of beneficial
interest at the then current net asset value of such shares.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) The Trustees believe that, at present,
there are not sufficient market quotations provided by banks, dealers, or
pricing services respecting interests in senior collateralized loans
("Senior Loans") to corporations, partnerships and other entities
("Borrower") to enable the Trust to properly value Senior Loans based on
available market quotations. Accordingly, until the market for Senior Loans
develops, interests in Senior Loans held by the Trust are valued at their
fair value in accordance with procedures established in good faith by the
Trustees. Under the procedures adopted by the Trustees, interests in Senior
Loans are priced in accordance with a matrix which takes into account the
relationship between current interest rates and interest rates payable on
each Senior Loan, as well as the total number of days in each interest
period and the period remaining until the next interest rate determination
or maturity of the Senior Loan. Adjustments in the matrix-determined price
of a Senior Loan will be made in the event of a default on a Senior Loan or
a significant change in the creditworthiness of the Borrower; (2) all
portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price; (3) short-term debt
securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or less
at the time of purchase are valued at amortized cost; and (4) all other
securities and other assets are valued at their fair value as determined in
good faith under procedures established by and under the general supervision
of the Trustees.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. 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 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.
C. SENIOR LOANS -- The Trust invests primarily in Senior Loans to
Borrowers. Senior Loans are typically structured by a syndicate of lenders
("Lenders") one or more of which administers the Senior Loan on behalf of
the Lenders ("Agent"). Lenders may sell interests in Senior Loans to third
parties ("Participations") or may assign all or a portion of their interest
in a Senior Loan to third parties ("Assignments"). Senior Loans are exempt
from registration under the Securities Act of 1933. Presently, they are not
readily marketable and are often subject to restrictions on resale.
20
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
D. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records
dividends and distributions to its shareholders on the record date. The
amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the
"Investment Adviser") paid the organizational expenses of the Trust in the
amount of $248,312 which were fully amortized as of November 29, 1994.
2. INVESTMENT ADVISORY AGREEMENT -- Pursuant to an Investment Advisory
Agreement, the Trust pays its Investment Adviser an advisory fee, calculated
daily and payable monthly, by applying the annual rate of 0.90% to the first
$500 million of the Trust's average daily net assets and 0.85% to the average
daily net assets in excess of $500 million.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Adviser pays the salaries of all personnel,
including officers of the Trust, who are employees of the Investment Adviser.
3. ADMINISTRATION AGREEMENT -- Pursuant to an Administration Agreement with
Dean Witter Services Company Inc. (the "Administrator"), the Trust pays its
Administrator an administration fee, calculated daily and payable monthly, by
applying the annual rate of 0.25% to the Trust's average daily net assets.
Under the terms of the Administration Agreement, the Administrator maintains
certain of the Trust's books and records and furnishes, at its own expense,
office space, facilities, equipment, clerical, bookkeeping and certain legal
services and pays the salaries of all personnel, including officers of the Trust
who are employees of the Administrator. The Administrator also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Trust.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended March 31, 1995 aggregated
$232,998,621 and $173,377,858, respectively.
Shares of the Trust are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser and Administrator.
Pursuant to a Distribution Agreement between the Trust, the Investment Adviser
and the Distributor, the Investment Adviser compensates the Distributor at an
annual rate of 2.75% of the purchase price of shares purchased from the Trust.
The Investment Adviser will
21
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
compensate the Distributor at an annual rate of 0.10% of the value of shares
sold for any shares that remain outstanding after one year from the date of
their initial purchase. Any early withdrawal charge to defray distribution
expenses will be charged in connection with shares held for four years or less
which are accepted by the Trust for repurchase pursuant to tender offers. For
the six months ended March 31, 1995, the Investment Adviser has informed the
Trust that it received approximately $103,220 in early withdrawal charges. The
Trust's shareholders pay such withdrawal charges which are not an expense of the
Trust.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Trust's transfer agent. At March 31, 1995, the Trust had
transfer agent fees and expenses payable of approximately $37,000.
The Trust established 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, 1995 included in Trustees' fees and expenses in the Statement of Operations
amounted to $3,793. At March 31, 1995, the Trust had an accrued pension
liability of $48,135 which is included in accrued expenses in the Statement of
Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------- -------------
<S> <C> <C>
Balance, September 30, 1992....................... 41,390,032 $ 414,061,124
Shares sold....................................... 1,735,717 17,314,978
Shares issued to shareholders for reinvestment of
dividends........................................ 1,113,636 11,101,773
Shares tendered (four quarterly tender offers).... (12,811,288) (127,608,405)
----------- -------------
Balance, September 30, 1993....................... 31,428,097 314,869,470
Shares sold....................................... 6,355,963 63,559,546
Shares issued to shareholders for reinvestment of
dividends........................................ 948,118 9,461,997
Shares tendered (four quarterly tender offers).... (8,242,584) (82,091,097)
----------- -------------
Balance, September 30, 1994....................... 30,489,594 305,799,916
Shares sold....................................... 8,019,626 80,169,150
Shares issued to shareholders for reinvestment of
dividends........................................ 698,892 6,983,471
Shares tendered (two quarterly tender offers)..... (2,049,210) (20,494,472)
----------- -------------
Balance, March 31, 1995........................... 37,158,902 $ 372,458,065
----------- -------------
----------- -------------
</TABLE>
On April 20, 1995, the Trustees approved a tender offer to purchase up to 4
million shares of beneficial interest to commence on May 17, 1995.
6. FEDERAL INCOME TAX STATUS -- Any net capital loss incurred after October 31
("post-October losses") within the taxable year is deemed to arise on the
first business day of the Trust's next taxable year. The Trust incurred and will
elect to defer a net capital loss of approximately $1,083,000.
As of September 30, 1994, the Trust had temporary book/tax differences
primarily attributable to post-October losses.
22
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES -- As of March 31, 1995, the Trust had
unfunded loan commitments pursuant to the following loan agreements:
<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENT
----------
<S> <C>
Bidermann Industries Corp........................................ $1,039,393
GPA Group PLC.................................................... 4,388,383
----------
$5,427,776
----------
----------
</TABLE>
8. FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT RISK -- When the Trust
purchases a Participation, the Trust typically enters into a contractual
relationship with the Lender or third party selling such Participation ("Selling
Participant") but not with the Borrower. As a result, the Trust assumes the
credit risk of the Borrower, the Selling Participant and any other persons
interpositioned between the Trust and the Borrower ("Intermediate Participants")
and the Trust may not directly benefit from the collateral supporting the Senior
Loan in which it has purchased the Participation. Because the Trust will only
acquire Participations if the Selling Participant and each Intermediate
Participant is a financial institution, the Trust may be considered to have a
concentration of credit risk in the banking industry. At March 31, 1995, such
Participations had a fair value of $27,576,308.
The Trust will only invest in Senior Loans where the Investment Adviser
believes that the Borrower can meet debt service requirements in a timely manner
and where the market value of the collateral at the time of investment equals or
exceeds the amount of the Senior Loan. In addition, the Trust will only acquire
Participations if the Selling Participant, and each Intermediate Participant, is
a financial institution which meets certain minimum creditworthiness standards.
23
<PAGE>
PRIME INCOME TRUST
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX NOVEMBER 30,
MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1989* THROUGH
MARCH 31, 1995 ----------------------------------------- SEPTEMBER 30,
(UNAUDITED) 1994 1993 1992 1991 1990
--------------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $10.00 $ 9.91 $ 9.99 $10.00 $10.00 $10.00
------- -------- -------- -------- -------- -------
Net investment income........................... 0.40 0.62 0.55 0.62 0.84 0.74
Net realized and unrealized gain (loss)......... 0.01 0.09 (0.08) (0.01) -- (0.01)
------- -------- -------- -------- -------- -------
Total from investment operations................ 0.41 0.71 0.47 0.61 0.84 0.73
------- -------- -------- -------- -------- -------
Less dividends and distributions from:
Net investment income.......................... (0.40) (0.62) (0.55) (0.62) (0.84) (0.73)
Net realized gain.............................. (0.03) -- -- -- -- --
------- -------- -------- -------- -------- -------
Total dividends and distributions................. (0.43) (0.62) (0.55) (0.62) (0.84) (0.73)
------- -------- -------- -------- -------- -------
Net asset value, end of period.................... $ 9.98 $10.00 $ 9.91 $ 9.99 $10.00 $10.00
------- -------- -------- -------- -------- -------
------- -------- -------- -------- -------- -------
TOTAL INVESTMENT RETURN+.......................... 4.11%(1) 7.32% 4.85% 6.23% 8.77% 7.57%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).......... $370,967 $305,034 $311,479 $413,497 $479,941 $328,189
Ratios to average net assets:
Expenses.......................................... 1.52%(2) 1.60% 1.45% 1.47% 1.52% 1.48%(2)
Net investment income............................. 7.96%(2) 6.14% 5.53% 6.14% 8.23% 8.95%(2)
Portfolio turnover rate........................... 57%(1) 147% 92% 46% 42% 35%(1)
<FN>
------------------------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
PRIME INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Shareholders and Trustees of Prime Income Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of Prime Income Trust
(the "Trust") at September 30, 1994, 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 four
years in the period then ended and for the period November 30, 1989
(commencement of operations) through September 30, 1990, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at September 30, 1994 by
correspondence with the custodian, and with respect to senior collateralized
loans by correspondence with the selling participants and agent banks, provide a
reasonable basis for the opinion expressed above.
As explained in Note 1, the financial statements include senior collateralized
loans valued at $277,184,100 (91 percent of net assets), whose values have been
determined in accordance with procedures established by the Trustees in the
absence of readily ascertainable market values. We have reviewed the procedures
which were established by the Trustees in determining the fair values of such
senior collateralized loans and have inspected underlying documentation, and, in
the circumstances, we believe the procedures are reasonable and the
documentation appropriate. However, because of the inherent uncertainty of
valuation, those values determined in accordance with procedures established by
the Trustees may differ significantly from the values that would have been used
had a ready market for the senior collateralized loans existed, and the
differences could be material.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 10, 1994
25
<PAGE>
19. FINANCIAL STATEMENTS--SEPTEMBER 30, 1994
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
PRINCIPAL AND INTEREST
AMOUNT MATURITY DATE RATES VALUE
--------------- -------------------------------------------------- -------------------- ----------------
<C> <S> <C> <C>
SENIOR COLLATERALIZED LOANS (A) (90.9%)
AEROSPACE (1.6%)
$2,073,518 Gulfstream Aerospace Corp.
Term Loan, due 3/31/97............................ 7.63% $ 2,071,610
2,900,000 Gulfstream Aerospace Corp.
Term Loan, due 3/3/98............................. 8.00 2,897,042
----------------
4,968,652
----------------
AIRLINES (7.5%)
10,000,000 AeroMexico 1994-I U.S. Receivables Trust (Mexico)+
Term Loan, due 7/31/99............................ 9.00 9,998,200
5,297,206 Northwest Airlines, Inc.
(Participation: First National Bank of Chicago)(b)
Term Loan, due 9/15/97............................ 7.25 to 7.625 5,187,605
7,962,105 Northwest Airlines, Inc.
Term Loan, due 9/15/97............................ 7.25 to 7.625 7,797,368
----------------
22,983,173
----------------
APPAREL (1.7%)
5,000,000 London Fog Industries, Inc.
(Participation: Bankers Trust)(b)
Term Loan, due 6/30/02............................ 9.19 4,998,450
----------------
BREWERS (1.7%)
5,000,000 G. Heileman Brewing Company, Inc.
(Participation: Bankers Trust)(b)
Term Loan, due 12/31/00........................... 7.5625 4,998,150
----------------
BROADCAST MEDIA (5.2%)
7,000,000 Silver King Communications, Inc.
Term Loan, due 7/31/02............................ 7.8125 6,996,850
3,997,020 U.S. Radio Holdings, Inc.
Term Loan, due 12/31/01........................... 8.25 to 8.69 3,995,202
5,002,980 U.S. Radio Holdings, Inc.
Term Loan, due 9/20/03............................ 9.25 to 9.69 5,000,700
----------------
15,992,752
----------------
CONTAINERS (3.3%)
10,000,000 Silgan Corporations
Term Loan, due 9/15/96............................ 8.125 to 8.188 9,984,550
----------------
CONTAINERS-PAPERS (6.2%)
9,159,529 Stone Container Corp.
Holdco Tender Offer Loan, due 3/1/97.............. 7.875 to 9.75 9,158,766
892,580 Stone Container Corp.
Holdco Term Loan, due 3/1/97...................... 9.75 892,580
360,945 Stone Container Corp.
Revolver, due 3/1/97.............................. 7.875 to 9.75 360,934
8,464,779 Stone Container Corp.
Term Loan, due 3/1/97............................. 7.875 to 9.75 8,464,039
----------------
18,876,319
----------------
DRUG STORES (1.3%)
3,830,790 M & H Drugs, Inc.
Term Loan, due 9/1/96............................. 7.938 3,830,790
----------------
ELECTRONICS (1.4%)
4,384,147 Sperry Marine, Inc.
Term Loan, due 12/31/00........................... 8.1875 to 8.375 4,378,809
----------------
FOOD & BEVERAGES (2.5%)
7,500,000 Restaurant Unlimited, Inc.
Term Loan, due 6/3/00............................. 8.25 7,495,800
----------------
</TABLE>
26
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1994 (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
PRINCIPAL AND INTEREST
AMOUNT MATURITY DATE RATES VALUE
--------------- -------------------------------------------------- -------------------- ----------------
<C> <S> <C> <C>
FOOD PROCESSING (3.7%)
$5,000,000 American Italian Pasta Company
Term Loan, due 12/30/00........................... 8.625% $ 4,999,700
6,398,797 Del Monte Corp.
Term Loan, due 12/15/97........................... 8.0625 6,392,590
----------------
11,392,290
----------------
GAS-TRUCK STOP (1.3%)
4,000,000 Petro PSC Properties, L.P.
Term Loan, due 5/24/01............................ 8.50 3,997,520
----------------
GLASS (0.8%)
2,691,535 HGP Industries, Inc.
Term Loan, due 12/31/99 (c)....................... 0.00 2,341,635
----------------
LEASING (5.8%)
18,153,241 GPA Group PLC (Ireland)+
(Participation: First National Bank of Chicago)(b)
Revolver, due 9/30/96............................. 6.00 to 6.8125 17,766,368
----------------
MANUFACTURING (3.9%)
5,000,000 Desa International, Inc.
Term Loan, due 11/30/00........................... 8.50 4,996,950
2,794,167 Intermetro Industries Corporation
Term Loan, due 6/30/01............................ 8.32 2,791,065
4,192,500 Intermetro Industries Corporation
Term Loan, due 12/31/02........................... 8.82 4,187,637
----------------
11,975,652
----------------
MEDICAL PRODUCTS & SUPPLIES (1.6%)
5,000,000 Deknatel, Inc.
Term Loan, due 4/20/01............................ 8.3125 4,998,700
----------------
PAPER PRODUCTS (4.7%)
1,257,574 Fort Howard Corp.
(Participation: Bank of Montreal)(b)
Term Loan, due 12/31/96........................... 7.00 to 9.00 1,256,949
891,358 Fort Howard Corp.
(Participation: National Bank of Canada)(b)
Term Loan, due 12/31/96........................... 7.00 to 9.00 890,914
1,489,969 Fort Howard Corp.
(Participation: National Bank of North
Carolina)(b)
Term Loan, due 12/31/96........................... 7.00 to 9.00 1,489,228
1,796,535 Fort Howard Corp.
(Participation: The Royal Bank of Canada)(b)
Term Loan, due 12/31/96........................... 7.00 to 9.00 1,795,641
9,000,000 Jefferson Smurfit / Container Corporation of
America
Term Loan, due 4/30/02............................ 7.875 8,998,560
----------------
14,431,292
----------------
PERSONAL PRODUCTS (3.3%)
9,947,368 Playtex Family Products Corporation
Term Loan, due 6/1/02............................. 8.38 9,946,375
----------------
RECORD & TAPE (4.4%)
4,968,750 Camelot Music, Inc.
Term Loan, due 2/28/01............................ 7.875 to 8.375 4,965,685
8,400,000 The Wherehouse Entertainment, Inc.
Term Loan, due 1/31/98............................ 7.875 to 9.25 8,398,112
----------------
13,363,797
----------------
</TABLE>
27
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1994 (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
PRINCIPAL AND INTEREST
AMOUNT MATURITY DATE RATES VALUE
--------------- -------------------------------------------------- -------------------- ----------------
<C> <S> <C> <C>
RETAIL DEPARTMENT STORES (3.3%)
$5,080,260 Saks & Company
Term Loan, due 6/30/98............................ 7.38% $ 5,080,209
4,980,700 Saks & Company
Term Loan, due 6/30/00............................ 7.88 4,978,508
----------------
10,058,717
----------------
SCIENTIFIC INSTRUMENTS (3.1%)
6,287,154 Waters Corporation
Term Loan, due 11/30/01........................... 10.125 6,287,154
1,783,877 Waters Corporation
Term Loan, due 11/30/02........................... 10.50 1,783,877
1,434,403 Waters Corporation
Term Loan, due 5/31/03............................ 10.875 1,434,403
----------------
9,505,434
----------------
SUPERMARKETS (10.3%)
9,786,093 The Grand Union Company
Term Loan, due 7/30/98............................ 8.5 to 9.75 9,771,060
1,648,679 Mayfair Supermarkets, Inc.
Term Loan, due 2/28/98............................ 7.3125 1,647,954
981,509 Mayfair Supermarkets, Inc.
Term Loan, due 11/30/99........................... 7.3125 to 7.4375 981,083
5,000,000 Pathmark Stores Inc.
Term Loan, due 7/31/98............................ 7.375 4,999,950
5,000,000 Pathmark Stores Inc.
Term Loan, due 1/28/00............................ 8.125 4,999,450
3,789,474 Star Markets Company, Inc.
Term Loan, due 12/31/01........................... 7.88 3,789,208
5,210,526 Star Markets Company, Inc.
Term Loan, due 12/31/02........................... 8.38 5,210,109
----------------
31,398,814
----------------
TEXTILES (4.6%)
3,840,000 Blackstone Capital Company II, L.L.C.
Purchase Term Loan, due 1/13/97................... 9.25 3,840,000
1,160,000 Blackstone Capital Company II, L.L.C.
Reserve Term Loan, due 1/13/97.................... 9.25 1,160,000
4,105,263 New Street Capital Corporation
Term Loan, due 2/28/96............................ 8.30 4,105,222
3,840,000 Wasserstein / C&A Holdings, L.L.C.
Purchase Loan, due 1/13/97........................ 9.25 3,840,000
1,160,000 Wasserstein / C&A Holdings, L.L.C.
Reserve Term Loan, due 1/13/97.................... 9.25 1,160,000
----------------
14,105,222
----------------
TEXTILES-APPAREL MANUFACTURERS (3.8%)
11,499,538 Bidermann Industries Corp.
Term Loan, due 3/31/97............................ 9.75 11,499,538
21,829 Bidermann Industries Corp.
Revolver, due 3/31/97............................. 9.25 21,829
----------------
11,521,367
----------------
VISION CARE & INSTRUMENTS (2.0%)
6,000,000 Sola Group Ltd.
Term Loan, due 12/1/00............................ 7.82 5,998,561
----------------
WIRELESS COMMUNICATION (1.9%)
5,874,911 Maximum Protection Industries, Inc.
Term Loan, due 12/31/95........................... 9.75 5,874,911
----------------
TOTAL SENIOR COLLATERALIZED LOANS (IDENTIFIED COST $278,088,575)........ 277,184,100
----------------
</TABLE>
28
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1994 (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
NUMBER OF AND INTEREST
SHARES MATURITY DATE RATES VALUE
--------------- -------------------------------------------------- -------------------- ----------------
<C> <S> <C> <C>
COMMON STOCK (D) (0.0%)
FOOD SERVICES (0.0%)
4,209 Flagstar Companies (Identified Cost $60,507)............................ $ 35,778
----------------
<CAPTION>
PRINCIPAL
AMOUNT
---------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (8.2%)
COMMERCIAL PAPER (E) (1.2%)
FINANCE-DIVERSIFIED (1.2%)
$ 150,000 American Express Credit Corp.
due 11/9/94++..................................... 4.81% $ 149,225
2,500,000 American General Finance Corp.
due 11/9/94++..................................... 4.81 2,487,081
940,000 General Electric Capital Corp.
due 10/7/94 to 11/9/94++.......................... 4.71 to 4.95 938,169
----------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST $3,574,475)...................... 3,574,475
----------------
U.S. GOVERNMENT AGENCIES (E) (6.3%)
12,000,000 Federal Home Loan Mortgage Corporation
due 10/3/94....................................... 4.80 11,996,800
1,600,000 Federal National Mortgage Association
due 10/7/94 to 11/1/94++.......................... 4.80 to 4.82 1,593,720
5,700,000 Student Loan Marketing Association
due 10/3/94....................................... 4.90 5,698,448
----------------
TOTAL U.S. GOVERNMENT AGENCIES (AMORTIZED COST $19,288,968)............. 19,288,968
----------------
REPURCHASE AGREEMENT (0.7%)
2,055,054 The Bank of New York 5.00% due 10/3/94 (dated 9/30/94;
proceeds $2,055,910; collateralized by $2,149,659 U.S.
Treasury Bonds 7.50% due 11/15/16, valued at $2,096,155)
(Identified Cost $2,055,054)............................................ 2,055,054
----------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $24,918,497)........................................... 24,918,497
----------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS (IDENTIFIED COST $303,067,579) (F)... 99.1 % 302,138,375
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES......... 0.9 2,896,039
----- ------------
NET ASSETS............................................. 100.0% $ 305,034,414
----- ------------
----- ------------
<FN>
------------------------------
+ SENIOR NOTE.
++ ALL OR A PORTION OF THESE SECURITIES ARE SEGREGATED IN CONNECTION WITH
UNFUNDED LOAN COMMITMENTS.
(A) FLOATING RATE SECURITIES. INTEREST RATES RESET PERIODICALLY. INTEREST RATES
SHOWN ARE THOSE IN EFFECT AT SEPTEMBER 30, 1994. THE PRINCIPAL AMOUNT OF
EACH SENIOR COLLATERALIZED LOAN APPROXIMATES COST.
(B) PARTICIPATION; PARTICIPATION INTERESTS WERE ACQUIRED THROUGH THE FINANCIAL
INSTITUTIONS INDICATED PARENTHETICALLY.
(C) INTEREST RATE TO BE DETERMINED BASED ON ISSUER'S PERFORMANCE. INTEREST
INCOME IS RECORDED AS RECEIVED.
(D) NON-INCOME PRODUCING. RESALE IS RESTRICTED TO QUALIFIED INSTITUTIONAL
INVESTORS.
(E) SECURITIES WERE PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATES SHOWN
HAVE BEEN ADJUSTED TO REFLECT A BOND EQUIVALENT YIELD.
(F) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $303,067,579; THE
AGGREGATE GROSS UNREALIZED APPRECIATION IS $38,297 AND THE AGGREGATE GROSS
UNREALIZED DEPRECIATION IS $967,501, RESULTING IN NET UNREALIZED
DEPRECIATION OF $929,204.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (identified
cost $303,067,579) (Note 1)..................................... $ 302,138,375
Cash............................................................. 308,618
Receivable for:
Interest....................................................... 1,950,579
Shares of beneficial interest sold............................. 3,533,564
Deferred organizational expenses (Note 1)........................ 8,018
Prepaid expenses and other assets................................ 67,480
-------------
TOTAL ASSETS............................................... 308,006,634
-------------
LIABILITIES:
Payable for:
Investment advisory fee (Note 2)............................... 221,999
Administration fee (Note 3).................................... 61,666
Accrued expenses and other payables (Note 4)..................... 264,923
Dividends to shareholders (Note 1)............................... 89,795
Deferred facility fees........................................... 2,333,837
Commitments and contingencies (Note 7)...........................
-------------
TOTAL LIABILITIES.......................................... 2,972,220
-------------
NET ASSETS:
Paid-in-capital.................................................. 305,799,916
Accumulated undistributed net realized gain on investments....... 163,112
Net unrealized depreciation on investments....................... (929,204)
Accumulated undistributed net investment income.................. 590
-------------
NET ASSETS................................................. $ 305,034,414
-------------
-------------
NET ASSET VALUE PER SHARE, 30,489,594 shares outstanding
(unlimited shares authorized of $.01 par value)................. $10.00
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<S> <C>
INVESTMENT INCOME:
INCOME
Interest..................................................... $18,746,969
Net facility fees............................................ 2,838,910
Other........................................................ 650,874
------------
TOTAL INCOME............................................... 22,236,753
------------
EXPENSES
Investment advisory fee (Note 2)............................. 2,586,181
Administration fee (Note 3).................................. 718,384
Professional fees............................................ 563,118
Shareholder reports and notices (Note 4)..................... 253,760
Transfer agent fees and expenses (Note 4).................... 222,440
Registration fees............................................ 69,431
Organizational expenses (Note 1)............................. 47,977
Trustees' fees and expenses (Note 4)......................... 29,261
Custodian fees............................................... 23,835
Other........................................................ 75,314
------------
TOTAL EXPENSES............................................. 4,589,701
------------
NET INVESTMENT INCOME.................................... 17,647,052
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (Note 1):
Net realized gain on investments............................... 596,754
Net change in unrealized depreciation
on investments............................................... 2,033,215
------------
NET GAIN ON INVESTMENTS...................................... 2,629,969
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................ $20,277,021
------------
------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER SEPTEMBER 30,
INCREASE (DECREASE) IN NET ASSETS: 30, 1994 1993
------------ -------------
<S> <C> <C>
Operations:
Net investment income......................... $17,647,052 $ 20,819,704
Net realized gain (loss) on investments....... 596,754 (433,642)
Net change in unrealized depreciation on
investments.................................. 2,033,215 (2,380,861)
------------ -------------
Net increase in net assets resulting from
operations................................. 20,277,021 18,005,201
Dividends to shareholders from net investment
income......................................... (17,652,279) (20,831,307)
Net decrease from transactions in shares of
beneficial interest (Note 5)................... (9,069,554) (99,191,654)
------------ -------------
Total decrease.............................. (6,444,812) (102,017,760)
NET ASSETS:
Beginning of period............................. 311,479,226 413,496,986
------------ -------------
END OF PERIOD (including undistributed net
investment income of $590
and $5,817, respectively)..................... $305,034,414 $311,479,226
------------ -------------
------------ -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income........................... $17,647,052
Adjustments to reconcile net investment income
to net cash provided by operating
activities:
Increase in receivables and other assets
related to operations........................ (178,456)
Decrease in payables and other liabilities
related to operations........................ (1,303,071)
------------------
Net cash provided by operating activities... 16,165,525
------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments........................ (382,439,993)
Principal repayments/sales of investments....... 404,837,600
Net sales/maturities of short-term
investments.................................... (8,574,742)
------------------
Net cash provided by investing activities... 13,822,865
------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares of beneficial interest sold.............. 60,154,695
Shares tendered................................. (82,091,097)
------------------
(21,936,402)
Dividends to shareholders (net of reinvested
dividends of $9,461,997)....................... (8,211,510)
------------------
Net cash used in financing activities....... (30,147,912)
------------------
Net decrease in cash.............................. (159,522)
Cash at beginning of year......................... 468,140
------------------
CASH AT END OF YEAR............................... $ 308,618
------------------
------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--Prime Income Trust (the "Trust") is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company. The Trust was
organized as a Massachusetts business trust on August 17, 1989 and commenced
operations on November 30, 1989.
The Trust offers and sells its shares to the public on a continuous basis at
the then net asset value of such shares. The Trustees intend, each quarter, to
consider authorizing the Trust to make tender offers for all or a portion of its
outstanding shares of beneficial interest at the then current net asset value of
such shares.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS--(1) The Trustees believe that, at present,
there are not sufficient market quotations provided by banks, dealers, or
pricing services respecting interests in senior collateralized loans
("Senior Loans") to corporations, partnerships and other entities
("Borrowers") to enable the Trust to value Senior Loans based on available
market quotations. Accordingly, until the market for Senior Loans develops,
interests in Senior Loans held by the Trust are valued at their fair value
in accordance with procedures established in good faith by the Trustees.
Under the procedures adopted by the Trustees, interests in Senior Loans are
priced in accordance with a matrix which takes into account the relationship
between current interest rates and interest rates payable on each Senior
Loan, as well as the total number of days in each interest period and the
period remaining until the next interest rate determination or maturity of
the Senior Loan. Adjustments in the matrix-determined price of a Senior Loan
will be made in the event of a default on a Senior Loan or a significant
change in the creditworthiness of the Borrower; (2) all portfolio securities
for which over-the-counter market quotations are readily available are
valued at the latest bid price; (3) short-term debt securities having a
maturity date of more than sixty days are valued on a "mark-to-market"
basis, that is, at prices based on market quotations for securities of a
similar type, yield, quality and maturity, until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term securities having a maturity date of sixty days or less at
the time of purchase are valued at amortized cost; and (4) all other
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined on 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 over the 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.
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
("Agents"). Lenders may sell interests in Senior Loans to third parties
("Participations") or may assign all or a portion of their interest in a
Senior Loan to third parties ("Assignments"). Senior Loans are exempt from
registration under the Securities Act of 1933. Presently, they are not
readily marketable and are often subject to restrictions on resale.
D. FEDERAL INCOME TAX STATUS--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Trust records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income
32
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
and net realized capital gains are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but
not for tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized capital gains. To the
extent they exceed net investment income and net realized capital gains for
tax purposes, they are reported as distributions of paid-in-capital.
F. ORGANIZATIONAL EXPENSES--Dean Witter InterCapital (the "Investment
Adviser") paid the organizational expenses of the Trust in the amount of
$248,312 which have been fully reimbursed by the Trust. Such expenses have
been deferred and are being amortized by the straight-line method over a
period not to exceed five years from the commencement of operations.
2. INVESTMENT ADVISORY AGREEMENT--Pursuant to an Investment Advisory Agreement,
the Trust pays its Investment Adviser an advisory fee, accrued daily and payable
monthly, by applying the annual rate of 0.90% to the first $500 million of the
Trust's average daily net assets and 0.85% to the average daily net assets in
excess of $500 million.
Under the terms of the Investment Advisory Agreement, in addition to
managing the Trust's investments, the Investment Adviser pays the salaries of
all personnel, including officers of the Trust, who are employees of the
Investment Adviser.
3. ADMINISTRATION AGREEMENT--Through December 31, 1993, pursuant to an
Administration Agreement with Dean Witter InterCapital Inc. (the "Former
Administrator"), the Trust paid an administration fee, accrued daily and payable
monthly, by applying the annual rate of 0.25% to the Trust's average daily net
assets. On January 1, 1994, the Administration Agreement between the Former
Administrator and the Trust was terminated and a new Administration Agreement
entered into between Dean Witter Services Company Inc. (the "Administrator"), a
wholly-owned subsidiary of the Former Administrator, and the Trust. The nature
and scope of the services being provided to the Trust or any fees being paid by
the Trust under the new Agreement are identical to those of the previous
Agreement.
Under the terms of the Administration Agreement, the Administrator maintains
certain of the Trust's books and records and furnishes, at its own expense,
office space, facilities, equipment, clerical, bookkeeping and certain legal
services and pays the salaries of all personnel, including officers of the Trust
who are employees of the Administrator. The Administrator also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Trust.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--The cost of
purchases and proceeds from sales of portfolio securities, excluding short-term
investments, for the year ended September 30, 1994 aggregated $382,439,993 and
$404,837,600, respectively.
Shares of the Trust are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Adviser. Pursuant to a
Distribution Agreement between the Trust, the Investment Adviser and the
Distributor, the Investment Adviser compensates the Distributor at annual rate
of 2.75% of the purchase price of shares purchased from the Trust. The
Investment Adviser will compensate the Distributor at an annual rate of 0.10% of
the value of shares sold for any shares that remain outstanding after one year
from the date of their initial purchase. Any early withdrawal charge to defray
distribution expenses will be charged in connection with shares held for four
years or less which are accepted by the Trust for repurchase pursuant to tender
offers. For the year ended September 30, 1994, the Investment Adviser has
informed the Trust that it received
33
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
approximately $541,000 in early withdrawal charges. The Trust's shareholders pay
such withdrawal charges, which are not an expense of the Trust.
Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Trust's transfer agent. At September 30, 1994, the Trust
had transfer agent fees and expenses payable of approximately $32,000.
On April 1, 1991, the Trust established an unfunded noncontributory defined
benefit pension plan covering all independent Trustees of the Trust who will
have served as an independent Trustee 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, 1994, included in Trustees' fees and expenses in
the Statement of Operations, amounted to $9,179. At September 30, 1994, the
Trust had an accrued pension liability of $45,083 which is included in accrued
expenses in the Statement of Assets and Liabilities.
Bowne & Co., Inc. is an affiliate of the Trust by virtue of a common Trustee
and Director of Bowne & Co., Inc. During the year ended September 30, 1994, the
Trust paid Bowne & Co., Inc. $4,105 for printing of shareholder reports.
5. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------------ ------------
<S> <C> <C>
Balance, September 30, 1992....................... 41,390,032 $414,061,124
Shares sold....................................... 1,735,717 17,314,978
Shares issued to shareholders for reinvestment of
dividends........................................ 1,113,636 11,101,773
Shares tendered (four quarterly tender offers).... (12,811,288) (127,608,405)
------------ ------------
Balance, September 30, 1993....................... 31,428,097 314,869,470
Shares sold....................................... 6,355,963 63,559,546
Shares issued to shareholders for reinvestment of
dividends........................................ 948,118 9,461,997
Shares tendered (four quarterly tender offers).... (8,242,584) (82,091,097)
------------ ------------
Balance, September 30, 1994....................... 30,489,594 $305,799,916
------------ ------------
------------ ------------
</TABLE>
On October 20, 1994, the Trustees approved a tender offer to purchase up to
4 million shares of beneficial interest to commence on November 18, 1994.
6. FEDERAL INCOME TAX STATUS--Any net capital loss incurred after October 31
("Post-October losses") within the taxable year is deemed to arise on the first
business day of the Trust's next taxable year. The Trust incurred and will elect
to defer a net capital loss of approximately $1,083,000.
As of September 30, 1994, the Trust had temporary book/tax differences
primarily attributable to Post-October losses.
34
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES--As of September 30, 1994, the Trust had
unfunded loan commitments pursuant to the following loan agreements:
<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENT
---------------------------------------- ------------
<S> <C>
Bidermann Industries Corp............... $ 123,699
GPA Group PLC........................... 2,814,119
Stone Container Corp.................... 704,851
------------
$3,642,669
------------
------------
</TABLE>
8. FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT RISK--When the Trust
purchases a Participation, the Trust typically enters into a contractual
relationship with the Lender or third party selling such Participation ("Selling
Participant"), but not with the Borrower. As a result, the Trust assumes the
credit risk of the Borrower, the Selling Participant and any other persons
interpositioned between the Trust and the Borrower ("Intermediate Participants")
and the Trust may not directly benefit from the collateral supporting the Senior
Loan in which it has purchased the Participation. Because the Trust will only
acquire Participations if the Selling Participant and each Intermediate
Participant is a financial institution, the Trust may be considered to have a
concentration of credit risk in the banking industry. At September 30, 1994,
such Participations had a fair value of $38,383,305.
The Trust will only invest in Senior Loans where the Investment Adviser
believes that the Borrower can meet debt service requirements in a timely manner
and where the market value of the collateral at the time of investment equals or
exceeds the amount of the Senior Loan. In addition, the Trust will only acquire
Participations if the Selling Participant, and each Intermediate Participant, is
a financial institution which meets certain minimum creditworthiness standards.
35
<PAGE>
PRIME INCOME TRUST
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 30,
1989*
FOR THE YEAR ENDED SEPTEMBER 30, THROUGH
--------------------------------------------- SEPTEMBER 30,
1994 1993 1992 1991 1990
--------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 9.91 $ 9.99 $10.00 $10.00 $10.00
--------- -------- -------- -------- ----------------
Net investment income......... 0.62 0.55 0.62 0.84 0.74
Net realized and unrealized
gain (loss) on investments... 0.09 (0.08) (0.01) -0- (0.01)
--------- -------- -------- -------- ----------------
Total from investment
operations................... 0.71 0.47 0.61 0.84 0.73
--------- -------- -------- -------- ----------------
Dividends from net investment
income....................... (0.62) (0.55) (0.62) (0.84) (0.73)
--------- -------- -------- -------- ----------------
Net asset value, end of
period....................... $10.00 $ 9.91 $ 9.99 $10.00 $10.00
--------- -------- -------- -------- ----------------
--------- -------- -------- -------- ----------------
TOTAL INVESTMENT RETURN+...... 7.32% 4.85% 6.23% 8.77% 7.57%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)................... $305,034 $311,479 $413,497 $479,941 $328,189
Ratios:
Expenses to average net
assets..................... 1.60% 1.45% 1.47% 1.52% 1.48%(2)
Net investment income to
average net assets......... 6.14% 5.53% 6.14% 8.23% 8.95%(2)
Portfolio turnover rate....... 147% 92% 46% 42% 35%
<FN>
------------------------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES LOAD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
PRIME INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Shareholders and Trustees of Prime Income Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of Prime Income Trust
(formerly Allstate Prime Income Trust), (the "Trust") at September 30, 1993, 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 three years in the period then ended
and for the period November 30, 1989 (commencement of operations) through
September 30, 1990, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
September 30, 1993 by correspondence with the custodian, and with respect to
senior collateralized loans by correspondence with the selling participants and
agent banks, provide a reasonable basis for the opinion expressed above.
As explained in Note 1, the financial statements include senior
collateralized loans valued at $296,942,269 (95 percent of net assets), whose
values have been determined in accordance with procedures established by the
Trustees in the absence of readily ascertainable market values. We have reviewed
the procedures which were established by the Trustees in determining the fair
values of such senior collateralized loans and have inspected underlying
documentation, and, in the circumstances, we believe the procedures are
reasonable and the documentation appropriate. However, because of the inherent
uncertainty of valuation, those values determined in accordance with procedures
established by the Trustees may differ significantly from the values that would
have been used had a ready market for the senior collateralized loans existed,
and the differences could be material.
PRICE WATERHOUSE
New York, New York
November 11, 1993
37
<PAGE>
20. FINANCIAL STATEMENTS--SEPTEMBER 30, 1993
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1993
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
PRINCIPAL AND INTEREST
AMOUNT MATURITY DATE RATES VALUE
------------- ------------------------------------------------------------ -------------------- ---------------
<C> <S> <C> <C>
SENIOR COLLATERALIZED LOANS (A) (95.4%)
AEROSPACE (2.8%)
$ 8,763,682 Gulfstream Aerospace Corp.
Term Loan, due March 31, 1997............................... 5.57 to 7.25% $ 8,763,856
---------------
AIRLINES (7.5%)
6,990,379 Northwest Airlines, Inc.
(Participation: First National Bank of Chicago)(b)
Term Loan, due September 15, 1997........................... 6.0625 to 6.25 6,813,204
17,000,000 Northwest Airlines, Inc.
Term Loan, due September 15, 1997........................... 6.0625 to 6.25 16,568,780
---------------
23,381,984
---------------
ALUMINUM (0.8%)
1,414,286 Kaiser Aluminum and Chemical Corp.
(Participation: Mellon Bank)(b)
Revolver, due November 30, 1994............................. 6.00 to 7.875 1,414,278
1,178,571 Kaiser Aluminum and Chemical Corp.
(Participation: The Royal Bank of Canada)(b)
Revolver, due November 30, 1994............................. 6.00 to 7.875 1,178,565
---------------
2,592,843
---------------
BEVERAGES (4.1%)
12,835,714 Dr Pepper Company
Term Loan, due June 30, 1999................................ 6.625 to 8.50 12,835,518
---------------
COMPUTERS (2.7%)
8,403,170 Lexmark International Inc.
Term Loan, due March 27, 1998............................... 5.6875 to 5.875 8,402,213
---------------
CONSUMER SERVICES (1.6%)
5,000,000 Bell & Howell Company
Term Loan, due December 31, 1999............................ 6.25 5,000,100
---------------
CONVENIENCE STORES (3.2%)
10,000,000 Circle K Corporation
Term Loan, due April 30, 2000............................... 6.6875 10,000,000
---------------
DRUG STORES (10.8%)
8,155,662 Duane Reade, Inc.
Term Loan A, due September 30, 1997......................... 6.375 8,156,690
1,500,000 Duane Reade, Inc.
Term Loan B, due September 30, 1999......................... 6.875 1,500,060
5,000,000 Hook Super RX, Inc.
Term Loan, due July 31, 2000................................ 6.065 4,997,700
18,898,816 Jack Eckerd Corp.
Term Loan, due June 15, 2000................................ 6.1875 18,898,816
---------------
33,553,266
---------------
ENTERTAINMENT (2.8%)
8,650,000 United Artist Theatre Circuit, Inc.
Term Loan, due December 31, 1998............................ 5.4375 to 5.5625 8,649,880
---------------
</TABLE>
38
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1993 (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
PRINCIPAL AND INTEREST
AMOUNT MATURITY DATE RATES VALUE
------------- ------------------------------------------------------------ -------------------- ---------------
<C> <S> <C> <C>
FOOD PROCESSING (4.6%)
$ 6,000,000 American Italian Pasta Company
Term Loan, due March 31, 1999............................... 7.1875% $ 6,004,080
8,372,435 Del Monte Corp.
Term Loan, due December 15, 1997............................ 6.1875 8,368,919
---------------
14,372,999
---------------
FOOD SERVICES (1.5%)
4,519,452 Flagstar Corporation
Term Loan, due November 1, 1997............................. 6.00 4,519,452
---------------
GLASS (2.3%)
2,833,778 HGP Industries, Inc.
Term Loan, due December 31, 1999 (c)........................ 4.00 2,112,582
3,667,953 Safelite Glass Corp.
Term Loan, due June 30, 1996................................ 6.13 3,667,843
1,332,047 Safelite Glass Corp.
Working Capital Loan, due June 30, 1996..................... 6.13 1,332,007
---------------
7,112,432
---------------
MACHINERY (2.7%)
8,343,451 Joy Technologies, Inc.
Term Loan, due December 31, 1998............................ 6.25 8,343,785
---------------
MANUFACTURER CONSUMER & INDUSTRY (1.5%)
4,559,282 Sealy Corporation
Term Loan, due November 30, 2000............................ 6.1875 4,557,825
---------------
MANUFACTURING (4.8%)
15,000,000 American Standard, Inc.
Term Loan, due February 28, 2000............................ 6.50 14,999,700
---------------
PAPER PRODUCTS (9.7%)
1,800,210 Fort Howard Corp.
(Participation: Bank of Montreal)(b)
Term Loan, due December 31, 1996............................ 4.94 to 7.00 1,800,698
1,275,973 Fort Howard Corp.
(Participation: National Bank of Canada)(b)
Term Loan, due December 31, 1996............................ 4.94 to 7.00 1,276,319
2,132,882 Fort Howard Corp.
(Participation: National Bank of North Carolina)(b)
Term Loan, due December 31, 1996............................ 4.94 to 7.00 2,133,460
2,571,729 Fort Howard Corp.
(Participation: The Royal Bank of Canada)(b)
Term Loan, due December 31, 1996............................ 4.94 to 7.00 2,572,426
9,125,000 Fort Howard Corp.
Term Loan, due May 1, 1997.................................. 6.32 9,124,726
13,360,081 SIBV/MS Holdings Inc.
Term Loan, due December 31, 1997............................ 5.38 to 6.1875 13,359,938
---------------
30,267,567
---------------
</TABLE>
39
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1993 (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
PRINCIPAL AND INTEREST
AMOUNT MATURITY DATE RATES VALUE
------------- ------------------------------------------------------------ -------------------- ---------------
<C> <S> <C> <C>
PERSONAL PRODUCTS (1.8%)
$ 4,630,927 Playtex Family Products, Inc.
Term Loan, due December 31, 1996............................ 5.44 to 7.25% $ 4,630,973
1,030,928 Playtex Family Products, Inc.
Revolver, due December 31, 1996............................. 5.38 to 7.25 1,030,922
---------------
5,661,895
---------------
RAILROADS (3.4%)
10,537,180 Transtar, Inc.
Term Loan, due June 30, 1998................................ 5.6875 10,537,190
---------------
RECORD & TAPE (3.0%)
9,353,846 The Wherehouse Entertainment, Inc.
Term Loan, due January 31, 1998............................. 6.125 to 7.50 9,353,392
---------------
RETAIL DEPARTMENT STORES (3.4%)
10,500,000 Saks & Company
Term Loan, due June 30, 2000................................ 6.50 10,500,735
---------------
RETAIL SPECIALTY (5.2%)
8,846,154 Color Tile, Inc.
Term Loan, due December 31, 1998............................ 5.94 to 7.50 8,845,852
5,044,828 General Nutrition, Inc.
Term Loan A, due July 15, 1997.............................. 5.9375 5,044,828
2,291,067 General Nutrition, Inc.
Term Loan B, due January 15, 1999........................... 6.4375 2,291,067
---------------
16,181,747
---------------
SUPERMARKETS (5.1%)
5,000,000 Almac, Inc.
Term Loan, due August 1, 1997(d)............................ 8.00 2,950,000
186,492 Farm Fresh, Inc.
Revolver, due December 31, 1995............................. 8.00 186,492
9,786,093 The Grand Union Company
Term Loan, due July 30, 1998................................ 6.6875 to 8.00 9,784,138
1,892,453 Mayfair Supermarkets, Inc.
Term Loan A, due February 28, 1998.......................... 5.75 1,892,021
994,340 Mayfair Supermarkets, Inc.
Term Loan B, due August 31, 1999............................ 5.75 994,157
---------------
15,806,808
---------------
TEXTILES (4.8%)
10,000,000 Valley Fashions Corp.
Term Loan, due December 31, 1996............................ 7.00 10,000,000
5,000,000 West Point-Pepperell, Inc.
Term Loan, due March 31, 1995............................... 5.6875 4,999,900
---------------
14,999,900
---------------
</TABLE>
40
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1993 (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION
PRINCIPAL AND INTEREST
AMOUNT MATURITY DATE RATES VALUE
------------- ------------------------------------------------------------ -------------------- ---------------
<C> <S> <C> <C>
TEXTILES-APPAREL MANUFACTURERS (5.3%)
$ 1,992,034 Bidermann Industries Corp.
Medium Term Loan, due January 3, 1995....................... 5.75 to 6.1875% $ 1,992,150
9,653,032 Bidermann Industries Corp.
Long Term Loan, due January 3, 1995......................... 6.4375 to 6.6875 9,654,054
4,898,990 Ithaca Industries, Inc.
(Participation: Bankers Trust)(b)
Term Loan, due October 31, 1998............................. 6.0625 to 7.50 4,900,978
---------------
16,547,182
---------------
TOTAL SENIOR COLLATERALIZED LOANS (IDENTIFIED COST $299,889,428).................. 296,942,269
---------------
<CAPTION>
NUMBER OF
SHARES
-------------
<C> <S> <C> <C>
COMMON STOCK (E) (0.0%)
FOOD SERVICES (0.0%)
4,209 Flagstar Companies (Identified Cost $60,514)...................................... 45,254
---------------
SHORT-TERM INVESTMENTS (5.2%)
COMMERCIAL PAPER (F) (4.8%)
DIVERSIFIED FINANCE (0.5%)
1,500,000 American Express Credit Co.
10/20/93.................................................... 3.10 1,497,545
---------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (4.3%)
5,350,000 Federal National Mortgage Association
10/01/93.................................................... 3.40 5,350,000
8,100,000 Federal National Mortgage Association
10/20/93.................................................... 3.03 8,087,090
---------------
13,437,090
---------------
TOTAL COMMERCIAL PAPER (AMORTIZED COST $14,934,635)............................... 14,934,635
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT (0.4%)
$ 1,409,113 The Bank of New York 3.375% due 10/01/93 (dated 9/30/93;
proceeds $1,409,245; collateralized by $1,297,144 U.S.
Treasury Notes 6.5% due 11/30/96, valued at $1,409,536)
(Identified Cost $1,409,113)................................ 1,409,113
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $16,343,748)..................................................... 16,343,748
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $316,293,690)(G)......... 100.6% 313,331,271
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.............. (0.6) (1,852,045)
------ ---------------
NET ASSETS.................................................. 100.0% $ 311,479,226
------
------ ---------------
---------------
<FN>
------------------------------
(A) FLOATING RATE SECURITIES. INTEREST RATES RESET PERIODICALLY. INTEREST RATES SHOWN ARE THOSE IN
EFFECT AT SEPTEMBER 30, 1993.
(B) PARTICIPATION; PARTICIPATION INTERESTS WERE ACQUIRED THROUGH THE FINANCIAL INSTITUTIONS
INDICATED PARENTHETICALLY.
(C) PARTIAL INTEREST PAID. INTEREST INCOME IS RECORDED AS RECEIVED.
(D) NON-INCOME PRODUCING, ISSUER IN BANKRUPTCY.
(E) NON-INCOME PRODUCING. RESALE IS RESTRICTED.
(F) COMMERCIAL PAPER WAS PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATES SHOWN HAVE BEEN ADJUSTED
TO REFLECT A BOND EQUIVALENT YIELD.
(G) THE AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS $316,293,690; THE AGGREGATE GROSS
UNREALIZED APPRECIATION IS $14,180 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS
$2,976,599, RESULTING IN NET UNREALIZED DEPRECIATION OF $2,962,419.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1993
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $316,293,690).................................. $313,331,271
Cash............................................................. 468,140
Receivables for:
Interest....................................................... 1,725,268
Shares of beneficial interest sold............................. 128,713
Deferred organizational expenses
(Note 1)........................................................ 55,995
Prepaid expenses and other assets................................ 66,358
------------
TOTAL ASSETS............................................... 315,775,745
------------
LIABILITIES:
Investment advisory fee payable (Note 2)......................... 252,050
Administration fee payable (Note 3).............................. 70,014
Accrued expenses (Note 4)........................................ 213,694
Dividends to shareholders........................................ 111,023
Deferred facility fees........................................... 3,649,738
Commitments and contingencies
(Note 7)
------------
TOTAL LIABILITIES.......................................... 4,296,519
------------
NET ASSETS:
Paid in capital.................................................. 314,869,470
Accumulated realized loss on investments-net..................... (433,642)
Unrealized depreciation on
investments-net................................................. (2,962,419)
Accumulated undistributed investment income-net.................. 5,817
------------
NET ASSETS................................................. $311,479,226
------------
------------
NET ASSET VALUE PER SHARE, 31,428,097 shares outstanding
(unlimited shares authorized of $.01 par value)................. $9.91
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<S> <C>
INVESTMENT INCOME:
INCOME
Interest....................................................... $22,409,227
Facility fees earned........................................... 3,196,951
Other.......................................................... 661,054
------------
TOTAL INCOME................................................. 26,267,232
------------
EXPENSES
Investment advisory fee (Note 2)............................... 3,558,025
Administration fee (Note 3).................................... 941,589
Transfer agent fees and expenses (Note 4)...................... 343,750
Shareholder reports and notices................................ 207,134
Professional fees.............................................. 147,700
Registration fees.............................................. 83,995
Organizational expenses (Note 1)............................... 47,975
Custodian fees................................................. 46,450
Trustees' fees and expenses (Note 4)........................... 34,458
Other.......................................................... 36,452
------------
TOTAL EXPENSES............................................... 5,447,528
------------
INVESTMENT INCOME-NET...................................... 20,819,704
------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS-NET (Note 1):
Realized loss on investments-net............................... (433,642)
Change in unrealized depreciation on investments-net........... (2,380,861)
------------
NET LOSS ON INVESTMENTS...................................... (2,814,503)
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $18,005,201
------------
------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER SEPTEMBER 30,
INCREASE (DECREASE) IN NET ASSETS: 30, 1993 1992
------------ -------------
<S> <C> <C>
Operations:
Investment income-net......................... $20,819,704 $ 28,145,130
Realized loss on investments-net.............. (433,642) -0-
Change in unrealized depreciation on
investments-net.............................. (2,380,861) (444,699)
------------ -------------
Net increase in net assets resulting from
operations............................... 18,005,201 27,700,431
Dividends to shareholders from investment
income-net..................................... (20,831,307) (28,127,911)
Transactions in shares of beneficial
interest-net decrease (Note 5)................. (99,191,654) (68,016,556)
------------ -------------
Total decrease............................ (102,017,760) (66,444,036)
NET ASSETS:
Beginning of period............................. 413,496,986 479,941,022
------------ -------------
END OF PERIOD (including undistributed net
investment income of $5,817 and $17,420,
respectively).................................. $311,479,226 $413,496,986
------------ -------------
------------ -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 1993
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
Cash Flows from Operating Activities:
Investment income-net........................................................................ $ 20,819,704
Adjustments to reconcile investment income-net to net cash provided by operating activities:
Decrease in receivables and other assets related to operations............................. 179,336
Decrease in payables related to operations................................................. (343,342)
-----------------------
Net cash provided by operating activities................................................ 20,655,698
-----------------------
Cash Flows from Investing Activities:
Purchases of investments..................................................................... (296,934,030)
Principal repayments/sales of investments.................................................... 347,958,328
Net sales/maturities of short term investments............................................... 47,219,784
-----------------------
Net cash provided by investing activities................................................ 98,244,082
-----------------------
Cash Flows from Financing Activities:
Shares of beneficial interest sold........................................................... 17,562,457
Shares tendered.............................................................................. (127,608,405)
-----------------------
(110,045,948)
Dividends to shareholders (net of reinvested dividends of $11,101,773)....................... (9,766,016)
-----------------------
Net cash used in financing activities.................................................... (119,811,964)
-----------------------
Net decrease in cash........................................................................... (912,184)
Cash at beginning of year...................................................................... 1,380,324
-----------------------
CASH AT END OF YEAR............................................................................ $ 468,140
-----------------------
-----------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--Prime Income Trust (the "Trust") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a non-diversified closed-end management investment company. It was organized on
August 17, 1989 as a Massachusetts business trust and commenced operations on
November 30, 1989. On March 1, 1993, the Trust changed its name from Allstate
Prime Income Trust to Prime Income Trust.
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 the shares.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS--(1) The Trustees believe that, at present,
there are not sufficient market quotations provided by banks, dealers, or
pricing services respecting interests in senior collateralized loans
("Senior Loans") to corporations, partnerships and other entities
("Borrower") to enable the Trust to properly value Senior Loans based on
available market quotations therefor. Accordingly, until the market for
Senior Loans develops, interests in Senior Loans held by the Trust are
valued at their fair value in accordance with procedures established in good
faith by the Trustees. Under the procedures adopted by the Trustees,
interests in Senior Loans are priced in accordance with a matrix which takes
into account the relationship between current interest rates and interest
rates payable on each Senior Loan, as well as the total number of days in
each interest period and the period remaining until the next interest rate
determination or maturity of the Senior Loan. Adjustments in the
matrix-determined price of a Senior Loan will be made in the event of a
default on a Senior Loan or a significant change in the creditworthiness of
the Borrower; (2) all portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price; and (3)
short-term instruments having a maturity date of more than 60 days are
valued on a "mark-to-market" basis, that is, at prices based on market
quotations for securities of similar type, yield, quality and maturity.
Discounted short-term instruments are similarly valued until 60 days prior
to maturity and thereafter at amortized value. Discounted short-term
instruments having a maturity date of 60 days or less at the time of
purchase are valued at amortized cost unless the Trustees determine this
does not represent fair market value. Other assets are valued at fair value
in accordance with procedures established in good faith by the Trustees.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on
the trade date. 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. The Trust amortizes the facility fee over the
expected term of the loan. When the Trust sells an interest in a Senior Loan
it may be required to pay fees or commissions to the purchaser of the
interest. Realized gains and losses on security transactions are determined
on the identified cost method. Interest income is accrued daily except where
collection is not expected.
C. SENIOR LOANS--The Trust invests primarily in Senior Loans to Borrowers.
Senior Loans are typically structured by a syndicate of lenders ("Lenders"),
one or more of which administers the Senior Loan on behalf of the Lenders
("Agent"). Lenders may sell interests in Senior Loans to third parties
("Participations") or may assign all or a portion of their interest in a
Senior Loan to third parties ("Assignments"). Senior Loans are exempt from
registration under the Securities Act of 1933. Presently they are not
readily marketable and are often subject to restrictions on resale.
D. FEDERAL INCOME TAX STATUS--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
44
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
E. DIVIDENDS TO SHAREHOLDERS--The Trust records dividends to its
shareholders daily. Such dividends are paid monthly.
F. ORGANIZATIONAL EXPENSES--The Trust's Administrator paid the
organizational expenses of the Trust in the amount of $248,312. The Trust
reimbursed the Administrator for such expenses which are being amortized by
the straight-line method over a period not to exceed five years from the
commencement of operations.
G. REPURCHASE AGREEMENTS--The Trust's custodian takes possession on behalf
of the Trust of the collateral pledged for investments in repurchase
agreements. It is the policy of the Trust to value the underlying collateral
daily on a mark-to-market basis to determine that the value, including
accrued interest, is at least equal to the repurchase price plus accrued
interest. In the event of default of the obligation to repurchase, the Trust
has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation.
2. INVESTMENT ADVISORY AGREEMENT--Through February 28, 1993, pursuant to an
investment advisory agreement with Allstate Investment Management Company (the
"Former Investment Adviser"), the Trust paid its Former Investment Adviser an
advisory fee, accrued daily and payable monthly, by applying the annual rate of
1.0% to the first $500 million of the Trust's average daily net assets and 0.95%
of average daily net assets in excess of $500 million. Fees paid to the Former
Investment Adviser amounted to $1,683,031. On March 1, 1993, Dean Witter
InterCapital Inc. (the "Investment Adviser") assumed all investment advisory
responsibilities. Pursuant to an Investment Advisory Agreement (the "Advisory
Agreement"), with the Investment Adviser, the Trust pays its Investment Adviser
an advisory fee, accrued daily and payable monthly, by applying the annual rate
of 0.90% to the first $500 million of the Trust's average daily net assets and
0.85% of average daily net assets in excess of $500 million.
Under the terms of the Investment Advisory Agreement, the Investment Adviser
manages the Trust's assets. Also, the Investment Adviser pays the salaries of
all personnel, including officers of the Trust, who are employees of the
Investment Adviser.
3. ADMINISTRATION AGREEMENT--Pursuant to an Administration Agreement (the
"Administration Agreement") with Dean Witter InterCapital Inc. (the
"Administrator"), formerly the InterCapital Division of Dean Witter Reynolds
Inc., the Trust pays its Administrator an administration fee, accrued daily and
payable monthly, by applying the annual rate of 0.25% to the Trust's average
daily net assets.
Under the terms of the Administration Agreement, the Administrator maintains
certain of the Trust's books and records and furnishes, at its own expense, such
office space, facilities, equipment, clerical help, bookkeeping and certain
legal services as the Trust may reasonably require in the conduct of its
business. In addition, the Administrator pays the salaries of all personnel,
including officers of the Trust, who are employees of the Administrator.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--Purchases and
principal repayments/sales of portfolio securities for the year ended September
30, 1993, excluding short-term investments, aggregated $296,934,030 and
$347,958,328, respectively.
Dean Witter Trust Company, an affiliate of the Investment
Adviser / Administrator, is the Trust's transfer agent. For the year ended
September 30, 1993, the Trust incurred transfer agent fees and expenses of
$343,750, of which $42,996 was payable at September 30, 1993.
Dean Witter Distributors Inc., an affiliate of the Investment Adviser, and
the Former Investment Adviser have informed the Trust that for the year ended
September 30, 1993, they received approximately $1,449,000 and $448,000,
respectively, in early withdrawal charges from shares tendered. The Trust's
shareholders pay such charges, which are not an expense of the Trust.
45
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
On April 1, 1991 the Trust established 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, 1993, included in Trustees' fees and expenses in
the Statement of Operations, amounted to $13,042. At September 30, 1993 the
Trust had an accrued pension liability of $36,244 which is included in accrued
expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
----------- -------------
<S> <C> <C>
Balance, September 30, 1991....................... 47,999,905 $ 480,077,680
Shares sold....................................... 3,526,367 35,240,056
Shares issued to shareholders for reinvestment of
dividends........................................ 1,466,871 14,658,466
Shares tendered (four quarterly tender offers).... (11,603,111) (115,915,078)
----------- -------------
Balance, September 30, 1992....................... 41,390,032 414,061,124
Shares sold....................................... 1,735,717 17,314,978
Shares issued to shareholders for reinvestment of
dividends........................................ 1,113,636 11,101,773
Shares tendered (four quarterly tender offers).... (12,811,288) (127,608,405)
----------- -------------
Balance, September 30, 1993....................... 31,428,097 $ 314,869,470
----------- -------------
----------- -------------
</TABLE>
On October 22, 1993, the Trustees approved a tender offer to purchase up to
4 million shares of beneficial interest to commence on November 17, 1993.
6. FEDERAL INCOME TAX STATUS--Any net capital loss incurred after October 31
within the taxable year is deemed to arise on the first business day of the
Trust's next taxable year. The Trust incurred and elected to defer a net capital
loss of approximately $434,000 during fiscal 1993. To the extent that this loss
is used to offset future capital gains, it is probable that the gains so offset
will not be distributed to shareholders.
7. COMMITMENTS AND CONTINGENCIES--As of September 30, 1993, the Trust had
unfunded loan commitments pursuant to the following loan agreements:
<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENT
---------------------------------------- ------------
<S> <C>
Farm Fresh, Inc......................... $1,695,486
Kaiser Aluminum and Chemical Corp....... 2,907,143
Playtex Family Products, Inc............ 3,505,154
------------
$8,107,783
------------
------------
</TABLE>
8. FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK--When the Trust
purchases a Participation, the Trust typically enters into a contractual
relationship with the Lender or third party selling such Participation ("Selling
Participant"), but not with the Borrower. As a result, the Trust assumes the
credit risk of the Borrower, the Selling Participant and any other persons
interpositioned between the Trust and the Borrower ("Intermediate Participants")
and the Trust may not directly benefit from the collateral supporting the Senior
Loan in which it has purchased the Participation. Because the Trust will only
acquire Participations if the Selling Participant and each Intermediate
Participant is a financial institution, the Trust may be considered to have a
concentration of credit risk in the banking industry. At September 30, 1993,
such Participations had a fair value of $22,089,928.
The Trust will invest only in Senior Loans where the Investment Adviser
believes that the Borrower can meet debt service requirements in a timely manner
and where the market value of the collateral at the time of investment equals or
exceeds the amount of the Senior Loan. In addition, the Trust will only acquire
Participations if the Selling Participant, and each Intermediate Participant, is
a financial institution which meets certain minimum creditworthiness standards.
46
<PAGE>
PRIME INCOME TRUST
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data and ratios for a share of beneficial interest outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
NOVEMBER 30,
1989*
FOR THE YEAR ENDED SEPTEMBER 30, THROUGH
--------------------------------- SEPTEMBER
1993 1992 1991 30, 1990
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period.................. $ 9.99 $ 10.00 $ 10.00 $ 10.00
--------- --------- --------- ------------
Investment income--net.... .55 .62 .84 .74
Realized and unrealized
loss on invest-
ments--net............... (.08) (.01) -0- (.01)
--------- --------- --------- ------------
Total from investment
operations................. .47 .61 .84 .73
--------- --------- --------- ------------
Dividends from net
investment income.......... (.55) (.62) (.84) (.73)
--------- --------- --------- ------------
Net asset value, end of
period..................... $ 9.91 $ 9.99 $ 10.00 $ 10.00
--------- --------- --------- ------------
--------- --------- --------- ------------
TOTAL INVESTMENT RETURN+...... 4.85% 6.23% 8.77% 7.57%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)............. $311,479 $413,497 $479,941 $328,189
Ratio of expenses to average
net assets................. 1.45% 1.47% 1.52% 1.48%(2)
Ratio of net investment
income to average net
assets..................... 5.53% 6.14% 8.23% 8.95%(2)
Portfolio turnover rate..... 92% 46% 42% 35%
<FN>
------------------------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT INCLUDE THE DEDUCTION OF SALES LOAD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
Prime Income Trust
Dear Shareholder:
As you requested, we are enclosing a copy of the Prime Income Trust (the
"Trust") Offer to Purchase 4,000,000 of its issued and outstanding common shares
of beneficial interest (the "Common Shares") and the related Letter of
Transmittal (which together constitute the "Offer"). The Offer is for cash at
the net asset value ("NAV") per Common Share computed as of 4:00 P.M. New York
City time on the expiration date of the Offer. The expiration date is 4:00 P.M.
New York City time on September 15, 1995, unless extended as stated in the
Offer. An "Early Withdrawal Charge" will be imposed on most Common Shares
accepted for payment that have been held for four years or less. Please read
carefully the enclosed documents, which include the Trust's most recent
financial statements.
If after reviewing the information set forth in the Offer, you wish to
tender Common Shares for purchase by the Trust, and you have a brokerage account
at Dean Witter Reynolds Inc. and your Common Shares are not evidenced by
certificates in your possession you may, if you wish, contact your account
executive and request that he or she tender your Common Shares on your behalf.
In such event you are not required to complete the enclosed Letter of
Transmittal.
If you do not have a brokerage account at Dean Witter Reynolds Inc. and wish
to tender Common Shares or do not wish to tender Common Shares through your
account executive at Dean Witter Reynolds Inc. or your Common Shares are
evidenced by certificates in your possession, please follow the instructions
contained in the Offer to Purchase and Letter of Transmittal.
Neither the Trust nor the Board of Trustees is making any recommendations to
any holder of Common Shares as to whether to tender Common Shares. Each
shareholder is urged to consult his or her account executive or tax adviser
before deciding whether to tender any Common Shares.
The Trust's NAV per Share on August 4, 1995 was $9.97. You can obtain
current NAV quotations from Dean Witter Reynolds Inc. by calling (800) 869-3863
extension 61. The Trust offers and sells its Common Shares to the public on a
continuous basis. The Trust is not aware of any secondary market trading for the
Common Shares.
Should you have any questions on the enclosed material, please do not
hesitate to call Dean Witter Reynolds Inc. at (800) 869-3863 extension 61 during
ordinary business hours. We appreciate your continued interest in Prime Income
Trust.
Sincerely,
PRIME INCOME TRUST
Two World Trade Center
New York, NY 10048
Telephone (212) 392-1600
<PAGE>
LETTER OF TRANSMITTAL
REGARDING COMMON SHARES
OF
PRIME INCOME TRUST
TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED AUGUST 16, 1995
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 4:00 P.M. NEW YORK CITY
TIME ON FRIDAY, SEPTEMBER 15, 1995, UNLESS THE OFFER IS EXTENDED
TO THE DEPOSITARY:
DEAN WITTER TRUST COMPANY
<TABLE>
<S> <C>
BY MAIL: BY HAND DELIVERY OR COURIER:
Dean Witter Trust Company Dean Witter Trust Company
P.O. Box 984 Harborside Financial Center
Jersey City, New Jersey 07303 Plaza Two
Jersey City, New Jersey 07311
Attn: Prime Income Trust
</TABLE>
FOR DELIVERY INFORMATION CALL:
(800) 526-3143 extension 6097
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF COMMON SHARES TENDERED (SEE INSTRUCTIONS 3 AND 4)
NAME(S) AND ADDRESS(ES) OF REGISTERED
OWNER(S) (PLEASE FILL IN EXACTLY THE
NAME(S) IN WHICH COMMON SHARES ARE COMMON SHARES TENDERED
REGISTERED) (ATTACH ADDITIONAL SCHEDULE IF NECESSARY)
NO. OF COMMON
CERTIFICATE NO.(S)* NO. OF COMMON SHARES* SHARES TENDERED**
Total Common Shares
Account No. Tendered
* If Common Shares are not evidenced by certificates please write "None".
** To be completed by all tendering shareholders, whether or not your Common Shares are evidenced by certificates. If
you desire to tender fewer than all Common Shares held in your account or evidenced by a certificate listed above,
please indicate in this column the number you wish to tender. Otherwise all Common Shares evidenced by such
certificate or held in your account will be deemed to have been tendered.
</TABLE>
IMPORTANT
YOU SHOULD NOT COMPLETE THE LETTER OF TRANSMITTAL IF YOU ARE TENDERING
COMMON SHARES THROUGH YOUR DEAN WITTER REYNOLDS INC. ACCOUNT EXECUTIVE.
DELIVERY TO AN ADDRESS OTHER THAN THAT SHOWN ABOVE DOES NOT CONSTITUTE VALID
DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Gentlemen:
The undersigned hereby tenders to the Prime Income Trust, a non-diversified,
closed-end management investment company organized as a Massachusetts business
trust (the "Trust") under the name "Allstate Prime Income Trust", the
above-described common shares of beneficial interest, par value $.01 per share,
of the Trust (the "Common Shares"), at a price (the "Purchase Price") equal to
the net asset value per Common Share ("NAV") computed as of 4:00 P.M. New York
City time on the Expiration Date (as defined in the Offer to Purchase) in cash,
upon the terms and conditions set forth in the Offer to Purchase, dated August
16, 1995, receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which together constitute the "Offer"). An Early Withdrawal Charge
(as defined in the Offer to Purchase) will be imposed on most Common Shares
accepted for payment which have been held for four years or less.
Subject to and effective upon acceptance for payment of the Common Shares
tendered hereby in accordance with the terms of the Offer (including, if the
Offer is extended or amended, the terms or conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Trust all right, title and interest in and to all Common Shares
tendered hereby that are purchased pursuant to the Offer and hereby irrevocably
constitutes
<PAGE>
and appoints Dean Witter Trust Company (the "Depositary") as attorney-in-fact of
the undersigned with respect to such Common Shares, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) deliver certificates for such Common Shares or
transfer ownership of such Common Shares on the Trust's books, together in
either such case with all accompanying evidences of transfer and authenticity,
to or upon the order of the Trust, upon receipt by the Depositary, as the
undersigned's agent, of the NAV per Common Share with respect to such Common
Shares; (b) present certificates for such Common Shares, if any, for
cancellation and transfer on the Trust's books; (c) deduct from the Purchase
Price deposited with the Depositary the applicable Early Withdrawal Charge and
remit such charge to Dean Witter InterCapital Inc. ("InterCapital"), and (d)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Common Shares, subject to the next paragraph, all in accordance with the
terms of the Offer.
The undersigned hereby represents and warrants that: (a) the undersigned
"owns" the Common Shares tendered hereby within the meaning of Rule 10b-4
promulgated under the Securities Exchange Act of 1934, as amended, and has full
power and authority to validly tender, sell, assign and transfer the Common
Shares tendered hereby; (b) when and to the extent the Trust accepts the Common
Shares for purchase, the Trust will acquire good, marketable and unencumbered
title to them, free and clear of all security interests, liens, charges,
encumbrances, conditional sales agreements or other obligations relating to
their sale or transfer, and not subject to any adverse claim; (c) on request,
the undersigned will execute and deliver any additional documents the Depositary
or the Trust deems necessary or desirable to complete the assignment, transfer
and purchase of the Common Shares tendered hereby; and (d) the undersigned has
read and agrees to all of the terms of the Offer.
The names and addresses of the registered owners should be printed, if they
are not already printed above, as they appear on the registration of the Common
Shares. The certificate numbers, if any, and the number of Common Shares that
the undersigned wishes to tender should be indicated in the appropriate boxes.
The undersigned recognizes that under certain circumstances set forth in the
Offer to Purchase, the Trust may terminate or amend the Offer or may not be
required to purchase any of the Common Shares tendered hereby. In any such
event, the undersigned understands that certificate(s) for any Common Shares not
purchased, if any, will be returned to the undersigned at the address indicated
above unless otherwise indicated under the Special Payment Instructions or
Special Delivery Instructions below. The undersigned recognizes that the Trust
has no obligation, pursuant to the Special Payment Instructions, to transfer any
Common Shares from the name of the registered owner thereof if the Trust
purchases none of such Common Shares.
The undersigned understands that acceptance of Common Shares by the Trust
for payment will constitute a binding agreement between the undersigned and the
Trust upon the terms and subject to the conditions of the Offer.
The check for the Purchase Price of the tendered Common Shares purchased,
minus any applicable Early Withdrawal Charge, will be issued to the order of the
undersigned and mailed to the address indicated above unless otherwise indicated
under the Special Payment Instructions or the Special Delivery Instructions
below. Shareholders tendering Common Shares shall be entitled to receive all
dividends declared on or before the Expiration Date, but not yet paid, on Common
Shares tendered pursuant to the Offer. The Trust will not pay interest on the
Purchase Price under any circumstances.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and all obligations of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Except as stated in the Offer, this tender is
irrevocable.
<TABLE>
<S> <C>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4, 5, 6 and 7) (See Instructions 4 and 7)
To be completed ONLY if certificates for Common
Shares not tendered or not purchased and/or any
To be completed ONLY if certificates for Common checks issued in the name of the undersigned are
Shares not tendered or not purchased and/or any to be sent to someone other than the undersigned
checks are to be issued in the name of or sent to or to the undersigned at an address other than
someone other than the undersigned. that shown above.
Issue: / / check Mail: / / check
/ / certificates to: / / certificates to:
Name(s) Name(s)
--------------------------------------------- ---------------------------------------------
(Please Print) (Please Print)
Address Address
--------------------------------------------- ---------------------------------------------
-------------------------------------------------- --------------------------------------------------
(Include Zip Code) (Include Zip Code)
-------------------------------------------------- --------------------------------------------------
(Taxpayer Identification or (Tax Identification or
Social Security Number(s)) Social Security Number(s))
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SHAREHOLDER(S) SIGN HERE
(See Instructions 1 and 5)
(Please see Substitute Form W-9 on Reverse Side)
Must be signed by registered owner(s) exactly as registered or by person(s) authorized to
become registered owner(s) by documents transmitted with the Letter of Transmittal. If
signature is by attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary or representative capacity, please set forth
the full title. See Instruction 5.
----------------------------------------------------------------------
----------------------------------------------------------------------
(SIGNATURE(S) OF OWNER(S) EXACTLY AS REGISTERED)
Dated --------------------------------------------- , 19----
Name(s) ------------------------------------------------------
----------------------------------------------------------------------
(PLEASE PRINT)
----------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
Area Code and Daytime Telephone Number ( ) ------------------------
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
Authorized Signature
----------------------------------------------------------------
Name
----------------------------------------------------------------------
(PLEASE PRINT)
Title
----------------------------------------------------------------------
Name of Firm
----------------------------------------------------------------------
Address
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
(INCLUDE ZIP CODE)
----------------------------------------------------------------------
Area Code and Telephone Number ------------------------
Dated --------------------------------------------- , 19----
</TABLE>
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. If the Letter of Transmittal is signed by the
registered owner of the Common Shares, the payment of the Purchase Price is to
be sent to the registered owner of the Common Shares and to the address shown in
the Common Share registration, unless such owner has completed the box entitled
either "Special Payment Instructions" or "Special Delivery Instructions" above,
no signature guarantee is required. In all other cases, all signatures on this
Letter of Transmittal must be guaranteed by an eligible guarantor acceptable to
the Depositary (an "Eligible Guarantor") (shareholders should contact the
Depositary for a determination as to whether a particular institution is an
Eligible Guarantor).
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be used only if you do not have a brokerage account at DWR or
you desire to effect the tender offer transaction yourself. A properly completed
and duly executed Letter of Transmittal or manually signed facsimile of it, any
certificates representing Common Shares tendered and any other documents
required by this Letter of Transmittal should be mailed or delivered to the
Depositary at the appropriate address set forth herein and must be received by
the Depositary on or prior to the Expiration Date (as defined in the Offer to
Purchase).
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR COMMON
SHARES, IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED.
The Trust will not accept any alternative, conditional or contingent
tenders. All tendering shareholders, by execution of this Letter of Transmittal
(or a manually signed facsimile of it), waive any right to receive any notice of
the acceptance of their tender.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Common Shares Tendered" is inadequate, the certificate numbers,
if any, and number of Common Shares should be listed on a separate signed
schedule attached hereto.
4. PARTIAL TENDERS AND UNPURCHASED SHARES. If fewer than all of the Common
Shares evidenced by any certificate submitted are to be tendered, fill in the
number of Common Shares which are to be tendered in the column entitled "No. of
Common Shares Tendered." In such case, if any tendered Common Shares are
purchased, a new certificate for the remainder of the Common Shares evidenced by
your old certificate(s) will be issued and sent to the registered owner, unless
otherwise specified in the "Special Payment Instructions" or "Special Delivery
Instructions" boxes on this Letter of Transmittal, as soon as practicable after
the Expiration Date of the Offer. All Common Shares represented by certificates
listed and delivered to the Depositary are deemed to have been tendered unless
otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, AUTHORIZATIONS AND ENDORSEMENTS.
(a) If this Letter of Transmittal is signed by the registered owner(s) of
the Common Shares tendered hereby, the signature(s) must correspond exactly with
the name(s) in which the Common Shares are registered.
(b) If the Common Shares are held of record by two or more joint owners,
each such owner must sign this Letter of Transmittal.
(c) If any tendered Common Shares are registered in different names, it will
be necessary to complete, sign and submit as many separate Letters of
Transmittal (or manually signed facsimiles of it) as there are different
registrations of Common Shares.
(d) When this Letter of Transmittal is signed by the registered owner(s) of
the Common Shares listed and transmitted hereby, no endorsements of any
certificate(s) representing such Common Shares or separate authorizations are
required. If, however, payment is to be made to a person other than the
registered owner(s) or any certificates for unpurchased Common Shares are to be
issued to a person other than the registered owner(s), then the Letter of
Transmittal and, if applicable, the certificate(s) transmitted hereby, must be
endorsed or accompanied by appropriate authorizations, in either case signed
exactly as such name(s) appear on the registration of the Common Shares and on
the face of the certificate(s) and such endorsements or authorizations must be
guaranteed by an Eligible Guarantor. See Instruction 1.
(e) If this Letter of Transmittal or any certificates or authorizations are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Trust of their authority so to act.
6. TRANSFER TAXES. The Trust will pay all share transfer taxes, if any,
payable on the transfer to it of Common Shares purchased pursuant to the Offer.
If, however, (a) payment of the Purchase Price is to be made to any person other
than the registered owner(s), (b) (in the circumstances permitted by the Offer)
unpurchased Common Shares are to be registered in the name(s) of any person
other than the registered owner(s) or (c) tendered certificates are registered
in the name(s) of any person other than the person(s) signing this Letter of
Transmittal, the amount of any transfer taxes (whether imposed on the registered
owner(s) or such other persons) payable on account of the transfer to such
person(s) will be deducted from the Purchase Price by the Depositary unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If certificates for
unpurchased Common Shares and/or checks are to be issued in the name of a person
other than the signer of this Letter of Transmittal or if such certificates
and/or checks are to be sent to someone other than the signer of this Letter of
Transmittal or to the signer at a different address, the captioned boxes
"Special Payment Instructions" and/or "Special Delivery Instructions" on this
Letter of Transmittal should be completed.
8. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any tender of Common Shares will
be determined by the Trust in its sole discretion, whose determination shall be
final and binding on all parties. The Trust reserves the absolute right to
reject any or all tenders determined by it not to be in appropriate form or the
acceptance of or payment for any Common Shares which may, in the opinion of the
Trust's counsel be unlawful. The Trust also reserves the absolute right to waive
any of the conditions of the Offer or any defect or irregularity in
<PAGE>
tender of any particular Common Shares or any particular shareholder, and the
Trust's interpretations of the terms and conditions of the Offer (including
these instructions) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders must be cured within such
time as the Trust shall determine. Tendered Common Shares will not be accepted
for payment unless all defects and irregularities have either been cured within
such time or waived by the Trust. None of the Trust, Dean Witter Reynolds Inc.,
the Depositary, or any other person shall be obligated to give notice of defects
or irregularities in tenders, nor shall any of them incur any liability for
failure to give any such notice.
9. QUESTIONS AND REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to Dean Witter InterCapital Inc.,
Two World Trade Center, New York, N.Y. 10048, or by telephone (800) 869-3863
extension 61. Additional copies of the Offer to Purchase and this Letter of
Transmittal may be obtained from Dean Witter Trust Company, (by mail) P.O. Box
984, Jersey City, New Jersey 07303 or (by hand delivery or courier) Harborside
Financial Centre, Plaza Two, Jersey City, New Jersey 07311 or by telephone (800)
526-3143 extension 7236.
10. SUBSTITUTE FORM W-9. Each tendering shareholder who has not already
submitted a completed and signed Substitute Form W-9 to the Trust is required to
provide the Depositary with a correct taxpayer identification number ("TIN") on
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to indicate that the shareholder is not subject to backup withholding by
checking the box in Part 2 of the form. Failure to provide the information on
the form or to check the box in Part 2 of the form may subject the tendering
shareholder to 31% federal income tax withholding on the payments made to the
shareholder or other payee wi th respect to Common Shares purchased pursuant to
the Offer. The box in Part 3 of the Form may be checked if the tendering
shareholder has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part 3 is checked and the
Depositary is not provided with a TIN within sixty (60) days, the Depositary
will withhold 31% on all such payments thereafter until a TIN is provided to the
Depositary.
11. WITHHOLDING ON FOREIGN SHAREHOLDERS. The Depositary will withhold
federal income taxes equal to 30% of the gross payments payable to a foreign
shareholder unless the Depositary determines that a reduced rate of withholding
or an exemption from withholding is applicable. For this purpose, a foreign
shareholder is any shareholder that is not (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, or (iii) any estate or trust the income of which is subject to United
States federal income taxation regardless of the source of such income. The
Depositary will determine a shareholder's status as a foreign shareholder and
eligibility for a reduced rate of, or an exemption from, withholding by
reference to the shareholder's address and to any outstanding certificates or
statements concerning eligibility for a reduced rate of, or exemption from,
withholding unless facts and circumstances indicate that reliance is not
warranted. A foreign shareholder who has not previously submitted the
appropriate certificates or statements with respect to a reduced rate of, or an
exemption from, withholding for which such shareholder may be eligible should
consider doing so in order to avoid overwithholding. A foreign shareholder may
be eligible to obtain a refund of tax withheld if such shareholder meets one of
the three tests for capital gain or loss treatment described in Section 15 of
the Offer to Purchase or is otherwise able to establish that no tax or a reduced
amount of tax was due.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE OF IT
(TOGETHER WITH ANY CERTIFICATES FOR COMMON SHARES AND ALL OTHER REQUIRED
DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY ON OR BEFORE THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under federal income tax law, a shareholder whose tendered Common Shares are
accepted for payment is required by law to provide the Depositary with such
shareholder's correct TIN on Substitute Form W-9 below. If the Depositary is not
provided with a certified TIN, the Internal Revenue Service may subject the
shareholder or other payee to a $50 penalty. In addition, payments that are made
to such shareholder or other payee with respect to Common Shares purchased
pursuant to the Offer may be subject to backup withholding.
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, the shareholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed "Guidelines for Certificate of
Taxpayer Identification Number on Substitute Form W-9" for more instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any such payments made to the shareholder or other payee. Backup withholding is
not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made to a shareholder or other
payee with respect to Common Shares purchased pursuant to the Offer, the
shareholder who has not already submitted a completed and signed Substitute Form
W-9 to the Trust is required to notify the Depositary of the shareholder's
correct TIN by completing the form below, certifying that the TIN provided on
Substitute Form W-9 is correct (or that such shareholder is awaiting a TIN) and
that:
(a) the shareholder has not been notified by the Internal Revenue
Service that the shareholder is subject to backup withholding as a result of
failure to report all interest or dividends; or
(b) the Internal Revenue Service has notified the shareholder that the
shareholder is no longer subject to backup withholding.
<PAGE>
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record owner of the
Common Shares. If the Common Shares are in more than one name or are not in the
name of the actual owner, consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which number to report.
<TABLE>
<C> <S> <C>
PAYER'S NAME: DEAN WITTER TRUST COMPANY
Part 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. OR
--------------------------
SUBSTITUTE Employer Identification
FORM W-9 Number
Part 2--Check the box if you are NOT subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code because (1)
you have not been notified that you are subject to backup withholding as a
result of failure to report all interest or dividends or (2) the Internal
Department of the Treasury Revenue Service has notified you that you are no longer subject to backup
Internal Revenue Service withholding. / /
</TABLE>
<TABLE>
<C> <S> <C>
CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE Part 3
PAYER'S REQUEST FOR TAXPAYER INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT, AND
IDENTIFICATION NUMBER ("TIN") COMPLETE.
SIGNATURE --------------------------- DATE --------------- Awaiting TIN / /
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 20% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF SUBSTITUTE FORM W-9
<TABLE>
<S> <C> <C>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number has not been issued to me, and
either (a) I have mailed or delivered an application to receive a Taxpayer Identification Number to the
appropriate Internal Revenue Service Center or Social Security Administration Office, or (b) I intend to
mail or deliver an application in the near future. I understand that if I do not provide a Taxpayer
Identification Number within sixty (60) days, 31% of all reportable payments made to me thereafter will be
withheld until I provide a number.
---------------------------------------------------------- ------------------------------------------
SIGNATURE DATE
</TABLE>
<PAGE>
DEPOSITARY AGREEMENT
Date: August 4, 1995
Dean Witter Trust Company
2 Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attn: John Van Heuvelen
President
Gentlemen:
Prime Income Trust, a non-diversified, closed-end management investment
company organized as a Massachusetts business trust (the "Trust") under the name
"Allstate Prime Income Trust" is offering to purchase up to 4,000,000 of its
common shares of beneficial interest, par value $.01 per share ("Common Shares")
for cash at a price equal to their net asset value ("NAV") computed as of 4:00
P.M. New York City time on the Expiration Date, upon the terms and conditions
set forth in its Offer to Purchase dated August 16, 1995 (the "Offer to
Purchase"), and in the related Letter of Transmittal, copies of which together,
as they may be amended from time to time, constitute the "Offer." The
"Expiration Date" for the Offer shall be 4:00 P.M., New York City Time, on
September 15, 1995, unless and until the Trust shall have extended the period of
time for which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date at which the Offer, as so extended by the
Trust, shall expire. All terms not defined herein shall have the same meaning as
in the Offer.
The Trust hereby agrees with you as follows:
1. You will act as the Depositary in connection with the Offer. In such
capacity you are authorized and directed to accept tenders of Common Shares in
accordance with the instructions received from the Trust. Tenders of Common
Shares may be made only as set forth in the Offer to Purchase, and tenders shall
be considered properly made to you only when:
(a) if such Common Shares are evidenced by certificates, certificate(s)
for such Common Shares, together with a properly completed and duly executed
Letter of Transmittal or manually executed facsimile thereof and any other
documents required by the Letter of Transmittal, are received by you on or
prior to the Expiration Date; or
(b) if such Common Shares are uncertificated, a properly completed and
duly executed Letter of Transmittal or manually executed facsimile thereof
indicating that such Common Shares are registered with you as Transfer Agent
in the name of the shareholder(s) and any other documents required by the
Letter of Transmittal, are received by you on or prior to the Expiration
Date; or
(c) if such Common Shares are uncertificated and have been tendered by
Dean Witter Reynolds Inc. ("DWR") on behalf of a shareholder, notification
is delivered by DWR to you by hand or transmitted by mail, telegram, telex,
facsimile transmission or by any other acceptable form and are received by
you on or prior to the Expiration Date, which notification, in whatever
form, contains the name of the tendering shareholder(s) and the number of
Common Shares tendered on behalf of such shareholder(s).
To be considered validly tendered, signatures on all Letters of Transmittal
must be guaranteed by an eligible guarantor acceptable to the Depositary (an
"Eligible Guarantor") (shareholders should contact the Depositary for a
determination as to whether a particular institution is an Eligible
1
<PAGE>
Guarantor), unless the Common Shares tendered thereby are tendered by a
registered holder of Common Shares who has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal. If the certificates are registered
in the name of a person other than the signer of the Letter of Transmittal, the
certificates must be endorsed or accompanied by appropriate authorizations, in
either case signed exactly as the name or names of the registered owner or
owners appear on the certificates, with the signatures on the certificates or
authorizations guaranteed as aforesaid and accompanied by such other
documentation as is customarily required by transfer agents under such
circumstances. Notwithstanding the foregoing provisions of this paragraph,
Common Shares that the Trust shall approve as having been properly tendered
shall be considered to be properly tendered.
You are also authorized and directed to return to any person tendering
Common Shares, in the manner described in Section 7 hereof, any certificates
representing Common Shares tendered by such person but duly withdrawn pursuant
to the Offer to Purchase. To be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be received by you within the
time period specified for withdrawal in the Offer to Purchase at your address
set forth on the back page of the Offer to Purchase. Any notice of withdrawal
must specify the name of the person having deposited the Common Shares to be
withdrawn, the number of Common Shares to be withdrawn and, if the certificates
representing such Common Shares have been delivered or otherwise identified to
you, the name of the registered holder(s) of such Common Shares as set forth in
such certificates. If the certificates have been delivered to you, then prior to
the release of such certificates the tendering stockholder must also submit the
serial numbers shown on the particular certificate evidencing such Common Shares
and the signature on the notice of withdrawal must be guaranteed by an Eligible
Guarantor. If Common Shares have been tendered pursuant to the procedures
described in subparagraph (b) above, the notice of withdrawal must specify the
name and number of the shareholder's account established with you as Transfer
Agent to be credited with the withdrawn Common Shares. If Common Shares have
been tendered on behalf of the shareholder by DWR pursuant to the procedures
described in subparagraph (c) above, a notice of withdrawal which follows the
procedures described above for uncertificated shares may be delivered by DWR.
All questions as to the form and validity (including time of receipt) of notices
of withdrawal will be determined by the Trust in its sole discretion whose
determination shall be final and binding. Any Common Shares withdrawn shall no
longer be considered to be properly tendered unless such Common Shares are
re-tendered on or prior to the Expiration Date pursuant to the Offer to
Purchase.
2. You are authorized and directed to examine any certificate representing
Common Shares, Letter of Transmittal (or facsimile thereof) and any other
document required by the Letter of Transmittal, which is delivered or mailed to
you to determine whether any tender is defective. In the event that any Letter
of Transmittal or other document has been improperly completed or executed or
any of the certificates for Common Shares are not in proper form for transfer
(as required by the aforesaid instructions) or if some other irregularity in
connection with the tender of Common Shares exists, you are authorized to advise
the tendering stockholder of the existence of the irregularity, but you are not
authorized (unless otherwise instructed by the Trust) to accept any tender of
fractional Common Shares, any tender not in accordance with the terms and
subject to the conditions set forth in the Offer, or any other tender which you
deem to be defective.
Promptly upon your determination that any tender is defective, you shall,
after consultation with and on the instruction of the Trust, use your best
efforts to notify the person tendering such Common Shares of such determination
and, if applicable, may return the certificates involved to such person in the
manner described in Section 7 hereof. The Trust shall have full discretion to
determine whether any tender is complete and proper and have the absolute right
to reject any or all tenders of any particular Common Shares determined by it
not to be in proper form and to determine whether the acceptance of or payment
for such tenders may, in the opinion of counsel for the Trust, be unlawful; it
2
<PAGE>
being specifically agreed that you shall neither have discretion nor
responsibility with respect to these determinations. The Trust also reserves the
absolute right to waive any of the conditions of the Offer or any defect or
irregularity in the tender of any particular Common Shares. The interpretation
by the Trust of the terms and conditions of the Offer to Purchase and Letter of
Transmittal shall be final and binding.
3. Any extension of the Offer, as the Trust shall determine, shall be
effective upon notice to you from the Trust given prior to the time the Offer
would otherwise have expired, and shall be promptly confirmed by the Trust in
writing. If at any time the Offer shall be terminated as permitted by the terms
thereof, the Trust shall promptly notify you of such termination.
4. At 5:00 P.M. New York City time, or as promptly as practicable
thereafter, daily or more frequently if requested as to major tally figures, you
shall advise each of the parties named below by telephone as to (i) the number
of Common Shares duly tendered; (ii) the number of Common Shares defectively
tendered; (iii) the number of Common Shares duly tendered represented by
certificates physically held by you as Transfer Agent; (iv) the number of Common
Shares tendered through DWR; (v) the number of Common Shares withdrawn on such
day; and (vi) the cumulative totals of Common Shares in categories (i) thru (v)
above through 12:00 noon on such day:
(a) Sheldon Curtis, Esq. or
Ruth Rossi, Esq.
Prime Income Trust
Two World Trade Center
New York, New York 10048
(212) 392-1520
(b) Charles A. Fiumefreddo
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
(212) 392-1550
You should also furnish to the above-named persons a written report
confirming the above information which has been communicated orally on the day
following such oral communication.
You shall furnish to the above-named persons and the Trust, such reasonable
information on the tendering shareholders as may be requested from time to time.
You shall furnish to the Trust, upon request, master lists of Common Shares
tendered for purchase, including an A to Z list of the tendering shareholders.
You are also authorized and directed to provide the persons listed above or
any other persons designated by such persons and approved by the Trust with such
other information relating to the Common Shares, the Offer to Purchase, and
Letters of Transmittal, as the Trust may reasonably request from time to time.
5. Letters of Transmittal, Telegrams, Telexes, Facsimile Transmissions,
Notices and Letters submitted to you pursuant to the Offer to Purchase shall be
stamped by you to indicate the date and time of the receipt thereof and these
documents, or copies thereof, shall be preserved by you for a reasonable time
not to exceed one year or the term of this Agreement, whichever is longer, and
thereafter shall be delivered by you to the Trust.
6. (a) If under the terms and conditions set forth in the Offer to
Purchase the Trust becomes obligated to accept and pay for Common Shares
tendered, upon instruction by the Trust and as promptly as practicable you
shall, subject to Section 7 hereof, deliver or cause to be delivered to the
tendering shareholders and designated payees, consistent with this Agreement and
the Letter of
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Transmittal, payment in the amount of the applicable purchase price specified in
the Offer for the Common Shares theretofore properly tendered and purchased
under the terms and conditions of the Offer. The Trust shall ensure that
sufficient funds are available to you to enable you to deliver or cause to be
delivered such payment.
(b) At such time as shall be determined by the Trust, you shall effect the
transfer of all Common Shares purchased pursuant to the Offer, in accordance
with instructions from the Trust, and deliver the certificates for such Common
Shares to the Trust.
7. If, pursuant to the terms and conditions of the Offer, the Trust does
not accept certain of the Common Shares tendered or a shareholder withdraws any
tendered Common Shares, you shall promptly return the deposited certificates, if
any, for such Common Shares and a duplicate of the Letter of Transmittal
relating to such Common Shares, together with any other required documents, to
the persons who deposited the same, without expense to such person. If a
shareholder delivers to you a certificate representing a number of Common Shares
in excess of the number of Common Shares tendered by such shareholder, you shall
promptly after the Expiration Date return to such shareholder a certificate
representing the Common Shares not tendered. Certificates, if any, for such
unpurchased Common Shares shall be forwarded by you by (i) first class mail
under a blanket surety bond protecting you and the Trust from loss or
liabilities arising out of the non-receipt or non-delivery of such Common
Shares; or (ii) registered mail insured separately for the replacement value of
such Common Shares.
8. You shall take all reasonable action as may from time to time be
requested by the Trust and you shall be reasonably compensated for such action.
9. For your services as Depositary hereunder you shall be entitled to
compensation as described in the Transfer Agency and Service Agreement between
you and the Trust dated as of August 1, 1993, as amended to date.
10. As Depositary hereunder you:
(a) shall have no duties or obligations other than those specifically
set forth herein or in Exhibits A and B hereto, or as may subsequently be
agreed to by you and the Trust;
(b) shall have no obligation to make payment for any tendered Common
Shares unless the Trust shall have provided the necessary funds to pay in
full all amounts due and payable with respect thereto;
(c) shall be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of
any certificates of the Common Shares represented thereby deposited with you
hereunder and will not be required to and will make no representations as to
the validity, value, or genuineness of the Offer;
(d) shall not be obligated to take any legal action hereunder and where
the taking of such action might in your judgment involve any expense or
liability you shall not act unless you shall have been furnished with an
indemnity reasonably satisfactory to you;
(e) may rely on and shall be protected in acting upon any certificate,
instrument, opinion, notice, letter, telegram, or other document or security
delivered to you and believed by you to be genuine and to have been signed
by the proper party or parties;
(f) may rely on and shall be protected in acting upon the written and
oral instructions, with respect to any matter relating to your actions as
Depositary specifically covered by this Agreement (or supplementing or
qualifying any such actions), of officers of the Trust;
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(g) may consult counsel satisfactory to you, including your in-house
counsel, and the opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered, or
omitted by you hereunder in good faith and in accordance with the opinion of
such counsel;
(h) shall not be called upon at any time to, and shall not, advise any
person tendering pursuant to the Offer as to the wisdom of making such
tender or as to the market value of any security tendered thereunder; and
(i) are not authorized, and shall have no obligation, to pay any
brokers, dealers, or soliciting fees to any person.
11. The Trust covenants to indemnify and hold you harmless against any loss,
liability, or expense (including any loss, liability, or expense incurred for
submitting for transfer Common Shares tendered without a signature guarantee
pursuant to the Letter of Transmittal and including the reasonable fees and
expenses of your counsel) incurred without negligence or bad faith on your part
arising out of or in connection with the administration of your duties
hereunder, including the costs and expenses of defending yourself against any
claim or liability in the premises. In no case shall the Trust be liable under
this indemnity with respect to any claim against you unless the Trust shall be
notified by you, by letter or by telex confirmed by letter, of the written
assertion of a claim against you or of any action commenced against you,
promptly after you shall have been served with the summons, or other first legal
process giving information as to the nature and basis of the claim, but failure
to so notify the Trust shall not release the Trust of any liability which it may
otherwise have on account of this Agreement. The Trust shall be entitled to
participate at its own expense in the defense of any suit brought to enforce any
such claim.
12. Unless terminated earlier by the parties hereto, this Agreement shall
terminate upon conclusion of the Offer.
13. The instructions contained herein may be modified or supplemented by the
Trust or by an officer thereof authorized to give any notice, approval, or
waiver on its behalf. In the event that any claim of inconsistency between this
Agreement and the terms of the Offer arise, as they may from time to time be
amended, the terms of the Offer shall control, except with respect to the
duties, liabilities and indemnification of you as Depositary which shall be
controlled by the terms of this Agreement.
14. If any provision of this Agreement shall be held illegal, invalid, or
unenforceable by any court, this Agreement shall be construed and enforced as if
such provision had not been contained herein and shall be deemed an Agreement
among us to the full extent permitted by applicable law.
15. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, and shall inure to the benefit of and be binding
upon the successors and assigns of the parties hereto; provided that this
Agreement may not be assigned by you without the prior written consent of the
Trust.
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Please acknowledge receipt of this Letter, the Offer to Purchase and the
Letter of Transmittal and confirm the arrangements herein provided by signing
and returning the enclosed copy hereof, whereupon this Agreement and your
acceptance of the terms and conditions herein provided shall constitute a
binding Agreement between us.
Very truly yours,
PRIME INCOME TRUST
By:
--------------------------------------
(Name & Title)
Accepted as of the date
first above written:
DEAN WITTER TRUST COMPANY,
as DEPOSITARY
By:
--------------------------------------
(Name & Title)
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