PRIME INCOME TRUST, SC 13E4, 1997-02-10

PRIME INCOME TRUST
SC 13E4, 1997-02-10

Previous: FOUNDERS ASSET MANAGEMENT INC, SC 13G/A, 1997-02-10

Next: LATTICE SEMICONDUCTOR CORP, 10-Q, 1997-02-10

<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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)

------------------------

FEBRUARY 12, 1997
(Date Tender Offer First Published,
Sent or Given to Security Holders)

------------------------

CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

TRANSACTION VALUATION $39,800,000 (a) AMOUNT OF FILING FEE: $7,960 (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 February 7, 1997
there were approximately 109,963,626 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 February 12, 1997 (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.

(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 February 7, 1997.
(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

February 10, 1997

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......
</TABLE>

- ------------------------
*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.

<PAGE>
EXHIBIT (a)(1)(i)

ADVERTISEMENT PRINTED IN THE WALL STREET JOURNAL
NATIONAL EDITION
<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
February 12, 1997, 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 12:00 MIDNIGHT,
NEW YORK CITY TIME ON MARCH 14, 1997, 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 March 14, 1997, the Expiration
Date, unless extended, upon the terms and conditions set forth in the Offer to
Purchase dated February 12, 1997 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 February 7, 1997, was $9.95 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 12:00 Midnight, New York City time on March 14, 1997, and, if not
yet accepted for payment by the Trust, Common Shares may also be withdrawn after
April 11, 1997. 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) 869-NEWS extension 0
February 12, 1997

================================================================================

<PAGE>
EXHIBIT (a)(1)(ii)

OFFER TO PURCHASE
<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 12:00 MIDNIGHT NEW YORK CITY TIME
ON MARCH 14, 1997, 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 March 14, 1997. The
offer, proration period and withdrawal rights will expire at 12:00 midnight New
York City time on March 14, 1997 (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 February 7, 1997 was $9.95 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.

February 12, 1997 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) 869-NEWS
Extension 0

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--September 30, 1996.......... 13

19. Financial Statements--September 30, 1995.......... 30
</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 12:00 A.M., midnight, New York City time, on March 14, 1997 (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 February 7, 1997 was $9.95 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 February 7, 1997, there were approximately 109,963,626 Common Shares
issued and outstanding and there were approximately 49,061 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. If you wish to tender your shares on the Expiration Date
following the close of business you may do so by calling (201) 938-6499.

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

6
<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, or by calling (201) 938-6499 on the Expiration Date
following the close of business. 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 April 11, 1997.

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

7
<PAGE>
account of the transfer to such person will be deducted from the Purchase Price
unless satisfactory evidence 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 reasonable business 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 February 7, 1997 was $9.95. You can obtain current NAV quotations from
InterCapital by calling (800) 869-3863 extension 61 or by calling (201) 938-6499
on the Expiration Date following the close of business. 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 February 7, 1997 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 February 7, 1997, 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 $39,800,000
(assuming a NAV of $9.95 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

11
<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.

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

February 12, 1997

12
<PAGE>
18. FINANCIAL STATEMENTS--SEPTEMBER 30, 1996

PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SENIOR COLLATERALIZED TERM LOANS (a) (93.0%)
ADVERTISING (3.3%)
$ 7,250 Eller Media Co.......................... 8.69% 12/21/03 $ 7,249,637
5,844 Outdoor Systems, Inc.................... 9.03 12/31/02 5,844,101
5,844 Outdoor Systems, Inc.................... 9.03 12/31/03 5,844,101
12,000 Treasure Chest Advertising Co., Inc..... 7.94 12/31/02 12,000,000
---------------
30,937,839
---------------
AEROSPACE (1.3%)
561 Gulf Stream Aerospace Corp.............. 7.63 03/31/97 560,565
2,900 Gulf Stream Aerospace Corp.............. 8.69 03/31/98 2,899,043
5,608 Howmet Corp............................. 8.50 11/20/02 5,608,102
3,105 Howmet Corp............................. 8.75 05/20/03 3,104,820
---------------
12,172,530
---------------
AIR FREIGHT (1.1%)
5,000 Continental Micronesia, Inc.
(Participation: Bankers Trust Co.)
(b)..................................... 7.25 07/31/01 4,998,550
5,000 Continental Micronesia, Inc............. 7.25 07/31/01 4,998,550
---------------
9,997,100
---------------
APPAREL (1.9%)
866 Anvil Knitwear, Inc..................... 7.94 02/03/01 866,718
8,936 Anvil Knitwear, Inc..................... 8.94 to 10.25 02/02/02 8,934,967
4,525 Hosiery Corporation of America, Inc..... 8.75 to 9.06 07/31/01 4,525,043
277 London Fog Industries, Inc.*............ 0.00 05/31/02 263,580
2,823 London Fog Industries, Inc.............. 9.25 + 05/31/02 2,681,831
581 London Fog Industries, Inc. (c)......... 12.50 05/31/02 551,691
---------------
17,823,830
---------------
AUTO PARTS (1.8%)
9,444 Hayes Wheels International, Inc......... 8.47 to 8.60 07/31/03 9,444,603
7,555 Hayes Wheels International, Inc......... 8.97 to 9.10 07/31/04 7,555,580
---------------
17,000,183
---------------
BEVERAGES - SOFT DRINKS (1.1%)
3,960 Select Beverages, Inc................... 8.75 to 9.06 06/30/01 3,959,557
5,940 Select Beverages, Inc................... 9.00 to 9.19 06/30/02 5,939,403
---------------
9,898,960
---------------
BREWERS (1.6%)
15,000 The Stroh Brewery Co.................... 8.56 06/30/01 15,000,000
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BROADCAST MEDIA (4.1%)
$ 3,500 Benedek Broadcasting Corp............... 8.50% 05/01/01 $ 3,500,070
3,500 Benedek Broadcasting Corp............... 9.00 11/01/02 3,500,070
4,971 Chancellor Broadcasting Co.............. 8.25 09/01/03 4,971,528
10,000 Citicasters, Inc........................ 8.19 09/18/04 9,999,900
9,587 River City Broadcasting, L.P............ 8.63 12/31/99 9,587,239
6,522 Silver King Communications, Inc......... 8.44 07/31/02 6,521,457
---------------
38,080,264
---------------
BUILDING MATERIALS (1.3%)
12,479 National Gypsum Co...................... 7.84 to 8.00 09/30/03 12,478,470
---------------
BUSINESS SERVICES (1.7%)
8,000 Experian Information Solutions, Inc..... 8.63 09/18/03 7,999,600
8,000 Experian Information Solutions, Inc..... 9.13 09/18/04 7,999,520
---------------
15,999,120
---------------
CABLE TELEVISION EQUIPMENT (1.1%)
10,000 Marcus Cable Operating Co. L.P.......... 8.22 to 8.44 04/30/04 10,000,347
---------------
CABLE/CELLULAR (5.9%)
10,000 Charter Communications Entertainment I,
L.P..................................... 8.25 12/31/04 10,000,100
25,000 Nextel Communications, Inc.............. 10.25 06/30/03 25,000,000
20,000 Western Wireless Corp................... 8.31 03/31/05 19,999,800
---------------
54,999,900
---------------
COAL (0.7%)
7,000 Alliance Coal Corp...................... 8.88 12/31/02 6,999,650
---------------
CONSUMER PRODUCTS (1.7%)
6,411 Chattem, Inc............................ 8.23 to 10.50 10/29/03 6,412,501
10,000 Revlon Consumer Products Corp........... 8.00 to 8.19 03/31/99 9,998,854
---------------
16,411,355
---------------
CONTAINERS (1.8%)
16,794 Silgan Corporations..................... 8.53 to 8.75 03/15/02 16,791,581
---------------
CONVENIENCE STORES (1.0%)
9,456 Cumberland Farms, Inc. (Participation:
Merrill Lynch & Co., Inc.) (b).......... 8.75 12/31/98 9,455,898
---------------
DRUG STORES (1.2%)
7,500 Duane Reade, Inc........................ 9.50 12/31/99 7,498,950
3,549 M & H Drugs, Inc........................ 9.63 12/31/96 3,548,835
---------------
11,047,785
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ELECTRONICS (1.1%)
$ 6,000 Details, Inc............................ 8.50% 01/31/02 $ 5,997,300
3,975 Vernitron Corp.......................... 9.38 to 10.50 04/25/02 3,975,119
---------------
9,972,419
---------------
ENTERTAINMENT & LEISURE TIME (4.4%)
10,726 AMF Group, Inc.......................... 8.44 03/31/03 10,724,163
4,228 AMF Group, Inc.......................... 8.69 03/31/04 4,227,372
14,438 Orion Pictures Corp..................... 8.06 to 8.13 06/30/01 14,437,261
11,707 Six Flags Theme Parks, Inc.............. 8.44 06/23/03 11,706,800
---------------
41,095,596
---------------
EQUIPMENT (1.1%)
9,880 Primeco, Inc............................ 8.56 to 8.63 12/31/00 9,878,558
---------------
FOOD PROCESSING (3.2%)
10,973 American Italian Pasta Co............... 9.31 to 9.50 02/27/04 10,967,607
8,839 Keebler Holding Corp.................... 8.38 to 9.19 07/31/03 8,834,682
9,876 Keebler Holding Corp.................... 8.63 to 9.19 07/31/04 9,873,811
---------------
29,676,100
---------------
FOOD SERVICES (3.7%)
6,743 Rykoff-Sexton, Inc...................... 8.63 10/31/02 6,743,041
3,236 Rykoff-Sexton, Inc...................... 8.88 04/30/03 3,236,357
5,880 SC International Services, Inc. &
Caterair International Corp............. 8.50 to 8.63 09/15/01 5,879,651
7,333 SC International Services, Inc. &
Caterair International Corp............. 8.50 to 8.63 09/15/02 7,332,675
1,613 SC International Services, Inc. &
Caterair International Corp............. 8.75 to 8.88 09/15/03 1,612,535
6,652 Volume Services, Inc.................... 8.75 12/31/02 6,651,602
3,326 Volume Services, Inc.................... 9.25 12/31/03 3,325,734
---------------
34,781,595
---------------
FOODS & BEVERAGES (1.7%)
3,125 Restaurants Unlimited, Inc.............. 9.00 06/03/00 3,125,000
7,912 Van de Kamp's, Inc...................... 8.88 to 10.25 04/30/03 7,916,231
4,951 Van de Kamp's, Inc...................... 9.13 to 10.50 09/30/03 4,953,819
---------------
15,995,050
---------------
FUNERAL SERVICES (1.1%)
5,000 Prime Succession, Inc................... 8.49 to 8.68 08/01/03 4,998,455
5,000 Prime Succession, Inc. (Participation:
Goldman Sachs & Co.) (b)................ 8.49 to 8.68 08/01/03 4,999,800
---------------
9,998,255
---------------
GAS-TRUCK STOP (0.4%)
3,682 Petro PSC Properties, L.P............... 8.80 05/24/01 3,680,668
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
HEALTHCARE (2.1%)
$ 7,260 Community Health Systems, Inc........... 8.63% 12/31/03 $ 7,260,564
7,260 Community Health Systems, Inc........... 9.13 12/31/04 7,260,492
5,479 Community Health Systems, Inc........... 9.38 12/31/05 5,479,562
---------------
20,000,618
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES (2.0%)
9,875 Graco Children's Products, Inc.......... 10.25 06/30/03 9,875,000
10,000 Lifestyle Furnishings International,
Ltd..................................... 8.50 08/05/04 10,000,100
---------------
19,875,100
---------------
INDUSTRIALS (0.8%)
7,714 UCAR International, Inc................. 7.63 12/31/02 7,714,826
---------------
MANUFACTURING (5.0%)
3,103 C.S. Brooks Canada, Inc................. 8.69 06/30/02 3,103,603
6,897 C.S. Brooks Canada, Inc................. 8.94 06/30/04 6,896,828
9,925 Desa International, Inc................. 7.94 to 8.13 08/31/01 9,925,106
9,980 Desa International, Inc................. 8.44 to 9.50 02/28/03 9,980,274
5,282 InterMetro Industries Corp.............. 8.50 to 8.56 06/30/03 5,282,417
4,108 InterMetro Industries Corp.............. 9.00 to 9.06 06/30/04 4,108,467
8,000 Panavision, Inc......................... 8.69 to 8.94 03/31/04 8,001,104
---------------
47,297,799
---------------
MANUFACTURING - DIVERSIFIED (0.6%)
5,200 Health O'Meter, Inc..................... 8.25 08/15/01 5,199,376
---------------
MEDIA GROUP (1.5%)
13,961 ADVO, Inc............................... 8.57 03/31/04 13,960,692
---------------
MEDICAL PRODUCTS & SUPPLIES (2.6%)
4,909 Dade International, Inc................. 8.75 12/31/02 4,908,845
4,909 Dade International, Inc................. 9.13 12/31/03 4,907,962
5,182 Dade International, Inc................. 9.38 12/31/04 5,180,523
2,727 Medical Specialties Group, Inc.......... 7.42 06/30/01 2,727,273
7,273 Medical Specialties Group, Inc.......... 8.17 06/30/04 7,272,655
---------------
24,997,258
---------------
METALS & MINING (1.0%)
9,000 U.S. Silica Corp........................ 8.88 12/31/03 9,000,270
---------------
MISCELLANEOUS (4.5%)
29,760 Borg-Warner Security Corp............... 8.75 12/31/98 29,758,849
12,865 Pinnacle Brands, Inc.................... 8.79 05/29/02 12,861,357
---------------
42,620,206
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OFFICE EQUIPMENT (0.7%)
$ 6,892 Knoll, Inc.............................. 8.48 to 8.50% 08/31/03 $ 6,891,616
---------------
OIL (0.8%)
7,500 Calciner Industries, Inc................ 8.82 09/30/04 7,498,200
---------------
PAPER PRODUCTS (0.4%)
2,994 Mail-Well Corp.......................... 8.44 07/31/03 2,994,324
1,078 Supermex, Inc........................... 8.44 07/31/03 1,077,823
---------------
4,072,147
---------------
PUBLISHING - BUSINESS (1.6%)
15,000 Advanstar Communications, Inc........... 8.63 12/31/03 15,000,450
---------------
RAILROAD EQUIPMENT (1.0%)
9,750 Johnstown America Industries, Inc....... 8.50 to 9.00 03/31/03 9,752,277
---------------
RECORD & TAPE (0.3%)
4,876 Camelot Music, Inc...................... 9.75 02/28/01 3,022,500
---------------
RETAIL - DEPARTMENT STORES (3.7%)
14,689 Caldor Corp. (Revolver)................. 6.19 to 8.25 12/31/98 14,686,755
14,863 Kmart Corp.............................. 8.00 06/06/99 14,862,945
5,420 Kmart Corp. (Revolver).................. 7.94 to 9.75 06/06/99 5,420,044
---------------
34,969,744
---------------
RETAIL - SPECIALTY (2.5%)
13,400 AnnTaylor, Inc.......................... 8.13 07/29/98 13,400,804
10,000 Kirkland's, Inc......................... 9.31 to 11.00 06/30/02 10,000,598
---------------
23,401,402
---------------
SPECIALTY PACKAGING (1.1%)
5,940 Calmar, Inc............................. 8.63 to 10.25 09/15/03 5,939,705
4,455 Calmar, Inc............................. 8.88 to 10.50 03/15/04 4,454,778
---------------
10,394,483
---------------
SPORTING GOODS (2.1%)
4,278 E & S Holdings Corp..................... 10.00 09/30/04 4,277,778
4,278 E & S Holdings Corp..................... 10.50 09/30/05 4,277,778
2,444 E & S Holdings Corp..................... 11.00 03/30/06 2,444,444
1,503 Worldwide Sports & Recreation, Inc...... 8.50 to 8.56 04/26/00 1,502,392
7,318 Worldwide Sports & Recreation, Inc...... 9.06 04/26/01 7,316,717
---------------
19,819,109
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SUPERMARKETS (3.6%)
$ 7,716 Food 4 Less Supermarkets, Inc........... 8.50% 06/15/01 $ 7,716,232
2,594 Food 4 Less Supermarkets, Inc........... 9.75 02/15/04 2,594,634
3,227 Food 4 Less Supermarkets, Inc.
(Revolver).............................. 8.19 to 8.31 06/15/01 3,227,916
4,677 Smith's Food & Drug Centers, Inc........ 8.69 11/30/03 4,677,255
4,677 Smith's Food & Drug Centers, Inc........ 9.19 11/30/04 4,677,255
4,677 Smith's Food & Drug Centers, Inc........ 9.44 08/31/05 4,677,255
3,778 Star Markets Company, Inc............... 8.50 12/31/01 3,777,216
2,830 Star Markets Company, Inc............... 9.00 12/31/02 2,829,924
---------------
34,177,687
---------------
TEXTILES (1.1%)
5,000 Blackstone Capital Company II, L.L.C.... 9.00 01/13/97 5,000,100
5,000 Wasserstein/C&A Holdings, L.L.C......... 9.13 01/13/97 4,999,900
---------------
10,000,000
---------------
TOYS (1.5%)
7,241 Ritvik Toys, Inc........................ 8.94 02/08/03 7,240,943
7,241 Ritvik Toys, Inc........................ 9.44 02/08/04 7,240,943
---------------
14,481,886
---------------
WHOLESALE DISTRIBUTOR (1.6%)
14,912 American Marketing Industries, Inc...... 8.94 to 9.13 11/29/02 14,912,142
---------------
WIRE & CABLE (1.6%)
9,939 International Wire Group, Inc........... 8.54 09/30/02 9,938,798
4,981 International Wire Group, Inc........... 8.97 to 9.41 09/30/03 4,981,658
---------------
14,920,456
---------------
TOTAL SENIOR COLLATERALIZED TERM LOANS
(IDENTIFIED COST $873,583,456)....................................... 874,153,297
---------------
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCK (0.1%)
APPAREL
1,722K London Fog Industries, Inc. 17.50% due 2/28/05 (Series A-1) (Restricted)
(c)
(IDENTIFIED COST $2,175,563)............................................ 1,222,422
---------------

COMMON STOCKS (0.0%)
APPAREL (0.0%)
1,291 London Fog Industries, Inc. (Restricted)................................ --
---------------
FOOD SERVICES (0.0%)
4,209 Flagstar Companies (Restricted)......................................... 8,681
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $60,507)............................................... 8,681
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1996, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (6.1%)
COMMERCIAL PAPER (d) (4.4%)
INSURANCE
$ 41,000 AIG Funding, Inc.**
(Amortized Cost $40,988,042)............ 5.25% 10/03/96 $ 40,988,042
---------------

REPURCHASE AGREEMENT (1.7%)
15,879 The Bank of New York (dated 09/30/96;
proceeds $15,881,039; collateralized by
$15,862,607 U.S. Treasury Note 5.625%
due 10/31/97 valued at $16,196,411)
(Identified Cost $15,878,834)........... 5.00 10/01/96 15,878,834
---------------

TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $56,866,876)........................................ 56,866,876
---------------

TOTAL INVESTMENTS
(IDENTIFIED COST $932,686,402) (E)........... 99.2 932,251,276

CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES.................................. 0.8 7,219,269
----- ------------

NET ASSETS................................... 100.0% $939,470,545
----- ------------
----- ------------

<FN>
- ---------------------
K In thousands.
* Non-income producing security.
** All or a portion of these securities are segregated in connection with
unfunded loan commitments.
+ 3 percent paid in cash, 6.25 percent payment-in-kind; converts to prime
plus 1 percent cash payment on May 31, 1997.
(a) Floating rate securities. Interest rates shown are those in effect at
September 30, 1996.
(b) Participation: participation interests were acquired through the financial
institutions indicated parenthetically.
(c) Payment-in-kind security.
(d) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(e) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation was $2,769,458 and the
aggregate gross unrealized depreciation was $3,204,584, resulting in net
unrealized depreciation of $435,126.
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996

<TABLE>
<S> <C>
ASSETS:
Investments, at value
(identified cost $932,686,402)............................ $932,251,276
Cash........................................................ 3,709,177
Receivable for:
Interest................................................ 6,710,184
Shares of beneficial interest sold...................... 3,913,682
Prepaid expenses and other assets........................... 446,455
------------

TOTAL ASSETS........................................... 947,030,774
------------

LIABILITIES:
Payable for:
Dividends to shareholders............................... 832,133
Investment advisory fee................................. 689,001
Administration fee...................................... 196,420
Deferred loan fees.......................................... 5,635,444
Accrued expenses and other payables......................... 207,231
Commitments and contingencies (Note 7)...................... --
------------
TOTAL LIABILITIES...................................... 7,560,229
------------
NET ASSETS:
Paid-in-capital............................................. 944,540,145
Net unrealized depreciation................................. (435,126)
Accumulated undistributed net investment income............. 238,827
Accumulated net realized loss............................... (4,873,301)
------------
NET ASSETS............................................. $939,470,545
------------
------------
NET ASSET VALUE PER SHARE,
94,535,310 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.94
------------
------------
</TABLE>

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996

<TABLE>
<S> <C>
NET INVESTMENT INCOME:

INCOME
Interest.................................................... $62,118,753
Net facility, amendment and other fees...................... 3,749,154
Other income................................................ 223,914
-----------

TOTAL INCOME........................................... 66,091,821
-----------

EXPENSES
Investment advisory fee..................................... 6,524,700
Administration fee.......................................... 1,845,500
Professional fees........................................... 609,473
Transfer agent fees and expenses............................ 447,960
Registration fees........................................... 423,120
Shareholder reports and notices............................. 291,308
Custodian fees.............................................. 90,605
Trustees' fees and expenses................................. 22,462
Other....................................................... 499,224
-----------

TOTAL EXPENSES......................................... 10,754,352
-----------

NET INVESTMENT INCOME.................................. 55,337,469
-----------

NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (1,507,802)
Net change in unrealized appreciation/ depreciation......... (2,222,920)
-----------

NET LOSS............................................... (3,730,722)
-----------

NET INCREASE................................................ $51,606,747
-----------
-----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>

INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income....................................... $ 55,337,469 $ 31,803,245
Net realized loss........................................... (1,507,802) (2,551,571)
Net change in unrealized appreciation/depreciation.......... (2,222,920) 2,716,998
------------------ ------------------

NET INCREASE........................................... 51,606,747 31,968,672
------------------ ------------------

DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (55,512,316) (31,409,897)
Net realized gain........................................... -- (957,304)
------------------ ------------------

TOTAL.................................................. (55,512,316) (32,367,201)
------------------ ------------------
Net increase from transactions in shares of beneficial
interest.................................................. 422,015,153 216,725,076
------------------ ------------------

TOTAL INCREASE......................................... 418,109,584 216,326,547

NET ASSETS:
Beginning of period......................................... 521,360,961 305,034,414
------------------ ------------------

END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$238,827 AND $413,674, RESPECTIVELY).................... $939,470,545 $521,360,961
------------------ ------------------
------------------ ------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1996

<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income................................................................. $ 55,337,469
Adjustments to reconcile net investment income to net cash from operating activities:
Increase in receivables and other assets related to operations........................ (2,269,978)
Increase in payables related to operations............................................ 342,841
Net loan fees received................................................................ 5,812,854
Amortization of loan fees............................................................. (3,749,154)
Accretion of discounts................................................................ (1,045,950)
---------------

NET CASH PROVIDED BY OPERATING ACTIVITIES........................................ 54,428,082
---------------

CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of investments.............................................................. (853,386,468)
Principal repayments/sales of investments............................................. 466,386,119
Net sales/maturities of short-term investments........................................ (35,840,134)
---------------

NET CASH USED FOR INVESTING ACTIVITIES........................................... (422,840,483)
---------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Shares of beneficial interest sold.................................................... 452,558,801
Shares tendered....................................................................... (56,517,971)
Dividends from net investment income (net of reinvested dividends of $26,959,275)..... (27,941,451)
---------------

NET CASH PROVIDED BY FINANCING ACTIVITIES........................................ 368,099,379
---------------

NET DECREASE IN CASH.................................................................. (313,022)

CASH AT BEGINNING OF YEAR............................................................. 4,022,199
---------------

CASH BALANCE AT END OF YEAR........................................................... $ 3,709,177
---------------
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996

1. ORGANIZATION AND ACCOUNTING POLICIES

Prime Income Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended, as a non-diversified, closed-end management investment
company. The Trust's investment objective is to provide a high level of current
income consistent with the preservation of capital. The Trust was organized as a
Massachusetts business trust on August 17, 1989 and commenced operations on
November 30, 1989.

The Trust offers and sells its shares to the public on a continuous basis. The
Trustees intend, each quarter, to consider authorizing the Trust to make tender
offers for all or a portion of its outstanding shares of beneficial interest at
the then current net asset value of such shares.

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:

A. VALUATION OF INVESTMENTS -- (1) The Trustees believe that, at present, there
are not sufficient market quotations provided by banks, dealers or pricing
services respecting interests in senior collateralized loans ("Senior Loans") to
corporations, partnerships and other entities ("Borrower") to enable the Trust
to properly value Senior Loans based on available market quotations.
Accordingly, until the market for Senior Loans develops, interests in Senior
Loans held by the Trust are valued at their fair value in accordance with
procedures established in good faith by the Trustees. Under the procedures
adopted by the Trustees, interests in Senior Loans are priced using a matrix
which takes into account the relationship between current interest rates and
interest rates payable on each Senior Loan, as well as the total number of days
in each interest period and the period remaining until the next interest rate
determination or maturity of the Senior Loan. Adjustments in the matrix-
determined price of a Senior Loan will be made in the event of a default on a
Senior Loan or a significant change in the creditworthiness of the Borrower. The
fair values determined in accordance with these procedures may differ
significantly from the market values that would have been used had a ready
market for the Senior Loans existed; (2) portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price; (3) 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

23
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996, CONTINUED

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 and accrues the commitment fee over the
expected term of the loan. When the Trust sells an interest in a Senior Loan, it
may be required to pay fees or commissions to the purchaser of the interest.
Fees received in connection with loan amendments are amortized over the expected
term of the loan.

C. SENIOR LOANS -- The Trust invests primarily in Senior Loans to Borrowers.
Senior Loans are typically structured by a syndicate of lenders ("Lenders"), one
or more of which administers the Senior Loan on behalf of the Lenders ("Agent").
Lenders may sell interests in Senior Loans to third parties ("Participations")
or may assign all or a portion of their interest in a Senior Loan to third
parties ("Assignments"). Senior Loans are exempt from registration under the
Securities Act of 1933. Presently, Senior Loans are not readily marketable and
are often subject to restrictions on resale.

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

24
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996, CONTINUED

income or distributions in excess of net realized capital gains. To the extent
they exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of paid-in-capital.

2. INVESTMENT ADVISORY AGREEMENT

Pursuant to an Investment Advisory Agreement with Dean Witter InterCapital Inc.
(the "Investment Adviser"), the Trust pays the Investment Adviser an advisory
fee, accrued daily and payable monthly, by applying the following annual rates
to the net assets of the Trust determined as of the close of each business day:
0.90% to the portion of the daily net assets not exceeding $500 million and
0.85% to the portion of the daily net assets exceeding $500 million.

Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Adviser pays the salaries of all personnel,
including officers of the Trust, who are employees of the Investment Adviser.

3. ADMINISTRATION AGREEMENT

Pursuant to an Administration Agreement with Dean Witter Services Company Inc.
(the "Administrator"), the Trust pays an administration fee, calculated daily
and payable monthly, by applying the annual rate of 0.25% to the Trust's daily
net assets.

Under the terms of the Administration Agreement, the Administrator maintains
certain of the Trust's books and records and furnishes, at its own expense,
office space, facilities, equipment, clerical, bookkeeping and certain legal
services and pays the salaries of all personnel, including officers of the Trust
who are employees of the Administrator. The Administrator also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Trust.

4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES

The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended September 30, 1996 aggregated
$852,805,805 and $465,950,751, respectively.

25
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996, CONTINUED

any shares that remain outstanding after one year from the date of their initial
purchase. Any early withdrawal charge to defray distribution expenses will be
charged to the shareholder in connection with shares held for four years or less
which are accepted by the Trust for repurchase pursuant to tender offers. For
the year ended September 30, 1996, the Investment Adviser has informed the Trust
that it received approximately $728,000 in early withdrawal charges.

Dean Witter Trust Company, an affiliate of the Investment Adviser and
Administrator, is the Trust's transfer agent. At September 30, 1996, the Trust
had transfer agent fees and expenses payable of approximately $45,000.

The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended September 30, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $3,907. At September 30, 1996, the Trust had an accrued pension liability of
$45,562 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, 1994...................................... 30,489,594 $ 305,799,916
Shares sold...................................................... 24,363,027 243,262,814
Shares issued to shareholders for reinvestment of dividends and
distributions................................................... 1,605,098 16,029,070
Shares tendered (four quarterly tender offers)................... (4,259,745) (42,566,808)
---------------- ----------------
Balance, September 30, 1995...................................... 52,197,974 522,524,992
Shares sold...................................................... 45,304,780 451,573,849
Shares issued to shareholders for reinvestment of dividends...... 2,706,326 26,959,275
Shares tendered (four quarterly tender offers)................... (5,673,770) (56,517,971)
---------------- ----------------
Balance, September 30, 1996...................................... 94,535,310 $ 944,540,145
---------------- ----------------
---------------- ----------------
</TABLE>

On October 25, 1996, the Trustees approved a tender offer to purchase up to 4
million shares of beneficial interest to commence on November 20, 1996.

6. FEDERAL INCOME TAX STATUS

At September 30, 1996, the Trust had a net capital loss carryover of
approximately $4,140,000 of which $1,384,000 will be available through September
30, 2003 and $2,756,000 will be available through September 30, 2004 to offset
future capital gains to the extent provided by regulations.

26
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1996, CONTINUED

Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Trust's next
taxable year. The Trust incurred and will elect to defer net capital losses of
approximately $557,000 during fiscal 1996.

As of September 30, 1996, the Trust had temporary book/tax differences primarily
attributable to post-October losses and market discount on revolver loans.

7. COMMITMENTS AND CONTINGENCIES

As of September 30, 1996, the Trust had unfunded loan commitments pursuant to
the following loan agreements:

<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENT
- ----------------------------------------------------------------- ----------------
<S> <C>
Caldor Corp...................................................... $ 6,320,287
Kmart Corp....................................................... 19,580,000
Food 4 Less Supermarkets, Inc.................................... 12,911,563
----------------
$ 38,811,850
----------------
----------------
</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
and brokerage industry. At September 30, 1996, such Participations had a fair
value of $19,454,248.

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.

27
<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,
FOR THE YEAR ENDED SEPTEMBER 30 1989* THROUGH
---------------------------------------------------------------- SEPTEMBER 30,
1996 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:

Net asset value,
beginning of period............... $ 9.99 $ 10.00 $ 9.91 $ 9.99 $ 10.00 $ 10.00 $ 10.00
--------- --------- --------- --------- --------- --------- ------

Net investment income.............. 0.74 0.82 0.62 0.55 0.62 0.84 0.74

Net realized and unrealized gain
(loss)............................ (0.04) 0.01 0.09 (0.08) (0.01) -- (0.01)
--------- --------- --------- --------- --------- --------- ------

Total from investment operations... 0.70 0.83 0.71 0.47 0.61 0.84 0.73
--------- --------- --------- --------- --------- --------- ------

Less dividends and distributions
from:
Net investment income........... (0.75) (0.81) (0.62) (0.55) (0.62) (0.84) (0.73)
Net realized gain............... -- (0.03) -- -- -- -- --
--------- --------- --------- --------- --------- --------- ------

Total dividends and
distributions..................... (0.75) (0.84) (0.62) (0.55) (0.62) (0.84) (0.73)
--------- --------- --------- --------- --------- --------- ------

Net asset value, end of period..... $ 9.94 $ 9.99 $ 10.00 $ 9.91 $ 9.99 $ 10.00 $ 10.00
--------- --------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- --------- ------

TOTAL INVESTMENT RETURN+........... 7.25% 8.57% 7.32% 4.85% 6.23% 8.77% 7.57%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.46% 1.52% 1.60% 1.45% 1.47% 1.52% 1.48%(2)

Net investment income.............. 7.50% 8.11% 6.14% 5.53% 6.14% 8.23% 8.95%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $939,471 $521,361 $305,034 $311,479 $413,497 $479,941 $328,189

Portfolio turnover rate............ 72% 102% 147% 92% 46% 42% 35%(1)
<FN>

- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
Dividends and distributions are assumed to be reinvested at the prices
obtained under the Trust's dividend reinvestment plan.
(1) Not annualized.
(2) Annualized.
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

28
<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, 1996, 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 six
years in the period then ended and for the period November 30, 1989
(commencement of operations) through September 30, 1990, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1996 by
correspondence with the custodian and, with respect to senior collateralized
loans, the selling participants and agent banks, provide a reasonable basis for
the opinion expressed above.

As explained in Note 1, the financial statements include senior collateralized
loans valued at $874,153,297 (93 percent of net assets), which values have been
estimated by the Trustees in the absence of readily ascertainable market values.
We have reviewed the procedures used by the Trustees in arriving at its
estimates of 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, those estimated
values may differ significantly from the values that would have been used had a
ready market for the senior collateralized loans existed, and the differences
could be material.

PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
NOVEMBER 11, 1996

29
<PAGE>
19. FINANCIAL STATEMENTS--SEPTEMBER 30, 1995

PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SENIOR COLLATERALIZED LOANS (a) (94.0%)
ADVERTISING (1.4%)
$ 7,250 Eller Media Company
Term Loan............................. 9.07% 12/21/03 $ 7,249,637
---------------
AEROSPACE (0.9%)
1,682 Gulfstream Aerospace Corp. Term
Loan.................................. 7.88 03/31/97 1,681,561
2,900 Gulfstream Aerospace Corp. Term
Loan.................................. 8.80 03/31/98 2,899,333
---------------
4,580,894
---------------
AIRLINES (2.8%)
5,213 AeroMexico 1994-I U.S. Receivables
Trust Term Loan (Mexico)+............. 9.94 07/31/99 5,212,297
2,365 Northwest Airlines, Inc. Term Loan
(Participation: First National Bank of
Chicago) (b).......................... 9.13 09/15/97 2,364,819
6,805 Northwest Airlines, Inc.
Term Loan............................. 9.13 09/15/97 6,805,554
---------------
14,382,670
---------------
APPAREL (2.5%)
960 Anvil Knitwear, Inc. Term Loan........ 8.38 02/03/01 959,824
3,987 Anvil Knitwear, Inc. Term Loan........ 9.13 to 10.75 02/02/02 3,985,739
4,888 Hosiery Corporation of America, Inc.
Term Loan............................. 9.13 to 9.19 07/31/01 4,885,367
96 London Fog Industries, Inc. Term Loan
(d)................................... 05/31/02 91,550
2,823 London Fog Industries, Inc. Term
Loan.................................. 9.75 ++ 05/31/02 2,681,831
580 London Fog Industries, Inc. Term Loan
(c)................................... 12.50 05/31/02 551,691
---------------
13,156,002
---------------
BEVERAGES (1.9%)
4,000 Select Beverages, Inc.
Term Loan............................. 9.13 06/30/01 3,999,480
6,000 Select Beverages, Inc.
Term Loan............................. 9.38 06/30/02 5,999,220
---------------
9,998,700
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BREWERS (1.9%)
$ 5,000 G. Heileman Brewing Company, Inc. Term
Loan.................................. 8.50 to 8.63% 12/31/98 $ 4,996,354
5,000 G. Heileman Brewing Company, Inc. Term
Loan (Participation: Bankers Trust)
(b)................................... 9.69 12/31/00 5,000,300
---------------
9,996,654
---------------
BROADCAST MEDIA (3.0%)
6,930 Silver King Communications, Inc.
Term Loan............................. 8.88 07/31/02 6,929,168
3,897 U.S. Radio Holdings, Inc.
Term Loan............................. 8.88 to 9.00 12/31/01 3,897,387
5,003 U.S. Radio Holdings, Inc.
Term Loan............................. 9.88 to 11.75 09/20/03 5,003,271
---------------
15,829,826
---------------
BUILDING MATERIALS (2.9%)
15,000 National Gypsum Company Term Loan..... 8.84 09/30/03 14,999,550
---------------
CABLE TELEVISION EQUIPMENT (1.0%)
5,000 Marcus Cable Operating Co. L.P. Term
Loan.................................. 8.69 04/30/04 4,999,450
---------------
CABLE/CELLULAR (1.7%)
8,750 Paging Network, Inc. Term Loan........ 9.45 03/31/02 8,750,875
---------------
CONSUMER PRODUCTS (1.9%)
10,000 Revlon Consumer Products Corp.
Term Loan............................. 9.31 06/30/97 9,992,000
---------------
CONTAINERS (3.3%)
17,000 Silgan Corporation Term Loan.......... 8.88 to 8.94 03/15/02 16,996,979
---------------
CONTAINERS - PAPERS (1.2%)
6,500 Stone Container Corp.
Term Loan............................. 9.25 10/01/03 6,500,000
---------------
CONVENIENCE STORES (2.0%)
10,333 Cumberland Farms, Inc.
Term Loan (Participation:
Merrill Lynch) (b).................... 9.25 12/31/98 10,332,710
---------------
COSMETICS (1.0%)
5,000 Mary Kay Cosmetics, Inc.
Term Loan............................. 9.38 to 9.88 12/06/02 4,999,432
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DRUG STORES (2.1%)
$ 7,500 Duane Reade, Inc. Term Loan........... 9.88% 12/31/99 $ 7,497,975
3,549 M & H Drugs, Inc. Term Loan........... 10.13 09/01/96 3,548,835
---------------
11,046,810
---------------
ELECTRONICS (0.8%)
4,026 Sperry Marine, Inc. Term Loan......... 9.13 to 9.69 11/12/00 4,023,371
---------------
ENTERTAINMENT (1.9%)
10,000 Harrah's Jazz Co. & Finance Corp. Term
Loan.................................. 9.13 to 9.19 09/30/99 9,996,167
---------------
ENTERTAINMENT & LEISURE (2.3%)
12,010 Six Flags Theme Parks, Inc. Term
Loan.................................. 8.88 to 9.00 06/23/03 12,002,899
---------------
EQUIPMENT (1.9%)
9,960 Primeco, Inc. Term Loan............... 8.88 to 9.03 12/31/00 9,958,816
---------------
FOOD & BEVERAGES (1.4%)
7,500 Restaurants Unlimited, Inc. Term
Loan.................................. 9.34 06/03/00 7,498,200
---------------
FOOD PROCESSING (1.0%)
5,000 American Italian Pasta Co.
Term Loan............................. 9.94 12/30/00 4,999,650
---------------
FOOD SERVICES (5.2%)
10,702 SC International Services, Inc. &
Caterair International Corp. Term
Loan.................................. 10.75 09/15/01 10,701,818
13,353 SC International Services, Inc. &
Caterair International Corp. Term
Loan.................................. 10.75 09/15/02 13,352,727
2,945 SC International Services, Inc. &
Caterair International Corp. Term
Loan.................................. 11.00 09/15/03 2,945,455
---------------
27,000,000
---------------
GAS - TRUCK STOP (0.7%)
3,848 Petro PSC Properties, L.P.
Term Loan............................. 9.13 05/24/01 3,847,276
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES (1.9%)
9,975 Graco Children's Products, Inc. Term
Loan.................................. 8.81 to 10.75 06/30/03 9,970,309
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDUSTRIALS (2.4%)
$ 6,079 UCAR International, Inc.
Term Loan............................. 8.88% 01/31/03 $ 6,079,180
3,195 UCAR International, Inc.
Term Loan............................. 9.38 07/31/03 3,195,467
3,195 UCAR International, Inc.
Term Loan............................. 10.06 01/31/04 3,195,658
---------------
12,470,305
---------------
LEASING (8.5%)
44,216 GPA Group PLC Revolver (Ireland)+
(Participation: First National Bank of
Chicago) (b).......................... 7.00 to 7.88 09/30/97 44,219,100
---------------
MANUFACTURING (2.2%)
4,516 Desa International, Inc.
Term Loan............................. 9.06 11/30/00 4,512,071
2,701 Intermetro Industries Corp. Term
Loan.................................. 8.88 06/30/01 2,699,462
4,053 Intermetro Industries Corp. Term
Loan.................................. 9.38 12/31/02 4,050,211
---------------
11,261,744
---------------
MEDICAL PRODUCTS & SUPPLIES (1.0%)
5,000 Deknatel Holdings, Inc.
Term Loan............................. 9.81 04/20/01 5,000,150
---------------
MEDICAL SERVICES (0.8%)
4,305 Unilab Corporation Term Loan.......... 9.38 05/16/02 4,304,059
---------------
PAPER PRODUCTS (1.0%)
3,750 Mail Well Corp. Term Loan............. 8.88 07/31/03 3,749,100
1,250 Supermex, Inc. Term Loan.............. 8.88 07/31/03 1,249,700
---------------
4,998,800
---------------
PUBLISHING (2.8%)
7,490 Ziff Davis Publishing Co.
Term Loan............................. 8.88 12/31/01 7,487,653
7,055 Ziff Davis Publishing Co.
Term Loan............................. 9.38 12/31/02 7,052,707
---------------
14,540,360
---------------
RAILROAD EQUIPMENT (1.9%)
10,000 Johnstown America Industries, Inc.
Term Loan............................. 9.00 03/31/03 9,999,000
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RECORD & TAPE (2.3%)
$ 4,875 Camelot Music, Inc. Term Loan......... 8.81 to 8.88% 02/28/01 $ 4,874,829
7,400 The Wherehouse Entertainment, Inc.
Term Loan (d)......................... 10.25 01/31/98 7,030,000
---------------
11,904,829
---------------
RETAIL DEPARTMENT STORES (1.8%)
2,114 Saks & Company Term Loan.............. 8.75 to 10.25 06/30/98 2,114,701
7,469 Saks & Company Term Loan.............. 9.25 to 9.50 06/30/00 7,468,896
---------------
9,583,597
---------------
RETAIL - SPECIALTY (2.9%)
15,000 QVC, Inc. Term Loan................... 8.94 01/31/04 14,996,100
---------------
SCIENTIFIC INSTRUMENTS (0.6%)
1,705 Waters Corporation Term Loan.......... 9.63 11/30/02 1,704,558
1,371 Waters Corporation Term Loan.......... 10.00 05/31/03 1,370,610
---------------
3,075,168
---------------
SPECIALTY PACKAGING (2.0%)
6,000 Calmar, Inc. Term Loan................ 8.88 09/15/03 5,999,940
4,500 Calmar, Inc. Term Loan................ 9.13 03/15/04 4,499,955
---------------
10,499,895
---------------
SPORTING GOODS (3.3%)
7,403 Spalding & Evenflo Companies, Inc.
Term Loan............................. 9.06 10/17/02 7,402,524
2,000 Worldwide Sports & Recreation, Inc.
Term Loan............................. 8.94 04/26/00 2,000,000
8,000 Worldwide Sports & Recreation, Inc.
Term Loan............................. 9.44 04/26/01 8,000,000
---------------
17,402,524
---------------
SUPERMARKETS (4.8%)
4,655 Food 4 Less Supermarkets, Inc. Term
Loan.................................. 9.13 06/15/02 4,654,585
4,655 Food 4 Less Supermarkets, Inc. Term
Loan.................................. 9.63 06/15/03 4,654,538
4,655 Food 4 Less Supermarkets, Inc. Term
Loan.................................. 9.88 02/15/04 4,654,492
4,576 Pathmark Stores Inc. Term Loan........ 8.94 01/28/00 4,575,210
3,789 Star Markets Company, Inc. Term
Loan.................................. 8.88 12/31/01 3,789,436
2,842 Star Markets Company, Inc. Term
Loan.................................. 9.38 12/31/02 2,842,077
---------------
25,170,338
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS EQUIPMENT (1.4%)
$ 3,500 K-Tec Holdings, Inc. Term Loan........ 8.63% 01/31/03 $ 3,499,965
4,000 K-Tec Holdings, Inc. Term Loan........ 9.13 01/31/04 3,999,960
---------------
7,499,925
---------------
TEXTILES (1.9%)
3,840 Blackstone Capital Company II, L.L.C.
Purchase Term Loan.................... 8.88 01/13/97 3,839,962
1,160 Blackstone Capital Company II, L.L.C.
Reserve Term Loan..................... 8.88 01/13/97 1,159,988
3,840 Wasserstein/C&A Holdings, L.L.C.
Purchase Term Loan.................... 8.81 01/13/97 3,837,274
1,160 Wasserstein/C&A Holdings, L.L.C.
Reserve Term Loan..................... 8.81 01/13/97 1,159,176
---------------
9,996,400
---------------
TEXTILES - APPAREL MANUFACTURERS (1.9%)
9,950 Chicopee, Inc. Term Loan.............. 9.13 03/31/03 9,950,000
---------------
WIRE & CABLE (1.9%)
9,992 International Wire Group, Inc. Term
Loan.................................. 9.00 09/30/02 9,988,427
---------------

TOTAL SENIOR COLLATERALIZED LOANS
(IDENTIFIED COST $487,492,471)....................................... 489,969,598
---------------
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (d) (0.0%)
APPAREL (0.0%)
1,291K London Fog Industries, Inc. (Restricted)................................ --
---------------
FOOD SERVICES (0.0%)
4,209 Flagstar Companies (Restricted)......................................... 22,098
---------------

TOTAL COMMON STOCKS
(IDENTIFIED COST $60,507)............................................... 22,098
---------------
PREFERRED STOCK (0.2%)
APPAREL
1,722K London Fog Industries, Inc. 17.50% due 2/28/05 (Series A-1) (c)
(Restricted) (IDENTIFIED COST $1,873,346)............................... 1,222,422
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
PRIME INCOME TRUST
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN INTEREST MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (e) (4.0%)
COMMERCIAL PAPER (0.1%)
AUTOMOTIVE FINANCE
$ 595 Ford Motor Credit Co. (AMORTIZED COST
$592,529)............................. 5.75% 10/27/95 $ 592,529
---------------

U.S. GOVERNMENT AGENCIES (3.9%)
4,700 Federal Home Loan Banks*.............. 5.65 10/12/95 4,691,886
10,000 Federal Home Loan Mortgage Corp.*..... 6.30 10/02/95 9,998,250
5,100 Federal Home Loan Mortgage Corp.*..... 5.66 10/06/95 5,095,992
650 Federal National Mortgage Assoc.*..... 5.58 10/20/95 648,085
---------------

TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $20,434,213)......................................... 20,434,213
---------------

TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $21,026,742)......................................... 21,026,742
---------------

TOTAL INVESTMENTS
(IDENTIFIED COST $510,453,066) (F)............................. 98.2% 512,240,860

CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES................. 1.8 9,120,101
------ ------------

NET ASSETS..................................................... 100.0% $521,360,961
------ ------------
------ ------------

<FN>
- ---------------------
K In thousands.
+ Senior Note.
++ 3 percent paid in cash, 6.75 percent payment in kind; converts to prime
plus 1 percent cash payment on May 31, 1997.
* 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, 1995.
(b) Participation; participation interests were acquired through the financial
institutions indicated parenthetically.
(c) Payment in kind security.
(d) Non income producing security.
(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 $510,453,066; the
aggregate gross unrealized appreciation is $3,134,546 and the aggregate
gross unrealized depreciation is $1,346,752, resulting in net unrealized
appreciation of $1,787,794.
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $510,453,066)............................ $512,240,860
Cash........................................................ 4,022,199
Receivable for:
Shares of beneficial interest sold...................... 4,898,633
Interest................................................ 4,496,892
Principal prepayments................................... 435,368
Prepaid expenses and other assets........................... 389,771
------------

TOTAL ASSETS........................................... 526,483,723
------------

LIABILITIES:
Payable for:
Investments purchased................................... 580,663
Investment advisory fee................................. 374,551
Dividends to shareholders............................... 220,544
Administration fee...................................... 104,121
Accrued expenses and other payables......................... 271,139
Deferred facility fees...................................... 3,571,744
Commitments and contingencies (Note 7)......................
------------
TOTAL LIABILITIES...................................... 5,122,762
------------
NET ASSETS:
Paid-in-capital............................................. 522,524,992
Net unrealized appreciation................................. 1,787,794
Accumulated undistributed net investment income............. 413,674
Accumulated net realized loss............................... (3,365,499)
------------
NET ASSETS............................................. $521,360,961
------------
------------

NET ASSET VALUE PER SHARE,
52,197,974 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.99
------------
------------
</TABLE>

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995

<TABLE>
<S> <C>
NET INVESTMENT INCOME:

INCOME
Interest.................................................... $34,988,644
Net facility and amendment fees............................. 2,232,672
Other income................................................ 549,221
-----------

TOTAL INCOME........................................... 37,770,537
-----------
EXPENSES
Investment advisory fee..................................... 3,526,906
Administration fee.......................................... 979,775
Professional fees........................................... 546,641
Shareholder reports and notices............................. 281,710
Transfer agent fees and expenses............................ 253,583
Registration fees........................................... 117,505
Custodian fees.............................................. 94,161
Trustees' fees and expenses................................. 29,004
Organizational expenses..................................... 8,018
Other....................................................... 129,989
-----------

TOTAL EXPENSES......................................... 5,967,292
-----------

NET INVESTMENT INCOME.................................. 31,803,245
-----------

NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (2,551,571)
Net change in unrealized depreciation....................... 2,716,998
-----------

NET GAIN............................................... 165,427
-----------

NET INCREASE................................................ $31,968,672
-----------
-----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>

INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income....................................... $ 31,803,245 $ 17,647,052
Net realized gain (loss).................................... (2,551,571) 596,754
Net change in unrealized depreciation....................... 2,716,998 2,033,215
------------------ ------------------

NET INCREASE........................................... 31,968,672 20,277,021
------------------ ------------------

DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (31,409,897) (17,652,279)
Net realized gain........................................... (957,304) --
------------------ ------------------

TOTAL.................................................. (32,367,201) (17,652,279)
------------------ ------------------
Net increase (decrease) from transactions in shares of
beneficial interest....................................... 216,725,076 (9,069,554)
------------------ ------------------

TOTAL INCREASE (DECREASE).............................. 216,326,547 (6,444,812)

NET ASSETS:
Beginning of period......................................... 305,034,414 311,479,226
------------------ ------------------

END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$413,674 AND $590, RESPECTIVELY)........................ $521,360,961 $305,034,414
------------------ ------------------
------------------ ------------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
PRIME INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1995

<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net investment income................................................................. $ 31,803,245
---------------
Adjustments to reconcile net investment income
to net cash from operating activities:
Increase in receivables and other assets related to operations........................ (2,860,585)
Increase in payables related to operations............................................ 1,439,130
Accretion of discounts................................................................ (477,143)
---------------

NET CASH PROVIDED BY OPERATING ACTIVITIES........................................ 29,904,647
---------------

CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of investments.............................................................. (563,680,131)
Principal repayments/sales of investments............................................. 350,474,058
Net sales/maturities of short-term investments........................................ 3,891,453
---------------

NET CASH USED FOR INVESTING ACTIVITIES........................................... (209,314,620)
---------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Shares of beneficial interest sold.................................................... 241,897,744
Shares tendered....................................................................... (42,566,808)
Dividends and distributions from:
Net investment income (net of reinvested dividends of $16,029,070).................... (15,250,078)
Net realized gain..................................................................... (957,304)
---------------

NET CASH PROVIDED BY FINANCING ACTIVITIES........................................ 183,123,554
---------------

NET INCREASE IN CASH.................................................................. 3,713,581

CASH AT BEGINNING OF YEAR............................................................. 308,618
---------------

CASH AT END OF YEAR................................................................... $ 4,022,199
---------------
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995

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 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.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected. When the Trust
buys an

40
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995, CONTINUED

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. Fees received in connection with loan amendments are amortized over
the expected term of the loan.

C. SENIOR LOANS -- The Trust invests primarily in Senior Loans to Borrowers.
Senior Loans are typically structured by a syndicate of lenders ("Lenders"), one
or more of which administers the Senior Loan on behalf of the Lenders ("Agent").
Lenders may sell interests in Senior Loans to third parties ("Participations")
or may assign all or a portion of their interest in a Senior Loan to third
parties ("Assignments"). Senior Loans are exempt from registration under the
Securities Act of 1933. Presently, they are not readily marketable and are often
subject to restrictions on resale.

F. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Adviser") paid the organizational expenses of the Trust in the amount of
$248,312 which have been fully reimbursed by the Trust and were fully amortized
as of November 29, 1994.

41
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995, CONTINUED

2. INVESTMENT ADVISORY AGREEMENT

Pursuant to an Investment Advisory Agreement, the Fund pays an advisory fee,
accrued daily and payable monthly, by applying the following annual rates to the
net assets of the Trust determined as of the close of each business day: 0.90%
to the portion of the daily net assets not exceeding $500 million and 0.85% to
the portion of the daily net assets exceeding $500 million.

3. ADMINISTRATION AGREEMENT

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, 1995 aggregated
$564,260,794 and $350,909,426, 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 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

42
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995, CONTINUED

year ended September 30, 1995, the Investment Adviser has informed the Trust
that it received approximately $219,000 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, 1995, the Trust
had transfer agent fees and expenses payable of approximately $28,000.

The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended September 30, 1995
included in Trustees' fees and expenses in the Statement of Operations amounted
to $7,596. At September 30, 1995, the Trust had an accrued pension liability of
$51,200 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, 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...................................................... 24,363,027 243,262,814
Shares issued to shareholders for reinvestment of dividends and
distributions................................................... 1,605,098 16,029,070
Shares tendered (four quarterly tender offers)................... (4,259,745) (42,566,808)
----------- --------------
Balance, September 30, 1995...................................... 52,197,974 $ 522,524,992
----------- --------------
----------- --------------
</TABLE>

On October 26, 1995, the Trustees approved a tender offer to purchase up to 4
million shares of beneficial interest to commence on November 15, 1995.

6. FEDERAL INCOME TAX STATUS

At September 30, 1995, the Trust had a net capital loss carryover of
approximately $1,384,000 which will be available through September 30, 2003 to
offset future capital gains to the extent provided by regulations.

43
<PAGE>
PRIME INCOME TRUST
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995, CONTINUED

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 $2,390,000 during fiscal 1995.

As of September 30, 1995, the Trust had temporary book/tax differences primarily
attributable to post-October losses.

7. COMMITMENTS AND CONTINGENCIES

As of September 30, 1995, the Trust had unfunded loan commitments pursuant to
the following loan agreements:

<TABLE>
<CAPTION>
UNFUNDED
BORROWER COMMITMENT
- ----------------------------------------------------------------- -----------
<S> <C>
GPA Group PLC. .................................................. $ 6,018,926
Marcus Cable Co. ................................................ 5,000,000
-----------
$11,018,926
-----------
-----------
</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, 1995, such Participations had a fair value of
$61,916,929.

44
<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,
1995 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............ 0.82 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...................... 0.83 0.71 0.47 0.61 0.84 0.73
--------- --------- --------- --------- --------- ------

Less dividends and distributions
from:
Net investment income......... (0.81) (0.62) (0.55) (0.62) (0.84) (0.73)
Net realized gain............. (0.03) -- -- -- -- --
--------- --------- --------- --------- --------- ------

Total dividends and
distributions................... (0.84) (0.62) (0.55) (0.62) (0.84) (0.73)
--------- --------- --------- --------- --------- ------

Net asset value, end of period... $ 9.99 $ 10.00 $ 9.91 $ 9.99 $ 10.00 $ 10.00
--------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- ------

TOTAL INVESTMENT RETURN+......... 8.57% 7.32% 4.85% 6.23% 8.77% 7.57%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 1.52% 1.60% 1.45% 1.47% 1.52% 1.48%(2)

Net investment income............ 8.11% 6.14% 5.53% 6.14% 8.23% 8.95%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands....................... $521,361 $305,034 $311,479 $413,497 $479,941 $328,189

Portfolio turnover rate.......... 102% 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

45
<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, 1995, 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 five
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, 1995 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 $489,969,598 (94 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 10036
NOVEMBER 8, 1995

<PAGE>
EXHIBIT (a)(1)(iii)

FORM OF LETTER TO SHAREHOLDERS WHO HAVE
REQUESTED OFFER TO PURCHASE
<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 12:00,
midnight, New York City time on March 14, 1997, 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 February 7, 1997 was $9.95. 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>
EXHIBIT (a)(2)

FORM OF LETTER OF TRANSMITTAL
<PAGE>
LETTER OF TRANSMITTAL
REGARDING COMMON SHARES
OF
PRIME INCOME TRUST

TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED FEBRUARY 12, 1997

THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT NEW YORK CITY
TIME ON FRIDAY, MARCH 14, 1997, 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) 869-NEWS extension 0

<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 February
12, 1997, 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>

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)
869-6397 extension 0.

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 with 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>
EXHIBIT (c)(2)

FORM OF DEPOSITARY AGREEMENT BETWEEN THE TRUST AND DEAN WITTER TRUST COMPANY
<PAGE>
DEPOSITARY AGREEMENT

Date: February 7, 1997

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 February 12, 1997 (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 12:00 midnight, New York City Time, on
March 14, 1997, 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

3
<PAGE>
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;

(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

4
<PAGE>
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.

5
<PAGE>
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)