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DEAN WITTER
U.S. GOVERNMENT SECURITIES TRUST
PROSPECTUS--FEBRUARY 27, 1995
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DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST (THE "FUND") IS AN OPEN-END
DIVERSIFIED MANAGEMENT INVESTMENT COMPANY WHOSE INVESTMENT OBJECTIVE IS HIGH
CURRENT INCOME CONSISTENT WITH SAFETY OF PRINCIPAL. THE FUND OFFERS A CONVENIENT
AND ECONOMICAL WAY FOR PERSONS TO INVEST IN A PROFESSIONALLY MANAGED DIVERSIFIED
PORTFOLIO OF OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT OR ITS
INSTRUMENTALITIES. ALL SUCH OBLIGATIONS ARE BACKED BY THE FULL FAITH AND CREDIT
OF THE UNITED STATES. NO ASSURANCE CAN BE GIVEN THAT THE FUND'S OBJECTIVE WILL
BE REALIZED. SHARES OF THE FUND ARE NOT SPONSORED, GUARANTEED, ENDORSED OR
INSURED BY THE U.S. GOVERNMENT OR ANY AGENCY THEREOF.
Shares of the Fund are continuously offered at net asset value. However,
redemptions and/or repurchases are subject in most cases to a contingent
deferred sales charge, scaled down from 5% to 1% of the amount redeemed, if made
within six years of purchase, which charge will be paid to the Fund's
Distributor, Dean Witter Distributors Inc. See "Redemptions and
Repurchases--Contingent Deferred Sales Charge." In addition, the Fund pays the
Distributor a Rule 12b-1 distribution fee pursuant to a Plan of Distribution at
the annual rate of 0.75% (0.65% on amounts over $10 billion) of the lesser of
the (i) average daily aggregate net sales or (ii) average daily net assets of
the Fund. See "Purchase of Fund Shares--Plan of Distribution."
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated February 27, 1995, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
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<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary................................ 2
Summary of Fund Expenses.......................... 3
Financial Highlights.............................. 4
The Fund and its Management....................... 5
Investment Objective and Policies................. 5
Risk Considerations............................. 7
Purchase of Fund Shares........................... 9
Shareholder Services.............................. 10
Redemptions and Repurchases....................... 12
Dividends, Distributions and Taxes................ 14
Performance Information........................... 14
Additional Information............................ 15
</TABLE>
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
DEAN WITTER
U.S. GOVERNMENT SECURITIES TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
(800) 526-3143
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DEAN WITTER DISTRIBUTORS INC., DISTRIBUTOR
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PROSPECTUS SUMMARY
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<TABLE>
<S> <C>
THE FUND The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and
is an open-end diversified management investment company investing in obligations issued
or guaranteed by the U.S. Government.
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SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page 15).
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OFFERING At net asset value without sales charge (see page 8). Shares redeemed within six years
PRICE of purchase are subject to a contingent deferred sales charge under most circumstances
(see pages 12-13).
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MINIMUM Minimum initial investment, $1,000; minimum subsequent investment, $100 (see page 8).
PURCHASE
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INVESTMENT The investment objective of the Fund is high current income consistent with safety of
OBJECTIVE principal.
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INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its wholly-owned
MANAGER subsidiary, Dean Witter Services Company Inc., serve in various investment management,
advisory, management and administrative capacities to ninety-one investment companies
and other portfolios with assets of approximately $66.9 billion at December 31, 1994
(see page 5).
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MANAGEMENT The Investment Manager receives a monthly fee at the annual rate of 0.50% ( 1/2 of 1%)
FEE of daily net assets, scaled down on assets over $1 billion. The fee should not be
compared with fees paid by other investment companies without also considering
applicable sales loads and distribution fees, including those noted below (see page 5).
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DIVIDENDS Dividends are declared daily, and paid monthly either in additional shares of the Fund
or, at the shareholder's option, in cash (see page 14).
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DISTRIBUTOR Dean Witter Distributors Inc. (the "Distributor"). The Distributor receives from the
AND Fund a distribution fee accrued daily and payable monthly at the rate of 0.75% per annum
DISTRIBUTION (0.65% on amounts over $10 billion) of the lesser of (i) the Fund's average daily
FEE aggregate net sales or (ii) the Fund's average daily net assets. The fee compensates the
Distributor for the services provided in distributing shares of the Fund and for
sales-related expenses. The Distributor also receives the proceeds of any contingent
deferred sales charges (see pages 9-10 and 12-14).
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REDEMPTION-- Shares are redeemable by the shareholder at net asset value. An account may be
CONTINGENT involuntarily redeemed if the total value of the account is less than $100. Although no
DEFERRED commission or sales charge is imposed upon the purchase of shares, a contingent deferred
SALES CHARGE sales charge (scaled down from 5% to 1%) is imposed on any redemption of shares if after
such redemption the aggregate current value of an account with the Fund falls below the
aggregate amount of the investor's purchase payments made during the six years preceding
the redemption. However, there is no charge imposed on redemption of shares purchased
through reinvestment of dividends or distributions (see pages 12-14).
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RISKS The Fund invests only in obligations issued or guaranteed by the U.S. Government which
are subject to minimal risk of loss of income and principal. It may engage in the
purchase of such securities on a when-issued basis. The value of the Fund's portfolio
securities, and therefore the Fund's net asset value per share, may increase or decrease
due to various factors, principally changes in prevailing interest rates. Generally, a
rise in interest rates will result in a decrease in the Fund's net asset value per
share, while a drop in interest rates will result in an increase in the Fund's net asset
value per share. In addition, the average life of certain of the securities held in the
Fund's portfolio (i.e., GNMA Certificates) may be shortened by prepayments or
refinancings of the mortgage pools underlying such securities. Such prepayments may have
an impact on dividends paid by the Fund (see pages 5-9).
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE
IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION
2
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of the
Fund will incur. The expenses and fees set forth in the table are for the fiscal
year ended December 31, 1994.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases............................. None
Maximum Sales Charge Imposed on Reinvested Dividends.................. None
Deferred Sales Charge
(as a percentage of the lesser of original purchase price or
redemption proceeds)................................................. 5.0%
</TABLE>
A contingent deferred sales charge is imposed at the following declining rates:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE PERCENTAGE
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<S> <C>
First............................................. 5.0%
Second............................................ 4.0%
Third............................................. 3.0%
Fourth............................................ 2.0%
Fifth............................................. 2.0%
Sixth............................................. 1.0%
Seventh and thereafter............................ None
</TABLE>
<TABLE>
<S> <C>
Redemption Fees....................................................... None
Exchange Fee.......................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees....................................................... 0.40%
12b-1 Fees*........................................................... 0.75%
Other Expenses........................................................ 0.07%
Total Fund Operating Expenses......................................... 1.22%
<FN>
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* A PORTION OF THE 12B-1 FEE EQUAL TO 0.20% OF THE FUND'S AVERAGE DAILY NET
ASSETS IS CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES (SEE "PURCHASE OF
FUND SHARES").
</TABLE>
<TABLE>
<CAPTION>
10
EXAMPLE 1 YEAR 3 YEARS 5 YEARS YEARS
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period........ $62 $69 $87 $148
You would pay the following expenses on the same
investment, assuming no redemption............... $12 $39 $67 $148
</TABLE>
The above example should not be considered a representation of past or future
expenses or performance. Actual expenses of the Fund may be greater or less than
those shown.
The purpose of this table is to assist the investor in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, the notes thereto and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
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1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------- -------- -------- -------- ------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............... $9.31 $9.30 $9.52 $9.37 $9.51 $9.42 $9.75 $10.33 $10.53 $10.47
------- -------- -------- -------- ------- -------- -------- -------- -------- -------
Net investment
income.............. 0.58 0.64 0.74 0.87 0.90 0.91 0.97 0.96 1.02 1.24
Net realized and
unrealized gain
(loss) on
investments......... (0.90) 0.01 (0.22) 0.15 (0.14) 0.09 (0.33) (0.58) (0.20) 0.13
------- -------- -------- -------- ------- -------- -------- -------- -------- -------
Total from investment
operations.......... (0.32) 0.65 0.52 1.02 0.76 1.00 0.64 0.38 0.82 1.37
------- -------- -------- -------- ------- -------- -------- -------- -------- -------
Less dividends and
distributions from:
Net investment
income............ (0.58) (0.64) (0.74) (0.87) (0.90) (0.91) (0.97) (0.96) (1.02) (1.24)
Net realized
gain.............. -0- -0- -0- -0- -0- -0- -0- -0- -0- (0.07)
------- -------- -------- -------- ------- -------- -------- -------- -------- -------
Total dividends and
distributions....... (0.58) (0.64) (0.74) (0.87) (0.90) (0.91) (0.97) (0.96) (1.02) (1.31)
------- -------- -------- -------- ------- -------- -------- -------- -------- -------
Net asset value, end
of period........... $8.41 $9.31 $9.30 $9.52 $9.37 $9.51 $9.42 $9.75 $10.33 $10.53
------- -------- -------- -------- ------- -------- -------- -------- -------- -------
------- -------- -------- -------- ------- -------- -------- -------- -------- -------
TOTAL INVESTMENT
RETURN+.............. (3.51)% 7.13% 5.76% 11.43% 8.49% 11.10% 6.74% 3.92% 8.23% 14.00%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period
(in millions)....... $8,211 $12,235 $12,484 $11,736 $9,829 $10,167 $10,366 $10,418 $11,100 $7,511
Ratios to average net
assets:
Expenses........... 1.22% 1.18% 1.20% 1.17% 1.23% 1.19% 1.21% 1.18% 1.20% 1.30%
Net investment
income............ 6.57% 6.78% 7.91% 9.23% 9.60% 9.62% 10.01% 9.63% 9.72% 11.53%
Portfolio turnover
rate................ 26% 32% 40% 104% 54% 44% 15% 51% 93% 98%
<FN>
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+ DOES NOT REFLECT THE DEDUCTION OF SALES LOAD.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
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THE FUND AND ITS MANAGEMENT
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Dean Witter U.S. Government Securities Trust (the "Fund") is an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended (the "Act"). The Fund is a Trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of The Commonwealth of Massachusetts on September 29, 1983.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Dean Witter, Discover & Co., a balanced
financial services organization providing a broad range of nationally marketed
credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-one investment companies, thirty of which
are listed on the New York Stock Exchange, with combined total assets of
approximately $64.9 billion at December 31, 1994. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $2.0 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily at an annual rate of
0.50% of the daily net assets of the Fund up to $1 billion, scaled down at
various asset levels to 0.30% on assets over $12.5 billion. For the fiscal year
ended December 31, 1994, the Fund accrued total compensation to the Investment
Manager amounting to 0.40% of the Fund's average daily net assets and the Fund's
total expenses amounted to 1.22% of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is high current income consistent with
safety of principal. This investment objective may not be changed without
approval of the Fund's shareholders. The Fund seeks to achieve its objective by
investing in obligations issued or guaranteed by the U.S. Government or its
instrumentalities ("U.S. Government securities"). All such obligations are
backed by the "full faith and credit" of the United States. Investments may be
made in obligations of instrumentalities of the U.S. Government only where such
obligations are guaranteed by the U.S. Government.
U.S. Government securities include U.S. Treasury securities consisting of
Treasury bills, Treasury notes and Treasury bonds. Some of the other U.S.
Government securities in which the Fund may invest include securities of the
Federal Housing Administration, the Government National Mortgage Association,
the Department of Housing and Urban Development, the Export-Import Bank, the
Farmers Home Administration, the General Services Administration, the Maritime
Administration, Resolution Funding Corporation and the Small Business
Administration. The maturities of such securities usually range from three
months to thirty years.
The Fund is not limited as to the maturities of the U.S. Government
securities in which it may invest, except that the Fund will not purchase zero
coupon securities with remaining maturities of longer than ten years. For a
discussion of the risks of investing in U.S. Government securities (including
such securities purchased on a when-issued, delayed delivery or firm commitment
basis and zero coupon securities), see "Risk Considerations" below.
While the Fund has the ability to invest in any securities backed by the
full faith and credit of the United States, it is currently anticipated that a
substantial portion of the Fund's assets will be invested in Certificates of the
Government National Mortgage Association (GNMA). Should market or economic
conditions warrant, this policy is subject to change at any time at the
discretion of the Investment Manager.
DESCRIPTION OF GNMA CERTIFICATES GNMA Certificates are mortgage-backed
securities. Each Certificate evidences an interest in a specific pool of
mortgages insured by the Federal Housing Administration or the Farmers Home
Administration (FHA) or guaranteed by the Veterans Administration (VA).
Scheduled payments of principal and interest are made to the registered holders
of GNMA Certificates. The GNMA Certificates that the Fund will invest in are of
the modified pass-through type. GNMA guarantees the timely payment of monthly
installments of principal and interest on modified pass-through certificates at
the time such payments are due, whether or not such amounts are
5
<PAGE>
collected by the issuer on the underlying mortgages. The National Housing Act
provides that the full faith and credit of the United States is pledged to the
timely payment of principal and interest by GNMA of amounts due on these GNMA
Certificates.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments with maximum maturities of 30 years. The average
life is likely to be substantially less than the original maturity of the
mortgage pools underlying the securities as the result of prepayments or
refinancing of such mortgages or foreclosure. Such prepayments are passed
through to the registered holder with the regular monthly payments of principal
and interest, which has the effect of reducing future payments. Due to the GNMA
guarantee, foreclosures impose no risk to investment principal. The occurrence
of mortgage prepayments is affected by factors including the level of interest
rates, general economic conditions, the location and age of the mortgage and
other social and demographic conditions. As prepayment rates vary widely, it is
not possible to accurately predict the average life of a particular pool.
However, statistics indicate that the average life of the type of mortgages
backing the majority of GNMA Certificates is approximately twelve years. For
this reason, it is standard practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year. Pools of
mortgages with other maturities or different characteristics will have varying
assumptions for average life. The assumed average life of pools of mortgages
having terms of less than 30 years is less than twelve years, but typically not
less than five years.
The coupon rate of interest of GNMA Certificates is lower than the interest
rate paid on the VA-guaranteed or FHA-insured mortgages underlying the
Certificates, but only by the amount of the fees paid to GNMA and the issuer.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. Reinvestment by the Fund of prepayments may occur at higher or
lower interest rates than the original investment. Historically, actual average
life has been consistent with the twelve-year assumption referred to above. The
actual yield of each GNMA Certificate is influenced by the prepayment experience
of the mortgage pool underlying the Certificates. Interest on GNMA Certificates
is paid monthly rather than semi-annually as for traditional bonds.
The Fund will invest in mortgage pass-through securities representing
participation interests in pools of residential mortgage loans originated by
United States governmental or private lenders such as banks, broker-dealers and
financing corporations and guaranteed, to the extent provided in such
securities, by the United States Government or one of its agencies or
instrumentalities. Such securities, which are ownership interests in the
underlying mortgage loans, differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually
semi-annually) and principal payments at maturity or on specified call dates.
Mortgage pass-through securities provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans. The guaranteed mortgage pass-through securities in
which the Fund may invest include those issued or guaranteed by GNMA or other
entities which securities are backed by the full faith and credit of the United
States.
Certificates for mortgage-backed securities evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the payment of
principal and interest on mortgages underlying the certificates, whether or not
such amounts are collected by the issuer on the underlying mortgages.
ADJUSTABLE RATE MORTGAGE SECURITIES. The Fund may also invest in adjustable
rate mortgage securities ("ARMs"), which are pass-through mortgage securities
collateralized by mortgages with adjustable rather than fixed rates. ARMs
eligible for inclusion in a mortgage pool generally provide for a fixed initial
mortgage interest rate for either the first three, six, twelve or thirteen
scheduled monthly payments. Thereafter, the interest rates are subject to
periodic adjustment based on changes to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for additional limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient to pay the interest accruing
on an ARM, any such excess interest is added to the principal balance of the
mortgage loan, which is repaid through future monthly payments. If the monthly
payment for such an instrument exceeds the sum of the interest accrued at the
applicable mortgage interest rate and the principal payment required at such
point to amortize the outstanding principal balance over the remaining term of
the loan, the excess is utilized to reduce the then outstanding principal
balance of the ARM.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
6
<PAGE>
CMOs are collateralized by GNMA, FNMA or FHLMC Certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multiclass pass-through
securities. CMOs may be issued by agencies or instrumentalities of the United
States government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
However, the Fund will only invest in CMOs which are backed by the full faith
and credit of the United States.
The issuer of a series of CMOs may elect to be treated as a Real Estate
Mortgage Investment Conduit ("REMIC"). REMICs include governmental and/or
private entities that issue a fixed pool of mortgages secured by an interest in
real property. REMICs are similar to CMOs in that they issue multiple classes of
securities, but unlike CMOs, which are required to be structured as debt
securities, REMICs may be structured as indirect ownership interests in the
underlying assets of the REMICs themselves. However, there are no effects on the
Fund from investing in CMOs issued by entities that have elected to be treated
as REMICs, and all future references to CMOs shall also be deemed to include
REMICs. The Fund may invest without limitation in CMOs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semi-annual basis. Certain CMOs may have variable or floating
interest rates and others may be stripped (securities which provide only the
principal or interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of a CMO series in a number of different ways. Generally,
the purpose of the allocation of the cash flow of a CMO to the various classes
is to obtain a more predictable cash flow to the individual tranches than exists
with the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO tranche, the lower the anticipated yield
will be on that tranche at the time of issuance relative to prevailing market
yields on mortgage-backed securities. As part of the process of creating more
predictable cash flows on most of the tranches in a series of CMOs, one or more
tranches generally must be created that absorb most of the volatility in the
cash flows on the underlying mortgage loans. The yields on these tranches are
generally higher than prevailing market yields on mortgage-backed securities
with similar maturities. As a result of the uncertainty of the cash flows of
these tranches, the market prices of and yield on these tranches generally are
more volatile.
The Fund also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
For a discussion of the risks of investing in mortgage-backed securities,
see "Risk Considerations" below.
The purchase or retention of stripped mortgage-backed securities, CMOs and
REMICs investments will be made only in conformity with the provisions of
Section 703.5 of the National Credit Union Administration Rules and Regulations,
as such provisions became effective on December 2, 1991.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. Neither the value nor the yield of the
U.S. Government securities invested in by the Fund (or the value or yield of the
shares of the Fund) is guaranteed by the U.S. Government. Such values and yield
will fluctuate with changes in prevailing interest rates and other factors.
Generally, as prevailing interest rates rise, the value of the U.S.
Government securities held by the Fund, and, concomitantly, the net asset value
of the Fund's shares, will fall. Such securities with longer maturities
generally tend to produce higher yields and are subject to greater market
fluctuation as a result of changes in interest rates than debt securities with
shorter maturities. As noted above, except with regard to zero coupon
securities, the Fund is not limited as to the maturities of the U.S. Government
securities in which it may invest.
RISKS OF MORTGAGE-BACKED SECURITIES. Mortgage-backed securities have certain
different characteristics than traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if
7
<PAGE>
the Fund purchases such a security at a premium, a prepayment rate that is
faster than expected may reduce yield to maturity, while a pre-payment rate that
is slower than expected may have the opposite effect of increasing yield to
maturity. Alternatively, if the Fund purchases these securities at a discount,
faster than expected prepayments will increase, while slower than expected
prepayments may reduce, yield to maturity.
Mortgage-backed securities, like all fixed-income securities, generally
decrease in value as a result of increases in interest rates. In addition,
although generally the value of fixed-income securities increases during periods
of falling interest rates, mortgage-backed securities may benefit less than
other fixed-income securities from declining interest rates because of the risk
of prepayments. As discussed above under "Description of GNMA Certificates," the
assumed average life of mortgages backing the majority of GNMA Certificates is
twelve years. This average life is likely to be substantially shorter than the
original maturity of the mortgage pools underlying the certificates, as a pool's
duration may be shortened by unscheduled or early payments of principal on the
underlying mortgages. As prepayment rates vary widely, it is not possible to
accurately predict the average life of a particular pool.
Although the extent of prepayments on a pool of mortgage loans depends on
various factors, including the prevailing level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions, as a general rule prepayments on fixed rate mortgage
loans will increase during a period of falling interest rates and decrease
during a period of rising interest rates. If the Fund has purchased securities
backed by pools containing mortgages whose yields exceed the prevailing interest
rate, any premium paid for such securities may be lost. As a result, the net
asset value of shares of the Fund and the Fund's ability to achieve its
investment objective may be adversely affected by mortgage prepayments. Amounts
available for reinvestment by the Fund are likely to be greater during a period
of declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates.
There are certain risks associated specifically with CMOs. A number of
different factors, including the extent of prepayment of principal of the
Mortgage Assets, affect the availability of cash for principal payments by the
CMO issuer on any payment date and, accordingly, affect the timing of principal
payments on each CMO class.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS From time
to time, in the ordinary course of business, the Fund may purchase securities on
a when-issued or delayed delivery basis or may purchase or sell securities on a
forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place
between one month and 120 days after the date of the commitment. While the Fund
will only purchase securities on a when-issued, delayed delivery or forward
commitment basis with the intention of acquiring the securities, the Fund may
sell the securities before the settlement date, if it is deemed advisable. The
securities so purchased or sold are subject to market fluctuation and no
interest accrues to the purchaser during this period. At the time the Fund makes
the commitment to purchase or sell securities on a when-issued, delayed delivery
or forward commitment basis, it will record the transaction and thereafter
reflect the value, each day, of such security purchased or, if a sale, the
proceeds to be received, in determining its net asset value. At the time of
delivery of the securities, their value may be more or less than the purchase or
sale price. The Fund will also establish a segregated account with its custodian
bank in which it will continually maintain cash or cash equivalents or other
portfolio securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis. There is no overall
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
ZERO COUPON SECURITIES. A portion of the U.S. Government securities purchased
by the Fund may be zero coupon securities with maturity dates in each case no
later than ten years from the settlement date for the purchase of such security.
Such securities are purchased at a discount from their face amount, giving the
purchaser the right to receive their full value at maturity. The interest earned
on such securities is, implicitly, automatically compounded and paid out at
maturity. While such compounding at a constant rate eliminates the risk of
receiving lower yields upon reinvestment of interest if prevailing interest
rates decline, the owner of a zero coupon security will be unable to participate
in higher yields upon reinvestment of interest received on interest-paying
securities if prevailing interest rates rise. For this reason, zero coupon
securities are subject to substantially greater price fluctuations during
periods of changing prevailing interest rates than are comparable securities
which pay interest currently.
For additional risk disclosure, please refer to the discussion of specific
investments above in "Investment Objective and Policies."
PORTFOLIO TRADING
The Fund is managed within InterCapital's Taxable Fixed-Income Group, which
manages twenty-four funds and fund portfolios, with approximately $13 billion in
assets at December 31, 1994. Rajesh K. Gupta, Senior Vice President of
InterCapital and a member of InterCapital's Taxable Fixed-Income Group, has been
the primary portfolio man-
8
<PAGE>
ager of the Fund since July, 1992 and has been managing portfolios comprised of
government securities at InterCapital for over five years.
Although the Fund does not intend to engage in short-term trading of
portfolio securities as a means of achieving its investment objective, it may
sell portfolio securities without regard to the length of time they have been
held whenever such sale will in the Investment Manager's opinion strengthen the
Fund's position and contribute to its investment objective. The portfolio
trading engaged in by the Fund may result in its portfolio turnover rate
exceeding 100%. Brokerage commissions are not normally charged on the purchase
or sale of U.S. Government obligations, but such transactions may involve costs
in the form of spreads between bid and asked prices. Pursuant to an order of the
Securities and Exchange Commission, the Fund may effect principal transactions
in certain money market instruments with Dean Witter Reynolds Inc. ("DWR"), a
broker-dealer affiliate of InterCapital. In addition, the Fund may incur
brokerage commissions on transactions conducted through DWR.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers which have entered into selected dealer agreements with the
Distributor ("Selected Broker-Dealers"). The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Subsequent purchases of $100 or more
may be made by sending a check, payable to Dean Witter U.S. Government
Securities Trust, directly to Dean Witter Trust Company (the "Transfer Agent")
at P.O. Box 1040, Jersey City, NJ 07303 or by contacting an account executive of
DWR or other Selected Broker-Dealer. In the case of investments pursuant to
Systematic Payroll Deduction Plans (including Individual Retirement Plans), the
Fund, in its discretion, may accept investments without regard to any minimum
amounts which would otherwise be required, if the Fund has reason to believe
that additional investments will increase the investment in all accounts under
such Plans to at least $1,000. Certificates for shares purchased will not be
issued unless requested by the shareholder in writing to the Transfer Agent. The
offering price will be the net asset value per share next determined following
receipt of an order (see "Determination of Net Asset Value").
Shares of the Fund are sold through the Distributor on a normal five
business day settlement basis; that is, payment generally is due on or before
the fifth business day (settlement date) after the order is placed with the
Distributor. Shares of the Fund purchased through the Distributor are entitled
to dividends beginning on the next business day following settlement date. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds where payment is
made prior thereto. Shares purchased through the Transfer Agent are entitled to
dividends beginning on the next business day following receipt of an order. As
noted above, orders placed directly with the Transfer Agent must be accompanied
by payment. Investors will be entitled to receive capital gains distributions if
their order is received by the close of business on the day prior to the record
date for such distributions. While no sales charge is imposed at the time shares
are purchased, a contingent deferred sales charge may be imposed at the time of
redemption (see "Redemptions and Repurchases"). Sales personnel are compensated
for selling shares of the Fund at the time of their sale by the Distributor
and/or Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation as special
sales incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution, pursuant to Rule 12b-1 under the
Act (the "Plan"), under which the Fund pays the Distributor a fee, which is
accrued daily and payable monthly, at an annual rate of 0.75% (0.65% on amounts
over $10 billion) of the lesser of: (a) the average daily aggregate gross sales
of the Fund's shares since the inception of the Fund (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's shares redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed or
waived, or (b) the Fund's average daily net assets. The fee is treated by the
Fund as an expense in the year it is accrued. A portion of the fee payable
pursuant to the Plan, equal to 0.20% of the Fund's average daily net assets, is
characterized as a service fee within the meaning of NASD guidelines. The
service fee is a payment made for personal service and/or the maintenance of
shareholder accounts.
Amounts paid under the Plan are paid to the Distributor to compensate it for
the services provided and the expenses borne by the Distributor and others in
the distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to and expenses of DWR
account executives and
9
<PAGE>
others who engage in or support distribution of shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders; and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan to compensate DWR and
other Selected Broker-Dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed distribution expenses.
For the fiscal year ended December 31, 1994, the Fund accrued payments under
the Plan amounting to $76,161,225, which amount is equal to 0.75% of the Fund's
average daily net assets for the fiscal year. The payments accrued under the
Plan were calculated pursuant to clause (b) of the compensation formula under
the Plan.
At any given time, the expenses of distributing shares of the Fund may be in
excess of the total of (i) the payments made by the Fund pursuant to the Plan
and (ii) the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares (see "Redemptions and Repurchases--Contingent Deferred
Sales Charge"). For example, if $1 million in expenses in distributing shares of
the Fund had been incurred and $750,000 had been received as described in (i)
and (ii) above, the excess expense would amount to $250,000. The Distributor has
advised the Fund that the excess distribution expenses, including the carrying
charge described above, totalled $150,832,267 at December 31, 1994, which was
equal to 1.84% of the Fund's net assets on such date. Because there is no
requirement under the Plan that the Distributor be reimbursed for all
distribution expenses or any requirement that the Plan be continued from year to
year, this excess amount does not constitute a liability of the Fund. Although
there is no legal obligation for the Fund to pay expenses incurred in excess of
payments made to the Distributor under the Plan and the proceeds of contingent
deferred sales charges paid by investors upon redemption of shares, if for any
reason the Plan is terminated the Trustees will consider at that time the manner
in which to treat such expenses. Any cumulative expenses incurred, but not yet
recovered through distribution fees or contingent deferred sales charges, may or
may not be recovered through future distribution fees or contingent deferred
sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined by taking the value of
all the assets of the Fund, subtracting all liabilities, dividing by the number
of shares outstanding and adjusting the result to the nearest cent. The net
asset value per share is calculated by the Investment Manager at 4:00 P.M. New
York time on each day that the New York Stock Exchange is open. The net asset
value per share will not be determined on Good Friday and on such other federal
and non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) all portfolio
securities for which over-the-counter market quotations are readily available
are valued at the bid price; (2) when market quotations are not readily
available, including circumstances under which it is determined by the
Investment Manager that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Fund's Board of Trustees (valuation of securities for which market
quotations are not readily available may be based upon current market prices of
securities which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors); and (3) short-term instruments having a
maturity date of more than sixty days are valued on a "mark-to-market" basis,
that is, at prices based on market quotations for securities of similar type,
yield, quality and maturity, until sixty days prior to maturity and thereafter
at amortized cost. Short-term instruments having a maturity date of sixty days
or less at the time of purchase are valued at amortized cost unless the Board of
Trustees determines this does not represent fair market value.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service utilizes a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All dividends and capital
gains distributions are automatically paid in full and fractional shares of the
Fund (or, if specified by the shareholder, any other open-end investment company
for which InterCapital serves as investment manager (collectively, with the
Fund, the "Dean Witter Funds")), unless the shareholder requests that they be
paid in cash. Shares so acquired are not subject to the imposition of a
contingent deferred sales charge upon their redemption (see "Redemptions and
Repurchases"). Such dividends and distributions will be paid, at the net asset
value per share, in shares of the Fund (or in cash if the shareholder so
requests) on the monthly payment date, which generally will be no later than the
last business day of the month for
10
<PAGE>
which the dividend or distribution is payable. Processing of dividend checks
begins immediately following the monthly payment date. Shareholders who have
requested to receive dividends in cash will normally receive their monthly
dividend check during the first ten days of the following month.
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder who
receives a cash payment representing a dividend or capital gains distribution
may invest such dividend or distribution at the net asset value per share next
determined after receipt by the Transfer Agent, by returning the check or the
proceeds to the Transfer Agent within thirty days after the payment date. Shares
so acquired are not subject to the imposition of a contingent deferred sales
charge upon their redemption (see "Redemptions and Repurchases.")
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic purchase
plan which provides for any amount from $100 to $5,000 to be transferred
automatically from a checking or savings account, on a semi-monthly, monthly or
quarterly basis, to the Transfer Agent for investment in shares of the Fund.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable
contingent deferred sales charge will be imposed on shares redeemed under the
Withdrawal Plan (See "Redemptions and Repurchases--Contingent Deferred Sales
Charge"). Therefore, any shareholder participating in the Withdrawal Plan will
have sufficient shares redeemed from his or her account so that the proceeds
(net of any applicable contingent deferred sales charge) to the shareholder will
be the designated monthly or quarterly amount.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the Transfer
Agent.
EXCHANGE PRIVILEGE. The Fund makes available to its shareholders an "Exchange
Privilege" allowing the exchange of shares of the Fund for shares of other Dean
Witter Funds sold with a contingent deferred sales charge ("CDSC funds"), and
for shares of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited
Term Municipal Trust, Dean Witter Short-Term Bond Fund and five Dean Witter
Funds which are money market funds (the foregoing eight non-CDSC funds are
hereinafter referred to as the "Exchange Funds"). Exchanges may be made after
the shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share of
each fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following day. Subsequent exchanges between any of the money
market funds and any of the CDSC funds can be effected on the same basis. No
contingent deferred sales charge ("CDSC") is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate redemption.
Shares of the Fund acquired in exchange for shares of another CDSC fund having a
different CDSC schedule than that of this Fund will be subject to the CDSC
schedule of this Fund, even if such shares are subsequently reexchanged for
shares of the CDSC fund originally purchased. During the period of time the
shareholder remains in the Exchange Fund (calculated from the last day of the
month in which the Exchange Fund shares were acquired), the holding period (for
the purpose of determining the rate of the CDSC) is frozen. If those shares are
subsequently reexchanged for shares of a CDSC fund, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a CDSC fund are reacquired. Thus, the CDSC is based
upon the time (calculated as described above) the shareholder was invested in a
CDSC fund (see "Redemptions and Repurchases--Contingent Deferred Sales Charge").
However, in the case of shares exchanged into an Exchange Fund on or after April
23, 1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the Exchange Fund 12b-1 distribution fees incurred on or after that date
which are attributable to those shares. (Exchange Fund 12b-1 distribution fees
are described in the prospectuses for those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end
11
<PAGE>
sales charge fund have been exchanged) are not subject to any CDSC upon their
redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders and,
at the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/or exchanges from the investor. Although the
Fund does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Dean Witter
Funds for which shares of the Fund have been exchanged, upon such notice as may
be required by applicable regulatory agencies. Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on exchange of shares of the Fund
pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares, on
which the shareholder may realize a capital gain or loss. However, the ability
to deduct capital losses on an exchange may be limited in situations where there
is an exchange of shares within ninety days after the shares are purchased. The
Exchange Privilege is only available in states where an exchange may legally be
made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing or
by contacting the Transfer Agent at (800) 526-3143 (toll free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean Witter
Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at the net
asset value per share next determined; however, such redemption proceeds may be
reduced by the amount of any applicable contingent deferred sales charges (see
below). If shares are held in a Shareholder Investment Account without a share
certificate, a written request for redemption to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder, the shares may be redeemed by surrendering the certificates with a
written request for redemption, along with any additional information required
by the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE. Shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any charge upon
12
<PAGE>
redemption. Shares redeemed sooner than six years after purchase may, however,
be subject to a charge upon redemption. This charge is called a "contingent
deferred sales charge" ("CDSC"), which will be a percentage of the dollar amount
of shares redeemed and will be assessed on an amount equal to the lesser of the
current market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------------------- --------------------------
<S> <C>
First............................................. 5.0%
Second............................................ 4.0%
Third............................................. 3.0%
Fourth............................................ 2.0%
Fifth............................................. 2.0%
Sixth............................................. 1.0%
Seventh and thereafter............................ None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption; (ii)
the current net asset value of shares purchased more than six years prior to the
redemption; and (iii) the current net asset value of shares purchased through
reinvestment of dividends or distributions and/or shares acquired in exchange
for shares of Dean Witter Funds sold with a front-end sales charge or of other
Dean Witter Funds acquired in exchange for such shares. Moreover, in determining
whether a CDSC is applicable it will be assumed that amounts described in (i),
(ii), and (iii) above (in that order) are redeemed first. In addition, no CDSC
will be imposed on redemptions of shares which were purchased by the employee
benefit plans established by DWR and SPS Transaction Services, Inc. (an
affiliate of DWR) for their employees as qualified under Section 401(k) of the
Internal Revenue Code.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of (i) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship, or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account or Custodial Account under Section 403(b) (7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one year
of the death or initial determination of disability, and (ii) redemptions in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an Individual
Retirement Account or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code following attainment of age 59 1/2; and (c) a tax-free return of an
excess contribution to an IRA. For the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. All waivers will be granted only following receipt by the
Distributor of confirmation of the investor's entitlement.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to repurchase
shares represented by a share certificate which is delivered to any of their
offices. Shares held in a shareholder's account without a share certificate may
also be repurchased by DWR and other Selected Broker-Dealers upon the telephonic
request of the shareholder. The repurchase price is the net asset value next
computed (see "Purchase of Fund Shares") after such repurchase order is received
by DWR or other Selected Broker-Dealer, reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund, the Distributor,
DWR or other Selected Broker-Dealers. The offer by DWR and other Selected
Broker-Dealers to repurchase shares may be suspended without notice by them at
any time. In that event, shareholders may redeem their shares through the Fund's
Transfer Agent as set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented for
repurchase or redemption will be made by check within seven days after receipt
by the Transfer Agent of the certificate and/or written request in good order.
Such payment may be postponed or the right of redemption suspended under unusual
circumstances, e.g., when normal trading is not taking place on the New York
Stock Exchange. If the shares to be redeemed have recently been purchased by
check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares redeemed
or repurchased and has not previously exercised this reinstatement privilege
may, within thirty days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund at net asset value next determined after a reinstatement
request, together with the proceeds, is received by the Transfer Agent and
receive a pro-rata credit for any CDSC paid in connection with such redemption
or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on sixty days' notice, to
redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the Internal Revenue Code) whose
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<PAGE>
shares have a value of less than $100 as a result of redemptions or repurchases,
or such lesser amount as may be fixed by the Trustees. However, before the Fund
redeems such shares and sends the proceeds to the shareholder, it will notify
the shareholder that the value of the shares is less than $100 and allow him or
her sixty days to make an additional investment in an amount which will increase
the value of his or her account to $100 or more before the redemption is
processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends from net investment
income on each day the New York Stock Exchange is open for business to
shareholders of record as of the close of business the preceding business day.
The amount of dividend may fluctuate from day to day. Such dividends are paid
monthly. The Fund intends to distribute substantially all of its net investment
income on an annual basis.
The Fund may distribute quarterly net realized short-term capital gains, if
any, in excess of any net realized long-term capital losses. The Fund intends to
distribute dividends from net long-term capital gains, if any, at least once
each year. The Fund may, however, elect to retain all or a portion of any net
long-term capital gains in any year for reinvestment. Also, the Fund may at
times make payments from sources other than income or net capital gains.
Payments from such sources would, in effect, represent a return of a portion of
each shareholder's investment. All, or a portion, of such payments would not be
taxable to shareholders.
All dividends and any capital gains distributions will be paid in additional
Fund shares (without sales charge) and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends or all dividends and
distributions be paid in cash. (See "Shareholder Services-- Automatic Investment
of Dividends and Distributions".)
TAXES. Because the Fund intends to distribute substantially all of its net
investment income and net short-term capital gains to shareholders and continue
to qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
federal income tax on such income and capital gains.
Shareholders who are required to pay taxes on their income will normally
have to pay federal income taxes, and any applicable state and/or local income
taxes, on the dividends and distributions they receive from the Fund. Such
dividends and distributions, to the extent that they are derived from net
investment income and net short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the corporate dividends received deduction.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to accuracy.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject to
state and local taxes; therefore, each shareholder is advised to consult his or
her own tax adviser.
PERFORMANCE INFORMATION
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From time to time the Fund may quote its "yield" and/or its"total return" in
advertisements and sales literature. Both the yield and the total return of the
Fund are based on historical earnings and are not intended to indicate future
performance. The yield of the Fund is computed by dividing the Fund's net
investment income over a 30-day period by an average value (using the average
number of shares entitled to receive dividends and the net asset value per share
at the end of the period), all in accordance with applicable regulatory
requirements. Such amount is compounded for six months and then annualized for a
twelve-month period to derive the Fund's yield.
The "average annual total return" of the Fund refers to a figure reflecting
the average annualized percentage increase (or decrease) in the value of an
initial investment in the Fund of $1,000 over periods of one, five and ten
years. Average annual total return reflects all income earned by the Fund, any
appreciation or depreciation of the Fund's assets, all expenses incurred by the
Fund and all sales charges which would be incurred by redeeming shareholders,
for the stated periods. It also assumes reinvestment of all dividends and
distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of
14
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aggregate, average, and year-by-year or other types of total return figures.
Such calculations may or may not reflect the deduction of the contingent
deferred sales charge which, if reflected, would reduce the performance quoted.
The Fund may also advertise the growth of hypothetical investments of $10,000,
$50,000 and $100,000 in shares of the Fund. The Fund from time to time may also
advertise its performance relative to certain performance rankings and indexes
compiled by independent organizations.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01 par
value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean Witter
Services Company Inc. and the Distributor are subject to a strict Code of Ethics
adopted by those companies. The Code of Ethics is intended to ensure that the
interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and option transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within thirty days before or after any transaction in any Dean Witter
Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the recent report by the Investment Company Institute
Advisory Group on Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed to
the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
15
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DEAN WITTER
U.S. GOVERNMENT SECURITIES TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Rajesh K. Gupta
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
