<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997
REGISTRATION NOS.: 33-10363
811-4917
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 13 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 14 /X/
------------------
DEAN WITTER FEDERAL SECURITIES TRUST
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
_X_ on December 29, 1997 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
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<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- ----------------------------------------------- -----------------------------------------------------------------------
<S> <C>
PART A PROSPECTUS
1. .......................................... Cover Page
2. .......................................... Prospectus Summary
3. .......................................... Financial Highlights; Performance Information
4. .......................................... Investment Objective and Policies; Financial Highlights; The Fund and
Its Management, Cover Page; Investment Restrictions; Prospectus
Summary
5. .......................................... The Fund and Its Management; Back Cover; Investment Objectives and
Policies
6. .......................................... Dividends, Distributions and Taxes; Additional Information
7. .......................................... Purchase of Fund Shares; Shareholder Services; Prospectus Summary
8. .......................................... Purchase of Fund Shares; Redemptions and Repurchases; Shareholder
Services
9. .......................................... Additional Information
PART B STATEMENT OF ADDITIONAL INFORMATION
10. .......................................... Cover Page
11. .......................................... Table of Contents
12. .......................................... The Fund and Its Management
13. .......................................... Investment Practices and Policies; Investment Restrictions; Portfolio
Transactions and Brokerage
14. .......................................... The Fund and Its Management; Trustees and Officers
15. .......................................... The Fund and Its Management; Trustees and Officers
16. .......................................... The Fund and Its Management; The Distributor; Shareholder Services;
Custodian and Transfer Agent; Independent Accountants
17. .......................................... Portfolio Transactions and Brokerage
18. .......................................... Description of Shares of the Fund
19. .......................................... The Distributor; Purchase of Fund Shares; Redemptions and Repurchases;
Financial Statements; Shareholder Services; Determination of Net Asset
Value
20. .......................................... Dividends, Distributions and Taxes; Financial Statements
21. .......................................... The Distributor
22. .......................................... Performance Information
23. .......................................... Experts; Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
DECEMBER 29, 1997
Dean Witter Federal Securities Trust (the "Fund") is an open-end
diversified management investment company whose investment objective is to earn
a high level of current income. The Fund will seek to achieve its investment
objective by investing primarily in debt securities issued by the U.S.
Government, its agencies or instrumentalities, including mortgage-backed
securities, and by writing covered call and put options against such securities.
The Fund may also purchase options on such securities to effect closing
transactions. In addition, to hedge the Fund's portfolio of securities against
changes in prevailing interest rates, the Fund may purchase put options on U.S.
Government securities and engage in transactions involving interest rate futures
contracts and options on such contracts. Shares of the Fund are not issued,
insured or guaranteed, as to value or yield, by the U.S. Government, its
agencies or instrumentalities. (See "Investment Objective and Policies.")
The Fund offers four classes of shares (each, a "Class"), each
with a different combination of sales charges, ongoing fees and other features.
The different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
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 December 29, 1997, 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.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/5
Financial Highlights/7
The Fund and its Management/10
Investment Objective and Policies/10
Risk Considerations/15
Investment Restrictions/19
Purchase of Fund Shares/20
Shareholder Services/31
Redemptions and Repurchases/35
Dividends, Distributions and Taxes/36
Performance Information/37
Additional Information/38
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.
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
Federal Securities Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is
Fund an open-end diversified management investment company which invests principally in U.S.
Government securities.
- ----------------------------------------------------------------------------------------------------------
Shares Offered Shares of beneficial interest with $0.01 par value (see page 38). The Fund offers four
Classes of shares, each with a different combination of sales charges, ongoing fees and
other features (see pages 20-31).
- ----------------------------------------------------------------------------------------------------------
Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened
Purchase through EasyInvest-SM-). Class D shares are only available to persons investing $5 million
($25 million for certain qualified plans) or more and to certain other limited categories
of investors. For the purpose of meeting the minimum $5 million (or $25 million)
investment for Class D shares, and subject to the $1,000 minimum initial investment for
each Class of the Fund, an investor's existing holdings of Class A shares and shares of
funds for which Dean Witter InterCapital Inc. serves as investment manager ("Dean Witter
Funds") that are sold with a front-end sales charge, and concurrent investments in Class D
shares of the Fund and other Dean Witter Funds that are multiple class funds, will be
aggregated. The minimum subsequent investment is $100 (see page 20).
- ----------------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is to earn a high level of current income.
Objective
- ----------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and
Manager its wholly-owned subsidiary, Dean Witter Services Company, Inc., serve in various
investment management, advisory, management and administrative capacities to 102
investment companies and other portfolios with assets of approximately $102.4 billion at
November 30, 1997 (see page 10).
- ----------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 0.55% of the Fund's
Fee daily net assets not exceeding $1 billion, scaled down at various asset levels to 0.35% of
the Fund's daily net assets on assets exceeding $12.5 billion (see page 10).
- ----------------------------------------------------------------------------------------------------------
Distributor and Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution
Distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with
Fee respect to the distribution fees paid by the Class A, Class B and Class C shares of the
Fund to the Distributor. The entire 12b-1 fee payable by Class A and a portion of the
12b-1 fee payable by each of Class B and Class C equal to 0.20% of the average daily net
assets of Class B and 0.25% of the average daily net assets of Class C are currently each
characterized as a service fee within the meaning of the National Association of
Securities Dealers, Inc. guidelines. The remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge (see pages 20 and 29).
- ----------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Alternative Four classes of shares are offered:
Purchase
Arrangements - Class A shares are offered with a front-end sales charge, starting at 4.25% and reduced
for larger purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charge at the time of
purchase but a contingent deferred sales charge ("CDSC") of 1.0% may be imposed on
redemptions within one year of purchase. The Fund is authorized to reimburse the
Distributor for specific expenses incurred in promoting the distribution of the Fund's
Class A shares and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments at an annual rate of
0.25% of average daily net assets of the Class (see pages 20, 24 and 29).
- Class B shares are offered without a front-end sales charge, but will in most cases be
subject to a CDSC (scaled down from 5.0% to 1.0%) if redeemed within six years after
purchase. The CDSC will be imposed on any redemption of shares if after such redemption
the aggregate current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments made during the six years preceding the
redemption. A different CDSC schedule applies to investments by certain qualified plans.
Class B shares are also subject to a 12b-1 fee assessed at the annual rate of 0.85% of the
lesser of: (a) the average daily net sales of the Fund's Class B shares or (b) the average
daily net assets of Class B. All shares of the Fund held prior to July 28, 1997 have been
designated Class B shares. Shares held before May 1, 1997 will convert to Class A shares
in May, 2007. In all other instances, Class B shares convert to Class A shares
approximately ten years after the date of the original purchase (see pages 20, 26 and 29).
- Class C shares are offered without a front-end sales charge, but will in most cases be
subject to a CDSC of 1.0% if redeemed within one year after purchase. The Fund is
authorized to reimburse the Distributor for specific expenses incurred in promoting the
distribution of the Fund's Class C shares and servicing shareholder accounts pursuant to
the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments at
an annual rate of 0.85% of average daily net assets of the Class (see page 29).
- Class D shares are offered only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans) and to certain other limited categories
of investors. Class D shares are offered without a front-end sales charge or CDSC and are
not subject to any 12b-1 fee (see page 29).
- ----------------------------------------------------------------------------------------------------------
Dividends Dividends from net investment income are declared daily and paid monthly. Capital gains
and distributions are paid at least annually. The Fund may, however, determine to retain all
Capital Gains or part of any net long-term capital gains in any year for reinvestment. Dividends and
Distributions capital gains distributions paid on shares of a Class are automatically reinvested in
additional shares of the same Class at net asset value unless the shareholder elects to
receive cash. Shares acquired by dividend and distribution reinvestment will not be
subject to any sales charge or CDSC (see pages 31 and 36).
- ----------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Redemption Shares are redeemable by the shareholder at net asset value less any applicable CDSC on
Class A, Class B or Class C shares. An account may be involuntarily redeemed if the total
value of the account is less than $100 or, if the account was opened through
EasyInvest-SM-, if after twelve months the shareholder has invested less than $1,000 in
the account (see page 35).
- ----------------------------------------------------------------------------------------------------------
Special Risk The net asset value of the Fund's shares will fluctuate with changes in the market value
Considerations of its portfolio securities. The Fund's yield will also vary based on the yield of the
Fund's portfolio securities. The Fund may purchase and write options on debt instruments,
in both exchange-listed and over-the-counter transactions, and engage in transactions
involving futures contracts and options thereon. In addition, the Fund may borrow money
and thereby leverage its securities investments (in an amount up to 25% of the Fund's
total assets) and purchase securities on a when-issued and delayed delivery and firm
commitment basis. These investments may involve special risks (see pages 15-19).
- ----------------------------------------------------------------------------------------------------------
</TABLE>
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
4
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
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 based on
the expenses and fees for the fiscal year ended October 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ----------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price).............................................................. 4.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments........................ None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds).............................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees....................................................... None None None None
Exchange Fee.......................................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------
Management Fees....................................................... 0.55% 0.55% 0.55% 0.55%
12b-1 Fees (5) (6).................................................... 0.25% 0.85% 0.85% None
Other Expenses........................................................ 0.13% 0.13% 0.13% 0.13%
Total Fund Operating Expenses (7)..................................... 0.93% 1.53% 1.53% 0.68%
</TABLE>
- ------------
(1) REDUCED FOR PURCHASES OF $25,000 AND OVER (SEE "PURCHASE OF FUND
SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES").
(2) INVESTMENTS THAT ARE NOT SUBJECT TO ANY SALES CHARGE AT THE TIME OF PURCHASE
ARE SUBJECT TO A CDSC OF 1.00% THAT WILL BE IMPOSED ON REDEMPTIONS MADE
WITHIN ONE YEAR AFTER PURCHASE, EXCEPT FOR CERTAIN SPECIFIC CIRCUMSTANCES
(SEE "PURCHASE OF FUND SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A
SHARES").
(3) THE CDSC IS SCALED DOWN TO 1.00% DURING THE SIXTH YEAR, REACHING ZERO
THEREAFTER.
(4) ONLY APPLICABLE TO REDEMPTIONS MADE WITHIN ONE YEAR AFTER PURCHASE (SEE
"PURCHASE OF FUND SHARES-- LEVEL LOAD ALTERNATIVE--CLASS C SHARES").
(5) THE 12b-1 FEE IS ACCRUED DAILY AND PAYABLE MONTHLY. THE ENTIRE 12b-1 FEE
PAYABLE BY CLASS A AND A PORTION OF THE 12b-1 FEE PAYABLE BY EACH OF CLASS B
AND CLASS C EQUAL TO 0.20% OF THE AVERAGE DAILY NET ASSETS OF CLASS B AND
0.25% OF THE AVERAGE DAILY NET ASSETS OF CLASS C ARE CURRENTLY EACH
CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC. ("NASD") GUIDELINES AND ARE PAYMENTS MADE FOR
PERSONAL SERVICE AND/OR MAINTENANCE OF SHAREHOLDER ACCOUNTS. THE REMAINDER
OF THE 12b-1 FEE, IF ANY, IS AN ASSET-BASED SALES CHARGE, AND IS A
DISTRIBUTION FEE 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 (SEE "PURCHASE OF FUND SHARES--PLAN OF
DISTRIBUTION").
(6) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12b-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 0.85% DISTRIBUTION FEE (SEE "PURCHASE OF FUND
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
(7) THERE WERE NO OUTSTANDING SHARES OF CLASS A, CLASS C OR CLASS D PRIOR TO
JULY 28, 1997. ACCORDINGLY, "TOTAL FUND OPERATING EXPENSES," AS SHOWN ABOVE
WITH RESPECT TO THOSE CLASSES, ARE ESTIMATES BASED UPON THE SUM OF 12b-1
FEES, MANAGEMENT FEES AND ESTIMATED "OTHER EXPENSES."
5
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment assuming (1) a 5% annual
return and (2) redemption at the end of
each time period:
Class A................................. $52 $71 $ 92 $152
Class B................................. $66 $78 $103 $182
Class C................................. $26 $48 $ 83 $182
Class D................................. $ 7 $22 $ 38 $ 85
You would pay the following expenses on the
same $1,000 investment assuming no
redemption at the end of the period:
Class A................................. $52 $71 $ 92 $152
Class B................................. $16 $48 $ 83 $182
Class C................................. $16 $48 $ 83 $182
Class D................................. $ 7 $22 $ 38 $ 85
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS 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," "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
6
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, 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 OCTOBER 31
---------------------------------------------------------------------------------------------------
CLASS B SHARES 1997* 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $9.25 $9.49 $8.74 $10.03 $9.57 $9.46 $8.87 $9.27 $9.13 $9.27
----- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net investment income..... 0.59 0.59 0.59 0.60 0.65 0.68 0.72 0.72 0.71 0.74
Net realized and
unrealized gain (loss)... 0.11 (0.25) 0.75 (1.28) 0.46 0.11 0.59 (0.40) 0.34 0.08
----- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations............... 0.70 0.34 1.34 (0.68) 1.11 0.79 1.31 0.32 1.05 0.82
----- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions from:
Net investment
income................. (0.59) (0.58) (0.59) (0.61) (0.65) (0.68) (0.72) (0.72) (0.71) (0.74)
Paid-in-capital........ -- -- -- -- -- -- -- -- (0.20) (0.22)
----- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions............ (0.59) (0.58) (0.59) (0.61) (0.65) (0.68) (0.72) (0.72) (0.91) (0.96)
----- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period................... $9.36 $9.25 $9.49 $8.74 $10.03 $9.57 $9.46 $8.87 $9.27 $9.13
----- -------- -------- -------- -------- -------- -------- -------- -------- --------
----- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL INVESTMENT
RETURN+.................. 7.89% 3.79% 15.89% (6.92)% 12.03% 8.56% 15.26% 3.64% 12.32% 9.21%
RATIOS TO AVERAGE NET
ASSETS:
Expenses.................. 1.53% 1.53% 1.52% 1.52% 1.50% 1.48% 1.50% 1.54% 1.47% 1.50%
Net investment income..... 6.41% 6.31% 6.53% 6.56% 6.59% 7.18% 7.79% 7.92% 7.90% 8.04%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions.............. $623 $720 $829 $841 $1,128 $1,171 $1,252 $1,397 $1,824 $2,122
Portfolio turnover rate... 12% 10% 7% 18% 7% 6% --(1) 5% 19% 44%
</TABLE>
- -------------
* PRIOR TO JULY 28, 1997, THE FUND ISSUED ONE CLASS OF SHARES. ALL SHARES OF
THE FUND HELD PRIOR TO THAT DATE HAVE BEEN DESIGNATED CLASS B SHARES.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) LESS THAN 0.5%.
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
CLASS A SHARES OCTOBER 31, 1997
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.26
-----
Net investment income................................................. 0.16
Net realized and unrealized gain...................................... 0.19
-----
Total from investment operations...................................... 0.35
-----
Less dividends from net investment income............................. (0.16)
-----
Net asset value, end of period........................................ $ 9.45
-----
-----
TOTAL INVESTMENT RETURN+.............................................. 3.78%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.92%(2)
Net investment income................................................. 6.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $2,051
Portfolio turnover rate............................................... 12%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.26
-----
Net investment income................................................. 0.15
Net realized and unrealized gain...................................... 0.18
-----
Total from investment operations...................................... 0.33
-----
Less dividends from net investment income............................. (0.15)
-----
Net asset value, end of period........................................ $ 9.44
-----
-----
TOTAL INVESTMENT RETURN+.............................................. 3.54%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.52%(2)
Net investment income................................................. 5.86%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $721
Portfolio turnover rate............................................... 12%
</TABLE>
- -------------
* THE DATE SHARES WERE FIRST ISSUED.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
CLASS D SHARES OCTOBER 31, 1997
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.26
------
Net investment income................................................. 0.17
Net realized and unrealized gain...................................... 0.07
------
Total from investment operations...................................... 0.24
------
Less dividends from net investment income............................. (0.17)
------
Net asset value, end of period........................................ $ 9.33
------
------
TOTAL INVESTMENT RETURN+.............................................. 2.62%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.63%(2)
Net investment income................................................. 6.40%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $69
Portfolio turnover rate............................................... 12%
</TABLE>
- -------------
* THE DATE SHARES WERE FIRST ISSUED.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
9
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Dean Witter Federal Securities Trust (the "Fund") is an open-end diversified
management investment company. The Fund is a trust of the type commonly known as
a "Massachusetts business trust" and was organized under the laws of
Massachusetts on November 20, 1986.
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 Morgan Stanley, Dean Witter, Discover &
Co., a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset management
and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 102 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined total assets of
approximately $98.6 billion at November 30, 1997. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.8 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 for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
following annual rates to the Fund's net assets determined as of the close of
each business day: 0.55% of the portion of the Fund's daily net assets not
exceeding $1 billion, scaled down at various asset levels to 0.35% of the
portion of daily net assets exceeding $12.5 billion. For the fiscal year ended
October 31, 1997, the Fund accrued total compensation to the Investment Manager
amounting to 0.55% of the Fund's average daily net assets and the total expenses
of Class B amounted to 1.53% of the average daily net assets of Class B. Shares
of Class A, Class C and Class D were first issued on July 28, 1997. The expenses
of the Fund include: the fee of the Investment Manager; the fee pursuant to the
Plan of Distribution (see "Purchase of Fund Shares"); taxes; transfer agent,
custodian and auditing fees; certain legal fees; and printing and other expenses
relating to the Fund's operations which are not expressly assumed by the
Investment Manager under its Investment Management Agreement with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to earn a high level of current
income. There can be no assurance that the investment objective will be
achieved. This objective is fundamental and cannot be changed without
shareholder approval. The following policies may be changed by the Board of
Trustees without shareholder approval.
The Fund will seek to achieve its objective primarily by investing at least
65% of its total assets in
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U.S. Government securities (including such securities purchased on a
when-issued, delayed delivery or firm commitment basis). U.S. Government
securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury notes
(maturities of one to ten years) and U.S. Treasury bonds (generally maturities
of greater than ten years), all of which are direct obligations of the U.S.
Government and, as such, are backed by the "full faith and credit" of the United
States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United States.
Among the agencies and instrumentalities issuing such obligations are the
Federal Housing Administration, the Government National Mortgage Association
("GNMA"), the Department of Housing and Urban Development, the Export-Import
Bank, the Farmers Home Administration, the General Services Administration, the
Maritime Administration and the Small Business Administration. The maturities of
such obligations range from three months to thirty years.
(3) Securities issued by agencies and instrumentalities which are not backed
by the full faith and credit of the United States, but whose issuing agency or
instrumentality has the right to borrow, to meet its obligations, from an
existing line of credit with the U.S. Treasury. Among the agencies and
instrumentalities issuing such obligations are the Tennessee Valley Authority,
the Federal National Mortgage Association ("FNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC") and the U.S. Postal Service.
(4) Securities issued by agencies and instrumentalities which are not backed
by the full faith and credit of the United States, but which are backed by the
credit of the issuing agency or instrumentality. Among the agencies and
instrumentalities issuing such obligations are the Federal Farm Credit System
and the Federal Home Loan Banks.
The Fund is not limited as to the maturities of the U.S. Government
securities in which it may invest. For a discussion of the risks of investing in
such securities (including such securities purchased on a when-issued, delayed
delivery or firm commitment basis and zero coupon securities), see "Risk
Considerations" below.
MORTGAGE-BACKED SECURITIES. The Fund may invest in fixed-rate and
adjustable rate U.S. mortgage-backed securities ("Mortgage-Backed Securities").
There are currently three basic types of U.S. Mortgage-Backed Securities: (i)
those issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities, such as GNMA, FNMA and FHLMC (securities issued by GNMA, but
not those issued by FNMA or FHLMC, are backed by the "full faith and credit" of
the United States); (ii) those issued by private issuers that represent an
interest in or are collateralized by Mortgage-Backed Securities issued or
guaranteed by the U.S. Government or one of its agencies or instrumentalities;
and (iii) those issued by private issuers that represent an interest in or are
collateralized by whole mortgage loans or Mortgage-Backed Securities without a
government guarantee but usually having some form of private credit enhancement.
The Fund will invest in mortgage pass-through securities representing
participation interests in pools of residential mortgage loans originated by
U.S. governmental or private lenders such as banks, broker-dealers and financing
corporations and guaranteed, to the extent provided in such securities, by the
U.S. 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
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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, FNMA and FHLMC. GNMA certificates
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. FNMA and FHLMC certificates are
not backed by the full faith and credit of the United States but, as noted
above, the issuing agency or instrumentality has the right to borrow, to meet
its obligations, from an existing line of credit with the U.S. Treasury. The
U.S. Treasury has no legal obligation to provide such line of credit and may
choose not to do so.
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.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES. The Fund may invest in private
mortgage pass-through securities, which are structured similarly to the GNMA,
FNMA and FHLMC mortgage pass-through securities and are issued by originators of
and investors in mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing. These securities usually are backed by a pool of
conventional fixed rate or adjustable rate mortgage loans. Since private
mortgage pass-through securities typically are not guaranteed by an entity
having the credit status of GNMA, FNMA and FHLMC, such securities generally are
structured with one or more types of credit enhancement.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES. The Fund may invest in collateralized mortgage obligations or
"CMOs," which are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, 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 U.S. government, or by private originators of, or
investors in,
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mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. 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. In addition, in reliance upon an interpretation by the staff of the
Securities and Exchange Commission, the Fund may invest without limitation in
CMOs and other Mortgage-Backed Securities which are not by definition excluded
from the provisions of the Act, and which have obtained exemptive orders from
such provisions from the Securities and Exchange Commission.
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.
TYPES OF CREDIT ENHANCEMENT. Mortgage-Backed Securities are often backed by
a pool of assets representing the obligations of a number of different parties.
To lessen the effect of failures by obligors on underlying assets to make
payments, those securities may contain elements of credit support, which fall
into two categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely
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fashion. Protection against losses resulting from default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool. This
protection may be provided through guarantees, insurance policies or letters of
credit obtained by the issuer or sponsor from third parties, through various
means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in a security.
The Fund will not pay any fees for credit support, although the existence of
credit support may increase the price of a security.
For a discussion of the risks of investing in Mortgage-Backed Securities,
see "Risk Considerations" below.
To hedge against adverse changes in the prices of securities it anticipates
purchasing for its portfolio, the Fund may also write covered call and put
options against U.S. Government securities and cash held in its portfolio and
purchase options of the same or similar series to effect closing transactions.
In addition, the Fund may hedge portions of its portfolio securities against
potential changes in prevailing interest rates by purchasing put options on U.S.
Government securities and engaging in transactions involving interest rate
futures contracts and options on such contracts. See "Options and Futures
Transactions" below.
While the Fund will be investing primarily in U.S. Government securities, it
may invest up to 35% of its total assets in options on U.S. Government
securities; options on futures contracts and futures contracts; repurchase
agreements; reverse repurchase agreements and dollar rolls (see "Risk
Considerations" below); money market instruments, including commercial paper
rated within the two highest grades by Standard & Poor's Corporation ("S&P") or
the highest grade by Moody's Investors Service, Inc. ("Moody's"), or, if not
rated, issued by a company having an outstanding debt issue rated at least AA by
S&P or Aa by Moody's); certificates of deposit; bankers' acceptances and other
obligations of domestic banks or domestic branches of foreign banks, in each
case having total assets of at least $500 million; and obligations of foreign
governments or their respective instrumentalities or agencies. Moreover, and
notwithstanding any of the above, the Fund may invest in such instruments
without limitation, on a temporary basis, when market conditions dictate a
"defensive" investment strategy. The Fund may also borrow money for the purpose
of leveraging its investments and lend its portfolio securities, as discussed
under "Risk Considerations" below.
OPTIONS AND FUTURES TRANSACTIONS
OPTIONS. The Fund is permitted to enter into call and put options on U.S.
Treasury notes, bonds and bills which are listed on Exchanges and written in
over-the-counter transactions ("OTC options"). Listed options are issued by the
Options Clearing Corporation ("OCC"). Ownership of a listed call option gives
the Fund the right to buy from the OCC the underlying security covered by the
option at the stated exercise price (the price per unit of the underlying
security) by filing an exercise notice prior to the expiration date of the
option. The writer (seller) of the option would then have the obligation to sell
to the OCC the underlying security at that exercise price prior to the
expiration date of the option, regardless of its then current market price.
Ownership of a listed put option would give the Fund the right to sell the
underlying security to the OCC at the stated exercise price.
OTC OPTIONS. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the Fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. The Fund will engage in OTC
option transactions only with member banks of the Federal Reserve System or
primary U.S.
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Government securities dealers or with affiliates of such banks or dealers which
have capital of at least $50 million or whose obligations are guaranteed by an
entity having capital of at least $50 million.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on U.S. Government securities only, without limit, in order to aid it in
achieving its investment objective. As a writer of a call option, the Fund has
the obligation, upon notice of exercise of the option, to deliver the security
underlying the option (certain listed call options written by the Fund will be
exercisable by the purchaser only on a specific date). See "Options and Futures
Transactions--Covered Call Writing" in the Statement of Additional Information.
COVERED PUT WRITING. As a writer of covered put options, the Fund incurs an
obligation to buy the security underlying the option from the purchaser of the
put at the option's exercise price at any time during the option period. The
Fund will write put options for two purposes: (1) to receive the premiums paid
by purchasers; and (2) when the Investment Manager wishes to purchase the
security underlying the option at a price lower than its current market price,
in which case it will write the covered put at an exercise price reflecting the
lower purchase price sought. The aggregate value of the obligations underlying
the puts determined as of the date the options are sold will not exceed 50% of
the Fund's net assets. See "Options and Futures Transactions--Covered Put
Writing" in the Statement of Additional Information.
PURCHASING CALL AND PUT OPTIONS. The Fund may invest up to 10% of its total
assets in the purchase of put and call options on U.S. Government securities.
The Fund may purchase call options only in order to close out a covered call
position. The Fund may purchase put options on U.S. Government securities which
it holds (or has the right to acquire) in its portfolio only to protect itself
against a decline in the value of the security. The Fund may also purchase put
options to close out written put positions in a manner similar to call option
closing purchase transactions. There are no other limits on the Fund's ability
to purchase call and put options.
FUTURES CONTRACTS. The Fund may also purchase and sell interest rate
futures contracts ("futures contracts") that are traded on U.S. commodity
exchanges on such underlying securities as U.S. Treasury bonds, notes and bills
and GNMA certificates. As a futures contract purchaser, the Fund incurs an
obligation to take delivery of a specified amount of the obligation underlying
the contract at a specified time in the future for a specified price. As a
seller of a futures contract, the Fund incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return for
an agreed upon price. The Fund will purchase or sell futures contracts only for
the purpose of hedging its portfolio (or anticipated portfolio) securities
against changes in prevailing interest rates. The Fund may also purchase and
write call and put options on futures contracts which are traded on an Exchange
and enter into closing transactions with respect to such options to terminate an
existing position. See "Options and Futures Transactions--Futures Contracts" and
"Options on Futures Contracts" in the Statement of Additional Information.
For a discussion of the risks of options and futures transactions, see "Risk
Considerations" below and "Options and Futures Transactions" in the Statement of
Additional Information.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. The Fund's yield will also vary based
on the yield of the Fund's 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
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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, 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 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.
The average life of Mortgage-Backed Securities varies with the maturities of
the underlying mortgage instruments, which may be up to thirty years but which
may include mortgage instruments with maturities of fifteen years, adjustable
rate mortgage instruments, variable rate mortgage instruments, graduated rate
mortgage instruments and/or other types of mortgage instruments. The assumed
average life of mortgages backing the majority of GNMA and FNMA certificates is
twelve years, and of FHLMC certificates is ten 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. CMOs issued by
private entities are not U.S. Government securities and are not guaranteed by
any government agency, although the securities underlying a CMO may be subject
to a guarantee. Therefore, if the collateral securing the CMO, as well as any
third party credit support or guarantees, is insufficient to make payment, the
holder could sustain a loss. However, the Fund will invest in CMOs issued by
private entities only if the CMOs are rated Aaa by Moody's or AAA by S&P, or, if
unrated, such CMOs are determined to be of comparable quality to the permitted
rated investments. Also, 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
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issuer on any payment date and, accordingly, affect the timing of principal
payments on each CMO class.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option only if a liquid secondary market exists for
options of that series. There is no assurance that such a market will exist,
particularly in the case of OTC options, as such options will generally only be
closed out by entering into a closing purchase transaction with the purchasing
dealer. Also, Exchanges may limit the amount by which the price of a futures
contract may move on any day. If the price moves equal the daily limit on
successive days, then it may prove impossible to liquidate a futures position
until the daily limit moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Taxes."
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements or
the time span within which the movements take place. For example, if the Fund
sold futures contracts for the sale of securities in anticipation of an increase
in interest rates, and then interest rates went down instead, causing bond
prices to rise, the Fund would lose money on the sale. Another risk which may
arise in employing futures contracts to protect against the price volatility of
portfolio securities is that the prices of securities subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Fund's portfolio securities. See the
Statement of Additional Information for further discussion of such risks.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, including the risks of default or
bankruptcy of the selling financial institution, the Fund follows procedures
designed to minimize those risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions whose financial condition will be continually monitored by the
Investment Manager subject to procedures established by the Board of Trustees of
the Fund. In addition, the value of the collateral underlying the repurchase
agreement will be at least equal to the repurchase price, including any accrued
interest earned on the repurchase agreement. In the event of a default or
bankruptcy by a selling financial institution, the Fund will seek to liquidate
such collateral. However, the exercising of the Fund's right to liquidate such
collateral could involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, the Fund could suffer a loss. The Fund may not invest
in repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 10% of its total assets.
LEVERAGING. The Fund may borrow money, but only from a bank and in an
amount up to 25% of the Fund's total assets taken at the lower of market value
or cost, not including the amount borrowed. When the Fund borrows it will be
because it seeks additional income by leveraging its investments through
purchasing securities with the borrowed
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funds. The Fund will be required to maintain an asset coverage (including the
proceeds of borrowings) of at least 300% of such borrowings in accordance with
the provisions of the Investment Company Act of 1940, as amended (the "Act").
The investment policy provides that the Fund may not purchase or sell a security
on margin. Borrowings for leveraging will be subject to current margin
requirements of the Federal Reserve Board and where necessary the Fund may use
any or all of its securities as collateral for such borrowings. Any investment
gains made with the additional monies in excess of interest paid will cause the
net asset value of the Fund's shares to rise to a greater extent than would
otherwise be the case. Conversely, if the investment performance of the
additional monies fails to cover their cost to the Fund, net asset value will
decrease to a greater extent than would otherwise be the case. This is the
speculative factor involved in leverage. If, due to market fluctuations or other
reasons, the value of the Fund's assets (including the proceeds of borrowings)
becomes at any time less than three times the amount of any outstanding bank
debt, the Fund, within three business days, will reduce its bank debt to the
extent necessary to meet the required 300% asset coverage. In doing this, the
Fund may have to sell a portion of its investments at a time when it may be
disadvantageous to do so.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. 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.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FIRM COMMITMENTS. From time
to time, in the ordinary course of business, the Fund may purchase U.S.
Government securities on a when-issued or delayed delivery basis or may purchase
or sell U.S. Government securities on a firm commitment basis. When such
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment can take place a month or more after the date of the
commitment. 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.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. The Fund may enter into dollar rolls in which
the Fund sells securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type and coupon) securities
on a specified future date. Reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities the Fund is obligated
to repurchase under the agreement may decline below the repurchase
18
<PAGE>
price. In the event the buyer of securities under a reverse repurchase agreement
or dollar roll files for bankruptcy or becomes insolvent, the Fund's use of the
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage, and are considered borrowings by the Fund.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to certain notice provisions described in the Statement of
Additional Information), and are at all times secured by cash or money market
instruments, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least the market value, determined daily,
of the loaned securities. As with any extensions of credit, there are risks of
delay in recovery and in some cases even loss of rights in the collateral should
the borrower of the securities fail financially. However, loans of portfolio
securities will only be made to firms deemed by the Investment Manager to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks.
For additional risk disclosure, please refer to the discussion of specific
investments under the "Investment Objective and Policies" section of the
Prospectus and the "Investment Practices and Policies" section of the Statement
of Additional Information.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean Witter
Reynolds Inc. ("DWR"), Morgan Stanley & Co. Incorporated and other broker-dealer
affiliates of InterCapital, the views of others regarding economic developments
and interest rate trends, and the Investment Manager's own analysis of factors
it deems relevant. The Fund is managed within InterCapital's Taxable
Fixed-Income Group, which manages twenty-three funds and fund portfolios, with
approximately $13.2 billion in assets at November 30, 1997. Rajesh K. Gupta,
Senior Vice President of InterCapital and a member of InterCapital's Taxable
Fixed-Income Group, has been the primary portfolio manager of the Fund since
June, 1987 and has been managing portfolios comprised of government securities
at InterCapital since June, 1987.
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. Orders for transactions in other
portfolio securities and commodities are placed for the Fund with a number of
brokers and dealers, including DWR, Morgan Stanley & Co. Incorporated and other
brokers and dealers that are affiliates of InterCapital. The Fund may incur
brokerage commissions on transactions conducted through such affiliates.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. It
is not anticipated that the portfolio trading engaged in by the Fund will result
in its portfolio turnover rate exceeding 100%.
Except as specified, the investment policies noted above are not fundamental
policies and may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act.
19
<PAGE>
The Fund may not:
1. Invest more than 5% of the value of its total assets in the securities of
any one issuer (other than obligations issued, or guaranteed by, the United
States Government, its agencies or instrumentalities).
2. Purchase more than 10% of all outstanding voting securities or any class
of securities of any one issuer.
3. Invest more than 10% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days. The staff
of the Securities and Exchange Commission ("SEC") has taken the position that
purchased OTC options and the assets used as "cover" for written OTC options are
illiquid securities. The Investment Manager disagrees with this position.
Nevertheless, the Fund has agreed to treat OTC options and the covering assets
thereon as illiquid securities for purposes of this investment restriction.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation of the
United States Government, its agencies or instrumentalities.
5. Purchase or sell commodities or commodities contracts except that the Fund
may purchase or write interest rate futures contracts and related options
thereon.
6. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. (For the purpose of this restriction, collateral
arrangements with respect to the writing of options and collateral arrangements
with respect to initial or variation margin for futures are not deemed to be
pledges of assets.)
7. Purchase securities on margin (but the Fund may obtain short-term loans as
are necessary for the clearance of transactions). The deposit or payment by the
Fund of initial or variation margin in connection with futures contracts or
related options thereon is not considered the purchase of a security on margin.
8. Borrow money, except from banks for investment purposes or as a temporary
measure for extraordinary or emergency purposes in an amount up to 25% of the
Fund's total assets, within the limits set forth in the Act or enter into
reverse repurchase agreements in an amount exceeding 10% of the Fund's total
assets other than for purposes of meeting redemptions.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of 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 who 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 Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with
20
<PAGE>
an initial sales charge that declines to zero for larger purchases; however,
Class A shares sold without an initial sales charge are subject to a contingent
deferred sales charge ("CDSC") of 1.0% if redeemed within one year of purchase,
except for certain specific circumstances. Class B shares are sold without an
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
payable upon most redemptions within six years after purchase. (Class B shares
purchased by certain qualified employer-sponsored benefit plans are subject to a
CDSC scaled down from 2.0% to 1.0% if redeemed within three years after
purchase.) Class C shares are sold without an initial sales charge but are
subject to a CDSC of 1.0% on most redemptions made within one year after
purchase. Class D shares are sold without an initial sales charge or CDSC and
are available only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans), and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the Fund,
Class A shares may be sold to categories of investors in addition to those set
forth in this prospectus at net asset value without a front-end sales charge,
and Class D shares may be sold to certain other categories of investors, in each
case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements--Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's existing holdings of Class
A shares of the Fund and other Dean Witter Funds that are multiple class funds
("Dean Witter Multi-Class Funds") and shares of Dean Witter Funds sold with a
front-end sales charge ("FSC Funds") and concurrent investments in Class D
shares of the Fund and other Dean Witter Multi-Class Funds will be aggregated.
Subsequent purchases of $100 or more may be made by sending a check, payable to
Dean Witter Federal Securities Trust, directly to Dean Witter Trust FSB (the
"Transfer Agent" or "DWT") at P.O. Box 1040, Jersey City, NJ 07303 or by
contacting an account executive of DWR or other Selected Broker-Dealer. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B, Class C or Class D shares. If no Class is specified, the
Transfer Agent will not process the transaction until the proper Class is
identified. The minimum initial purchase in the case of investments through
EasyInvest-SM-, an automatic purchase plan (see "Shareholder Services"), is
$100, provided that the schedule of automatic investments will result in
investments totalling $1,000 within the first twelve months. The minimum initial
purchase in the case of an "Education IRA" is $500, if the Distributor has
reason to believe that additional investments will increase the investment in
the account to $1,000 within three years. In the case of investments pursuant to
(i) Systematic Payroll Deduction Plans (including Individual Retirement Plans),
(ii) the InterCapital mutual fund asset allocation program and (iii) fee-based
programs approved by the Distributor, pursuant to which participants pay an
asset based fee for services in the nature of investment advisory or
administrative services, the Fund, in its discretion, may accept investments
without regard to any minimum amounts which would otherwise be required,
provided, in the case of Systematic Payroll Deduction Plans, that the
Distributor 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.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
21
<PAGE>
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 if 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. Sales personnel of a Selected Broker-Dealer are compensated for
selling shares of the Fund at the time of their sale by the Distributor or any
of its affiliates and/or the 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.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 0.85% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the Fund (not including
rein-
22
<PAGE>
vestments of dividends or capital gains distributions), less the average daily
aggregate net asset value of the Fund's Class B shares redeemed since the Fund's
inception upon which a CDSC has been imposed or waived, or (b) the average daily
net assets of Class B. The Class B shares' distribution fee will cause that
Class to have higher expenses and pay lower dividends than Class A or Class D
shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 0.85% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 0.85% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all Dean
Witter Multi-Class Funds, shares of FSC Funds and shares of Dean Witter Funds
for which such shares have been exchanged will be included together with the
current investment amount.
23
<PAGE>
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CLASS SALES CHARGE 12b-1 FEE CONVERSION FEATURE
<C> <S> <C> <C>
A Maximum 4.25% initial sales 0.25% No
charge reduced for purchases of
$25,000 and over; shares sold
without an initial sales charge
generally subject to a 1.0% CDSC
during first year.
B Maximum 5.0% CDSC during the 0.85% B shares convert
first year decreasing to 0 after to A shares
six years automatically
after
approximately ten
years
C 1.0% CDSC during first year 0.85% No
D None None No
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF AMOUNT
TRANSACTION PRICE INVESTED
- ------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $25,000........ 4.25% 4.44%
$25,000 but less
than $50,000........ 4.00% 4.17%
$50,000 but less
than $100,000....... 3.50% 3.63%
$100,000 but less
than $250,000....... 2.75% 2.83%
$250,000 but less
than $1 million..... 1.75% 1.78%
$1 million and over...... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to
24
<PAGE>
be underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The sales
charge payable on the purchase of the Class A shares of the Fund, the Class A
shares of the other Dean Witter Multi-Class Funds and the shares of the FSC
Funds will be at their respective rates applicable to the total amount of the
combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Dean Witter Funds previously
purchased at a price including a front-end sales charge (including shares of the
Fund and other Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of shares of
FSC Funds and Class A and Class D shares that, together with the current
investment amount, is equal to at least $5 million ($25 million for certain
qualified plans), such investor is eligible to purchase Class D shares subject
to the $1,000 minimum initial investment requirement of that Class of the Fund.
See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or shares of other Dean Witter Funds which were previously purchased at a
price including a front-end sales charge during the 90-day period prior to the
date of receipt by the Distributor of the Letter of Intent, or of Class A shares
of the Fund or shares of other Dean Witter Funds acquired in exchange for shares
of such funds purchased during such period at a price
25
<PAGE>
including a front-end sales charge, which are still owned by the shareholder,
may also be included in determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which DWT (an affiliate of the Investment Manager) provides
discretionary trustee services;
(2) persons participating in a fee-based program approved by the Distributor,
pursuant to which such persons pay an asset based fee for services in the nature
of investment advisory or administrative services (such investments are subject
to all of the terms and conditions of such programs, which may include
termination fees, mandatory redemption upon termination and such other
circumstances as specified in the programs' agreements, and restrictions on
transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section 401(a)
of the Internal Revenue Code ("Qualified Retirement Plans") with at least 200
eligible employees and for which DWT serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement;
(4) Qualified Retirement Plans for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Fund shares by such investors, if the shares are being purchased
with the proceeds from a redemption of shares of an open-end proprietary mutual
fund of the account executive's previous firm which imposed either a front-end
or deferred sales charge, provided such purchase was made within sixty days
after the redemption and the proceeds of the redemption had been maintained in
the interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE-- CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain employer-sponsored benefit
plans, three years) preceding the redemption. In addition, Class B shares are
subject to an annual 12b-1 fee of 0.85% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B 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 Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
26
<PAGE>
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may, however,
be subject to a 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 following table:
<TABLE>
<CAPTION>
YEAR SINCE CDSC AS A
PURCHASE 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>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject to
any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- --------------------------------- -----------------------
<S> <C>
First............................ 2.0%
Second........................... 2.0%
Third............................ 1.0%
Fourth and thereafter............ None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain employer-sponsored benefit plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three 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 FSC
Funds 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, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) 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 ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) 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 IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (c) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment
27
<PAGE>
alternatives and for which DWT serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement ("Eligible Plan"), provided that either: (a) the plan continues to be
an Eligible Plan after the redemption; or (b) the redemption is in connection
with the complete termination of the plan involving the distribution of all plan
assets to participants.
With reference to (1) above, 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. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
CONVERSION TO CLASS A SHARES. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares. Shares held before May 1, 1997 will
convert to Class A shares in May, 2007. In all other instances Class B shares
will convert automatically to Class A shares, based on the relative net asset
values of the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange or
a series of exchanges, from the last day of the month in which the original
Class B shares were purchased, provided that shares originally purchased before
May 1, 1997 will convert to Class A shares in May, 2007. The conversion of
shares purchased on or after May 1, 1997 will take place in the month following
the tenth anniversary of the purchase. There will also be converted at that time
such proportion of Class B shares acquired through automatic reinvestment of
dividends and distributions owned by the shareholder as the total number of his
or her Class B shares converting at the time bears to the total number of
outstanding Class B shares purchased and owned by the shareholder. In the case
of Class B shares held by a Qualified Retirement Plan for which DWT serves as
Trustee or DWR's Retirement Plan Services serves as recordkeeper pursuant to a
written Recordkeeping Services Agreement, the plan is treated as a single
investor and all Class B shares will convert to Class A shares on the conversion
date of the first shares of a Dean Witter Multi-Class Fund purchased by that
plan. In the case of Class B shares previously exchanged for shares of an
"Exchange Fund" (see "Shareholder Services--Exchange Privilege"), the period of
time the shares were held in the Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired) is excluded from the
holding period for conversion. If those shares are subsequently re-exchanged for
Class B shares of a Dean Witter Multi-Class Fund, the holding period resumes on
the last day of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the
28
<PAGE>
holding period of the converted Class B shares. The conversion feature may be
suspended if the ruling or opinion is no longer available. In such event, Class
B shares would continue to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of that
section shall mean one year in the case of Class C shares. Class C shares are
subject to an annual 12b-1 fee of up to 0.85% of the average daily net assets of
the Class. Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million for
Qualified Retirement Plans for which DWT serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement) and the following categories of investors: (i) investors
participating in the InterCapital mutual fund asset allocation program pursuant
to which such persons pay an asset based fee; (ii) persons participating in a
fee-based program approved by the Distributor, pursuant to which such persons
pay an asset based fee for services in the nature of investment advisory or
administrative services (subject to all of the terms and conditions of such
programs referred to in (i) and (ii) above, which may include termination fees,
mandatory redemption upon termination and such other circumstances as specified
in the programs' agreements, and restrictions on transferability of Fund
shares); (iii) 401(k) plans established by DWR and SPS Transaction Services,
Inc. (an affiliate of DWR) for their employees; (iv) certain Unit Investment
Trusts sponsored by DWR; (v) certain other open-end investment companies whose
shares are distributed by the Distributor; and (vi) other categories of
investors, at the discretion of the Board, as disclosed in the then current
prospectus of the Fund. Investors who require a $5 million (or $25 million)
minimum initial investment to qualify to purchase Class D shares may satisfy
that requirement by investing that amount in a single transaction in Class D
shares of the Fund and other Dean Witter Multi-Class Funds, subject to the
$1,000 minimum initial investment required for that Class of the Fund. In
addition, for the purpose of meeting the $5 million (or $25 million) minimum
investment amount, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such shares
have been exchanged will be included together with the current investment
amount. If a shareholder redeems Class A shares and purchases Class D shares,
such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares of
the Fund. In the case of Class A and Class C shares, the Plan provides that the
Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 0.85% of
29
<PAGE>
the average daily net assets of Class A and Class C, respectively. In the case
of Class B shares, the Plan provides that the Fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 0.85% of the
lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
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 Class B shares redeemed since the Fund's inception upon
which a CDSC has been imposed or waived, or (b) the average daily net assets of
Class B. The fee is treated by the Fund as an expense in the year it is accrued.
In the case of Class A shares, the entire amount of the fee currently represents
a service fee within the meaning of the NASD guidelines. In the case of Class B
and Class C shares, a portion of the fee payable pursuant to the Plan, equal to
0.20% and 0.25% of the average daily net assets of each of these Classes,
respectively, is currently characterized as a service fee. A service fee is a
payment made for personal service and/or the maintenance of shareholder
accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of DWR's account executives
and 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 in the case of Class B
shares 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 expenses.
For the fiscal year ended October 31, 1997, Class B shares of the Fund
accrued payments under the Plan amounting to $5,584,880, which amount is equal
to 0.85% of the average daily net assets of Class B for the fiscal year. These
payments were calculated pursuant to clause (b) of the compensation formula
under the Plan. All shares held prior to July 28, 1997 have been designated
Class B shares. For the fiscal period July 28 through October 31, 1997, Class A
and Class C shares of the Fund accrued payments under the Plan amounting to
$1,083 and $650, respectively, which amounts on an annualized basis are equal to
0.25% and 0.85% of the average daily net assets of Class A and Class C,
respectively, for such period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B 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 CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B 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 such
excess amounts, including the carrying charge described above, totalled
$24,491,266 at October 31, 1997, which was equal to 3.93% of the net assets of
Class B 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, such 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 CDSCs 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
30
<PAGE>
through distribution fees or CDSCs, may or may not be recovered through future
distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 0.85% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses due
to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the Class
A, Class B, Class C and Class D shares will be invested together in a single
portfolio. The net asset value of each Class, however, will be determined
separately by subtracting each Class's accrued expenses and liabilities. 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 latest bid price prior to the time of valuation, and (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 Trustees (valuation of securities
for which market quotations are not readily available may also be based upon
current market prices of securities which are comparable in coupon, rating and
maturity or an appropriate matrix utilizing similar factors).
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. The value of other assets will be determined in good faith under
procedures established by and under the supervision of the Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
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 income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end Dean Witter Fund), unless the shareholder
requests that they be paid in cash. Shares so acquired are acquired at net asset
value
31
<PAGE>
and are not subject to the imposition of a front-end sales charge or a CDSC (see
"Redemptions and Repurchases"). Such dividends and distributions will be paid,
at the net asset value per share, in shares of the applicable Class of the Fund
(or in cash if the shareholder so requests) on the monthly payment date, which
will be no later than the last business day of the month for 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 in shares of the
applicable Class 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 acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (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 or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
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 CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). 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 CDSC) to the shareholder will be the designated
monthly or quarterly amount. Withdrawal plan payments should not be considered
as dividends, yields or income. If periodic withdrawal plan payments
continuously exceed net investment income and net capital gains, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Each withdrawal constitutes a redemption of shares and any gain or
loss realized must be recognized for federal income tax purposes.
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 through the
Distributor 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 Fund.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange fee.
Shares may also be exchanged for shares of the following funds: Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust
and five Dean Witter funds which are money market
32
<PAGE>
funds (the "Exchange Funds"). Class A shares may also be exchanged for shares of
Dean Witter Multi-State Municipal Series Trust and Dean Witter Hawaii Municipal
Trust, which are Dean Witter Funds sold with a front-end sales charge ("FSC
Funds"). Class B shares may also be exchanged for shares of Dean Witter Global
Short-Term Income Fund Inc. ("Global Short-Term"), which is a Dean Witter Fund
offered with a CDSC. 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 Dean Witter Multi-Class Fund, any FSC Fund, Global
Short-Term 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 business
day. Subsequent exchanges between any of the money market funds and any of the
Dean Witter Multi-Class Funds, FSC Funds, Global Short-Term or any Exchange Fund
that is not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an 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 re-exchanged for shares of a Dean Witter Multi-Class
Fund or shares of Global Short-Term, the holding period previously frozen when
the first exchange was made resumes on the last day of the month in which shares
of a Dean Witter Multi-Class Fund or shares of Global Short-Term are reacquired.
Thus, the CDSC is based upon the time (calculated as described above) the
shareholder was invested in shares of a Dean Witter Multi-Class Fund or in
shares of Global Short-Term (see "Purchase of Fund Shares"). In the case of
exchanges of Class A shares which are subject to a CDSC, the holding period also
includes the time (calculated as described above) the shareholder was invested
in shares of a FSC Fund. 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.) Class B
shares of the Fund acquired in exchange for shares of Global Short-Term or Class
B shares of another Dean Witter Multi-Class Fund having a different CDSC
schedule than that of this Fund will be subject to the higher CDSC schedule,
even if such shares are subsequently re-exchanged for shares of the fund with
the lower CDSC schedule.
ADDITIONAL INFORMATION REGARDING EXCHANGES. 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
33
<PAGE>
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 of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. 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) 869-NEWS (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.
34
<PAGE>
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's 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(s), the shares may be redeemed by surrendering the certificate(s)
with a written request for redemption, along with any additional information
required by the Transfer Agent.
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 upon repurchase by the Fund
or the Distributor. 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 35 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 in the same Class from which such shares were redeemed or
repurchased, at the 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 shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account opened through
EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account. 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 the applicable amount and allow him or her sixty days
to make an additional investment in an amount which will
35
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increase the value of his of her account to at least the applicable amount
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 separately for
each Class of shares and 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. Such dividends are paid
monthly.
The Fund may pay quarterly dividends of realized net short-term capital
gains, if any. Such dividends may include a portion of the premiums received by
the Fund from expired call and put options written by the Fund on U.S.
Government securities, and of the net gains realized on closing purchase
transactions with respect to such options. Net realized long-term capital gains,
if any, will be distributed at least once per year, although the Investment
Manager reserves the right to retain a portion of such gains for reinvestment.
As of October 31, 1997, the Fund had a net capital loss carryover of
approximately $42,534,000. To the extent of such carryover, the Fund could
retain gains realized in future years without either the Fund or its
shareholders being required to pay a tax on such gains. However, the Fund may
distribute to shareholders realized gains. Such distributions could,
notwithstanding the loss carryover, be taxable to shareholders to the extent of
the Fund's realized gains. Also, the Fund may at times make payments from
sources other than income or net capital gains. Payments from such sources will,
in effect, represent a return of a portion of each shareholder's investment.
All, or a portion, of such payments will not be taxable to shareholders.
All dividends and capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends be paid in cash. Shares acquired by dividend and
distribution reinvestments will not be subject to any front-end sales charge or
CDSC. Class B shares acquired through dividend and distribution reinvestments
will become eligible for conversion to Class A shares on a pro rata basis.
Distributions paid on Class A and Class D shares will be higher than for Class B
and Class C shares because distribution fees paid by Class B and Class C shares
are higher. (See "Shareholder Services--Automatic Investment of Dividends and
Distributions".)
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise 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.
Gains or losses on the Fund's transactions in listed options on securities,
futures and options on futures may be treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions, various
tax regulations applicable to the Fund may have the effect of causing the Fund
to recognize a gain or loss for tax purposes before that gain or loss is
realized, or to defer recognition of a realized loss for tax purposes.
Recognition, for tax purposes, of an unrealized loss may result in a lesser
amount of the Fund's realized net short-term gains being available for quarterly
distribution.
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
share-
36
<PAGE>
holder receives such distributions in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1 will be deemed, for tax purposes, to have
been received by the shareholder in the prior year.
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. It is not anticipated that any portion of the
Fund's distributions will be 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.
Shareholders will also be notified of their proportionate share of long-term
capital gains distributions that are eligible for a reduced rate of tax under
the Taxpayer Relief Act of 1997. To avoid being subject to a 31% federal backup
withholding tax on taxable dividends, distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers must
be furnished and certified as to their accuracy. Shareholders who are not
citizens or residents of entities organized in the United States may be subject
to withholding taxes of up to 30% on certain payments received from the Fund.
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
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. These figures are computed separately
for Class A, Class B, Class C and Class D shares. 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 each Class of the Fund is computed by
dividing the Class'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
maximum offering price 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
for each Class.
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 a Class of the Fund of $1,000 over periods of one, five
and ten years, or the life of the Fund, if less than any of the foregoing.
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
applicable Class and all sales charges incurred by 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 for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any 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 each Class of
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 (such as Lipper Analytical Services, Inc. and Salomon
Brothers Treasury Index, Shearson Lehman Government Bond Index, Merrill Lynch
Mortgage Master Index and Donahue's Money Market Index).
37
<PAGE>
ADDITIONAL INFORMATION
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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 except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares.
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 options 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 1994 report by the Investment Company Institute Advisory
Group on Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund.
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.
38
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
<TABLE>
<S> <C>
MONEY MARKET FUNDS FIXED-INCOME FUNDS
Dean Witter Liquid Asset Fund Inc. Dean Witter High Yield Securities Inc.
Dean Witter Tax-Free Daily Income Trust Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Money Market Dean Witter U.S. Government Securities
Trust Trust
Dean Witter California Tax-Free Daily Dean Witter Federal Securities Trust
Income Trust Dean Witter Convertible Securities Trust
Dean Witter New York Municipal Money Dean Witter California Tax-Free Income
Market Trust Fund
EQUITY FUNDS Dean Witter New York Tax-Free Income
Dean Witter American Value Fund Fund
Dean Witter Natural Resource Development Dean Witter World Wide Income Trust
Securities Inc. Dean Witter Intermediate Income
Dean Witter Dividend Growth Securities Securities
Inc. Dean Witter Global Short-Term Income
Dean Witter Developing Growth Securities Fund Inc.
Trust Dean Witter Multi-State Municipal Series
Dean Witter World Wide Investment Trust Trust
Dean Witter Value-Added Market Series Dean Witter Short-Term U.S. Treasury
Dean Witter Utilities Fund Trust
Dean Witter Capital Growth Securities Dean Witter Diversified Income Trust
Dean Witter European Growth Fund Inc. Dean Witter Limited Term Municipal Trust
Dean Witter Pacific Growth Fund Inc. Dean Witter Short-Term Bond Fund
Dean Witter Precious Metals and Minerals Dean Witter Balanced Income Fund
Trust Dean Witter Hawaii Municipal Trust
Dean Witter Health Sciences Trust Dean Witter Intermediate Term U.S.
Dean Witter Global Dividend Growth Treasury Trust
Securities DEAN WITTER RETIREMENT SERIES
Dean Witter Global Utilities Fund Liquid Asset Series
Dean Witter International SmallCap Fund U.S. Government Money Market Series
Dean Witter Mid-Cap Growth Fund U.S. Government Securities Series
Dean Witter Balanced Growth Fund Intermediate Income Securities Series
Dean Witter Capital Appreciation Fund American Value Series
Dean Witter Information Fund Capital Growth Series
Dean Witter Japan Fund Dividend Growth Series
Dean Witter Income Builder Fund Strategist Series
Dean Witter Special Value Fund Utilities Series
Dean Witter Financial Services Trust Value-Added Market Series
Dean Witter Market Leader Trust Global Equity Series
Dean Witter S&P 500 Index Fund ACTIVE ASSETS ACCOUNT PROGRAM
Dean Witter Fund of Funds Active Assets Money Trust
ASSET ALLOCATION FUNDS Active Assets Tax-Free Trust
Dean Witter Strategist Fund Active Assets California Tax-Free Trust
Dean Witter Global Asset Allocation Fund Active Assets Government Securities
Trust
</TABLE>
<PAGE>
Dean Witter
Federal Securities Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
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 FSB
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.
DEAN WITTER
FEDERAL
SECURITIES TRUST
[PHOTO]
PROSPECTUS -- DECEMBER 29, 1997
<PAGE>
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
DECEMBER 29, 1997 FEDERAL SECURITIES
TRUST
</TABLE>
- --------------------------------------------------------------------------------
Dean Witter Federal Securities Trust (the "Fund") is an open-end diversified
management investment company whose investment objective is to earn a high level
of current income. The Fund will seek to achieve its investment objective by
investing primarily in debt securities issued by the U.S. Government, its
agencies or instrumentalities and by writing covered call and put options
against such securities. The Fund may also purchase options on such securities
to effect closing transactions. In addition, to hedge the Fund's portfolio of
securities against changes in prevailing interest rates, the Fund may purchase
put options on U.S. Government securities and engage in transactions involving
interest rate futures contracts and options on such contracts. Shares of the
Fund are not issued, insured or guaranteed by the U.S. Government, its agencies
or instrumentalities.
A Prospectus for the Fund dated December 29, 1997, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide you
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter
Federal Securities Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Trustees and Officers.................................................................. 6
Investment Practices and Policies...................................................... 12
Investment Restrictions................................................................ 24
Portfolio Transactions and Brokerage................................................... 25
The Distributor........................................................................ 26
Determination of Net Asset Value....................................................... 31
Purchase of Fund Shares................................................................ 31
Shareholder Services................................................................... 34
Redemptions and Repurchases............................................................ 38
Dividends, Distributions and Taxes..................................................... 40
Performance Information................................................................ 41
Description of Shares of the Fund...................................................... 43
Custodian and Transfer Agent........................................................... 43
Independent Accountants................................................................ 43
Reports to Shareholders................................................................ 44
Legal Counsel.......................................................................... 44
Experts................................................................................ 44
Registration Statement................................................................. 44
Report of Independent Accountants...................................................... 45
Financial Statements -- October 31, 1997............................................... 49
Appendix -- Ratings of Corporate Debt Instruments...................................... 62
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
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
November 20, 1986. The Fund's name was changed from Dean Witter Government
Securities Plus to Dean Witter Federal Securities Trust by the Trustees of the
Fund on August 17, 1992.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"), a Delaware
corporation. In an internal reorganization which took place in January, 1993,
InterCapital assumed the investment advisory, administrative and management
activities previously performed by the InterCapital Division of Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital. (As
hereinafter used in this Statement of Additional Information, the terms
"InterCapital" and "Investment Manager" refer to DWR's InterCapital Division
prior to the internal reorganization and Dean Witter InterCapital Inc.
thereafter.) The daily management of the Fund and research relating to the
Fund's portfolio is conducted by or under the direction of officers of the Fund
and of the Investment Manager, subject to review by the Fund's Board of
Trustees. Information as to these Trustees and officers is contained under the
caption "Trustees and Officers."
InterCapital is also the investment manager or investment adviser of the
following investment companies: Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., Dean Witter High Yield Securities Inc., Dean Witter
Tax-Free Daily Income Trust, Dean Witter Developing Growth Securities Trust,
Dean Witter Tax-Exempt Securities Trust, Dean Witter Natural Resource
Development Securities, Inc., Dean Witter Dividend Growth Securities Inc., Dean
Witter American Value Fund, Dean Witter U.S. Government Money Market Trust, Dean
Witter Variable Investment Series, Dean Witter World Wide Investment Trust, Dean
Witter Select Municipal Reinvestment Fund, Dean Witter U.S. Government
Securities Trust, Dean Witter California Tax-Free Income Fund, Dean Witter New
York Tax-Free Income Fund, Dean Witter Convertible Securities Trust, Dean Witter
Intermediate Income Securities, Dean Witter Value-Added Market Series, High
Income Advantage Trust, High Income Advantage Trust II, High Income Advantage
Trust III, Dean Witter Government Income Trust, Dean Witter Utilities Fund, Dean
Witter California Tax-Free Daily Income Trust, Dean Witter Strategist Fund, Dean
Witter World Wide Income Trust, Dean Witter New York Municipal Money Market
Trust, Dean Witter Capital Growth Securities, Dean Witter European Growth Fund
Inc., Dean Witter Precious Metals and Minerals Trust, Dean Witter Global
Short-Term Income Fund Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter
Multi-State Municipal Series Trust, Dean Witter Short-Term U.S. Treasury Trust,
InterCapital Insured Municipal Bond Trust, InterCapital Insured Municipal Trust,
InterCapital Insured Municipal Income Trust, InterCapital California Insured
Municipal Income Trust, InterCapital Insured Municipal Securities, InterCapital
Insured California Municipal Securities, InterCapital Quality Municipal
Investment Trust, InterCapital Quality Municipal Income Trust, InterCapital
Quality Municipal Securities, InterCapital California Quality Municipal
Securities, InterCapital New York Quality Municipal Securities, Dean Witter
Diversified Income Trust, Dean Witter Health Sciences Trust, Dean Witter
Retirement Series, Dean Witter Global Dividend Growth Securities, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter
Global Utilities Fund, Dean Witter International SmallCap Fund, Dean Witter
Global Asset Allocation Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter
Select Dimensions Investment Series, Dean Witter Balanced Growth Fund, Dean
Witter Balanced Income Fund, Dean Witter Hawaii Municipal Trust, Dean Witter
Capital Appreciation Fund, Dean Witter Information Fund, Dean Witter
Intermediate Term U.S. Treasury Trust, Dean Witter Japan Fund, Dean Witter
Income Builder Fund, Dean Witter Special Value Fund, Dean Witter Financial
Services Trust, Dean Witter Market Leader Trust, Dean Witter S&P 500 Index Fund,
Dean Witter Fund of Funds, Active Assets Money Trust, Active Assets Tax-Free
Trust, Active Assets California Tax-Free Trust, Active Assets Government
Securities Trust, Municipal Income Trust, Municipal Income Trust II, Municipal
Income Trust III, Municipal Income Opportunities Trust, Municipal
3
<PAGE>
Income Opportunities Trust II, Municipal Income Opportunities Trust III, Prime
Income Trust and Municipal Premium Income Trust. The foregoing investment
companies, together with the Fund, are collectively referred to as the Dean
Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following companies for
which TCW Funds Management, Inc. is the investment adviser: TCW/DW Core Equity
Trust, TCW/DW North American Government Income Trust, TCW/DW Latin American
Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth Fund, TCW/DW
Balanced Fund, TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW
Global Telecom Trust, TCW/DW Strategic Income Trust, TCW/DW Emerging Markets
Opportunities Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and TCW/DW
Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as: (i)
administrator of The BlackRock Strategic Term Trust Inc., a closed-end
investment company; (ii) sub-administrator of MassMutual Participation Investors
and Templeton Global Governments Income Trust, closed-end investment companies;
and (iii) investment adviser of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in DWR's International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective and policies.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, bookkeeping and legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, statements of additional information, proxy statements and reports
required to be filed with federal and state securities commissions (except
insofar as the participation or assistance of independent accountants and
attorneys is, in the opinion of the Investment Manager, necessary or desirable).
In addition, the Investment Manager pays the salaries of all personnel,
including officers of the Fund, who are employees of the Investment Manager. The
Investment Manager also bears the cost of telephone service, heat, light, power
and other utilities provided to the Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund which were previously performed directly by InterCapital. On April 17,
1995, DWSC was reorganized in the State of Delaware, necessitating the entry
into a new Services Agreement by InterCapital and DWSC on that date. The
foregoing internal reorganizations did not result in any change in the nature or
scope of the administrative services being provided to the Fund or any of the
fees being paid by the Fund for the overall services being performed under the
terms of the existing Agreement.
Expenses not expressly assumed by the Investment Manager under the Agreement
or by the Distributor of the Fund's shares, Dean Witter Distributors Inc.
("Distributors" or the "Distributor") (see "The Distributor"), will be paid by
the Fund. These expenses will be allocated among the four classes of shares of
the Fund (each, a "Class") pro rata based on the net assets of the Fund
attributable to each Class, except as described below. Such expenses include,
but are not limited to: expenses of the Plan of Distribution pursuant to Rule
12b-1 (the "12b-1 fee") (see "The Distributor"), charges and expenses of any
registrar, custodian, stock transfer and dividend disbursing agent; brokerage
commissions; taxes; engraving and printing of share certificates; registration
costs of the Fund and its shares under federal and state securities laws; the
cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Trustees' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Trustees or
4
<PAGE>
members of any advisory board or committee who are not employees of the
Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses of any outside service used for pricing of the Fund's shares; fees and
expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager) and independent accountants; membership dues of industry associations;
interest on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Trustees) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operation. The 12b-1 fees relating to a particular
Class will be allocated directly to that Class. In addition, other expenses
associated with a particular Class (except advisory or custodial fees) may be
allocated directly to that Class, provided that such expenses are reasonably
identified as specifically attributable to that Class and the direct allocation
to that Class is approved by the Trustees.
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 by applying the
following annual rates to the Fund's daily net assets: 0.55% of the portion of
the daily net assets of the Fund not exceeding $1 billion; 0.525% of the portion
of the Fund's daily net assets exceeding $1 billion but not exceeding $1.5
billion; 0.50% of the portion of the Fund's daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.475% of the portion of the Fund's daily
net assets exceeding $2 billion but not exceeding $2.5 billion; 0.45% of the
portion of the Fund's daily net assets exceeding $2.5 billion but not exceeding
$5 billion; 0.425% of the portion of the Fund's daily net assets exceeding $5
billion but not exceeding $7.5 billion; 0.40% of the portion of the Fund's daily
net assets exceeding $7.5 billion but not exceeding $10 billion; 0.375% of the
portion of the Fund's daily net assets exceeding $10 billion but not exceeding
$12.5 billion; and 0.35% of the portion of the Fund's daily net assets exceeding
$12.5 billion. The management fee is allocated among the Classes pro rata based
on the net assets of the Fund attributable to each Class. For the fiscal years
ended October 31, 1995, 1996 and 1997, the Fund accrued to the Investment
Manager total compensation in the amounts of $4,542,697, $4,241,115 and
$3,616,570, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.
The Agreement was initially approved by the Board of Trustees on February
21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Agreement is substantially identical to a
prior investment management agreement which was initially approved by the Board
of Trustees on October 30, 1992 and by the shareholders of the Fund at a Special
Meeting of Shareholders held on January 12, 1993. The Agreement took effect on
May 31, 1997 upon the consummation of the merger of Dean Witter, Discover & Co.
with Morgan Stanley Group Inc. The Agreement may be terminated at any time,
without penalty, on thirty days' notice by the Board of Trustees of the Fund, by
the holders of a majority, as defined in the Investment Company Act of 1940 (the
"Act"), of the outstanding shares of the Fund, or by the Investment Manager. The
Agreement will automatically terminate in the event of its assignment (as
defined in the Act).
Under its terms, the Agreement had an initial term ending April 30, 1999,
and will remain in effect from year to year thereafter, provided continuance of
the Agreement is approved at least annually by the vote of the holders of a
majority (as defined in the Act) of the outstanding shares of the Fund, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Fund who are
not parties to the Agreement or "interested persons" (as defined in the Act) of
any such party (the "Independent Trustees"), which vote must be cast in person
at a meeting called for the purpose of voting on such approval.
5
<PAGE>
The following owned 5% or more of the outstanding shares of Class A on
November 29, 1997: Oak Valley Hospital, 350 S. Oak Avenue, Oakdale, CA
95361--79.6%; Dean Witter Trust FSB Trustee FBO Lorene E. Wise T/U/W Dtd.
12-20-73, P.O. Box 957, Jersey City, NJ 07303--7.4%.
The following owned 5% or more of the outstanding shares of Class C on
November 29, 1997: Passport to Travel, 3501 McHenry Avenue, Ste. F18, Modesto,
CA 95356--5.5%; Dean Witter Reynolds Inc. Custodian for Darrell G. Owens IRA
Rollover dated 7/22/97, 22406 West 73rd Terrace, Shawnee Mission, KS
66227--10.3%; Dean Witter Reynolds Inc. Custodian for David S. Brodnan IRA
Rollover dated 7/2/97, 3950 R.F.D., Long Grove, IL 60047--8.7%; Medical
Education Resources Inc., 1500 W. Canal Ct. #500, Littleton, CO 80120--28.1%.
The following owned 5% or more of the outstanding shares of Class D on
November 29, 1997: Dean Witter InterCapital Inc., Attn.: Frank DeVito, Two World
Trade Center, 73rd Floor, New York, NY 10048-- 6.2%; RPM001 Danco Waterproofing
Corp. Profit Sharing Plan, 3142 Diablo Avenue, Hayward, CA 94545--5.7%; RPM001
Danco Waterproofing Corp. Money Purchase Plan, 3142 Diablo Avenue, Hayward, CA
94545--10.8%; RPM002 Allied Oil Equipment Co. Inc., PSP Tr Dtd. 7-1-97-Access
FBO Allied Oil/Bassco Employees, 2643 Myrtle Avenue, Dallas, TX 75220--6.6%.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use or, at any time,
permit others to use, the name "Dean Witter." The Fund has also agreed that in
the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate the
name "Dean Witter" from its name if DWR or its parent company shall so request.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 83 Dean WItter Funds and the 14 TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (56) Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Dean Witter Funds; formerly President and Chief
6111 Broken Sound Parkway, N.W. Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial Services,
Inc., the United Negro College Fund and Weirton Steel Cor-
poration.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of
Chairman of the Board, President, InterCapital, DWSC and Distributors; Executive Vice
Chief Executive Officer and Trustee President and Director of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of the Dean
New York, New York Witter Funds; Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Chairman and Director of Dean
Witter Trust FSB ("DWT"); Director and/or officer of
various MSDWD subsidiaries; formerly Executive Vice
President and Director of Dean Witter, Discover & Co.
(until February, 1993).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Edwin J. Garn (65) Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1971-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation (since January, 1993);
Director of Franklin Covey (time management systems), John
Alden Financial Corp. (health insurance), United Space
Alliance (joint venture between Lockheed Martin and the
Boeing Company) and Nuskin Asia Pacific (multilevel
marketing); member of the board of various civic and
charitable organizations.
John R. Haire (72) Chairman of the Audit Committee and Chairman of the
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman of
New York, New York the Audit Committee and Chairman of the Committee of the
Independent Trustees and Trustee of the TCW/DW Funds;
formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser (1964-1978).
Wayne E. Hedien (63) Retired; Director or Trustee of the Dean Witter Funds;
Trustee Director of The PMI Group, Inc. (private mortgage
c/o Gordon Altman Butowsky insurance); Trustee and Vice Chairman of The Field Museum
Weitzen Shalov & Wein of Natural History; formerly associated with the Allstate
Counsel to the Independent Trustees Companies (1966-1994), most recently as Chairman of The
114 West 47th Street Allstate Corporation (March, 1993-December, 1994) and
New York, New York Chairman and Chief Executive Officer of its wholly-owned
subsidiary, Allstate Insurance Company (July, 1989-Decem-
ber, 1994); director of various other business and
charitable organizations.
Dr. Manuel H. Johnson (48) Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group of
c/o Johnson Smick International, Inc. Seven Council (G7C), an international economic commission;
1133 Connecticut Avenue, N.W. Director or Trustee of the Dean Witter Funds; Trustee of
Washington, DC the TCW/DW Funds; Director of NASDAQ (since June, 1995);
Director of Greenwich Capital Markets, Inc.
(broker-dealer); Chairman and Trustee of the Financial
Accounting Foundation (oversight organization for the
Financial Accounting Standards Board); formerly Vice
Chairman of the Board of Governors of the Federal Reserve
System (1986-1990) and Assistant Secretary of the U.S.
Treasury (1982-1986).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private in-
Trustee vestment partnership; Director or Trustee of the Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); director of various business
organizations.
Philip J. Purcell* (54) Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDWD, DWR and Novus Credit Services Inc.;
1585 Broadway Director of InterCapital, DWSC and Distributors; Director
New York, New York or Trustee of the Dean Witter Funds; Director and/or
officer of various MSDWD subsidiaries.
John L. Schroeder (67) Retired; Director or Trustee of the Dean Witter Funds;
Trustee Trustee of the TCW/DW Funds; Director of Citizens
c/o Gordon Altman Butowsky Weitzen Utilities Company; formerly Executive Vice President and
Shalov & Wein Chief Investment Officer of the Home Insurance Company
Counsel to the Independent Trustees (August, 1991-September, 1995).
114 West 47th Street
New York, New York
Barry Fink (42) Senior Vice President (since March, 1997) and Secretary
Vice President, Secretary and General Counsel (since February, 1997) of InterCapital
and General Counsel and DWSC; Senior Vice President (since March, 1997) and
Two World Trade Center Assistant Secretary and Assistant General Counsel (since
New York, New York February, 1997) of Distributors; Assistant Secretary of
DWR (since August, 1996); Vice President, Secretary and
General Counsel of the Dean Witter Funds and the TCW/DW
Funds (since February, 1997); previously First Vice
President (June, 1993-February, 1997), Vice President
(until June, 1993) and Assistant Secretary and Assistant
General Counsel of InterCapital and DWSC and Assistant
Secretary of the Dean Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta (37) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of Inter-
Treasurer Capital and DWSC; Treasurer of the Dean Witter Funds and
Two World Trade Center the TCW/DW Funds.
New York, New York
</TABLE>
- ------------------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Executive Vice President and Director of DWR, and Director of
SPS Transaction Services, Inc. and various other MSDWD subsidiaries. Robert S.
Giambrone, Senior Vice President of InterCapital, DWSC, Distributors and DWT,
and Director of DWT, Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of InterCapital and Director of DWT, and Kenton J.
Hinchliffe,
8
<PAGE>
Jonathan R. Page and James F. Willison, Senior Vice Presidents of InterCapital,
are Vice Presidents of the Fund, and Marilyn K. Cranney, First Vice President
and Assistant General Counsel of InterCapital and DWSC, Lou Anne D. McInnis
Carsten Otto and Ruth Rossi, Vice Presidents and Assistant General Counsels of
InterCapital and DWSC, and Frank Bruttomesso and Todd Lebo, staff attorneys with
InterCapital, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees currently consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of this
Statement of Additional Information, there are a total of 83 Dean Witter Funds,
comprised of 127 portfolios. As of November 30, 1997, the Dean Witter Funds had
total net assets of approximately $93.3 billion and more than six million
shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own any
stock or other securities issued by InterCapital's parent company, MSDWD. These
are the "disinterested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with InterCapital. Four of the seven
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1996,
the three Committees held a combined total of sixteen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
9
<PAGE>
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Trustees to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of both
Committees and guides their efforts is pivotal to the effective functioning of
the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Manager and other service providers. In effect,
the Chairman of the Committees serves as a combination of chief executive and
support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since July
1, 1996, as Chairman of the Committee of the Independent Trustees and the Audit
Committee of the TCW/DW Funds. The current Committee Chairman has had more than
35 years experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees, and a Chairman of their Committees,
of the caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 ($800 after
December 31, 1997) plus a per meeting fee of $50 for meetings of the Board of
Trustees or committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an annual fee of $750 and pays the
Chairman of the Committee of the Independent Trustees an additional annual fee
of $1,200). If a Board meeting and a Committee meeting, or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by the Fund. The Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended October 31, 1997.
10
<PAGE>
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,700
Edwin J. Garn................................................. 1,900
John R. Haire................................................. 3,850
Wayne E. Hedien............................................... 482
Dr. Manuel H. Johnson......................................... 1,850
Michael E. Nugent............................................. 1,900
John L. Schroeder............................................. 1,900
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1996 for services
to the 82 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31, 1996.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds. Mr. Hedien's term as Director or
Trustee of each Dean Witter Fund commenced on September 1, 1997.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS FOR SERVICE
CHAIRMAN OF AS TOTAL CASH
COMMITTEES OF CHAIRMAN OF COMPENSATION
FOR SERVICE INDEPENDENT COMMITTEES OF FOR SERVICES
AS DIRECTOR OR DIRECTORS/ INDEPENDENT TO
TRUSTEE AND FOR SERVICE AS TRUSTEES AND TRUSTEES AND 82 DEAN
COMMITTEE MEMBER TRUSTEE AND AUDIT AUDIT WITTER
OF 82 DEAN COMMITTEE MEMBER COMMITTEES OF COMMITTEES OF FUNDS AND
NAME OF WITTER OF 14 TCW/DW 82 DEAN WITTER 14 TCW/DW 14 TCW/DW
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS FUNDS FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $138,850 -- -- -- $138,850
Edwin J. Garn.............. 140,900 -- -- -- 140,900
John R. Haire.............. 106,400 $64,283 $195,450 $ 12,187 378,320
Dr. Manuel H. Johnson...... 137,100 66,483 -- -- 203,583
Michael E. Nugent.......... 138,850 64,283 -- -- 203,133
John L. Schroeder.......... 137,150 69,083 -- -- 206,233
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under which
an Independent Trustee who retires after serving for at least five years (or
such lesser period as may be determined by the Board) as an Independent Director
or Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Trustee referred to as
an "Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Trustee
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing for the remainder of his or her life, an annual
retirement benefit (the "Regular Benefit") equal to 25.0% of his or her Eligible
Compensation plus 0.4166666% of such Eligible Compensation for each full month
of service as an Independent Director or Trustee of any Adopting Fund in excess
of five years up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the Board.(1) "Eligible Compensation" is one-fifth
of the total compensation earned by such Eligible Trustee for service to the
Adopting Fund in the five year period prior to the date of the Eligible
Trustee's retirement. Benefits under the retirement program are not secured or
funded by the Adopting Funds.
- ------------------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement.
The amount estimated to be payable under this method, through the remainder
of the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
11
<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended October 31,
1997 and by the 57 Dean Witter Funds (including the Fund) for the year ended
December 31, 1996, and the estimated retirement benefits for the Fund's
Independent Trustees, to commence upon their retirement, from the Fund as of
October 31, 1997 and from the 57 Dean Witter Funds as of December 31, 1996.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT ESTIMATED ANNUAL
-------------------------------------- BENEFITS BENEFITS
ESTIMATED ACCRUED AS UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED EXPENSES ----------------------------
OF SERVICE AT PERCENTAGE OF ---------------------------- FROM
NAME OF INDEPENDENT RETIREMENT ELIGIBLE BY THE BY ALL THE FROM ALL
TRUSTEE (MAXIMUM 10) COMPENSATION FUND ADOPTING FUNDS FUND ADOPTING FUNDS
- ---------------------- ------------------- ----------------- --------- ----------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic......... 10 50.0% $ 372 $ 20,147 $ 925 $ 51,325
Edwin J. Garn......... 10 50.0 534 27,772 925 51,325
John R. Haire......... 10 50.0 (798 (3) 46,952 2,246 129,550
Wayne E. Hedien....... 9 42.9 0 Not Applicable 794 Not Applicable
Dr. Manuel H.
Johnson.............. 10 50.0 225 10,926 925 51,325
Michael E. Nugent..... 10 50.0 383 19,217 925 51,325
John L. Schroeder..... 8 41.7 714 38,700 771 42,771
</TABLE>
- ------------------------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Trustee until June 1, 1998.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, certain of the U.S. Government securities
purchased by the Fund are "mortgage-backed securities", which evidence an
interest in a specific pool of mortgages. Such securities are issued by the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
GNMA CERTIFICATES. GNMA Certificates evidence an interest in a specific
pool of mortgages insured by the Federal Housing Administration ("FHA") or the
Farmers Home Administration 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 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 principal investments.
The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal on the underlying mortgages. The
occurrence of mortgage prepayments is affected by such factors as
12
<PAGE>
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 12
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 12 years, but
typically not less than 5 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.
Such fees in the aggregate usually amount to approximately .50 of 1%.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturities 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 12-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 semiannually, as is the case with
traditional bonds.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation was created in
1970 through enactment of Title III of the Emergency Home Finance Act of 1970.
Its purpose is to promote development of a nationwide secondary market in
conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities, mortgages
participation certificates ("PCs") and guaranteed mortgages certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owned on the underlying
pool. The FHMLC guarantees timely monthly payment of interest on PCs and the
full return of principal when due. PCs have an assumed average life similar to
GNMA Certificates.
GMCs also represent a pro rata interest in a pool of mortgages. However,
these instruments pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The expected average life of these securities is
approximately ten years.
FNMA SECURITIES. The Federal National Mortgage Association was established
in 1938 to create a secondary market in mortgages insured by the FHA.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and principal payments
made and owed on the underlying pool. FNMA guarantees timely payment of interest
on FNMA Certificates and the full return of principal. FNMA Certificates have an
assumed average life similar to GNMA Certificates.
LEVERAGING. As discussed in the Prospectus, the Fund may borrow money, but
only from a bank and in an amount up to 25% of the value of the Fund's total
assets taken at the lower of market value or cost, not including the amount
borrowed, in an effort to obtain additional income by leveraging its investments
through purchasing securities with the borrowed funds. Such borrowings will be
subject to current margin requirements of the Federal Reserve Board and where
necessary the Fund may use any or all of its securities as collateral for such
borrowings. Any investment gains made with the additional monies in excess of
interest paid will cause the net asset value of the Fund's shares to rise to a
greater extent than would otherwise be the case. Conversely, if the investment
performance of the additional monies fails to cover their cost to the Fund, net
asset value will decrease to a greater extent than would otherwise be the case.
This is the speculative factor involved in leverage.
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The Fund will be required to maintain an asset coverage (including the
proceeds of borrowings) of at least 300% of such borrowings in accordance with
the provisions of the Act. If, due to market fluctuations or other reasons, the
value of the Fund's assets (including the proceeds of borrowings) becomes at any
time less than three times the amount of any outstanding bank debt, the Fund,
within three business days, will reduce its bank debt to the extent necessary to
meet the required 300% asset coverage. In restoring the 300% asset coverage, the
Fund may have to sell a portion of its investments at a time when it may be
disadvantageous to do so.
The investment policy provides that the Fund may not purchase or sell a
security on margin. The margin and bank borrowing restrictions will prevent the
ordinary purchase of a security which involves a cash borrowing from a broker of
any part of the purchase price of a security.
The Fund may also borrow from banks as a temporary measure for extraordinary
or emergency purposes, and for these purposes and leveraging combined, in no
event an amount greater than 25% of the value of the Fund's total assets. The
Fund did not borrow any money during its fiscal year ended October 31, 1997.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described below), and are at all times
secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least the
market value, determined daily, of the loaned securities. The advantage of such
loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as
collateral, which will be invested in short-term obligations. The Fund will not
lend its portfolio securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for sale and will not
lend more than 25% of the value of its total assets.
A loan may be terminated by the borrower on one business day's notice, or by
the Fund on two business days' notice. If the borrower fails to deliver the
loaned securities within two days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Fund's management to be creditworthy and when the income which can be
earned from such loans justifies the attendant risks. Upon termination of the
loan, the borrower is required to return the securities to the Fund. Any gain or
loss in the market price during the loan period would inure to the Fund. The
creditworthiness of firms to which the Fund lends its portfolio securities will
be monitored on an ongoing basis by the Investment Manager pursuant to
procedures adopted and reviewed, on an ongoing basis, by the Board of Trustees
of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities. The Fund has not
to date lent any of its portfolio securities.
REPURCHASE AGREEMENTS. When cash may be available for only a few days, it
may be invested by the Fund in repurchase agreements until such time as it may
otherwise be invested or used for payments of obligations of the Fund. These
agreements, which may be viewed as a type of secured lending by the Fund,
typically involve the acquisition by the Fund of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
("collateral"), which is held by the Fund's Custodian, at a specified price and
at a fixed time in the future, usually not more than seven days from the date of
purchase. The collateral will be maintained in a segregated account and will be
marked-to-market daily to determine that the full value of the collateral, as
specified in the agreement, does not decrease. If such decrease occurs,
additional collateral will be added to the
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account to maintain full collateralization. In the event the original seller
defaults on its obligations, the Fund will seek to sell the collateral, which
action could involve costs or delays. In such case, the Fund's ability to
dispose of the collateral to recover its investment may be restricted or
delayed.
The Fund will accrue interest from the institution until the time when the
repurchase is to occur. Although such date is deemed by the Fund to be the
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits. While repurchase agreements
involve certain risks not associated with direct investments in debt securities,
the Fund follows procedures designed to minimize such risks. These procedures
include effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions, whose financial condition will be
continually monitored. In addition, the value of the collateral underlying the
repurchase agreement will always be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial institution, the Fund will
seek to liquidate such collateral. However, the exercising of the Fund's right
to liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss. It
is the current policy of the Fund not to invest in repurchase agreements that do
not mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amounts to more than 10% of its total assets.
The Fund's investments in repurchase agreements may at times be substantial
when, in the view of the Investment Manager, liquidity or other considerations
warrant.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise. Opportunities to achieve this advantage may not always be
available, and the Fund intends to use the reverse repurchase technique only
when it will be to its advantage to do so.
The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund foregoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account with its Custodian in which it
will maintain cash or cash equivalents or other liquid portfolio securities
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements and dollar rolls are considered borrowings by the
Fund and for purposes other than meeting redemptions may not exceed 10% of the
Fund's total assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. As
discussed in the Prospectus, from time to time 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 a
month or more 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 or
dividends accrue to the purchaser prior to the settlement date. 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
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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 liquid portfolio
securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and purchase
options of the same series to effect closing transactions, and may hedge against
potential changes in the market value of investments (or anticipated
investments) by purchasing put and call options on portfolio (or eligible
portfolio) securities and engaging in transactions involving futures contracts
and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills are listed on
Exchanges (currently the Chicago Board Options Exchange and the American Stock
Exchange) and are written in over-the-counter transactions ("OTC options").
Listed options are issued by the Options Clearing Corporation ("OCC"). Ownership
of a listed call option gives the Fund the right to buy from the OCC the
underlying security covered by the option at the stated exercise price (the
price per unit of the underlying security) by filing an exercise notice prior to
the expiration date of the option. The writer (seller) of the option would then
have the obligation to sell to the OCC the underlying security at that exercise
price prior to the expiration date of the option, regardless of its then current
market price. Ownership of a listed put option would give the Fund the right to
sell the underlying security to the OCC at the stated exercise price. Upon
notice of exercise of the put option, the writer of the put would have the
obligation to purchase the underlying security from the OCC at the exercise
price.
OTC OPTIONS. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the Fund. With OTC options, such variables
as expiration date, exercise price and premium will be agreed upon between the
Fund and the transacting dealer, without the intermediation of a third party
such as the OCC. If the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms of
that option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. The Fund will engage in OTC option
transactions only with member banks of the Federal Reserve System or primary
U.S. Government securities dealers or with affiliates of such banks or dealers
which have capital of at least $50 million or whose obligations are guaranteed
by an entity having capital of at least $50 million.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center mostly on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian, so that it will
be treated as being covered.
OPTIONS ON GNMA CERTIFICATES. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of
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mortgage payments, the Fund, as a writer of a GNMA call holding GNMA
Certificates as "cover" to satisfy its delivery obligation in the event of
exercise, may find that the GNMA Certificates it holds no longer have a
sufficient remaining principal balance for this purpose. Should this occur, the
Fund will purchase additional GNMA Certificates from the same pool (if
obtainable) or replacement GNMA Certificates in the cash market in order to
maintain its cover. A GNMA Certificate held by the Fund to cover an option
position in any but the nearest expiration month may cease to represent cover
for the option in the event of a decline in the GNMA coupon rate at which new
pools are originated under the FHA/VA loan ceiling in effect at any given time,
as such decline may increase the prepayments made on other mortgage pools. If
this should occur, the Fund will no longer be covered, and the Fund will either
enter into a closing purchase transaction or replace such Certificate with a
Certificate which represents cover. When the Fund closes out its position or
replaces such Certificate, it may realize an unanticipated loss and incur
transaction costs.
RISKS OF OPTIONS ON U.S. GOVERNMENT SECURITIES. During the option period,
the covered call writer has, in return for the premium on the option, given up
the opportunity for capital appreciation above the exercise price should the
market price of the underlying security increase, but has retained the risk of
loss should the price of the underlying security decline. The secured put writer
also retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option. In both cases, the writer has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying securities at the
exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so. A secured put option writer who is unable to
effect a closing purchase transaction or to purchase an offsetting OTC option
would continue to bear the risk of decline in the market price of the underlying
security until the option expires or is exercised. In addition, a secured put
writer would be unable to utilize the amount held in cash or U.S. Government
securities as security for the put option for other investment purposes until
the exercise or expiration of the option.
As discussed in the Prospectus, the Fund's ability to close out its position
as a writer of an exchange-listed option is dependent upon the existence of a
liquid secondary market on Option Exchanges. Among the possible reasons for the
absence of a liquid secondary market on an Exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions imposed
by an Exchange; (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) interruption of the normal operations on an Exchange; (v)
inadequacy of the facilities of an Exchange or the Options Clearing Corporation
("OCC") to handle current trading volume; or (vi) a decision by one or more
Exchanges to discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that Exchange (or in that
class or series of options) would cease to exist, although outstanding options
on that Exchange that had been issued by the OCC as a result of trades on that
Exchange would generally continue to be exercisable in accordance with their
terms.
The hours of trading for options on U.S. Government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities, without limit. Generally, a call option is "covered" if
the Fund owns, or has the right to acquire, without additional cash
consideration (or for additional cash consideration held for the Fund by its
Custodian in a segregated account) the underlying security subject to the option
except that in the case of call options
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on U.S. Treasury bills, the Fund might own U.S. Treasury bills of a different
series from those underlying the call option, but with a principal amount and
value corresponding to the exercise price and a maturity date no later than that
of the securities deliverable under the call option. A call option is also
covered if the Fund holds a call on the same security as the underlying security
of the written option, where the exercise price of the call used for coverage is
equal to or less than the exercise price of the call written or greater than the
exercise price of the call written if the mark to market difference is
maintained by the Fund in cash, U.S. Government securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained
with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities alone. Moreover, the premium
received will offset a portion of the potential loss incurred by the Fund if the
securities underlying the option are ultimately sold by the Fund at a loss. The
premium received will fluctuate with varying economic market conditions. If the
market value of the portfolio securities upon which call options have been
written increases, the Fund may receive less total return from the portion of
its portfolio upon which calls have been written than it would have had such
calls not been written.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
against payment of the exercise price on any calls it has written (exercise of
certain listed and OTC options may be limited to specific expiration dates).
This obligation is terminated upon the expiration of the option period or at
such earlier time when the writer effects a closing purchase transaction. A
closing purchase transaction is accomplished by purchasing an option of the same
series as the option previously written. However, once the Fund has been
assigned an exercise notice, the Fund will be unable to effect a closing
purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option to prevent an underlying security from being called,
to permit the sale of an underlying security or to enable the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. Also, effecting a closing purchase transaction
will permit the cash or proceeds from the concurrent sale of any securities
subject to the option to be used for other investments by the Fund. The Fund may
realize a net gain or loss from a closing purchase transaction depending upon
whether the amount of the premium received on the call option is more or less
than the cost of effecting the closing purchase transaction. Any loss incurred
in a closing purchase transaction may be wholly or partially offset by
unrealized appreciation in the market value of the underlying security.
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security.
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security during
the option period. If a call option is exercised, the Fund realizes a gain or
loss from the sale of the underlying security equal to the difference between
the purchase price of the underlying security and the proceeds of the sale of
the security plus the premium received on the option less the commission paid.
Options written by a Fund normally have expiration dates of up to eighteen
months from the date written. The exercise price of a call option may be below,
equal to or above the current market value of the underlying security at the
time the option is written.
COVERED PUT WRITING. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period, at
the purchaser's election (certain listed put options written by the Fund will be
exercisable by the purchaser only on a specific date). A put is "covered" if, at
all times, the Fund maintains, in a segregated account maintained on its behalf
at the Fund's Custodian, cash, U.S. Government securities or other liquid
portfolio securities in an amount equal to at least the exercise price of the
option, at all times during the option period. Similarly, a written put position
could be covered by
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the Fund by its purchase of a put option on the same security as the underlying
security of the written option, where the exercise price of the purchased option
is equal to or more than the exercise price of the put written or less than the
exercise price of the put written if the mark to market difference is maintained
by the Fund in cash, U.S. Government securities or other liquid portfolio
securities which the Fund holds in a segregated account maintained at its
Custodian. In writing puts, the Fund assumes the risk of loss should the market
value of the underlying security decline below the exercise price of the option
(any loss being decreased by the receipt of the premium on the option written).
In the case of listed options, during the option period, the Fund may be
required, at any time, to make payment of the exercise price against delivery of
the underlying security. The operation of and limitations on covered put options
in other respects are substantially identical to those of call options.
The Fund will write put options for two purposes: (1) to receive the income
derived from the premiums paid by purchasers; and (2) when the Investment
Manager wishes to purchase the security underlying the option at a price lower
than its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought. The potential gain on
a covered put option is limited to the premium received on the option (less the
commissions paid on the transaction) while the potential loss equals the
differences between the exercise price of the option and the current market
price of the underlying securities when the put is exercised, offset by the
premium received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 10% of its total assets. The Fund may
purchase call options only in order to close out a covered call position (see
"Covered Call Writing" above). The call purchased is likely to be on the same
securities and have the same terms as the written option.
The Fund may purchase put options on securities which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline in
the value of the security. If the value of the underlying security were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Fund would incur no additional loss. The Fund
may also purchase put options to close out written put positions in a manner
similar to call options closing purchase transactions. In addition, the Fund may
sell a put option which it has previously purchased prior to the sale of the
securities underlying such option. Such a sale would result in a net gain or
loss depending on whether the amount received on the sale is more or less than
the premium and other transaction costs paid on the put option which is sold.
Any such gain or loss could be offset in whole or in part by a change in the
market value of the underlying security. If a put option purchased by the Fund
expired without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security increase, but has retained the risk of loss should the price
of the underlying security decline. The secured put writer also retains the risk
of loss should the market value of the underlying security decline below the
exercise price of the option less the premium received on the sale of the
option. In both cases, the writer has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so. A secured put option writer who is unable to
effect a closing purchase transaction or to purchase an offsetting OTC option
would continue to bear the risk of decline in the market price of the underlying
security until the option
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expires or is exercised. In addition, a secured put writer would be unable to
utilize the amount held in cash or U.S. Government securities or other liquid
portfolio securities as security for the put option for other investment
purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, the Fund may
be able to purchase an offsetting option which does not close out its position
as a writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
INTEREST RATE FUTURES CONTRACTS. As a purchaser of an interest rate futures
contract ("futures contract"), the Fund incurs an obligation to take delivery of
a specified amount of the obligation underlying the futures contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell futures contracts for the purpose of hedging
its portfolio (or anticipated portfolio) securities against changes in
prevailing interest rates. If the Investment Manager anticipates that interest
rates may rise and, concomitantly, the price of U.S. Government securities fall,
the Fund may sell a futures contract. If declining interest rates are
anticipated, the Fund may purchase a futures contract to protect against a
potential increase in the price of U.S. Government securities the Fund intends
to purchase. Subsequently, appropriate U.S. Government securities may be
purchased by
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the Fund in an orderly fashion; as securities are purchased, corresponding
futures positions would be terminated by offsetting sales of contracts. In
addition, futures contracts will be bought or sold in order to close out a short
or long position in a corresponding futures contract.
Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. A futures contract sale is closed out
by effecting a futures contract purchase for the same aggregate amount of the
specific type of security and the same delivery date. If the sale price exceeds
the offsetting purchase price, the seller would be paid the difference and would
realize a gain. If the offsetting purchase price exceeds the sale price, the
seller would pay the difference and would realize a loss. Similarly, a futures
contract purchase is closed out by effecting a futures contract sale for the
same aggregate amount of the specific type of security and the same delivery
date. If the offsetting sale price exceeds the purchase price, the purchaser
would realize a gain, whereas if the purchase price exceeds the offsetting sale
price, the purchaser would realize a loss. There is no assurance that the Fund
will be able to enter into a closing transaction.
When the Fund enters into a futures contract it is initially required to
deposit with its Custodian, in a segregated account in the name of the broker
performing the transaction an "initial margin" of cash or U.S. Government
securities or other liquid portfolio securities equal to approximately 2% of the
contract amount. Initial margin requirements are established by the Exchanges on
which futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required by
the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits into the segregated account,
maintained at its Custodian for that purpose, of cash or U.S. Government
securities, called "variation margin," in the name of the broker, which are
reflective of price fluctuations in the futures contract. Currently, interest
rate futures contracts can be purchased on debt securities such as U.S. Treasury
bills and bonds, U.S. Treasury notes with maturities between 6 1/2 and 10 years,
GNMA Certificates and bank certificates of deposit.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an Exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid), and the writer the obligation, to assume a
position in a futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the term of the option. Upon exercise of the option, the delivery of the
futures position by the writer of the option to the holder of the option is
accompanied by delivery of the accumulated balance in the writer's futures
margin account, which represents the amount by which the market price of the
futures contract at the time of exercise exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option on the futures
contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Investment
Manager wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its U.S. Government
securities portfolio, it might write a call option on an interest rate futures
contract, the underlying security of which correlates with the portion of the
portfolio the Investment Manager seeks to hedge. Any premiums received in the
writing of options on futures contracts may, of course, augment the total return
of the Fund and thereby provide a further hedge against losses resulting from
price declines in portions of the Fund's portfolio.
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The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. In addition, in accordance with the
regulations of the Commodity Futures Trading Commission ("CFTC") under which the
Fund is exempted from registration as a commodity pool operator, the Fund may
only enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. As stated
in the Prospectus, the Fund may sell a futures contract to protect against the
decline in the value of U.S. Government securities held by the Fund. However, it
is possible that the futures market may advance and the value of securities held
in the Fund's portfolio may decline. If this were to occur, the Fund would lose
money on the futures contracts and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief period or
to a very small degree, over time the market prices of the securities of a
diversified portfolio will tend to move in the same direction as the prices of
futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of U.S. Government securities it intends to buy, and the value of such
securities decreases, then the Fund may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
In order to assure that the Fund is entering into transactions in futures
contracts for hedging purposes as such is defined by the Commodities Futures
Trading Commission either: (1) a substantial majority (i.e., approximately 75%)
of all anticipatory hedge transactions (transactions in which the Fund does not
own at the time of the transaction, but expects to acquire, the securities
underlying the relevant futures contract) involving the purchase of futures
contracts will be completed by the purchase of securities which are the subject
of the hedge, or (2) the underlying value of all long positions in futures
contracts will not exceed the total value of (a) all short-term debt obligations
held by the Fund; (b) cash held by the Fund; (c) cash proceeds due to the Fund
on investments within thirty days; (d) the margin deposited on the contracts;
and (e) any unrealized appreciation in the value of the contracts.
If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other high grade debt obligations equal in value (when added to any initial
or variation margin on deposit) to the market value of the securities underlying
the futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities underlying the futures contract, or by
holding a call option permitting the Fund to purchase the same contract at a
price no higher than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or
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<PAGE>
variation margin on deposit) in a segregated account maintained for the Fund by
its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with broker
or financial institutions deemed creditworthy by the Investment Manager.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities is that the prices of securities
subject to futures contracts (and thereby the futures contract prices) may
correlate imperfectly with the behavior of the cash prices of the Fund's
portfolio securities. Another such risk is that prices of interest rate futures
contracts may not move in tandem with the changes in prevailing interest rates
against which the Fund seeks a hedge. A correlation may also be distorted by the
fact that the futures market is dominated by short-term traders seeking to
profit from the difference between a contract or security price objective and
their cost of borrowed funds. Such distortions are generally minor and would
diminish as the contract approached maturity. There may exist an imperfect
correlation between the price movements of futures contracts purchased by the
Fund and the movements in the prices of the securities which are the subject of
the hedge. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationships between the debt
securities and futures market could result. Price distortions could also result
if investors in futures contracts opt to make or take delivery of underlying
securities rather than engage in closing transactions due to the resultant
reduction in the liquidity of the futures market. In addition, due to the fact
that, from the point of view of speculators, the deposit requirements in the
futures markets are less onerous than margin requirements in the cash market,
increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of U.S. Government securities and movements in the prices of futures
contracts, a correct forecast of interest rate trends by the Investment Manager
may still not result in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which the Fund may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent the Fund from closing out a contract which may
result in reduced gain or increased loss to the Fund. The absence of a liquid
market in futures contracts might cause the Fund to make or take delivery of the
underlying securities at a time when it may be disadvantageous to do so.
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<PAGE>
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contracts or underlying U.S. Government securities.
The Investment Manager has substantial experience in the use of the
investment techniques described above under the heading "Options and Futures
Transactions," which techniques require skills different from those needed to
select the portfolio securities underlying various options and futures
contracts.
PORTFOLIO TURNOVER
The Fund 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. As a result, the Fund's portfolio turnover rate may exceed 100%
(although it is not anticipated to do so). A 100% turnover rate would occur, for
example, if 100% of the securities held in the Fund's portfolio (excluding all
securities whose maturities at acquisition were one year or less) were sold and
replaced within one year.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
The Fund may not:
1. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee/director of the Fund or of the Investment Manager
owns more than 1/2 of 1% of the outstanding securities of such issuer, and
such officers and trustees/directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuer.
2. Purchase or sell real estate or interests therein, although the Fund
may purchase securities of issuers which engage in real estate operations
and securities secured by real estate or interests therein.
3. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
4. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
5. Issue senior securities as defined in the Act, except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any reverse repurchase agreement; (b) borrowing money; or (c)
purchasing any securities on a when-issued, delayed delivery or forward
commitment basis.
6. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objectives and policies; (b) by investment in
repurchase or reverse purchase agreements; or (c) by lending its portfolio
securities.
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<PAGE>
7. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
8. Invest for the purpose of exercising control or management of any
other issuer.
9. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
10. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue as, and equal
in amount to, the securities sold short, and unless not more than 10% of the
Fund's net assets (taken at market value) is held as collateral for such
sales at any one time (it is the present intention of management to make
such sales only for the purpose of deferring realization of gain or loss for
Federal income tax purposes; such sales would not be made of securities
subject to outstanding options).
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of the foregoing restrictions.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Trustees of the Fund, the
Investment Manager is responsible for the investment decisions and the placing
of the orders for portfolio transactions for the Fund. The Fund's portfolio
transactions will occur primarily with issuers, underwriters or major dealers in
U.S. Government securities acting as principals. Such transactions are normally
on a net basis and do not involve payment of brokerage commissions. The cost of
securities purchased from an underwriter usually includes a commission paid by
the issuer to the underwriters; transactions with dealers normally reflect the
spread between bid and asked prices. Options and futures transactions will
usually be effected through a broker and a commission will be charged. During
the fiscal years ended October 31, 1995, 1996 and 1997, the Fund paid a total of
$111,547, $109,449 and $80,486, respectively, in brokerage commissions.
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase or sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors are considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain initial
and secondary public offerings, the Investment Manager may utilize a pro rata
allocation process based on the size of the Dean Witter Funds involved and the
number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities and
futures contracts for its portfolio is that primary consideration will be given
to obtaining the most favorable prices and efficient execution of transactions.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes such price and execution are
obtainable from more than one broker or dealer, it may give consideration
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<PAGE>
to placing portfolio transactions with those brokers and dealers who also
furnish research and other services to the Fund or the Investment Manager. Such
services may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities. During the
fiscal year ended October 31, 1997, the Fund did not direct the payment of any
brokerage commissions because of research services provided.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the management fee paid to the Investment
Manager is not reduced by any amount that may be attributable to the value of
such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (I.E., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR, Morgan Stanley & Co. Incorporated and other affiliated
brokers and dealers. In order for an affiliated broker or dealer to effect
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by the affiliated broker or dealer must be reasonable and fair compared
to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time. This
standard would allow the affiliated broker or dealer to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the Trustees of the Fund,
including a majority of the Trustees who are not "interested" Trustees, have
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to an affiliated broker or dealer
are consistent with the foregoing standard. The Fund does not reduce the
management fee it pays to the Investment Manager by any amount of the brokerage
commissions it may pay to an affiliated broker or dealer. During the fiscal
years ended October 31, 1995, 1996 and 1997, the Fund paid a total of $9,495,
$8,477 and $9,506, respectively, in brokerage commissions to DWR. During the
fiscal year ended October 31, 1997, the brokerage commissions paid to DWR
represented approximately 11.81% of the total brokerage commissions paid by the
Fund during the year and were paid on account of transactions having an
aggregate dollar value equal to approximately 18.66% of the aggregate dollar
value of all portfolio transactions of the Fund during the year for which
commissions were paid. In addition, during the fiscal years ended October 31,
1995, 1996 and 1997, the Fund paid DWR $80,741, $69,669 and $56,029,
respectively, for clearing options and futures transactions.
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDWD. The Trustees of the
Fund, including a majority of the Trustees who are not, and were not at the time
they voted, interested persons of the Fund, as defined in the Act (the
"Independent Trustees"), approved, at their meeting held on June 30, 1997, the
current Distribution Agreement appointing the Distributor as exclusive
distributor of the Fund's shares and providing for the
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<PAGE>
Distributor to bear distribution expenses not borne by the Fund. The current
Distribution Agreement is substantively identical to the Fund's previous
distribution agreements. By its terms, the Distribution Agreement had an initial
term ending April 30, 1998, and will remain in effect from year to year
thereafter if approved by the Board.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto to prospective shareholders. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. The Fund bears the costs of registering the
Fund and its shares under federal and state securities laws and pays filing fees
in accordance with state securities laws. The Fund and the Distributor have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses its best efforts in rendering services to the
Fund, but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations, the Distributor is not liable to the Fund
or any of its shareholders for any error of judgement or mistake of law or for
any act of omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan") pursuant to which each Class, other than Class D, pays the
Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 0.85% of the average daily net assets of Class A and
Class C, respectively, and, with respect to Class B, 0.85% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's Class B 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
Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or upon which such charge has been
waived, or (b) the average daily net assets of Class B. The Distributor also
receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares" in
the Prospectus). The Distributor has informed the Fund that it and/or DWR
received (a) approximately $750,000, $641,000 and $601,000 in contingent
deferred sales charges from Class B for the fiscal years ended October 31, 1995,
1996 and 1997, respectively, and (b) approximately $22,000 in front-end sales
charges from Class A for the fiscal year ended October 31, 1997, none of which
was retained by the Distributor. No contingent deferred sales charges were
received from Class A or Class C for the fiscal year ended October 31, 1997.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.20% of the average daily net assets of Class B
and 0.25% of the average daily net assets of Class C are currently each
characterized as a "service fee" under the Rules of the Association of the
National Association of Securities Dealers, Inc. (of which the Distributor is a
member). The "service fee" is a payment made for personal service and/or the
maintenance of shareholder accounts. The remaining portion of the Plan fees
payable by a Class, if any, is characterized as an "asset-based sales charge" as
such is defined by the aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Trustees, including
all of the Trustees of the Fund who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan (the "Independent 12b-1 Trustees"), cast in person at a
meeting called for the purpose of voting on the Plan, on December 15, 1986 and
by the shareholders holding a majority, as defined in the Act, of the
outstanding voting securities of the Fund at a Special Meeting of Shareholders
of the Fund held on May 31, 1988.
27
<PAGE>
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all of the Independent 12b-1 Trustees, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon an internal reorganization the share distribution activities
theretofore performed for the Fund by DWR were assumed by the Distributor and
DWR's sales activities are now being performed pursuant to the terms of a
selected dealer agreement between the Distributor and DWR. The amendments
provide that payments under the Plan will be made to the Distributor rather than
to DWR as before the amendment, and that the Distributor in turn is authorized
to make payments to DWR, its affiliates or other selected broker-dealers (or
direct that the Fund pay such entities directly). The Distributor is also
authorized to retain part of such fee as compensation for its own
distribution-related expenses. At their meeting held on April 28, 1993, the
Trustees, including a majority of the Independent 12b-1 Trustees, approved
certain technical amendments to the Plan in connection with amendments adopted
by the National Association of Securities Dealers, Inc. to its Rules of the
Association. At their meeting held on October 26, 1995, the Trustees of the
Fund, including all of the Independent 12b-1 Trustees, approved an amendment to
the Plan to permit payments to be made under the Plan with respect to certain
distribution expenses incurred in connection with the distribution of shares,
including personal services to shareholders with respect to holdings of such
shares, of an investment company whose assets are acquired by the Fund in a
tax-free reorganization. At their meeting held on June 30, 1997, the Trustees,
including a majority of the Independent 12b-1 Trustees, approved amendments to
the Plan to reflect the multiple-class structure for the Fund, which took effect
on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended October
31, 1997, of $5,584,880. This amount is equal to 0.85% of the average daily net
assets of Class B for the fiscal year and was calculated pursuant to clause (b)
of the compensation formula under the Plan. For the fiscal period July 28
through October 31, 1997, Class A and Class C shares of the Fund accrued
payments under the Plan amounting to $1,083 and $650, respectively, which
amounts are equal to 0.25% and 0.85% of the average daily net assets of Class A
and Class C, respectively, for such period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set forth
in the Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 4.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.20% of the current value of
the respective accounts for which they are the account executives or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by employer-sponsored 401(k) and other
plans qualified under Section 401(a) of the Internal Revenue Code ("Qualified
Retirement Plans") for which Dean Witter Trust FSB ("DWT") serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, the Investment Manager compensates DWR's
account executives by paying them, from its own funds, a gross sales credit of
1.0% of the amount sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 4.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.20% of the current value (not including reinvested
dividends or distributions) of the amount sold in all cases. In the case of
Class B shares purchased on or after July 28, 1997 by Qualified Retirement Plans
for which DWT serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, DWR
compensates its account executives by paying them, from its own funds, a gross
sales credit of 3.0% of the amount sold.
28
<PAGE>
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 0.85% of the current value of
the respective accounts for which they are the account executives of record.
With respect to Class D shares other than shares held by participants in
InterCapital's mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of up
to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid if
the Class D shares are redeemed in the first year and a chargeback of 50% of the
amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's account executives by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the account executives of record (not including accounts of
participants in the InterCapital mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR to
its account executives and DWR's Fund-associated distribution-related expenses,
including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (d) other
expenses relating to branch promotion of Fund sales. The distribution fee that
the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred under the Plan on behalf of the Fund and, in the
case of Class B shares, opportunity costs, such as the gross sales credit and an
assumed interest charge thereon ("carrying charge"). In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received by
the Distributor upon redemption of shares of the Fund. No other interest charge
is included as a distribution expense in the Distributor's calculation of its
distribution costs for this purpose. The broker's call rate is the interest rate
charged to securities brokers on loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of Class
A, and 0.85%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C will
be reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to account executives, such amounts shall be
determined at the beginning of each calendar quarter by the Trustees, including
a majority of the Independent 12b-1 Trustees. Expenses representing the service
fee (for Class A) or a gross sales credit or a residual to account executives
(for Class C) may be reimbursed without prior determination. In the event that
the Distributor proposes that monies shall be reimbursed for other than such
expenses, then in making quarterly determinations of the amounts that may be
reimbursed by the Fund, the Distributor will provide and the Trustees will
review a quarterly budget of projected distribution expenses to be incurred on
behalf of the Fund, together with a report explaining the purposes and
anticipated benefits of incurring such expenses. The Trustees will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A and
Class C shares.
29
<PAGE>
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended October 31, 1997 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$179,725,035 on behalf of Class B since the inception of the Plan. It is
estimated that this amount was spent in approximately the following ways: (i)
2.61% ($4,683,516)--advertising and promotional expenses; (ii) 0.23%
($420,112)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 97.16% ($174,621,407)--other expenses, including the
gross sales credit and the carrying charge, of which 17.45% ($30,469,192)
represents carrying charges, 33.30% ($58,151,004) represents commission credits
to DWR branch offices for payments of commissions to account executives and
49.25% ($86,001,211) represents overhead and other branch office distribution-
related expenses. The amounts accrued by Class A and Class C for distribution
during the fiscal period July 28 through October 31, 1997 were for expenses
which relate to compensation of sales personnel and associated overhead
expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than 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.
The Distributor has advised the Fund that in the case of Class B shares the
excess distribution expenses, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares, totalled $24,491,266 as of
October 31, 1997. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses with respect to Class B
shares 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.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct financial
interest in the operation of the Plan except to the extent that the Distributor,
InterCapital, DWR, DWSC or certain of their employees may be deemed to have such
an interest as a result of benefits derived from the successful operation of the
Plan or as a result of receiving a portion of the amounts expended thereunder by
the Fund.
Under its terms, the Plan had an initial term ending April 30, 1987 and will
continue from year to year thereafter, provided such continuance is app roved
annually by a vote of the Trustees in the manner described above. Prior to the
Board's approval of amendments to the Plan to reflect the multiple-class
structure for the Fund, the most recent continuance of the Plan for one year,
until April 30, 1998, was approved by the Board of Trustees of the Fund,
including a majority of the Independent 12b-1 Trustees, at a Board meeting held
on April 24, 1997. Prior to approving the continuation of the Plan, the Trustees
requested and received from the Distributor and reviewed all the information
which they deemed necessary to arrive at an informed determination. In making
their determination to continue the Plan, the Trustees considered: (1) the
Fund's experience under the Plan and whether such experience indicates that the
Plan is operating as anticipated; (2) the benefits the Fund had obtained, was
obtaining and would be likely to obtain under the Plan; and (3) what services
had been provided and were continuing to be provided under the Plan to the Fund
and its shareholders. Based upon their review, the Trustees of the Fund,
including each of the Independent 12b-1 Trustees, determined that continuation
of the Plan would be in the best interest of the Fund and would have a
reasonable likelihood of continuing to benefit the Fund and its shareholders. In
the Trustees' quarterly review of the Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and
30
<PAGE>
all material amendments to the Plan must also be approved by the Trustees in the
manner described above. The Plan may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent 12b-1 Trustees or by a
vote of a majority of the outstanding voting securities of the Fund (as defined
in the Act) on not more than thirty days' written notice to any other party to
the Plan. So long as the Plan is in effect, the election and nomination of
Independent 12b-1 Trustees shall be committed to the discretion of the
Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
As stated in the Prospectus, short-term debt securities with remaining
maturities of sixty days or less at the time of purchase are valued at amortized
cost, unless the Trustees determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other short-term debt securities will be valued on a
mark-to-market basis until such time as they reach a remaining maturity of sixty
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Listed options are valued at the latest sale
price on the exchange on which they are listed unless no sales of such options
have taken place that day, in which case they will be valued at the mean between
their latest bid and asked prices. Unlisted options are valued at the mean
between their latest bid and asked prices. Futures are valued at the latest sale
price on the commodities exchange on which they trade unless the Trustees
determine such price does not reflect their market value, in which case they
will be valued at their fair value as determined by the Trustees. All other
securities and other assets are valued at their fair value as determined in good
faith under procedures established by and under the supervision of the Trustees.
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m., New York time (or, on days when the New York
Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each day
that the New York Stock Exchange is open. The New York Stock Exchange currently
observes the following holidays: New Year's Day, Reverend Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Dean Witter Funds that are multiple class funds
("Dean Witter Multi-Class Funds") or shares of other Dean Witter Funds sold with
a front-end sales charge purchased at a price including a front-end sales charge
having a current value of $5,000, and purchases $20,000 of additional shares of
the Fund, the sales charge applicable to the $20,000 purchase would be 4.0% of
the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when
31
<PAGE>
such an order is placed by mail. The reduced sales charge will not be granted
if: (a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Distributor or Dean Witter Trust FSB (the "Transfer
Agent") fails to confirm the investor's represented holdings.
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Dean Witter Funds
held by the shareholder which were previously purchased at a price including a
front-end sales charge (including shares of the Fund and other Dean Witter Funds
acquired in exchange for those shares, and including in each case shares
acquired through reinvestment of dividends and distributions) will be added to
the cost or net asset value of shares of the Fund owned by the investor.
However, shares of "Exchange Funds" (see "Shareholder Services--Exchange
Privilege") and the purchase of shares of other Dean Witter Funds will not be
included in determining whether the stated goal of a Letter of Intent has been
reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to a
CDSC payable upon most redemptions within six years after purchase. As stated in
the Prospectus, a CDSC will be imposed on any redemption by an investor if after
such redemption the current value of the investor's Class B shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain employer-sponsored benefit plans, three years). However,
no CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current net
asset value of shares purchased through reinvestment of dividends
32
<PAGE>
or distributions of the Fund or another Dean Witter Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) the current net asset value of shares
acquired in exchange for (i) shares of Dean Witter front-end sales charge funds,
or (ii) shares of other Dean Witter Funds for which shares of front-end sales
charge funds have been exchanged (see "Shareholder Services--Exchange
Privilege"), plus (d) increases in the net asset value of the investor's shares
above the total amount of payments for the purchase of Fund shares made during
the preceding six (three) years. The CDSC will be paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain employer-sponsored
benefit plans, three years) will be redeemed first. In the event the redemption
amount exceeds such increase in value, the next portion of the amount redeemed
will be the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Dean Witter front-end sales charge funds, or
for shares of other Dean Witter funds for which shares of front-end sales charge
funds have been exchanged. A portion of the amount redeemed which exceeds an
amount which represents both such increase in value and the value of shares
purchased more than six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) prior to the redemption and/or
shares purchased through reinvestment of dividends or distributions and/or
shares acquired in the above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable to
most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC 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>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified Retirement
Plans for which DWT serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ------------------------------------------------------------------------------------------ --------------------------
<S> <C>
First..................................................................................... 2.0%
Second.................................................................................... 2.0%
Third..................................................................................... 1.0%
Fourth and thereafter..................................................................... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
33
<PAGE>
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the Transfer
Agent. This is an open account in which shares owned by the investor are
credited by the Transfer Agent in lieu of issuance of a share certificate. If a
share certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares and may be redeposited
in the account at any time. There is no charge to the investor for issuance of a
certificate. Whenever a shareholder-instituted transaction takes place in the
Shareholder Investment Account, the shareholder will be mailed a confirmation of
the transaction from the Fund or from DWR or other selected broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid, at the net asset value per share, in
shares of the applicable Class of the Fund (or in cash if the shareholder so
requests) as of the close of business on the monthly payment date, as stated in
the Prospectus. At any time an investor may request the Transfer Agent, in
writing, to have subsequent dividends and/or capital gains distributions paid to
him or her in cash rather than shares. To assure sufficient time to process the
change, such request should be received by the Transfer Agent at least five
business days prior to the payment date of the dividend or the record date of
the distribution. In the case of recently purchased shares for which
registration instructions have not been received on the payment or record date,
cash payments will be made to DWR or other selected broker-dealer, and will be
forwarded to the shareholder, upon the receipt of proper instructions. It has
been and remains the Fund's policy and practice that, if checks for dividends or
distributions paid in cash remain uncashed, no interest will accrue on amounts
represented by such uncashed checks.
TARGETED DIVIDENDS.-SM- In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Dean Witter Fund
other than Dean Witter Federal Securities Trust or in another Class of Dean
Witter Federal Securities Trust. Such investment will be made as described above
for automatic investment in shares of the applicable Class of the Fund, at the
net asset value per share of the selected Dean Witter Fund as of the close of
business on the payment date of the dividend or distribution and will begin to
earn dividends, if any, in the selected Dean Witter Fund the next business day.
To participate in the Targeted Dividends program, shareholders should contact
their DWR or other selected broker-dealer account executive or the Transfer
Agent. Shareholders of the Fund must be shareholders of the selected Class of
the Dean Witter Fund targeted to receive investments from dividends at the time
they enter the Targeted Dividends program. Investors should review the
prospectus of the targeted Dean Witter Fund before entering the program.
34
<PAGE>
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 or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected (subject to any applicable sales charges). Shares
of the Dean Witter money market funds redeemed in connection with EasyInvest are
redeemed on the business day preceding the transfer of funds. For further
information or to subscribe to EasyInvest, shareholders should contact their DWR
or other selected broker-dealer account executive or the Transfer Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares of
the applicable Class at net asset value, without the imposition of a CDSC upon
redemption, by returning the check or the proceeds to the Transfer Agent within
thirty days after the payment date. If the shareholder returns the proceeds of a
dividend or distribution, such funds must be accompanied by a signed statement
indicating that the proceeds constitute a dividend or distribution to be
invested. Such investment will be made at the net asset value per share next
determined after receipt of the proceeds by the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, 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 CDSC will be imposed on shares redeemed under
the Withdrawal Plan (see "Purchase of Fund Shares"). 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 CDSC) to the
shareholder will be the designated monthly or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent, or amounts credited to a shareholder's DWR or other
selected broker-dealer account, within five business days after the date of
redemption. The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the sales charges which may be applicable
to purchases or redemptions of shares (see "Purchase of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her account executive or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer
35
<PAGE>
Agent, with signature guarantees required in the manner described above. The
shareholder may also terminate the Withdrawal Plan at any time by written notice
to the Transfer Agent. In the event of such termination, the account will be
continued as a regular shareholder investment account. The shareholder may also
redeem all or part of the shares held in the Withdrawal Plan account (see
"Redemptions and Repurchases" in the Prospectus) at any time.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to Dean Witter Federal Securities Trust, and indicating the
selected Class, directly to the Fund's Transfer Agent. In the case of Class A
shares, after deduction of any applicable sales charge, the balance will be
applied to the purchase of Fund shares, and, in the case of shares of the other
Classes, the entire amount will be applied to the purchase of Fund shares, at
the net asset value per share next computed after receipt of the check or
purchase payment by the Transfer Agent. The shares so purchased will be credited
to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of the same Class of shares of any other
Dean Witter Multi-Class Fund without the imposition of any exchange fee. Shares
may also be exchanged for shares of any of the following funds: Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust
and five Dean Witter Funds which are money market funds (the foregoing nine
funds are hereinafter referred to as the "Exchange Funds"). Class A shares may
also be exchanged for shares of Dean Witter Multi-State Municipal Series Trust
and Dean Witter Hawaii Municipal Trust, which are Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Class B shares may also be exchanged for
shares of Dean Witter Global Short-Term Income Fund Inc. ("Global Short-Term"),
which is a Dean Witter Fund offered with a CDSC. 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
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.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Dean Witter
Multi-Class Fund or Global Short-Term are exchanged for shares of an Exchange
Fund, the exchange is executed at no charge to the shareholder, without the
imposition of the CDSC at the time of the exchange. 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
or "year since purchase payment made" is frozen. When shares are redeemed out of
the Exchange Fund, they will be subject to a CDSC which would be based upon the
period of time the shareholder held shares in a Dean Witter Multi-Class Fund or
in Global Short-Term. 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. Shareholders
acquiring shares of an Exchange Fund pursuant to this exchange privilege may
36
<PAGE>
exchange those shares back into a Dean Witter Multi-Class Fund or Global
Short-Term from the Exchange Fund, with no CDSC being imposed on such exchange.
The holding period previously frozen when shares were first exchanged for shares
of the Exchange Fund resumes on the last day of the month in which shares of a
Dean Witter Multi-Class Fund or of Global Short-Term are reacquired. A CDSC is
imposed only upon an ultimate redemption, based upon the time (calculated as
described above) the shareholder was invested in a Dean Witter Multi-Class Fund
or in Global Short-Term. In the case of exchanges of Class A shares which are
subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in
Global Short-Term are exchanged for shares of a Dean Witter Multi-Class Fund,
shares of Global Short-Term, shares of a FSC Fund, or shares of an Exchange
Fund, the date of purchase of the shares of the fund exchanged into, for
purposes of the CDSC upon redemption, will be the last day of the month in which
the shares being exchanged were originally purchased. In allocating the purchase
payments between funds for purposes of the CDSC, the amount which represents the
current net asset value of shares at the time of the exchange which were (i)
purchased more than one, three or six years (depending on the CDSC schedule
applicable to the shares) prior to the exchange, (ii) originally acquired
through reinvestment of dividends or distributions and (iii) acquired in
exchange for shares of FSC Funds, or for shares of other Dean Witter Funds for
which shares of FSC Funds have been exchanged (all such shares called "Free
Shares"), will be exchanged first. After an exchange, all dividends earned on
shares in an Exchange Fund will be considered Free Shares. If the exchanged
amount exceeds the value of such Free Shares, an exchange is made, on a
block-by-block basis, of non-Free Shares held for the longest period of time
(except that, with respect to Class B shares, if shares held for identical
periods of time but subject to different CDSC schedules are held in the same
Exchange Privilege account, the shares of that block that are subject to a lower
CDSC rate will be exchanged prior to the shares of that block that are subject
to a higher CDSC rate). Shares equal to any appreciation in the value of
non-Free Shares exchanged will be treated as Free Shares, and the amount of the
purchase payments for the non-Free Shares of the fund exchanged into will be
equal to the lesser of (a) the purchase payments for, or (b) the current net
asset value of, the exchanged non-Free Shares. If an exchange between funds
would result in exchange of only part of a particular block of non-Free Shares,
then shares equal to any appreciation in the value of the block (up to the
amount of the exchange) will be treated as Free Shares and exchanged first, and
the purchase payment for that block will be allocated on a pro rata basis
between the non-Free Shares of that block to be retained and the non-Free Shares
to be exchanged. The prorated amount of such purchase payment attributable to
the retained non-Free Shares will remain as the purchase payment for such
shares, and the amount of purchase payment for the exchanged non-Free Shares
will be equal to the lesser of (a) the prorated amount of the purchase payment
for, or (b) the current net asset value of, those exchanged non-Free Shares.
Based upon the procedures described in the Prospectus under the caption
"Purchase of Fund Shares," any applicable CDSC will be imposed upon the ultimate
redemption of shares of any fund, regardless of the number of exchanges since
those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
37
<PAGE>
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid Asset
Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter California
Tax-Free Daily Income Trust and Dean Witter New York Municipal Money Market
Trust, although those funds may, in their discretion, accept initial investments
of as low as $1,000. The minimum initial investment for the Exchange Privilege
account of each Class is $10,000 for Dean Witter Short-Term U.S. Treasury Trust,
although that fund, in its discretion, may accept initial purchases of as low as
$5,000. The minimum initial investment for the Exchange Privilege account of
each Class is $5,000 for Dean Witter Special Value Fund. The minimum initial
investment for the Exchange Privilege account of each Class of all other Dean
Witter Funds for which the Exchange Privilege is available is $1,000.) Upon
exchange into an Exchange Fund, the shares of that fund will be held in a
special Exchange Privilege Account separately from accounts of those
shareholders who have acquired their shares directly from that fund. As a
result, certain services normally available to shareholders of those funds,
including the check writing feature, will not be available for funds held in
that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of
Exchange Funds pursuant to the Exchange Privilege, and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective, policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's 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. The share certificate, or an accompanying
stock power, and the request for redemption, must be signed by the shareholder
or shareholders exactly as the shares are registered. Each request for
redemption, whether or not accompanied by a share certificate, must be sent to
the Fund's Transfer Agent, which will redeem the shares at their net asset value
next computed (see "Purchase of Fund Shares" in the Prospectus) after it
receives the request, and certificate, if any, in good order. Any redemption
request received after such computation will be redeemed at the next determined
net asset value. The term "good order" means that the share certificate, if any,
and request for redemption are properly signed, accompanied by any documentation
required by the Transfer Agent, and bear signature guarantees when required by
the Fund or the Transfer Agent. If redemption is requested by a corporation,
partnership, trust or fiduciary, the Transfer Agent may require that written
evidence of authority acceptable to the Transfer Agent be submitted before such
request is accepted.
38
<PAGE>
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a new
prospectus.
REPURCHASE. As stated in the Prospectus, 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 after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares of any Class 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 at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a certified or bank cashier's
check), payment of 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).
It has been and remains the Fund's policy and practice that, if checks for
redemption proceeds remain uncashed, no interest will accrue on amounts
represented by such uncashed checks. 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 accounts.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the date of
redemption or repurchase, reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund in the same Class at the net
asset value next determined after the reinstatement request, together with such
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon redemption or repurchase, except
that if the redemption or repurchase resulted in a loss and reinstatement is
made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
39
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and will notify shareholders that, following an election by the
Fund, the shareholders will be required to include the amount of such
undistributed gains in determining their taxable income and will be able to
claim their share of the tax paid by the Fund as a credit against their federal
income tax.
Because the Fund intends to distribute all of its net investment income and
capital gains to shareholders and otherwise 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.
Shareholders 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 or short-term capital gains, are taxable to
the shareholder as ordinary income regardless of whether the shareholder
receives such payments in additional shares or in cash. Any dividends declared
in the last quarter of any calendar year which are paid in the following year
prior to February 1 will be deemed received by the shareholder in the prior
year.
Gains or losses on the sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be short-term capital gains or losses. The Treasury
intends to issue regulations to permit shareholders to take into account their
proportionate share of the Fund's capital gains distributions that will be
subject to a reduced rate under the Taxpayer Relief Act of 1997. The Taxpayer
Relief Act reduced the maximum tax on long-term capital gains from 28% to 20%;
however, it also lengthened the required holding period to obtain this lower
rate from more than twelve months to more than eighteen months. These lower
rates do not apply to collectibles and certain other assets. Additionally, the
maximum capital gain rate for assets that are held more than five years and that
are acquired after December 31, 2000 is 18%.
Under current federal law, the Fund will receive net investment income in
the form of interest by virtue of holding Treasury bills, notes and bonds, and
will recognize income attributable to it from holding zero coupon Treasury
securities. Current federal tax law requires that a holder (such as the Fund) of
a zero coupon security accrue a portion of the discount at which the security
was purchased as income each year even though the Fund receives no interest
payment in cash on the security during the year. As an investment company, the
Fund must pay out substantially all of its net investment income each year.
Accordingly, the Fund, to the extent it invests in zero coupon Treasury
securities, may be required to pay out as an income distribution each year an
amount which is greater than the total amount of cash receipts of interest the
Fund actually received. Such distributions will be made from the available cash
of the Fund or by liquidation of portfolio securities if necessary. If a
distribution or cash necessitates the liquidation of portfolio securities, the
Investment Manager will select which securities to sell. The Fund may realize a
gain or loss from such sales. In the event the Fund realizes net capital gains
from such transactions, its shareholders may receive a larger capital gain
distribution, if any, than they would in the absence of such transactions.
In computing net investment income, the Fund will not amortize premiums or
accrue discounts on fixed-income securities in the portfolio, except those
original issue discounts for which amortization is required for federal income
tax purposes. Additionally, with respect to market discounts on bonds, a portion
of any capital gain realized upon disposition will be characterized as taxable
ordinary income in accordance with the provisions of the Internal Revenue Code.
Realized gains and losses on security transactions are determined on the
identified cost method.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
40
<PAGE>
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable at either ordinary or capital gain rates.
Therefore, an investor should consider the tax implications of purchasing Fund
shares immediately prior to a dividend or distribution record date.
OPTIONS AND FUTURES. Exchange-traded futures contracts, listed options on
futures contracts and listed options on U.S. Government securities are
classified as "Section 1256" contracts under the Code. The character of gain or
loss resulting from the sale, disposition, closing out, expiration or other
termination of Section 1256 contracts is generally treated as long-term capital
gain or loss to the extent of 60 percent thereof and short-term capital gain or
loss to the extent of 40 percent thereof. Section 1256 contracts are also
required to be marked-to-market at the end of the Fund's fiscal year, for
purpose of Federal income tax calculations. These rules may be different if
these transactions represent straddles for tax purposes.
Over-the-counter options are not classified as Section 1256 contracts and
are not subject to the mark-to-market or 60 percent-40 percent taxation rules.
When call options written, or put options purchased, by the Fund are exercised,
the gain or loss realized on the sales of the underlying securities may be
either short-term or long-term, depending upon the holding period of the
securities. In determining the amount of gain or loss, the sales proceeds are
reduced by the premium paid for over-the-counter puts or increased by the
premium received for over-the-counter calls.
If the Fund holds a U.S. Government security which is offset by a Section
1256 contract, the Fund would be deemed to hold a "mixed straddle" position, as
such is defined in the Code. The Fund may elect to identify its mixed straddle
positions and thereby avoid the application of certain rules which could, in
certain circumstances, cause deferral or disallowance of losses, change
long-term capital gains into short-term gains, or change short-term capital
losses into long-term capital losses.
The recognition of unrealized gain or loss on Section 1256 contracts will be
taken into account in determining the amount of income available for the Fund's
quarterly distributions, and can result in an amount which is greater or less
than the Fund's net realized gains being available for distribution. If an
amount which is less than the Fund's net realized gains is available for
distribution, the Fund may elect to distribute more than such available amount,
up to the full amount of such net realized gains. Such a distribution may, in
part, constitute a return of capital to the shareholders.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. These
figures are computed separately for Class A, Class B, Class C and Class D
shares. Yield is calculated for any 30-day period as follows: the amount of
interest income for each security in the Fund's portfolio is determined in
accordance with regulatory requirements; the total for the entire portfolio
constitutes the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income" of each Class. The
resulting amount is divided by the product of the maximum offering price per
share on the last day of the period multiplied by the average number of shares
of the applicable Class outstanding during the period that were entitled to
dividends. This amount is added to 1 and raised to the sixth power. 1 is then
subtracted from the result and the difference is multiplied by 2 to arrive at
the annualized yield. The yields for the 30-day period ended October 31, 1997,
calculated pursuant to the formula described above, were 6.04%, 5.71%, 5.65% and
6.58% for Class A, Class B, Class C and Class D, respectively.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending
41
<PAGE>
redeemable value of a hypothetical $1,000 investment made at the beginning of a
one, five or ten year period, or for the period from the date of commencement of
the Fund's operations, if shorter than any of the foregoing. The ending
redeemable value is reduced by any CDSC at the end of the one, five or ten year
or other period. For the purpose of this calculation, it is assumed that all
dividends and distributions are reinvested. The formula for computing the
average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a root
of the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result. The average annual total returns of
Class B for the one, five and ten year periods ended October 31, 1997 were
2.89%, 5.93% and 7.97%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D for specified periods by
determining the aggregate percentage rate which will result in the ending value
of a hypothetical $1,000 investment made at the beginning of the period. For the
purpose of this calculation, it is assumed that all dividends and distributions
are reinvested. The formula for computing aggregate total return involves a
percentage obtained by dividing the ending value by the initial $1,000
investment and subtracting 1 from the result. The ending redeemable value is
reduced by any CDSC at the end of the period. Based on the foregoing
calculations, the total returns for the period July 28, 1997 through October 31,
1997 were -0.63%, 2.54% and 2.62% for Class A, Class C and Class D,
respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for Class A
or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the performance quoted. For example, the average annual
total return of the Fund may be calculated in the manner described above, but
without deduction for any applicable contingent deferred sales charge. Based on
this calculation, the average annual total returns of Class B for the one, five
and ten year periods ended October 31, 1997, were 7.89%, 6.24% and 7.97%,
respectively.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without the reduction for any sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the total returns for Class B for the fiscal year ended October 31,
1997, for the five-year period ended October 31, 1997 and for the ten-year
period ended October 31, 1997 were 7.89%, 35.33% and 115.28%, respectively.
Based on the foregoing calculations, the total returns for Class A, Class C and
Class D for the period July 28 through October 31, 1997 were 3.78%, 3.54% and
2.62%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,575, $48,250 and $97,250 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in each Class at
inception of the Class would have grown to the following amounts at October 31,
1997:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION -----------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- -------------------------------------------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Class A..................................... 7/28/97 $ 9,937 $ 50,074 $ 100,926
Class B..................................... 3/31/87 $ 21,212 $ 106,060 $ 212,120
Class C..................................... 7/28/97 $ 10,354 $ 51,770 $ 103,540
Class D .................................... 7/28/97 $ 10,262 $ 51,310 $ 102,620
</TABLE>
42
<PAGE>
The Fund from time to time may advertise its performance relative to certain
performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES OF THE FUND
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. All of the Trustees have been elected by the shareholders of the Fund,
most recently at a Special Meeting of Shareholders held on May 21, 1997. The
Trustees themselves have the power to alter the number and the terms of office
of the Trustees, and they may at any time lengthen or shorten their own terms or
make their terms of unlimited duration and appoint their own successors,
provided that always at least a majority of the Trustees has been elected by the
shareholders of the Fund. Under certain circumstances, the Trustees may be
removed by action of the Trustees. The shareholders also have the right, under
certain circumstances, to remove the Trustees. The voting rights of shareholders
are not cumulative, so that holders of more than 50 percent of the shares voting
can, if they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. The Trustees have not presently authorized any such
additional series or classes of shares other than as set forth in the
Prospectus.
The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his/her or
its own bad faith, willful misfeasance, gross negligence, or reckless disregard
of his duties. It also provides that all third persons shall look solely to the
Fund property for satisfaction of claims arising in connection with the affairs
of the Fund. With the exceptions stated, the Declaration of Trust provides that
a Trustee, officer, employee or agent is entitled to be indemnified against all
liability in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders or
the Trustees.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust FSB, Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust FSB is an affiliate of Dean Witter InterCapital Inc., the Fund's
Investment Manager, and of Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
FSB's responsibilities include maintaining shareholder accounts, disbursing cash
dividends and reinvesting dividends, processing account registration changes,
handling purchase and redemption transactions, mailing prospectuses and reports,
mailing and tabulating proxies, processing share certificate transactions, and
maintaining shareholder records and lists. For these services Dean Witter Trust
FSB receives a per shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
43
<PAGE>
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report, containing
financial statements audited by independent accountants, will be sent to
shareholders each year.
The Fund's fiscal year ends on October 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund for the fiscal year ended October 31,
1997 included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
44
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER FEDERAL SECURITIES TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter Federal Securities
Trust (the "Fund") at October 31, 1997, the results of its operations 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 periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund'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 October
31, 1997 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
DECEMBER 5, 1997
45
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (73.0%)
U.S. Government Agencies (2.7%)
$ 12,000 Federal Home Loan Bank 07/02/12........................................................ 0.00% $ 3,919,920
20,000 Resolution Funding Strip 04/15/05...................................................... 0.00 12,883,200
------------
16,803,120
------------
U.S. Treasury Bonds (64.4%)
20,000 11/15/15............................................................................... 9.875 27,985,400
22,000 11/15/12............................................................................... 10.375 29,085,100
188,600 08/15/13*.............................................................................. 12.00 276,366,896
45,000 11/15/11............................................................................... 14.00 69,898,050
------------
403,335,446
------------
U.S. Treasury Notes (5.9%)
10,000 01/31/99............................................................................... 5.00 9,925,800
5,000 09/30/02............................................................................... 5.875 5,029,000
21,900 11/15/97............................................................................... 7.375 21,908,541
------------
36,863,341
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $424,983,329)................................................................. 457,001,907
------------
MORTGAGE-BACKED SECURITIES (24.7%)
Federal Home Loan Mortgage Corp. (5.7%)
21,869 10/01/10 - 02/01/20.................................................................... 9.50 23,338,798
9,332 09/01/15 - 10/01/19.................................................................... 10.00 10,096,236
2,018 01/01/16 - 10/01/18.................................................................... 10.50 2,213,312
------------
35,648,346
------------
Federal National Mortgage Assoc. (7.3%)
16,547 10/01/23 - 12/01/23.................................................................... 6.50 16,257,456
4,789 06/01/26 - 12/01/26.................................................................... 7.50 4,889,754
14,178 05/01/24 - 06/01/25.................................................................... 8.00 14,683,176
7,678 01/01/22 - 04/01/25.................................................................... 8.50 8,030,689
1,540 09/01/16 - 05/01/20.................................................................... 9.50 1,651,555
182 03/01/16 - 02/01/18.................................................................... 9.75 196,162
------------
45,708,792
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Government National Mortgage Assoc. (11.7%)
$ 30,957 12/15/22 - 05/15/24.................................................................... 7.00% $ 31,112,181
24,690 06/15/17 - 10/15/26.................................................................... 7.50 25,237,885
14,580 10/15/19 - 10/15/24.................................................................... 8.50 15,277,406
1,058 05/15/16 - 11/15/20.................................................................... 10.00 1,158,639
203 09/15/18............................................................................... 11.00 225,279
------------
73,011,390
------------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $149,630,756)................................................................. 154,368,528
------------
SHORT-TERM INVESTMENTS (0.6%)
U.S. GOVERNMENT OBLIGATION (a) (0.5%)
3,000 U.S. Treasury Bill 12/11/97 (AMORTIZED COST $2,984,500)................................ 4.65 2,984,500
------------
REPURCHASE AGREEMENT (0.1%)
669 The Bank of New York due 11/03/97 (dated 10/31/97; proceeds $669,318) (b) (IDENTIFIED
COST $669,012)....................................................................... 5.50 669,012
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $3,653,512)................................................................... 3,653,512
------------
TOTAL INVESTMENTS
(IDENTIFIED COST $578,267,597)................................................................. 615,023,947
------------
</TABLE>
<TABLE>
<C> <S> <C>
<CAPTION>
DESCRIPTION,
NUMBER OF EXPIRATION DATE,
CONTRACTS AND STRIKE PRICE
- --------- ---------------------------------------------------------------------------------------
<C> <S> <C>
WRITTEN OPTIONS (c) (0.1%)
200 Call options on Treasury bond futures December/1997/116 (PREMIUMS RECEIVED $95,642).... (543,750)**
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
DESCRIPTION,
NUMBER OF DELIVERY YEAR,
CONTRACTS AND MONTH VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL FUTURES (d) (0.0%)
SHORT POSITIONS
95 U. S. Treasury Bonds December/1997..................................................... $ (29,688)**
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $578,267,597) (E)........................................................ 98.3 % 615,023,947
TOTAL WRITTEN OPTIONS OUTSTANDING......................................................... (0.1) (543,750)
TOTAL FINANCIAL FUTURES OUTSTANDING....................................................... (0.0) (29,688)
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 1.8 11,439,705
------ -------------
NET ASSETS................................................................................ 100.0 % $ 625,890,214
------ -------------
------ -------------
</TABLE>
- ---------------------
* Some of these securities are segregated in connection with open written
options and open futures contracts.
** The market value of U.S. Treasury securities pledged to cover written
options on futures and open futures contracts is $95,248,400.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $669,662 Federal National Mortgage Assoc. 6.60% due
09/20/02 valued at $682,392.
(c) Options expire one month prior to the expiration date indicated for the
Treasury bond futures.
(d) Value represents variation margin on open futures contracts on October 31,
1997. The market value of these futures contracts is $11,254,531 and the
unrealized depreciation is $270,503.
(e) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $37,758,109 and the
aggregate gross unrealized depreciation is $1,001,759, resulting in net
unrealized appreciation of $36,756,350.
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $578,267,597).............................................................. $615,023,947
Receivable for:
Interest.................................................................................. 11,846,802
Principal paydowns........................................................................ 756,197
Shares of beneficial interest sold........................................................ 233,701
Prepaid expenses and other assets............................................................. 35,194
------------
TOTAL ASSETS............................................................................. 627,895,841
------------
LIABILITIES:
Written call options outstanding, at value (premiums received $95,642)........................ 543,750
Payable for:
Plan of distribution fee.................................................................. 447,598
Shares of beneficial interest repurchased................................................. 328,532
Investment management fee................................................................. 290,294
Dividends to shareholders................................................................. 212,452
Variation margin on futures contracts..................................................... 29,688
Accrued expenses and other payables........................................................... 153,313
------------
TOTAL LIABILITIES........................................................................ 2,005,627
------------
NET ASSETS............................................................................... $625,890,214
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $643,138,969
Net unrealized appreciation................................................................... 36,037,739
Accumulated net realized loss................................................................. (53,286,494)
------------
NET ASSETS............................................................................... $625,890,214
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $2,051,451
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 217,137
NET ASSET VALUE PER SHARE................................................................
$9.45
------------
------------
MAXIMUM OFFERING PRICE PER SHARE
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE).........................................
$9.87
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $623,048,694
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 66,543,208
NET ASSET VALUE PER SHARE................................................................
$9.36
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $720,681
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 76,358
NET ASSET VALUE PER SHARE................................................................
$9.44
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $69,388
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 7,437
NET ASSET VALUE PER SHARE................................................................
$9.33
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................................................................ $52,248,247
-----------
EXPENSES
Plan of distribution fee (Class A shares)...................................................... 1,083
Plan of distribution fee (Class B shares)...................................................... 5,584,880
Plan of distribution fee (Class C shares)...................................................... 650
Investment management fee...................................................................... 3,616,570
Transfer agent fees and expenses............................................................... 537,464
Custodian fees................................................................................. 84,195
Registration fees.............................................................................. 80,823
Professional fees.............................................................................. 79,621
Shareholder reports and notices................................................................ 62,854
Trustees' fees and expenses.................................................................... 16,335
Other.......................................................................................... 15,726
-----------
TOTAL EXPENSES............................................................................ 10,080,201
-----------
NET INVESTMENT INCOME..................................................................... 42,168,046
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................ 1,169,373
Futures contracts.......................................................................... (1,855,258)
Options written............................................................................ 1,376,161
-----------
NET GAIN.................................................................................. 690,276
-----------
NET CHANGE IN UNREALIZED APPRECIATION..................................................... 5,646,142
-----------
NET GAIN.................................................................................. 6,336,418
-----------
NET INCREASE................................................................................... $48,504,464
-----------
-----------
<FN>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997* OCTOBER 31, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................. $ 42,168,046 $ 48,692,397
Net realized gain...................................................... 690,276 5,776,103
Net change in unrealized appreciation.................................. 5,646,142 (27,386,862)
----------------- ----------------
NET INCREASE...................................................... 48,504,464 27,081,638
----------------- ----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME
Class A shares......................................................... (28,596) --
Class B shares......................................................... (42,134,728) (48,174,964)
Class C shares......................................................... (4,477) --
Class D shares......................................................... (245) --
----------------- ----------------
TOTAL DIVIDENDS................................................... (42,168,046) (48,174,964)
----------------- ----------------
Net decrease from transactions in shares of beneficial interest........ (100,380,918) (88,216,435)
----------------- ----------------
NET DECREASE...................................................... (94,044,500) (109,309,761)
----------------- ----------------
NET ASSETS:
Beginning of period.................................................... 719,934,714 829,244,475
----------------- ----------------
END OF PERIOD..................................................... $ 625,890,214 $ 719,934,714
----------------- ----------------
----------------- ----------------
<FN>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Federal Securities Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
earn a high level of current income. The Fund commenced operations on March 31,
1987. On July 28, 1997, the Fund commenced offering three additional classes of
shares, with the then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
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) all portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (2) listed options
are valued at the latest sale price on the exchange on which they are listed
unless no sales of such options have taken place that day, in which case they
are valued at the mean between their latest bid and asked price; (3) futures
contracts are valued at the latest sale price as of the close of the commodities
exchange on which they trade unless the Trustees determine that such price does
not reflect their market value, in which case they will be valued at fair value
as determined by the Trustees; (4) when market quotations are not readily
available, including circumstances under which it is determined by Dean Witter
InterCapital Inc. (the "Investment Manager") that the 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 Trustees (valuation of debt 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 (5) short-term debt
securities having a maturity date of more than sixty days at
52
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
the 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.
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.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. OPTIONS AND FUTURES -- (1) Written options on debt obligations: When the Fund
writes a call or put option, an amount equal to the premium received is included
in the Fund's Statement of Assets and Liabilities as a liability which is
subsequently marked-to-market to reflect the current market value. If a written
option either expires or the Fund enters into a closing purchase transaction,
the Fund realizes a gain or loss without regard to any unrealized gain or loss
on the underlying security and the liability related to such option is
extinguished. If a written call option is exercised, the Fund realizes a gain or
loss from the sale of the underlying security and the proceeds from such sale
are increased by the premium originally received. If a written put option is
exercised, the amount of the premium originally received reduces the cost of the
security which the Fund purchases upon exercise of the option; (2) Purchased
options on debt obligations: When the Fund purchases a call or put option, the
premium paid is recorded as an investment which is subsequently marked-to-market
to reflect the current market value. If a purchased option expires, the Fund
will realize a loss to the extent of the premium paid. If the Fund enters into a
closing sale transaction, a gain or loss is realized for the difference between
the proceeds from the sale and the cost of the option. If a put option is
exercised, the cost of the security sold upon exercise will be increased by the
premium originally paid. If a call option is exercised, the cost of the security
purchased upon exercise will be increased by the premium originally paid; (3)
Option on futures contracts: The Fund is required to deposit cash, U.S.
Government securities or other liquid portfolio securities as "initial margin"
and "variation margin" with respect to written call and put options on futures
contracts. If a written option expires, the Fund realizes a gain. If a written
call or put option is exercised, the premium received will decrease or increase
the unrealized loss or gain on the futures contract. If the Fund enters into a
closing purchase transaction, the Fund realizes a gain or loss without regard to
any
53
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
unrealized gain or loss on the underlying futures contract and the liability
related to such option is extinguished; (4) Futures contracts: A futures
contract is an agreement between two parties to buy and sell financial
instruments at a set price on a future date. Upon entering into such a contract,
the Fund is required to pledge to the broker cash, U.S. Government securities or
other liquid portfolio securities equal to the minimum initial margin
requirements of the applicable futures exchange. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in the value of the contract. Such receipts or payments known
as variation margin are recorded by the Fund as unrealized gains or losses. Upon
closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
E. FEDERAL INCOME TAX STATUS -- It is the Fund'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.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager the
Fund pays a management fee, accrued daily and payable monthly, by applying the
following annual rates to the Fund's net assets determined at the close of each
business day: 0.55% to the portion of daily net assets not exceeding $1 billion;
0.525% to the portion of daily net assets exceeding $1 billion but not exceeding
$1.5 billion; 0.50% to the portion of daily net assets exceeding $1.5 billion
but not exceeding $2 billion; 0.475% to the portion of daily net assets
exceeding $2 billion but not exceeding
54
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
$2.5 billion; 0.45% to the portion of daily net assets exceeding $2.5 billion
but not exceeding $5 billion; 0.425% to the portion of daily net assets
exceeding $5 billion but not exceeding $7.5 billion; 0.40% to the portion of
daily net assets exceeding $7.5 billion but not exceeding $10 billion; 0.375% to
the portion of daily net assets exceeding $10 billion but not exceeding $12.5
billion; and 0.35% to the portion of daily net assets exceeding $12.5 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund'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 Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 0.85% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -- up to 0.85% of the average daily net assets of
Class C. In the case of Class A shares, amounts paid under the Plan are paid to
the Distributor for services provided. In the case of Class B and Class C
shares, amounts paid under the Plan are paid to the Distributor for services
provided and the expenses borne by it and others in the distribution of the
shares of these Classes, including the payment of commissions for sales of these
Classes and incentive compensation to, and expenses of, the account executives
of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others who engage in or support distribution of the 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 these 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, in the case of Class B shares,
55
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
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 expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. 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.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $24,491,266 at October 31, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.85% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended October 31, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
0.85%, respectively.
The Distributor has informed the Fund that for the year ended October 31, 1997,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares of $601,408 and received approximately $22,000 in
front-end sales charges from sales of the Fund's Class A shares. The respective
shareholders pay such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/prepayments of portfolio securities, excluding short-term
investments, for the year ended October 31, 1997 were $77,405,959 and
$179,994,898, respectively.
Transactions in written options for the year ended October 31, 1997 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUMS
----------- --------------
<S> <C> <C>
Option contracts written, outstanding at beginning of the
period.......................................................... 397 $ 319,426
Options written.................................................. 11,100 5,993,853
Options closed................................................... (9,702) (5,268,882)
Options exercised................................................ (1,495) (918,122)
Options expired.................................................. (100) (30,633)
----------- --------------
Option contracts written, outstanding at end of the period....... 200 $ 95,642
----------- --------------
----------- --------------
</TABLE>
56
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
For the year ended October 31, 1997, the Fund incurred brokerage commissions
with DWR for transactions executed and for clearing options and futures
transactions, on behalf of the Fund in the amount of $9,506 and $56,029,
respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At October 31, 1997, the Fund had transfer agent
fees and expenses payable of approximately $6,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund 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 October 31, 1997 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$2,764. At October 31, 1997, the Fund had an accrued pension liability of
$48,664 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>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold............................................................. 227,350 $ 2,100,734 -- --
Reinvestment of dividends........................................ 2,813 26,335 -- --
Redeemed......................................................... (13,026) (121,600) -- --
----------- -------------- ----------- ------------
Net increase--Class A............................................ 217,137 2,005,469 -- --
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 5,820,412 53,293,625 7,874,713 $ 73,758,124
Reinvestment of dividends........................................ 2,488,705 22,774,438 2,866,940 26,598,740
Redeemed......................................................... (19,576,326) (179,236,735) (20,297,114) (188,573,299)
----------- -------------- ----------- ------------
Net decrease--Class B............................................ (11,267,209) (103,168,672) (9,555,461) (88,216,435)
----------- -------------- ----------- ------------
CLASS C SHARES*
Sold............................................................. 80,710 753,751 -- --
Reinvestment of dividends........................................ 270 2,532 -- --
Redeemed......................................................... (4,622) (42,939) -- --
----------- -------------- ----------- ------------
Net increase--Class C............................................ 76,358 713,344 -- --
----------- -------------- ----------- ------------
CLASS D SHARES*
Sold............................................................. 7,413 68,718 -- --
Reinvestment of dividends........................................ 24 223 -- --
----------- -------------- ----------- ------------
Net increase--Class D............................................ 7,437 68,941 -- --
----------- -------------- ----------- ------------
Net decrease in Fund............................................. (10,966,277) $ (100,380,918) (9,555,461) $(88,216,435)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
57
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<C> <S>
<FN>
- ---------------------
* For the period July 28, 1997 (issue date) through October 31, 1997.
</TABLE>
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1997, the Fund utilized approximately $644,000
of its net capital loss carryover. At October 31, 1997, the Fund had an
approximate net capital loss carryover of $42,534,000, which may be used to
offset future capital gains to the extent provided by regulations, which is
available through October 31 of the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
-----------------------------------------------------
1998 2000 2002 2004
----------- ----------- ----------- -----------
<S> <C> <C> <C>
$6,866 $ 3,854 $ 31,124 $690
----------- ----------- ----------- -----
----------- ----------- ----------- -----
</TABLE>
At October 31, 1997, the Fund was required for Federal income tax purposes to
defer approximately $10,411,000 of realized losses on certain closed options and
futures contracts.
At October 31, 1997, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on straddles and permanent book/tax
differences attributable to an expired capital loss carryover. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and accumulated net realized loss was credited $15,028,414.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
To hedge against adverse interest rate and market risks on portfolio positions
or anticipated positions in U.S. Government securities, or in the case of
written options, to close out long or short positions in futures contracts, the
Fund may enter into written options on interest rate futures and interest rate
futures contracts ("derivative instruments").
These derivative instruments involve elements of market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The Fund bears the
risk of an unfavorable change in the value of the underlying securities or
currencies.
At October 31, 1997, the Fund had outstanding written options on interest rate
futures and interest rate futures used to manage interest rate and market
exposure on portfolio positions or anticipated positions in U.S. Government
securities.
58
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31
------------------------------------------------------------------------------------
1997* 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $9.25 $9.49 $8.74 $10.03 $ 9.57 $9.46 $8.87 $9.27 $9.13 $9.27
----- ----- ----- ------ ------ ------ ------ ------ ------ ------
Net investment
income.......... 0.59 0.59 0.59 0.60 0.65 0.68 0.72 0.72 0.71 0.74
Net realized and
unrealized gain
(loss).......... 0.11 (0.25) 0.75 (1.28) 0.46 0.11 0.59 (0.40) 0.34 0.08
----- ----- ----- ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations...... 0.70 0.34 1.34 (0.68) 1.11 0.79 1.31 0.32 1.05 0.82
----- ----- ----- ------ ------ ------ ------ ------ ------ ------
Less dividends
and
distributions
from:
Net investment
income........ (0.59) (0.58) (0.59) (0.61) (0.65) (0.68) (0.72) (0.72) (0.71) (0.74)
Paid-in-capital... -- -- -- -- -- -- -- -- (0.20) (0.22)
----- ----- ----- ------ ------ ------ ------ ------ ------ ------
Total dividends
and
distributions... (0.59) (0.58) (0.59) (0.61) (0.65) (0.68) (0.72) (0.72) (0.91) (0.96)
----- ----- ----- ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period... $9.36 $9.25 $9.49 $ 8.74 $10.03 $9.57 $9.46 $8.87 $9.27 $9.13
----- ----- ----- ------ ------ ------ ------ ------ ------ ------
----- ----- ----- ------ ------ ------ ------ ------ ------ ------
TOTAL INVESTMENT
RETURN+.......... 7.89% 3.79% 15.89% (6.92)% 12.03% 8.56% 15.26% 3.64% 12.32% 9.21%
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.53% 1.53% 1.52% 1.52% 1.50% 1.48% 1.50% 1.54% 1.47% 1.50%
Net investment
income.......... 6.41% 6.31% 6.53% 6.56% 6.59% 7.18% 7.79% 7.92% 7.90% 8.04%
SUPPLEMENTAL
DATA:
Net assets, end
of period, in
millions........ $623 $720 $829 $841 $1,128 $1,171 $1,252 $1,397 $1,824 $2,122
Portfolio
turnover rate... 12% 10% 7% 18% 7% 6% -- (1) 5% 19% 44%
<FN>
- ---------------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Less than 0.5%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31, 1997
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.26
-----
Net investment income................................................. 0.16
Net realized and unrealized gain...................................... 0.19
-----
Total from investment operations...................................... 0.35
-----
Less dividends from net investment income............................. (0.16)
-----
Net asset value, end of period........................................ $ 9.45
-----
-----
TOTAL INVESTMENT RETURN+.............................................. 3.78%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.92%(2)
Net investment income................................................. 6.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $2,051
Portfolio turnover rate............................................... 12%
</TABLE>
<TABLE>
<S> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.26
-----
Net investment income................................................. 0.15
Net realized and unrealized gain...................................... 0.18
-----
Total from investment operations...................................... 0.33
-----
Less dividends from net investment income............................. (0.15)
-----
Net asset value, end of period........................................ $ 9.44
-----
-----
TOTAL INVESTMENT RETURN+.............................................. 3.54%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.52%(2)
Net investment income................................................. 5.86%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $721
Portfolio turnover rate............................................... 12%
<FN>
- ---------------------
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31, 1997
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.26
-----
Net investment income................................................. 0.17
Net realized and unrealized gain...................................... 0.07
-----
Total from investment operations...................................... 0.24
-----
Less dividends from net investment income............................. (0.17)
-----
Net asset value, end of period........................................ $ 9.33
-----
-----
TOTAL INVESTMENT RETURN+.............................................. 2.62%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.63%(2)
Net investment income................................................. 6.40%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $69
Portfolio turnover rate............................................... 12%
<FN>
- ---------------------
* The date shares were first issued.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS
BONDS
The four highest ratings of Moody's Investors Service, Inc. ("Moody's") for
corporate bonds are Aaa, Aa, A and Baa, all of which are considered investment
grade. Bonds rated Aaa are judged to be of the "best quality". The rating of Aa
is assigned to bonds which are of "high quality by all standards", but as to
which margins of protection or other elements make long-term risks appear
somewhat larger than Aaa rated bonds. The Aaa and Aa rated bonds comprise what
are generally known as "high grade bonds". Bonds which are rated A by Moody's
possess many favorable investment attributes and are considered "upper medium
grade obligations". Bonds rated Baa are considered "medium grade" obligations.
They are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Moody's applies numerical
modifiers, 1, 2, and 3, in each rating classification for Aa and below. The
modifier 1 indicates that the security ranks in the higher end of its category;
the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its category. The foregoing ratings are
sometimes presented in parentheses preceded with a "con" indicating that the
bonds are rated conditionally. Bonds, the security for which depends upon the
completion of some act or the fulfillment of some condition, are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects when facilities are completed, or (c)
payments to which some other limiting condition attaches. Such parenthetical
rating denotes the probable credit stature upon completion of construction or
elimination of the basis of the condition.
The four highest ratings of Standard & Poor's Corporation ("Standard &
Poor's") for bonds are AAA, AA, A and BBB, all of which are considered
investment grade. Bonds rated AAA bear the highest rating assigned by Standard &
Poor's to a debt obligation, and the rating indicates an extremely strong
capacity to pay interest and repay principal. Bonds rated AA also qualify as
high-quality debt obligations. Capacity to pay interest and repay principal is
very strong, and in the majority of instances they differ from AAA issues only
in small degree. Bonds rated A have strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions. The BBB rating, which is the
lowest "investment grade" security rating by Standard & Poor's, indicates an
adequate capacity to repay principal and pay interest. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay principal
and interest for bonds in this category than for bonds in the A category. The
ratings of AA and below may be modified by the addition of a plus or minus sign
to show relative standing within the major rating categories. The foregoing
ratings are sometimes followed by a "p" which indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion.
COMMERCIAL PAPER
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1, Highest Quality; Prime-2, Higher Quality; and Prime-3,
High Quality.
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is
62
<PAGE>
not a recommendation to purchase or sell a security. The ratings are based upon
current information furnished by the issuer or obtained by S&P from other
sources it considers reliable. The ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. Issues assigned A ratings are
regarded as having the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety. The "A-1+" and "A-1" designations indicate that the
degree of safety regarding timely payment is very strong.
63
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included
in Prospectus (Part A):
Page in
Prospectus
----------
Financial Highlights for the years ended October 31, 1988,
1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996
and 1997 (Class B) . . . . . . . . . . . . . . . . . . . . . . . 7
Financial Highlights for the period July 28, 1997 through
October 31, 1997 (Class A, C, and D) . . . . . . . . . . . . . . 8
(2) Financial statements included in the Statement of Additional
Information (Part B):. . . . . . . . . . . . . . . . . . . . . .
Page in
SAI
-------
Portfolio of Investments at October 31, 1997 . . . . . . . . . . 46
Statement of Assets and Liabilities at October 31, 1997. . . . . 49
Statement of Operations for the year ended October 31, 1997. . . 50
Statement of Changes in Net Assets for the years ended
October 31, 1996 and 1997. . . . . . . . . . . . . . . . . . . . 51
Notes to Financial Statements at October 31, 1997. . . . . . . . 52
Financial Highlights for the years ended October 31, 1988,
1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996 and
1997 (Class B) . . . . . . . . . . . . . . . . . . . . . . . . . 59
Financial Highlights for the period July 28, 1997 through
October 31, 1997 (Classes A, C and D). . . . . . . . . . . . . . 60
(3) Financial statements included in Part C:
None
<PAGE>
b) Exhibits
--------
2. Amended and Restated By-Laws of the Registrant.
8. Form of Amended and Restated Transfer Agency and Service Agreement
between the Registrant and Dean Witter Trust FSB.
11. Consent of Independent Accountants.
16. Schedules for Computation of Performance Quotations.
27. Financial Data Schedules.
Other. Power of Attorney.
- --------------------------------------------------------------------------------
All other exhibits were previously filed via EDGAR and are hereby
incorporated by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
Item 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
Number of Record Holders
Title of Class November 30, 1997
-------------- ------------------------
Class A 14
Class B 35,563
Class C 36
Class D 59
Item 27. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
2
<PAGE>
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "The Fund and its Management" in the Prospectus regarding the business
of the investment adviser. The following information is given regarding
officers of Dean Witter InterCapital Inc. InterCapital is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. The principal address
of the Dean Witter Funds is Two World Trade Center, New York, New York 10048.
The term "Dean Witter Funds" used below refers to the following registered
investment companies:
CLOSED-END INVESTMENT COMPANIES
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
3
<PAGE>
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
OPEN-END INVESTMENT COMPANIES
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
4
<PAGE>
(31) Dean Witter Short-Term U.S. Treasury Trust
(32) Dean Witter Diversified Income Trust
(33) Dean Witter U.S. Government Money Market Trust
(34) Dean Witter Global Dividend Growth Securities
(35) Active Assets California Tax-Free Trust
(36) Dean Witter Natural Resource Development Securities Inc.
(37) Active Assets Government Securities Trust
(38) Active Assets Money Trust
(39) Active Assets Tax-Free Trust
(40) Dean Witter Limited Term Municipal Trust
(41) Dean Witter Variable Investment Series
(42) Dean Witter Value-Added Market Series
(43) Dean Witter Global Utilities Fund
(44) Dean Witter International SmallCap Fund
(45) Dean Witter Mid-Cap Growth Fund
(46) Dean Witter Select Dimensions Investment Series
(47) Dean Witter Balanced Growth Fund
(48) Dean Witter Balanced Income Fund
(49) Dean Witter Hawaii Municipal Trust
(50) Dean Witter Capital Appreciation Fund
(51) Dean Witter Intermediate Term U.S. Treasury Trust
(52) Dean Witter Information Fund
(53) Dean Witter Japan Fund
(54) Dean Witter Income Builder Fund
(55) Dean Witter Special Value Fund
(56) Dean Witter Financial Services Trust
(57) Dean Witter Market Leader Trust
(58) Dean Witter S&P 500 Index Fund
(59) Dean Witter Fund of Funds
The term "TCW/DW Funds" refers to the following registered investment
companies:
OPEN-END INVESTMENT COMPANIES
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW SmallCap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DE Global Telecom Trust
(10) TCW/DW Strategic Income Trust
CLOSED-END INVESTMENT COMPANIES
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
5
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION,
WITH DEAN WITTER VOCATION OR EMPLOYMENT, INCLUDING NAME,
INTERCAPITAL INC. PRINCIPAL ADDRESS AND NATURE OF CONNECTION
- ----------------- -------------------------------------------
<S> <C>
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Executive Witter Reynolds Inc. ("DWR"); Chairman, Chief
Officer and Director Executive Officer and Director of Dean Witter
Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust FSB ("DWT");
Chairman, Director or Trustee, President and
Chief Executive Officer of the Dean Witter
Funds and Chairman, Chief Executive Officer
and Trustee of the TCW/DW Funds; Director
and/or officer of various Morgan Stanley,
Dean Witter, Discover & Co. ("MSDWD")
subsidiaries; Formerly Executive Vice
President and Director of Dean Witter,
Discover & Co.
Philip J. Purcell Chairman, Chief Executive Officer and
Director Director of MSDWD and DWR; Director of DWSC
and Distributors; Director or Trustee of the
Dean Witter Funds; Director and/or officer of
various MSDWD subsidiaries.
Richard M. DeMartini President and Chief Operating Officer of Dean
Director Witter Capital, a division of DWR; Director
of DWR, DWSC, Distributors and DWT; Trustee
of the TCW/DW Funds.
James F. Higgins President and Chief Operating Officer of Dean
Director Witter Financial; Director of DWR, DWSC,
Distributors and DWT.
Thomas C. Schneider Executive Vice President and Chief Strategic
Executive Vice President and Administrative Officer of MSDWD;
Chief Financial Officer and Director Executive Vice President and Chief Financial
Officer of DWSC and Distributors; Director of
DWR, DWSC, Distributors and MSDWD.
Christine A. Edwards Executive Vice President, Chief Legal Officer
Director and Secretary of MSDWD; Executive Vice
President, Secretary and Chief Legal Officer
of Distributors; Director of DWR, DWSC and
Distributors.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION,
WITH DEAN WITTER VOCATION OR EMPLOYMENT, INCLUDING NAME,
INTERCAPITAL INC. PRINCIPAL ADDRESS AND NATURE OF CONNECTION
- ----------------- -------------------------------------------
<S> <C>
Robert M. Scanlan President and Chief Operating Officer of
President and Chief Operating DWSC; Executive Vice President of
Officer Distributors; Executive Vice President and
Director of DWT; Vice President of the Dean
Witter Funds and the TCW/DW Funds.
Mitchell M. Merin President and Chief Strategic Officer of
President and Chief Strategic DWSC; Executive Vice President of
Officer Distributors; Executive Vice President and
Director of DWT; Executive Vice President and
Director of DWR; Director of SPS Transaction
Services, Inc. and various other MSDWD
subsidiaries.
Joseph J. McAlinden Vice President of the Dean Witter Funds and
Executive Vice President and Director of DWT.
Chief Investment Officer
Edward C. Oelsner
Executive Vice President
John B. Van Heuvelen President, Chief Operating Officer and
Executive Vice President Director of DWT.
Barry Fink Assistant Secretary of DWR; Senior Vice
Senior Vice President, Secretary President, Secretary and General Counsel of
and General Counsel DWSC; Senior Vice President, Assistant
Secretary and Assistant General Counsel of
Distributors; Vice President, Secretary and
General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward F. Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone Senior Vice President of DWSC, Distributors
Senior Vice President and DWT and Director of DWT; Vice President
of the Dean Witter Funds and the TCW/DW
Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION,
WITH DEAN WITTER VOCATION OR EMPLOYMENT, INCLUDING NAME,
INTERCAPITAL INC. PRINCIPAL ADDRESS AND NATURE OF CONNECTION
- ----------------- -------------------------------------------
<S> <C>
Kenton J. Hichliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones
Senior Vice President Vice President of Dean Witter Special Value
Fund.
John B. Kemp, III
Senior Vice President Director of the Provident Savings Bank,
Jersey City, New Jersey.
Anita H. Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. Ross
Senior Vice President Vice President of various Dean Witter Funds.
Guy G. Rutherfurd, Jr.
Senior Vice President Vice President of Dean Witter Market Leader
Trust.
Rafael Scolari
Senior Vice President Vice President of Prime Income Trust.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Jayne M. Stevlingson
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION,
WITH DEAN WITTER VOCATION OR EMPLOYMENT, INCLUDING NAME,
INTERCAPITAL INC. PRINCIPAL ADDRESS AND NATURE OF CONNECTION
- ----------------- -------------------------------------------
<S> <C>
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Douglas Brown
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer
First Vice President of DWSC. Treasurer of the Dean Witter Funds
and Assistant Treasurer and the TCW/DW Funds.
Thomas Chronert
First Vice President
Rosalie Clough
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice
First Vice President President and Assistant Secretary of DWSC;
and Assistant Secretary Assistant Secretary of the Dean Witter Funds
and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President and Controller Assistant Treasurer of Distributors; First
Vice President and Treasurer of DWT.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Robert Zimmerman
First Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Kirk Balzer
Vice President Vice President of various Dean Witter Funds.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION,
WITH DEAN WITTER VOCATION OR EMPLOYMENT, INCLUDING NAME,
INTERCAPITAL INC. PRINCIPAL ADDRESS AND NATURE OF CONNECTION
- ----------------- -------------------------------------------
<S> <C>
Nancy Belza
Vice President
Dale Boettcher
Vice President
Joseph Cardwell
Vice President
Philip Casparius
Vice President
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Bruce Dunn
Vice President
Michael Durbin
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Michael Geringer
Vice President
Stephen Greenhut
Vice President
Peter W. Gurman
Vice President
Matthew Haynes Vice President of Dean Witter
Vice President Variable Investment Series.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION,
WITH DEAN WITTER VOCATION OR EMPLOYMENT, INCLUDING NAME,
INTERCAPITAL INC. PRINCIPAL ADDRESS AND NATURE OF CONNECTION
- ----------------- -------------------------------------------
<S> <C>
Peter Hermann
Vice President Vice President of various Dean Witter Funds.
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
Christopher Jones
Vice President
Kevin Jung
Vice President
James P. Kastberg
Vice President
Michelle Kaufman
Vice President Vice President of Various Dean Witter Funds.
Michael Knox
Vice President Vice President of various Dean Witter Funds.
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard J. Lian
Vice President Vice President of various Dean Witter Funds.
Catherine Maniscalco Vice President of Dean Witter Natural
Vice President Resource Development Securities Inc.
Albert McGarity
Vice President
LouAnne D. McInnis Vice President and Assistant Secretary of
Vice President and DWSC; Assistant Secretary of the Dean Witter
Assistant Secretary Funds and the TCW/DW Funds.
Sharon K. Milligan
Vice President
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION,
WITH DEAN WITTER VOCATION OR EMPLOYMENT, INCLUDING NAME,
INTERCAPITAL INC. PRINCIPAL ADDRESS AND NATURE OF CONNECTION
- ----------------- -------------------------------------------
<S> <C>
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Dean Witter Natural
Vice President Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
Carsten Otto Vice President and Assistant Secretary of
Vice President and DWSC; Assistant Secretary of the Dean Witter
Assistant Secretary Funds and the TCW/DW Funds.
George Paoletti
Vice President
Anne Pickrell Vice President of Dean Witter Global Short-
Vice President Term Income Fund Inc.
Michael Roan
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of Dean Witter Precious Metals
Vice President and Minerals Trust.
Ruth Rossi Vice President and Assistant Secretary of
Vice President and DWSC; Assistant Secretary of the Dean Witter
Assistant Secretary Funds and the TCW/DW Funds.
Carl F. Sadler
Vice President
Peter Seeley Vice President of Dean Witter World Wide
Vice President Income Trust.
Naomi Stein
Vice President
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION,
WITH DEAN WITTER VOCATION OR EMPLOYMENT, INCLUDING NAME,
INTERCAPITAL INC. PRINCIPAL ADDRESS AND NATURE OF CONNECTION
- ----------------- -------------------------------------------
<S> <C>
Kathleen H. Stromberg Vice President of various Dean Witter Funds.
Vice President
Marybeth Swisher
Vice President
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Robert Vanden Assem
Vice President
James P. Wallin
Vice President
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
</TABLE>
Item 29. PRINCIPAL UNDERWRITERS
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
13
<PAGE>
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Dean Witter European Growth Fund Inc.
(29) Dean Witter Developing Growth Securities Trust
(30) Dean Witter Precious Metals and Minerals Trust
(31) Dean Witter Pacific Growth Fund Inc.
(32) Dean Witter Multi-State Municipal Series Trust
(33) Dean Witter Federal Securities Trust
(34) Dean Witter Short-Term U.S. Treasury Trust
(35) Dean Witter Diversified Income Trust
(36) Dean Witter Health Sciences Trust
(37) Dean Witter Global Dividend Growth Securities
(38) Dean Witter American Value Fund
(39) Dean Witter U.S. Government Money Market Trust
(40) Dean Witter Global Short-Term Income Fund Inc.
(41) Dean Witter Value-Added Market Series
(42) Dean Witter Global Utilities Fund
(43) Dean Witter International SmallCap Fund
(44) Dean Witter Balanced Growth Fund
(45) Dean Witter Balanced Income Fund
(46) Dean Witter Hawaii Municipal Trust
(47) Dean Witter Variable Investment Series
(48) Dean Witter Capital Appreciation Fund
(49) Dean Witter Intermediate Term U.S. Treasury Trust
(50) Dean Witter Information Fund
(51) Dean Witter Japan Fund
(52) Dean Witter Income Builder Fund
(53) Dean Witter Special Value Fund
(54) Dean Witter Financial Services Trust
(55) Dean Witter Market Leader Trust
(56) Dean Witter S&P 500 Index Fund
(57) Dean Witter Fund of Funds
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW SmallCap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048. None of
the following persons has any position or office with the Registrant.
14
<PAGE>
Name Positions and Office with Distributors
- ---- --------------------------------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance Officer.
Michael T. Gregg Vice President and Assistant Secretary.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
Item 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 23rd day of December, 1997.
DEAN WITTER FEDERAL SECURITIES TRUST
By /s/ Barry Fink
-------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 13 has been signed below by the following persons
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 12/23/97
----------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 12/23/97
----------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 12/23/97
----------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
Wayne E. Hedien
By /s/ David M. Butowsky 12/23/97
----------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2. -- Amended and Restated By-Laws of the Registrant.
8. -- Form of Amended and Restated Transfer Agency and Service
Agreement between the Registrant and Dean Witter Trust FSB.
11. -- Consent of Independent Accountants
16. -- Schedules for Computation of Performance Quotations
27. -- Financial Data Schedules
Other. -- Power of Attorney
<PAGE>
BY-LAWS
OF
DEAN WITTER FEDERAL SECURITIES TRUST
AMENDED AND RESTATED AS OF OCTOBER 23, 1997
ARTICLE I
DEFINITIONS
The terms "COMMISSION," "DECLARATION," "DISTRIBUTOR," "INVESTMENT
ADVISER," "MAJORITY SHAREHOLDER VOTE," "1940 ACT," "SHAREHOLDER," "SHARES,"
"TRANSFER AGENT," "TRUST," "TRUST PROPERTY," and "TRUSTEES" have the
respective meanings given them in the Declaration of Trust of Dean Witter
Federal Securities Trust dated November 20, 1986, as amended from time to
time.
ARTICLE II
OFFICES
SECTION 2.1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be
in the City of Boston, County of Suffolk.
SECTION 2.2. OTHER OFFICES. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or
the business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. MEETINGS. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the
provisions of Section 16(a) of the 1940 Act, for that purpose. Meetings of
Shareholders shall also be called by the Secretary upon the written request
of the holders of Shares entitled to vote not less than twenty-five percent
(25%) of all the votes entitled to be cast at such meeting. Such request
shall state the purpose or purposes of such meeting and the matters proposed
to be acted on thereat. The Secretary shall inform such Shareholders of the
reasonable estimated cost of preparing and mailing such notice of the
meeting, and upon payment to the Trust of such costs, the Secretary shall
give notice stating the purpose or purposes of the meeting to all entitled to
vote at such meeting. No meeting need be called upon the request of the
holders of Shares entitled to cast less than a majority of all votes entitled
to be cast at such meeting, to consider any matter which is substantially the
same as a matter voted upon at any meeting of Shareholders held during the
preceding twelve months.
SECTION 3.3. NOTICE OF MEETINGS. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes
thereof, shall be given by the Secretary not less than ten (10) nor more than
ninety (90) days before such meeting to each Shareholder entitled to vote at
such meeting. Such notice shall be deemed to be given when deposited in the
United States mail, postage prepaid, directed to the Shareholder at his
address as it appears on the records of the Trust.
<PAGE>
SECTION 3.4 QUORUM AND ADJOURNMENT OF MEETINGS. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy,
shall be requisite and shall constitute a quorum for the transaction of
business. In the absence of a quorum, the Shareholders present or represented
by proxy and entitled to vote thereat shall have the power to adjourn the
meeting from time to time. The Shareholders present in person or represented
by proxy at any meeting and entitled to vote thereat also shall have the
power to adjourn the meeting from time to time if the vote required to
approve or reject any proposal described in the original notice of such
meeting is not obtained (with proxies being voted for or against adjournment
consistent with the votes for and against the proposal for which the required
vote has not been obtained). The affirmative vote of the holders of a
majority of the Shares then present in person or represented by proxy shall
be required to adjourn any meeting. Any adjourned meeting may be reconvened
without further notice or change in record date. At any reconvened meeting at
which a quorum shall be present, any business may be transacted that might
have been transacted at the meeting as originally called.
SECTION 3.5. VOTING RIGHTS, PROXIES. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his
duly authorized attorney-in-fact, for each Share of beneficial interest of
the Trust and for the fractional portion of one vote for each fractional
Share entitled to vote so registered in his name on the records of the Trust
on the date fixed as the record date for the determination of Shareholders
entitled to vote at such meeting. No proxy shall be valid after eleven months
from its date, unless otherwise provided in the proxy. At all meetings of
Shareholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting. Pursuant to a resolution of a majority of the Trustees, proxies may
be solicited in the name of one or more Trustees or Officers of the Trust.
SECTION 3.6. VOTE REQUIRED. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority
Shareholder Vote.
SECTION 3.7. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election
of the meeting. In case any person appointed as Inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies,
shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results,
and do such other acts as may be proper to conduct the election or vote with
fairness to all Shareholders. On request of the chairman of the meeting, or
of any Shareholder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them
and shall execute a certificate of any facts found by them.
SECTION 3.8. INSPECTION OF BOOKS AND RECORDS. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under the Corporations and Associations Law of
the State of Maryland.
SECTION 3.9. ACTION BY SHAREHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting
of Shareholders.
2
<PAGE>
SECTION 3.10. PRESENCE AT MEETINGS. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
ARTICLE IV
TRUSTEES
SECTION 4.1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall
be called by the President or the Secretary upon the written request of any
two (2) Trustees.
SECTION 4.2. NOTICE OF SPECIAL MEETINGS. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage prepaid,
directed to the Trustee at his address as it appears on the records of the
Trust. Subject to the provisions of the 1940 Act, notice or waiver of notice
need not specify the purpose of any special meeting.
SECTION 4.3. TELEPHONE MEETINGS. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such
committee, as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. QUORUM, VOTING AND ADJOURNMENT OF MEETINGS. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act
of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall have been
obtained.
SECTION 4.5. ACTION BY TRUSTEES WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of the Trustees may be taken without a meeting if a consent in
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.
SECTION 4.6. EXPENSES AND FEES. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of
said persons shall receive for services rendered as a Trustee of the Trust
such compensation as may be fixed by the Trustees. Nothing herein contained
shall be construed to preclude any Trustee from serving the Trust in any
other capacity and receiving compensation therefor.
SECTION 4.7. EXECUTION OF INSTRUMENTS AND DOCUMENTS AND SIGNING OF CHECKS
AND OTHER OBLIGATIONS AND TRANSFERS. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all
checks, notes, drafts and other obligations for the payment of money by the
Trust shall be signed, and all transfer of securities standing in the name of
the Trust shall be executed, by the Chairman, the President, any Vice
President or the Treasurer or by any one or more officers or agents of the
Trust as shall be designated for that purpose by vote of the Trustees;
notwithstanding the above, nothing in this Section 4.7 shall be deemed to
preclude the electronic authorization, by designated persons, of the Trust's
Custodian (as described herein in Section 9.1) to transfer assets of the
Trust, as provided for herein in Section 9.1.
3
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SECTION 4.8. INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement, actually
and reasonably incurred by him in connection with the action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or on behalf of the Trust to obtain a judgment or decree in its
favor by reason of the fact that he is or was a Trustee, officer, employee,
or agent of the Trust. The indemnification shall be against expenses,
including attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust; except that no indemnification shall be
made in respect of any claim, issue, or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Trust, except to the extent that the court in which the
action or suit was brought, or a court of equity in the county in which the
Trust has its principal office, determines upon application that, despite the
adjudication of liability but in view of all circumstances of the case, the
person is fairly and reasonably entitled to indemnity for those expenses
which the court shall deem proper, provided such Trustee, officer, employee
or agent is not adjudged to be liable by reason of his willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) or (b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists of
Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person shall
be entitled to indemnification for any liability, whether or not there is
an adjudication of liability, arising by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties as described
in Section 17(h) and (i) of the Investment Company Act of 1940
("disabling conduct"). A person shall be deemed not liable by reason of
disabling conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
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(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither "interested
persons" of the Trust, as defined in Section 2(a)(19) of the
Investment Company Act of 1940, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit
or proceeding may be paid by the Trust in advance of the final disposition
thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by
the Trust; and
(3) either, (i) such person provides a security for his undertaking,
or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately
will be found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to a person
who has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. EXECUTIVE AND OTHER COMMITTEES. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the
Trustees of the Trust and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Trust. In the absence of
any member of any such committee, the members thereof present
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at any meeting, whether or not they constitute a quorum, may appoint a
Trustee to act in place of such absent member. Each such committee shall keep
a record of its proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. ADVISORY COMMITTEE. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in
any other capacity and which shall have advisory functions with respect to
the investments of the Trust but which shall have no power to determine that
any security or other investment shall be purchased, sold or otherwise
disposed of by the Trust. The number of persons constituting any such
advisory committee shall be determined from time to time by the Trustees. The
members of any such advisory committee may receive compensation for their
services and may be allowed such fees and expenses for the attendance at
meetings as the Trustees may from time to time determine to be appropriate.
SECTION 5.3. COMMITTEE ACTION WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Trustees appointed pursuant to Section
5.1 of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. EXECUTIVE OFFICERS. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more
than one capacity. The executive officers of the Trust shall be elected
annually by the Trustees and each executive officer so elected shall hold
office until his successor is elected and has qualified.
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the President the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.
SECTION 6.3. TERM AND REMOVAL AND VACANCIES. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any
officer or agent of the Trust may be removed by the Trustees whenever, in
their judgment, the best interests of the Trust will be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed.
SECTION 6.4. COMPENSATION OF OFFICERS. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Chairman to the
extent provided by the Trustees with respect to officers appointed by the
President.
SECTION 6.5. POWER AND DUTIES. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
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SECTION 6.6. THE CHAIRMAN. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees, shall be a signatory on all Annual and
Semi-Annual Reports as may be sent to shareholders, and he shall perform such
other duties as the Trustees may from time to time prescribe.
SECTION 6.7. THE PRESIDENT. (a) The President shall be the chief executive
officer of the Trust; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the Board
of Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
SECTION 6.8. THE VICE PRESIDENTS. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by
the Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President,
and he or they shall perform such other duties as the Trustees or the
President may from time to time prescribe.
SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the President.
SECTION 6.10. THE SECRETARY. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or
by the signature of an Assistant Secretary.
SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and
he shall render to the Trustees and the President, whenever any of them
require it, an account of his transactions as Treasurer and of the financial
condition of the Trust; and he shall perform such other duties as the
Trustees, or the President, may from time to time prescribe.
SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order
determined by the Trustees or the President, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers
as the Trustees, or the President, may from time to time prescribe.
SECTION 6.14. DELEGATION OF DUTIES. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
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ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from
time to time determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary
from the computation thereof on the records of the Trust, the Trustees shall
have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the
Trust to avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. CERTIFICATES OF SHARES. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the President, or a Vice President, and countersigned by the
Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option,
determine not to issue a certificate or certificates to evidence Shares owned
of record by any Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Trust, such certificate or certificates
shall, nevertheless, be adopted by the Trust and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures shall appear therein had not ceased
to be such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The
Trustees may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Trust alleged to
have been lost, stolen or destroyed, upon satisfactory proof of such loss,
theft, or destruction; and the Trustees may, in their discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal
representative, to give to the Trust and to such Registrar, Transfer Agent
and/or Transfer Clerk as may be authorized or required to countersign such
new certificate or certificates, a bond in such sum and of such type as they
may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be against them or any of them on
account of or in connection with the alleged loss, theft or destruction of
any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. APPOINTMENT AND DUTIES. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at
least five million dollars ($5,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in these By-Laws and the 1940 Act:
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(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it
as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery
of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting of
shareholders, Trustees or committee, as the case may be, in person, shall be
deemed equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. LOCATION OF BOOKS AND RECORDS. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2 RECORD DATE. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii)
receive payment of any dividend or the allotment of any rights, or in order
to make a determination of Shareholders for any other proper purpose. The
record date, in any case, shall not be more than one hundred eighty (180)
days, and in the case of a meeting of Shareholders not less than ten (10)
days, prior to the date on which such meeting is to be held or the date on
which such other particular action requiring determination of Shareholders is
to be taken, as the case may be. In the case of a meeting of Shareholders,
the meeting date set forth in the notice to Shareholders accompanying the
proxy statement shall be the date used for purposes of calculating the 180
day or 10 day period, and any adjourned meeting may be reconvened without a
change in record date. In lieu of fixing a record date, the Trustees may
provide that the transfer books shall be closed for a stated period but not
to exceed, in any case, twenty (20) days. If the transfer books are closed
for the purpose of determining Shareholders entitled to notice of a vote at a
meeting of Shareholders, such books shall be closed for at least ten (10)
days immediately preceding the meeting.
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SECTION 11.3. SEAL. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from
time to time provide. The seal of the Trust may be affixed to any document,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation under Massachusetts law.
SECTION 11.4. FISCAL YEAR. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. ORDERS FOR PAYMENT OF MONEY. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement
between the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees;
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration, or these By-Laws, a vote of the Shareholders. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration, and any
apparent inconsistency shall be construed in favor of the related provisions
in the Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Dean Witter Federal Securities
Trust, dated November 20, 1986, a copy of which, together with all amendments
thereto, is on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name Dean Witter Federal Securities Trust
(formerly known as Dean Witter Government Securities Plus) refers to the
Trustees under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, Shareholder, officer, employee or
agent of Dean Witter Federal Securities Trust shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in connection with the
affairs of said Dean Witter Federal Securities Trust, but the Trust Estate
only shall be liable.
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AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
WITH
DEAN WITTER TRUST FSB
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Article 1 Terms of Appointment................................... 1
Article 2 Fees and Expenses...................................... 2
Article 3 Representations and Warranties of DWTFSB............... 3
Article 4 Representations and Warranties of the Fund............. 3
Article 5 Duty of Care and Indemnification....................... 3
Article 6 Documents and Covenants of the Fund and DWTFSB......... 4
Article 7 Duration and Termination of Agreement.................. 5
Article 8 Assignment............................................. 5
Article 9 Affiliations........................................... 6
Article 10 Amendment.............................................. 6
Article 11 Applicable Law......................................... 6
Article 12 Miscellaneous.......................................... 6
Article 13 Merger of Agreement.................................... 7
Article 14 Personal Liability..................................... 7
</TABLE>
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AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 23rd day of October, 1997 by
and between each of the Funds listed on the signature pages hereof, each of such
Funds acting severally on its own behalf and not jointly with any of such other
Funds (each such Fund hereinafter referred to as the "Fund"), each such Fund
having its principal office and place of business at Two World Trade Center, New
York, New York, 10048, and DEAN WITTER TRUST FSB ("DWTFSB"), a federally
chartered savings bank, having its principal office and place of business at
Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311.
WHEREAS, the Fund desires to appoint DWTFSB as its transfer agent, dividend
disbursing agent and shareholder servicing agent and DWTFSB desires to accept
such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 TERMS OF APPOINTMENT; DUTIES OF DWTFSB
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints DWTFSB to act as, and DWTFSB agrees to act as,
the transfer agent for each series and class of shares of the Fund, whether now
or hereafter authorized or issued ("Shares"), dividend disbursing agent and
shareholder servicing agent in connection with any accumulation, open-account or
similar plans provided to the holders of such Shares ("Shareholders") and set
out in the currently effective prospectus and statement of additional
information ("prospectus") of the Fund, including without limitation any
periodic investment plan or periodic withdrawal program.
1.2 DWTFSB agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and DWTFSB, DWTFSB shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the
custodian of the assets of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and issue certificates therefor or hold such Shares in book form
in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the
Custodian;
(iv) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over or cause to
be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may be
reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain pursuant
to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934 Act")
a record of the total number of Shares of the Fund which are authorized,
based upon data provided to it by the Fund, and issued and outstanding.
DWTFSB shall also provide to the Fund on a regular basis the total number
of Shares that are authorized, issued and outstanding and shall notify
the Fund in case any proposed issue of Shares by the Fund would result in
an overissue. In case any issue of Shares
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would result in an overissue, DWTFSB shall refuse to issue such Shares
and shall not countersign and issue any certificates requested for such
Shares. When recording the issuance of Shares, DWTFSB shall have no
obligation to take cognizance of any Blue Sky laws relating to the issue
of sale of such Shares, which functions shall be the sole responsibility
of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), DWTFSB shall:
(i) perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, shareholder servicing agent
in connection with dividend reinvestment, accumulation, open-account or
similar plans (including without limitation any periodic investment plan
or periodic withdrawal program), including but not limited to,
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, receiving and tabulating proxies, mailing
shareholder reports and prospectuses to current Shareholders, withholding
taxes on U.S. resident and non-resident alien accounts, preparing and
filing appropriate forms required with respect to dividends and
distributions by federal tax authorities for all Shareholders, preparing
and mailing confirmation forms and statements of account to Shareholders
for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity
statements for Shareholders and providing Shareholder account
information;
(ii) open any and all bank accounts which may be necessary or
appropriate in order to provide the foregoing services; and
(iii) provide a system that will enable the Fund to monitor the total
number of Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall:
(i) identify to DWTFSB in writing those transactions and assets to be
treated as exempt from Blue Sky reporting for each State; and
(ii) verify the inclusion on the system prior to activation of each
State in which Fund shares may be sold and thereafter monitor the daily
purchases and sales for shareholders in each State. The responsibility of
DWTFSB for the Fund's status under the securities laws of any State or
other jurisdiction is limited to the inclusion on the system of each
State as to which the Fund has informed DWTFSB that shares may be sold in
compliance with state securities laws and the reporting of purchases and
sales in each such State to the Fund as provided above and as agreed from
time to time by the Fund and DWTFSB.
(d) DWTFSB shall provide such additional services and functions not
specifically described herein as may be mutually agreed between DWTFSB and
the Fund. Procedures applicable to such services may be established from
time to time by agreement between the Fund and DWTFSB.
Article 2 FEES AND EXPENSES
2.1 For performance by DWTFSB pursuant to this Agreement, each Fund agrees
to pay DWTFSB an annual maintenance fee for each Shareholder account and certain
transactional fees, if applicable, as set out in the respective fee schedule
attached hereto as Schedule A. Such fees and out-of-pocket expenses and advances
identified under Section 2.2 below may be changed from time to time subject to
mutual written agreement between the Fund and DWTFSB.
2.2 In addition to the fees paid under Section 2.1 above, the Fund agrees to
reimburse DWTFSB for out of pocket expenses in connection with the services
rendered by DWTFSB hereunder. In addition, any other expenses incurred by DWTFSB
at the request or with the consent of the Fund will be reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and reimbursable expenses within a
reasonable period of time following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to DWTFSB by the Fund
upon request prior to the mailing date of such materials.
2
<PAGE>
Article 3 REPRESENTATIONS AND WARRANTIES OF DWTFSB
DWTFSB represents and warrants to the Fund that:
3.1 It is a federally chartered savings bank whose principal office is in
New Jersey.
3.2 It is and will remain registered with the U.S. Securities and Exchange
Commission ("SEC") as a Transfer Agent pursuant to the requirements of Section
17A of the 1934 Act.
3.3 It is empowered under applicable laws and by its charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to DWTFSB that:
4.1 It is a corporation duly organized and existing and in good standing
under the laws of Delaware or Maryland or a trust duly organized and existing
and in good standing under the laws of Massachusetts, as the case may be.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation or Declaration of Trust, as the case may be, and under its By-Laws
to enter into and perform this Agreement.
4.3 All corporate proceedings necessary to authorize it to enter into and
perform this Agreement have been taken.
4.4 It is an investment company registered with the SEC under the Investment
Company Act of 1940, as amended (the "1940 Act").
4.5 A registration statement under the Securities Act of 1933 (the "1933
Act") is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Fund being offered for sale.
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.1 DWTFSB shall not be responsible for, and the Fund shall indemnify and
hold DWTFSB harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of DWTFSB or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence
or willful misconduct or which arise out of breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by DWTFSB or its agents or subcontractors of
information, records and documents which (i) are received by DWTFSB or its
agents or subcontractors and furnished to it by or on behalf of the Fund,
and (ii) have been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by DWTFSB or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities or Blue Sky
laws of any State or other jurisdiction that notice of
3
<PAGE>
offering of such Shares in such State or other jurisdiction or in violation
of any stop order or other determination or ruling by any federal agency or
any State or other jurisdiction with respect to the offer or sale of such
Shares in such State or other jurisdiction.
5.2 DWTFSB shall indemnify and hold the Fund harmless from or against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission to
act by DWTFSB as a result of the lack of good faith, negligence or willful
misconduct of DWTFSB, its officers, employees or agents.
5.3 At any time, DWTFSB may apply to any officer of the Fund for
instructions, and may consult with legal counsel to the Fund, with respect to
any matter arising in connection with the services to be performed by DWTFSB
under this Agreement, and DWTFSB and its agents or subcontractors shall not be
liable and shall be indemnified by the Fund for any action taken or omitted by
it in reliance upon such instructions or upon the opinion of such counsel.
DWTFSB, its agents and subcontractors shall be protected and indemnified in
acting upon any paper or document furnished by or on behalf of the Fund,
reasonably believed to be genuine and to have been signed by the proper person
or persons, or upon any instruction, information, data, records or documents
provided to DWTFSB or its agents or subcontractors by machine readable input,
telex, CRT data entry or other similar means authorized by the Fund, and shall
not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. DWTFSB, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signature of the officers of the Fund, and the proper countersignature
of any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
5.4 In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.5 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
5.6 In order that the indemnification provisions contained in this Article 5
shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 DOCUMENTS AND COVENANTS OF THE FUND AND DWTFSB
6.1 The Fund shall promptly furnish to DWTFSB the following, unless
previously furnished to Dean Witter Trust Company, the prior transfer agent of
the Fund:
(a) If a corporation:
(i) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of DWTFSB and the execution and
delivery of this Agreement;
(ii) A certified copy of the Articles of Incorporation and By-Laws of
the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Directors
designating persons authorized to give instructions on behalf of the Fund
and signature cards bearing the signature of any officer of the Fund or
any other person authorized to sign written instructions on behalf of the
Fund;
(iv) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Directors, with a certificate of the Secretary
of the Fund as to such approval;
4
<PAGE>
(b) If a business trust:
(i) A certified copy of the resolution of the Board of Trustees of
the Fund authorizing the appointment of DWTFSB and the execution and
delivery of this Agreement;
(ii) A certified copy of the Declaration of Trust and By-Laws of the
Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Trustees
designating persons authorized to give instructions on behalf of the Fund
and signature cards bearing the signature of any officer of the Fund or
any other person authorized to sign written instructions on behalf of the
Fund;
(iv) A specimen of the certificate for Shares of the Fund in the form
approved by the Board of Trustees, with a certificate of the Secretary of
the Fund as to such approval;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the
1933 Act or the 1940 Act;
(d) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan, program or service offered
or to be offered by the Fund; and
(e) Such other certificates, documents or opinions as DWTFSB deems to be
appropriate or necessary for the proper performance of its duties.
6.2 DWTFSB hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of Share certificates, check
forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
6.3 DWTFSB shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable and as
required by applicable laws and regulations. To the extent required by Section
31 of the 1940 Act, and the rules and regulations thereunder, DWTFSB agrees that
all such records prepared or maintained by DWTFSB relating to the services
performed by DWTFSB hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such Section 31 of
the 1940 Act, and the rules and regulations thereunder, and will be surrendered
promptly to the Fund on and in accordance with its request.
6.4 DWTFSB and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential and shall not be voluntarily disclosed to any other person except
as may be required by law or with the prior consent of DWTFSB and the Fund.
6.5 In case of any request or demands for the inspection of the Shareholder
records of the Fund, DWTFSB will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such inspection.
DWTFSB reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by its counsel that it may be held liable for the
failure to exhibit the Shareholder records to such person.
Article 7 DURATION AND TERMINATION OF AGREEMENT
7.1 This Agreement shall remain in full force and effect until August 1,
2000 and from year-to-year thereafter unless terminated by either party as
provided in Section 7.2 hereof.
7.2 This Agreement may be terminated by the Fund on 60 days written notice,
and by DWTFSB on 90 days written notice, to the other party without payment of
any penalty.
7.3 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, DWTFSB reserves the right to charge for any
other reasonable fees and expenses associated with such termination.
Article 8 ASSIGNMENT
8.1 Except as provided in Section 8.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
5
<PAGE>
8.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
8.3 DWTFSB may, in its sole discretion and without further consent by the
Fund, subcontract, in whole or in part, for the performance of its obligations
and duties hereunder with any person or entity including but not limited to
companies which are affiliated with DWTFSB; PROVIDED, HOWEVER, that such person
or entity has and maintains the qualifications, if any, required to perform such
obligations and duties, and that DWTFSB shall be as fully responsible to the
Fund for the acts and omissions of any agent or subcontractor as it is for its
own acts or omissions under this Agreement.
Article 9 AFFILIATIONS
9.1 DWTFSB may now or hereafter, without the consent of or notice to the
Fund, function as transfer agent and/or shareholder servicing agent for any
other investment company registered with the SEC under the 1940 Act and for any
other issuer, including without limitation any investment company whose adviser,
administrator, sponsor or principal underwriter is or may become affiliated with
Morgan Stanley, Dean Witter, Discover & Co. or any of its direct or indirect
subsidiaries or affiliates.
9.2 It is understood and agreed that the Directors or Trustees (as the case
may be), officers, employees, agents and shareholders of the Fund, and the
directors, officers, employees, agents and shareholders of the Fund's investment
adviser and/or distributor, are or may be interested in DWTFSB as directors,
officers, employees, agents and shareholders or otherwise, and that the
directors, officers, employees, agents and shareholders of DWTFSB may be
interested in the Fund as Directors or Trustees (as the case may be), officers,
employees, agents and shareholders or otherwise, or in the investment adviser
and/or distributor as directors, officers, employees, agents, shareholders or
otherwise.
Article 10 AMENDMENT
10.1 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors or the Board of Trustees (as the case may be) of the Fund.
Article 11 APPLICABLE LAW
11.1 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New York.
Article 12 MISCELLANEOUS
12.1 In the event that one or more additional investment companies managed
or administered by Dean Witter InterCapital Inc. or any of its affiliates
("Additional Funds") desires to retain DWTFSB to act as transfer agent, dividend
disbursing agent and/or shareholder servicing agent, and DWTFSB desires to
render such services, such services shall be provided pursuant to a letter
agreement, substantially in the form of Exhibit A hereto, between DWTFSB and
each Additional Fund.
12.2 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to DWTFSB an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or destroyed,
supported by an appropriate bond satisfactory to DWTFSB and the Fund issued by a
surety company satisfactory to DWTFSB, except that DWTFSB may accept an
affidavit of loss and indemnity agreement executed by the registered holder (or
legal representative) without surety in such form as DWTFSB deems appropriate
indemnifying DWTFSB and the Fund for the issuance of a replacement certificate,
in cases where the alleged loss is in the amount of $1,000 or less.
12.3 In the event that any check or other order for payment of money on the
account of any Shareholder or new investor is returned unpaid for any reason,
DWTFSB will (a) give prompt notification to the Fund's distributor
("Distributor") (or to the Fund if the Fund acts as its own distributor) of such
non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as DWTFSB may, in its sole discretion,
deem appropriate or as the Fund and, if applicable, the Distributor may instruct
DWTFSB.
6
<PAGE>
12.4 Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or to DWTFSB shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
To the Fund:
[Name of Fund]
Two World Trade Center
New York, New York 10048
Attention: General Counsel
To DWTFSB:
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attention: President
Article 13 MERGER OF AGREEMENT
13.1 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
Article 14 PERSONAL LIABILITY
14.1 In the case of a Fund organized as a Massachusetts business trust, a
copy of the Declaration of Trust of the Fund is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against, a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.
DEAN WITTER FUNDS
MONEY MARKET FUNDS
1. Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Dean Witter U.S. Government Money Market Trust
4. Active Assets Government Securities Trust
5. Dean Witter Tax-Free Daily Income Trust
6. Active Assets Tax-Free Trust
7. Dean Witter California Tax-Free Daily Income Trust
8. Dean Witter New York Municipal Money Market Trust
9. Active Assets California Tax-Free Trust
EQUITY FUNDS
10. Dean Witter American Value Fund
11. Dean Witter Mid-Cap Growth Fund
12. Dean Witter Dividend Growth Securities Inc.
7
<PAGE>
13. Dean Witter Capital Growth Securities
14. Dean Witter Global Dividend Growth Securities
15. Dean Witter Income Builder Fund
16. Dean Witter Natural Resource Development Securities Inc.
17. Dean Witter Precious Metals and Minerals Trust
18. Dean Witter Developing Growth Securities Trust
19. Dean Witter Health Sciences Trust
20. Dean Witter Capital Appreciation Fund
21. Dean Witter Information Fund
22. Dean Witter Value-Added Market Series
23. Dean Witter World Wide Investment Trust
24. Dean Witter European Growth Fund Inc.
25. Dean Witter Pacific Growth Fund Inc.
26. Dean Witter International SmallCap Fund
27. Dean Witter Japan Fund
28. Dean Witter Utilities Fund
29. Dean Witter Global Utilities Fund
30. Dean Witter Special Value Fund
31. Dean Witter Financial Services Trust
32. Dean Witter Market Leader Trust
33. Dean Witter Managers' Select Fund
34. Dean Witter Fund of Funds
35. Dean Witter S&P 500 Index Fund
BALANCED FUNDS
36. Dean Witter Balanced Growth Fund
37. Dean Witter Balanced Income Trust
ASSET ALLOCATION FUNDS
38. Dean Witter Strategist Fund
39. Dean Witter Global Asset Allocation Fund
FIXED INCOME FUNDS
40. Dean Witter High Yield Securities Inc.
41. Dean Witter High Income Securities
42. Dean Witter Convertible Securities Trust
43. Dean Witter Intermediate Income Securities
44. Dean Witter Short-Term Bond Fund
45. Dean Witter World Wide Income Trust
46. Dean Witter Global Short-Term Income Fund Inc.
47. Dean Witter Diversified Income Trust
48. Dean Witter U.S. Government Securities Trust
49. Dean Witter Federal Securities Trust
50. Dean Witter Short-Term U.S. Treasury Trust
51. Dean Witter Intermediate Term U.S. Treasury Trust
52. Dean Witter Tax-Exempt Securities Trust
53. Dean Witter National Municipal Trust
55. Dean Witter Limited Term Municipal Trust
55. Dean Witter California Tax-Free Income Fund
56. Dean Witter New York Tax-Free Income Fund
57. Dean Witter Hawaii Municipal Trust
58. Dean Witter Multi-State Municipal Series Trust
59. Dean Witter Select Municipal Reinvestment Fund
8
<PAGE>
SPECIAL PURPOSE FUNDS
60. Dean Witter Retirement Series
61. Dean Witter Variable Investment Series
62. Dean Witter Select Dimensions Investment Series
TCW/DW FUNDS
63. TCW/DW Core Equity Trust
64. TCW/DW North American Government Income Trust
65. TCW/DW Latin American Growth Fund
66. TCW/DW Income and Growth Fund
67. TCW/DW Small Cap Growth Fund
68. TCW/DW Balanced Fund
69. TCW/DW Total Return Trust
70. TCW/DW Global Telecom Trust
71. TCW/DW Strategic Income Trust
72. TCW/DW Mid-Cap Equity Trust
By:
----------------------------------
Barry Fink
Vice President and General Counsel
ATTEST:
- -----------------------------
Assistant Secretary
DEAN WITTER TRUST FSB
By:
----------------------------------
John Van Heuvelen
President
ATTEST:
- -----------------------------
Executive Vice President
9
<PAGE>
EXHIBIT A
Dean Wittter Trust FSB
Harborside Financial Center, Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, (INSET NAME OF INVESTMENT COMPANY) a (Massachusetts
business trust/Maryland corporation) (the "Fund"), desires to employ and
appoint Dean Witter Trust FSB ("DWTFSB") to act as transfer agent for each
series and class of shares of the Fund, whether now or hereafter authorized
or issued ("Shares"), dividend disbursing agent and shareholder servicing
agent, registrar and agent in connection with any accumulation, open-account
or similar plan provided to the holders of Shares, including without
limitation any periodic investment plan or periodic withdrawal plan.
The Fund hereby agrees that, in consideration for the payment by the Fund
to DWTFSB of fees as set out in the fee schedule attached hereto as Schedule A,
DWTFSB shall provide such services to the Fund pursuant to the terms and
conditions set forth in the Transfer Agency and Service Agreement annexed
hereto, as if the Fund was a signatory thereto.
Please indicate DWTFSB's acceptance of employment and appointment by the
Fund in the capacities set forth above by so indicating in the space provided
below.
Very truly yours,
(NAME OF FUND)
By:
------------------------------------
Barry Fink
Vice President and General Counsel
ACCEPTED AND AGREED TO:
DEAN WITTER TRUST FSB
By:
---------------------------
Its:
--------------------------
Date:
-------------------------
<PAGE>
SCHEDULE A
Fund: Dean Witter Federal Securities Trust
Fees: (1) Annual maintenance fee of $13.20 per shareholder account,
payable monthly.
(2) A fee equal to 1/12 of the fee set forth in (1) above, for
providing Forms 1099 for accounts closed during the year, payable
following the end of the calendar year.
(3) Out-of-pocket expenses in accordance with Section 2.2 of the
Agreement.
(4) Fees for additional services not set forth in this Agreement
shall be as negotiated between the parties.
f:\schedA\20
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
December 5, 1997, relating to the financial statements and financial
highlights of Dean Witter Federal Securities Trust, which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
statement. We also consent to the reference to us under the heading
"Financial Highlights" in such Prospectus and to the references to us under
the headings "Independent Accountants" and "Experts" in the Statement of
Additional Information.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 19, 1997
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
10/31/97
CLASS A
6
YIELD = 2 { [ ((a-b) /cd) +1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding
d = The maximum offering price per share on the last
day of the period
6
YIELD = 2 { [ ((12,067.92 -1,600.71) /213,340.126 X 9.87) +1] -1}
= 6.04%
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
10/31/97
CLASS B
6
YIELD = 2 { [ ((a-b) /cd) +1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding
d = The maximum offering price per share on the last
day of the period
6
YIELD = 2 { [ ((3,736,677.58 - 800,686.34) /66,655,724.544 X9.36 ) +1] -1}
= 5.71%
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
10/31/97
CALSS C
6
YIELD = 2 { [ ((a-b) /cd) +1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding
d = The maximum offering price per share on the last
day of the period
6
YIELD = 2 { [ ((2,306.73 -515.82) /40,778.297 X9.44) +1] -1}
= 5.65%
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
10/31/97
CLASS D
6
YIELD = 2 { [ ((a-b) /cd) +1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding
d = The maximum offering price per share on the last
day of the period
6
YIELD = 2 { [ ((119.84-11.69) /2141.418 X 9.33) +1] -1}
= 6.58%
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
FEDERAL SECURITIES TRUST (A)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-97 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ------------ --------- ------------ --------- ----------------
28-Jul-97 $993.70 (0.63%) 0.26 NA
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-97 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------ --------- ----------- --------- ----------------
28-Jul-97 $1,037.80 3.78% 0.26 NA
(D) GROWTH OF $10,000*
(E) GROWTH OF $50,000*
(F) GROWTH OF $100,000*
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (D) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT-G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- -------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
28-Jul-97 3.78 $9,937 $50,074 $100,926
</TABLE>
*INITIAL INVESTMENT $9,575, $48,250 & 97,250 RESPECTIVELY REFLECTS A 4.25%, 3.5%
& 2.75% SALES CHARGE
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
FEDERAL SECURITIES TRUST (B)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-97 YEARS - n TOTAL RETURN - T
- ------------ --------- --------- ----------------
31-Oct-96 $1,028.90 1 2.89%
31-Oct-92 $1,333.80 5.00 5.93%
31-Oct-87 $2,152.80 10.00 7.97%
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-97 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------ --------- ----------- --------- ----------------
31-Oct-96 $1,078.90 7.89% 1.00 7.89%
31-Oct-92 $1,353.30 35.33% 5.00 6.24%
31-Oct-87 $2,152.80 115.28% 10.00 7.97%
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT -G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- --------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
31-Oct-87 112.12 $21,212 $106,060 $212,120
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
FEDERAL SECURITIES TRUST (C)
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-97 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ------------ --------- ------------ --------- ----------------
28-Jul-97 $1,025.40 2.54% 0.26 NA
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-97 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------ --------- ----------- --------- ----------------
28-Jul-97 $1,035.40 3.54% 0.26 NA
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (D) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT-G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- -------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
28-Jul-97 3.54 $10,354 $51,770 $103,540
</TABLE>
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
FEDERAL SECURITIES TRUST (D)
(A) TOTAL RETURN (NO LOAD FUND)
(B) AVERAGE ANNUAL TOTAL RETURNS (NO LOAD FUND)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(A) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-97 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
28-Jul-97 $1,026.20 2.62% 0.26 NA
</TABLE>
(C) GROWTH OF $10,000
(D) GROWTH OF $50,000
(E) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
$10,000 TOTAL (C) GROWTH OF (D) GROWTH OF (E) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT- G $50,000 INVESTMENT- G $100,000 INVESTMENT- G
- ------------ ----------- --------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
28-Jul-97 2.62 $10,262 $51,310 $102,620
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> FEDERAL SECURITIES TRUST (CLASS A)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 578,267,597
<INVESTMENTS-AT-VALUE> 615,023,947
<RECEIVABLES> 12,836,700
<ASSETS-OTHER> 35,194
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 627,895,841
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,005,627
<TOTAL-LIABILITIES> 2,005,627
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 643,138,969
<SHARES-COMMON-STOCK> 217,137
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (53,286,494)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,037,739
<NET-ASSETS> 2,051,451
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52,248,247
<OTHER-INCOME> 0
<EXPENSES-NET> 10,080,201
<NET-INVESTMENT-INCOME> 42,168,046
<REALIZED-GAINS-CURRENT> 690,276
<APPREC-INCREASE-CURRENT> 5,646,142
<NET-CHANGE-FROM-OPS> 48,504,464
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28,596)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 227,350
<NUMBER-OF-SHARES-REDEEMED> (13,026)
<SHARES-REINVESTED> 2,813
<NET-CHANGE-IN-ASSETS> (99,044,500)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (69,005,184)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,616,570
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,080,201
<AVERAGE-NET-ASSETS> 657,558,260
<PER-SHARE-NAV-BEGIN> 9.26
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> (0.16)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.45
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> FEDERAL SECURITIES TRUST (CLASS B)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 578,267,597
<INVESTMENTS-AT-VALUE> 615,023,947
<RECEIVABLES> 12,836,700
<ASSETS-OTHER> 35,194
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 627,895,841
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,005,627
<TOTAL-LIABILITIES> 2,005,627
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 643,138,969
<SHARES-COMMON-STOCK> 66,543,208
<SHARES-COMMON-PRIOR> 77,810,417
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (53,286,494)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,037,739
<NET-ASSETS> 623,048,694
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52,248,247
<OTHER-INCOME> 0
<EXPENSES-NET> 10,080,201
<NET-INVESTMENT-INCOME> 42,168,046
<REALIZED-GAINS-CURRENT> 690,276
<APPREC-INCREASE-CURRENT> 5,646,142
<NET-CHANGE-FROM-OPS> 48,504,464
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (42,134,728)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,820,412
<NUMBER-OF-SHARES-REDEEMED> (19,576,326)
<SHARES-REINVESTED> 2,488,705
<NET-CHANGE-IN-ASSETS> (99,044,500)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (69,005,184)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,616,570
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,080,201
<AVERAGE-NET-ASSETS> 657,558,260
<PER-SHARE-NAV-BEGIN> 9.25
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.36
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> FEDERAL SECURITIES TRUST (CLASS C)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 578,267,597
<INVESTMENTS-AT-VALUE> 615,023,947
<RECEIVABLES> 12,836,700
<ASSETS-OTHER> 35,194
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 627,895,841
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,005,627
<TOTAL-LIABILITIES> 2,005,627
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 643,138,969
<SHARES-COMMON-STOCK> 76,358
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (53,286,494)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,037,739
<NET-ASSETS> 720,681
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52,248,247
<OTHER-INCOME> 0
<EXPENSES-NET> 10,080,201
<NET-INVESTMENT-INCOME> 42,168,046
<REALIZED-GAINS-CURRENT> 690,276
<APPREC-INCREASE-CURRENT> 5,646,142
<NET-CHANGE-FROM-OPS> 48,504,464
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,477)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80,710
<NUMBER-OF-SHARES-REDEEMED> (4,622)
<SHARES-REINVESTED> 270
<NET-CHANGE-IN-ASSETS> (99,044,500)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (69,005,184)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,616,570
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,080,201
<AVERAGE-NET-ASSETS> 657,558,260
<PER-SHARE-NAV-BEGIN> 9.26
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.44
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> FEDERAL SECURITIES TRUST (CLASS D)
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 578,267,597
<INVESTMENTS-AT-VALUE> 615,023,947
<RECEIVABLES> 12,836,700
<ASSETS-OTHER> 35,194
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 627,895,841
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,005,627
<TOTAL-LIABILITIES> 2,005,627
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 643,138,969
<SHARES-COMMON-STOCK> 7,437
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (53,286,494)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36,037,739
<NET-ASSETS> 69,388
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 52,248,247
<OTHER-INCOME> 0
<EXPENSES-NET> 10,080,201
<NET-INVESTMENT-INCOME> 42,168,046
<REALIZED-GAINS-CURRENT> 690,276
<APPREC-INCREASE-CURRENT> 5,646,142
<NET-CHANGE-FROM-OPS> 48,504,464
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (245)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,413
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 24
<NET-CHANGE-IN-ASSETS> (99,044,500)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (69,005,184)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,616,570
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,080,201
<AVERAGE-NET-ASSETS> 657,558,260
<PER-SHARE-NAV-BEGIN> 9.26
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 0.07
<PER-SHARE-DIVIDEND> (0.17)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.33
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that WAYNE E. HEDIEN, whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald Feiman and
Stuart Strauss, or any of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of ANY OF THE
DEAN WITTER FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: September 1, 1997
/s/ WAYNE E. HEDIEN
--------------------------------------
Wayne E. Hedien
<PAGE>
SCHEDULE A
<TABLE>
<C> <S>
1. Active Assets Money Trust
2. Active Assets Tax-Free Trust
3. Active Assets Government Securities Trust
4. Active Assets California Tax-Free Trust
5. Dean Witter New York Municipal Money Market Trust
6. Dean Witter American Value Fund
7. Dean Witter Tax-Exempt Securities Trust
8. Dean Witter Tax-Free Daily Income Trust
9. Dean Witter Capital Growth Securities
10. Dean Witter U.S. Government Money Market Trust
11. Dean Witter Precious Metals and Minerals Trust
12. Dean Witter Developing Growth Securities Trust
13. Dean Witter World Wide Investment Trust
14. Dean Witter Value-Added Market Series
15. Dean Witter Utilities Fund
16. Dean Witter Strategist Fund
17. Dean Witter California Tax-Free Daily Income Trust
18. Dean Witter Convertible Securities Trust
19. Dean Witter Intermediate Income Securities
20. Dean Witter World Wide Income Trust
21. Dean Witter S&P 500 Index Fund
22. Dean Witter U.S. Government Securities Trust
23. Dean Witter Federal Securities Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter California Tax-Free Income Fund
26. Dean Witter New York Tax-Free Income Fund
27. Dean Witter Select Municipal Reinvestment Fund
28. Dean Witter Variable Investment Series
29. High Income Advantage Trust
30. High Income Advantage Trust II
31. High Income Advantage Trust III
32. InterCapital Insured Municipal Bond Trust
33. InterCapital Insured Municipal Trust
34. InterCapital Insured Municipal Income Trust
35. InterCapital Quality Municipal Investment Trust
36. InterCapital Quality Municipal Income Trust
37. Dean Witter Government Income Trust
38. Municipal Income Trust
39. Municipal Income Trust II
40. Municipal Income Trust III
41. Municipal Income Opportunities Trust
42. Municipal Income Opportunities Trust II
43. Municipal Income Opportunities Trust III
44. Municipal Premium Income Trust
45. Prime Income Trust
46. Dean Witter Short-Term U.S. Treasury Trust
47. Dean Witter Diversified Income Trust
48. InterCapital California Insured Municipal Income Trust
49. Dean Witter Health Sciences Trust
50. Dean Witter Global Dividend Growth Securities
51. InterCapital Quality Municipal Securities
</TABLE>
<PAGE>
<TABLE>
<C> <S>
52. InterCapital California Quality Municipal Securities
53. InterCapital New York Quality Municipal Securities
54. Dean Witter Retirement Series
55. Dean Witter Limited Term Municipal Trust
56. Dean Witter Short-Term Bond Fund
57. Dean Witter Global Utilities Fund
58. InterCapital Insured Municipal Securities
59. InterCapital Insured California Municipal Securities
60. Dean Witter High Income Securities
61. Dean Witter National Municipal Trust
62. Dean Witter International SmallCap Fund
63. Dean Witter Mid-Cap Growth Fund
64. Dean Witter Select Dimensions Investment Series
65. Dean Witter Global Asset Allocation Fund
66. Dean Witter Balanced Growth Fund
67. Dean Witter Balanced Income Fund
68. Dean Witter Intermediate Term U.S. Treasury Trust
69. Dean Witter Hawaii Municipal Trust
70. Dean Witter Japan Fund
71. Dean Witter Capital Appreciation Fund
72. Dean Witter Information Fund
73. Dean Witter Fund of Funds
74. Dean Witter Special Value Fund
75. Dean Witter Income Builder Fund
76. Dean Witter Financial Services Trust
77. Dean Witter Market Leader Trust
78. Dean Witter Managers' Select Fund
79. Dean Witter Liquid Asset Fund Inc.
80. Dean Witter Natural Resource Development Securities Inc.
81. Dean Witter Dividend Growth Securities Inc.
82. Dean Witter European Growth Fund Inc.
83. Dean Witter Pacific Growth Fund Inc.
84. Dean Witter High Yield Securities Inc.
85. Dean Witter Global Short-Term Income Fund Inc.
86. InterCapital Income Securities Inc.
</TABLE>
