<PAGE>
As filed with the Securities and Exchange Commission on February 17, 1994
Registration Nos.: 2-93785
811-4127
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 6 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
Amendment No. 8 /X/
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Dean Witter California Tax-Free Daily Income 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
SHELDON CURTIS, 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
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Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the registration statement
-------------------
It is proposed that this filing will become effective (check appropriate box)
<TABLE>
<S> <C>
immediately upon filing pursuant to paragraph (b)
X on February 18, 1994, pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on (date) pursuant to paragraph (a) of rule 485
</TABLE>
The Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Section (a)(1) of Rule 24f-2 under the
Investment Company Act of 1940. The Registrant filed the Rule 24f-2 Notice for
its fiscal year ended December 31, 1993 with the Securities and Exchange
Commission on January 31, 1994.
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<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
Cross-Reference Sheet
Form N-1A
<TABLE>
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Item Caption
Part A Prospectus
1. ......................................... Cover Page
2. ......................................... Prospectus Summary; Summary of Fund Expenses
3. ......................................... Financial Highlights; Report of Independent Accountants; Financial
Statements; Performance Information
4. ......................................... Investment Objective and Policies; The Fund and Its Management; Cover
Page; Investment Restrictions; Prospectus Summary; Financial
Highlights
5. ......................................... The Fund and Its Management; Back Cover; Investment Objective and
Policies
6. ......................................... Dividends, Distributions and Taxes; Additional Information
7. ......................................... Purchase of Fund Shares; Shareholder Services; Prospectus Summary
8. ......................................... Redemption of Fund Shares; Shareholder Services
9. ......................................... Not Applicable
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; Purchase of Fund Shares; Custodian and
Transfer Agent; Independent Accountants
17. ......................................... Portfolio Transactions and Brokerage
18. ......................................... Shares of the Fund
19. ......................................... Purchase of Fund Shares; Redemption of Fund Shares; Financial
Statements; Determination of Net Asset Value; Shareholder Services
20. ......................................... Dividends, Distributions and Taxes
21. ......................................... Purchase of Fund Shares
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
February 18, 1994
Dean Witter California Tax-Free Daily Income Trust (the "Fund")
is a no-load, open-end diversified management investment company whose
investment objective is to provide as high a level of daily income exempt from
federal and California income tax as is consistent with stability of principal
and liquidity. The Fund has a Rule 12b-1 Distribution Plan (see below). The Fund
seeks to achieve its objective by investing primarily in high quality California
tax-exempt securities with short-term maturities, including Municipal Bonds,
Municipal Notes and Municipal Commercial Paper. (See "Investment Objective and
Policies.")
An investment in the Fund is neither insured nor guaranteed by
the U.S. Government. There is no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
In accordance with a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Act") with Dean Witter
Distributors Inc. (the "Distributor"), the Fund is authorized to reimburse for
specific expenses incurred in promoting the distribution of the Fund's shares.
Reimbursement may in no event exceed an amount equal to payments at the annual
rate of 0.15% of the average daily net assets of the Fund.
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated February 18, 1994, which has been filed with
the Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at its address or at one of its telephone numbers listed on
this page. The Statement of Additional Information is incorporated herein by
reference.
<TABLE>
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Minimum initial investment............. $5,000
Minimum additional investment.......... $ 100
</TABLE>
For information on opening an account, registration of shares, and other
information relating to a specific account, call Dean Witter Trust Company at
800-526-3143 (toll free) or address your inquiries to P.O. Box 1040, Jersey
City, New Jersey 07303.
Table Of Contents
Prospectus Summary/2
Summary of Fund Expenses/3
Financial Highlights/4
The Fund and its Management/4
Investment Objective and Policies/5
Investment Restrictions/10
Purchase of Fund Shares/11
Shareholder Services/13
Redemption of Fund Shares/15
Dividends, Distributions and Taxes/17
Additional Information/19
Report of Independent Accountants/20
Financial Statements--December 31, 1993/21
Dean Witter
California Tax-Free Daily Income Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550
For information about the Fund, call:
- - 800-869-FUND (toll free)
- - 212-392-2550
- - For dividend information only
800-869-RATE (toll free)
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, 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 Distributors Inc.
Distributor
<PAGE>
<TABLE>
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Prospectus Summary
The Fund The Fund is organized as a Trust, commonly known as a
Massachusetts business trust, and is an open-end diversified
management investment company investing principally in
short-term securities which are exempt from federal and
California income tax.
Shares Offered Shares of beneficial interest with $0.01 par value. (see p.
19).
Purchase of Shares Investments may be made:
- By wire
- By mail
- Through Dean Witter Reynolds Inc. Account Executives and
other Selected Broker-Dealers
Purchases are at net asset value, without a sales charge.
Minimum initial investment: $5,000. Subsequent investments:
$100 or more through the Transfer Agent; $1,000 or more
through the account executive.
Orders for purchase of shares are effective on day of
receipt of payment in Federal funds if payment is received
by the Fund's transfer agent before 12:00 noon New York time
(see p. 11).
Investment Objective To provide as high a level of daily income exempt from
federal and California income tax as is consistent with
stability of principal and liquidity (see p. 5).
Investment Policy A diversified portfolio of California tax-exempt
fixed-income securities with short-term maturities (see p.
5).
Investment Manager Dean Witter InterCapital Inc., the Investment Manager of the
Fund, and its wholly-owned subsidiary, Dean Witter Services
Company Inc., serve in various investment management,
advisory, management and administrative capacities to
eighty-one investment companies and other portfolios with
assets of approximately $71.2 billion at December 31, 1993
(see page 4).
Management Fee The monthly fee is at an annual rate of 1/2 of 1% of average
daily net assets, scaled down on assets over $500 million
(see p. 4-5).
Distributor Dean Witter Distributors Inc. (the "Distributor") sells
shares of the Fund through Dean Witter Reynolds Inc. ("DWR")
and other selected dealers pursuant to selected dealer
agreements. Other than the reimbursement to the Distributor
pursuant to to the Rule 12b-1 Distribution Plan, the
Distributor receives no distribution fees. (See p. 11-12)
Plan of Distribution The Fund is authorized to reimburse specific expenses
incurred in promoting the distribution of the Fund's shares
pursuant to a Plan of Distribution with the Distributor
pursuant to Rule 12b-1 under the Investment Company Act of
1940. Reimbursement may in no event exceed an amount equal
to payments at the annual rate of .15 of 1% of average daily
net assets of the Fund (see p. 12).
Dividends Declared and automatically reinvested daily in additional
shares; cash payments of dividends available monthly (see p.
17).
Reports Individual periodic account statements; annual and
semi-annual Fund financial statements.
Redemption of Shares are redeemable at net asset value without any charge
(see p. 15):
Shares - By check
- By telephone or wire instructions, with proceeds wired or
mailed to a predesignated bank account
- By mail
- Via an automatic redemption procedure (see p. 16)
A shareholder's account is subject to possible involuntary
redemption if its value falls below $1,000 (see p. 16).
Risks The Fund invests principally in short-term fixed income
securities issued or guaranteed by the
state of California and its local governments which are
subject to minimal risk of loss of
income and principal. However, the investor is directed to
the discussions concerning
"variable rate obligations" and "when-issued and delayed
delivery securities" on page 7 of
the Prospectus and on page 10 of the Statement of Additional
Information and the
discussions concerning "repurchase agreements" and "puts" on
pages 11-12 of the
Statement of Additional Information, concerning any risks
associated with such portfolio
securities and management techniques. Since the Fund
concentrates its investments in
California tax-exempt securities, the Fund is affected by
any political, economic or regulatory
developments affecting the ability of California issuers to
pay interest or repay principal (see
pages 7-10 of the Prospectus and pages 15-18 of the
Statement of Additional Information).
</TABLE>
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THE PROSPECTUS
AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
2
<PAGE>
SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended December 31, 1993.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
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<S> <C> <C>
Maximum Sales Charge Imposed on Purchases............................................... None
Maximum Sales Charge Imposed on Reinvested Dividends.................................... None
Deferred Sales Charge................................................................... None
Redemption Fees......................................................................... None
Exchange Fees........................................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees......................................................................... 0.50%
0.10%
12b-1 Fees*.............................................................................
Other Expenses.......................................................................... 0.11%
Total Fund Operating Expenses........................................................... 0.71%
<FN>
- ------------------------------
* THE 12B-1 FEE IS CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., ("NASD") GUIDELINES.
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS
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<S> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period............... $ 7 $ 23 $ 40
<CAPTION>
EXAMPLE 10 YEARS
- ------------------------------------------------------------------------------- -------------
<S> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period............... $ 88
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and Its Management," "Purchase of Fund Shares--Plan of Distribution".
3
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse,
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 this Prospectus commencing on
page 20.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
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1993 1992 1991 1990 1989
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<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
Net investment income............................ 0.018 0.023 0.037 0.049 0.056
Less dividends from net investment income........ (0.018) (0.023) (0.037) (0.049) (0.056)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN............................ 1.78% 2.37% 3.77% 5.04% 5.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $251,059 $288,044 $332,426 $361,144 $341,682
Ratio of expenses to average net assets.......... 0.71 % 0.73 % 0.70 % 0.71 % 0.68%
Ratio of net investment income to average net
assets.......................................... 1.76 % 2.35 % 3.70 % 4.89 % 5.56%
<CAPTION>
FOR THE PERIOD
JULY 22, 1988*
THROUGH
DECEMBER 31,
1988
---------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $ 1.00
-------
Net investment income............................ 0.024
Less dividends from net investment income........ (0.024)
-------
Net asset value, end of period................... $ 1.00
-------
-------
TOTAL INVESTMENT RETURN............................ 2.45%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)......... $191,762
Ratio of expenses to average net assets.......... 0.67 %(1)(3)
Ratio of net investment income to average net
assets.......................................... 5.47 %(1)(3)
<FN>
- ------------------------------
* DATE OF COMMENCEMENT OF OPERATIONS.
(1) ANNUALIZED.
(2) NOT ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER, THE ABOVE ANNUALIZED EXPENSE RATIO WOULD HAVE BEEN .81%
($.004 PER SHARE) AND THE ABOVE ANNUALIZED NET INVESTMENT INCOME RATIO WOULD
HAVE BEEN 5.33% ($.024 PER SHARE).
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Dean Witter California Tax-Free Daily Income Trust (the "Fund") is an
open-end diversified management investment company. The Fund was organized as a
trust of the type commonly
known as a "Massachusetts business trust" on April 25, 1988 under the name of
Dean Witter/Sears California Tax-Free Daily Income Trust.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Dean Witter, Discover & Co. ("DWDC"), a
balanced financial services organization providing a broad range of nationally
marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to a total of eighty-one investment companies,
twenty-nine of which are listed on the New York Stock Exchange, with combined
total assets including this Fund of approximately $69.2 billion as of December
31, 1993. The Investment Manager also manages portfolios of pension plans, other
institutions and individuals which aggregated approximately $2.0 billion at such
date.
4
<PAGE>
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
Board of Trustees reviews the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily at an annual rate of
0.50% of the daily net assets of the Fund up to $500 million scaled down at
various asset levels to 0.25% on net assets exceeding $3 billion. For the fiscal
year ended December 31, 1993, the Fund accrued total compensation to the
Investment Manager amounting to 0.50% of the Fund's average daily net assets and
the Fund's total expenses amounted to 0.71% of the Fund's average daily net
assets.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to provide as high a level of daily
income exempt from federal and California income tax as is consistent with
stability of principal and liquidity. It is a fundamental policy of the Fund
that at least 80% of its total assets will be invested in securities the
interest on which is exempt from federal and California income tax. This policy
and the Fund's investment objective may not be changed without a vote of a
majority of the Fund's outstanding voting securities, as defined in the
Investment Company Act of 1940, as amended (the "Act"). There is no assurance
that the objective will be achieved.
The Fund seeks to achieve its investment objective by investing primarily in
high quality tax-exempt securities with short-term maturities (remaining
maturities of thirteen months or less). Such securities will include California
Municipal Bonds and California Municipal Notes ("California Municipal
Obligations") and California Municipal Commercial Paper which are rated in one
of the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations ("NRSROS"--primarily
Standard & Poor's Corporation ("S&P") and Moody's Investors Service
("Moody's")), or one NRSRO if the obligation is rated by only one NRSRO. Unrated
obligations may be purchased if they are determined to be of comparable quality
by the Fund's Trustees.
The types of taxable securities in which the Fund may temporarily invest are
limited to the following short-term fixed-income securities (maturing in one
year or less from the time of purchase); (i) obligations of the United States
Government or its agencies, instrumentalities or authorities; (ii) commercial
paper rated P-1 by Moody's or A-1 by S&P; (iii) certificates of deposit of
domestic banks with assets of $1 billion or more; and (iv) repurchase agreements
with respect to any of the foregoing portfolio securities.
California Municipal Obligations are debt obligations of a state, its
cities, municipalities and municipal agencies which generally have maturities,
at the time of their issuance, of either one year or more (Bonds) or from six
months to three years (Notes). California Municipal Commercial Paper refers to
short-term obligations of municipalities which may be issued at a discount and
are sometimes referred to as Short-Term Discount Notes. Any Municipal Obligation
which depends directly or indirectly on the credit of the Federal Government,
its agencies or instrumentalities shall be considered to have a Moody's rating
of Aaa or S&P rating of AAA. An obligation shall be considered a California
Municipal Obligation only if, in the opinion of bond counsel, the interest
payable therefrom is exempt from both federal income tax and California personal
income tax.
5
<PAGE>
The foregoing percentage and rating limitations apply at the time of
acquisition of a security based on the last previous determination of the Fund's
net asset value. Any subsequent change in any rating by a rating service or
change in percentages resulting from market fluctuations will not require
elimination of any security from the Fund's portfolio. However, in accordance
with procedures adopted by the Fund's Trustees pursuant to federal securities
regulations governing money market funds, if the Investment Manager becomes
aware that a portfolio security has received a new rating from an NRSRO that is
below the second highest rating, then, unless the security is disposed of within
five days, the Investment Manager will perform a creditworthiness analysis of
any such downgraded securities, which analysis will be reported to the Trustee
who will, in turn, determine whether the securities continue to present minimal
credit risks to the Fund.
The ratings assigned by NRSRO's represent their opinions as to the quality
of the securities which they undertake to rate (see the Appendix to the
Statement of Additional Information). It should be emphasized, however, that the
ratings are general and not absolute standards of quality.
The two principal classifications of California Municipal Obligations are
"general obligation" and "revenue" bonds, notes or commercial paper. General
obligation bonds, notes or commercial paper are secured by the issuer's pledge
of its faith, credit and taxing power for the payment of principal and interest.
Issuers of general obligation bonds, notes or commercial paper include a state,
its counties, cities, towns and other governmental units. Revenue bonds, notes
or commercial paper are payable from the revenues derived from a particular
facility or class of facilities or, in some cases, from specific revenue
sources. Revenue bonds, notes or commercial paper are issued for a wide variety
of purposes, including the financing of electric, gas, water and sewer systems
and other public utilities; industrial development and pollution control
facilities; single and multi-family housing units; public buildings and
facilities; air and marine ports, transportation facilities such as toll roads,
bridges and tunnels; and health and educational facilities such as hospitals and
dormitories. They rely primarily on user fees to pay debt service, although the
principal revenue source is often supplemented by additional security features
which are intended to enhance the creditworthiness of the issuer's obligations.
In some cases, particularly revenue bonds issued to finance housing and public
buildings, a direct or implied "moral obligation" of a governmental unit may be
pledged to the payment of debt service. In other cases, a special tax or other
charge may augment user fees.
Included within the revenue bonds category are participations in lease
obligations or installment purchase contracts (hereinafter collectively called
"lease obligations") of municipalities. State and local governments issue lease
obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer) have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
Lease obligations represent a relatively new type of financing that has not
yet developed the depth of marketability associated with more conventional
municipal obligations, and, as a result,
6
<PAGE>
certain of such lease obligations may be considered illiquid securities. To
determine whether or not the Fund will consider such securities to be illiquid
(the Fund may not invest more than ten percent of its net assets in illiquid
securities), the Trustees of the Fund have established guidelines to be utilized
by the Fund in determining the liquidity of a lease obligation. The factors to
be considered in making the determination include: 1) the frequency of trades
and quoted prices for the obligation; 2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; 3)
the willingness of dealers to undertake to make a market in the security; and 4)
the nature of the marketplace trades, including, the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of the
transfer.
The Fund does not generally intend to invest more than 25% of its total
assets in securities of any one governmental unit. The Fund may invest more than
25% of its total assets in industrial development and pollution control bonds
(two kinds of tax-exempt Municipal Bonds) whether or not the users of facilities
financed by such bonds are in the same industry. In cases where such users are
in the same industry, there may be additional risk to the Fund in the event of
an economic downturn in such industry, which may result generally in a lowered
need for such facilities and a lowered ability of such users to pay for the use
of such facilities.
The high quality, short-term fixed income securities in which the Fund
principally invests are guaranteed by state and local governments and are
subject to minimal risk of loss of income and principal.
PORTFOLIO MANAGEMENT
Although the Fund will generally acquire securities for investment with the
intent of holding them to maturity and will not seek profits through short-term
trading, the Fund may dispose of any security prior to its maturity to meet
redemption requests. Securities may also be sold when the Fund's Investment
Manager believes such disposition to be advisable on the basis of a revised
evaluation of the issuer or based upon relevant market considerations. There may
be occasions when, as a result of maturities of portfolio securities or sale of
Fund shares, or in order to meet anticipated redemption requests, the Fund may
hold cash which is not earning income.
The Fund anticipates that the average weighted maturity of the portfolio
will be 90 days or less. The relatively short-term nature of the Fund's
portfolio is expected to result in a lower yield than portfolios comprised of
longer-term tax-exempt securities.
VARIABLE RATE OBLIGATIONS. The interest rates payable on certain Municipal
Bonds and Municipal Notes are not fixed and may fluctuate based upon changes in
market rates. Municipal obligations of this type are called "variable rate" or
"floating rate" obligations. The interest rate payable on a variable rate
obligation is adjusted either at predesignated periodic intervals and on a
floating rate obligation whenever there is a change in the market rate of
interest on which the interest rate payable is based.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase
tax-exempt securities on a when-issued or delayed delivery basis; i.e., delivery
and payment can take place a month or more after the date of the transaction.
These securities are subject to market fluctuation and no interest accrues to
the purchaser prior to settlement. At the time the Fund makes the commitment to
purchase such securities, it will record the transaction and thereafter reflect
the value, each day, of such securities in determining its net asset value.
BROKERAGE ALLOCATION. Brokerage commissions are not normally charged on
purchases and sales of short-term municipal obligations, but such transactions
may involve transaction costs in the form of spreads between bid and asked
prices. Pursuant to an order of the Securities and Exchange Commission, the Fund
may effect principal transactions in certain money market instruments with DWR.
In addition, the Fund may incur brokerage commissions on transactions conducted
through DWR.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA TAX-EXEMPT SECURITIES
The Fund will be affected by any political, economic or regulatory
developments affecting the
7
<PAGE>
ability of California issuers to pay interest or repay principal on their
obligations. Various subsequent developments regarding the California
Consititution and State statutes which limit the taxing and spending authority
of California governmental entities may impair the ability of California issuers
to maintain debt service on their obligations. Of particular impact are
constitutional voter initiatives, which have become common in recent years. The
following information constitutes only a brief summary and is not intended as a
complete description.
In 1978, Proposition 13, an amendment to the California Constitution, was
approved, limiting real property valuation for property tax purposes and the
power of local governments to increase real property tax revenues and revenues
from other sources, Legislation adopted after Proposition 13 provided for
assistance to local governments, including the redistribution of the
then-existing surplus in the General Fund, reallocation of revenues to local
governments, and assumption by the State of certain local government
obligations. However, more recent legislation reduced such state assistance.
There can be no assurance that any particular level of State aid to local
governments will be maintained in future years. In NORDLINGER V. HAHN, the
United States Supreme Court upheld certain provisions of Proposition 13 against
claims that it violated the equal protection clause of the Constitution. In
1979, an amendment was passed adding Article XIIIB to the State Constitution. As
amended in 1990, Article XIIIB imposes an "appropriations limit" on the spending
authority of the State and local government entities. In general, the
appropriations limit is based on certain 1985-86 expenditures, adjusted annually
to reflect changes in the cost of living, population and certain services
provided by State and local government entities. "Appropriations limit" does not
include appropriations for qualified capital outlay projects, certain increases
in transportation-related taxes, and certain emergency appropriations.
In 1988, State voters approved Proposition 87, which amended Article XVI of
the State Constitution to authorize the State Legislature to prohibt
redevelopment agencies from receiving any property tax revenues raised by
increased property taxes to repay bonded indebtedness of local government which
is not approved by voters on or before January 1, 1989. It is not possible to
predict whether the State Legislature will enact such a prohibition, nor is it
possible to predict the impact of Proposition 87 on redevelopment agencies and
their ability to make payments on outstanding debt obligations.
In November 1988, California voters approved Propositon 98. This initiative
requires that revenues in excess of amounts permitted to be spent and which
would otherwise be returned by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 40%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
No such transfer or allocation of funds will be required if certain designated
state officials determine that annual student expenditures and class size meet
certain criteria as set forth in Proposition 98. Any funds allocated to the
State School Fund shall cause the appropriation limits to be annually increased
for any such allocation made in the prior year. Proposition 98 also requires the
State of California to provide a minimum level of funding for public schools and
community colleges. The initiative permits the enactment of legislation, by a
two-thirds vote, to suspend the minimum funding requirement for one year.
In July 1991, California increased taxes by adding two new marginal tax
rates, at 10% and 11%, effective for tax years 1991 through 1995. After 1995,
the maximum personal income tax rate is scheduled to return to 9.3%, and the
alternative minimum tax rate is scheduled to drop from 8.5% to 7%. In addition,
legislation in July 1991 raised the sales tax by 1.25%. 0.5% was a permanent
addition to counties, but with the money earmarked to trust funds to pay for
health and welfare programs whose administration was transferred to counties.
This tax increase will be cancelled if a court rules that such transfer and tax
increase violate any constitutional requirements. 0.5% of the State tax rate was
scheduled to expire on June 30, 1993, but was extended
8
<PAGE>
for six months for the benefit of counties and cities. On November 2, 1993,
voters made this half-percent levy a permanent source of funding for local
government.
Three court cases may further upset California's budgetary balance: one
concerning the medically indigent and Medi-Cal funding, a second concerning
employee pensions, and a third on California's unitary method of taxing
multinational companies. In KINLAW V. STATE OF CALIFORNIA, the State faced
possible retroactive reimbursement to counties of $2-$3 billion for Medi-CAl
costs for medically indigent adults. The ruling could have added annual
operating costs of $600-$700 million and would have precluded the State-county
realignment of responsiblities. On August 30, 1991, the California Supreme Court
over-turned the case on procedural grounds; however, a case of similar scope and
substance regarding employee pensions, SAN BERNADINO COUNTY V. STATE OF
CALIFORNIA, is pending in the Court of Appeals that raises the same substantial
questions. The California Supreme court in BARCLAY'S BANK INTERNATIONAL, LTD.
upheld California's unitary method of taxing multinational companies. The United
States Supreme Court has granted Certiorari in BARCLAY'S and the related case,
COLGATE-PALMOLIVE. An adverse holding could cost California $4 billion in
refunds and lost revenue, according to Brad Sherman, Chairman of the California
State Board of Equalization.
In "California Budget Outlook: A Staff Update To The Commission" (the
"Update"), the staff of the California Commission on State Finance (the
"Commission Staff") forecasts that economic conditions will stabilize in
California over the course of 1994, but that a meaningful economic recovery is
many months away. The Commission Staff notes that the proportional decline in
jobs, income, and sales since 1990 has been much greater in the south,
reflecting, among other things, the greater impact of defense cuts, home price
declines and related social and economic problems in the region. The Commission
Staff cautions, however, that California's economic woes extend well beyond
Southern California.
These economic difficulties have exacerbated the structural budget imbalance
which has been evident since fiscal year 1985-1986. Since that time, budget
shortfalls have become increasingly more difficult to solve. The State has
recorded General Fund operating deficits in five of the past six fiscal years.
Many of these problems have been attributable to the fact that the great
population influx has produced increased demand for education and social
services at a far greater pace than the growth in the State's tax revenues.
Despite substantial tax increases, expenditure reductions and the shift of some
expenditure responsibilities to local government, the budget condition remains
problematic. The State's General Fund revenues for the 1992-93 fiscal year
totalled nearly $2.5 billion less than the $43.4 billion that Governor Wilson
had projected. It is anticipated that revenues and transfers in the 1993-94
fiscal year will be lower than those in 1992-93 fiscal year. This represents the
second consecutive year of actual decline.
On June 30, 1993, the Governor signed into law a $52.1 billion budget which,
among other things, (a) shifts $2.6 billion of property taxes from cities,
counties, special districts and redevelopment agencies to schools and community
college districts, (b) reduces higher education and community college funding,
forcing higher student fees, and (c) reduces welfare grants and aid to the aged,
blind, and disabled. In addition, related legislation (a) suspends the renters'
tax credit for two years and (b) allows counties to reduce general assistance
welfare payments by as much as 27%. The stability of the budget would be
jeopardized if the property tax transfer were invalidated by the courts in
current and future cases between the State and its counties.
The current budget includes General Fund spending of $38.5 billion, down
$2.6 billion, or 6.3%, from the amount budgeted for the 1992-1993 fiscal year.
The Commission Staff estimates that the two-year budget plan adopted last June
is out of balance by at least $3.8 billion, due to continued economic weakness
and cost overruns in key State programs. The shortfall could grow to $5.6
billion if a
9
<PAGE>
recent Superior Court decision, CALIFORNIA TEACHERS ASSOCIATION V. GOULD, is
upheld on appeal and the $1.8 billion in "off-book" loans to schools are
reclassified as "on-book" General Fund appropriations. Furthermore, the
Commission Staff cautions that the shortfall could grow by an additional several
billion dollars if the economy falters or if the State loses other key cases
pending before the courts. Because of the State of California's continuing
budget problems, the State's General Obligation bonds were downgraded in 1992 by
Moody's from Aa1 to Aa and by Standard & Poor's from AA to A+.
The effect of these various constitutional and statutory amendments and
budget developments upon the ability of California issuers to pay interest and
principal on their obligations remains unclear and in any event may depend upon
whether a particular California tax-exempt security is a general or limited
obligation bond and on the type of security provided for the bond. It is
possible that other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future.
For a more detailed discussion of the State of California economic factors,
see the Statement of Additional Information.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
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.
For purposes of the following restrictions: (a) an "issuer" of a security is
the entity whose assets and revenues are committed to the payment of interest
and principal on that particular security, provided that the guarantee of a
security will be considered a separate security and provided further that a
guarantee of a security shall not be deemed to be a security issued by the
guarantor if the value of all securities issued or guaranteed by the guarantor
and owned by the Fund does not exceed 10% of the value of the total assets of
the Fund; (b) a "taxable security" is any security the interest on which is
subject to federal income tax; and (c) all percentage limitations apply
immediately after a purchase or initial investment, and any subsequent change in
any applicable percentage resulting from market fluctuations does not require
elimination of any security from the portfolio.
The Fund may not:
1. With respect to 75% of its total assets, purchase securities of any
issuer if, immediately thereafter, more than 5% of the value of its total
assets are in the securities of any one issuer (other than obligations
issued, or guaranteed by, the United States Government, its agencies or
instrumentalities or by the State of California or its political
subdivisions).
2. With respect to 75% of its total assets, purchase more than 10% of
all outstanding taxable debt securities of any one issuer (other than debt
securities issued, or guaranteed as to principal and interest by, the United
States Government, its agencies or instrumentalities).
3. Invest 25% or more of the value of its total assets in taxable
securities of issuers in any one industry (industrial development and
pollution control bonds are grouped into industries based upon the business
in which the issuers of such obligations are engaged). This restriction does
not apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities or by the State of California
or its political subdivisions, or to domestic bank obligations.
10
<PAGE>
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis,
without a sales charge. 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
through DWR and certain selected dealers who have entered into 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 offering price of the shares will be at their net asset value next
determined (see "Determination of Net Asset Value" below) after receipt of a
purchase order and acceptance by the Fund's transfer agent, Dean Witter Trust
Company (the "Transfer Agent") in proper form and accompanied by payment in
Federal Funds (i.e., monies of member banks within the Federal Reserve System
held on deposit at a Federal Reserve Bank) available to the Fund for investment.
Shares commence earning income on the day following the date of purchase. Share
certificates will not be issued unless requested in writing by the shareholder.
To initiate purchase by mail or wire, a completed Investment Application
(contained in the Prospectus) must be sent to the Transfer Agent at P.O. Box
1040, Jersey City, N.J. 07303. Checks should be made payable to the Dean Witter
California Tax-Free Daily Income Trust and sent to Dean Witter Trust Company at
the above address. Purchases by wire must be preceded by a call to the Transfer
Agent advising it of the purchase (see Investment Application or the front cover
of this Prospectus for the telephone number) and must be wired to The Bank of
New York, for credit to account of Dean Witter Trust Company, Harborside
Financial Center, Plaza Two, Jersey City, New Jersey, Account Number 8900188413.
Wire purchase instructions must include the name of the Fund and the
shareholder's account number. Purchases made by check are normally effective
within two business days for checks drawn on Federal Reserve System member
banks, and longer for most other checks. Wire purchases received by the Transfer
Agent prior to 12 noon New York time are normally effective that day and wire
purchases received after 12 noon New York time are normally effective the next
business day. Initial investments must be at least $5,000, although the Fund, at
its discretion, may accept initial investments of smaller amounts, not less than
$1,000. Subsequent investments must be $100 or more and may be made through the
Transfer Agent. The Fund will waive the minimum initial investment for the
automatic reinvestment of distributions from certain unit investment trusts. The
Fund reserves the right to reject any purchase order.
Orders for the purchase of Fund shares placed by customers through DWR or
another Selected Broker-Dealer with payment in clearing house funds will be
transmitted to the Fund with payment in Federal Funds on the business day
following the day the order is placed by the customer with DWR or another
Selected Broker-Dealer. Investors desiring same day effectiveness should wire
Federal Funds directly to the Transfer Agent. An order procedure exists pursuant
to which customers can, upon request; (a) have the proceeds from the sale of
listed securities invested in shares of the Fund on the day following the day
the customer receives such proceeds in his or her DWR or other selected
Broker-Dealer securities account; and (b) pay for the purchase of certain listed
securities by automatic liquidation of Fund shares owned by the customer. In
addition, there is an automatic purchase procedure whereby consenting DWR or
other selected Broker-Dealer customers who are shareholders of the Fund will
have free cash credit balances in their DWR or other selected Broker-Dealer
brokerage accounts as of the close of business (4:00 P.M., New York time) on the
last business day of each week (where such balances do not exceed $5,000)
automatically invested in shares of the Fund the next following business day.
Investors with free cash credit balances (i.e., immediately available funds) in
brokerage accounts at DWR or another Selected Broker-Dealer, will not have any
of such funds invested in the Fund until the business day
11
<PAGE>
after the customer places an order with DWR or another Selected Broker-Dealer to
purchase shares of the Fund and will not receive the daily dividend which would
have been received had such funds been invested in the Fund on the day the order
was placed with DWR or another Selected Broker-Dealer. Accordingly, DWR or any
other Selected Broker-Dealer who follows the above procedure may have the use of
such free credit balances during such period.
PLAN OF DISTRIBUTION
In accordance with a Plan of Distribution between the Fund and the
Distributor, pursuant to Rule 12b-1 under the Act, certain services and
activities in connection with the distribution of the Fund's shares are
reimbursable expenses. The principal activities and services which may be
provided by the Distributor, DWR, its affiliates and other Selected
Broker-Dealers under the Plan include: (1) compensation to, and expenses of,
DWR's and other Selected Broker-Dealers' account executives and other employees,
including overhead and telephone expenses; (2) sales incentives and bonuses to
sales representatives and to marketing personnel in connection with promoting
sales of the Fund's shares; (3) expenses incurred in connection with promoting
sales of the Fund's shares; (4) preparing and distributing sales literature; and
(5) providing advertising and promotional activities, including direct mail
solicitation and television, radio, newspaper, magazine and other media
advertisements. Reimbursements for these services will be made in monthly
payments by the Fund, which will in no event exceed an amount equal to a payment
at the annual rate of 0.15 of 1% of the Fund's average daily net assets. For the
fiscal year ended December 31, 1993, the fee paid was accrued at the annual rate
of 0.10 of 1% of the Fund's average daily net assets. Expenses incurred pursuant
to the Plan in any fiscal year will not be reimbursed by the Trust through
payments accrued in any subsequent fiscal year.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined at 4:00 p.m. New
York time on each day that the New York Stock Exchange is open by taking the
value of all assets of the Fund, subtracting its liabilities and dividing by the
number of shares outstanding. 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.
The Fund utilizes the amortized cost method in valuing its portfolio
securities, which method involves valuing a security at its cost adjusted by a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. The
purpose of this method of calculation is to facilitate the maintenance of a
constant net asset value per share of $1.00. However, there can be no assurance
that the $1.00 net asset value will be maintained.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available for shareholders who own or
purchase shares of the Fund having a minimum value of at least $5,000. The plan
provides for monthly or quarterly (March, June, September, December) checks in
any dollar amount not less than $25 or in any whole percentage of the account
balance, on an annualized basis. The shares will be redeemed at their net asset
value, determined at the shareholder's option, on the tenth or twenty-fifth (or
next 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 Dealer brokerage account, within five days
after the date of redemption. A shareholder wishing to make this election should
do so on the Investment Application. The withdrawal plan may be terminated at
any time by the Fund.
12
<PAGE>
EASYINVEST-TM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. 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.
EXCHANGE PRIVILEGE. An "Exchange Privilege", that is, the privilege of
exchanging shares of certain Dean Witter Funds for shares of the Fund, exists
whereby shares of various Dean Witter Funds which are open-end investment
companies sold with either a front-end (at time of purchase) sales charge ("FESC
funds") or a contingent deferred sales charge ("CDSC funds"), may be redeemed at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the Fund, DEAN WITTER TAX-FREE DAILY INCOME TRUST,
DEAN WITTER U.S. GOVERNMENT MONEY MARKET TRUST, DEAN WITTER LIQUID ASSET FUND
INC. and DEAN WITTER NEW YORK MUNICIPAL MONEY MARKET TRUST (which five funds are
hereinafter called "money market funds") and for shares of DEAN WITTER
SHORT-TERM U.S. TREASURY TRUST, DEAN WITTER LIMITED TERM MUNICIPAL TRUST AND
DEAN WITTER SHORT-TERM BOND FUND (the foregoing eight non-CDSC or FESC funds are
hereinafter collectively referred to in this section as the "Exchange Funds").
When exchanging into a money market fund from an FESC fund or a CDSC fund,
shares of the FESC fund or the CDSC fund are redeemed at their next calculated
net asset value and exchanged for shares of the money market fund at their net
asset value determined the following business day. An exchange from an FESC fund
or a CDSC fund to AN 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. Subsequently, shares of the Exchange Funds received
in an exchange for shares of an FESC fund (regardless of the type of fund
originally purchased) may be redeemed and exchanged for shares of the other
Exchange Funds, FESC funds or CDSC funds (however, shares of CDSC funds,
including shares acquired in exchange for (i) shares of FESC funds or (ii)
shares of the Exchange Funds which were acquired in exchange for shares of FESC
funds, may not be exchanged for shares of FESC funds). Additionally, shares of
the Exchange Funds received in an exchange for shares of a CDSC fund (regardless
of the type of fund originally purchased) may be redeemed and exchanged for
shares of the other Exchange Funds or CDSC funds. Ultimately, any applicable
contingent deferred sales charge ("CDSC") will have to be paid upon redemption
of shares originally purchased from a CDSC fund. (If shares of the Exchange
Funds received in exchange for shares originally purchased from a CDSC fund are
exchanged for shares of another CDSC fund having a different CDSC schedule than
that of the CDSC fund from which the Exchange Funds shares were acquired, the
shares will be subject to the higher CDSC schedule.) During the period of time
the shares originally purchased from a CDSC fund remain in the Exchange Funds,
the holding period (for the purpose of determining the rate of CDSC) is frozen
so that the charge is based upon the period of time the share-holder actually
held shares of a CDSC fund. However, in the case of shares exchanged into
Exchange Funds 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 Funds 12b-1 distribution fees
incurred on or after that date which are attributable to those shares (see "Plan
of Distribution"). Exchanges involving FESC funds or CDSC funds may be made
after the shares of the FESC fund or CDSC 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.
Exchange Privilege accounts may also be maintained for shareholders of the
money market funds who acquired their shares in exchange for shares of various
TCW/DW Funds, a group of funds distributed by the Distributor for which TCW
Funds
13
<PAGE>
Management, Inc. serves as Adviser, under the terms and conditions described in
the Prospectus and Statement of Additional Information of each TCW/DW Fund.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders and,
at the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/ or exchanges from the investor. Although the
Fund does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange.
Also, the Exchange Privilege may be terminated or revised at any time by the
Fund and/or any of such Dean Witter Funds for which shares of the Fund may be
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 one and read it carefully before
investing. Exchanges are subject to the minimum investment requirement and any
other conditions imposed by each fund. An exchange will be treated for federal
income tax purposes the same as a repurchase or redemption of shares on which
the shareholder has realized 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 DWR or another Selected Broker-Dealer account
executive (no Exchange Privilege Authorization Form is required). Other
shareholders (and those who are clients of DWR or another Selected Broker-Dealer
but who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 526-3143 (toll free).
The Fund will employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. Such procedures may include
requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. Telephone exchange
instructions will be accepted if received by the Transfer Agent between 9:00
a.m. and 4:00 p.m. New York time, on any day the New York Stock Exchange is
open. Any shareholder wishing to make an exchange who has previously filed an
Exchange Privilege Authorization Form and who is unable to reach the Fund by
telephone should contact his or her DWR or other Selected Broker-Dealer account
executive, if appropriate, or make a written exchange request. Shareholders are
advised that during periods of drastic economic or market
14
<PAGE>
<TABLE>
<CAPTION>
APPLICATION
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
Send to: Dean Witter Trust Company (the ""Transfer Agent''), P.O. Box 1040, Jersey City, NJ 07303
<C> <S>
- -----------------------------------------------------------------------------------------------------------------------------------
INSTRUCTIONS | For assistance in completing this application, telephone Dean Witter Trust Company at (800) 526-3143 (Toll
| Free).
- -----------------------------------------------------------------------------------------------------------------------------------
|
TO REGISTER |
SHARES | 1.| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(please print) | ___________________________________________________________________________________________________________
First Name Last Name
|
- -As joint tenants, |
use line 1 & 2 | 2.| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ___________________________________________________________________________________________________________
| First Name Last Name
|
| (Joint tenants with rights of survivorship unless otherwise specified)
| | | | | | | | |
| ----------------------
| Social Security Number
- - As custodian | 3.| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
for a minor | __________________________________________________________________________________________________________
user lines 1 & 3 | Minor's Name
| | | | | | | | | | | |
| ______________________________
| Under the_____________________________Uniform Gifts to Minors Act Minor's Social Security Number
| State of Residence of Minor
|
- -In the name of a |
corporation, |
trust, |
partnership | 4.| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
or other | __________________________________________________________________________________________________________
institutional | Name of Corporation, Trust (including trustee name(s)) or Other Organization
investors, use |
line 4 |
| | | | | | | | | | | | | |
| _________________________
| If Trust, Date of Trust Instrument:__________________________________ Tax Identification Number
|
- -------------------|--------------------------------------------------------------------------------------------------------------
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ___________________________________________________________________________________________________________
ADDRESS |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ____________________________________________________________________________________________________________
| City State Zip Code
|
- -------------------|---------------------------------------------------------------------------------------------------------------
|
TO PURCHASE |
SHARES: |
|
Minimum Initial | / / CHECK (enclosed) $_________ (Make Payable to Dean Witter California Tax-Free Daily Income Trust)
Investment: |
$5,000 | / / WIRE* On____________ MF*____________________________________
| (Date) (Control number, this transaction)
|
| _________________________________________________________________________________________________________
| Name of Bank Branch
|
| __________________________________________________________________________________________________________
| Address
|
| _________________________________________________________________________________________________________
| Telephone Number
|
| *For an initial investment made by wiring funds, obtain a control number by calling: (800) 526-3143
| (Toll Free).
| Your bank should wire to:
|
| Bank of New York for credit to account of Dean Witter Trust Company
|
| Account Number:8900188413
|
| Re: Dean Witter California Tax-Free Daily Income
|
| Account Of:________________________________________________________
| (Investor's Account as Registered at the Transfer Agent)
|
| Control or Account Number:_________________________________________
| (Assigned by Telephone)
|
- ------------------------------------------------------------------------------------------------------------------------------------
OPTIONAL SERVICES
- ------------------------------------------------------------------------------------------------------------------------------------
|
| NOTE: If you are a current shareholder of Dean Witter California Tax Free Daily Income Trust, please indicate
| your fund account number here.
|
| [4] [4] [0] - | | | | | | | | | |
| ----------------------------
___________________|________________________________________________________________________________________________________________
|
DIVIDENDS |All dividends will be reinvested daily in additional shares, unless the following option is selected:
|
| / / Pay income dividends by check at the end of each month.
___________________|_______________________________________________________________________________________________________________
|
WRITE YOUR |Send an initial supply of checks.
OWN |FOR JOINT ACCOUNTS:
CHECK |/ / CHECK THIS BOX IF ALL OWNERS ARE REQUIRED TO SIGN CHECKS.
|
___________________|_______________________________________________________________________________________________________________
|
SYSTEMATIC |/ / Systematic Withdrawal Plan ($25 minimum) / / Percentage of balance (annualized basis)
WITHDRAWAL | $ / / Monthly or / / Quarterly _______% / /Monthly or / / Quarterly
PLAN | / / 10th or / / 25th of Month/Quarter / / 10th or / / 25th of Month/Quarter
Minimum Account |/ / Pay shareholder(s) at address of record.
Value: $5,000 |/ /Pay to the following: (If this payment option is selected a signature guarantee is required)
|
|_______________________________________________________________________________________________________________
|Name
|
|_______________________________________________________________________________________________________________
|Address
|
|_______________________________________________________________________________________________________________
City State Zip Code
</TABLE>
<PAGE>
<TABLE>
<C> <S>
___________________________________________________________________________________________________________________________________
PAYMENT TO |
PREDESIGNATED |
BANK ACCOUNT |
| Dean Witter Trust Company is hereby authorized to honor telephonic or other instructions,
| without signature guarantee, from any person for the redemption of any or all shares of
| Dean Witter New York Municipal Money Market Trust held in my (our) account provided that
| proceeds are transmitted only to the following bank account. (Absent its own negligence,
| neither Dean Witter New York Municipal Money Market Trust nor Dean Witter Trust Company
| (the "Transfer Agent") shall be liable for any redemption caused by unauthorized
| instruction(s)):
|
Bank Account |
must be in same |
name as shares |
are registered | _____________________________________________________________ ____________________________
| NAME & BANK ACCOUNT NUMBER BANK'S ROUTING TRANSMIT CODE
| (ASK YOUR BANK)
|
Minimum Amount: | _____________________________________________________________________________________________________________
$1,000 | NAME OF BANK
|
| ____________________________________________________________________________________________________________
| ADDRESS OF BANK
|
|
| (___)_________________________________________________________________________________________________________
| TELEPHONE NUMBER OF BANK
- -------------------|--------------------------------------------------------------------------------------------------------------
| SIGNATURE AUTHORIZATION
- -------------------|--------------------------------------------------------------------------------------------------------------
OR ALL ACCOUNTS | NOTE: RETAIN A COPY OF THIS DOCUMENT FOR YOUR RECORDS. ANY MODIFICATION OF THE INFORMATION BELOW WILL REQUIRE
| AN AMENDMENT TO THIS FORM. THIS DOCUMENT IS IN FULL FORCE AND EFFECT UNTIL ANOTHER DULY EXECUTED FORM IS
| RECEIVED BY THE TRANSFER AGENT.
|
| The "Transfer Agent" is hereby authorized to act as agent for the registered owner of shares of Dean Witter
| California Tax-Free Daily Income Trust (the "Fund") in effecting redemptions of shares and is authorized to
| recognize the signature(s) below in payment of funds resulting from such redemptions on behalf of the
| registered owners of such shares. The Transfer Agent shall be liable only for its own negligence and not for
| 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.
|
| I (we) certify to my (our) legal capacity, or the capacity of the investor named above, to invest in and
| redeem shares of, and I (we) acknowledge receipt of a current prospectus of, Dean Witter California Tax-Free
| Daily Income Trust and (we) further certify my (our) authority to sign and act for and on behalf of the
| investor.
|
| Under penalties of perjury, I certify (1) that the number shown on this form is my correct taxpayer
| identification number and (2) that I am not subject to backup withholding either because I have not been
| notified that I am subject to backup withholding as a result of a failure to report all interest or
| dividends, or the Internal Revenue Service has notified me that I am no longer subject to backup withholding.
| (Note: You must cross out item (2) above if you have been notified by IRS that you are currently subject
| to backup withholding because of underreporting interest or dividends on your tax return.)
|
| For Individual, Joint and Custodial Accounts for Minors, Check Applicable Box:
|
| / / I am a United States Citizen. / / I am not a United States Citizen.
|
|
| SIGNATURE(S) (IF JOINT TENANTS, ALL MUST SIGN)
|
Name(s) must be | ______________________________________________________________________________________________________________
signed exactly the | | | |
same as shown on | | | |
lines 1 to 4 on | | | |
the reverse side | | | |
of this | | | |
application | |________________________________________________________|____________________________________________________|
| | | |
| | | |
| | | |
| | | |
| | | |
| |_____________________________________________________________________________________________________________|
|
|
|
| SIGNED THIS________________________DAY OF_________________________, 19__.
|
|
| FOR CORPORATIONS, TRUSTS, PARTNERSHIPS AND OTHER ORGANIZATIONS
| The following named persons are currently officers/trustees/general partners/other authorized signatories
| of the Registered Owner, and any __* of them ( "Authorized Person(s)") is/are currently authorized
| under the applicable governing document to act with full power to sell, assign or transfer securities of the
| the Fund for the Registered Owner and to execute and deliver any instrument necessary to effectuate the
| authority hereby conferred:
|
| NAME/TITLE SIGNATURE
In addition, | ______________________________________________________________________________________________________________
complete Section | | | |
A or B below. | | | |
| | | |
| | | |
| | | |
| |________________________________________________________|____________________________________________________|
| | | |
| | | |
| | | |
| | | |
| | | |
| |________________________________________________________|____________________________________________________|
| | | |
| | | |
| | | |
| | | |
| | | |
| |_____________________________________________________________________________________________________________|
|
| SIGNED THIS______________________DAY OF________________________, 19___.
|
| The Transfer Agent may, without inquiry, act only upon the instruction of ANY PERSON(S) purporting to be (an)
| Authorized Person(s) as named in the Certification Form last received by the Transfer Agent. The Transfer
| Agent and the Fund shall not be liable for any claims, expenses (including legal fees) or losses resulting
| from the Transfer Agent having acted upon any instruction reasonably believed genuine.
|
|
| ______________________________________________________________________________________________________________
| *INSERT A NUMBER. UNLESS OTHERWISE INDICATED, THE TRANSFER AGENT MAY HONOR INSTRUCTIONS OF ANY ONE OF THE
| PERSONS NAMED ABOVE.
___________________________________________________________________________________________________________________________________
SECTION (A) | NOTE: EITHER A SIGNATURE GUARANTEE OR CORPORATE SEAL IS REQUIRED.
CORPORATIONS AND |
INCORPORATED |
ASSOCIATIONS ONLY. |I, ________________________________, Secretary of the Registered Owner, do hereby certify that at a meeting
|on ___________________________ at which a quorum was present throughout, the Board of Directors of the
|corporation/the officers of the association duly adopted a resolution, which is in full force and effect
SIGN ABOVE AND |and in accordance with the Registered Owner's charter and by-laws, which resolution did the following:
COMPLETE THIS |(1) empowered the above-named Authorized Person(s) to effect securities transactions for the Registered
SECTION |Owner on the terms described above; (2) authorized the Secretary to certify, from time to time, the names
|and titles of the officers of the Registered Owner and to notify the Transfer Agent when changes
|in office occur; and (3) authorized the Secretary to certify that such a resolution has been duly adopted
|and will remain in full force and effect until the Transfer Agent receives a duly executed amendment to the
|Certification Form.
|
SIGNATURE |
GUARANTEE** |
(or Corporate Seal)|Witness my hand on behalf of the corporation/association this ________________ day of ______________, 19__.
|
|
| _______________________________________________
| Secretary**
|The undersigned officer (other than the Secretary) hereby certifies that the foregoing instrument has been
|signed by the Secretary of the corporation/association.
SIGNATURE |
GUARANTEE** |
(or Corporate Seal)| _____________________________________________________________________
| Certifying Officer of the Corporation or Incorporated Association**
|
___________________|____________________________________________________________________________________________________________
|
SECTION (B) ALL |NOTE: A SIGNATURE GUARANTEE IS REQUIRED.
OTHER |
INSTITUTIONAL | _______________ _________________________________________________________
INVESTORS | Certifying
| Trustee(s)/General Partner(s)/Other(s)**
|
SIGNATURE |
GUARANTEE** |
|
SIGN ABOVE AND | ----------------------------------------------------------
COMPLETE THIS | Certifying
SECTION | Trustee(s)/General Partner(s)/Other(s)**
|
|_______________________________________________________________________________________________________________
|** SIGNATURE(S) MUST BE GUARANTEED BY AN ELIBIGLE GUARANTOR
- -------------------|----------------------------------------------------------------------------------------------------------------
|
DEALER |Above signature(s) guaranteed. Prospectus has been delivered by undersigned to above-named applicant(s).
(if any) |
Completion by |
dealer only |
|________________________________________ __________________________________________________________
|Firm Name Office Number Account Number at Dealer-A/E Number
|
|________________________________________ __________________________________________________________
|Address Account Executive's Last Name
|
|________________________________________ __________________________________________________________
|City, State, Zip Code Branch Office
1994 Dean Witter Distributors Inc.
</TABLE>
<PAGE>
changes, it is possible that the telephone exchange procedures may be difficult
to implement, although this has not been the experience of this Fund and the
other Dean Witter Funds in the past.
Additional information on the above is available from an account executive
of DWR or another Selected Broker-Dealer or from the Transfer Agent.
REDEMPTION OF FUND SHARES
- --------------------------------------------------------------------------------
A shareholder may withdraw all or any of his or her investments at any time,
without penalty or charge, by redeeming shares through the Transfer Agent at the
net asset value per share next determined (see "Purchase of Fund Shares --
Determination of Net Asset Value") after the receipt of a redemption request
meeting the applicable requirements as follows (all of which are subject to the
General Redemption Requirements set forth below).
1. BY CHECK
The Transfer Agent will supply blank checks to any shareholder who has
requested them on an Investment Application. The shareholder may make checks
payable to the order of anyone in any amount not less than $500 (checks written
in amounts under $500 will not be honored by the Transfer Agent). Shareholders
must sign checks exactly as their shares are registered. If the account is a
joint account, the check may contain one signature unless the joint owners have
specified on an Investment Application that all owners are required to sign
checks. Only shareholders having accounts in which no share certificates have
been issued will be permitted to redeem shares by check.
Shares will be redeemed at their net asset value next determined (see
"Purchase of Fund Shares -- Determination of Net Asset Value") after receipt by
the Transfer Agent of a check which does not exceed the value of the account.
Payment of the proceeds of a check will normally be made on the next business
day after receipt by the Transfer Agent of the check in proper form. Shares
purchased by check (including a government, certified or bank cashier's check)
are not normally available to cover redemption checks until fifteen days after
receipt of the check used for investment by the Transfer Agent. The Transfer
Agent will not honor a check in an amount exceeding the value of the account at
the time the check is presented for payment.
2. BY TELEPHONE OR WIRE INSTRUCTIONS WITH PAYMENT TO PREDESIGNATED BANK ACCOUNT
A shareholder may redeem shares by telephoning or sending wire instructions
to the Transfer Agent. Payment will be made by the Transfer Agent to the
shareholder's bank account at any commercial bank designated by the shareholder
in an Investment Application, by wire if the amount is $1,000 or more and the
shareholder so requests, and otherwise by mail. Normally, the Transfer Agent
will transmit payment the next business day following receipt of a request for
redemption in proper form. Only shareholders having accounts in which no share
certificates have been issued will be permitted to redeem shares by telephone or
wire instructions.
DWR and other participating Selected Broker-Dealers have informed the
Distributor and the Fund that, on behalf of and as agent for their customers who
are shareholders of the Fund, they will transmit to the Fund requests for
redemption of shares owned by their customers. In such cases, the Transfer Agent
will wire proceeds of redemptions to DWR's or another Selected Broker-Dealer's
bank account for credit to the shareholders' accounts the following business
day. DWR and other participating Selected Broker-Dealers have also informed the
Distributor and the Fund that they do not charge for this service.
Redemption instructions must include the shareholder's name and account
number and be wired or called to the Transfer Agent:
-- 800-526-3143 (Toll Free)
-- Telex No. 125076
15
<PAGE>
3. BY MAIL
A shareholder may redeem shares by sending a letter to Dean Witter Trust
Company, P.O. Box 983, Jersey City, NJ 07303, requesting redemption and
surrendering share certificates if any have been issued.
Redemption proceeds will be mailed to the shareholder at his or her
registered address or mailed or wired to his or her predesignated bank account,
as he or she may request. Proceeds of redemption may also be sent to some other
person, as requested by the shareholder.
GENERAL REDEMPTION REQUIREMENTS
Written requests for redemption must be signed by the registered
shareholder[s]. If the proceeds are to be paid to anyone other than the
registered shareholder[s] or sent to any address other than the shareholder's
registered address or predesignated bank account, signatures must be guaranteed
by an eligible guarantor, except in the case of redemption by check. Additional
documentation may be required where shares are held by a corporation,
partnership, trustee or executor. With regard to shares of the Fund acquired
pursuant to the Exchange Privilege, any applicable contingent deferred sales
charge will be imposed upon the redemption of such shares (see "Purchase of Fund
Shares -- Exchange Privilege").
If shares to be redeemed are represented by a share certificate, the request
for redemption must be accompanied by the share certificate and a share
assignment form signed by the registered shareholder[s] exactly as the account
is registered. Shareholders are advised, for their own protection, to send the
share certificate and assignment form in separate envelopes (if they are being
mailed and not hand delivered) to the Transfer Agent. 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). Additional
documentation may be required where shares are held by a corporation,
partnership, trustee or executor.
All requests for redemption, all share certificates and all share
assignments should be sent to Dean Witter Trust Company, P.O. Box 983, Jersey
City, NJ 07303.
Generally, the Fund will attempt to make payment for all redemptions within
one business day, but in no event later than seven days after receipt of such
redemption request in proper form. However, if the shares being redeemed were
purchased by check (including a certified or bank cashier's check), payment 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). In addition, the Fund may postpone
redemptions at certain times when normal trading is not taking place on the New
York Stock Exchange.
The Fund reserves the right, on 60 day's 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 $1,000, or such lesser amount as may be fixed by the
Board of Trustees.
AUTOMATIC REDEMPTION PROCEDURE
The Distributor has instituted an automatic redemption procedure which it
may utilize to satisfy amounts due by a shareholder maintaining a brokerage
account with DWR or another Selected Broker-Dealer, as a result of purchases of
securities or other transactions in the shareholder's brokerage account. Under
this procedure, if the shareholder elects to participate by so notifying DWR or
other Selected Broker-Dealer, the shareholder's DWR or other Selected
Broker-Dealer brokerage account will be scanned each business day prior to the
close of business (4:00 P.M., New York time). After application of any cash
balances in the account, a sufficient number of Fund shares may be redeemed at
the close of business to satisfy any amounts for which the shareholder is
obligated to make payment to DWR or another Selected Broker-Dealer.
16
<PAGE>
Redemptions will be effected on the business day preceding the date the
shareholder is obligated to make such payment, and DWR or another Selected
Broker-Dealer will receive the redemption proceeds on the day following the
redemption date. Shareholders will receive all dividends declared and reinvested
through the date of redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends, payable on each
day the New York Stock Exchange is open for business, of all of its daily net
investment income to shareholders of record as of the close of business the
preceding business day. Dividends from net short-term capital gains, if any,
will be paid periodically. The amount of dividend may fluctuate from day to day
and may be omitted on some days if net realized losses on portfolio securities
exceed the Fund's net investment income. Dividends are declared and
automatically reinvested daily in additional full and fractional shares of the
Fund at the net asset value per share at the close of business on that day. 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.
Shareholders may instruct the Transfer Agent (in writing) to have their
dividends paid out monthly in cash. For such shareholders, the shares reinvested
and credited to their account during the month will be redeemed as of the close
of business on the monthly payment date (which will be no later than the last
business day of the month) and the proceeds will be paid to them by check.
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.
TAXES. Because the Fund intends to distribute substantially all of its net
investment income and net capital gains, if any, to shareholders, and intends to
otherwise comply with all the provisions of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), to qualify as a regulated investment
company, it is not expected that the Fund will be required to pay any federal
income tax.
The Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders by maintaining, as of the close of each quarter of its taxable
year, at least 50% of the value of its total assets in tax-exempt securities. If
the Fund satisfies such requirement, dividends from net investment income to
shareholders, whether taken in cash or reinvested in additional Fund shares,
will be excludable from gross income for federal income tax purposes to the
extent net interest income is represented by interest on tax-exempt securities.
Exempt-interest dividends are included, however, in determining what portion, if
any, of a person's Social Security benefits are subject to federal income tax.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. This alternative minimum tax applies
to interest received on "private activity bonds" (in general, bonds that benefit
non-governmental entities) issued after August 7, 1986 which, although
tax-exempt, are used for purposes other than those generally performed by
governmental units (e.g., bonds used for commercial or housing purposes). Income
received on such bonds is classified as a "tax preference item", under the
alternative minimum tax, for both individual and corporate investors. A portion
of the Fund's investments may be made in such "private activity bonds," with the
result that a portion of the exempt-interest dividends paid by the Fund may be
an item of tax preference to shareholders subject to the alternative minimum
tax. In addition, certain corporations which are subject to the alternative
minimum tax may have to include a portion of exempt-interest dividends in
calculating their alternative minimum taxable income in situations where the
"adjusted current earnings" of the corporation exceeds its alternative minimum
taxable income.
17
<PAGE>
Under California law, a fund which qualifies as a regulated investment
company must have at least 50% of the value of its total assets invested in
California state and local issues or in obligations of the United States which
pay interest excludable from income (or in a combination thereof), at the end of
each quarter of its taxable year in order to be eligible to pay dividends which
will be exempt from California personal income tax. Shareholders who are
California residents will not incur any federal or California income tax on the
amount of exempt-interest dividends received by them from the Fund and derived
from California state and local issues or certain United States issues whether
taken in cash or reinvested in additional shares (to the extent that such
dividends are derived from California securities).
After the end of its calendar year, the shareholders will be sent a
statement indicating the percentage of the dividend distributions for such
taxable year which constitutes exempt-interest dividends and the percentage, if
any, that is taxable, and the percentage, if any, of the exempt-interest
dividends which constitutes an item of tax preference. Unlike federal law, no
portion of the exempt-interest dividends will constitute an item of tax
preference for California personal income tax purposes. Moreover, unlike federal
law, an individual's Social Security benefits are not subject to California
personal income tax, so that the receipt of California exempt-interest dividends
will have no effect on an individual's California personal income tax.
Shareholders will normally be subject to federal and California personal
income tax on dividends paid from interest income derived from taxable
securities and on distributions of net capital gains. For federal income tax and
California personal income tax purposes, distributions of 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 cash. In
addition, for California personal income tax purposes, the shareholders of the
Fund will not be subject to tax, or receive a credit for tax paid by the Fund,
on undistributed capital gains, if any. To avoid being subject to a 31% backup
withholding tax on taxable dividends and capital gains distributions and the
proceeds of redemptions and repurchases, shareholders' taxpayer identification
numbers must be furnished and certified as to accuracy.
Interest on indebtedness incurred by shareholders or related parties to
purchase or carry shares of an investment company paying exempt-interest
dividends, such as the Fund, will not be deductible by the investor for federal
or California personal income tax purposes.
The foregoing relates to federal income taxation and to California personal
income taxation as in effect as of the date of this Prospectus. Distributions
from investment income and capital gains, including exempt-interest dividends,
may be subject to California franchise taxes if received by a corporation doing
business in California, to state taxes in states other than California and to
local taxes.
Shareholders should consult their tax advisers as to the applicability of
the above to their own tax situation.
CURRENT AND EFFECTIVE YIELD
From time to time the Fund advertises its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of the Fund refers to the income
generated by an investment in the Fund over a given seven-day period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during that seven-day
period is assumed to be generated each seven-day period within a 365-day period
and is shown as a percentage of the investment. The "effective yield" for a
seven-day period is calculated similarly but, when annualized, the income earned
by an investment in the Fund is assumed to be reinvested each week within a
365-day period. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The Fund may
also quote tax-equivalent yield which is calculated by determining the pre-tax
yield which, after being taxed at a
18
<PAGE>
stated rate, would be equivalent to the yield determined as described above. The
Fund may also advertise the growth of hypothetical investments of $10,000,
$50,000 and $100,000 in shares of the Fund.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by the
Shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for 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 notice
of such disclaimer be given in each instrument entered into or executed by the
Fund 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.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund or the Distributor or to the Transfer Agent at the telephone numbers
or addresses, as are set forth on the front cover of this Prospectus.
19
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Dean Witter California Tax-Free Daily Income
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 (appearing in the "Financial
Highlights" table on page 4 of this Prospectus) present fairly, in all material
respects, the financial position of Dean Witter California Tax-Free Daily Income
Trust (the "Fund") at December 31, 1993, 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 five years in the
period then ended and for the period July 22, 1988 (commencement of operations)
through December 31, 1988, 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 owned at December 31, 1993 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York 10036
February 8, 1994
1993 FEDERAL TAX NOTICE (UNAUDITED)
For the year ended December 31, 1993 the Fund paid to shareholders $0.017727 per
share from net investment income. All of the Fund's dividends were exempt
interest dividends, excludable from gross income for Federal and California
income tax purposes.
20
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(amortized cost $255,046,241) (Note 1)..... $ 255,046,241
Cash......................................... 9,247,334
Receivable for:
Interest................................... 1,394,210
Investments sold........................... 1,001,804
Prepaid expenses............................. 10,474
-------------
TOTAL ASSETS......................... 266,700,063
-------------
LIABILITIES:
Payable for:
Investments purchased...................... 5,008,514
Shares of beneficial interest
repurchased.............................. 10,398,950
Investment management fee payable (Note 2)... 112,389
Plan of distribution fee payable (Note 3).... 22,478
Accrued expenses (Note 4).................... 99,178
-------------
TOTAL LIABILITIES.................... 15,641,509
-------------
NET ASSETS:
Paid in capital.............................. 251,058,554
-------------
NET ASSETS........................... $ 251,058,554
-------------
-------------
NET ASSET VALUE PER SHARE, 251,058,554 shares
outstanding (unlimited shares authorized of
$.01 par value)............................
$1.00
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
INVESTMENT INCOME:
INTEREST INCOME.............................. $ 6,925,286
-----------
EXPENSES
Investment management fee (Note 2)......... 1,403,743
Plan of distribution fee (Note 3).......... 270,850
Transfer agent fees and expenses (Note
4)....................................... 160,115
Professional fees.......................... 47,387
Shareholder reports and notices............ 39,930
Trustees' fees and expenses (Note 4)....... 33,902
Custodian fees............................. 11,141
Registration fees.......................... 7,096
Organizational expenses (Note 1)........... 5,257
Other...................................... 5,350
-----------
TOTAL EXPENSES......................... 1,984,771
-----------
NET INVESTMENT INCOME AND NET
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................... $ 4,940,515
-----------
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Investment income - net.................................................... $ 4,940,515 $ 7,381,797
Realized gain on investments - net......................................... -0- 17,780
Change in unrealized appreciation on investments - net..................... -0- (7,834)
------------------ ------------------
Net increase in net assets resulting from operations................... 4,940,515 7,391,743
------------------ ------------------
Dividends and distributions to shareholders from:
Investment income - net.................................................... (4,963,011) (7,359,376)
Realized gain on investments - net......................................... -0- (22,191)
------------------ ------------------
(4,963,011) (7,381,567)
------------------ ------------------
Transactions in shares of beneficial interest - net decrease (Note 5)........ (36,962,977) (44,391,839)
------------------ ------------------
Total decrease......................................................... (36,985,473) (44,381,663)
NET ASSETS:
Beginning of period.......................................................... 288,044,027 332,425,690
------------------ ------------------
END OF PERIOD (including undistributed net investment income of -0-and
$22,496, respectively)...................................................... $ 251,058,554 $ 288,044,027
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- Dean Witter California Tax-Free
Daily Income 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 commenced operations on July 22, 1988. On February
19, 1993, the Fund changed its name from Dean Witter/Sears California Tax-Free
Daily Income Trust to Dean Witter California Tax-Free Daily Income Trust.
The following is a summary of the significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued at amortized
cost, which approximates market value.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). In computing net
investment income, the Fund amortizes any premiums and original issue
discounts and accrues interest income daily. Realized gains and losses on
security transactions are determined on the identified cost method.
C. 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 and non-taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and
distributions to shareholders are recorded by the Fund as of the close of the
Fund's business day.
E. ORGANIZATIONAL EXPENSES -- The Fund's Investment Manager has paid
organizational expenses of the Fund in the amount of approximately $47,000.
The Fund reimbursed the Investment Manager for these costs. These expenses
were being amortized by the Fund on a straight line basis over a period of
five years from the commencement of operations. As of July 22, 1993 the
$47,000 was fully amortized.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement (the "Agreement") with Dean Witter InterCapital Inc. (the "Investment
Manager"), the Fund pays its Investment Manager a management fee calculated
daily and payable monthly by applying the following annual rates to the net
assets of the Fund determined as of the close of each business day: 0.50% of the
portion of the daily net assets not exceeding $500 million; 0.425% of the
portion of the daily net assets exceeding $500 million but not exceeding $750
million; 0.375% of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.35% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.325% of the portion of
the daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.30%
of the portion of the daily net assets exceeding $2 billion but not exceeding
$2.5 billion; 0.275% of the portion of the daily net assets exceeding $2.5
billion but not exceeding $3 billion; and 0.25% of the portion of the daily net
assets exceeding $3 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 office space and 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.
22
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
Notes to Financial Statements (CONTINUED)
- --------------------------------------------------------------------------------
3. PLAN OF DISTRIBUTION -- Shares of beneficial interest of the Fund are
distributed by Dean Witter Distributors Inc. (the "Distributor"), an affiliate
of the Investment Manager. The Fund has entered into a Plan of Distribution (the
"Plan"), pursuant to Rule 12b-1 under the Act, with the Distributor whereby the
Distributor finances certain activities in connection with the distribution of
shares of the Fund.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses that
the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor under the Plan: (1)
compensation to sales representatives of the Distributor and other
broker-dealers; (2) sales incentives and bonuses to sales representatives and to
marketing personnel in connection with promoting sales of the Fund's shares; (3)
expenses incurred in connection with promoting sales of the Fund's shares; (4)
preparing and distributing sales literature; and (5) providing advertising and
promotional activities, including direct mail solicitation and television,
radio, newspaper, magazine and other media advertisements.
The Fund is authorized to reimburse the Distributor for specific expenses
the Distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. The amount of each monthly reimbursement payment may in no event
exceed an amount equal to a payment at the annual rate of .15 of 1% of the
Fund's average daily net assets during the month. For the year ended December
31, 1993, the distribution fee established by the Trustees and accrued was at
the annual rate of .10 of 1%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and the proceeds from sales/maturities of portfolio securities for the
year ended December 31, 1993 aggregated $442,200,955 and $472,535,000,
respectively.
On April 1, 1991, the Fund established an unfunded noncontributory defined
benefit pension plan covering all independent Trustees of the Fund who will have
served as an independent Trustee for at least five years at the time of
retirement. Benefits under this plan are based on years of service and
compensation during the last five years of service. Aggregate pension cost for
the year ended December 31, 1993, included in Trustees' fees and expenses in the
Statement of Operations, amounted to $12,232. At December 31, 1993 the Fund had
an accrued pension liability of $39,299 which is included in accrued expenses in
the Statement of Assets and Liabilities.
Dean Witter Trust Company ("DWTC"), an affiliate of the Investment Manager
and the Distributor, is the Fund's transfer agent. During the year ended
December 31, 1993, the Fund incurred transfer agent fees and expenses of
$160,115 with DWTC, of which $18,309 was payable at December 31, 1993.
5. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest, at $1.00 per share, were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------- -------------------
<S> <C> <C>
Shares sold............................................................ 626,959,256 625,805,654
Shares issued in reinvestment of dividends and distributions........... 4,963,011 7,381,567
------------------- -------------------
631,922,267 633,187,221
Shares repurchased..................................................... (668,885,244) (677,579,060)
------------------- -------------------
Net decrease in shares outstanding..................................... (36,962,977) (44,391,839)
------------------- -------------------
------------------- -------------------
</TABLE>
6. SELECTED PER SHARE DATA AND RATIOS -- See the "Financial Highlights" table
on page 4 of this Prospectus.
23
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
Portfolio of Investments DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) YIELD VALUE
- ----------- ---------- -------------
<C> <S> <C> <C>
CALIFORNIA EXEMPT SHORT-TERM VARIABLE RATE MUNICIPAL
OBLIGATIONS* (67.0%)
$ 2,400 Antelope Valley Union High School District, Los Angeles County Schools
Ser 1991 A COPs, 2.75% due 1/6/94..................................... 2.75% $ 2,400,000
California Health Facilities Financing Authority,
10,700 Adventist Health System West Sutter Health Ser A, 2.85% due 1/6/94...... 2.85 10,700,000
4,500 Catholic Healthcare West Ser 1988 A (MBIA Insured), 2.75% due 1/5/94.... 2.75 4,500,000
6,000 Childrens Hospital of Orange County Ser 1991 (MBIA Insured),
2.95% due 1/6/94...................................................... 2.95 6,000,000
7,070 Daughters of Charity National Health Systems-St Vincent Medical
Center Inc Ser 1983, 3.25% due 1/5/94................................. 3.25 7,070,000
4,920 Health Dimensions Inc Ser 1987 A, 2.75% due 2/1/94...................... 2.75 4,920,000
10,000 Kaiser Permanente Semiannual Ser 1985, 2.70% due 2/15/94................ 2.70 10,000,000
5,000 Memorial Health Services Ser 1985 A, 2.70 due 5/15/94................... 2.70 5,000,000
5,800 Scripps Memorial Hospital Ser 1991 B, 3.25% due 1/5/94.................. 3.25 5,800,000
4,300 Sutter Health Ser 1990 B, 3.90% due 1/3/94.............................. 3.90 4,300,000
5,400 California Pollution Control Financing Authority, Noranda-Grey Eagle
Mines Inc Ser 1983 A & 1985 C, 2.15% due 1/5/94....................... 2.15 5,400,000
14,500 California Public Capital Improvements Financing Authority, Pooled Ser
1988 C, 2.25% due 3/15/94............................................. 2.25 14,500,000
6,000 Contra Costa Transportation Authority, Sales Tax 1993 Ser A (FGIC
Insured) 3.00% due 1/5/94............................................. 3.00 6,000,000
7,000 Daly City Housing Development Finance Agency, Serramonte - Del Ray
Multi-family Ser 1985 A, 2.85% due 1/6/94............................. 2.85 7,000,000
2,500 Irvine, The Irvine Co Multi-family Ser 1983 A, 3.00% due 1/4/94......... 3.00 2,500,000
7,500 Irvine Public Facilities & Infrastructure Authority, Cap Imp Ser 1985,
2.95% due 1/6/94...................................................... 2.95 7,500,000
4,300 Kern County, Public Facilities 1986 Ser A COPs, 2.80% due 1/5/94........ 2.80 4,300,000
5,000 Long Beach, Memorial Health Services Semiannual Ser 1984 B & C, 2.70%
due 3/1/94............................................................ 2.70 5,000,000
5,900 Los Angeles, Multi-family 1985 Series K, 2.65% due 1/4/94............... 2.65 5,900,000
6,500 Los Angeles County Metropolitan Transportation Authority, Prop C Sales
Tax Refg Ser 1993 A (MBIA Insured), 2.90% due 1/6/94.................. 2.90 6,500,000
10,500 Newport Beach, Hoag Memorial Hospital/Presbyterian 1992 Ser A, 4.45% due
1/3/94................................................................ 4.45 10,500,000
8,500 Oakland, Skyline Hills Assn Multi-family Issue A of 1985, 3.00% due
1/6/94................................................................ 3.00 8,500,000
7,000 Orange County, Yorba Linda/River Bend Issue D of Ser 1985,
2.85% due 1/6/94...................................................... 2.85 7,000,000
3,000 Sacramento County, Administration Center & Courthouse Ser 1990 COPs,
2.85% due 1/6/94...................................................... 2.85 3,000,000
5,000 San Diego, Lusk Mira Mesa Apts Issue E 1985, 2.75% due 1/6/94........... 2.75 5,000,000
6,000 San Diego County Regional Transportation Commission, Sales Tax 1992 Ser
A (FGIC Insured), 2.90% due 1/5/94.................................... 2.90 6,000,000
</TABLE>
24
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
Portfolio of Investments DECEMBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN CURRENT
THOUSANDS) YIELD VALUE
- ----------- ---------- -------------
<C> <S> <C> <C>
$ 3,000 San Francisco Redevelopment Agency, Bayside Village Multi-family 1985
Issue D Ser A, 2.80% due 1/6/94....................................... 2.80% $ 3,000,000
-------------
TOTAL CALIFORNIA EXEMPT SHORT-TERM VARIABLE RATE MUNICIPAL
OBLIGATIONS (Amortized Cost $168,290,000)......................... 168,290,000
-------------
</TABLE>
<TABLE>
<CAPTION>
YIELD TO
MATURITY ON
DATE OF
PURCHASE
------------
<C> <S> <C> <C>
CALIFORNIA EXEMPT COMMERCIAL PAPER (21.2%)
3,385 Anaheim, Electric RANs, 2.50% due 1/18/94....................... 2.50% 3,385,000
4,000 California Pollution Control Financing Authority, Southern
California Edison Co Ser 1985 D, 2.55% due 1/26/94............ 2.55 4,000,000
4,000 Delmar Race Track Authority, Ser 1993 BANs, 2.40% due 2/23/94... 2.40 4,000,000
4,000 Irvine, Assessment District #85-7, 2.60% due 2/17/94 Los Angeles
County........................................................ 2.60 4,000,000
Los Angeles County Ser B TRANs
5,000 2.60% due 1/20/94............................................... 2.60 5,000,000
5,000 2.50% due 3/14/94............................................... 2.50 5,000,000
4,000 2.55% due 3/15/94............................................... 2.55 4,000,000
Los Angeles Wastewater Sys,
3,000 2.60% due 3/24/94............................................... 2.60 3,000,000
5,000 2.25% due 5/19/94............................................... 2.25 5,000,000
Orange County Local Transportation Authority, Sales Tax
5,000 2.50% due 1/19/94............................................... 2.50 5,000,000
3,000 2.50% due 2/24/94............................................... 2.50 3,000,000
2,800 Puerto Rico Maritime Shipping Authority Ser A, 2.55% due
1/14/94....................................................... 2.55 2,800,000
5,000 San Francisco Bay Area Rapid Transit Financing Authority, Ser
1992 A,
2.50% due 2/11/94............................................. 2.50 5,000,000
------------
TOTAL CALIFORNIA EXEMPT COMMERCIAL PAPER
(Amortized Cost $53,185,000).............................. 53,185,000
------------
CALIFORNIA EXEMPT SHORT-TERM MUNICIPAL NOTES (13.4%)
13,000 California School Cash Reserve Program Authority, 1993 Pool Ser
A, dtd 7/2/93 3.40% due 7/5/94................................ 2.90 13,031,958
8,500 Los Angeles County School & Community College Districts, 1993-94
Ser A Pooled TRANs COPs, dtd 7/1/93 3.25% due 6/30/94......... 2.85 8,516,267
7,000 San Diego Area Local Governments, 1993 Pooled TRANs, COPs, dtd
7/1/93
3.25% due 6/30/94............................................. 2.85 7,013,395
5,000 San Diego County, 1993-1994 TRANs, dtd 7/1/93 3.25% due
7/29/94....................................................... 2.90 5,009,621
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL CALIFORNIA EXEMPT SHORT-TERM MUNICIPAL NOTES
(Amortized Cost $33,571,241)............................................ 33,571,241
-------------
TOTAL INVESTMENTS (Amortized Cost $255,046,241) (a)..................... 101.6% 255,046,241
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.......................... (1.6) (3,987,687)
----- -------------
NET ASSETS.............................................................. 100.0% $ 251,058,554
----- -------------
----- -------------
</TABLE>
- -------------
* DUE DATE REFLECTS DATE OF NEXT RATE CHANGE.
(A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES.
SEE NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
<TABLE>
<S> <C>
Money Market Funds Dean Witter Retirement Series
Dean Witter Liquid Asset Fund Inc. Liquid Asset Series
Dean Witter U.S. Government Money Market Trust U.S. Government Money Market Series
Dean Witter Tax-Free Daily Income Trust U.S. Government Securities Series
Dean Witter California Tax-Free Daily Income Trust Intermediate Income Securities Series
Dean Witter New York Municipal Money Market Trust American Value Series
Equity Funds Capital Growth Series
Dean Witter American Value Fund Dividend Growth Series
Dean Witter Natural Resource Development Securities Inc. Stategist Series
Dean Witter Dividend Growth Securities Inc. Utilities Series
Dean Witter Developing Growth Securities Trust Value-Added Market Series
Dean Witter World Wide Investment Trust Global Equity Series
Dean Witter Equity Income Trust Asset Allocation Funds
Dean Witter Value-Added Market Series Dean Witter Managed Assets Trust
Dean Witter Utilities Fund Dean Witter Strategist Fund
Dean Witter Capital Growth Securities Active Assets Account Program
Dean Witter European Growth Fund Inc. Active Assets Money Trust
Dean Witter Precious Metals and Minerals Trust Active Assets Tax-Free Trust
Dean Witter Pacific Growth Fund Inc. Active Assets California Tax-Free Trust
Dean Witter Health Sciences Trust Active Assets Government Securities Trust
Dean Witter Global Dividend Growth Securities
Fixed-Income Funds
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter New York Tax-Free Income Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income Securities
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal Trust
Dean Witter Short-Term Bond Fund
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Dean Witter California
Tax-Free Daily Income Trust
Two World Trade Center
New York, New York 10048
Trustees
Jack F. Bennett
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Albert T. Sommers
Edward R. Telling
Officers
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Katherine H. Stromberg
Vice President
Thomas F. Caloia
Treasurer
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agent and
Dividend Disbursing Agent
Dean Witter Trust Company
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
Independent Accountants
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
Investment Manager
Dean Witter InterCapital Inc.
</TABLE>
Dean Witter
California Tax-Free
Daily Income Trust
Prospectus
February 18, 1994
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 18, 1994 [LOGO]
- --------------------------------------------------------------------------------
Dean Witter California Tax-Free Daily Income Trust (the "Fund") is an
open-end diversified management investment company whose investment objective is
to provide as high a level of daily income exempt from federal and California
income tax as is consistent with stability of principal and liquidity. The Fund
seeks to achieve its objective by investing primarily in high quality tax-exempt
securities with short-term maturities, including Municipal Bonds, Municipal
Notes and Municipal Commercial Paper. (See "Investment Practices and Policies".)
The Fund is authorized to reimburse specific expenses incurred in promoting
the distribution of the Fund's shares pursuant to a Plan of Distribution with
Dean Witter Distributors Inc. pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at the annual rate of 0.15% of the average daily net assets of the
Fund.
A Prospectus for the Fund, dated February 18, 1994, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge by request of the Fund at its address or at the phone number
listed below or from the Fund's Distributor, Dean Witter Distributors, Inc. or
from Dean Witter Reynolds Inc. ("DWR") at any of its branch offices or from any
other Selected Broker-Dealer. This Statement of Additional Information contains
information in addition to and more detailed than that set forth in the
Prospectus. It is intended to provide additional information regarding the
activities and operations of the Fund, and should be read in conjunction with
the Prospectus.
Dean Witter California Tax-Free Daily Income Trust
Two World Trade Center
New York, New York 10048
800-869-FUND (toll free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Trustees and Officers.................................................................. 6
Investment Practices and Policies...................................................... 8
Investment Restrictions................................................................ 12
Portfolio Transactions and Brokerage................................................... 14
Purchase of Fund Shares................................................................ 18
Redemption of Fund Shares.............................................................. 26
Dividends, Distributions and Taxes..................................................... 27
Description of Shares.................................................................. 31
Custodian and Transfer Agent........................................................... 31
Independent Accountants................................................................ 32
Reports to Shareholders................................................................ 32
Legal Counsel.......................................................................... 32
Experts................................................................................ 32
Registration Statement................................................................. 32
Financial Statements................................................................... 32
Appendix............................................................................... 33
</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
April 25, 1988 under the name "Dean Witter/Sears California Tax-Free Daily
Income Trust." On February 19, 1993, the Trust Agreement was amended to change
the Fund's name to Dean Witter California Tax-Free Daily Income Trust.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc., a Delaware corporation, (the "Investment
Manager" or InterCapital), whose address is Two World Trade Center, New York,
New York 10048, is the Fund's Investment Manager. The Investment Manager, which
was incorporated in July, 1992, is a wholly-owned subsidiary of Dean Witter
Discover Co. ("DWDC"), 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 reorganization and to Dean Witter
InterCapital Inc. thereafter.) The daily management of the Fund is conducted by
or under the direction of officers of the Fund and of the Investment Manager,
subject to review of investments by the Fund's Trustees. In addition, Trustees
of the Fund provide guidance on economic factors and interest rate trends.
Information as to these Trustees and Officers is contained under the caption
"Trustees and Officers".
The Investment Manager is also the investment manager or investment advisor
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 Equity Income Trust, Dean Witter New York Tax-Free Income Fund, Dean
Witter Convertible Securities Trust, Dean Witter Federal Securities Trust, Dean
Witter Value-Added Market Series, High Income Advantage Trust, High Income
Advantage Trust II, High Income Advantage Trust III, InterCapital Insured
Municipal Bond Trust, Dean Witter World Wide Income Trust, Dean Witter
Intermediate Income Securities, Dean Witter Government Income Trust, Dean Witter
Utilities Fund, Dean Witter Managed Assets Trust, Dean Witter Strategist Fund,
Dean Witter Capital Growth Securities, Dean Witter New York Municipal Money
Market Trust, Dean Witter European Growth Securities Inc., Dean Witter Pacific
Growth Securities Inc., Dean Witter Precious Metals and Minerals Trust, Dean
Witter Global Short-Term Income Fund Inc., Dean Witter Multi-State Municipal
Series Trust, Dean Witter Premier Income Trust, Dean Witter Short-Term U.S.
Treasury Trust, InterCapital Insured Municipal Trust, InterCapital Quality
Municipal Income Trust, InterCapital California Insured Municipal Income Trust,
InterCapital Insured Municipal Income Trust, Dean Witter Diversified Income
Trust, Dean Witter Health Services Trust, Dean Witter Retirement Series,
InterCapital Quality Municipal Securities, InterCapital California Quality
Municipal Securities, InterCapital New York Quality Municipal Securities, Dean
Witter Global Dividend Growth Securities, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, InterCapital Insured Municipal
Securities, InterCapital Insured California Municipal Securities, InterCapital
Quality Municipal Investment Trust, Active Assets Money Trust, Active Assets
Tax-Free Trust, Active Assets California Tax-Free Trust and Active Assets
Government Securities Trust, Municipal Income Trust, Municipal Income Trust II,
Municipal Income Trust III, Municipal Income Opportunities Trust, Municipal
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,
3
<PAGE>
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 Term
Trust 2000, TCW/DW Term Trust 2002 and TCW/DW Term Trust 2003 (the "TCW/DW
Funds"). InterCapital also serves as: (i) sub-adviser to Templeton Global
Opportunities Trust, an open-end investment company; (ii) administrator of The
BlackRock Strategic Term Trust Inc., a closed-end investment company; and (iii)
sub-administrator of MassMutual Participation Investors and Templeton Global
Governments Income Trust, closed-end investment companies.
The Investment Manager also serves as an investment adviser for Dean Witter
World Wide Investment Fund, an investment company organized under the laws of
Luxembourg, shares of which are not available for purchase in the United States
or by American citizens outside 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.
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. The foregoing
internal reorganization 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 Management Agreement.
Expenses not expressly assumed by the Investment Manager under the Agreement
will be paid by the Fund. The expenses borne by the Fund include, but are not
limited to: the distribution fee under the Plan pursuant to Rule 12b-1 (see
"Purchase of Fund Shares"); 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 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.
4
<PAGE>
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 net assets of the Fund, determined as of the close
of business on every business day: 0.50% of the portion of the daily net assets
not exceeding $500 million; 0.425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.375% of the portion of
the daily net assets exceeding $750 million but not exceeding $1 billion; 0.35%
of the portion of the daily net assets exceeding $1 billion but not exceeding
$1.5 billion; 0.325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.30% of the portion of the daily net
assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% of the
portion of the daily net assets exceeding $2.5 billion but not exceeding $3
billion; and 0.25% of the portion of the daily net assets exceeding $3 billion.
The Fund accrued to the Investment Manager $1,754,897, $1,568,698 and $1,403,743
in total compensation under the Agreement for the fiscal years ended December
31, 1991, 1992 and 1993, respectively.
Pursuant to the Agreement, total operating expenses of the Fund are subject
to applicable limitations under rules and regulations of states where the Fund
is authorized to sell its shares. Therefore, operating expenses are effectively
subject to the most restrictive of such limitations as the same may be amended
from time to time. Presently, the most restrictive limitation is as follows. If,
in any fiscal year, the Fund's total operating expenses, exclusive of taxes,
interest, brokerage fees, distribution fees and extraordinary expenses (to the
extent permitted by applicable state securities laws and regulations), exceed
2 1/2% of the first $30,000,000 of average daily net assets, 2% of the next
$70,000,000 and 1.5% of any excess over $100,000,000, the Investment Manager
will reimburse the Fund for the amount of such excess. Such amount, if any, will
be calculated daily and credited on a monthly basis. The Fund's expenses did not
exceed this expense limitation or the then existing most restrictive limitation
during the fiscal years ended December 31, 1991, 1992 and 1993.
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 Trustees on October 22, 1992 and
by the shareholders on January 12, 1993. The Agreement is substantially
identical to a prior investment management agreement which was initially
approved by the Trustees on June 20, 1988 and by DWR as the then sole
shareholder on June 22, 1988. The Agreement may be terminated at any time,
without penalty, on thirty days' notice by the Trustees of the Fund, by the
holders of a majority, as defined in 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). The Agreement took
effect on June 30, 1993, upon the spin-off by Sears, Roebuck and Co. of its
remaining shares of DWDC. 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, as
amended (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 continues in effect until April 30, 1994, and
will continue 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 Board
of 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 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 investment management contract between the InterCapital and the
Fund 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 Dean Witter Funds and the TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------
<S> <C>
Jack F. Bennett ............................. Retired; Director or Trustee of the Dean Witter Funds; formerly
Trustee Senior Vice President and Director of Exxon Corporation
141 Taconic Road (1975-January, 1989) and Under Secretary of the U.S. Treasury for
Greenwich, Connecticut Monetary Affairs (1974-1975); Director of Philips Electronics N.V.
(electronics), Tandem Computers Inc. and Massachusetts Mutual
Insurance Co.; director or trustee of various not-for-profit and
business organizations.
Charles A. Fiumefreddo* ..................... Chairman, Chief Executive Officer and Director of InterCapital,
Chairman of the Board, Distributors and DWSC; Executive Vice President and Director or
President, Chief Executive Officer DWR; Chairman, Director or Trustee, President and Chief Executive
and Trustee Officer of the Dean Witter Funds; Chairman, Chief Executive
Two World Trade Center Officer and Trustee of the TCW/ DW Funds; Chairman and Director of
New York, New York Dean Witter Trust Company; Director and/or officer of various DWDC
subsidiaries; formerly, Director and Executive Vice President of
DWDC (until February 1993).
Edwin J. Garn ............................... Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking
2000 Eagle Gate Tower Committee (1980-1986); formerly Mayor of Salt Lake City, Utah
Salt Lake City, Utah (1971-1974); formerly Astronaut, Space Shuttle Discovery (April
12-19, 1985); Vice Chairman, Huntsman Chemical Corporation (since
January, 1993); Member of the board of various civic and
charitable organizations.
John R. Haire ............................... Chairman of the Audit Committee and Chairman of the Committee of
Trustee Independent Directors or Trustees of each of the Dean Witter
439 East 51st Street Funds; and Director or Trustee of the Dean Witter Funds; Trustee
New York, New York of the TCW/DW Funds; formerly President, Council for Aid to
Education (1978-October, 1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an Investment Adviser (1964-1978);
Director of Washington National Corporation (insurance) and Bowne
& Co. Inc., (printing).
Dr. John E. Jeuck ........................... Retired; Director or Trustee of the Dean Witter Funds; formerly
Trustee Robert Law Professor of Business Administration, Graduate School
70 East Cedar Street of Business, University of Chicago (until July 1989); Business
Chicago, Illinois Consultant.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson ....................... Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Koch Professor of International Economics and Director of
7521 Old Dominion Drive the Center for Global Market Studies at George Mason University
McLean, Virginia (since September, 1990); Co-Chairman and a founder of the Group of
Seven Council (G7C), an international economic commission (since
September, 1990); Director or Trustee of the Dean Witter Funds;
Trustee of the TCW/DW Funds; Director of Greenwich Capital Corp.
(government securities broker-dealer); formerly Vice Chairman of
the Board of Governors of the Federal Reserve System (February,
1986-August, 1990) and Assistant Secretary of the U.S. Treasury
(1982-1986).
Paul Kolton ................................. Director or Trustee of the Dean Witter Funds; Chairman of the
Trustee Audit Committee and Chairman of the Committee of the Independent
9 Hunting Ridge Road Trustees and Trustee of the TCW/DW Funds; formerly Chairman of the
Stamford, Connecticut Financial Accounting Standards Advisory Council and Chairman and
Chief Executive Officer of the American Stock Exchange; Director
of UCC Investors Holding Inc. (Uniroyal Chemical Company);
director or trustee of various not-for-profit organizations.
Michael E. Nugent ........................... General Partner, Triumph Capital, L.P., a private investment
Trustee partnership (since April, 1988); Director or Trustee of the Dean
237 Park Avenue Witter Funds, and Trustee of the TCW/DW Funds; formerly Vice
New York, New York President, Bankers Trust Company and BT Capital Corporation
(September, 1984-March, 1988); Director of various business
organizations.
Albert T. Sommers ........................... Senior Fellow and Economic Counselor (formerly Senior Vice
Trustee President and Chief Economist) of the Conference Board, a
845 Third Avenue not-for-profit business research organization; President, Albert
New York, New York T. Sommers, Inc., an economic consulting firm; Director or Trustee
of the Dean Witter Funds; formerly Chairman, Price Advisory
Committee of the Council on Wage and Price Stability (December,
1979-December, 1980); Economic Adviser, The Ford Foundation;
Director of Grow Group, Inc. (chemicals), MSI Inc. (medical
services) and Westbridge Capital, Inc. (insurance).
Edward R. Telling* .......................... Retired; Director or Trustee of the Dean Witter Funds; formerly
Trustee Chairman of the Board of Directors and Chief Executive Officer
Sears Tower (until December, 1985) and President (from January 1981-March 1982
Chicago, Illinois and from February 1984-August 1984) of Sears, Roebuck and Co.
Sheldon Curtis .............................. Senior Vice President, Secretary and General Counsel of
Vice President, Secretary and InterCapital and DWSC; Senior Vice President and Secretary of Dean
General Counsel Witter Trust Company; Senior Vice President, Assistant Secretary
Two World Trade Center and Assistant General Counsel of Distributors; Assistant Secretary
New York, New York of DWR; Vice President, Secretary and General Counsel of the Dean
Witter Funds and the TCW/DW Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------
<S> <C>
Katherine H. Stromberg ...................... Vice President of InterCapital; Vice President of various Dean
Vice President Witter Funds, formerly, Vice President of Kidder Peabody Asset
Two World Trade Center Management (from September, 1985-October, 1991).
New York, New York
Thomas F. Caloia ............................ First Vice President (since May, 1991) and Assistant Treasurer
Treasurer (since January, 1993) of InterCapital; First Vice President and
Two World Trade Center Assistant Treasurer of DWSC; and Treasurer of the Dean Witter
New York, New York Funds and TCW/DW Funds.
</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, David A. Hughey, Executive Vice President of InterCapital, and
Peter M. Avelar, Joseph Arcieri and Jonathan R. Page, Senior Vice Presidents of
InterCapital, are Vice Presidents of the Fund and Barry Fink, First Vice
President and Assistant General Counsel of InterCapital and Marilyn K. Cranney,
Lawrence S. Lafer, LouAnne D. McInnis and Ruth Rossi, Vice Presidents and
Assistant General Counsels of InterCapital, are Assistant Secretaries of the
Fund.
The Fund pays each Trustee who is not an employee, or retired employee, of
the Investment Manager or an affiliated company an annual fee of $1,200 ($1,600
prior to December 31, 1993) plus $50 for each meeting of the Board of Trustees,
of the Audit Committee or of the Committee of Independent Trustees attended by
the Trustee in person (the Trust pays the Chairman of the Audit Committee an
additional annual fee of $1,000 ($1,200 prior to December 31, 1993) and the
Chairman of the Committee of Independent Trustees an annual fee of $2,400, in
each case, inclusive of the Committee meeting fees). The Fund also reimburses
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
thereof receive no compensation or expense reimbursement from the Fund. The Fund
has adopted a retirement program under which an Independent Trustee who retires
after a minimum required period of service would be entitled to retirement
payments upon reaching the eligible retirement date (normally, after attaining
age 72) based upon length of service and computed as a percentage of one-fifth
of the total compensation earned by such Trustee for service to the Fund in the
five-year period prior to the date of the Trustee's retirement. No Independent
Trustee has retired since the adoption of the program and no payments by the
Fund have been made under it. For the fiscal year ended December 31, 1993, the
Fund accrued a total of $33,902 for Trustees' fees and expenses and benefits
under the above-described retirement program. As of the date of this Statement
of Additional Information, the aggregate shares of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
PORTFOLIO SECURITIES
TAXABLE SECURITIES. As discussed in the Prospectus, the Fund may invest up
to 20% of its total assets in taxable money market instruments, repurchase
agreements and non-California tax-exempt securities. Investments in taxable
money market instruments would generally be made under any one of the following
circumstances: (a) pending investment proceeds of sale of Fund shares or of
portfolio securities; (b) pending settlement of purchases of portfolio
securities; and (c) to maintain liquidity for the purpose of meeting anticipated
redemptions. Only those non-California tax-exempt securities which satisfy the
standards established for California tax-exempt securities may be purchased by
the Fund.
In addition, the Fund may temporarily invest more than 20% of its total
assets in non-California tax-exempt securities and taxable money market
instruments, or in short-term tax-exempt securities subject to the federal
alternative minimum tax for individual shareholders, to maintain a "defensive"
posture
8
<PAGE>
when, in the opinion of the Investment Manager, it is advisable to do so because
of market conditions. The types of taxable money market instruments in which the
Fund may invest are limited to the following short-term fixed-income securities
(maturing in one year or less from the time of purchase): (i) obligations of the
United States Government, its agencies, instrumentalities or authorities; (ii)
commercial paper rated P-1 by Moody's Investors Services, Inc. ("Moody's") or
A-1 by Standard & Poor's Corporation ("S&P"); (iii) certificates of deposit of
domestic banks with assets of $1 billion or more; and (iv) repurchase agreements
with respect to portfolio securities.
TAX-EXEMPT SECURITIES. As discussed in the Prospectus, at least 80% of the
Fund's total assets will be invested in California tax-exempt securities
(California Municipal Bonds, California Municipal Notes and California Municipal
Commercial Paper). In regard to the Moody's and S&P ratings discussed in the
Prospectus, it should be noted that the ratings represent the organizations'
opinions as to the quality of the securities which they undertake to rate and
the ratings are general and not absolute standards of quality. For a description
of Municipal Bond, Municipal Note and Municipal Commercial Paper ratings by
Moody's and S&P, see the Appendix to this Statement of Additional Information.
The percentage and rating limitations discussed above and in the Prospectus
apply at the time of acquisition of a security based upon the last previous
determination of the Fund's net asset value; any subsequent change in any
ratings by a rating service or change in percentages resulting from market
fluctuations or other changes in total assets will not require elimination of
any security from the Fund's portfolio.
The payment of principal and interest by issuers of certain Municipal
Obligations purchased by the Fund may be guaranteed by letters of credit or
other credit facilities offered by banks or other financial institutions. Such
guarantees will be considered in determining whether a Municipal Obligation
meets the Fund's investment quality requirements. In addition, some issues may
contain provisions which permit the Fund to demand from the issuer repayment of
principal at some specified period(s) prior to maturity.
MUNICIPAL BONDS. Municipal Bonds, as referred to in the Prospectus, are
debt obligations of a state, its cities, municipalities and municipal agencies
(all of which are generally referred to as "municipalities") which generally
have a maturity at the time of issue of one year or more, and the interest from
which is, in the opinion of bond counsel, exempt from federal income tax. In
addition to these requirements, the interest from California Municipal Bonds
must be, in the opinion of bond counsel, exempt from California personal income
tax. They are issued to raise funds for various public purposes, such as
construction of a wide range of public facilities, to refund outstanding
obligations and to obtain funds for general operating expenses or to loan to
other public institutions and facilities. In addition, certain types of
industrial development bonds and pollution control bonds are issued by or on
behalf of public authorities to provide funding for various privately operated
facilities.
MUNICIPAL NOTES. Municipal Notes are short-term obligations of
municipalities, generally with a maturity at the time of issuance ranging from
six months to three years, the interest from which is, in the opinion of bond
counsel, exempt from federal income tax. In addition to those requirements, the
interest from California Municipal Notes must be, in the opinion of bond
counsel, exempt from California personal income tax. The principal types of
Municipal Notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes and project notes, although there are other types of
Municipal Notes in which the Fund may invest. Notes sold in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuing municipality or agency. Project Notes are
issued by local agencies and are guaranteed by the United States Department of
Housing and Urban Development. Such notes are secured by the full faith and
credit of the United States Government.
MUNICIPAL COMMERCIAL PAPER. Municipal Commercial Paper refers to short-term
obligations of municipalities the interest from which is, in the opinion of bond
counsel, exempt from federal income tax. In addition to those requirements, the
interest from California Commercial Paper must be, in the opinion of bond
counsel, exempt from California personal income tax. It may be issued at a
discount and is
9
<PAGE>
sometimes referred to as Short-Term Discount Notes. Municipal Commercial Paper
is likely to be used to meet seasonal working capital needs of a municipality or
interim construction financing and to be paid from general revenues of the
municipality or refinanced with long-term debt. In most cases Municipal
Commercial Paper is backed by letters of credit, lending agreements, note
repurchase agreements or other credit facility agreements offered by banks or
other institutions.
The two principal classifications of Municipal Bonds, Notes and Commercial
Paper are "general obligation" and "revenue" bonds, notes or commercial paper.
General obligation bonds, notes or commercial paper are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Issuers of general obligation bonds, notes or commercial paper include
a state, its counties, cities, towns and other governmental units. Revenue
bonds, notes or commercial paper are payable from the revenues derived from a
particular facility or class of facilities or, in some cases, from specific
revenue sources. Revenue bonds, notes or commercial paper are issued for a wide
variety of purposes, including the financing of electric, gas, water and sewer
systems and other public utilities; industrial development and pollution control
facilities; single and multi-family housing units; public buildings and
facilities; air and marine ports; transportation facilities such as toll roads,
bridges and tunnels; and health and educational facilities such as hospitals and
dormitories. They rely primarily on user fees to pay debt service, although the
principal revenue source is often supplemented by additional security features
which are intended to enhance the creditworthiness of the issuer's obligations.
In some cases, particularly with respect to revenue bonds issued to finance
housing and public buildings, a direct or implied "moral obligation" of a
governmental unit may be pledged to the payment of debt service. In other cases,
a special tax or other charge may augment user fees.
Issuers of these obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or any state extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations or
upon municipalities to levy taxes. There is also the possibility that as a
result of litigation or other conditions the power or ability of any one or more
issuers to pay, when due, principal of and interest on its, or their, Municipal
Bonds, Municipal Notes and Municipal Commercial Paper may be materially
affected.
PORTFOLIO MANAGEMENT
VARIABLE RATE AND FLOATING RATE OBLIGATIONS. As stated in the Prospectus,
the Fund may invest in Municipal Bonds and Municipal Notes ("Municipal
Obligations") of the type called "variable rate" and "floating rate"
obligations.
The interest rate payable on a variable rate Municipal Obligation is
adjusted either at predesignated periodic intervals and on "floating rate"
Municipal Obligations whenever there is a change in the market rate of interest
on which the interest rate payable is based. Other features may include the
right whereby the Fund may demand prepayment of the principal amount of the
obligation prior to its stated maturity (a "demand feature") and the right of
the issuer to prepay the principal amount prior to maturity. The principal
benefit of a variable rate Municipal Obligation is that the interest rate
adjustment minimizes changes in the market value of the obligation. As a result,
the purchase of variable rate and floating rate Municipal Obligations could
enhance the ability of the Fund to maintain a stable net asset value per share
(see "PURCHASE OF FUND SHARES--Determination of Net Asset Value" in the
Prospectus). The principal benefit to the Fund of purchasing obligations with a
demand feature is that liquidity, and the ability of the Fund to obtain
repayment of the full principal amount of a Municipal Obligation prior to
maturity, is enhanced.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As stated in the Prospectus,
the Fund may purchase tax-exempt securities on a when-issued or delayed delivery
basis. When such transactions are negotiated, the price is fixed at the time of
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 or delayed delivery basis with the intention of acquiring the securities,
the Fund may sell the
10
<PAGE>
securities before the settlement date, if it is deemed advisable. The securities
so purchased or sold are subject to market fluctuation and no interest accrues
to the purchaser during this period. At the time the Fund makes the commitment
to purchase a Municipal Obligation on a when-issued or delayed delivery basis,
it will record the transaction and thereafter reflect the value, each day, of
the Municipal Obligation in determining its net asset value. The Fund will also
establish a segregated account with its custodian bank in which it will maintain
liquid assets such as cash, U.S. government securities or other appropriate high
grade debt obligations equal in value to commitments for such when-issued or
delayed delivery securities. The Fund does not believe that its net asset value
or income will be adversely affected by its purchase of Municipal Obligations on
a when-issued or delayed delivery basis.
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, which is usually not more than seven days from
the date of purchase. 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 and
may exceed one year.
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. Such collateral will consist of Government securities or "Eligible
Securities" (as described under the caption "How Net Asset Value is Determined")
rated in the highest grade by a nationally recognized statistical rating
organization (a "NRSRO") whose ratings qualify the collateral as an Eligible
Security. In the event of a default or bankruptcy by a selling financial
institution, the Fund will seek to liquidate such collateral. However, the
exercise 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 asset held by the Fund, amount 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. During the fiscal year ended December 31, 1993, the Fund
did not enter into any repurchase agreements and the Fund does not intend to
enter into any repurchase agreements in the foreseeable future.
PUT OPTIONS. The Fund may purchase securities together with the right to
resell them to the seller at an agreed upon price or yield within a specified
period prior to the maturity date of such securities. Such a right to resell is
commonly known as a "put," and the aggregate price which the Fund pays for
securities with puts may be higher than the price which otherwise would be paid
for the securities. Consistent with the Fund's investment objectives and subject
to the supervision of the Board of Trustees, the primary purpose of this
practice is to permit the Fund to be fully invested in securities the interest
on which is exempt from Federal and California personal income tax, while
preserving the necessary flexibility and liquidity to purchase securities on a
when-issued basis, to meet unusually large redemptions and to purchase at a
later date securities other than those subject to the put. The Fund's policy is,
generally, to exercise the puts on their expiration date, when the exercise
price is higher than the current market price for the related securities. Puts
may be exercised prior to the expiration date in order to fund obligations to
purchase other securities or to meet redemption requests. These obligations may
arise
11
<PAGE>
during periods in which proceeds from sales of Fund shares and from recent sales
of portfolio securities are insufficient to meet such obligations or when the
funds available are otherwise allocated for investment. In addition, puts may be
exercised prior to their expiration date in the event the Investment Manager
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts prior to their expiration date
and in selecting which puts to exercise in such circumstances, the Investment
Manager considers, among other things, the amount of cash available to the Fund,
the expiration dates of the available puts, any future commitments for
securities purchases, the yield, quality and maturity dates of the underlying
securities, alternative investment opportunities and the desirability of
retaining the underlying securities in the Fund's portfolio.
The Fund values securities which are subject to puts at their amortized cost
and values the put, apart from the security, at zero. Thus, the cost of the put
will be carried on the Fund's books as an unrealized loss from the date of
acquisition and will be reflected in realized gain or loss when the put is
exercised or expires. Since the value of the put is dependent on the ability of
the put writer to meet its obligation to repurchase, the Fund's policy is to
enter into put transactions only with municipal securities dealers who are
approved by the Fund's Board of Trustees. Each dealer will be approved on its
own merits and it is the Fund's general policy to enter into put transactions
only with those dealers which are determined to present minimal credit risks. In
connection with such determination, the Board of Trustees will review, among
other things, the ratings, if available, of equity and debt securities of such
municipal securities dealers, their reputations in the municipal securities
markets, the net worth of such dealers and their efficiency in consummating
transactions. Bank dealers normally will be members of the Federal Reserve
System, and other dealers will be members of the National Association of
Securities Dealers, Inc. or members of a national securities exchange. The Board
has directed the Investment Manager not to enter into put transactions with, and
to exercise outstanding puts of, any municipal securities dealer which, in the
judgment of the Investment Manager, ceases at any time to present a minimal
credit risk. In the event that a dealer should default on its obligation to
repurchase an underlying security, the Fund is unable to predict whether all or
any portion of any loss sustained could be subsequently recovered from such
dealer. During the fiscal year ended December 31, 1993, the Fund did not
purchase any put options and the Fund does not intend to purchase put options
during the foreseeable future.
In Revenue Ruling 82-144, the Internal Revenue Service stated that, under
certain circumstances, a purchaser of tax-exempt obligations which are subject
to puts will be considered the owner of the obligations for Federal income tax
purposes. In connection therewith, the Fund has received an opinion of counsel
to the effect that interest on Municipal Obligations subject to puts will be
tax-exempt to the Fund.
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 the holders of a
majority of the outstanding voting securities of the Fund, as defined in the
Act. Such a majority is defined in the Act as the lesser of (a) 67% or more of
the shares present at a Meeting of Shareholders of the Fund, if the holders of
more than 50% of the outstanding shares of the Fund are present or represented
by proxy at the meeting, or (b) more than 50% of the outstanding shares of the
Fund. For purposes of the following restrictions and those recited in the
Prospectus: (a) an "issuer" of a security is the entity whose assets and
revenues are committed to the payment of interest and principal on that
particular security, provided that the guarantee of a security will be
considered a separate security and provided further that a guarantee of a
security shall not be deemed to be a security issued by the guarantor if the
value of all securities issued or guaranteed by the guarantor and owned by the
Fund does not exceed 10% of the value of the total assets of the Fund; (b) a
"taxable security" is any security the interest on which is subject to federal
income tax; and (c) all percentage limitations apply immediately after a
purchase or
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initial investment, and any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The term "bank obligations" as referred to in Investment Restriction 3 in
the Prospectus refers to short-term obligations (including certificates of
deposit and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and instruments
secured by such obligations, not including obligations of foreign branches of
domestic banks.
The Fund may not:
1. Invest in common stock.
2. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee of the Fund or any officer or director of the
Investment Manager owns more than 1/2 of 1% of the outstanding securities of
such issuer, and such officers, trustees and directors who own more than 1/2
of 1% own in the aggregate more than 5% of the outstanding securities of
such issuer.
3. Purchase or sell real estate or interests therein, although it may
purchase securities secured by real estate or interests therein.
4. Purchase or sell commodities or commodity futures contracts.
5. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs.
6. Write, purchase or sell puts, calls, or combinations thereof except
that it may acquire rights to resell Municipal Obligations at an
agreed upon price and at or within an agreed upon time.
7. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition of assets.
8. Borrow money, except that the Fund may borrow from a bank or the
Investment Manager for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of the value of
its total assets (not including the amount borrowed).
9. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in
restriction (8). To meet the requirements of regulations in certain states,
the Fund, as a matter of operating policy but not as a fundamental policy,
will limit any pledge of its assets to 10% of its net assets so long as
shares of the Fund are being sold in those states.
10. 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)
purchasing any securities on a when-issued or delayed delivery basis; or (b)
borrowing money in accordance with restrictions described above.
11. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Fund may invest consistent with its
investment objective and policies; and (b) by investment in repurchase
agreements.
12. Make short sales of securities.
13. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities.
14. 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.
15. Invest for the purpose of exercising control or management of any
other issuer.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Board of Trustees, the Investment
Manager is responsible for decisions to buy and sell securities for the Fund,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. The Fund expects that the primary
market for the securities in which it intends to invest will generally be the
over-the-counter market. Securities are generally traded in the over-the-counter
market on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually includes
a profit to the dealer. The Fund also expects that securities will be purchased
at times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion the Fund may also purchase certain money market instruments directly
from an issuer, in which case no commissions or discounts are paid. During the
Fund's fiscal years ended December 31, 1991, 1992 and 1993, the Fund did not pay
any brokerage commissions on agency transactions.
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 and 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, the main
factors considered are 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.
The policy of the Fund, regarding purchases and sales of securities for its
portfolio, is that primary consideration 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 executions are obtainable from more
than one broker or dealer, it may give consideration 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.
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 Fund does not reduce the management fee it
pays to the Investment Manager 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 (not including Tax-Exempt Municipal
Paper). Such transactions will be effected with DWR only when the price
available from DWR is better than that available from other dealers. During the
fiscal years ended December 31, 1991, 1992 and 1993, the Fund did not effect any
principal transactions with DWR.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR. In order for DWR to effect portfolio transactions for the
Fund, the commissions, fees or other remuneration received by DWR
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<PAGE>
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 DWR 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
(as defined in the Act), have adopted procedures which are reasonably designed
to provide that any commissions, fees or other remuneration paid to DWR are
consistent with the foregoing standard.
Subject to the principle of obtaining best price and execution, the
Investment Manager may consider a broker-dealer's sales of shares of the Fund as
a factor in selecting from among those broker-dealers qualified to provide
comparable prices and execution on the Fund's portfolio transactions. The Fund
does not, however, require a broker-dealer to sell shares of the Fund in order
for it to be considered to execute portfolio transactions, and will not enter
into any arrangement whereby a specific amount or percentage of the Fund's
transactions will be directed to a broker which sells shares of the Fund to
customers. The Board of Trustees reviews, periodically, the allocation of
brokerage orders to monitor the operation of these policies.
Portfolio turnover rate is defined as the lesser of the value of the
securities purchased or securities sold, excluding all securities whose
maturities at time of acquisition were one year or less, divided by the average
monthly value of such securities owned during the year. Because the Fund's
portfolio consists of municipal obligations maturing within one year, the Fund
is unable to calculate its turnover rate as so defined. However, because of the
short-term nature of the Fund's portfolio securities, it is anticipated that the
number of purchases and sales of maturities of such securities will be
substantial. Brokerage commissions are not normally charged on purchases and
sales of short-term municipal obligations, but such transactions may involve
transaction costs in the form of spreads between bid and asked prices.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA TAX-EXEMPT SECURITIES
The Fund will be affected by any political, economic or regulatory
developments affecting the ability of California issuers to pay interest or
repay principal on their obligations. Various developments regarding the
California Constitution and State statutes which limit the taxing and spending
authority of California governmental entities may impair the ability of
California issuers to maintain debt service on their obligations. The following
information constitutes only a brief summary and is not intended as a complete
description.
In 1978, Proposition 13, an amendment to the California Constitution, was
approved, limiting real property valuation for property tax purposes and the
power of local governments to increase real property tax revenues and revenues
from other sources. Legislation adopted after Proposition 13 provided for
assistance to local governments, including the redistribution of the
then-existing surplus in the General Fund, reallocation of revenues to local
governments, and assumption by the State of certain local government
obligations. However, more recent legislation reduced such state assistance.
There can be no assurance that any particular level of State aid to local
governments will be maintained in future years. In NORDLINGER V. HAHN, the
United States Supreme Court upheld certain provisions of Proposition 13 against
claims that it violated the equal protection clause of the Constitution.
In 1979, an amendment was passed adding Article XIIIB to the State
Constitution. As amended in 1990, Article XIIIB imposes an "appropriations
limit" on the spending authority of the State and local government entities. In
general, the appropriations limit is based on certain 1978-1979 expenditures,
adjusted annually to reflect changes in the cost of living, population and
certain services provided by State and local government entities.
"Appropriations limit" does not include appropriations for qualified capital
outlay projects, certain increases in transportation-related taxes, and certain
emergency appropriations.
If a government entity raises revenues beyond its "appropriations limit" in
any year, a portion of the excess which cannot be appropriated within the
following year's limit must be returned to the entity's
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<PAGE>
taxpayers within two subsequent fiscal years, generally by a tax credit, refund
or temporary suspension of tax rates or fee schedules. "Debt service" is
excluded from these limitations, and is defined as "appropriations required to
pay the cost of interest and redemption charges, including the funding of any
reserve or sinking fund required in connection therewith, on indebtedness
existing or legally authorized as of January 1, 1979 or on bonded indebtedness
thereafter approved [by the voters]." In addition, Article XIIIB requires the
State Legislature to establish a prudent State reserve, and to require the
transfer of 50% of excess revenue to the State School Fund; any amounts
allocated to the State School Fund will increase the appropriations limit.
In June 1982, the voters of California passed two initiative measures to
repeal the California gift and inheritance tax laws and to enact, in lieu
thereof, California death taxes. California voters also passed an initiative
measure to increase, for taxable years commencing on or after January 1, 1982,
the amount to account for the effects of inflation. Decreases in State and local
revenues in future fiscal years as a consequence of these initiatives may result
in reductions in allocations of State revenues to California issuers or in the
ability of California issuers to pay their obligations.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative (i) requires that any tax for general
governmental purposes imposed by local governments be approved by resolution or
ordinance adopted by a two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as tax levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by the
Proposition 13 amendment, (v) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governments, (vi) requires
that any tax imposed by a local government on or after August 1, 1985, be
ratified by a majority vote of the electorate within two years of the adoption
of the initiative or be terminated by November 15, 1989, (vii) requires that, in
the event a local government fails to comply with the provisions of this
measure, a reduction of the amount of property tax revenue allocated to such
local government occurs in an amount equal to the revenues received by such
entity attributable to the tax levied in violation of the initiative, and (viii)
permits these provisions to be amended exclusively by the voters of the State of
California.
In September 1988, the California Court of Appeals in CITY OF WESTMINSTER V.
COUNTY OF ORANGE held that Proposition 62 is unconstitutional to the extent that
it requires a general tax by a general city law, enacted on or after August 1,
1985, and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is not
possible to predict the impact of this decision on charter cities, on special
taxes or on new taxes imposed after the effective date of Proposition 62.
In 1988, State voters approved Proposition 87, which amended Article XVI of
the State Constitution to authorize the State Legislature to prohibit
redevelopment agencies from receiving any property tax revenues raised by
increased property taxes to repay bonded indebtedness of local government which
is not approved by voters on or before January 1, 1989. It is not possible to
predict whether the State Legislature will enact such a prohibition, nor is it
possible to predict the impact of Proposition 87 on redevelopment agencies and
their ability to make payments on outstanding debt obligations.
In November 1988, California voters approved Proposition 98. This initiative
requires that (i) revenues in excess of amounts permitted to be spent and which
would otherwise be returned by revision of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 4%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
No such transfer or allocation of funds will be required if certain designated
state officials determine that annual student expenditures and class size meet
certain criteria as set forth in Proposition 98. Any funds allocated to the
State School Fund shall cause the appropriation limits to be annually increased
for any
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<PAGE>
such allocation made in the prior year. Proposition 98 also requires the State
of California to provide a minimum level of funding for public schools and
community colleges. The initiative permits the enactment of legislation, by a
two-thirds vote, to suspend the minimum funding requirement for one year.
In July 1991, California increased taxes by adding two new marginal tax
rates, at 10% and 11%, effective for tax years 1991 through 1995. After 1995,
the maximum personal income tax rate is scheduled to return to 9.3%, and the
alternative minimum tax rate is scheduled to drop from 8.5% to 7%. In addition,
legislation in July 1991 raised the sales tax by 1.25%. 0.5% was a permanent
addition to counties, but with the money earmarked to trust funds to pay for
health and welfare programs whose administration was transferred to counties.
This tax increase will be cancelled if a court rules that such transfer and tax
increase violate any constitutional requirements. 0.5% of the State tax rate
will terminate after June 30,1993.
On November 3, 1992, voters approved an initiative statute, Proposition 163,
which exempts certain food products, including candy and other snack foods, from
California's sales tax. The sales tax had been broadened to include those items
as part of the 1991-92 budget legislation. The State Legislative Analyst
estimates a resultant revenue reduction of $200 million for the remainder of the
1992-93 fiscal year and $300-330 million per year thereafter.
Three court cases may further upset California's budgetary balance: one
concerning the medically indigent and Medi-Cal funding, a second concerning
employee pensions, and a third on California's unitary method of taxing
multinational companies. In KINLAW V. STATE OF CALIFORNIA, the State faced
possible retroactive reimbursement to counties of $2-$3 billion for Medi-Cal
costs for medically indigent adults. The ruling could have added annual
operating costs of $600-$700 million and would have precluded the State-county
realignment of responsibilities. On August 30, 1991, the California Supreme
Court overturned the case on procedural grounds; however, a case of similar
scope regarding employee pensions, SAN BERNARDINO COUNTY V. STATE OF CALIFORNIA,
is pending in the Court of Appeals that raises the same substantial questions.
The California Supreme Court in BARCLAY'S BANK INTERNATIONAL, LTD. upheld
California's unitary method of taxing multinational companies. An appeal to the
United States Supreme Court is expected. An adverse holding could cost
California $729 million in refunds and lost revenue, according to the Commission
on State Finance.
California is the most populous state in the nation with a total population
at the 1990 census of 29,976,000. Growth has been incessant since World War II,
with population gains in each decade since 1950 of between 18% and 49%. During
the last decade, population rose 20%. The State now comprises 12% of the
nation's population and 13.3% of its personal income. Its economy is broad and
diversified with major concentrations in high technology research and
manufacturing, aerospace and defense-related manufacturing, trade, real estate,
and financial services. After experiencing strong growth throughout much of the
1980s, the State is now being adversely affected by both the national recession
and the cutbacks in aerospace and defense spending which have had a severe
impact on the economy in Southern California. This recession has been the
deepest and longest-lasting in the post World War II era. In the past three
years, California has lost nearly six percent of its job base.
In "California Budget Outlook: A Staff Update To The Commission" (the
"Update"), the staff of the California Commission on State Finance (the
"Commission Staff") forecasts that economic conditions will stabilize in
California over the course of 1994, but that a meaningful economic recovery is
many months away. The Commission Staff notes that the proportional decline in
jobs, income, and sales since 1990 has been much greater in the south,
reflecting, among other things, the greater impact of defense cuts, home price
declines and related social and economic problems in the region. The Commission
Staff cautions, however, that California's economic woes extend well beyond
Southern California.
These economic difficulties have exacerbated the structural budget imbalance
which has been evident since fiscal year 1985-1986. Since that time, budget
shortfalls have become increasingly more difficult to solve. The State has
recorded General Fund operating deficits in five of the past six fiscal years.
Many of these problems have been attributable to the fact that the great
population influx has
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produced increased demand for education and social services at a far greater
pace than the growth in the State's tax revenues. Despite substantial tax
increases, expenditure reductions and the shift of some expenditure
responsibilities to local government, the budget condition remains problematic.
The State's General Fund revenues for the 1992-93 fiscal year totalled
nearly $2.5 billion less than the $43.4 billion that Governor Wilson had
projected. It is anticipated that revenues and transfers in the 1993-94 fiscal
year will be lower than those in 1992-93 fiscal year. This represents the second
consecutive year of actual decline.
On June 30, 1993, the Governor signed into law a $52.1 billion budget which,
among other things, (a) shifts $2.6 billion of property taxes from cities,
counties, special districts and redevelopment agencies to schools and community
college districts, (b) reduces higher education and community college funding,
forcing higher student fees, and (c) reduces welfare grants and aid to the aged,
blind, and disabled. In addition, related legislation (a) suspends the renters'
tax credit for two years and (b) allows counties to reduce general assistance
welfare payments by as much as 27%. The stability of the budget would be
jeopardized if the property tax transfer were invalidated by the courts in
current and future cases between the State and its counties.
The current budget includes General Fund spending of $38.5 billion, down
$2.6 billion, or 6.3%, from the amount budgeted for the 1992-1993 fiscal year.
The Commission Staff estimates that the two-year budget plan adopted last June
is out of balance by at least $3.8 billion, due to continued economic weakness
and cost overruns in key State programs. The shortfall could grow to $5.6
billion if a recent Superior Court decision, CALIFORNIA TEACHERS ASSOCIATION V.
GOULD, is upheld on appeal and the $1.8 billion in "off-book" loans to schools
are reclassified as "on-book" General Fund appropriations. Furthermore, the
Commission Staff cautions that the shortfall could grow by an additional several
billion dollars if the economy falters or if the State loses other key cases
pending before the courts.
Because of the State of California's continuing budget problems, the State's
General Obligation bonds were downgraded in 1992 by Moody's from Aa1 to Aa and
by Standard & Poor's from AA to A+.
The effect of these various constitutional and statutory amendments and
budget developments upon the ability of California issuers to pay interest and
principal on their obligations remains unclear and in any event may depend upon
whether a particular California tax-exempt security is a general or limited
obligation bond and on the type of security provided for the bond. It is
possible that other measures affecting the taxing or spending authority of
California or its political subdivisions may be approved or enacted in the
future.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in of the Prospectus, the Fund offers its shares for sale to
the public on a continuous basis, without a sales charge. Pursuant to a
Distribution Agreement between the Fund and Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager, and a wholly-owned
subsidiary of DWDC, shares of the Fund are distributed by the Distributor and
through certain selected dealers who have entered into agreements with the
Distributor ("Selected Broker-Dealers") at an offering price equal to the net
asset value per share next determined following receipt of an effective purchase
order (accompanied by Federal Funds). Dealers in the securities markets in which
the Fund will invest usually require immediate payment in federal funds. Since
the payment by a Fund shareholder for his or her other shares cannot be invested
until it is converted into and available to the Fund in federal funds, the Fund
requires such payments to be so available before a share purchase order can be
considered effective. All checks submitted for payment are accepted subject to
collection at full face value in United States funds and must be drawn in United
States dollars in a United States bank.
The Board of Trustees of the Fund, including a majority of the Trustees who
are not and were not at the time of their vote "Interested persons" (as defined
in the Act) of either party to the Distribution Agreement (the "Independent
Trustees"), approved, at its meeting held on October 30, 1992, the current
Distribution Agreement appointing the Distributor exclusive distributor of the
Fund's shares and
provid-
18
<PAGE>
ing for the Distributor to bear distribution expenses not borne by the Fund. The
Distribution Agreement took effect on June 30, 1993 upon the spin-off by Sears
Roebuck and Co. of its remaining shares of DWDC. By its terms, the Distribution
Agreement has an initial term ending April 30, 1994, and provides that it will
remain in effect from year to year thereafter if approved by the Board.
SHAREHOLDER INVESTMENT ACCOUNT. Upon the purchase of shares of the Fund, a
Shareholder Investment Account is opened for the investor on the books of the
Fund, maintained by the Fund's Transfer Agent, Dean Witter Trust Company (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 written
confirmation of such transaction.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. A shareholder may make
additional investments in Fund shares at any time through the Shareholder
Investment Account by sending a check payable to Dean Witter California Tax-Free
Daily Income Trust in any amount, not less than $100, directly to the Transfer
Agent. The shares so purchased will be credited to the Shareholder Investment
Account.
ACCOUNT STATEMENTS. All purchases of Fund shares will be credited to the
shareholder in a Shareholder Investment Account maintained for the shareholder
by the Transfer Agent in full and fractional shares of the Fund (rounded to the
nearest 1/100 of a share with the exception of purchases made through
reinvestment of dividends, which are rounded to the last 1/100 of a share). A
statement of the account will be mailed to the shareholder after each purchase
or redemption transaction effected through the Transfer Agent. A quarterly
statement of the account is sent to all shareholders. Share certificates will
not be issued unless requested in writing by the shareholder. No certificates
will be issued for fractional shares or to shareholders who have elected the
checking account or predesignated bank account methods of withdrawing cash from
their accounts.
The Fund reserves the right to reject any order for the purchase of its
shares. In addition, the offering of Fund shares may be suspended at any time
and resumed at any time thereafter.
EXCHANGE PRIVILEGE. As discussed in the Prospectus under the caption
"Exchange Privilege", an Exchange Privilege exists whereby investors who have
purchased shares of any of the Dean Witter Funds sold with either a front-end
sales charge ("FESC funds") or a contingent deferred sales charge ("CDSC funds")
will be permitted, after the shares of the fund acquired by purchase (not by
exchange or dividend reinvestment) have been held for thirty days, to redeem all
or part of their shares in that fund, have the proceeds invested in shares of
the Fund, Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income
Trust, Dean Witter New York Municipal Money Market Trust, or Dean Witter U.S.
Government Money Market Trust (these five funds are hereinafter called "money
market funds") or, Dean Witter Limited Term Municipal Trust, Dean Witter
Short-Term Bond Fund and Dean Witter Short-Term U.S. Treasury Trust (these eight
funds are collectively referred to herein as the "Exchange Funds"). There is no
waiting period for shares acquired by exchange or dividend reinvestment.
Subsequently, shares of the Exchange Funds received in an exchange for shares of
an FESC fund (regardless of the type of fund originally purchased) may be
redeemed and exchanged for shares of the other Exchange Funds, FESC funds or
CDSC funds (however, shares of CDSC funds, including shares acquired in exchange
for (i) shares of FESC funds or (ii) shares of the Exchange Funds which were
acquired in exchange for shares of FESC funds, may not be exchanged for shares
of FESC funds). Additionally, shares of the Exchange Funds received in an
exchange for shares of a CDSC fund (regardless of the type of fund originally
purchased) may be redeemed and exchanged for shares of the Exchange Funds, or
CDSC funds. Ultimately, any applicable contingent deferred sales charge ("CDSC")
will have to be paid upon redemption of shares originally purchased from a CDSC
fund. An exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss.
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<PAGE>
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.)
When shares of any CDSC fund are exchanged for shares of the Fund or any
other Exchange Funds, 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 Funds (calculated from
the last day of the month in which the Exchange Funds shares were acquired), the
holding period or "year since purchase payment made" is frozen. When shares are
redeemed out of the Exchange Funds, they will be subject to a CDSC which would
be based upon the period of time the shareholder held shares in a CDSC fund.
However, in the cases of shares of a CDSC fund exchanged into a money market
fund on or after April 23, 1990, upon 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 money market 12b-1 distribution fees incurred on
or after that date which are attributable to those shares. Shareholders
acquiring shares of Exchange Funds pursuant to this exchange privilege may
exchange those shares back into a CDSC fund from Exchange Funds, with no CDSC
being imposed on such exchange. The holding period previously frozen when shares
were first exchanged for shares of Exchange Funds resumes on the last day of the
month in which shares of a CDSC fund are reacquired. Thus, a CDSC is imposed
only upon an ultimate redemption, based upon the time (calculated as described
above) the shareholder was invested in a CDSC fund. Shares of a CDSC fund
acquired in exchange for shares of an FESC fund (or in exchange for shares of
other Dean Witter Funds for which shares of an FESC fund have been exchanged)
are not subject to any CDSC upon their redemption.
When shares initially purchased in a CDSC fund are exchanged for shares of
another CDSC fund or for shares of Exchange Funds, 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 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 FESC funds, or for
shares of other Dean Witter Funds for which shares of FESC funds have been
exchanged (all such shares called "Free Shares"), will be exchanged first.
Shares of Dean Witter Strategist Fund acquired prior to November 8, 1989, Dean
Witter American Value Fund acquired prior to April 30, 1984, and shares of Dean
Witter Dividend Growth Securities Inc. and Dean Witter Natural Resource
Development Securities Inc. acquired prior to July 2, 1984, are also considered
Free Shares and will be the first Free Shares to be exchanged. After an
exchange, all dividends earned on shares in the money market 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 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
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<PAGE>
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 exchange procedures described in the CDSC fund Prospectus
under the caption "Contingent Deferred Sales Charge", 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.
The Transfer Agent acts as agent for shareholders of the Fund in effecting
redemptions of Fund shares and in applying the proceeds to the purchase of other
fund shares. In the absence of negligence on its part, neither the Transfer
Agent nor the Fund shall be liable for any redemption of Fund shares caused by
unauthorized telephone or telegraph instructions. Accordingly, in such event the
investor shall bear the risk of loss. The Staff of the Securities and Exchange
Commission is currently considering the propriety of such policies.
With respect to the 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 DWR 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, DWR or any Selected Dealer.
Exchange Privilege accounts may also be maintained for shareholders of the
money market funds who acquired their shares in exchange for shares of various
TCW/DW Funds, a group of funds distributed by the Distributor for which TCW
Funds Management, Inc. serves as Adviser, under the terms and conditions
described in the Prospectus and Statement of Additional Information of each
TCW/DW Fund.
DWR 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 the shares of any
other fund and the general administration of the Exchange Privilege. No
commission or discounts will be paid to the Distributor, DWR or any Selected
Broker-Dealer for any transactions pursuant to this Exchange Privilege.
Shares of the Fund acquired pursuant to the Exchange Privilege will be held
by the Fund's transfer agent in an Exchange Privilege Account distinct from any
account of the same shareholder who may have acquired shares of the Fund
directly. A shareholder of the Fund will not be permitted to make additional
investments in such Exchange Privilege Account, except through the exchange of
additional shares of the fund in which the shareholder had initially invested,
and the proceeds of any shares redeemed from such Account may not thereafter be
placed back into that Account. If such a shareholder desires to make any
additional investments in the Fund, a separate account will be maintained for
receipt of such investments. The Fund will have additional costs for account
maintenance if a shareholder has more than one account with the Fund.
The Fund also maintains Exchange Privilege Accounts for shareholders who
acquired their shares of the Fund pursuant to exchange privileges offered by
other investment companies with which the Investment Manager is not affiliated.
The Fund also expects to make available such exchange privilege accounts to
other investment companies that may hereafter be managed by the Investment
Manager.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $10,000 for
Dean Witter Short-Term U.S. Treasury Trust and $5,000 for the Fund, Dean Witter
Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust, and Dean Witter
New York Municipal Money Market Trust, although those funds may, at their
discretion, accept initial investments of as low as $1,000. The minimum initial
investment for all other Dean Witter Funds for which the Exchange Privilege is
available is $1,000.) Upon exchange into a money market
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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 money market 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, 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 the Exchange Funds, pursuant to the Exchange
Privilege, and provided further that the Exchange Privilege may be terminated or
materially revised 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(s), policies and
restrictions.
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. 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. For further
information regarding the Exchange Privilege, shareholders should contact their
DWR or other Selected Broker-Dealer account executive or the Transfer Agent.
PLAN OF DISTRIBUTION
In accordance with a Plan of Distribution pursuant to Rule 12b-1 under the
Act between the Fund and the Distributor, the Distributor provides certain
services and finances certain activities in connection with the distribution of
Fund shares. (The "Plan" refers to the Plan and Agreement of Distribution prior
to the reorganization and to the Plan of Distribution after the reorganization.)
A Plan was approved by the Board of Trustees on June 20, 1988 and by DWR as the
Fund's then sole shareholder on June 22, 1988, whereupon the Plan went into
effect. The vote of the Trustees, which was cast in person at a meeting called
for the purpose of voting on such Plan, included a majority of the Trustees who
are not and were not at the time of their voting interested persons of the Fund
and who have and had at the time of their votes no direct or indirect financial
interest in the operation of the Plan (the "Independent Trustees").
The Plan remained in effect until April 30, 1989, and from year to year
thereafter will continue in effect, provided such continuance is approved
annually by a vote of the Trustees, including a majority of the Independent
Trustees. An amendment to increase materially the maximum amount authorized to
be spent under the Plan must be approved by the shareholders of the Fund, and
all material amendments to the Plan must 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 the holders of a majority of the Independent 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 30 days written notice to any other party
to the Plan.
Pursuant to the Plan the Trustees were provided, at their meeting held on
April 28, 1993, with all the information the Trustees deemed necessary to make
an informed determination on whether the Plan should be continued. In making
their determination to continue the Plan until April 30, 1994, the Trustees,
including all of the Independent 12b-1 Trustees, unanimously arrived at the
conclusion that the Plan had benefitted the Fund and also unanimously concluded
that, in their judgment, there is a reasonable likelihood that the Plan will
continue to benefit the Fund and its shareholders.
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The Plan provides that the Distributor bears the expense of all promotional
and distribution related activities on behalf of the Fund, except for expenses
that the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor under the Plan and
Agreement: (1) compensation to and expenses of DWR's account executives and
other employees, including overhead and telephone expenses; (2) sales incentives
and bonuses to sales representatives and to marketing personnel in connection
with promoting sales of the Fund's shares; (3) expenses incurred in connection
with promoting sales of the Fund's shares; (4) preparing and distributing sales
literature; and (5) providing advertising and promotional activities, including
direct mail solicitation and television, radio, newspaper, magazine and other
media advertisements.
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 the reorganization described above, the share distribution
activities, theretofore performed by the Fund or 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 the Investment Manager 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.
DWR account executives are paid an annual residual commission, currently a
gross residual of up to 0.10% of the current value of the respective accounts
for which they are the account executives of record. The "gross residual" is a
charge which reflects residual commissions paid by DWR to its account executives
and DWR's expenses associated with the servicing of shareholder's accounts,
including the expenses of operating DWR's branch offices in connection with the
servicing of shareholder's accounts, which expenses include lease costs, the
salaries and employee benefits of operations and sales support personnel,
utility costs, communications costs and the costs of stationery and supplies and
other expenses relating to branch office serving of shareholder accounts.
The Fund is authorized to reimburse the Distributor for specific expenses
the Distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. Reimbursement is made through monthly payments in amounts
determined in advance of each fiscal quarter by the Trustees, including a
majority of the Independent Trustees. The amount of each monthly payment may in
no event exceed an amount equal to a payment at the annual rate of 0.15 of 1% of
the Fund's average daily net assets during the month. No interest or other
financing charges will be incurred for which reimbursement payments under the
Plan will be made. In addition, no interest charges, if any, incurred on any
distribution expense incurred pursuant to the Plan, will be reimbursable under
the Plan. In making quarterly determinations of the amounts that may be expended
by the Fund, the Distributor provides and the Trustees review a quarterly budget
of projected incremental 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 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 shares.
The Fund reimbursed $270,850 to the Distributor, pursuant to the then
current Plan, for the fiscal year ended December 31, 1993. $270,850 amounted to
0.10 of 1% of the Fund's average daily net assets for its fiscal year ended
December 31, 1993. Based upon the total amounts spent by the Distributor during
the period, it is estimated that the amount paid by the Fund for distribution
was spent in approximately the following ways: (i) advertising--$-0-; (ii)
printing and mailing prospectuses to other than current shareholders--$-0-;
(iii) compensation to underwriters--$-0-; (iv) compensation to dealers--$-0-;
(v) compensation to sales personnel--$-0-; and (vi) other, which includes
payments to the Distributor for expenses substantially all of which relate to
compensation of sales personnel and associated overhead expenses-- $270,850.
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<PAGE>
Under the Plan, the Investment Manager 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 judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
Under the Plan, the Distributor provides the Fund, for review by the
Trustees, and the Trustees review, promptly after the end of each calendar
quarter, a written report regarding the incremental distribution expenses
incurred by the Distributor on behalf of the Fund during such calendar quarter,
which report includes (1) an itemization of the types of expenses and the
purposes therefore; (2) the amounts of such expenses; and (3) a description of
the benefits derived by the Fund. In the Trustees' quarterly review of the Plan
they consider its continued appropriateness and the level of compensation
provided therein.
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, had any direct or indirect
financial interest in the operation of the Plan except to the extent that DWR,
the Distributor or the Investment Manager, 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.
DETERMINATION OF NET ASSET VALUE
As discussed in the Prospectus, the net asset value of the Fund is
determined as of the close of trading 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; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
The Fund utilizes the amortized cost method in valuing its portfolio
securities for purposes of determining the net asset value of shares of the
Fund. The Fund utilizes the amortized cost method in valuing its portfolio
securities even though the portfolio securities may increase or decrease in
market value, generally, in connection with changes in interest rates. The
amortized cost method of valuation involves valuing a security at its cost at
the time of purchase adjusted by a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the instrument. During such periods, the yield to investors in the Fund may
differ somewhat from that obtained in a similar company which uses mark to
market values for all its portfolio securities. For example, if the use of
amortized cost resulted in a lower (higher) aggregate portfolio value on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher (lower) yield than would result from investment in such a
similar company and existing investors would receive less (more) investment
income. The purpose of this method of calculation is to facilitate the
maintenance of a constant net asset value per share of $1.00.
The Fund's use of the amortized cost method to value its portfolio
securities and the maintenance of the per share net asset value of $1.00 is
permitted pursuant to Rule 2a-7 of the Act (the "Rule"), and is conditioned on
its compliance with various conditions contained in the Rule including: (a) the
Fund's Trustees are obligated, as a particular responsibility within the overall
duty of care owed to the Fund's shareholders, to establish procedures reasonably
designed, taking into account current market conditions and the Fund's
investment objectives, to stabilize the net asset value per share as computed
for the purpose of distribution and redemption at $1.00 per share; (b)(i) the
procedures include calculation, at such intervals as are reasonable in light of
current market conditions, of the deviation, if any between net
24
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asset value per share using amortized cost to value portfolio securities and net
asset value per share based upon available market quotations with respect to
such portfolio securities (for the purpose of determining market value,
securities as to which the Fund has a "put" will be valued at the higher of
market value or exercise price); (ii) periodic review by the Trustees of the
amount of deviation as well as methods used to calculate it; and (iii)
maintenance of written records of the procedures, the Trustees' considerations
made pursuant to them and any actions taken upon such consideration; (c) the
Trustees will consider what steps should be taken, if any, in the event of a
difference of more than 1/2 of 1% between the two methods of valuation; and (d)
the Trustees should take such action as they deem appropriate to eliminate or
reduce, to the extent reasonably practicable, material dilution or other unfair
results to investors or existing shareholders. Such action may include: selling
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten the average portfolio maturity of the Fund; withholding dividends;
utilizing a net asset value per share as determined by using available market
quotations or reducing the number of its outstanding shares. Any reduction of
outstanding shares will be effected by having each shareholder proportionately
contribute to the Fund's capital a number of shares which represent the
difference between the amortized cost valuation and market valuation of the
portfolio. Each shareholder will be deemed to have agreed to such contribution
by his or her investment in the Fund.
The Rule further requires that the Fund limit its investments to U.S.
dollar-denominated instruments which the Board of Trustees determines present
minimal credit risks and which are Eligible Securities (as defined below). The
Rule also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to its objective of maintaining a
stable net asset value of $1.00 per share and precludes the purchase of any
instrument with a remaining maturity of more than 397 days. Should the
disposition of a portfolio security result in a dollar weighted average
portfolio maturity of more than 90 days, the Fund would be required to invest
its available cash in such a manner as to reduce such maturity to 90 days or
less as soon as is reasonably practicable.
The Rule further requires that the Fund limit its investments to U.S.
dollar-denominated instruments which the Trustees determine present minimal
credit risks and which are Eligible Securities (as defined below). The Rule also
requires the Fund to maintain a dollar-weighted average portfolio maturity (not
more than 90 days) appropriate to its objective of maintaining a stable net
asset value of $1.00 per share and precludes the purchase of any instrument with
a remaining maturity of more than 397 days. Should the disposition of a
portfolio security result in a dollar-weighted average portfolio maturity of
more than 90 days, the Fund will invest its available cash in such a manner as
to reduce such maturity to 90 days or less as soon as is reasonably practicable.
At the time the Fund makes the commitment to purchase a Municipal Obligation
on a when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value, each day, of the Municipal Obligation in
determining its net asset value. Repurchase agreements are valued at the face
value of the repurchase agreement plus any accrued interest thereon to date.
Generally, for purposes of the procedures adopted under the Rule, the
maturity of a portfolio instrument is deemed to be the period remaining
(calculated from the trade date or such other date on which the Fund's interest
in the instrument is subject to market action) until the date noted on the face
of the instrument as the date on which the principal amount must be paid, or in
the case of an instrument called for redemption, the date on which the
redemption payment must be made.
A variable rate obligation that is subject to a demand feature is deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate instrument that is
subject to a demand feature is deemed to have a maturity equal to the period
remaining until the principal amount can be recovered through demand.
An Eligible Security is defined in the Rule to mean a security which: (a)
has a remaining maturity of thirteen months or less; (b)(i) is rated in the two
highest short-term rating categories by any two NRSROs that have issued a
short-term rating with respect to the security or class of debt obligations of
the issuer,
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or (ii) if only one NRSRO has issued a short-term rating with respect to the
security, then by that NRSRO; (c) was a long-term security at the time of
issuance whose issuer has outstanding a short-term debt obligation which is
comparable in priority and security and has a rating as specified in clause (b)
above; or (d) if no rating is assigned by any NRSRO as provided in clauses (b)
and (c) above, the unrated security is determined by the Board to be of
comparable quality to any such rated security.
As permitted by the Rule, the Board has delegated to the Fund's Investment
Manager, subject to the Board's oversight pursuant to guidelines and procedures
adopted by the Board, the authority to determine which securities present
minimal credit risks and which unrated securities are comparable in quality to
rated securities.
Also, as required by the Rule, the Fund will limit its investments in
securities, other than Government securities, so that, at the time of purchase:
(a) except as further limited in (b) below with regard to certain securities, no
more than 5% (10% if a guarantee) of its total assets will be invested in the
securities of any one issuer; and (b) with respect to Eligible Securities that
have received a rating in less than the highest category by any one of the
NRSROs whose ratings are used to qualify the security as an Eligible Security,
or determined to be of comparable quality: (i) no more than 5% will be invested
in the aggregate of the Fund's total assets in all such securities, and (ii) no
more than the greater of 1% of total assets, or $1 million, will be invested in
the securities of any one issuer.
If the Board determines that it is no longer in the best interests of the
Fund and its shareholders to maintain a stable price of $1 per share or if the
Board believes that maintaining such price no longer reflects a market-based net
asset value per share, the Board has the right to change from an amortized cost
basis of valuation to valuation based on market quotations. The Fund will notify
shareholders of any such changes.
The Fund will manage its portfolio in an effort to maintain a constant $1.00
per share price, but it cannot assure that the value of its shares will never
deviate from this price. Since dividends from net investment income are declared
and reinvested on a daily basis, the net asset value per share, under ordinary
circumstances, is likely to remain constant. Realized and unrealized gains and
losses will not be distributed on a daily basis but will be reflected in the
Fund's net asset value. The amounts of such gains and losses will be considered
by the Board of Trustees in determining the action to be taken to maintain the
Fund's $1.00 per share net asset value. Such action may include distribution at
any time of part or all of the then accumulated undistributed net realized
capital gains, or reduction or elimination of daily dividends by an amount equal
to part or all of the then accumulated net realized capital losses. However, if
realized losses should exceed the sum of net investment income plus realized
gains on any day, the net asset value per share on that day might decline below
$1.00 per share. In such circumstances, the Fund may reduce or eliminate the
payment of daily dividends for a period of time in an effort to restore the
Fund's $1.00 per share net asset value. A decline in prices of securities could
result in significant unrealized depreciation on a mark-to-market basis. Under
these circumstances the Fund may reduce or eliminate the payment of dividends
and utilize a net asset value per share as determined by using available market
quotations.
REDEMPTION OF FUND SHARES
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As discussed in the Prospectus, shares of the Fund may be redeemed at net
asset value at any time. When a redemption is made by check and a check is
presented to the Distributor or to DWR or to the Transfer Agent for payment, the
Transfer Agent will redeem a sufficient number of full and fractional shares in
the shareholder's account to cover the amount of the check. This enables the
shareholder to continue earning daily income dividends until the check has
cleared.
A check drawn by a shareholder against his or her account in the Fund
constitutes a request for redemption of a number of shares sufficient to provide
proceeds equal to the amount of the check. Payment of the proceeds of a check
will normally be made on the next business day after receipt by the Transfer
Agent of the check in proper form. Subject to the foregoing, if a check is
presented for payment
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<PAGE>
to the Transfer Agent by a shareholder or payee in person, the Transfer Agent
will make payment by means of a check drawn on the Fund's account or, in the
case of a shareholder payee, to the shareholder's predesignated bank account,
but will not make payment in cash.
The Fund reserves the right to suspend redemptions or postpone the date of
payment (1) for any periods during which the New York Stock Exchange is closed
(other than for customary weekend and holiday closings), (2) when trading on
that Exchange is restricted or an emergency exists, as determined by the
Securities and Exchange Commission, so that disposal of the Fund's investments
or determination of the Fund's net asset value is not reasonably practicable, or
(3) for such other periods as the Commission by order may permit for the
protection of the Fund's investors.
As discussed in the Prospectus, due to the relatively high cost of handling
small investments, the Fund reserves the right to redeem, at 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 shareholders have a value
of less than $1,000 or such lesser amounts as may be fixed by the Board of
Trustees. However, before the Fund redeems such shares and sends the proceeds to
the shareholder, it will notify the shareholder that the value of his or her
shares is less than $1,000 and allow him or her 60 days to make an additional
investment in an amount which will increase the value of his or her account to
$1,000 or more before the redemption is processed.
SYSTEMATIC CASH WITHDRAWAL. As discussed in the Prospectus, a withdrawal
plan is available for shareholders who own or purchase shares of the Fund having
a minimum value of at least $5,000, which provides for monthly or quarterly
checks in any dollar amount not less than $25 or in any whole percentage of the
account balance on an annualized basis. 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 business day) of the relevant month or quarter and normally a check for
the proceeds will be mailed by the Transfer Agent within five days after the
date of redemption. The withdrawal plan may be terminated at any time by the
Fund.
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 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 "Redemption of Fund Shares"
in the Prospectus) at any time. If the number of shares redeemed is greater than
the number of shares paid as dividends, such redemptions may, of course,
eventually result in liquidation of all the shares in the account. The automatic
cash withdrawal method of redemption is not available for shares held in an
Exchange Privilege Account.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund intends to declare dividends on
each day the New York Stock Exchange is open for business, of all of its daily
net investment income to shareholders of record as of the close of business the
preceding business day.
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In computing net investment income, the Fund will amortize any premiums and
original issue discounts on securities owned, if applicable. Capital gains or
losses realized upon sale or maturity of such securities will be based on their
amortized cost.
The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, the Fund will not be subject to federal
income tax on its net investment income and capital gains, if any, realized
during any fiscal year in which it distributes such income and capital gains to
its shareholders.
As discussed in the Prospectus, the Fund intends to qualify to pay
"exempt-interest dividends" to its shareholders by maintaining, as of the close
of each quarter of its taxable years, at least 50% of the value of its total
assets in tax-exempt securities. An exempt-interest dividend is that part of a
dividend distribution made by the Fund which consists of interest received by
the Fund on tax-exempt securities upon which the shareholder incurs no federal
income taxes. Exempt-interest dividends are included, however, in determining
what portion, if any, of a person's Social Security benefits are subject to
federal income tax.
The Trustees may revise the dividend policy, or postpone the payment of
dividends, if the Fund should have or anticipate any large unexpected expense,
loss or fluctuation in net assets which, in the opinion of the Trustees, might
have a significant adverse effect on shareholders. On occasion, in order to
maintain a constant $1.00 per share net asset value, the Trustees may direct
that the number of outstanding shares be reduced in each shareholder's account.
Such reduction may result in taxable income, if any, to a shareholder in excess
of the net increase (i.e., dividends, less such reductions), if any, in the
shareholder's account for a period. Furthermore, such reduction may be realized
as a capital loss when the shares are liquidated.
Alternative minimum taxable income is generally equal to taxable income with
certain adjustments and increased by certain "tax preference items" which may
include a portion of the Fund's dividends as described above. In addition, the
Code further provides that for taxable years beginning in 1990 and thereafter,
corporations are subject to an alternative minimum tax based, in part, on 75% of
any excess of "adjusted current earnings" over taxable income as adjusted for
other tax preferences. Because an exempt-interest dividend paid by the Fund will
be included in adjusted current earnings, a corporate shareholder may therefore
be required to pay an increased alternative minimum tax as the result of
receiving exempt-interest dividends paid by the Fund.
In determining amounts to be distributed, capital gains will be offset by
any capital loss carryovers incurred in prior years. To the extent that these
carryover losses are used to offset future capital gains, it is probable that
the gains so offset will not be distributed to shareholders since any such
distributions may be taxable to shareholders as ordinary income.
The Code provides that every person required to file a tax return must
include on such return the amount of exempt-interest dividends received from the
Fund during the taxable year.
The Superfund Amendments and Reauthorization Act of 1986 (the "Superfund
Act") imposes a deductible tax on a corporation's alternative minimum taxable
income (computed without regard to the alternative tax net operating loss
deduction) at a rate of $12 per $10,000 (0.12%) of alternative minimum taxable
income in excess of $2,000,000. The tax will be imposed for taxable years
beginning after December 31, 1986 and before January 1, 1996. The tax will be
imposed even if the corporation is not required to pay an alternative minimum
tax because the corporation's regular income tax liability exceeds its minimum
tax liability. Exempt-interest dividends paid by the Fund that create
alternative minimum tax preferences for corporate shareholders under the Code
(as described above) may be subject to the tax.
After the end of the calendar year, the Fund will mail to shareholders a
statement indicating the percentage of the dividend distributions for such
calendar year which constitutes exempt-interest dividends and the percentage, if
any, that is taxable, and to what extent the taxable portion is short-term
28
<PAGE>
capital gains or ordinary income. This percentage should be applied uniformly to
all monthly distributions made during the fiscal year to determine what
proportion of the dividends paid is tax-exempt. The percentage may differ from
the percentage of tax-exempt dividend distributions for any particular month.
Shareholders will be subject to federal income tax on dividends paid from
interest income derived from taxable securities and on distributions of net
short-term capital gains. Such interest and realized net short-term capital
gains dividends and distributions are taxable to the shareholder as ordinary
dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash. Distributions of long-term
capital gains, if any, are taxable as long-term capital gains, regardless of how
long the shareholder has held the Fund shares and regardless of whether the
distribution is received in additional shares or cash. Since the Fund's income
is expected to be derived entirely from interest rather than dividends, it is
anticipated that none of such dividend distributions will be eligible for the
federal dividends received deduction available to corporations.
Any loss on the sale or exchange of shares of the Fund which are held for 6
months or less is disallowed to the extent of the amount of any exempt-interest
dividend paid with respect to such shares. Treasury Regulations may provide for
a reduction in such required holding periods.
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined in general on an October 31 year end,
plus certain undistributed amounts from previous years. The required
distributions, however, are based only on the taxable income of a regulated
investment company. The excise tax, therefore, will generally not apply to the
tax-exempt income of a regulated investment company such as the Fund that pays
exempt-interest dividends. The Fund anticipates that it will make sufficient
timely distributions to avoid imposition of the excise tax.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Fund is not deductible. Furthermore, entities or persons
who are "substantial users" (or related persons) of facilities financed by
industrial development bonds should consult their tax advisers before purchasing
shares of the Fund. "Substantial user" is defined generally by Income Tax
Regulation 1.103-11(b) as including a "non-exempt person" who regularly uses in
trade or business a part of a facility financed from the proceeds of industrial
development bonds.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund could be affected. In that event, the Fund
would re-evaluate its investment objective and policies.
To the extent that dividends are derived from interest on California
tax-exempt securities and on certain U.S. government securities, such dividends
will also be exempt from California personal income taxes. Under California law,
a fund which qualifies as a regulated investment company must have at least 50%
of its total assets invested in California state and local issues or in U.S.
obligations which pay interest excludable from income or in a combination of
such obligations at the end of each quarter of its taxable year in order to be
eligible to pay dividends to California residents which will be exempt from
California personal income taxes. Unlike federal law, California law provides
that no portion of the exempt-interest dividends will constitute an item of tax
preference for California personal income alternative minimum tax purposes.
For California personal income tax purposes, the shareholders of the Fund
will not be subject to tax, or receive a credit for taxes paid by the Fund, on
undistributed capital gains, if any. Under the California Revenue and Taxation
Code, interest on indebtedness incurred or continued to purchase or carry shares
of an investment company paying exempt-interest dividends, such as the Fund,
will not be deductible by the investor for state personal income tax purposes.
29
<PAGE>
The foregoing relates to federal income taxation and to California personal
income taxation as in effect as of the date of the Prospectus. Distributions
from interest income and capital gains, including exempt-interest dividends, may
be subject to California franchise taxes if received by a corporation doing
business in California, to state taxes in states other than California and to
local taxes.
Any dividends or capital gains distributions received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's shares in that fund by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions are, and
some portion of the dividends may be, subject to income tax. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the payment of dividends, 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 ordinary rates.
Therefore, an investor should consider the tax implications of purchasing Fund
shares immediately prior to a distribution record date.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
INFORMATION ON COMPUTATION OF YIELD
The Fund's current yield for the seven days ending December 31, 1993 was
2.17%. The effective annual yield on December 31, 1993 is 2.19%, assuming daily
compounding.
The Fund's annualized current yield, as may be quoted from time to time in
advertisements and other communications to shareholders and potential investors,
is computed by determining, for a stated seven-day period, the net change,
exclusive of capital changes and including the value of additional shares
purchased with dividends and any dividends declared therefrom (which reflect
deductions of all expenses of the Fund such as management fees), in the value of
a hypothetical pre-existing account having a balance of one share at the
beginning of the period, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return, and then
multiplying the base period to obtain the base period return by (365/7).
The Fund's annualized effective yield, as may be quoted from time to time in
advertisements and other communications to shareholders and potential investors,
is computed by determining (for the same stated seven-day period as for the
current yield), the net change, exclusive of capital changes and including the
value of additional shares purchased with dividends and any dividends declared
therefrom (which reflect deductions of all expenses of the Fund such as
management fees), in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, and dividing the difference
by the value of the account at the beginning of the base period to obtain the
base period return, and then compounding the base period return by adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the Fund in the future since the
yield is not fixed. Actual yields will depend not only on the type, quality and
maturities of the investments held by the Fund and changes in interest rates on
such investments, but also on changes in the Fund's expenses during the period.
Yield information may be useful in reviewing the performance of the Fund and
for providing a basis for comparison with other investment alternatives.
However, unlike bank deposits or other investments which typically pay a fixed
yield for a stated period of time, the Fund's yield fluctuates.
Based upon a combined Federal and California personal income tax bracket of
43.04%, the Fund's tax-equivalent yield for the seven days ending December 31,
1993 was 3.81%.
Tax-equivalent yield is computed by dividing that portion of the current
yield (calculated as described above) which is tax-exempt by 1 minus a stated
tax rate and adding the quotient to that portion, if any, of the yield of the
Fund that is not tax-exempt.
30
<PAGE>
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Fund by adding the sum of all
distributions on 10,000, 50,000 or 100,000 shares of the Fund since inception to
$10,000, $50,000 and $100,000, as the case may be. Investments of $10,000,
$50,000 and $100,000 in the Fund at inception would have grown to $12,300,
$61,498 and $122,996, respectively, at December 31, 1993.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. The Trustees have been elected by the shareholders of the Fund. 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 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 (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). However, the Trustees have not authorized
any such additional series or classes of shares.
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
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.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 110 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. The Custodian has no part in deciding the Fund's
investment policies or which securities are to be purchased or sold for the
Fund's portfolios. 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 Company, 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 Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager and Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company'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
31
<PAGE>
and tabulating proxies; processing share certificate transactions; and
maintaining shareholder records and lists. For these services Dean Witter Trust
Company receives a per shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
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 December 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 Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Sheldon Curtis, 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 included in the Prospectus and
incorporated by reference in this Statement of Additional Information have been
so included and incorporated in reliance on the report of Price Waterhouse,
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.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of the Fund for the fiscal year ended
December 31, 1993, and the report of the independent accountants thereon, are
set forth in the Fund's Prospectus, and are incorporated herein by reference.
32
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
Ratings of Investments
Moody's Investors Service Inc. ("Moody's")
Municipal Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., 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.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times in the future. Uncertainty
of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
CONDITIONAL RATING: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
33
<PAGE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal note and other short-term loans are
designated Moody's Investment Grade (MIG). MIG 1 denotes best quality and means
there is present strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. MIG 2 denotes high quality and means that margins of protection are
ample although not as large as in MIG 1. MIG 3 denotes favorable quality and
means that all security elements are accounted for but that the undeniable
strength of the previous grades, MIG 1 and MIG 2, is lacking. MIG 4 denotes
adequate quality and means that the protection commonly regarded as required of
an investment security is present and that while the notes are not distinctly or
predominantly speculative, there is specific risk.
VARIABLE RATE DEMAND OBLIGATIONS
A short-term rating, in addition to the Bond or MIG ratings, designated VMIG
may also be assigned to an issue having a demand feature. The assignment of the
VMIG symbol reflects such characteristics as payment upon periodic demand rather
than fixed maturity dates and payment relying on external liquidity. The VMIG
rating criteria are identical to the MIG Criteria discussed above.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. These ratings apply to Municipal Commercial Paper as well as
taxable Commercial Paper. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
MUNICIPAL BOND RATINGS
A Standard & Poor's municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
34
<PAGE>
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A Debt rated "A" has a 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 than debt in higher-rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which would
lead to inadequate capacity or willingness to pay interest and repay
principal.
B Debt rated "B" has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayments of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal.
CC The rating "CC" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating.
CI The rating "CI" is reserved for income bonds on which no interest is being
paid.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not
rate a particular type of obligation as a matter of policy.
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing with the
major ratings 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.
35
<PAGE>
MUNICIPAL NOTE RATINGS
Commencing on July 27, 1984, Standard & Poor's instituted a new rating
category with respect to certain municipal note issues with a maturity of less
than three years. The new note ratings denote the following:
SP-1 denotes a very strong or strong capacity to pay principal and interest.
Issues determined to possess overwhelming safety characteristics are given
a plus (+) designation (SP-1+).
SP-2 denotes a satisfactory capacity to pay principal and interest.
SP-3 denotes a speculative capacity to pay principal and interest.
COMMERCIAL PAPER RATINGS
Standard and 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 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 group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issuers assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2 and 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payment is very
strong.
A-2 indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as
for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying
this designation are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
36
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included
in Prospectus (Part A):
<TABLE>
<CAPTION>
PAGE IN
PROSPECTUS
<S> <C>
Financial highlights from the period July
22, 1988 through December 31, 1988 and for the
years ended 1989, 1990, 1991, 1992 and 1993............. 4
Statement of assets and liabilities at
December 31, 1993....................................... 21
Statement of operations for the year
ended December 31, 1993................................. 21
Statement of changes in net assets for the years
ended December 31, 1992 and 1993..................... 21
Notes to Financial Statements .......................... 22
Portfolio of Investments at December 31, 1993 .......... 24
</TABLE>
(2) Financial statements included in the Statement of
Additional Information (Part B):
None
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
5. - Form of Investment Management Agreement
between Registrant and Dean Witter
InterCapital Inc.
6.(a) - Form of Distribution Agreement between
Registrant and Dean Witter Distributors
Inc.
(b) - Form of Selected Dealer Agreement.
8. - Form of Amended and Restated Transfer Agency
and Service Agreement.
9. - Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services
Inc.
11. - Consent of Independent Accountants
15. - Form of Amended and Restated Plan of
Distribution pursuant to Rule 12b-1.
1
<PAGE>
16. - Schedules for Computation of Performance
Quotations
All other exhibits previously filed and incorporated
by reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
Item 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
(1) (2)
Number of Record Holders
Title of Class at February 7, 1994
-------------- ------------------------
<S> <C>
Shares of Beneficial Interest 10,734
</TABLE>
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.
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
2
<PAGE>
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. Information regarding
the other officers of InterCapital is included in Item 29(b) below. The term
"Dean Witter Funds" used below refers to the following Funds: (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, (6) Municipal
3
<PAGE>
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, and (22) InterCapital
California Municipal Securities, registered closed-end investment companies,
and (1) Dean Witter Equity Income Trust, (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 Managed Assets Trust, (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, (31) Dean Witter Premier Income Trust, (32)
Dean Witter Short-Term U.S. Treasury Trust, (33) Dean Witter Diversified
Income Trust, (34) Dean Witter U.S. Government Money Market Trust, (35) Dean
Witter Global Dividend Growth Securities, (36) Active Assets California Tax-
Free Trust, (37) Dean Witter Natural Resource Development Securities Inc.,
(38) Active Assets Government Securities Trust, (39) Active Assets Money
Trust, (40) Active Assets Tax-Free Trust, (41) Dean Witter Limited Term
Municipal Trust, (42) Dean Witter Variable Investment Series, (43) Dean
Witter Value-Added Market Series and (44) Dean Witter Short-Term Bond Fund,
registered open-end investment companies. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. The principal address of the Dean
Witter Funds is Two World Trade Center, New York, New York 10048. The term
"TCW/DW Funds" refers to the following 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 Small Cap Growth
Fund, (6) TCW/DW Balanced Fund, registered open-end investment companies and
(7) TCW/DW Term Trust 2002, (8) TCW/DW Term Trust 2003 and (9) TCW/DW
4
<PAGE>
Term Trust 2000, registered closed-end investment companies.
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ------------- ------------------------
<S> <C> <C>
Charles A. Chairman, Chief Executive Vice
Fiumefreddo Executive Officer President and Director
and Director of Dean Witter
Reynolds Inc.
("DWR"); Chairman,
Director or Trustee,
President and
Chief Executive
Officer of the
Dean Witter Funds;
Chairman, Chief
Executive Officer and
Trustee of the TCW/DW
Funds; Chairman and
Director of Dean
Witter Trust Company
("DWTC");Chairman,
Chief Executive
Officer and Director
of Dean Witter
Distributors
Inc. ("Distributors")
and Dean Witter
Services Company
Inc.("DWSC"); Formerly
Executive Vice
President and Director
of Dean Witter,
Discover & Co.
("DWDC"); Director
and/or officer of DWDC
subsidiaries.
Philip J. Director Chairman, Chief
Purcell Executive Officer and
Director of DWDC and
DWR; Director of DWSC
and Distributors.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- ------------- ---------------------
<S> <C> <C>
Richard M. Director President and Chief
DeMartini Operating Officer of
Dean Witter Capital
and Director of DWDC,
DWR, DWSC and
Distributors.
James F. Director President and Chief
Higgins Operating Officer of
Dean Witter Financial;
Director of DWDC, DWR,
DWSC and Distributors.
Thomas C. Executive Vice Executive Vice
Schneider President, Chief President, Chief
Financial Officer Financial Officer
and Director and Director of
DWDC, DWR, DWSC and
Distributors.
Christine A. Director Executive Vice
Edwards President, Secretary,
General Counsel and
Director of DWDC, DWR
DWSC and Distributors.
Robert M. Scanlan President and Vice President of
Chief Operating the Dean Witter Funds
Officer and the TCW/DW Funds;
President of DWSC;
Executive Vice
President of
Distributors;
Executive Vice
President and
Director of DWTC.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- -------------- -----------------------
<S> <C> <C>
David A. Hughey Executive Vice Vice President of the
President and Dean Witter Funds and
Chief Administrative the TCW/DW Funds;
Officer Executive Vice
President, Chief
Administrative Officer
and Director of DWTC;
Executive Vice
President and Chief
Administrative Officer
of DWSC and
Distributors.
Edmund C. Executive Vice Vice President of the
Puckhaber President Dean Witter Funds.
John Van Heuvelen Executive Vice President and Chief
President Executive Officer of
DWTC.
Sheldon Curtis Senior Vice Vice President,
President, Secretary and
General Counsel General Counsel of the
and Secretary Dean Witter Funds and
the TCW/DW Funds;
Senior Vice
President and
Secretary of
DWTC; Assistant
Secretary
of DWR and DWDC;
Senior Vice
President, General
Counsel and Secretary
of DWSC;Senior Vice
President, Assistant
General Counsel and
Assistant Secretary
of Distributors
Peter M. Avelar Senior Vice Vice President of
President various Dean Witter
Funds.
Mark Bavoso Senior Vice Vice President of
President various Dean Witter
Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- -------------- -----------------------
<S> <C> <C>
Thomas H. Connelly Senior Vice Vice President of
President various Dean Witter
Funds.
Edward Gaylor Senior Vice Vice President of
President various Dean Witter
Funds.
Rajesh K. Gupta Senior Vice Vice President of
President various Dean Witter
Funds.
Kenton J. Senior Vice Vice President of
Hinchliffe President various Dean Witter
Funds.
John B. Kemp, III Senior Vice Director of the
President Provident Savings
Bank, Jersey City,
New Jersey.
Anita Kolleeny Senior Vice Vice President of
President various Dean Witter
Funds.
Jonathan R. Page Senior Vice Vice President of
President various Dean Witter
Funds.
Ira Ross Senior Vice Vice President of
President various Dean Witter
Funds.
Rochelle G. Siegel Senior Vice Vice President of
President various Dean Witter
Funds.
Paul D. Vance Senior Vice Vice President of
President various Dean Witter
Funds.
Elizabeth A. Senior Vice
Vetell President
James F. Willison Senior Vice Vice President of
President various Dean Witter
Funds.
Ronald Worobel Senior Vice Vice President of
President various Dean Witter
Funds.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- -------------- -----------------------
<S> <C> <C>
Thomas F. Caloia First Vice Treasurer of the
President and Dean Witter Funds
Assistant Treasurer and the TCW/DW Funds;
Assistant Treasurer
of DWSC;Assistant
Treasurer of
Distributors.
Barry Fink First Vice Assistant Secretary
President of the Dean Witter
Funds and TCW/DW
Funds; First Vice
President and
Assistant Secretary
of DWSC.
Michael First Vice First Vice President
Interrante President and and Controller of
Controller DWSC;Assistant
Treasurer of
Distributors.
Robert Zimmerman First Vice
President
Joseph Arcieri Vice President
Douglas Brown Vice President
Rosalie Clough Vice President
B. Catherine Vice President
Connelly
Marilyn K. Cranney Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
and Assistant
Secretery of DWSC;
Assistant Secretary of
DWR and DWDC.
Salvatore DeSteno Vice President Vice President of
DWSC.
Dwight Doolan Vice President
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- -------------- -----------------------
<S> <C> <C>
Bruce Dunn Vice President
Geoffrey D. Flynn Vice President Vice President of
DWSC.
Bette Freedman Vice President
Deborah Genovese Vice President
Peter W. Gurman Vice President
Shant Harootunian Vice President
John Hechtlinger Vice President
David Johnson Vice President
Christopher Jones Vice President
Stanley Kapica Vice President
Paula LaCosta Vice President Vice President of
various Dean Witter
Funds.
Lawrence S. Lafer Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds;Vice President
Assistant Secretary
of DWSC.
Thomas Lawlor Vice President
Lou Anne D. McInnis Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds;Vice President
and Assistant
Secretary of DWSC.
James Mulcahy Vice President
James Nash Vice President
Hugh Rose Vice President
Ruth Rossi Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds;Assistant
Secretary of DWSC.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
---- -------------- -----------------------
<S> <C> <C>
Howard A. Schloss Vice President
Rose Simpson Vice President
Stuart Smith Vice President
Diane Lisa Sobin Vice President Vice President of
various Dean Witter
Funds.
Kathleen Stromberg Vice President Vice President of
various Dean Witter
Funds.
Vinh Q. Tran Vice President Vice President of
various Dean Witter
Funds.
Alice Weiss Vice President Assistant Vice
President of various
Dean Witter Funds.
Marianne Zalys Vice President
</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 Natural Resource Development Securities Inc.
(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 Equity Income Trust
(15) Dean Witter Federal Securities Trust
(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
11
<PAGE>
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Managed Assets Trust
(22) Dean Witter Limited Term Municipal Trust
(23) Dean Witter World Wide Income Trust
(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) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Premier Income Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(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 Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(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.
<TABLE>
<CAPTION>
Positions and
Office with
Name Distributors
- ---- -------------
<S> <C>
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Edward C. Oelsner III Vice President of Distributors.
Samuel Wolcott III Vice President of Distributors.
</TABLE>
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.
12
<PAGE>
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service
contract.
Item 32. UNDERTAKINGS
Not Applicable
<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 16th day of February, 1994.
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
By /s/ Sheldon Curtis
----------------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 6 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 02/16/94
------------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 02/16/94
------------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Edward R. Telling
By /s/ Sheldon Curtis 02/16/94
-------------------------------
Sheldon Curtis
Attorney-in-Fact
Jack F. Bennett Paul Kolton
John R. Haire Michael E. Nugent
John E. Jeuck Albert T. Sommers
Manuel H. Johnson Edwin J. Garn
By /s/ David M. Butowsky 02/16/94
--------------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
5. - Form of Investment Management Agreement between
Registrant and Dean Witter InterCapital Inc.
6.(a) - Form of Distribution Agreement between Registrant and
Dean Witter Distributors Inc.
(b) - Form of Selected Dealer Agreement
8. - Form of Amended and Restated Transfer Agency and
Service Agreement
9. - Form of Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services
Company Inc.
11. - Consent of Independent Accountants
15. - Form of Amended and Restated Plan of Distribution
pursuant to Rule 12b-1.
16. - Schedules for Computation of Performance
Quotations
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of June, 1993 by and between Dean Witter
California Tax-Free Daily Income Trust, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter
called the "Fund"), and Dean Witter InterCapital Inc., a Delaware corporation
(hereinafter called the "Investment Manager"):
WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, and engages in the business of acting
as investment adviser; and
WHEREAS, The Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms and
conditions hereinafter set forth; and
WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as
investment manager of the Fund and, subject to the supervision of the Trustees,
to supervise the investment activities of the Fund as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities markets and securities as it deems necessary or useful to discharge
its duties hereunder; shall continuously manage the assets of the Fund in a
manner consistent with the investment objectives and policies of the Fund; shall
determine the securities to be purchased, sold or otherwise disposed of by the
Fund and the timing of such purchases, sales and dispositions; and shall take
such further action, including the placing of purchase and sale orders on behalf
of the Fund, as the Investment Manager shall deem necessary or appropriate. The
Investment Manager shall also furnish to or place at the disposal of the Fund
such of the information, evaluations, analyses and opinions formulated or
obtained by the Investment Manager in the discharge of its duties as the Fund
may, from time to time, reasonably request.
2. The Investment Manager shall, at its own expense, maintain such
staff and employ or retain such personnel and consult with such other persons as
it shall from time to time determine to be necessary or useful to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Investment Manager
shall be deemed to include persons employed or otherwise retained by the
Investment Manager to furnish statistical and other factual data, advice
regarding economic factors and trends, information with respect to technical and
scientific developments, and such other information, advice and assistance as
the Investment Manager may desire. The Investment Manager shall, as agent for
the Fund, maintain the Fund's records and books of account (other than those
maintained by the Fund's transfer agent, registrar, custodian and other agents).
All such books and records so maintained shall be the property of the Fund and,
upon request therefor, the Investment Manager shall surrender to the Fund such
of the books and records so requested.
3. The Fund will, from time to time, furnish or otherwise make
available to the Investment Manager such financial reports, proxy statements and
other information relating to the business and affairs of the Fund as the
Investment Manager may reasonably require in order to discharge its duties and
obligations hereunder.
4. The Investment Manager shall bear the cost of rendering the
investment management and supervisory services to be performed by it under this
Agreement, and shall, at its own expense, pay the compensation of the officers
and employees, if any, of the Fund, and provide such office space and equipment
and such clerical and bookkeeping services as the Fund shall reasonably require
in the conduct of its business,
<PAGE>
including the pricing of Fund shares, and preparation of prospectuses, 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). The Investment Manager shall also bear the cost of
telephone service, heat, light, power and other utilities provided to the Fund,
and the cost of printing (in excess of costs borne by the Fund) and distributing
prospectuses and supplements thereto of the Fund used for sales purposes.
5. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including without limitation: the charges and expenses of
any registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities and other property, and any stock
transfer or dividend agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to Federal, State or other governmental
agencies; the cost and expense of engraving or printing share certificates
representing shares of the Fund; all costs and expenses in connection with the
registration and maintenance of registration of the Fund and its shares with the
Securities and Exchange Commission and various states and other jurisdictions
(including filing fees and legal fees and disbursements of counsel); the cost
and expense of printing (including typesetting) and distributing prospectuses
of the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders and prospective shareholders; fees
and travel expenses of Trustees or 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 the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of legal counsel and independent accountants in connection with any
matter relating to the Fund (not including compensation or expenses of attorneys
employed by the Investment Manager); membership dues of the Investment Company
Institute; interest payable 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 related
thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
6. For the services to be rendered, the facilities furnished, and
the expenses assumed by the Investment Manager, the Fund shall pay to the
nvestment Manager monthly compensation determined by applying the following
annual rates to the Fund's daily net assets: 0.50% of the portion of the daily
net assets not exceeding $500 million; 0.425% of the portion of the daily net
assets exceeding $500 million but not exceeding $750 million; 0.375% of the
portion of the daily net assets exceeding $750 million but not exceeding $1
billion; 0.35% of the portion of the daily net assets exceeding $1 billion but
not exceeding $1.5 billion; 0.325% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion; 0.30% of the portion of the
daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% of
the portion of the daily net assets exceeding $2.5 billion but not exceeding $3
billion; and 0.25% of the portion of the daily net assets exceeding $3 billion.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. Such calculations shall be made by applying 1/365ths of the annual
rates to the Fund's net assets each day determined as of the close of business
on that day or the last previous business day. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this Agreement is
in effect shall be prorated in a manner consistent with the calculation of the
fees as set forth above. Subject to the provisions of paragraph 7 hereof,
payment of the Investment Manager's compensation for the preceding month shall
be made as promptly as possible after completion of the computation contemplated
by paragraph 7 hereof.
7. In the event the operating expenses of the Fund, including
amounts payable to the Investment Manager pursuant to paragraph 6 hereof, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund imposed by state securities laws
or regulations thereunder, as such limitations may be raised or lowered from
time to time, the Investment Manager shall reduce its management fee to the
extent of such excess and, if required, pursuant to any such laws or
2
<PAGE>
regulations, will reimburse the Fund for annual operating expenses in excess of
any expense limitation that may be applicable; provided, however, there shall be
excluded from such expenses the amount of any interest, taxes, brokerage
commissions and extraordinary expenses (to the extent permitted by state
securities laws or regulations thereunder) paid or payable by the Fund. Such
reduction, if any, shall be computed and accrued daily, shall be settled on a
monthly basis, and shall be based upon the expense limitation applicable to the
Fund as at the end of the last business day of the month. Should two or more
such expense limitations be applicable as at the end of the last business day of
the month, that expense limitation which results in the largest reduction in the
Investment Manager's fee shall be applicable.
For purposes of this provision, should any applicable expense limitation be
based upon the gross income of the Fund, such gross income shall include, but
not be limited to, interest on debt of fixed income securities in the Fund's
portfolio accrued to and including the last day of the Fund's fiscal year, and
dividends declared but not paid on any equity securities in the Fund's
portfolio, the record dates for which fall on or prior to the last day of such
fiscal year, but shall not include gains from the sales of securities.
8. The Investment Manager will use its best efforts in the
supervision and management of the investment activities of the Fund, but in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations hereunder, the Investment Manager shall not be
liable to the Fund or any of its investors for any error of judgment or mistake
of law or for any act or omission by the Investment Manager or for any losses
sustained by the Fund or its investors.
9. Nothing contained in this Agreement shall prevent the Investment
Manager or any affiliated person of the Investment Manager from acting as
investment adviser or manager for any other person, firm or corporation and
shall not in any way bind or restrict the Investment Manager or any such
affiliated person from buying, selling or trading any securities or commodities
for their own accounts or for the account of others for whom they may be acting.
Nothing in this Agreement shall limit or restrict the right of any director,
officer or employee of the Investment Manager to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business whether of a similar or dissimilar nature.
10. This Agreement shall remain in effect until April 30, 1994 and
from year to year thereafter provided such continuance is approved at least
annually by the vote of holders of a majority (as defined in the Act) of the
outstanding voting securities of the Fund or by the Board of Trustees of the
Fund; provided that in either event such continuance is also approved annually
by the vote of a majority of the Trustees of the Fund who are not parties to
this Agreement or "interested persons" (as defined in the Act) of any such
party, which vote must be cast in person at a meeting called for the purpose of
voting on such approval; provided, however, that (a) the Fund may, at any time
and without the payment of any penalty, terminate this Agreement upon thirty
days' written notice to the Investment Manager, either by majority vote of the
Board of Trustees of the Fund or by the vote of a majority of the outstanding
voting securities of the Fund; (b) this Agreement shall immediately terminate in
the event of its assignment (within the meaning of the Act) unless such
automatic termination shall be prevented by an exemptive order of the Securities
and Exchange Commission; and (c) the Investment Manager may terminate this
Agreement without payment of penalty on thirty days' written notice to the Fund.
Any notice under this Agreement shall be given in writing, addressed and
delivered, or mailed post-paid, to the other party at the principal office of
such party.
11. This Agreement may be amended by the parties without the vote or
consent of shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Agreement to the requirements of applicable
federal laws or regulations, but neither the Fund nor the Investment Manager
shall be liable for failing to do so.
12. This Agreement shall be construed in accordance with the law of
the State of New York and the applicable provisions of the Act. To the extent
the applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall control.
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<PAGE>
13. The Investment Manager and the Fund each agree that the name
"Dean Witter," which comprises a component of the Fund's name, is a property
right of Dean Witter Reynolds Inc. The Fund agrees and consents that (i) it will
only use the name "Dean Witter" as a component of its name and for no other
purpose, (ii) it will not purport to grant to any third party the right to use
the name "Dean Witter" for any purpose, (iii) the Investment Manager or its
parent, Dean Witter Reynolds Inc., or any corporate affiliate of the Investment
Manager's parent, may use or grant to others the right to use the name "Dean
Witter," or any combination or abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial purpose, including a grant of
such right to any other investment company, (iv) at the request of the
Investment Manager or its parent, the Fund will take such action as may be
required to provide its consent to the use of the name "Dean Witter," or any
combination or abbreviation thereof, by the Investment Manager or its parent or
any corporate affiliate of the Investment Manager's parent, or by any person to
whom the Investment Manager or its parent or any corporate affiliate of the
Investment Manager's parent shall have granted the right to such use, and (v)
upon the termination of any investment advisory agreement into which the
Investment Manager and the Fund may enter, or upon termination of affiliation of
the Investment Manager with its parent, the Fund shall, upon request by the
Investment Manager or its parent, cease to use the name "Dean Witter" as a
component of its name, and shall not use the name, or any combination or
abbreviation thereof, as a part of its name or for any other commercial purpose,
and shall cause its officers, Trustees and shareholders to take any and all
actions which the Investment Manager or its parent may request to effect the
foregoing and to reconvey to the Investment Manager or its parent any and all
rights to such name.
14. The Declaration of Trust establishing Dean Witter California
Tax-Free Daily Income Trust, dated March 29, 1988, a copy of which, together
with all amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name Dean
Witter California Tax-Free Daily Income Trust 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 California
Tax-Free Daily Income 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
California Tax-Free Daily Income Trust, but the Trust Estate only shall be
liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
<TABLE>
<S> <C>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
By
.........................................................
Attest:
........................................................
DEAN WITTER INTERCAPITAL INC.
By
.........................................................
Attest:
........................................................
</TABLE>
4
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 30th day of June, 1993 between Dean Witter
California Tax-Free Daily Income Trust, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (the "Fund"), and
Dean Witter Distributors Inc., a Delaware corporation (the "Distributor");
W I T N E S S E T H:
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a diversified open-end investment company and it
is in the interest of the Fund to offer its shares for sale continuously, and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Fund's transferable
shares of beneficial interest, of $.01 par value (the "Shares"), in order to
promote the growth of the Fund and facilitate the distribution of its Shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. APPOINTMENT OF THE DISTRIBUTOR. (a) The Fund hereby appoints the
Distributor as the principal underwriter of the Fund to sell Shares to the
public on the terms set forth in this Agreement and the Fund's Prospectus
(defined below) and the Distributor hereby accepts such appointment and agrees
to act hereunder. The Fund, during the term of this Agreement, shall sell Shares
to the Distributor upon the terms and conditions set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from the Fund and to sell Shares as principal to investors and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate of
the Distributor, upon the terms described herein and in the Fund's prospectus
(the "Prospectus") and statement of additional information included in the
Fund's registration statement (the "Registration Statement") most recently filed
from time to time with the Securities and Exchange Commission (the "SEC") and
effective under the Securities Act of 1933, as amended (the "1933 Act") and 1940
Act or as said Prospectus may be otherwise amended or supplemented and filed
with the SEC pursuant to Rule 497 under the 1933 Act.
SECTION 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall be the
exclusive principal underwriter and distributor of the Fund, except that the
exclusive rights granted to the Distributor to sell the Shares shall not apply
to Shares issued by the Fund: (i) in connection with the merger or consolidation
of any other investment company or personal holding company with the Fund or the
acquisition by purchase or otherwise of all (or substantially all) the assets or
the outstanding shares of any such company by the Fund; or (ii) pursuant to
reinvestment of dividends or capital gains distributions; or (iii) pursuant to
the reinstatement privilege afforded redeeming shareholders.
SECTION 3. PURCHASE OF SHARES FROM THE FUND. (a) The Distributor shall have
the right to buy from the Fund the Shares needed, but not more than the Shares
needed (except for clerical errors in transmission), to fill unconditional
orders for Shares placed with the Distributor by investors and securities
dealers. The price which the Distributor shall pay for the Shares so purchased
from the Fund shall be the net asset value, determined as set forth in the
Prospectus.
(b) The Shares are to be resold by the Distributor at the net asset value
per share, as set forth in the Prospectus, to investors or to securities
dealers, including DWR, having selected dealer agreements with the Distributor
pursuant to Section 7 ("Selected Dealers").
(c) The Fund shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(d) hereof. The Fund shall also have the right to suspend the sale of
the Shares if trading on the New York Stock Exchange shall have been suspended,
if a banking moratorium shall have been declared by federal or New York
authorities, or if there shall have been some other extraordinary event which,
in the judgment of the Fund, makes it impracticable to sell the Shares.
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<PAGE>
(d) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept orders for the purchase of Shares. The Distributor will confirm orders
upon their receipt, and the Fund (or its agent) upon receipt of payment therefor
and instructions will deliver share certificates for such Shares or a statement
confirming the issuance of Shares. Payment shall be made to the Fund in New York
Clearing House funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct the Fund's transfer agent to receive instructions directly
from the Selected Dealer on behalf of the Distributor as to registration of
Shares in the names of investors and to confirm issuance of the Shares to such
investors. The Distributor is also authorized to instruct the transfer agent to
receive payment directly from the Selected Dealer on behalf of the Distributor,
for prompt transmittal to the Fund's custodian, of the purchase price of the
Shares. In such event the Distributor shall obtain from the Selected Dealer and
maintain a record of such registration instructions and payments.
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES. (a) Any of the outstanding
Shares may be tendered for redemption at any time, and the Fund agrees to redeem
the Shares so tendered in accordance with the applicable provisions set forth in
the Prospectus. The price to be paid to redeem the Shares shall be equal to the
net asset value determined as set forth in the Prospectus. All payments by the
Fund hereunder shall be made in the manner set forth below.
The proceeds of any redemption of Shares shall be paid by the Fund to the
redeeming shareholders, in each case in accordance with applicable provisions of
the Prospectus in New York Clearing House funds.
(b) The Distributor is authorized, as agent for the Fund, to repurchase
Shares, represented by a share certificate which is delivered to any office of
the Distributor in accordance with applicable provisions set forth in the
Prospectus. The Distributor shall promptly transmit to the transfer agent of the
Fund for redemption all Shares so delivered. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's transfer
agent in connection with all such repurchases.
(c) The Distributor is authorized, as agent for the Fund, to repurchase
Shares held in a shareholder's account with the Fund for which no share
certificate has been issued, upon the telephonic or telegraphic request of the
shareholder, or at the discretion of the Distributor. The Distributor shall
promptly transmit to the transfer agent of the Fund, for redemption, all such
orders for repurchase of Shares. Payment for Shares repurchased may be made by
the Fund to the Distributor for the account of the shareholder. The Distributor
shall be responsible for the accuracy of instructions transmitted to the Fund's
transfer agent in connection with all such repurchases.
With respect to Shares tendered for redemption or repurchase by any
Selected Dealer on behalf of its customers, the Distributor is authorized to
instruct the transfer agent of the Fund to accept orders for redemption or
repurchase directly from the Selected Dealer on behalf of the Distributor and to
instruct the Fund to transmit payments for such redemptions and repurchases
directly to the Selected Dealer on behalf of the Distributor for the account of
the shareholder. The Distributor shall obtain from the Selected Dealer and
maintain a record of such orders. The Distributor is further authorized to
obtain from the Fund, and shall maintain, a record of payments made directly to
the Selected Dealer on behalf of the Distributor.
(d) Redemption of Shares or payment by the Fund may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
restricted, 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
during any other period when the SEC, by order, so permits.
2
<PAGE>
SECTION 5. DUTIES OF THE FUND. (a) The Fund shall furnish to the
Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of the Shares, including one certified copy, upon request by the
Distributor, of all financial statements prepared by the Fund and examined
by independent accountants. The Fund shall, at the expense of the Distributor,
make available to the Distributor such number of copies of the prospectus as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to register Shares under the
1933 Act, to the end that there will be available for sale such number of Shares
as investors may reasonably be expected to purchase.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of the Shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of annual and
interim reports of the Fund.
SECTION 6. DUTIES OF THE DISTRIBUTOR. (a) The Distributor shall sell Shares
of the Fund through DWR and may sell Shares through other securities dealers and
its own Account Executives and shall devote reasonable time and effort to
promote sales of Shares, but shall not be obligated to sell any specific number
of Shares. The services of the Distributor hereunder are not exclusive and it is
understood that the Distributor acts as principal underwriter for other
registered investment companies and intends to do so in the future. It is also
understood that Selected Dealers, including DWR, may also sell shares for other
registered investment companies.
(b) The Distributor and any Selected Dealers shall not give any information
or make any representations, other than those contained in the Registration
Statement or related Prospectus and any sales literature specifically approved
by the Fund.
(c) The Distributor agrees that it will comply with the terms and
limitations of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (NASD).
SECTION 7. SELECTED DEALERS AGREEMENTS. (a) The Distributor shall have the
right to enter into selected dealers agreements with Selected Dealers for the
sale of Shares. In making agreements with Selected Dealers, the Distributor
shall act only as principal and not as agent for the Fund. Shares sold to
Selected Dealers shall be for resale by such dealers only at the public offering
price set forth in the Prospectus.
(b) Within the United States, the Distributor shall offer and sell Shares
only to Selected Dealers that are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by the
Fund, for the confirmation of sales of Shares to investors and Selected Dealers,
the collection of amounts payable by investors and Selected Dealers on such
sales, and the cancellation of unsettled transactions, as may be necessary to
comply with the requirements of the NASD, as such requirements may from time to
time exist.
SECTION 8. PAYMENT OF EXPENSES. (a) The Distributor shall bear all expenses
incurred by it in connection with its duties and activities under this Agreement
(except such expenses as are specifically undertaken herein by the Fund). It is
understood and agreed that, so long as the Fund's Plan of Distribution pursuant
to Rule 12b-1 (the "Rule 12b-1 Plan") continues in effect, any expenses incurred
by the Distributor and DWR in connection with the sale of Shares may be paid
from amounts the Distributor and DWR are entitled to receive from the Fund under
such Plan.
(b) The Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of legal counsel including counsel to the Trustees of the Fund
who are not interested persons (as defined in the 1940 Act) of the Fund or the
Distributor, and independent accountants, in connection
3
<PAGE>
with the preparation and filing of any required Registration Statements and
Prospectuses and all amendments and supplements thereto, and the expenses of
preparing, printing, mailing and otherwise distributing prospectuses and
statements of additional information, annual or interim reports or proxy
materials to shareholders.
(c) The Fund shall bear the cost and expenses of qualification of the
Shares for sale, and, if necessary or advisable in connection therewith, of
qualifying the Fund as a broker or dealer, in such states of the United States
or other jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5(c) hereof and the cost and expenses payable to each such
state for continuing qualification therein until the Fund decides to discontinue
such qualification pursuant to Section 5(c) hereof.
SECTION 9. INDEMNIFICATION. (a) The Fund shall indemnify and hold harmless
the Distributor and each person, if any, who controls the Distributor against
any loss, liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or expense
and reasonable counsel fees incurred in connection therewith), arising by reason
of any person acquiring any Shares, which may be based upon the 1933 Act, or on
any other statute or at common law, on the ground that the Registration
Statement or related Prospectus as from time to time may be amended and
supplemented, or the annual or interim reports to shareholders of the Fund,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect the Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of reckless disregard of its
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claims shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled to participate
at its own expense in the defense or if it so elects, to assume the defense, of
any suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling persons or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained by them.
The Fund shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or trustees in
connection with the issuance or sale of the Shares.
(b) (i) The Distributor shall indemnify and hold harmless the Fund and each
of its Trustees and officers and each person, if any, who controls the Fund
against such loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the Registration Statement or related
Prospectus, as from time to time may be amended, or the annual or interim
reports to shareholders.
4
<PAGE>
(ii) The Distributor shall indemnify and hold harmless the Fund and the
Fund's transfer agent, individually and in its capacity as the Fund's transfer
agent, from and against any claims, damages and liabilities which arise as a
result of actions taken pursuant to instructions from, or on behalf of the
Distributor to: (1) redeem all or a part of shareholder accounts in the Fund
pursuant to subsection 4(c) hereof and pay the proceeds to the Distributor for
the account of each shareholder whose Shares are so redeemed; and (2) register
Shares in the names of investors, confirm the issuance thereof and receive
payment therefor pursuant to subsection 3(e).
(iii) In case any action shall be brought against the Fund or any person so
indemnified by this subsection 9(b) in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties given
to the Fund, and the Fund and each person so indemnified shall have the rights
and duties given to the Distributor by the provisions of subsection (a) of this
Section 9.
(c) If the indemnification provided for in this Section 9 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Fund on the one hand and the Distributor on the other
from the offering of Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Fund on the one hand and
the Distributor on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Fund on the one hand and
the Distributor on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Fund bear to the total compensation received by the Distributor, in each case as
set forth in Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Fund or the Distributor and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Fund and the Distributor agree that it would
not be just and equitable if contribution were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions in respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such claim.
Notwithstanding the provisions of this subsection (c), the Distributor shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Shares distributed by it to the public were offered to the
public exceeds the amount of any damages which it has otherwise been required to
ay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
SECTION 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement
shall become effective as of the date first above written and shall remain in
force until April 30, 1994 and thereafter, but only so long as such continuance
is specifically approved at least annually by (i) the Trustees of the Fund, or
by the vote of a majority of the outstanding voting securities of the Fund, cast
in person or by proxy, and (ii) a majority of those Trustees who are not parties
to this Agreement or interested persons of any such party and who have no direct
or indirect financial interest in this Agreement or in this Agreement or in the
operation of the Fund's Rule 12b-1 Plan or in any agreement related thereto,
cast in person at a meeting called for the purpose of voting upon such approval.
5
<PAGE>
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees of the Fund who are not interested persons of the Fund
and who have no direct or indirect financial interest in this Agreement or in
any agreement related to the Fund's Rule 12b-1 Plan, or by vote of a majority of
the outstanding voting securities of the Fund, or by the Distributor, on sixty
days' written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interest person", when used in this Agreement, shall have the
respective meanings specified in the 1940 Act.
SECTION 11. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the Trustees
of the Fund, or by the vote of a majority of outstanding voting securities of
the Fund, and (ii) a majority of those Trustees of the Fund who are not parties
to this Agreement or interested persons of any such party and who have no direct
or indirect financial interest in this Agreement or in any Agreement related
to the Fund's Rule 12b-1 Plan, cast in person at a meeting called for the
purpose of voting on such approval.
SECTION 12. GOVERNING LAW. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the 1940
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the 1940 Act,
the latter shall control.
SECTION 13. PERSONAL LIABILITY. The Declaration of Trust establishing Dean
Witter California Tax-Free Daily Income Trust, dated March 29, 1988, a copy of
which, together with all amendments thereto (the "Declaration"), is on file in
the office of the Secretary of the Commonwealth of Massachusetts, provides that
the name Dean Witter California Tax-Free Daily Income Trust 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 California Tax-Free Daily Income 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 California Tax-Free Daily Income Trust, but the
Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER CALIFORNIA TAX-FREE DAILY
INCOME TRUST
By:
--------------------------------------
DEAN WITTER DISTRIBUTORS INC.
By:
--------------------------------------
6
<PAGE>
DEAN WITTER DISTRIBUTORS INC.
Gentlemen:
Dean Witter Distributors Inc. (the "Distributor") has a distribution
agreement (the "Distribution Agreement") with Dean Witter California Tax-Free
Daily Income Trust, a Massachusetts business trust (the "Fund"), pursuant to
which it acts as the Distributor for the sale of the Fund's shares of beneficial
interest, par value $0.01 per share (the "Shares"). Under the Distribution
Agreement, the Distributor has the right to distribute Shares for resale.
The Fund is an open-end management investment company registered under the
Investment Company Act of 1940, as amended, and the Shares being offered to the
public are registered under the Securities Act of 1933, as amended. You have
received a copy of the Distribution Agreement between us and the Fund and
reference is made herein to certain provisions of such Distribution Agreement.
The terms used herein, including "Prospectus" and "Registration Statement" of
the Fund and "Selected Dealer" shall have the same meaning in this Agreement as
in the Distribution Agreement. As principal, we offer to sell shares to your
customers, upon the following terms and conditions:
1. In all sales of Shares to the public you shall act on behalf of your
customers, and in no transaction shall you have any authority to act as agent
for the Fund, for us or for any Selected Dealer.
2. Orders received from you will be accepted through us or on our behalf
only at the net asset value applicable to each order, as set forth in the
current Prospectus. The procedure relating to the handling of orders shall be
subject to instructions which we or the Fund shall forward from time to time to
you. All orders are subject to acceptance or rejection by the Distributor or the
Fund in the sole discretion of either.
3. You shall not place orders for any Shares unless you have already
received purchase orders for such Shares at the applicable net asset values and
subject to the terms hereof and of the Distribution Agreement and the
Prospectus. You agree that you will not offer or sell any of the Shares except
under circumstances that will result in compliance with the applicable Federal
and state securities laws and that in connection with sales and offers to sell
Shares you will furnish to each person to whom any such sale or offer is made a
copy of the Prospectus (as then amended or supplemented) and will not furnish to
any person any information relating to the Shares, which is inconsistent in any
respect with the information contained in the Prospectus (as then amended or
supplemented) or cause any advertisement to be published by radio or television
or in any newspaper or posted in any public place or use any sales promotional
material without our consent and the consent of the Fund.
4. The Distributor will compensate you for sales of shares of the Fund and
personal services to Fund shareholders by paying you a sales charge and/or other
commission (which may be in the form of a gross sales credit and/or an annual
residual commission) and/or a service fee, under the terms as are set forth in
the Fund's Prospectus.
5. If any Shares sold to your customers under the terms of this Agreement
are repurchased by us for the account of the Fund or are tendered for redemption
within seven business days after the date of the confirmation of the original
purchase by you, it is agreed that you shall forfeit your right to, and refund
to us, any commission received by you with respect to such Shares.
6. No person is authorized to make any representations concerning the
Shares or the Fund except those contained in the current Prospectus and in such
printed information subsequently issued by us or the Fund as information
supplemental to such Prospectus. In selling Shares, you shall rely solely on the
representations contained in the Prospectus and supplemental information
mentioned above. Any printed information which we furnish you other than the
Prospectus and the Fund's periodic reports and proxy solicitation material are
our sole responsibility and not the responsibility of the Fund, and you agree
that the Fund shall have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
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<PAGE>
7. You agree to deliver to each of the purchasers making purchases a copy
of the then current Prospectus at or prior to the time of offering or sale, and
you agree thereafter to deliver to such purchasers copies of the annual and
interim reports and proxy solicitation materials of the Fund. You further agree
to endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus, annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon request.
8. You are hereby authorized (i) to place orders directly with the Fund or
its agent for shares of the Fund to be sold by us subject to the applicable
terms and conditions governing the placement of orders for the purchase of Fund
shares, as set forth in the Distribution Agreement, and (ii) to tender shares
directly to the Fund or its agent for redemption subject to the applicable terms
and conditions set forth in the Distribution Agreement.
9. We reserve the right in our discretion, without notice, to suspend sales
or withdraw the offering of Shares entirely. Each party hereto has the right to
cancel this agreement upon notice to the other party.
10. I. You shall indemnify and hold harmless the Distributor, from and
against any claims, damages and liabilities which arise as a result of action
taken pursuant to instructions from you, or on your behalf to: a)(i) place
orders for Shares of the Fund with the Fund's transfer agent or direct the
transfer agent to receive instructions for the order of Shares, and (ii) accept
monies or direct that the transfer agent accept monies as payment for the order
of such Shares, all as contemplated by and in accordance with Section 3 of the
Distribution Agreement; b)(i) place orders for the redemption of Shares of the
Fund with the Fund's transfer agent or direct the transfer agent to receive
instruction for the redemption of Shares and (ii) to pay redemption proceeds or
to direct that the transfer agent pay redemption proceeds in connection with
orders for the redemption of Shares, all as contemplated by and in accordance
with Section 4 of the Distribution Agreement; provided, however, that in no
case, (i) is this indemnity in favor of the Distributor and any such controlling
persons to be deemed to protect the Distributor or any such controlling persons
thereof against any liability to which the Distributor or any such controlling
persons would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of reckless
disregard of its obligations and duties under this Agreement or the Distribution
Agreement; or (ii) are you to be liable under the indemnity agreement contained
in this paragraph with respect to any claim made against the Distributor or any
such controlling persons, unless the Distributor or any such controlling
persons, as the case may be, shall have notified you in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify you of any such claim shall not relieve you from
any liability which you may have to the person against whom such action is
brought otherwise than on account of the indemnity agreement contained in this
paragraph. You will be entitled to participate at your own expense in the
defense, or, if you so elect, to assume the defense, of any suit brought to
enforce any such liability, but if you elect to assume the defense, such defense
shall be conducted by counsel chosen by you and satisfactory to the Distributor
or such controlling person or persons, defendant or defendants in the suit. In
the event you elect to assume the defense of any such suit and retain such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case you do not elect to assume the defense of
any such suit, you will reimburse the Distributor or such controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. You shall promptly notify the
Distributor of the commencement of any litigation or proceedings against it or
any of its officers or directors in connection with the issuance or sale of the
Shares.
II. If the indemnification provided for in this Section 10 is unavailable
or insufficient to hold harmless the Distributor, as provided above in respect
of any losses, claims, damages, liabilities or expenses (or actions in respect
thereof) referred to herein, then you shall contribute to the amount paid or
payable by the Distributor as a result of such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by you on the one hand and
the
2
<PAGE>
Distributor on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then you shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also your relative fault on the one hand and the relative
fault of the Distributor on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as well as any other relevant
equitable considerations. You and the Distributor agree that it would not be
just and equitable if contribution were determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to above. The amount paid or payable by the Distributor
as a result of the losses, claims, damages, liabilities or expenses (or actions
in respect thereof) referred to above shall be deemed to include any legal or
other expenses reasonably incurred by the Distributor in connection with
investigating or defending any such claim. Notwithstanding the provisions of
this subsection (II), you shall not be required to contribute any amount in
excess of the amount by which the total price at which the Shares distributed by
it to the public were offered to the public exceeds the amount of any damages
which it has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act of
1933 Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the distribution and
redemption of Fund shares. We shall be under no liability to you except for lack
of good faith and for obligations expressly assumed by us herein. Nothing
contained in this paragraph is intended to operate as, and the provisions of
this paragraph shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as amended, or of
the rules and regulations of the Securities and Exchange Commission issued
thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Rules of Fair Practice of such Association.
13. Upon application to us, we will inform you as to the states in which we
believe the Shares have been qualified for sale under, or are exempt from the
requirements of, the respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell Shares in any
jurisdiction.
14. All communications to us should be sent to the address shown below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
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<PAGE>
15. This Agreement shall become effective as of the date of your acceptance
hereof, provided that you return to us promptly a signed and dated copy.
DEAN WITTER DISTRIBUTORS INC.
By ...................................
(Authorized Signature)
Please return one signed copy
of this agreement to:
Dean Witter Distributors Inc.
Two World Trade Center
New York, New York 10048
Accepted:
Firm Name: ...........................
By: ..................................
Address: .............................
.....................................
Date: ................................
4
<PAGE>
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
DEAN WITTER TRUST COMPANY
DWR
[open-end]
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 Terms of Appointment; Duties of DWTC. . . . . . . . . . . . 2
Article 2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 6
Article 3 Representations and Warranties of DWTC. . . . . . . . . . . 7
Article 4 Representations and Warranties of the Fund. . . . . . . . . 8
Article 5 Duty of Care and Indemnification. . . . . . . . . . . . . . 9
Article 6 Documents and Covenants of the Fund and DWTC. . . . . . . . 12
Article 7 Duration and Termination of Agreement . . . . . . . . . . . 16
Article 8 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 16
Article 9 Affiliations. . . . . . . . . . . . . . . . . . . . . . . . 17
Article 10 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 18
Article 11 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . 18
Article 12 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 18
Article 13 Merger of Agreement . . . . . . . . . . . . . . . . . . . . 20
Article 14 Personal Liability. . . . . . . . . . . . . . . . . . . . . 21
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AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 1st day of August, 1993
by and between each of the Dean Witter 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 COMPANY, a
trust company organized under the laws of New Jersey, having its principal
office and place of business at Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 ("DWTC").
WHEREAS, the Fund desires to appoint DWTC as its transfer agent,
dividend disbursing agent and shareholder servicing agent and DWTC desires to
accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
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<PAGE>
Article 1 TERMS OF APPOINTMENT; DUTIES OF DWTC
1.1 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints DWTC to act as, and DWTC 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 DWTC agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by agreement between the Fund and DWTC, DWTC 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");
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<PAGE>
(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
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<PAGE>
(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. DWTC
shall also provide to the Fund on a regular basis the total number of Shares
which 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 would result in an overissue, DWTC shall refuse to issue
such Shares and shall not countersign and issue any certificates requested for
such Shares. When recording the issuance of Shares, DWTC 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), DWTC 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,
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<PAGE>
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 confirm-
able 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 which 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 DWTC in writing
those transactions and assets to be treated as exempt from Blue Sky reporting
for each State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of DWTC for the Fund's registration status under
the Blue Sky or securities laws of any State or other jurisdiction is solely
limited to the initial establishment of transactions subject to Blue Sky
compliance by the Fund and the reporting of such transactions
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<PAGE>
to the Fund as provided above and as agreed from time to time by the Fund and
DWTC.
(d) DWTC shall provide such additional services and functions
not specifically described herein as may be mutually agreed between DWTC and
the Fund. Procedures applicable to such services may be established from time
to time by agreement between the Fund and DWTC.
Article 2 FEES AND EXPENSES
2.1 For performance by DWTC pursuant to this Agreement, each
Fund agrees to pay DWTC 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 DWTC.
2.2 In addition to the fees paid under Section 2.1 above, the
Fund agrees to reimburse DWTC in connection with the services rendered by DWTC
hereunder. In addition, any other expenses incurred by DWTC 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
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<PAGE>
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 DWTC by the Fund upon request prior to the mailing date of
such materials.
Article 3 REPRESENTATIONS AND WARRANTIES OF DWTC
DWTC represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in
good standing under the laws of New Jersey and it is duly qualified to carry on
its business 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.
-7-
<PAGE>
Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to DWTC 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.
-8-
<PAGE>
Article 5 DUTY OF CARE AND INDEMNIFICATION
5.1 DWTC shall not be responsible for, and the Fund shall
indemnify and hold DWTC 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 DWTC 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 DWTC or its agents or subcontractors of
information, records and documents which (i) are received by DWTC 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 DWTC or its agents or
subcontractors of, any instructions or requests
-9-
<PAGE>
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 such Shares be registered 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 DWTC 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 DWTC as a result of the lack of good faith, negligence or
willful misconduct of DWTC, its officers, employees or agents.
5.3 At any time, DWTC 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 DWTC under
this Agreement, and DWTC 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. DWTC, its
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<PAGE>
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 DWTC 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. DWTC, 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.
-11-
<PAGE>
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 DWTC
6.1 The Fund shall promptly furnish to DWTC the following:
(a) If a corporation:
(i) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of DWTC and the execution and delivery of
this Agreement;
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<PAGE>
(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;
(b) If a business trust:
(i) A certified copy of the resolution of the Board of Trustees of
the Fund authorizing the appointment of DWTC 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;
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<PAGE>
(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 DWTC deems to
be appropriate or necessary for the proper performance of its duties.
6.2 DWTC 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 DWTC 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
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<PAGE>
Section 31 of the 1940 Act, and the rules and regulations thereunder, DWTC
agrees that all such records prepared or maintained by DWTC relating to the
services performed by DWTC 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 DWTC 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 DWTC and the Fund.
6.5 In case of any request or demands for the inspection of the
Shareholder records of the Fund, DWTC will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. DWTC 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.
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<PAGE>
Article 7 DURATION AND TERMINATION OF AGREEMENT
7.1 This Agreement shall remain in full force and effect until
July 31, 1996 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 DWTC 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, DWTC 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.
8.2 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
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<PAGE>
8.3 DWTC 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 DWTC; PROVIDED, HOWEVER, that
such person or entity has and maintains the qualifications, if any, required to
perform such obligations and duties, and that DWTC 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 DWTC 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 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
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<PAGE>
Fund's investment adviser and/or distributor, are or may be interested in DWTC
as directors, officers, employees, agents and shareholders or otherwise, and
that the directors, officers, employees, agents and shareholders of DWTC 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 DWTC to act as transfer agent,
dividend disbursing agent and/or shareholder servicing agent,
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and DWTC desires to render such services, such services shall be provided
pursuant to a letter agreement, substantially in the form of Exhibit A hereto,
between DWTC 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 DWTC 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 DWTC and the Fund issued by a
surety company satisfactory to DWTC, except that DWTC may accept an affidavit of
loss and indemnity agreement executed by the registered holder (or legal
representative) without surety in such form as DWTC deems appropriate
indemnifying DWTC and the Fund for the issuance of a replacement certificate, in
cases where the alleged loss is in the amount of $1000 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, DWTC 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 DWTC
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may, in its sole discretion, deem appropriate or as the Fund and, if applicable,
the Distributor may instruct DWTC.
12.4 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to DWTC 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 DWTC:
Dean Witter Trust Company
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.
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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.
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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.
(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 Natural Resource Development Securities Inc.
(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 Equity Income Trust
(15) Dean Witter Federal Securities Trust
(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 Managed Assets Trust
(22) Dean Witter Limited Term Municipal Trust
(23) Dean Witter World Wide Income Trust
(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) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Premier Income Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
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(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Value-Added Market Series
(43) Dean Witter Select Municipal Reinvestment Fund
(44) Dean Witter Variable Investment Series
By:/s/ Sheldon Curtis
---------------------------------------
Sheldon Curtis
Vice President and General Counsel
ATTEST:
/s/ Barry Fink
- -------------------------------------
Barry Fink
Assistant Secretary
DEAN WITTER TRUST COMPANY
By:/s/ Charles A. Fiumefreddo
---------------------------------------
Charles A. Fiumefreddo
Chairman
ATTEST:
/s/ David A. Hughey
- -------------------------------------
David A. Hughey
Executive Vice President
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Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, (THE FUND NAME) a (Massachusetts business
trust/Maryland corporation) (the "Fund"), desires to employ and appoint Dean
Witter Trust Company ("DWTC") 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 DWTC of fees as set out in the fee schedule attached hereto as Schedule
A, DWTC 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.
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<PAGE>
Please indicate DWTC'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 THE FUND)
By:__________________________________
Sheldon Curtis
Vice President and General Counsel
ACCEPTED AND AGREED TO:
DEAN WITTER TRUST COMPANY
By:_______________________
Its:______________________
Date:_____________________
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SCHEDULE A
Fund: Dean Witter California Tax-Free Daily Income Trust
Fees: (1) Annual maintenance fee of $14.65 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.
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SERVICES AGREEMENT
AGREEMENT made as of the 31st day of December, 1993 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a New Jersey corporation
(herein referred to as "DWS").
WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement") with
certain investment companies as set forth on Schedule A (each such investment
company being herein referred to as a "Fund" and, collectively, as the "Funds")
pursuant to which InterCapital is to perform, or supervise the performance of,
among other services, administrative services for the Funds (and, in the case of
Funds with multiple portfolios, the Series or Portfolios of the Funds (such
Series and Portfolio being herein individually referred to as "a Series" and,
collectively, as "the Series"));
WHEREAS, InterCapital desires to retain DWS to perform the administrative
services as described below; and
WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DWS agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, DWS
shall (i) administer the Fund's business affairs and supervise the overall day-
to-day operations of the Fund (other than rendering investment advice); (ii)
provide the Fund with full administrative services, including the maintenance of
certain books and records, such as journals, ledger accounts and other records
required under the Investment Company Act of 1940, as amended (the"Act"), the
notification to the Fund and InterCapital of available funds for investment, the
reconciliation of account information and balances among the Fund's custodian,
transfer agent and dividend disbursing agent and InterCapital, and the
calculation of the net asset value of the Fund's shares; (iii) provide the Fund
with the services of persons competent to perform such supervisory,
administrative and clerical functions as are necessary to provide effective
operation of the Fund; (iv) oversee the performance of administrative and
professional services rendered to the Fund by others, including its custodian,
transfer agent and dividend disbursing agent, as well as accounting, auditing
and other services; (v) provide the Fund with adequate general office space and
facilities; (vi) assist in the preparation and the printing of the periodic
updating of the Fund's registration statement and prospectus (and, in the case
of an open-end Fund, the statement of additional information), tax returns,
proxy statements, and reports to its shareholders and the Securities and
Exchange Commission; and (vii) monitor the compliance of the Fund's investment
policies and restrictions.
In the event that InterCapital enters into an Investment Management
Agreement with another investment company, and wishes to retain DWS to perform
administrative services hereunder, it shall notify DWS in writing. If DWS is
willing to render such services, it shall notify InterCapital in writing,
whereupon such other Fund shall become a Fund as defined herein.
2. DWS shall, at its own expense, maintain such staff and employ or retain
such personnel and consult with such other persons as it shall from time to time
determine to be necessary or useful to the performance of its obligations under
this Agreement. Without limiting the generality of the foregoing, the staff and
personnel of DWS shall be deemed to include officers of DWS and persons employed
or otherwise retained by DWS (including officers and employees of InterCapital,
with the consent of InterCapital) to furnish services, statistical and other
factual data, information with respect to technical and scientific developments,
and such other information, advice and assistance as DWS may desire. DWS shall
maintain each Fund's records and books of account (other than those maintained
by the Fund's transfer agent, registrar, custodian and other agencies). All such
books and records so maintained shall be the property of the Fund and, upon
request therefor, DWS shall surrender to InterCapital or to the Fund such of the
books and records so requested.
3. InterCapital will, from time to time, furnish or otherwise make
available to DWS such financial reports, proxy statements and other information
relating to the business and affairs of the Fund as DWS may
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<PAGE>
reasonably require in order to discharge its duties and obligations to the Fund
under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or weekly (in the case of a
closed-end Fund) by applying the annual rate or rates set forth on Schedule B to
the net assets of each Fund. Except as hereinafter set forth, (i) in the case of
an open-end Fund, compensation under this Agreement shall be calculated by
applying 1/365th of the annual rate or rates to the Fund's or the Series' daily
net assets determined as of the close of business on that day or the last
previous business day and (ii) in the case of a closed-end Fund, compensation
under this Agreement shall be calculated by applying the annual rate or rates to
the Fund's average weekly net assets determined as of the close of the last
business day of each week. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth on
Schedule B. Subject to the provisions of paragraph 5 hereof, payment of DWS'
compensation for the preceding month shall be made as promptly as possible after
completion of the computations contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to InterCapital pursuant to the Investment Management Agreement, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund and/or any Series thereof imposed by
state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, or, in the case of InterCapital Income
Securities Inc. or Dean Witter Variable Investment Series or any Series thereof,
the expense limitation specified in the Fund's Investment Management Agreement,
the fee payable hereunder shall be reduced on a pro rata basis in the same
proportion as the fee payable by the Fund under the Investment Management
Agreement is reduced.
6. DWS shall bear the cost of rendering the administrative services to be
performed by it under this Agreement, and shall, at its own expense, pay the
compensation of the officers and employees, if any, of the Fund employed by DWS,
and such clerical help and bookkeeping services as DWS shall reasonably require
in performing its duties hereunder.
7. DWS will use its best efforts in the performance of administrative
activities on behalf of each Fund, but in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations hereunder,
DWS shall not be liable to the Fund or any of its investors for any error of
judgment or mistake of law or for any act or omission by DWS or for any losses
sustained by the Fund or its investors. It is understood that, subject to the
terms and conditions of the Investment Management Agreement between each Fund
and InterCapital, InterCapital shall retain ultimate responsibility for all
services to be performed hereunder by DWS. DWS shall indemnify InterCapital and
hold it harmless from any liability that InterCapital may incur arising out of
any act or failure to act by DWS in carrying out its responsibilities hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person controlling,
controlled by or under common control with DWS, and that DWS and any person
controlling, controlled by or under common control with DWS may have an interest
in the Fund. It is also understood that DWS and any affiliated persons thereof
or any persons controlling, controlled by or under common control with DWS have
and may have advisory, management, administration service or other contracts
with other organizations and persons, and may have other interests and
businesses, and further may purchase, sell or trade any securities or
commodities for their own accounts or for the account of others for whom they
may be acting.
9. This Agreement shall continue until April 30, 1994, and thereafter shall
continue automatically for successive periods of one year unless terminated by
either party by written notice delivered to the other party within 30 days of
the expiration of the then-existing period. Notwithstanding the foregoing, this
Agreement may be terminated at any time, by either party on 30 days' written
notice delivered to the other party. In the
2
<PAGE>
event that the Investment Management Agreement between any Fund and InterCapital
is terminated, this Agreement will automatically terminate with respect to such
Fund.
10. This Agreement may be amended or modified by the parties in any manner
by mutual written agreement executed by each of the parties hereto.
11. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By: /s/
.....................................
Attest:
/s/
........................................
DEAN WITTER SERVICES COMPANY INC.
By: /s/
.....................................
Attest:
/s/
........................................
3
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
at December 31, 1993
OPEN-END FUNDS
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter American Value Fund
6. Dean Witter California Tax-Free Daily Income Trust
7. Dean Witter California Tax-Free Income Fund
8. Dean Witter Capital Growth Securities
9. Dean Witter Convertible Securities Trust
10. Dean Witter Developing Growth Securities Trust
11. Dean Witter Diversified Income Trust
12. Dean Witter Dividend Growth Securities Inc.
13. Dean Witter Equity Income Trust
14. Dean Witter European Growth Fund Inc.
15. Dean Witter Federal Securities Trust
16. Dean Witter Global Dividend Growth Securities
17. Dean Witter Global Short-Term Income Fund Inc.
18. Dean Witter Health Sciences Trust
19. Dean Witter High Yield Securities Inc.
20. Dean Witter Intermediate Income Securities
21. Dean Witter Limited Term Municipal Trust
22. Dean Witter Liquid Asset Fund Inc.
23. Dean Witter Managed Assets Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter Natural Resource Development Securities Inc.
26. Dean Witter New York Municipal Money Market Trust
27. Dean Witter New York Tax-Free Income Fund
28. Dean Witter Pacific Growth Fund Inc.
29. Dean Witter Precious Metals and Minerals Trust
30. Dean Witter Premier Income Trust
31. Dean Witter Retirement Series
32. Dean Witter Select Municipal Reinvestment Fund
33. Dean Witter Short-Term U.S. Treasury Trust
34. Dean Witter Strategist Fund
35. Dean Witter Tax-Exempt Securities Trust
36. Dean Witter Tax-Free Daily Income Trust
37. Dean Witter U.S. Government Money Market Trust
38. Dean Witter U.S. Government Securities Trust
39. Dean Witter Utilities Fund
40. Dean Witter Value-Added Market Series
41. Dean Witter Variable Investment Series
42. Dean Witter World Wide Income Trust
43. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
44. High Income Advantage Trust
45. High Income Advantage Trust II
46. High Income Advantage Trust III
47. InterCapital Income Securities Inc.
48. Dean Witter Government Income Trust
49. InterCapital Insured Municipal Bond Trust
50. InterCapital Insured Municipal Trust
51. InterCapital Insured Municipal Income Trust
52. InterCapital California Insured Municipal Income Trust
53. InterCapital Quality Municipal Investment Trust
54. InterCapital Quality Municipal Income Trust
55. InterCapital Quality Municipal Securities
56. InterCapital California Quality Municipal Securities
57. InterCapital New York Quality Municipal Securities
4
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DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
MONTHLY COMPENSATION CALCULATED DAILY BY APPLYING THE FOLLOWING ANNUAL RATES
TO THE FUND'S NET ASSETS.
Dean Witter California
Tax-Free Daily Income
Trust 0.050% of the portion of the daily net assets
Tax-Free Daily Income Trust not exceeding $500
million; 0.0425% of the portionof the daily net
assets exceeding $500 million but not exceeding $750
million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5
billion; 0.0325% of the portion of the daily net
assets exceeding $1.5 billion but not exceeding $2
billion; 0.030% of the portion of the daily net
assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net
assets exceeding $2.5 billion but not exceeding $3
billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Post-
Effective Amendment No. 6 to the registration statement on Form N-1A (the
"Registration Statement") of our report dated February 8, 1994, relating to the
financial statements and financial highlights of Dean Witter California Tax-Free
Daily Income Trust, which appears in such Prospectus, and to the incorporation
by reference of such report into the Statement of Additional Information which
constitutes part of this Registration Statement. We also consent to the
references to us under the heading "Financial Highlights" in the Prospectus and
under the headings "Independent Accountants" and "Experts" in the Statement of
Additional Information.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
February 15, 1994
<PAGE>
AMENDED AND RESTATED PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
OF
DEAN WITTER/SEARS CALIFORNIA TAX-FREE DAILY INCOME TRUST
WHEREAS, Dean Witter/Sears California Tax-Free Daily Income Trust (the
"Fund") is engaged in business as an open-end management investment company and
is registered as such under the Investment Company Act of 1940, as amended (the
"Act"); and
WHEREAS, on June 22, 1988, the Fund adopted a Plan and Agreement of
Distribution pursuant to Rule 12b-1 under the Act, and the Trustees then
determined that there was a reasonable likelihood that the Plan of Distribution
would benefit the Fund and its shareholders; and
WHEREAS, the Trustees believe that continuation of said Plan of
Distribution, as amended and restated herein, is reasonably likely to continue
to benefit the Fund and its shareholders; and
WHEREAS, the Agreement incorporated in said Plan and Agreement of
Distribution was entered into by the Fund with Dean Witter Reynolds Inc.
("DWR"); and
WHEREAS, the Fund and DWR desire to substitute DW Distributors Inc. (the
"Distributor") in the place of DWR as distributor of the Fund's shares; and
WHEREAS, the Fund, DWR and the Distributor intend that DWR will continue to
promote the sale of Fund shares and provide personal services to Fund
shareholders with respect to their holdings of Fund shares; and
WHEREAS, the Fund and the Distributor have entered into a separate
Distribution Agreement dated as of this date, pursuant to which the Fund has
employed the Distributor in such capacity during the continuous offering of
shares of the Fund.
NOW, THEREFORE, the Fund hereby amends and restates the Plan of Distribution
previously adopted, and the Distributor hereby agrees to the terms of said Plan
of Distribution (the "Plan"), as amended and restated herein, in accordance with
Rule 12b-1 under the Act on the following terms and conditions:
1. The Fund is hereby authorized to utilize its assets to finance certain
activities in connection with the distribution of its shares.
2. Subject to the supervision of the Board of Trustees and the terms of the
Distribution Agreement, the Distributor is authorized to promote the
distribution of the Fund's shares and to provide related services through DWR,
its affiliates or other broker-dealers it may select, and its own Registered
Representatives. The Distributor, DWR, its affiliates and said broker-dealers
shall be reimbursed, directly or through the Distributor, as it may direct, as
provided in paragraph 4 hereof for their services and expenses, which may
include one or more of the following: (1) compensation to, and expenses of,
account executives and other employees, including overhead and telephone
expenses; (2) sales incentives and bonuses to sales representatives of the
Distributor, DWR, its affiliates and other broker-dealers, and to marketing
personnel in connection with promoting sales of shares of the Fund; (3) expenses
incurred in connection with promoting sales of shares of the Fund; (4) preparing
and distributing sales literature; and (5) providing advertising and promotional
activities, including direct mail solicitation and television, radio, newspaper,
magazine and other media advertisements.
3. The Distributor hereby undertakes to directly bear all costs of
rendering the services to be performed by it under this Plan and under the
Distribution Agreement, except for those specific expenses that the Board of
Trustees determines to reimburse as hereinafter set forth.
4. The Fund is hereby authorized to reimburse the Distributor, DWR, its
affiliates and other broker-dealers for incremental distribution expenses
incurred by them specifically on behalf of the Fund. Reimbursement will be made
through payments at the end of each month in such amounts determined in advance
of each fiscal quarter by the Fund's Board of Trustees, including a majority of
the Trustees who are not "interested persons" of the Fund, as defined in the
Act. The amount of each monthly payment may in no event exceed an amount equal
to a payment at the annual rate of 0.15 of 1% of the Fund's average net assets
during the month. In making quarterly determinations of the amounts that may be
expended by the Fund, the Distributor shall provide, and the Trustees shall
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<PAGE>
review, a quarterly budget of projected incremental distribution expenses to be
incurred by the Distributor, DWR, its affiliates and other broker-dealers on
behalf of the Fund, together with a report explaining the purposes and
anticipated benefits of incurring such expenses. The Board of Trustees shall
determine the particular expenses, and the portion thereof, that may be borne by
the Fund, and in making such determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the shares of the Fund
directly or through DWR, its affiliates or other broker-dealers.
5. The Distributor may direct that all or any part of the amounts
receivable by it under this Plan be paid directly to DWR, its affiliates or
other broker-dealers.
6. If, as of the end of any fiscal year, the actual expenses incurred by
the Distributor, DWR, its affiliates and other broker-dealers on behalf of the
Fund (including accrued expenses and amounts reserved for incentive compensation
and bonuses) are less than the amount of payments made by the Fund pursuant to
this Plan, the Distributor shall promptly make appropriate reimbursement to the
Fund. If, however, as of the end of any fiscal year, the actual expenses of the
Distributor, DWR, its affiliates and other broker-dealers are greater than the
amount of payments made by the Fund pursuant to this Plan, the Fund will not
reimburse the Distributor, DWR, its affiliates or other broker-dealers for such
expenses through payments accrued pursuant to this Plan in the subsequent fiscal
year.
7. The Distributor shall provide the Fund for review by the Board of
Trustees, and the Board of Trustees shall review, promptly after the end of each
fiscal quarter a written report regarding the incremental distribution expenses
incurred by the Distributor, DWR, its affiliates or other broker-dealers on
behalf of the Fund during such fiscal quarter, which report shall include: (1)
an itemization of the types of expenses and the purposes therefor; (2) the
amounts of such expenses; and (3) a description of the benefits derived by the
Fund.
8. This Plan, as amended and restated, shall become effective upon approval
by a vote of the Board of Trustees of the Fund, and of the Trustees 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 this Plan, cast in person at
a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect until April 30, 1993, and from year
to year thereafter, provided such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in paragraph 8 hereof.
This Plan may not be amended to increase materially the amount to be spent for
the services described herein unless such amendment is approved by a vote of at
least a majority of the outstanding voting securities of the Fund, as defined in
the Act, and no material amendment to this Plan shall be made unless approved in
the manner provided for approval in paragraph 8 hereof.
10. This Plan may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Trustees 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 this Plan or by a vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act, on no more
than 30 days' written notice to any other party to this Plan.
11. While this Plan is in effect, the selection and nomination of Trustees
who are not interested persons of the Fund shall be committed to the discretion
of the Trustees who are not interested persons.
12. The Fund shall preserve copies of this Plan and all reports made
pursuant to paragraph 7 hereof, for a period of not less than six years from the
date of this Plan, as amended and restated herein, or any such report, as the
case may be, the first two years in an easily accessible place.
13. This Plan shall be construed in accordance with the laws of the State of
New York and the applicable provisions of the Act. To the extent the applicable
law of the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the Act, the latter shall control.
14. The Declaration of Trust establishing Dean Witter/Sears California
Tax-Free Daily Income Trust, dated March 29, 1988, a copy of which, together
with all amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name Dean
Witter/Sears California Tax-Free Daily Income Trust 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/Sears
California
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<PAGE>
Tax-Free Daily Income 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/Sears
California Tax-Free Daily Income Trust, but the Trust Estate only shall be
liable.
IN WITNESS WHEREOF, the Fund, the Distributor and DWR have executed this
Plan of Distribution, as amended and restated, as of the day and year set forth
below in New York, New York.
<TABLE>
<S> <C>
Date: June 22, 1988 DEAN WITTER/SEARS CALIFORNIA TAX-FREE DAILY INCOME
As amended on January 4, 1993 TRUST
By: ..............................................
Attest:
............................................
DW DISTRIBUTORS INC.
By: ..............................................
Attest:
............................................
DEAN WITTER REYNOLDS INC.
By: ..............................................
Attest:
............................................
</TABLE>
3
<PAGE>
DEAN WITTER CALIFORNIA TAX-FREE DAILY INCOME TRUST
Exhibit 16: Schedule for computation of each performance
quotation provided in the Statement of Additional Information.
(16) The Trust's current yield for the seven days ending
December 31, 1993
(A-B) x 365/N
(1.000416 -1) x 365/7 = 2.17%
The Trust's effective annualized yield for the seven days ending
December 31, 1993
365/N
A - 1
365/7
1.000416 - 1 = 2.19%
A = Value of a share of the Trust at end of period.
B = Value of a share of the Trust at beginning of period.
N = Number of days in the period.
CALCULATION Tax equivalent Yield = 3.81% Based on a tax
= bracket of 43.04%
(1.000416 -1) x 365/7
= 2.17%
((1.000416) x 52.1428714-1)
= 2.19%
TAX BRACKET : 43.04%
FORMULA (CURRENT 7 DAY YIELD / 1-43.04)
CURRENT 7 DAY YIELD : 2.17
2.17/56.96
= 3.81%
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DEAN WITTER CALIFORNIA TAX FREE DAILY INCOME TRUST
(A) GROWTH OF $10,000
(B) GROWTH OF $50,000
(C) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
INVESTED - P TOTAL
$10,000, $50,000 & RETURN - TR (A) GROWTH OF (B) GROWTH OF (C) GROWTH OF
$100,000 31-Dec-93 $10,000 INVESTMENT- G $50,000 INVESTMENT- G $100,000 INVESTMENT- G
- ------------------ ----------- --------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
31-Jul-88 22.98 $12,298 $61,490 $122,980
</TABLE>
