<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1998
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 /X/
------------------------
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
------------------------
MORGAN STANLEY DEAN WITTER WORLD WIDE INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-2550
(Registrant's Telephone Number)
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(Name and Address of Agent for Service)
------------------------
COPY TO:
STUART M. STRAUSS, ESQ.
GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
The Exhibit Index is located on page [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORM N-14
MORGAN STANLEY DEAN WITTER WORLD WIDE INCOME TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A OF FORM N-14 ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- ----------------------------- ----------------------------------------------------------------------
<C> <S> <C>
1(a) .................... Cross Reference Sheet
(b) .................... Front Cover Page
(c) .................... *
2(a) .................... *
(b) .................... Table of Contents
3(a) .................... Fee Table
(b) .................... Synopsis
(c) .................... Principal Risk Factors
4(a) .................... The Reorganization
(b) .................... The Reorganization -- Capitalization Table (Unaudited)
5(a) .................... Registrant's Prospectus
(b) .................... *
(c) .................... *
(d) .................... *
(e) .................... Available Information
(f) .................... Available Information
6(a) .................... Prospectus of Dean Witter Global Short-Term Income Fund Inc.
(b) .................... Available Information
(c) .................... *
(d) .................... *
7(a) .................... Introduction -- Proxies
(b) .................... *
(c) .................... Introduction; The Reorganization -- Appraisal Rights
8(a) .................... The Reorganization
(b) .................... *
9 .................... *
<CAPTION>
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ----------------------------- ----------------------------------------------------------------------
<C> <S> <C>
10(a) .................... Cover Page
(b) .................... *
11 .................... Table of Contents
12(a) .................... Additional Information about Morgan Stanley Dean Witter World Wide
Income Trust
(b) .................... *
(c) .................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ----------------------------- ----------------------------------------------------------------------
13(a) .................... Additional Information about Morgan Stanley Dean Witter Global
Short-Term Income Fund Inc.
<C> <S> <C>
(b) .................... *
(c) .................... *
14 .................... Registrant's Annual Report for the fiscal year ended October 31, 1998;
Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.'s
Annual Report for the fiscal year ended October 31, 1998; and Pro
Forma financial statements for Registrant for the period ended on
October 31, 1998.
<CAPTION>
PART C OF FORM N-14 ITEM NO. OTHER INFORMATION HEADING
- ----------------------------- ----------------------------------------------------------------------
<C> <S> <C>
15 .................... Indemnification
16 .................... Exhibits
17 .................... Undertakings
</TABLE>
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* Not Applicable or negative answer
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1999
TO THE SHAREHOLDERS OF MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND
INC.:
Notice is hereby given of a Special Meeting of the Shareholders of Morgan
Stanley Dean Witter Global Short-Term Income Fund Inc. ("Global Short-Term") to
be held at Conference Room A, 44th Floor, Two World Trade Center, New York, New
York 10048, at 9:00 A.M., New York time, on February 24, 1999, and any
adjournments thereof (the "Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated
October 28, 1998 (the "Reorganization Agreement"), between Global
Short-Term and Morgan Stanley Dean Witter World Wide Income Trust ("World
Wide"), pursuant to which substantially all of the assets of Global
Short-Term would be combined with those of World Wide and shareholders of
Global Short-Term would become shareholders of World Wide receiving Class
A shares of World Wide with a value equal to the value of their holdings
in Global Short-Term (the "Reorganization"); and
2. To act upon such other matters as may properly come before the Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as EXHIBIT A thereto. Shareholders of record at the close of business on
November 30, 1998 are entitled to notice of, and to vote at, the Meeting. Please
read the Proxy Statement and Prospectus carefully before telling us, through
your proxy or in person, how you wish your shares to be voted. The Board of
Directors of Global Short-Term recommends you vote in favor of the
Reorganization. WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Directors,
Barry Fink,
SECRETARY
December , 1998
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE TO
BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY IN
ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE ENCLOSED
ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
MORGAN STANLEY DEAN WITTER WORLD WIDE INCOME TRUST
TWO WORLD TRADE CENTER,
NEW YORK, NEW YORK 10048
(212) 392-2550
ACQUISITION OF THE ASSETS OF
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
BY AND IN EXCHANGE FOR SHARES OF
MORGAN STANLEY DEAN WITTER WORLD WIDE INCOME TRUST
This Proxy Statement and Prospectus is being furnished to shareholders of
Morgan Stanley Dean Witter Global Short-Term Income Fund Inc. ("Global
Short-Term") in connection with an Agreement and Plan of Reorganization, dated
October 28, 1998 (the "Reorganization Agreement"), pursuant to which
substantially all the assets of Global Short-Term will be combined with those of
Morgan Stanley Dean Witter World Wide Income Trust ("World Wide") in exchange
for shares of World Wide (the "Reorganization"). As a result of this
transaction, shareholders of Global Short-Term will become shareholders of World
Wide and will receive Class A shares of World Wide with a value equal to the
value of their holdings in Global Short-Term. The terms and conditions of this
transaction are more fully described in this Proxy Statement and Prospectus and
in the Reorganization Agreement between Global Short-Term and World Wide,
attached hereto as EXHIBIT A. The address of Global Short-Term is that of World
Wide set forth above. This Proxy Statement also constitutes a Prospectus of
World Wide, which is dated December , 1998, filed by World Wide with the
Securities and Exchange Commission (the "Commission") as part of its
Registration Statement on Form N-14 (the "Registration Statement").
World Wide is an open-end non-diversified management investment company
whose primary investment objective is to provide a high level of current income.
As a secondary objective, the fund seeks appreciation in the value of its
assets. World Wide seeks to achieve its objectives by investing primarily in
fixed-income securities issued by foreign or U.S. companies, or issued or
guaranteed by foreign governments, government agencies or government
subdivisions, supranational organizations (or any subdivision thereof), or the
U.S. Government, its agencies or instrumentalities.
This Proxy Statement and Prospectus sets forth concisely information about
World Wide that shareholders of Global Short-Term should know before voting on
the Reorganization Agreement. A copy of the Prospectus for World Wide dated
February 6, 1998, is attached as EXHIBIT B and incorporated herein by reference.
Also enclosed and incorporated herein by reference is World Wide's Annual Report
for the fiscal year ended October 31, 1998. A Statement of Additional
Information relating to the Reorganization, described in this Proxy Statement
and Prospectus (the "Additional Statement"), dated December , 1998, has been
filed with the Commission and is also incorporated herein by reference. Also
incorporated herein by reference are Global Short-Term's Prospectus, dated
February 10, 1998, and Annual Report for its fiscal year ended October 31, 1998.
Such documents are available without charge by calling (212) 392-2550 or (800)
526-3143 (TOLL FREE).
INVESTORS ARE ADVISED TO READ AND RETAIN THIS PROXY STATEMENT AND PROSPECTUS FOR
FUTURE REFERENCE.
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 ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS IS DATED DECEMBER , 1998.
i
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.............................................................. 1
General................................................................. 1
Record Date; Share Information.......................................... 1
Proxies................................................................. 2
Expenses of Solicitation................................................ 2
Vote Required........................................................... 3
SYNOPSIS.................................................................. 3
The Reorganization...................................................... 3
Fee Table............................................................... 4
Tax Consequences of the Reorganization.................................. 6
Comparison of Global Short-Term and World Wide.......................... 6
PRINCIPAL RISK FACTORS.................................................... 9
THE REORGANIZATION........................................................ 10
The Proposal............................................................ 10
The Board's Consideration............................................... 10
The Reorganization Agreement............................................ 11
Tax Aspects of the Reorganization....................................... 12
Description of Shares................................................... 14
Capitalization Table (unaudited)........................................ 14
Appraisal Rights........................................................ 14
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS............ 14
Investment Objectives and Policies...................................... 14
Investment Restrictions................................................. 15
ADDITIONAL INFORMATION ABOUT GLOBAL SHORT-TERM AND WORLD WIDE............. 16
General................................................................. 16
Financial Information................................................... 16
Management.............................................................. 16
Description of Securities and Shareholder Inquiries..................... 16
Dividends, Distributions and Taxes...................................... 16
Purchases, Repurchases and Redemptions.................................. 16
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE............................... 16
FINANCIAL STATEMENTS AND EXPERTS.......................................... 17
LEGAL MATTERS............................................................. 17
AVAILABLE INFORMATION..................................................... 17
OTHER BUSINESS............................................................ 17
EXHIBIT A -- Agreement and Plan of Reorganization, dated October 28, 1998,
by and between Global Short-Term and World Wide......................... A-1
EXHIBIT B -- Prospectus of World Wide, dated February 6, 1998............. B-1
</TABLE>
ii
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
------------------------
PROXY STATEMENT AND PROSPECTUS
------------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1999
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of Morgan Stanley Dean Witter Global Short-Term Income Fund Inc. ("Global
Short-Term"), an open-end non-diversified management investment company, in
connection with the solicitation by the Board of Directors of Global Short-Term
(the "Board") of proxies to be used at the Special Meeting of Shareholders of
Global Short-Term to be held at Conference Room A, 44th Floor, Two World Trade
Center, New York, New York 10048 at 9:00 A.M., New York time, on February 24,
1999, and any adjournments thereof (the "Meeting"). It is expected that the
mailing of this Proxy Statement and Prospectus will be made on or about December
, 1998.
At the Meeting, Global Short-Term shareholders ("Shareholders") will
consider and vote upon an Agreement and Plan of Reorganization, dated October
28, 1998 (the "Reorganization Agreement"), between Global Short-Term and Morgan
Stanley Dean Witter World Wide Income Trust ("World Wide") pursuant to which
substantially all of the assets of Global Short-Term will be combined with those
of World Wide in exchange for shares of World Wide. As a result of this
transaction, Shareholders will become shareholders of World Wide and will
receive shares of World Wide equal to the value of their holdings in Global
Short-Term on the date of such transaction (the "Reorganization"). Pursuant to
the Reorganization, each Shareholder of Global Short-Term will receive Class A
shares of World Wide. The Class A shares to be issued by World Wide pursuant to
the Reorganization (the "World Wide Shares") will be issued at net asset value
without an initial sales charge. Further information relating to World Wide is
set forth herein and in World Wide's current Prospectus, dated February 6, 1998
("World Wide's Prospectus"), attached as EXHIBIT B to this Proxy Statement and
Prospectus and incorporated herein by reference.
The information concerning Global Short-Term contained herein has been
supplied by Global Short-Term and the information concerning World Wide
contained herein has been supplied by World Wide.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on November 30, 1998 as the record
date (the "Record Date") for the determination of the Shareholders entitled to
notice of, and to vote at, the Meeting. As of the Record Date, there were
shares of Global Short-Term issued and outstanding. Shareholders on the
Record Date are entitled to one vote per share on each matter submitted to a
vote at the Meeting. A majority of the outstanding shares entitled to vote,
represented in person or by proxy, will constitute a quorum at the Meeting.
[To the knowledge of the Board, as of the Record Date, no person owned of
record or beneficially 5% or more of the outstanding shares of Global
Short-Term.] [As of the Record Date, the directors and officers of Global
Short-Term, as a group, owned less than 1% of the outstanding shares of Global
Short-Term.]
<PAGE>
[To the knowledge of World Wide's Board of Trustees, as of the Record Date,
no person owned of record or beneficially 5% or more of the outstanding shares
of World Wide. As of the Record Date, the trustees and officers of World Wide,
as a group, owned less than 1% of the outstanding shares of World Wide.]
PROXIES
The enclosed form of proxy, if properly executed and returned, will be voted
in accordance with the choice specified thereon. The proxy will be voted in
favor of the Reorganization Agreement unless a choice is indicated to vote
against or to abstain from voting on the Reorganization Agreement. The Board
knows of no business, other than that set forth in the Notice of Special Meeting
of Shareholders, to be presented for consideration at the Meeting. However, the
proxy confers discretionary authority upon the persons named therein to vote as
they determine on other business, not currently contemplated, which may come
before the Meeting. Abstentions and, if applicable, broker "non-votes" will not
count as votes in favor of the Reorganization Agreement, and broker "non-votes"
will not be deemed to be present at the meeting for purposes of determining
whether the Reorganization Agreement has been approved. Broker "non-votes" are
shares held in street name for which the broker indicates that instructions have
not been received from the beneficial owners or other persons entitled to vote
and for which the broker does not have discretionary voting authority. If a
Shareholder executes and returns a proxy but fails to indicate how the votes
should be cast, the proxy will be voted in favor of the Reorganization
Agreement. The proxy may be revoked at any time prior to the voting thereof by:
(i) delivering written notice of revocation to the Secretary of Global
Short-Term at Two World Trade Center, New York, New York 10048; (ii) attending
the Meeting and voting in person; or (iii) signing and returning a new proxy (if
returned and received in time to be voted). Attendance at the Meeting will not
in and of itself revoke a proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of shares of
Global Short-Term present in person or by proxy at the Meeting. The persons
named as proxies will vote in favor of such adjournment those proxies which they
are entitled to vote in favor of the Reorganization Agreement and will vote
against any such adjournment those proxies required to be voted against the
Reorganization Agreement.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by Global Short-Term,
which expenses are not expected to exceed [$ .] In addition to the
solicitation of proxies by mail, proxies may be solicited by officers of Global
Short-Term, and officers and regular employees of Morgan Stanley Dean Witter
Advisors Inc. ("MSDW Advisors" or the "Investment Manager") and Morgan Stanley
Dean Witter Trust FSB ("MSDW Trust"), personally or by mail, telephone,
telegraph or otherwise, without special compensation therefor. Brokerage houses,
banks and other fiduciaries may be requested to forward soliciting material to
the beneficial owners of shares and to obtain authorization for the execution of
proxies.
MSDW Trust, an affiliate of MSDW Advisors, may call Shareholders to ask if
they would be willing to have their votes recorded by telephone. The telephone
voting procedure is designed to authenticate Shareholders' identities, to allow
Shareholders to authorize the voting of their shares in accordance with their
instructions and to confirm that their instructions have been recorded properly.
No recommendation will be made as to how a Shareholder should vote on the
Reorganization Agreement other than to refer to the recommendation of the
2
<PAGE>
Board. Global Short-Term has been advised by counsel that these procedures are
consistent with the requirements of applicable law. Shareholders voting by
telephone will be asked for their social security number or other identifying
information and will be given an opportunity to authorize proxies to vote their
shares in accordance with their instructions. To ensure that the Shareholders'
instructions have been recorded correctly they will receive a confirmation of
their instructions in the mail. A special toll-free number will be available in
case the information contained in the confirmation is incorrect. Although a
Shareholder's vote may be taken by telephone, each Shareholder will receive a
copy of this Proxy Statement and Prospectus and may vote by mail using the
enclosed proxy card.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (I.E., more than 50%) of the outstanding shares
of Global Short-Term represented in person or by proxy and entitled to vote at
the Meeting, provided a quorum is present at the Meeting. If the Reorganization
Agreement is not approved by Shareholders, Global Short-Term will continue in
existence and the Board will consider alternative actions.
SYNOPSIS
THE FOLLOWING IS A SYNOPSIS OF CERTAIN INFORMATION CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT AND PROSPECTUS. THIS SYNOPSIS
IS ONLY A SUMMARY AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT AND
PROSPECTUS AND THE REORGANIZATION AGREEMENT. SHAREHOLDERS SHOULD CAREFULLY
REVIEW THIS PROXY STATEMENT AND PROSPECTUS AND THE REORGANIZATION AGREEMENT IN
THEIR ENTIRETY AND, IN PARTICULAR, WORLD WIDE'S PROSPECTUS, WHICH IS ATTACHED TO
THIS PROXY STATEMENT AND INCORPORATED HEREIN BY REFERENCE.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially all
the assets of Global Short-Term, subject to stated liabilities, to World Wide in
exchange for the World Wide Shares. The aggregate net asset value of the World
Wide Shares issued in the exchange will equal the aggregate value of the net
assets of Global Short-Term received by World Wide. On or after the closing date
scheduled for the Reorganization (the "Closing Date"), Global Short-Term will
distribute the World Wide Shares received by Global Short-Term to Shareholders
as of the Valuation Date (as defined below under "The Reorganization Agreement")
in complete liquidation of Global Short-Term and Global Short-Term will
thereafter be dissolved and deregistered under the Investment Company Act of
1940, as amended (the "1940 Act"). As a result of the Reorganization, each
Shareholder will receive that number of full and fractional World Wide Shares
equal in value to such Shareholder's pro rata interest in the net assets of
Global Short-Term transferred to World Wide. Pursuant to the Reorganization,
each Shareholder will receive Class A shares of World Wide and will receive such
shares in certificate form. Shareholders holding their shares in certificate
form will be asked to surrender their certificates in connection with the
Reorganization. Shareholders who do not surrender their certificates prior to
the Closing Date will still receive their shares of World Wide; however, such
Shareholders will not be able to redeem, transfer or exchange the World Wide
Shares received until the old certificates have been surrendered. The Board has
determined that the interests of Shareholders will not be diluted as a result of
the Reorganization.
3
<PAGE>
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE DIRECTORS WHO ARE NOT "INTERESTED
PERSONS" OF GLOBAL SHORT-TERM ("INDEPENDENT DIRECTORS"), AS THAT TERM IS DEFINED
IN THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST INTERESTS
OF GLOBAL SHORT-TERM AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE
REORGANIZATION AGREEMENT.
FEE TABLE
Global Short-Term and World Wide each pay expenses for management of their
assets, distribution of their shares and other services, and those expenses are
reflected in the net asset value per share of each fund. The following table
illustrates expenses and fees that shares of Global Short-Term incurred during
the fund's fiscal year ended October 31, 1998. As discussed above, pursuant to
the Reorganization, Shareholders will receive Class A shares of World Wide.
Accordingly, with respect to World Wide, the table sets forth expenses and fees
of the fund's Class A shares for the fund's October 31, 1998 fiscal year end.
The table also sets forth pro forma fees for the surviving combined fund (Class
A shares of World Wide) reflecting what the fee schedule would have been on
October 31, 1998, if the Reorganization had been consummated twelve (12) months
prior to that date. The fees and expenses for both funds that are set forth in
the table below are set forth in the funds' respective Annual Reports for their
fiscal year ended October 31, 1998, which Reports are accompanied herewith and
are incorporated herein by reference. Such expenses are not set forth in the
funds' current Prospectuses, which Prospectuses relate to the funds' fiscal year
ended October 31, 1997.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
PRO FORMA
GLOBAL WORLD WIDE COMBINED
SHORT-TERM (CLASS A) (CLASS A)
---------- ---------- ---------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering
price)................................ none 4.25%(1) 4.25%(1)
Maximum Contingent Deferred Sales
Charges (as a percentage of the lesser
of original purchase or redemption
proceeds)............................. 3.00(2) none(3) none(3)
</TABLE>
ANNUAL FUND OPERATING EXPENSES AS A PERCENTAGE OF AVERAGE NET ASSETS
<TABLE>
<CAPTION>
PRO FORMA
GLOBAL WORLD WIDE COMBINED
SHORT-TERM (CLASS A) (CLASS A)
---------- ---------- ---------
<S> <C> <C> <C>
Management Fees................................................................ [0.55% [0.75% [0.75%
12b-1 Fees(4).................................................................. 0.75% 0.25%(5) 0.25%(5)
Other Expenses................................................................. 0.49% 0.42%(5) 0.37%(5)
Total Fund Operating Expenses.................................................. 1.79%] 1.42%] 1.37%]
</TABLE>
- ------------------------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund Shares --
Initial Sales Charge Alternative -- Class A Shares" in each fund's
Prospectus). In addition, Shareholders will not pay any sales charge
relating to the World Wide Shares received pursuant to the Reorganization.
(2) The CDSC is scaled down to 1.00% during the third year, reaching zero
thereafter.
4
<PAGE>
(3) Investments that are not subject to any sales charge at the time of purchase
are subject to a Contingent Deferred Sales Charge ("CDSC") of 1.00% that
will be imposed on redemptions made within one year after purchase, except
for certain specific circumstances (see "Purchases, Exchanges and
Redemptions" below and "Purchase of Fund Shares" in each fund's Prospectus).
(4) The 12b-1 fee is accrued daily and payable monthly. With respect to World
Wide, the entire 12b-1 fee payable by Class A and, with respect to Global
Short-Term, a portion of the 12b-1 fee payable by it equal to 0.25% of its
average daily net assets, are currently characterized as a service fee
within the meaning of National Association of Securities Dealers, Inc.
("NASD") guidelines and are payments made for personal service and/or
maintenance of shareholder accounts. The remainder of the 12b-1 fee, if any,
is an asset-based sales charge, and is a distribution fee paid to Morgan
Stanley Dean Witter Distributors Inc. (the "Distributor") to compensate it
for the services provided and the expenses borne by the Distributor and
others in the distribution of each fund's shares (see "Description of
Shares" below and "Purchase of Fund Shares -- Plan of Distribution" in each
fund's Prospectus).
(5) "Management Fees" and "Other Expenses" are based on World Wide's actual
aggregate expenses.
The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that an investor in the funds will
bear directly or indirectly. See "Synopsis -- Investment Management and
Distribution Plan Fees, Other Significant Fees."
HYPOTHETICAL EXPENSES
To attempt to show the effect of these expenses on an investment over time,
the hypotheticals shown below have been created. Assuming that an investor makes
a $1,000 investment in either Global Short-Term or World Wide or the new
combined fund (World Wide), that the annual return is 5% and that the operating
expenses for each fund are the ones shown in the chart above; if the investment
was redeemed at the end of each period shown below, the investor would incur the
following expenses by the end of each period shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Global Short-Term.............................................. $ 48 $ 66 $ 97 $ 211
World Wide (Class A)........................................... $ 56 $ 86 $ 117 $ 205
Pro Forma Combined (Class A)................................... $ 56 $ 84 $ 114 $ 200
</TABLE>
If such investment was not redeemed, the investor would incur the following
expenses:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Global Short-Term.............................................. $ 18 $ 56 $ 97 $ 211
World Wide (Class A)........................................... $ 56 $ 86 $ 117 $ 205
Pro Forma Combined (Class A)................................... $ 56 $ 84 $ 114 $ 200
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL OPERATING EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN. LONG-TERM SHAREHOLDERS OF GLOBAL SHORT-TERM AND WORLD WIDE MAY
PAY MORE IN SALES CHARGES INCLUDING DISTRIBUTION FEES THAN THE ECONOMIC
EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED BY THE NASD.
5
<PAGE>
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, Global Short-Term will receive an
opinion of Gordon Altman Butowsky Weitzen Shalov & Wein to the effect that the
Reorganization will constitute a tax-free reorganization for Federal income tax
purposes, and that no gain or loss will be recognized by Global Short-Term or
the shareholders of Global Short-Term for Federal income tax purposes as a
result of the transactions included in the Reorganization. For further
information about the tax consequences of the Reorganization, see "The
Reorganization -- Tax Aspects of the Reorganization" below.
COMPARISON OF GLOBAL SHORT-TERM AND WORLD WIDE
INVESTMENT OBJECTIVES AND POLICIES. Global Short-Term and World Wide have
similar investment objectives and policies. The investment objective of Global
Short-Term is to achieve as high a level of current income as is consistent with
prudent investment risk. Similarly, the primary investment objective of World
Wide is to provide a high level of current income and, as a secondary objective,
the fund seeks appreciation in the value of its assets. Both funds seek to
achieve their respective objectives by investing primarily in fixed income
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, issued or guaranteed by foreign governments or supra-national
organizations, or issued by foreign or U.S. companies. Global Short-Term invests
primarily in fixed income securities with remaining maturities of not more than
three years and with the two highest credit ratings issued by Standard & Poor's
Corporation ("S&P") (AAA or AA) and/or by Moody's Investors Services, Inc.
("Moody's") (Aaa or Aa) or if unrated, the securities are determined to be of
comparable quality. World Wide, however, invests in securities within the four
highest rating categories issued by S&P (AAA, AA, A or BBB) and/or Moody's (Aaa,
Aa, A or Baa) or if unrated, the securities are determined to be of comparable
quality. In addition, World Wide does not have a stated policy as to the
remaining maturities of its fixed income investments.
Both funds' assets are comprised of investments in the securities of issuers
located in at least three different countries (including the U.S.).
Additionally, Global Short-Term will invest at least 25% of its total assets in
U.S. securities; whereas, World Wide does not have a policy of concentrating
more than 25% of its total assets in any one country.
Global Short-Term has a fundamental policy of investing, under normal
circumstances, at least 25% its total assets in debt instruments issued by U.S.
and foreign companies engaged in the banking industry (the "Bank Concentration
Policy"); whereas, World Wide does not have any such policy.
The principal differences between both funds' investment policies are more
fully described under "Comparison of Investment Objectives, Policies and
Restrictions" below.
Other than Global Short-Term's Bank Concentration Policy, the investment
policies of both Global Short-Term and World Wide are not fundamental and may be
changed by their respective Boards of Directors/ Trustees.
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. Global Short-Term obtains
management services from MSDW Advisors. As compensation for such services,
Global Short-Term pays MSDW Advisors monthly compensation calculated daily by
applying the annual rate of 0.55% to the first $500 million of the fund's
average net assets and 0.50% to the fund's average net assets exceeding $500
million. World Wide also obtains investment management services from MSDW
Advisors. As compensation for such services, World Wide pays MSDW Advisors
monthly compensation calculated daily by applying the annual rate of 0.75% to
the fund's average net assets not exceeding $250 million; 0.60% to the portion
of the daily net assets exceeding
6
<PAGE>
$250 million, but not exceeding $500 million; 0.50% to the portion of the daily
net assets exceeding $500 million, but not exceeding $750 million; 0.40% to the
portion of the daily net assets exceeding $750 million, but not exceeding $1
billion; and 0.30% to the portion of the daily net assets exceeding $1 billion.
Both Global Short-Term and World Wide have adopted distribution plans
("Plans") pursuant to Rule 12b-1 under the 1940 Act. In the case of World Wide's
Class A shares, the fund's Plan provides that the fund will reimburse the
Distributor and others for the expenses of certain activities and services
incurred by them in connection with the distribution of the Class A shares of
the fund. Reimbursement for these expenses is made in monthly payments by the
fund to the Distributor which will in no event exceed amounts equal to payments
at the annual rate of 0.25% of the average daily net assets of the Class A
shares. In the case of Global Short-Term, the fund's Plan provides that the fund
will pay the Distributor a fee, which is accrued daily and paid monthly, at the
annual rate of 0.75% of the lesser of: (i) the fund's average daily aggregate
net sales or (ii) the fund's average daily net assets. The fee is paid for the
services provided and the expenses borne by the Distributor and others in
connection with the distribution of Global Short-Term's shares. For information
relating to the 12b-1 fees applicable to each of the other classes of World
Wide's shares and further information on the fund's Class A shares, see the
section entitled "Purchase of Fund Shares" in World Wide's Prospectus attached
hereto. The Distributor also receives the proceeds of any contingent deferred
sales charge ("CDSC") paid by the funds' shareholders at the time of redemption.
See "Purchases, Exchanges and Redemptions" below.
OTHER SIGNIFICANT FEES. Both Global Short-Term and World Wide pay
additional fees in connection with their operations, including legal, auditing,
transfer agent, directors/trustees fees and custodial fees. See "Synopsis -- Fee
Table" above for the percentage of average net assets represented by such "Other
Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. World Wide's Class A shares are sold
at net asset value plus an initial sales charge of up to 4.25%. The initial
sales charge is reduced for certain purchases. Investments of $1 million or more
(and investment by certain other limited categories of investors) are not
subject to any sales charges at the time of purchase, but are subject to a CDSC
of 1.0% on redemptions made within one year after purchase (except for certain
specific circumstances fully described in the fund's Prospectus).
Global Short-Term's shares are offered at net asset value with no initial
sales charge, but are subject to the CDSC schedule set forth below.
<TABLE>
<CAPTION>
YEAR SINCE GLOBAL SHORT-TERM SHARES
PURCHASE PAYMENT MADE CDSC SCHEDULE
- ------------------------------------------------ -------------------------
<S> <C>
First........................................... 3.0%
Second.......................................... 2.0%
Third........................................... 1.0%
Fourth and thereafter........................... none
</TABLE>
Shareholders receiving the World Wide Shares pursuant to the Reorganization
will not be subject to any CDSC or front-end sales charge upon receipt of such
shares. In addition, Shareholders will not be subject to a CDSC upon redemption
of the World Wide Shares or upon redemption of shares of any other fund for
which the World Wide Shares are exchanged. The CDSC charge is paid to the
Distributor. Shares of World Wide and Global Short-Term are distributed by the
Distributor and offered by Dean Witter Reynolds Inc. and other dealers who have
entered into selected dealer agreements with the Distributor. For further
information relating to the CDSC schedules applicable to World Wide's Class A
shares and any of the fund's other classes, see the section entitled "Purchase
of Fund Shares" in World Wide's Prospectus.
7
<PAGE>
Class A shares of World Wide may be exchanged for Class A shares of any
other Morgan Stanley Dean Witter Fund that offers its shares in more than one
class ("Morgan Stanley Dean Witter Multi-Class Funds"), without the imposition
of an exchange fee. Class A shares of World Wide may also be exchanged for
shares of Morgan Stanley Dean Witter Multi-State Municipal Series Trust and
Morgan Stanley Dean Witter Hawaii Municipal Trust without the imposition of an
exchange fee. Shares of Global Short-Term may be exchanged for Class B shares of
any Morgan Stanley Dean Witter Multi-Class Fund. Additionally, shares of both
funds may be exchanged for shares of Morgan Stanley Dean Witter Short-Term U.S.
Treasury Trust, Morgan Stanley Dean Witter Limited Term Municipal Trust and
Morgan Stanley Dean Witter Short-Term Bond Fund and the five Morgan Stanley Dean
Witter Funds that are money market funds (the foregoing eight funds are
collectively referred to as the "Exchange Funds"), without the imposition of an
exchange fee.
With respect to both funds, no CDSC is imposed at the time of any exchange,
although any applicable CDSC will be imposed upon ultimate redemption. As noted
above, no CDSC will be imposed on the World Wide Shares acquired in connection
with the Reorganization. During the period of time a World Wide and Global
Short-Term shareholder remains in an Exchange Fund, the holding period (for
purposes of determining the CDSC rate) is frozen. Both Global Short-Term and
World Wide provide telephone exchange privileges to their shareholders. For
greater details relating to exchange privileges applicable to World Wide, see
the section entitled "Shareholder Services" in World Wide's Prospectus.
Shareholders of Global Short-Term and World Wide may redeem their shares for
cash at any time at the net asset value per share next determined; however, such
redemption proceeds may be reduced by the amount of any applicable CDSC. Both
Global Short-Term and World Wide offer a reinstatement privilege whereby a
shareholder who has not previously exercised such privilege whose shares have
been redeemed or repurchased may, with respect to World Wide, within thirty-five
days, and with respect to Global Short-Term, within thirty days after the date
of redemption or repurchase, reinstate any portion or all of the proceeds
thereof in shares of the same class from which such shares were redeemed or
repurchased and receive a pro rata credit for any CDSC paid in connection with
such redemption or repurchase. Global Short-Term and World Wide may redeem
involuntarily, at net asset value, most accounts valued at less than $100.
DIVIDENDS. World Wide declares dividends separately for each of its classes
and declares and pays monthly dividends from the anticipated net investment
income of the fund. Global Short-Term declares dividends on each day the New
York Stock Exchange is open for business and pays them monthly. Both funds
distribute net short-term and long-term capital gains, if any, at least
annually. Each fund, however, may determine either to distribute or to retain
all or part of any net long-term capital gains in any year for reinvestment.
With respect to each fund, dividends and capital gains distributions are
automatically reinvested in additional shares of the fund (and of the same
class, with respect to World Wide) at net asset value unless the shareholder
elects to receive cash.
FORM OF ORGANIZATION. Global Short-Term is organized under the laws of
Maryland; whereas, World Wide is organized under the laws of the Commonwealth of
Massachusetts. Both types of organization allow the Board of Directors/Trustees
to take certain action without obtaining shareholder approval. In addition,
routine annual shareholder meetings are not required for either structure. Under
Massachusetts law, shareholders of a business trust may, under certain limited
circumstances, be held personally liable as partners for obligations of the
fund. In the opinion of Massachusetts counsel to World Wide, however, the risk
to fund shareholders of personal liability is remote. For additional information
about World Wide's form of organization, see the section entitled "Additional
Information" in World Wide's Prospectus.
8
<PAGE>
Effective June 22, 1998, World Wide's name was changed from Dean Witter
World Wide Income Trust to Morgan Stanley Dean Witter World Wide Income Trust.
On that date, Global Short-Term's name was changed from Dean Witter Global
Short-Term Income Fund Inc. to Morgan Stanley Dean Witter Global Short-Term
Income Fund Inc.
PRINCIPAL RISK FACTORS
The net asset values of World Wide and Global Short-Term will fluctuate with
changes in the market value of their respective portfolio securities. The market
value of the funds' portfolio securities will increase or decrease due to a
variety of economic, market and political factors, including movements in
interest rates, which cannot be predicted. The funds' respective yields will
also vary based on the yield of each fund's portfolio securities. Both funds
invest a primary portion of their portfolio securities in fixed income
securities which are subject to credit risk and interest rate risk. Credit risk
relates to the ability of the issuer to meet interest and/or principal payments
as they become due. Interest rate risk refers to fluctuations in the net asset
value of a portfolio of fixed income securities resulting from changes in
interest rates. World Wide may invest 65% of its total assets in securities
rated BBB by S&P or Baa by Moody's (or if unrated, the securities are determined
to be of comparable quality); whereas, Global Short-Term invests in higher rated
securities (I.E., securities which have the two highest ratings issued by S&P
(AAA or AA) and/or Moody's (Aaa or Aa)) (or if unrated, the securities are
determined to be of comparable quality). Securities with ratings as low as BBB
by S&P or Baa by Moody's may be considered to have a greater degree of credit
risk than securities with higher ratings. Such securities are also considered to
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of securities with higher ratings.
Global Short-Term has a policy of investing in fixed income securities which
have a remaining maturity (at the time of purchase) of not more than three
years. World Wide does not have any stated policy on the maturities of its
portfolio securities and, accordingly, may invest significantly in longer-term
fixed income securities which may be subject to greater credit risk and price
fluctuations than similar shorter-term securities.
Both funds are subject to certain special risks relating to investments in
foreign securities including, fluctuations in currency exchange rates (i.e., if
a substantial portion of the funds' assets are denominated in foreign currencies
which decrease in value with respect to the U.S. dollar, the value of the
investor's shares and the distributions made thereon will decrease in value),
foreign securities exchange controls and foreign tax rates. The foreign
securities and markets in which the funds invest pose greater risks than those
customarily associated with domestic securities and their markets. Both funds
also are subject to the special risks relating to forward foreign currency
contracts and options and futures contracts.
Additionally, Global Short-Term is subject to the risks associated with its
Bank Concentration Policy, such as adverse changes in economic and regulatory
developments affecting the banking industry. By contrast, World Wide does not
concentrate its investments in a particular industry. Global Short-Term invests
in mortgage-and asset-backed securities which are subject to special risks
including prepayments or refinancings of the assets underlying such securities,
which may have an impact on the dividends paid and the net asset value of the
fund's shares. World Wide does not invest in such securities.
Both funds may enter into repurchase agreements and reverse repurchase
agreements, and may purchase securities on a when-issued and delayed delivery
basis, all of which involve certain special risks.
9
<PAGE>
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Investment Objective
and Policies -- Risk Considerations" in the Prospectus of Global Short-Term and
"Investment Objectives and Policies -- Risk Considerations" in World Wide's
Prospectus attached hereto and incorporated herein by reference.
THE REORGANIZATION
THE PROPOSAL
The Board of Directors of Global Short-Term, including the Independent
Directors, having reviewed the financial position of Global Short-Term and the
prospects for achieving economies of scale through the Reorganization and having
determined that the Reorganization is in the best interests of Global Short-Term
and its Shareholders and that the interests of Shareholders will not be diluted
as a result thereof, recommends approval of the Reorganization by Shareholders
of Global Short-Term.
THE BOARD'S CONSIDERATION
At a meeting held on October 28, 1998, the Board, including all of the
Independent Directors, unanimously approved the Reorganization Agreement and
determined to recommend that Shareholders approve the Reorganization Agreement.
In reaching this decision, the Board made an extensive inquiry into a number of
factors, particularly the comparative expenses currently incurred in the
operations of Global Short-Term and Class A of World Wide. The Board also
considered other factors, including, but not limited to: the compatibility of
the investment objectives, policies, restrictions and portfolios of Global
Short-Term and World Wide; the terms and conditions of the Reorganization which
would affect the price of shares to be issued in the Reorganization; the
tax-free nature of the Reorganization; and any direct or indirect costs to be
incurred by Global Short-Term and World Wide in connection with the
Reorganization.
In recommending the Reorganization to Shareholders, the Board of Global
Short-Term considered that the Reorganization would have the following benefits
to Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by Class A shares of the "combined fund" should be lower on a percentage
basis than the actual expenses per share of Global Short-Term. The Board noted
that notwithstanding Global Short-Term's lower management fees, Global
Short-Term's total expense ratio was higher for its fiscal year ended October
31, 1997 than the expense ratio for Class A shares of World Wide for the same
period. This is primarily due to the significantly lower Rule 12b-1 fees
incurred by Class A shares of World Wide (0.25% of average daily net assets)
compared to the 12b-1 fees paid by Global Short-Term (0.75% of average daily net
assets). Furthermore, to the extent that the Reorganization would result in
Shareholders becoming shareholders of a combined larger fund, further economies
of scale could be achieved since various fixed expenses (E.G., auditing and
legal) can be spread over a larger number of shares. The Board further noted
that the combined fund is expected to have a lower expense ratio than the
current ratio of World Wide.
2. Shareholders would have a continued participation in a portfolio of
fixed income securities of issuers throughout the world through investment in
World Wide.
3. The Reorganization will constitute a tax-free reorganization for
Federal income tax purposes, and no gain or loss will be recognized by Global
Short-Term or its Shareholders for Federal income tax purposes as a result of
transactions included in the Reorganization.
10
<PAGE>
4. The Board also took into consideration that absent the Reorganization,
World Wide will continue to compete for investor funds with Global Short-Term.
The Reorganization should allow for more concentrated selling efforts to the
benefit of both Global Short-Term and World Wide shareholders and avoid the
inefficiencies associated with the operation and distribution of two similar
funds.
The Board of Trustees of World Wide, including a majority of Independent
Trustees, has determined that the Reorganization is in the best interests of
World Wide and its shareholders and that the interests of existing shareholders
of World Wide will not be diluted as a result thereof. The transaction will
enable World Wide to acquire investment securities which are consistent with
World Wide's investment objective, without the brokerage costs attendant to the
purchase of such securities in the market. Furthermore, the addition of assets
to World Wide's portfolio may result in some of the economies of scale described
above.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization Agreement.
This summary is qualified in its entirety by reference to the Reorganization
Agreement, a copy of which is attached as Exhibit A to this Proxy Statement and
Prospectus.
The Reorganization Agreement provides that (i) Global Short-Term will
transfer all of its assets, including portfolio securities, cash (other than
cash amounts retained by Global Short-Term as a "Cash Reserve" in the amount
sufficient to discharge its liabilities not discharged prior to the Valuation
Date (as defined below) and for expenses of the dissolution), cash equivalents
and receivables to World Wide on the Closing Date in exchange for the assumption
by World Wide of stated liabilities of Global Short-Term, including all
expenses, costs, charges and reserves, as reflected on an unaudited statement of
assets and liabilities of Global Short-Term prepared by the Treasurer of Global
Short-Term as of the Valuation Date (as defined below) in accordance with
generally accepted accounting principles consistently applied from the prior
audited period, and the delivery of World Wide Shares; (ii) such World Wide
Shares would be distributed to Shareholders on the Closing Date or as soon as
practicable thereafter; (iii) Global Short-Term would be dissolved; and (iv) the
outstanding shares of Global Short-Term would be canceled.
The number of World Wide Shares to be delivered to Global Short-Term will be
determined by dividing the aggregate net asset value of shares of Global
Short-Term acquired by World Wide by the net asset value per share of Class A
shares of World Wide; these values will be calculated as of the close of
business of the New York Stock Exchange on the [third] business day following
the receipt of the requisite approval by Shareholders of the Reorganization
Agreement or at such other time as Global Short-Term and World Wide may agree
(the "Valuation Date"). As an illustration, assume that on the Valuation Date,
shares of Global Short-Term had an aggregate net asset value (not including any
Cash Reserve of Global Short-Term) of $100,000. If the net asset value per Class
A share of World Wide were $10 per share at the close of business on the
Valuation Date, the number of World Wide Shares to be issued would be 10,000
($100,000 divided by $10). These 10,000 Class A shares of World Wide would be
distributed to the former shareholders of Global Short-Term. This example is
given for illustration purposes only and does not bear any relationship to the
dollar amounts or shares expected to be involved in the Reorganization.
On the Closing Date or as soon as practicable thereafter, Global Short-Term
will distribute pro rata to its Shareholders of record as of the close of
business on the Valuation Date, the World Wide Shares it receives. Each
Shareholder will receive Class A of shares of World Wide. World Wide will cause
its transfer agent to credit and confirm an appropriate number of World Wide
Shares to each Shareholder. Certificates for World Wide Shares will be issued
upon written request of a Shareholder but only for whole shares, with fractional
11
<PAGE>
shares credited to the name of the Shareholder on the books of World Wide.
Shareholders who wish to receive certificates representing their World Wide
Shares must, after receipt of their confirmations, make a written request to
World Wide's transfer agent, MSDW Trust, Harborside Financial Center, Jersey
City, New Jersey 07311. Shareholders holding their shares in certificate form
will be asked to surrender such certificates in connection with the
Reorganization. Shareholders who do not surrender their certificates prior to
the Closing Date will still receive their shares of World Wide; however, such
Shareholders will not be able to redeem, transfer or exchange the World Wide
Shares received until the old certificates have been surrendered.
The Closing Date will be the Valuation Date. The consummation of the
Reorganization is contingent upon the approval of the Reorganization by the
Shareholders and the receipt of the other opinions and certificates set forth in
Sections 6, 7 and 8 of the Reorganization Agreement and the occurrence of the
events described in those Sections, certain of which may be waived by Global
Short-Term or World Wide. The Reorganization Agreement may be amended in any
mutually agreeable manner, except that no amendment may be made subsequent to
the Meeting which would detrimentally affect the value of the shares of World
Wide to be distributed. All expenses of this solicitation, including the cost of
preparing and mailing the Proxy Statement and Prospectus, will be borne by
Global Short-Term which expenses are not expected to exceed [$ .]
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders or by mutual
consent of Global Short-Term and World Wide. In addition, either party may
terminate the Reorganization Agreement upon the occurrence of a material breach
of the Reorganization Agreement by the other party or if, by July 30, 1999, any
condition set forth in the Reorganization Agreement has not been fulfilled or
waived by the party entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing Date,
Global Short-Term shall: either pay or make provision for all of its liabilities
and distribute any remaining amount of the Cash Reserve (after paying or making
provision for such liabilities and the estimated cost of making the
distribution) to former shareholders of Global Short-Term that received World
Wide Shares. Global Short-Term shall be dissolved and deregistered as an
investment company promptly following the distribution of shares of World Wide
to Shareholders of record of Global Short-Term.
The effect of the Reorganization is that Shareholders who vote their shares
in favor of the Reorganization Agreement are electing to sell their shares of
Global Short-Term (at net asset value on the Valuation Date calculated after
subtracting any Cash Reserve) and reinvest the proceeds in World Wide Shares at
net asset value and without recognition of taxable gain or loss for Federal
income tax purposes. See "Tax Aspects of the Reorganization" below. As noted in
"Tax Aspects of the Reorganization" below, if Global Short-Term recognizes net
gain from the sale of securities prior to the Closing Date, such gain, to the
extent not offset by capital loss carryforwards, will be distributed to
Shareholders prior to the Closing Date and will be taxable to Shareholders as
capital gain.
Shareholders will continue to be able to redeem their shares of Global
Short-Term at net asset value next determined after receipt of the redemption
request (subject to any applicable CDSC) until the close of business on the
Closing Date. Redemption requests received by Global Short-Term thereafter will
be treated as requests for redemption of shares of World Wide.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation Date,
Global Short-Term will declare and pay a dividend or dividends which, together
with all previous such dividends, will have the effect of
12
<PAGE>
distributing to Shareholders all of Global Short-Term's investment company
taxable income for all periods since the inception of Global Short-Term through
and including the Valuation Date (computed without regard to any dividends paid
deduction), and all of Global Short-Term's net capital gain, if any, realized in
such periods (after reduction for any capital loss carryforward).
The Reorganization is intended to qualify for Federal income tax purposes as
a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"). Global Short-Term and World Wide have
represented that, to their best knowledge, there is no plan or intention by
Shareholders to redeem, sell, exchange or otherwise dispose of a number of World
Wide Shares received in the transaction that would reduce Shareholders'
ownership of World Wide Shares to a number of shares having a value, as of the
Closing Date, of less than 50% of the value of all of the formerly outstanding
Global Short-Term shares as of the same date. Global Short-Term and World Wide
have each further represented that, as of the Closing Date, Global Short-Term
and World Wide will qualify as regulated investment companies.
As a condition to the Reorganization, Global Short-Term and World Wide will
receive an opinion of Gordon Altman Butowsky Weitzen Shalov & Wein that, based
on certain assumptions, facts, the terms of the Reorganization Agreement and
additional representations set forth in the Reorganization Agreement or provided
by Global Short-Term and World Wide:
1. The transfer of substantially all of Global Short-Term's assets in
exchange for the World Wide Shares and the assumption by World Wide of certain
stated liabilities of Global Short-Term followed by the distribution by Global
Short-Term of the World Wide Shares to Shareholders in exchange for their Global
Short-Term shares will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code, and Global Short-Term and World Wide will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code;
2. No gain or loss will be recognized by World Wide upon the receipt of
the assets of Global Short-Term solely in exchange for the World Wide Shares and
the assumption by World Wide of the stated liabilities of Global Short-Term;
3. No gain or loss will be recognized by Global Short-Term upon the
transfer of the assets of Global Short-Term to World Wide in exchange for the
World Wide Shares and the assumption by World Wide of the stated liabilities or
upon the distribution of World Wide Shares to Shareholders in exchange for their
Global Short-Term shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of Global Short-Term for the World Wide;
5. The aggregate tax basis for the World Wide Shares received by each of
the Shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares in Global Short-Term held by each such
Shareholder immediately prior to the Reorganization;
6. The holding period of the World Wide Shares to be received by each
Shareholder will include the period during which the shares in Global Short-Term
surrendered in exchange therefor were held (provided such shares in Global
Short-Term were held as capital assets on the date of the Reorganization);
7. The tax basis of the assets of Global Short-Term acquired by World Wide
will be the same as the tax basis of such assets to Global Short-Term
immediately prior to the Reorganization; and
8. The holding period of the assets of Global Short-Term in the hands of
World Wide will include the period during which those assets were held by Global
Short-Term.
13
<PAGE>
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF ANY,
OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES. BECAUSE
THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX CONSEQUENCES OF
THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT THEIR TAX ADVISORS AS
TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE PROPOSED TRANSACTION.
DESCRIPTION OF SHARES
World Wide Shares to be issued pursuant to the Reorganization Agreement
will, when issued, be fully paid and non-assessable by World Wide and
transferable without restrictions and will have no preemptive rights. For
greater details regarding shares of World Wide, see "Purchase of Fund Shares" in
the fund's Prospectus.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of World Wide and Global
Short-Term as of September 30, 1998 and on a pro forma combined basis as if the
Reorganization had occurred on that date:
<TABLE>
<CAPTION>
SHARES NET ASSET VALUE
NET ASSETS OUTSTANDING PER SHARE
-------------- ----------- -----------------
<S> <C> <C> <C>
Global Short-Term........................................................ $ 49,997,837 5,576,831 $ 8.97
World Wide
Class A................................................................ $ 1,129,767 123,120 $ 9.18
Class B................................................................ $ 84,203,440 9,164,007 $ 9.19
Class C................................................................ $ 211,619 23,048 $ 9.18
Class D................................................................ $ 978,653 106,536 $ 9.19
Total World Wide (Class A-D)............................................. $ 86,523,479 -- --
Combined Fund (pro forma)
Class A................................................................ $ 51,127,604 5,569,507 $ 9.18
Class B................................................................ $ 84,203,440 9,164,007 $ 9.19
Class C................................................................ $ 211,619 23,048 $ 9.18
Class D................................................................ $ 978,653 106,536 $ 9.19
Total Combined Fund (pro forma) (Class A-D).............................. $ 136,521,316 -- --
</TABLE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
Global Short-Term and World Wide have similar investment objectives and
policies. The investment objective of Global Short-Term is to achieve as high a
level of current income as is consistent with prudent investment risk.
Similarly, the investment objective of World Wide is to provide a high level of
current income and, as a secondary objective, the fund will seek appreciation in
the value of its assets. Both funds seek to achieve their respective objectives
by investing primarily in fixed income securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or by foreign governments,
or issued by foreign or U.S. companies. Global Short-Term invests primarily in
fixed income securities with remaining maturities of not more
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than three years and with the two highest credit ratings issued by S&P (AAA or
AA) and/or Moody's (Aaa or Aa) or if unrated, the securities are determined to
be of comparable quality. World Wide, however, invests in securities within the
four highest categories issued by S&P (AAA, AA, A or BBB) and/or Moody's (Aaa,
Aa, A or Baa) or if unrated, the securities are determined to be of comparable
quality. In addition, World Wide does not have a stated policy as to the
remaining maturities of its fixed income investments.
Both funds' assets are comprised of investments in the securities of issuers
located in at least three different countries (including the U.S.).
Additionally, Global Short-Term will invest at least 25% of its total assets in
U.S. securities; whereas, World Wide does not have policy of concentrating more
than 25% of its total assets in any country.
Global Short-Term has a policy of investing, under normal market conditions,
in securities denominated in at least three different currencies, including the
U.S. dollar and, the fund will not invest more than 25% of its total assets in
securities denominated in a single currency (with the exception of the U.S.
dollar). World Wide has no such policies limiting investments in securities
denominated in particular currencies.
In addition, Global Short-Term has the Bank Concentration Policy (which is
fundamental); whereas, World Wide does not have a policy of concentrating its
investments in any industry.
Additionally, Global Short-Term may invest in bonds or notes backed by pools
of mortgages, or credit card, automobile or other types of receivables. World
Wide does not invest in such securities.
World Wide may invest in securities convertible into common stock; whereas,
Global Short-Term may not invest in such securities.
Except as noted above, the investment policies of both Global Short-Term and
World Wide are not fundamental and may be changed by their respective Boards.
The foregoing discussion is a summary of the principal differences between the
investment policies of the funds. For a more complete discussion of each fund's
policies, see "Investment Objective and Policies" in Global Short-Term's
Prospectus and see "Investment Objectives and Policies" in World Wide's
Prospectus and "Investment Practices and Policies" in each fund's Statement of
Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by Global Short-Term and World Wide as
fundamental policies are similar and are summarized under the caption
"Investment Restrictions" in their respective Prospectuses and Statements of
Additional Information. A fundamental investment restriction cannot be changed
without the vote of the majority of the outstanding voting securities of a fund,
as defined in the 1940 Act. The material differences are as follows: (a) both
funds are prohibited from investing 25% or more of the value of their total
assets in securities of issuers in any one industry, except that Global
Short-Term concentrates in the banking industry; (b) both funds are prohibited
from borrowing money except that each may borrow from a bank for temporary or
emergency purposes in amounts not exceeding 5% of its total assets, however,
Global Short-Term has an additional fundamental limitation prohibiting it from
purchasing portfolio securities while any borrowings, including reverse
repurchase agreements, of the fund are outstanding; (c) World Wide has a
fundamental restriction that it may not make short sales of securities; Global
Short-Term has no such limitation; (d) World Wide has a fundamental restriction
that it may not 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
issuers; Global Short-Term
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has no such limitation; and (e) Global Short-Term may not invest more than 5% of
its net assets in warrants, including not more than 2% of such assets in
warrants not listed on the New York or American Stock Exchange; World Wide has
no such limitation.
In addition, notwithstanding any other investment policy or restriction,
World Wide may seek to achieve its investment objectives by investing all or
substantially all of its assets in another investment company having
substantially the same investment objectives and policies as the fund. Global
Short-Term does not have this investment flexibility.
ADDITIONAL INFORMATION ABOUT GLOBAL SHORT-TERM AND WORLD WIDE
GENERAL
For a discussion of the organization and operation of World Wide and Global
Short-Term, see "The Fund and its Management," "Investment Objective and
Policies," "Investment Restrictions" and "Prospectus Summary" in, and the cover
page of, their respective Prospectuses.
FINANCIAL INFORMATION
For certain financial information about World Wide and Global Short-Term,
see "Financial Highlights" and "Performance Information" in their respective
Prospectuses.
MANAGEMENT
For information about the respective Board of Trustees/Directors, investment
manager and the Distributor of World Wide and Global Short-Term, see "The Fund
and its Management" and "Investment Objective and Policies" in, and on the back
cover of, their respective Prospectuses.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares of
Global Short-Term and World Wide, and information regarding shareholder
inquiries, see "Additional Information" in their respective Prospectuses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of World Wide's and Global Short-Term's policies with
respect to dividends, distributions and taxes, see "Dividends, Distributions and
Taxes" in their respective Prospectuses as well as the discussion herein under
"Synopsis -- Purchases, Exchanges and Redemptions."
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how World Wide's and Global Short-Term's shares may be
purchased, repurchased and redeemed, see "Purchase of Fund Shares," "Shareholder
Services" and "Redemptions and Repurchases" in their respective Prospectuses.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of World Wide's performance, see management's letter to
shareholders in its Annual Report for its fiscal year ended October 31, 1998
accompanying this Proxy Statement and Prospectus. For a
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discussion of the performance of Global Short-Term, see its Annual Report for
its fiscal year ended October 31, 1998 previously sent to Shareholders.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of World Wide and Global Short-Term for their
fiscal year ended October 31, 1998 that are incorporated by reference in the
Statement of Additional Information relating to the Registration Statement on
Form N-14, of which this Proxy Statement and Prospectus forms a part, have been
audited by PricewaterhouseCoopers LLP, independent accountants. The financial
statements have been incorporated by reference in reliance upon such reports
given upon the authority of PricewaterhouseCoopers LLP as experts in accounting
and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of World Wide will
be passed upon by Gordon Altman Butowsky Weitzen Shalov & Wein, New York, New
York. Such firm will rely on Lane Altman & Owens as to matters of Massachusetts
law.
AVAILABLE INFORMATION
Additional information about Global Short-Term and World Wide is available,
as applicable, in the following documents which are incorporated herein by
reference: (i) World Wide's Prospectus dated February 6, 1998, accompanying this
Proxy Statement and Prospectus, which Prospectus forms a part of Post-Effective
Amendment No. 11 to World Wide's Registration Statement on Form N-1A (File Nos.
33-26375; 811-5744); (ii) World Wide's Annual Report for its fiscal year ended
October 31, 1998, accompanying this Proxy Statement and Prospectus; (iii) Global
Short-Term's Prospectus dated February 10, 1998, which Prospectus forms a part
of Post-Effective Amendment No. 8 to Global Short-Term's Registration Statement
on Form N-1A (File Nos. 33-36217; 811-6148); and (iv) Global Short-Term's Annual
Report for the fiscal year ended October 31, 1998. The foregoing documents may
be obtained without charge by calling (212) 293-2550 or (800) 526-3143.
Global Short-Term and World Wide are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports and other information with the Commission.
Proxy material, reports and other information about Global Short-Term and World
Wide which are of public record can be inspected and copied at public reference
facilities maintained by the Commission at Room 1204, Judiciary Plaza, 450 Fifth
Street, NW, Washington, D.C. 20549 and certain of its regional offices, and
copies of such materials can be obtained at prescribed rates from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549.
OTHER BUSINESS
Management of Global Short-Term knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not known
at the time of the solicitation may come before the Meeting, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Board of Directors,
Barry Fink,
SECRETARY
, 1998
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
28th day of October 1998, by and between MORGAN STANLEY DEAN WITTER WORLD WIDE
INCOME TRUST, a Massachusetts business trust ("World Wide") and MORGAN STANLEY
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC., a Maryland corporation ("Global
Short-Term").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer to World Wide of substantially all of the assets of Global Short-Term
in exchange for the assumption by World Wide of all stated liabilities of Global
Short-Term and the issuance by World Wide of Class A shares of beneficial
interest (the "World Wide Shares"), to be distributed, after the Closing Date
hereinafter referred to, to the shareholders of Global Short-Term in liquidation
of Global Short-Term as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF GLOBAL SHORT-TERM
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Global Short-Term agrees
to assign, deliver and otherwise transfer the Global Short-Term Assets (as
defined in paragraph 1.2) to World Wide and World Wide agrees in exchange
therefor to assume all of Global Short-Term's stated liabilities on the Closing
Date as set forth in paragraph 1.3(a) and to deliver to Global Short-Term the
number of World Wide Shares, including fractional World Wide Shares, determined
by dividing the value of the Global Short-Term Assets, net of such stated
liabilities, computed as of the Valuation Date (as defined in paragraph 2.1) in
the manner set forth in paragraph 2.1, by the net asset value of a World Wide
Share, computed at the time and date and in the manner set forth in paragraph
2.2. Such transactions shall take place at the closing provided for in paragraph
3.1 (the "Closing").
1.2 (a) The "Global Short-Term Assets" shall consist of all property,
including without limitation, all cash (other than the "Cash Reserve" (as
defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by Global Short-Term, and any deferred or prepaid
expenses shown as an asset on Global Short-Term's books on the Valuation Date.
(b) On or prior to the Valuation Date, Global Short-Term will provide
World Wide with a list of all of Global Short-Term's assets to be assigned,
delivered and otherwise transferred to World Wide and of the stated liabilities
to be assumed by World Wide pursuant to this Agreement. Global Short-Term
reserves the right to sell any of the securities on such list but will not,
without the prior approval of World Wide, acquire any additional securities
other than securities of the type in which World Wide is permitted to invest and
in amounts agreed to in writing by World Wide. World Wide will, within a
reasonable time prior to the Valuation Date, furnish Global Short-Term with a
statement of World Wide's investment objectives, policies and restrictions and a
list of the securities, if any, on the list referred to in the first sentence of
this paragraph that do not conform to World Wide's investment objective,
policies and restrictions. In the event that Global Short-Term holds any
investments that World Wide is not permitted to hold, Global Short-Term will
dispose of such securities on or
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prior to the Valuation Date. In addition, if it is determined that the
portfolios of Global Short-Term and World Wide, when aggregated, would contain
investments exceeding certain percentage limitations imposed upon World Wide
with respect to such investments, Global Short-Term, if requested by World Wide
will, on or prior to the Valuation Date, dispose of and/or reinvest a sufficient
amount of such investments as may be necessary to avoid violating such
limitations as of the Closing Date (as defined in paragraph 3.1).
1.3 (a) Global Short-Term will endeavor to discharge all of its
liabilities and obligations on or prior to the Valuation Date. World Wide will
assume all stated liabilities, which includes, without limitation, all expenses,
costs, charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of Global Short-Term prepared by the Treasurer of Global Short-Term
as of the Valuation Date in accordance with generally accepted accounting
principles consistently applied from the prior audited period.
(b) On the Valuation Date, Global Short-Term may establish a cash
reserve, which shall not exceed 5% of Global Short-Term's net assets as of the
close of business on the Valuation Date ("Cash Reserve") to be retained by
Global Short-Term and used for the payment of its liabilities not discharged
prior to the Valuation Date and for the expenses of liquidation.
1.4 In order for Global Short-Term to comply with Section 852(a)(1) of the
Code and to avoid having any investment company taxable income or net capital
gain (as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively)
in the short taxable year ending with its liquidation, Global Short-Term will on
or before the Valuation Date (a) declare a dividend in an amount large enough so
that it will have declared dividends of all of its investment company taxable
income and net capital gain, if any, for such taxable year (determined without
regard to any deduction for dividends paid) and (b) distribute such dividend.
1.5 On the Closing Date or as soon as practicable thereafter, Global
Short-Term will distribute World Wide Shares received by Global Short-Term
pursuant to paragraph 1.1 pro rata to its shareholders of record determined as
of the close of business on the Valuation Date ("Global Short-Term
Shareholders"). Such distribution will be accomplished by an instruction, signed
by the Secretary of Global Short-Term, to transfer World Wide Shares then
credited to Global Short-Term's account on the books of World Wide to open
accounts on the books of World Wide in the names of the Global Short-Term
Shareholders and representing the respective pro rata number of World Wide
Shares due such Global Short-Term Shareholders. All issued and outstanding
shares of Global Short-Term simultaneously will be canceled on Global
Short-Term's books; however, share certificates representing interests in Global
Short-Term will represent a number of World Wide Shares after the Closing Date
as determined in accordance with paragraph 2.3. World Wide will issue
certificates representing World Wide Shares in connection with such exchange
only upon the written request of a Global Short-Term Shareholder.
1.6 Ownership of World Wide Shares will be shown on the books of World
Wide's transfer agent. World Wide Shares will be issued in the manner described
in World Wide's current Prospectus and Statement of Additional Information.
1.7 Any transfer taxes payable upon issuance of World Wide Shares in a name
other than the registered holder of World Wide Shares on Global Short-Term's
books as of the close of business on the Valuation Date shall, as a condition of
such issuance and transfer, be paid by the person to whom World Wide Shares are
to be issued and transferred.
1.8 Any reporting responsibility of Global Short-Term is and shall remain
the responsibility of Global Short-Term up to and including the date on which
Global Short-Term is dissolved and deregistered pursuant to paragraph 1.9.
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1.9 Within one year after the Closing Date, Global Short-Term shall pay or
make provision for the payment of all its liabilities and taxes, and distribute
to the shareholders of Global Short-Term as of the close of business on the
Valuation Date any remaining amount of the Cash Reserve (as reduced by the
estimated cost of distributing it to shareholders). Global Short-Term shall be
liquidated and dissolved as a Maryland corporation and deregistered as an
investment company under the Investment Company Act of 1940, as amended ("1940
Act"), promptly following the making of all distributions pursuant to paragraph
1.5 and the reorganization.
1.10 Copies of all books and records maintained on behalf of Global
Short-Term in connection with its obligations under the 1940 Act, the Code,
state blue sky laws or otherwise in connection with this Agreement will promptly
after the Closing be delivered to officers of World Wide or their designee and
World Wide or its designee shall comply with applicable record retention
requirements to which Global Short-Term is subject under the 1940 Act.
2. VALUATION
2.1 The value of the Global Short-Term Assets shall be the value of such
assets computed as of 4:00 p.m. New York City time on the third day that the New
York Stock Exchange is open for business following the receipt of the requisite
approval by shareholders of Global Short-Term of this Agreement or at such time
on such earlier or later date after such approval as may be mutually agreed upon
in writing (such time and date being hereinafter called the "Valuation Date"),
using the valuation procedures set forth in World Wide's then current Prospectus
and Statement of Additional Information.
2.2 The net asset value of a World Wide Share shall be the net asset value
per share computed on the Valuation Date, using the valuation procedures set
forth in World Wide's then current Prospectus and Statement of Additional
Information.
2.3 The number of World Wide Shares (including fractional shares, if any)
to be issued hereunder shall be determined by dividing the value of the Global
Short-Term Assets, net of the liabilities of Global Short-Term assumed by World
Wide pursuant to paragraph 1.1, determined in accordance with paragraph 2.1, by
the net asset value of a World Wide Share determined in accordance with
paragraph 2.2.
2.4 All computations of value shall be made by Morgan Stanley Dean Witter
Services Company Inc. ("Services") in accordance with its regular practice in
pricing World Wide. World Wide shall cause Services to deliver a copy of its
valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the Valuation Date (the "Closing
Date"). The Closing shall be held as of 9:00 a.m. Eastern time, or at such other
time as the parties may agree. The Closing shall be held in a location mutually
agreeable to the parties hereto. All acts taking place at the Closing shall be
deemed to take place simultaneously as of 9:00 a.m. Eastern time on the Closing
Date unless otherwise provided.
3.2 Portfolio securities held by Global Short-Term and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Chase Manhattan Bank (the "Custodian"), as custodian for World
Wide, for examination no later than five business days preceding the Valuation
Date. Such portfolio securities (together with any cash or other assets) shall
be delivered by Global Short-Term to the Custodian for the account of World Wide
on or before the Closing Date in conformity with applicable custody provisions
under the 1940 Act and duly endorsed in proper form for transfer in such
condition as to constitute good delivery thereof in accordance with the custom
of brokers. The portfolio securities shall be accompanied by
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all necessary federal and state stock transfer stamps or a check for the
appropriate purchase price of such stamps. Portfolio securities and instruments
deposited with a securities depository (as defined in Rule 17f-4 under the 1940
Act) shall be delivered on or before the Closing Date by book-entry in
accordance with customary practices of such depository and the Custodian. The
cash delivered shall be in the form of a Federal Funds wire, payable to the
order of "The Chase Manhattan Bank, Custodian for Morgan Stanley Dean Witter
World Wide Income Trust".
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both World Wide and Global Short-Term,
accurate appraisal of the value of the net assets of World Wide or the Global
Short-Term Assets is impracticable, the Valuation Date shall be postponed until
the first business day after the day when trading shall have been fully resumed
without restriction or disruption and reporting shall have been restored.
3.4 If requested, Global Short-Term shall deliver to World Wide or its
designee (a) at the Closing, a list, certified by its Secretary, of the names,
addresses and taxpayer identification numbers of the Global Short-Term
Shareholders and the number and percentage ownership of outstanding Global
Short-Term shares owned by each such Global Short-Term Shareholder, all as of
the Valuation Date, and (b) as soon as practicable after the Closing, all
original documentation (including Internal Revenue Service forms, certificates,
certifications and correspondence) relating to the Global Short-Term
Shareholders' taxpayer identification numbers and their liability for or
exemption from back-up withholding. World Wide shall issue and deliver to such
Secretary a confirmation evidencing delivery of World Wide Shares to be credited
on the Closing Date to Global Short-Term or provide evidence satisfactory to
Global Short-Term that such World Wide Shares have been credited to Global
Short-Term's account on the books of World Wide. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request.
4. COVENANTS OF WORLD WIDE AND GLOBAL SHORT-TERM
4.1 Except as otherwise expressly provided herein with respect to Global
Short-Term, World Wide and Global Short-Term each will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and other distributions.
4.2 World Wide will prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), relating to World Wide Shares
("Registration Statement"). Global Short-Term will provide World Wide with the
Proxy Materials as described in paragraph 4.3 below, for inclusion in the
Registration Statement. Global Short-Term will further provide World Wide with
such other information and documents relating to Global Short-Term as are
reasonably necessary for the preparation of the Registration Statement.
4.3 Global Short-Term will call a meeting of the Global Short-Term
shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
Global Short-Term will prepare the notice of meeting, form of proxy and proxy
statement (collectively, "Proxy Materials") to be used in connection with such
meeting; provided that World Wide will furnish Global Short-Term with World
Wide's currently effective prospectus for inclusion in the Proxy Materials and
with such other information relating to World Wide as is reasonably necessary
for the preparation of the Proxy Materials.
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4.4 Global Short-Term will assist World Wide in obtaining such information
as World Wide reasonably requests concerning the beneficial ownership of Global
Short-Term shares.
4.5 Subject to the provisions of this Agreement, World Wide and Global
Short-Term will each take, or cause to be taken, all action, and do or cause to
be done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
4.6 Global Short-Term shall furnish or cause to be furnished to World Wide
within 30 days after the Closing Date a statement of Global Short-Term's assets
and liabilities as of the Closing Date, which statement shall be certified by
the Treasurer of Global Short-Term and shall be in accordance with generally
accepted accounting principles consistently applied. As promptly as practicable,
but in any case within 60 days after the Closing Date, Global Short-Term shall
furnish World Wide, in such form as is reasonably satisfactory to World Wide, a
statement certified by the Treasurer of Global Short-Term's earnings and profits
for federal income tax purposes that will be carried over to World Wide pursuant
to Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable, Global
Short-Term (a) shall prepare and file all federal and other tax returns and
reports on behalf of Global Short-Term required by law to be filed with respect
to all periods ending on or before the Closing Date but not theretofore filed
and (b) shall pay all federal and other taxes shown as due thereon and/or all
federal and other taxes that were unpaid as of the Closing Date, including
without limitation, all taxes for which the provision for payment was made as of
the Closing Date (as represented in paragraph 5.2(k)).
4.8 World Wide agrees to use all reasonable efforts to obtain the approvals
and authorizations required by the 1933 Act and the 1940 Act and to make such
filings required by the state Blue Sky and securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 World Wide represents and warrants to Global Short-Term as follows:
(a) World Wide is a validly existing Massachusetts business trust with
full power to carry on its business as presently conducted;
(b) World Wide is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company under
the 1940 Act and the registration of its shares under the 1933 Act are in full
force and effect;
(c) All of the issued and outstanding shares of World Wide have been
offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. Shares of
World Wide are registered in all jurisdictions in which they are required to be
registered under state securities laws and other laws, and said registrations,
including any periodic reports or supplemental filings, are complete and
current, all fees required to be paid have been paid, and World Wide is not
subject to any stop order and is fully qualified to sell its shares in each
state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
World Wide conform in all material respects to the applicable requirements of
the 1933 Act and the 1940 Act and the regulations thereunder and do not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
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(e) World Wide is not in, and the execution, delivery and performance
of this Agreement will not result in a, material violation of any provision of
World Wide's Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which World Wide is a party
or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its knowledge,
threatened against World Wide or any of its properties or assets which, if
adversely determined, would materially and adversely affect its financial
condition or the conduct of its business; and World Wide knows of no facts that
might form the basis for the institution of such proceedings and is not a party
to or subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects, or is reasonably
likely to materially and adversely affect, its business or its ability to
consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights as of October 31,
1998, and for the year then ended, of World Wide certified by
PricewaterhouseCoopers LLP (copies of which will be furnished to Global
Short-Term), will fairly present, in all materials respects, World Wide's
financial condition as of such date in accordance with generally accepted
accounting principles, and its results of such operations, changes in its net
assets and financial highlights for such period, and as of such date there would
be no known liabilities of World Wide (contingent or otherwise) not disclosed
therein that would be required in accordance with generally accepted accounting
principles to be disclosed therein;
(h) All issued and outstanding World Wide Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof,
except as set forth under the caption "Additional Information" in World Wide's
current Prospectus incorporated by reference in the Registration Statement.
World Wide does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of its shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of World Wide, and this
Agreement constitutes a valid and binding obligation of World Wide enforceable
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles. No other consents,
authorizations or approvals are necessary in connection with World Wide's
performance of this Agreement;
(j) World Wide Shares to be issued and delivered to Global Short-Term,
for the account of the Global Short-Term Shareholders, pursuant to the terms of
this Agreement will at the Closing Date have been duly authorized and, when so
issued and delivered, will be duly and validly issued World Wide Shares, and
will be fully paid and non-assessable with no personal liability attaching to
the ownership thereof, except as set forth under the caption "Additional
Information" in World Wide's current Prospectus incorporated by reference in the
Registration Statement;
(k) All material Federal and other tax returns and reports of World
Wide required by law to be filed on or before the Closing Date have been filed
and are correct, and all Federal and other taxes shown as due or required to be
shown as due on said returns and reports have been paid or provision has been
made for the payment thereof, and to the best of World Wide's knowledge, no such
return is currently under audit and no assessment has been asserted with respect
to any such return;
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(l) For each taxable year since its inception, World Wide has met the
requirements of Subchapter M of the Code for qualification and treatment as a
"regulated investment company" and neither the execution or delivery of nor the
performance of its obligations under this Agreement will adversely affect, and
no other events are reasonably likely to occur which will adversely affect the
ability of World Wide to continue to meet the requirements of Subchapter M of
the Code;
(m) Since October 31, 1997, there has been no change by World Wide in
accounting methods, principles, or practices, including those required by
generally accepted accounting principles and no such change is contemplated by
World Wide;
(n) The information furnished or to be furnished by World Wide for use
in registration statements, proxy materials and other documents which may be
necessary in connection with the transactions contemplated hereby shall be
accurate and complete in all material respects and shall comply in all material
respects with Federal securities and other laws and regulations applicable
thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to World Wide) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which such statements were made, not materially misleading.
5.2 Global Short-Term represents and warrants to World Wide as follows:
(a) Global Short-Term is a validly existing Maryland corporation with
full power to carry on its business as presently conducted;
(b) Global Short-Term is a duly registered, open-end, management
investment company, and its registration with the Commission as an investment
company under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of common stock of Global
Short-Term have been offered and sold in compliance in all material respects
with applicable requirements of the 1933 Act and state securities laws. Shares
of Global Short-Term are registered in all jurisdictions in which they are
required to be registered and said registrations, including any periodic reports
or supplemental filings, are complete and current, all fees required to be paid
have been paid, and Global Short-Term is not subject to any stop order and is
fully qualified to sell its shares in each state in which its shares have been
registered;
(d) The current Prospectus and Statement of Additional Information of
Global Short-Term conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations thereunder and
do not include any untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(e) Global Short-Term is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of any
provision of the Articles of Incorporation or By-Laws of Global Short-Term or of
any agreement, indenture, instrument, contract, lease or other undertaking to
which Global Short-Term is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its knowledge,
threatened against Global Short-Term or any of its properties
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or assets which, if adversely determined, would materially and adversely affect
its financial condition or the conduct of its business; and Global Short-Term
knows of no facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects, or is reasonably likely to materially and adversely affect,
its business or its ability to consummate the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of Global Short-Term
as of October 31, 1998, and for the year then ended, certified by
PricewaterhouseCoopers LLP (copies of which will be furnished to World Wide)
will fairly present, in all material respects, Global Short-Term's financial
condition as of such date, and its results of operations, changes in its net
assets and financial highlights for such period in accordance with generally
accepted accounting principles, and as of such date there would be no known
liabilities of Global Short-Term (contingent or otherwise) not disclosed therein
that would be required in accordance with generally accepted accounting
principles to be disclosed therein;
(h) Global Short-Term has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it prior
to the Closing Date;
(i) All issued and outstanding shares of Global Short-Term are, and at
the Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership thereof.
Global Short-Term does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of its shares, nor is there outstanding
any security convertible to any of its shares. All such shares will, at the time
of Closing, be held by the persons and in the amounts set forth in the list of
shareholders submitted to World Wide pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on the
part of Global Short-Term, and subject to the approval of Global Short-Term's
shareholders, this Agreement constitutes a valid and binding obligation of
Global Short-Term, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights and to general equity principles. No
other consents, authorizations or approvals are necessary in connection with the
performance of this Agreement by Global Short-Term;
(k) All material federal and other tax returns and reports of Global
Short-Term required by law to be filed on or before the Closing Date shall have
been filed and are correct and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of Global
Short-Term's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, Global Short-Term has
met all the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement will
adversely affect, and no other events are reasonably likely to occur which will
adversely affect the ability of Global Short-Term to continue to meet the
requirements of Subchapter M of the Code;
(m) At the Closing Date, Global Short-Term will have good and valid
title to the Global Short-Term Assets, subject to no liens (other than the
obligation, if any, to pay the purchase price of portfolio securities purchased
by Global Short-Term which have not settled prior to the Closing Date), security
interests or other encumbrances, and full right, power and authority to assign,
deliver and otherwise transfer such assets
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hereunder, and upon delivery and payment for such assets, World Wide will
acquire good and marketable title thereto, subject to no restrictions on the
full transfer thereof, including any restrictions as might arise under the 1933
Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of Global Short-Term's shareholders and on the Closing Date, the
Proxy Materials (exclusive of the currently effective World Wide's Prospectus
contained therein) will (i) comply in all material respects with the provisions
of the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act") and the 1940 Act and the regulations thereunder and (ii) not contain any
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
Any other information furnished by Global Short-Term for use in the Registration
Statement or in any other manner that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and shall comply
in all material respects with applicable federal securities and other laws and
regulations thereunder;
(o) Global Short-Term will, on or prior to the Valuation Date, declare
one or more dividends or other distributions to shareholders that, together with
all previous dividends and other distributions to shareholders, shall have the
effect of distributing to the shareholders all of its investment company taxable
income and net capital gain, if any, through the Valuation Date (computed
without regard to any deduction for dividends paid);
(p) Global Short-Term has maintained or has caused to be maintained on
its behalf all books and accounts as required of a registered investment company
in compliance with the requirements of Section 31 of the 1940 Act and the Rules
thereunder; and
(q) Global Short-Term is not acquiring World Wide Shares to be issued
hereunder for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF GLOBAL SHORT-TERM
The obligations of Global Short-Term to consummate the transactions provided
for herein shall be subject, at its election, to the performance by World Wide
of all the obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of World Wide contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
6.2 World Wide shall have delivered to Global Short-Term a certificate of
its President and Treasurer, in a form reasonably satisfactory to Global
Short-Term and dated as of the Closing Date, to the effect that the
representations and warranties of World Wide made in this Agreement are true and
correct at and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as
Global Short-Term shall reasonably request;
6.3 Global Short-Term shall have received a favorable opinion from Gordon
Altman Butowsky Weitzen Shalov & Wein, counsel to World Wide, dated as of the
Closing Date, to the effect that:
(a) World Wide is a validly existing Massachusetts business trust, and
has the power to own all of its properties and assets to carry on its business
as presently conducted (Massachusetts counsel may be relied upon in delivering
such opinion); (b) World Wide is a duly registered, open-end, management
investment company,
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and its registration with the Commission as an investment company under the 1940
Act is in full force and effect; (c) this Agreement has been duly authorized,
executed and delivered by World Wide and, assuming that the Registration
Statement complies with the 1933 Act, the 1934 Act and the 1940 Act and
regulations thereunder and assuming due authorization, execution and delivery of
this Agreement by Global Short-Term, is a valid and binding obligation of World
Wide enforceable against World Wide in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights and to general equity
principles; (d) World Wide Shares to be issued to Global Short-Term Shareholders
as provided by this Agreement are duly authorized and upon such delivery will be
validly issued and outstanding and fully paid and nonassessable (except as set
forth under the caption "Additional Information" in World Wide's Prospectus),
and no shareholder of World Wide has any preemptive rights to subscription or
purchase in respect thereof (Massachusetts counsel may be relied upon in
delivering such opinion); (e) the execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby will not,
violate World Wide's Declaration of Trust or By-Laws; and (f) to the knowledge
of such counsel, no consent, approval, authorization or order of any court or
governmental authority of the United States or any state is required for the
consummation by World Wide of the transactions contemplated herein, except such
as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and such
as may be required under state securities laws; and
6.4 As of the Closing Date, there shall have been no material change in the
investment objective, policies and restrictions nor any increase in the
investment management fees from those described in World Wide's Prospectus and
Statement of Additional Information dated February 6, 1998.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF WORLD WIDE
The obligations of World Wide to complete the transactions provided for
herein shall be subject, at its election, to the performance by Global
Short-Term of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Global Short-Term contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
7.2 Global Short-Term shall have delivered to World Wide at the Closing a
certificate of its President and its Treasurer, in form and substance
satisfactory to World Wide and dated as of the Closing Date, to the effect that
the representations and warranties of Global Short-Term made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as World Wide shall reasonably request;
7.3 Global Short-Term shall have delivered to World Wide a statement of the
Global Short-Term Assets and its liabilities, together with a list of Global
Short-Term's portfolio securities and other assets showing the respective
adjusted bases and holding periods thereof for income tax purposes, as of the
Closing Date, certified by the Treasurer of Global Short-Term;
7.4 Global Short-Term shall have delivered to World Wide within three
business days after the Closing a letter from PricewaterhouseCoopers LLP dated
as of the Closing Date stating that (a) such firm has performed a limited review
of the federal and state income tax returns of Global Short-Term for each of the
last three taxable years and, based on such limited review, nothing came to
their attention that caused them to believe that
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<PAGE>
such returns did not properly reflect, in all material respects, the federal and
state income tax liabilities of Global Short-Term for the periods covered
thereby, (b) for the period from October 31, 1998 to and including the Closing
Date, such firm has performed a limited review (based on unaudited financial
data) to ascertain the amount of applicable federal, state and local taxes and
has determined that same either have been paid or reserves have been established
for payment of such taxes, and, based on such limited review, nothing came to
their attention that caused them to believe that the taxes paid or reserves set
aside for payment of such taxes were not adequate in all material respects for
the satisfaction of all federal, state and local tax liabilities for the period
from October 31, 1998 to and including the Closing Date and (c) based on such
limited reviews, nothing came to their attention that caused them to believe
that Global Short-Term would not qualify as a regulated investment company for
federal income tax purposes for any such year or period;
7.5 World Wide shall have received at the Closing a favorable opinion from
Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to Global Short-Term,
dated as of the Closing Date to the effect that:
(a) Global Short-Term is a validly existing Maryland corporation and
has the power to own all of its properties and assets and to carry on its
business as presently conducted (Maryland counsel may be relied upon in
delivering such opinion); (b) Global Short-Term is a duly registered, open-end,
management investment company under the 1940 Act, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect; (c) this Agreement has been duly authorized, executed and delivered by
Global Short-Term and, assuming that the Registration Statement complies with
the 1933 Act, the 1934 Act and the 1940 Act and the regulations thereunder and
assuming due authorization, execution and delivery of this Agreement by World
Wide, is a valid and binding obligation of Global Short-Term enforceable against
Global Short-Term in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights and to general equity principles; (d) the execution
and delivery of this Agreement did not, and the consummation of the transactions
contemplated hereby will not, violate the Articles of Incorporation or By-Laws
of Global Short-Term; and (e) to the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental authority of the
United States or any state is required for the consummation by Global Short-Term
of the transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required under
state securities laws; and
7.6 On the Closing Date, the Global Short-Term Assets shall include no
assets that World Wide, by reason of limitations of the World Wide's Declaration
of Trust or otherwise, may not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF WORLD WIDE AND GLOBAL
SHORT-TERM
The obligations of Global Short-Term and World Wide hereunder are each
subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
Global Short-Term in accordance with the provisions of the Articles of
Incorporation of Global Short-Term, and certified copies of the resolutions
evidencing such approval shall have been delivered to World Wide;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
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8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such federal and state
authorities) deemed necessary by World Wide or Global Short-Term to permit
consummation, in all material respects, of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent, order
or permit would not involve risk of a material adverse effect on the assets or
properties of World Wide or Global Short-Term;
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or proceeding
for that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act;
8.5 Global Short-Term shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous such
dividends or distributions, shall have the effect of distributing to the Global
Short-Term Shareholders all of Global Short-Term's investment company taxable
income (computed without regard to any deduction for dividends paid) and all of
its net capital gain (after reduction for any capital loss carry-forward and
computed without regard to any deduction for dividends paid) for all taxable
years ending on or before the Closing Date; and
8.6 The parties shall have received a favorable opinion of the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein (based on such representations as
such law firm shall reasonably request), addressed to World Wide and Global
Short-Term, which opinion may be relied upon by the shareholders of Global
Short-Term, substantially to the effect that, for federal income tax purposes:
(a) The transfer of substantially all of Global Short-Term's assets in
exchange for World Wide Shares and the assumption by World Wide of certain
stated liabilities of Global Short-Term followed by the distribution by Global
Short-Term of World Wide Shares to the Global Short-Term Shareholders in
exchange for their Global Short-Term shares will constitute a "reorganization"
within the meaning of Section 368(a)(1)(C) of the Code, and Global Short-Term
and World Wide will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(b) No gain or loss will be recognized by World Wide upon the receipt
of the assets of Global Short-Term solely in exchange for World Wide Shares and
the assumption by World Wide of the stated liabilities of Global Short-Term;
(c) No gain or loss will be recognized by Global Short-Term upon the
transfer of the assets of Global Short-Term to World Wide in exchange for World
Wide Shares and the assumption by World Wide of the stated liabilities or upon
the distribution of World Wide Shares to the Global Short-Term Shareholders in
exchange for their Global Short-Term shares;
(d) No gain or loss will be recognized by the Global Short-Term
Shareholders upon the exchange of the Global Short-Term shares for World Wide
Shares;
(e) The aggregate tax basis for World Wide Shares received by each
Global Short-Term Shareholder pursuant to the Reorganization will be the same as
the aggregate tax basis of the Global Short-Term Shares held by each such Global
Short-Term Shareholder immediately prior to the Reorganization;
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(f) The holding period of World Wide Shares to be received by each
Global Short-Term Shareholder will include the period during which the Global
Short-Term shares surrendered in exchange therefor were held (provided such
Global Short-Term Shares were held as capital assets on the date of the
Reorganization);
(g) The tax basis of the assets of Global Short-Term acquired by World
Wide will be the same as the tax basis of such assets to Global Short-Term
immediately prior to the Reorganization; and
(h) The holding period of the assets of Global Short-Term in the hands
of World Wide will include the period during which those assets were held by
Global Short-Term.
Notwithstanding anything herein to the contrary, neither World Wide nor
Global Short-Term may waive the conditions set forth in this paragraph 8.6.
9. FEES AND EXPENSES
9.1 (a) World Wide shall bear its expenses incurred in connection with the
entering into, and carrying out of, the provisions of this Agreement, including
legal, accounting, Commission registration fees and Blue Sky expenses. Global
Short-Term shall bear its expenses in connection with the entering into, and
carrying out of, the provisions of this Agreement, including legal and
accounting fees, printing, filing and proxy solicitation expenses and portfolio
transfer taxes (if any) incurred in connection with the consummation of the
transactions contemplated herein.
(b) In the event the transactions contemplated herein are not
consummated by reason of Global Short-Term being either unwilling or unable to
go forward (other than by reason of the nonfulfillment or failure of any
condition to Global Short-Term's obligations specified in this Agreement),
Global Short-Term's only obligation hereunder shall be to reimburse World Wide
for all reasonable out-of-pocket fees and expenses incurred by World Wide in
connection with those transactions.
(c) In the event the transactions contemplated herein are not
consummated by reason of World Wide being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any condition
to World Wide's obligations specified in this Agreement), World Wide's only
obligation hereunder shall be to reimburse Global Short-Term for all reasonable
out-of-pocket fees and expenses incurred by Global Short-Term in connection with
those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated herein, except
that the representations, warranties and covenants of Global Short-Term
hereunder shall not survive the complete liquidation of Global Short-Term in
accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Global Short-Term and World Wide;
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(b) by either World Wide or Global Short-Term by notice to the other,
without liability to the terminating party on account of such termination
(providing the termination party is not otherwise in material default or breach
of this Agreement) if the Closing shall not have occurred on or before June 30,
1999; or
(c) by either World Wide or Global Short-Term in writing without
liability to the terminating party on account of such termination (provided the
terminating party is not otherwise in material default or breach of this
Agreement), if (i) the other party shall fail to perform in any material respect
its agreements contained herein required to be performed on or prior to the
Closing Date, (ii) the other party materially breaches any of its
representations, warranties or covenants contained herein, (iii) the Global
Short-Term shareholders fail to approve this Agreement at any meeting called for
such purpose at which a quorum was present or (iv) any other condition herein
expressed to be precedent to the obligations of the terminating party has not
been met and it reasonably appears that it will not or cannot be met.
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of World Wide or Global Short-Term or the
directors/trustees or officers of World Wide or Global Short-Term, to any other
party or its directors/trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of World Wide or Global Short-Term or the
directors/trustees or officers of World Wide or Global Short-Term, except that
any party in breach of this Agreement shall, upon demand, reimburse the
non-breaching party for all reasonable out-of-pocket fees and expenses incurred
in connection with the transactions contemplated by this Agreement, including
legal, accounting and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties.
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 The obligations and liabilities of World Wide hereunder are solely
those of World Wide. It is expressly agreed that no shareholder, nominee,
director, officer, agent, or employee of World Wide shall be personally liable
hereunder. The execution and delivery of this Agreement have been authorized by
the trustees of World
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Wide and signed by authorized officers of World Wide acting as such, and neither
such authorization by such trustees nor such execution and delivery by such
officers shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally.
13.6 The obligations and liabilities of Global Short-Term hereunder are
solely those of Global Short-Term. lt is expressly agreed that no shareholder,
nominee, director, officer, agent, or employee of Global Short-Term shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the directors of Global Short-Term and signed by authorized
officers of Global Short-Term acting as such, and neither such authorization by
such directors nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.
In Witness Whereof, each of the parties hereto has caused this Agreement to
be executed by a duly authorized officer.
MORGAN STANLEY DEAN WITTER
WORLD WIDE INCOME TRUST
By: /s/ CHARLES A. FIUMEFREDDO
-------------------------------------
Name: Charles A. Fiumefreddo
Title: Chairman
MORGAN STANLEY DEAN WITTER
GLOBAL SHORT-TERM INCOME FUND INC.
By: /s/ BARRY FINK
-------------------------------------
Name: Barry Fink
Title: Vice President
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Exhibit B
PROSPECTUS
FEBRUARY 6, 1998
Dean Witter World Wide Income Trust (the "Fund") is an open-end,
non-diversified management investment company, whose primary investment
objective is to provide a high level of current income. As a secondary
objective, the Fund will seek appreciation in the value of its assets. The Fund
seeks to achieve its investment objectives by investing primarily in
fixed-income securities issued or guaranteed by foreign governments, issued by
foreign or U.S. companies, or issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. (See "Investment Objectives and Policies.")
The Fund offers four classes of shares (each, a "Class"), each
with a different combination of sales charges, ongoing fees and other features.
The different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated February 6, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/4
Financial Highlights/6
The Fund and Its Management/9
Investment Objectives and Policies/9
Risk Considerations/12
Investment Restrictions/20
Purchase of Fund Shares/21
Shareholder Services/33
Redemptions and Repurchases/36
Dividends, Distributions and Taxes/37
Performance Information/38
Additional Information/39
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Dean Witter
World Wide Income Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end,
Fund non-diversified management investment company. The Fund invests primarily in fixed-income securities issued or
guaranteed by foreign governments, issued by foreign or U.S. companies, or issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.
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Shares Offered Shares of beneficial interest with $0.01 par value (see page 39). The Fund offers four Classes of shares, each
with a different combination of sales charges, ongoing fees and other features (see pages 21-32).
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest-SM-).
Purchase Class D shares are only available to persons investing $5 million ($25 million for certain qualified plans) or
more and to certain other limited categories of investors. For the purpose of meeting the minimum $5 million (or
$25 million) investment for Class D shares, and subject to the $1,000 minimum initial investment for each Class
of the Fund, an investor's existing holdings of Class A shares and shares of funds for which Dean Witter
InterCapital Inc. serves as investment manager ("Dean Witter Funds") that are sold with a front-end sales
charge, and concurrent investments in Class D shares of the Fund and other Dean Witter Funds that are multiple
class funds, will be aggregated. The minimum subsequent investment is $100 (see page 21).
- ------------------------------------------------------------------------------------------------------------------------------------
Investment The primary investment objective of the Fund is to provide a high level of current income. As a secondary
Objectives objective, the Fund will seek appreciation in the value of its assets (see page 9).
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management and
administrative capacities to 103 investment companies and other portfolios with assets of approximately $102.9
billion at December 31, 1997 (see page 9).
- ------------------------------------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 0.75% of the Fund's daily net assets, scaled
Fee down at various asset levels to 0.30% of the Fund's daily net assets on assets in excess of $1 billion (see page
9).
- ------------------------------------------------------------------------------------------------------------------------------------
Distributor and Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution plan pursuant to Rule
Distribution Fee 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the distribution fees paid by the
Class A, Class B and Class C shares of the Fund to the Distributor. The entire 12b-1 fee payable by Class A and
a portion of the 12b-1 fee payable by each of Class B and Class C equal to 0.20% of the average daily net assets
of Class B and 0.25% of the average daily net assets of Class C are currently each characterized as a service
fee within the meaning of the National Association of Securities Dealers, Inc. guidelines. The remaining portion
of the 12b-1 fee, if any, is characterized as an asset-based sales charge (see pages 21 and 30).
- ------------------------------------------------------------------------------------------------------------------------------------
Alternative Four classes of shares are offered:
Purchase
Arrangements - Class A shares are offered with a front-end sales charge, starting at 4.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but a contingent deferred sales charge ("CDSC") of 1.0% may
be imposed on redemptions within one year of purchase. The Fund is authorized to reimburse the Distributor for
specific expenses incurred in promoting the distribution of the Fund's Class A shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments at
an annual rate of 0.25% of average daily net assets of the Class (see pages 21, 25 and 30).
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- Class B shares are offered without a front-end sales charge, but will in most cases be subject to a CDSC
(scaled down from 5.0% to 1.0%) if redeemed within six years after purchase. The CDSC will be imposed on any
redemption of shares if after such redemption the aggregate current value of a Class B account with the Fund
falls below the aggregate amount of the investor's purchase payments made during the six years preceding the
redemption. A different CDSC schedule applies to investments by certain qualified plans. Class B shares are also
subject to a 12b-1 fee assessed at the annual rate of 0.85% of the lesser of: (a) the average daily net sales of
the Fund's Class B shares or (b) the average daily net assets of Class B. All shares of the Fund held prior to
July 28, 1997 have been designated Class B shares. Shares held before May 1, 1997 will convert to Class A shares
in May, 2007. In all other instances, Class B shares convert to Class A shares approximately ten years after the
date of the original purchase (see pages 21, 27 and 30).
- Class C shares are offered without a front-end sales charge, but will in most cases be subject to a CDSC of
1.0% if redeemed within one year after purchase. The Fund is authorized to reimburse the Distributor for
specific expenses incurred in promoting the distribution of the Fund's Class C shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments at
an annual rate of 0.85% of average daily net assets of the Class (see pages 21, 29 and 30).
- Class D shares are offered only to investors meeting an initial investment minimum of $5 million ($25 million
for certain qualified plans) and to certain other limited categories of investors. Class D shares are offered
without a front-end sales charge or CDSC and are not subject to any 12b-1 fee (see pages 21 and 30).
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and Dividends from net investment income are declared and paid monthly. Capital gains, if any, are paid at least
Capital Gains annually. The Fund may, however, determine to retain all or part of any net long-term capital gains in any year
Distributions for reinvestment. Dividends and capital gains distributions paid on shares of a Class are automatically
reinvested in additional shares of the same Class at net asset value unless the shareholder elects to receive
cash. Shares acquired by dividend and distribution reinvestment will not be subject to any sales charge or CDSC
(see pages 33 and 37).
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption Shares are redeemable by the shareholder at net asset value less any applicable CDSC on Class A, Class B or
Class C shares. An account may be involuntarily redeemed if the total value of the account is less than $100 or,
if the account was opened through EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account (see page 36).
- ------------------------------------------------------------------------------------------------------------------------------------
Special The net asset value of the Fund's shares will fluctuate with changes in the market value of its portfolio
Risk securities. The Fund is a non-diversified investment company and, as such, is not subject to the diversification
Considerations requirements of the Investment Company Act of 1940, as amended (see page 10). In addition, it should be
recognized that the foreign securities and markets in which the Fund will invest pose different and possibly
greater risks than those customarily associated with domestic securities and their markets. Moreover, investors
should consider other risks associated with a portfolio of international securities, including fluctuations in
foreign currency exchange rates (i.e., if a substantial portion of the Fund's assets are denominated in foreign
currencies which decrease in value with respect to the U.S. dollar, the value of the investor's shares and the
distributions made on those shares will, likewise, decrease in value), foreign securities exchange controls and
foreign tax rates, as well as investments in forward currency contracts, options and futures contracts (see
pages 12-19).
</TABLE>
- --------------------------------------------------------------------------------
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THE PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.
3
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are based on
the expenses and fees for the fiscal year ended October 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------- ------- --------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)... 4.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.................................. None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds)................................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................................................. None None None None
Exchange Fee.................................................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------
Management Fees................................................................. 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (5) (6).............................................................. 0.25% 0.85% 0.85% None
Other Expenses.................................................................. 0.42% 0.42% 0.42% 0.42%
Total Fund Operating Expenses (7)............................................... 1.42% 2.02% 2.02% 1.17%
</TABLE>
- ------------
(1) REDUCED FOR PURCHASES OF $25,000 AND OVER (SEE "PURCHASE OF FUND
SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES").
(2) INVESTMENTS THAT ARE NOT SUBJECT TO ANY SALES CHARGE AT THE TIME OF PURCHASE
ARE SUBJECT TO A CDSC OF 1.00% THAT WILL BE IMPOSED ON REDEMPTIONS MADE
WITHIN ONE YEAR AFTER PURCHASE, EXCEPT FOR CERTAIN SPECIFIC CIRCUMSTANCES
(SEE "PURCHASE OF FUND SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A
SHARES").
(3) THE CDSC IS SCALED DOWN TO 1.00% DURING THE SIXTH YEAR, REACHING ZERO
THEREAFTER.
(4) ONLY APPLICABLE TO REDEMPTIONS MADE WITHIN ONE YEAR AFTER PURCHASE (SEE
"PURCHASE OF FUND SHARES-- LEVEL LOAD ALTERNATIVE--CLASS C SHARES").
(5) THE 12b-1 FEE IS ACCRUED DAILY AND PAYABLE MONTHLY. THE ENTIRE 12b-1 FEE
PAYABLE BY CLASS A AND A PORTION OF THE 12b-1 FEE PAYABLE BY EACH OF CLASS B
AND CLASS C EQUAL TO 0.20% OF THE AVERAGE DAILY NET ASSETS OF CLASS B AND
0.25% OF THE AVERAGE DAILY NET ASSETS OF CLASS C ARE CURRENTLY EACH
CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC. ("NASD") GUIDELINES AND ARE PAYMENTS MADE FOR
PERSONAL SERVICE AND/OR MAINTENANCE OF SHAREHOLDER ACCOUNTS. THE REMAINDER
OF THE 12b-1 FEE, IF ANY, IS AN ASSET-BASED SALES CHARGE, AND IS A
DISTRIBUTION FEE PAID TO THE DISTRIBUTOR TO COMPENSATE IT FOR THE SERVICES
PROVIDED AND THE EXPENSES BORNE BY THE DISTRIBUTOR AND OTHERS IN THE
DISTRIBUTION OF THE FUND'S SHARES (SEE "PURCHASE OF FUND SHARES--PLAN OF
DISTRIBUTION").
(6) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12b-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 0.85% DISTRIBUTION FEE (SEE "PURCHASE OF FUND
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
(7) THERE WERE NO OUTSTANDING SHARES OF CLASS A, CLASS C OR CLASS D PRIOR TO
JULY 28, 1997. ACCORDINGLY, "TOTAL FUND OPERATING EXPENSES," AS SHOWN ABOVE
WITH RESPECT TO THOSE CLASSES, ARE ESTIMATES BASED UPON THE SUM OF 12b-1
FEES, MANAGEMENT FEES AND ESTIMATED "OTHER EXPENSES."
4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLES 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) a 5% annual return
and (2) redemption at the end of each time period:
Class A................................................................................. $56 $86 $117 $205
Class B................................................................................. $71 $93 $129 $235
Class C................................................................................. $31 $63 $109 $235
Class D................................................................................. $12 $37 $ 64 $142
You would pay the following expenses on the same $1,000 investment assuming no redemption at
the end of the period:
Class A................................................................................. $56 $86 $117 $205
Class B................................................................................. $21 $63 $109 $235
Class C................................................................................. $21 $63 $109 $235
Class D................................................................................. $12 $37 $ 64 $142
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
5
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, the notes thereto and the unqualified report of
independent accountants, which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------------------
CLASS B SHARES 1997**++ 1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 9.33 $ 9.08 $ 8.55 $ 9.39 $ 9.11 $ 9.11 $ 10.38
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net investment income............ 0.55 0.60 0.55 0.55 0.59 0.62 0.82
Net realized and unrealized gain
(loss).......................... 0.07 0.48 0.48 (0.92) 0.27 0.01 (0.99)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations...................... 0.62 1.08 1.03 (0.37) 0.86 0.63 (0.17)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Less dividends and distributions
from:
Net investment income......... (0.92) (0.83) (0.50) (0.22) (0.58) (0.63) (0.86)
Net realized gain............. -- -- -- -- -- -- (0.24)
Paid-in-capital............... -- -- -- (0.25) -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total dividends and
distributions................... (0.92) (0.83) (0.50) (0.47) (0.58) (0.63) (1.10)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period... $ 9.03 $ 9.33 $ 9.08 $ 8.55 $ 9.39 $ 9.11 $ 9.11
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN+......... 7.05% 12.60% 12.45% (3.99)% 9.72% 7.13% (1.75)%
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 2.02% 1.96% 1.93% 1.91% 1.87% 1.87% 1.76%
Net investment income............ 6.07% 6.39% 6.21% 5.87% 6.39% 6.78% 8.45%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands....................... $94,556 $114,022 $138,165 $179,563 $275,319 $324,185 $421,051
Portfolio turnover rate.......... 345% 263% 254% 229% 229% 214% 245%
<CAPTION>
FOR THE PERIOD
MARCH 30, 1989*
THROUGH
CLASS B SHARES 1990 OCTOBER 31, 1989
----------- -----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 9.55 $ 10.00
----------- -------
Net investment income............ 0.95 0.49
Net realized and unrealized gain
(loss).......................... 0.78 (0.45)
----------- -------
Total from investment
operations...................... 1.73 0.04
----------- -------
Less dividends and distributions
from:
Net investment income......... (0.90) (0.49)
Net realized gain............. -- --
Paid-in-capital............... -- --
----------- -------
Total dividends and
distributions................... (0.90) (0.49)
----------- -------
Net asset value, end of period... $ 10.38 $ 9.55
----------- -------
----------- -------
TOTAL INVESTMENT RETURN+......... 19.22% 0.40% (1)
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 1.81% 1.90% (2)
Net investment income............ 9.76% 9.10% (2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands....................... $462,709 $388,578
Portfolio turnover rate.......... 109% 113% (1)
</TABLE>
- ---------------
* COMMENCEMENT OF OPERATIONS.
** PRIOR TO JULY 28, 1997, THE FUND ISSUED ONE CLASS OF SHARES. ALL SHARES OF
THE FUND HELD PRIOR TO THAT DATE HAVE BEEN DESIGNATED AS CLASS B SHARES.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31,
CLASS A SHARES 1997++
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 8.97
------
Net investment income................................................. 0.15
Net realized and unrealized gain...................................... 0.05
------
Total from investment operations...................................... 0.20
------
Less dividends from net investment income............................. (0.15)
------
Net asset value, end of period........................................ $ 9.02
------
------
TOTAL INVESTMENT RETURN+.............................................. 2.27%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.46%(2)
Net investment income................................................. 6.69%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $682
Portfolio turnover rate............................................... 345%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 8.97
------
Net investment income................................................. 0.14
Net realized and unrealized gain...................................... 0.05
------
Total from investment operations...................................... 0.19
------
Less dividends from net investment income............................. (0.14)
------
Net asset value, end of period........................................ $ 9.02
------
------
TOTAL INVESTMENT RETURN+.............................................. 2.12%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.00%(2)
Net investment income................................................. 5.89%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $111
Portfolio turnover rate............................................... 345%
</TABLE>
- -------------
* THE DATE SHARES WERE FIRST ISSUED.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31,
1997++
----------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 8.97
------
Net investment income................................................. 0.16
Net realized and unrealized gain...................................... 0.05
------
Total from investment operations...................................... 0.21
------
Less dividends from net investment income............................. (0.15)
------
Net asset value, end of period........................................ $ 9.03
------
------
TOTAL INVESTMENT RETURN+.............................................. 2.44%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.16%(2)
Net investment income................................................. 6.83%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $39
Portfolio turnover rate............................................... 345%
</TABLE>
- -------------
* THE DATE SHARES WERE FIRST ISSUED.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
8
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Dean Witter World Wide Income Trust (the "Fund") is an open-end,
non-diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of Massachusetts on October 14, 1988.
Dean Witter InterCapital Inc. ("InterCapital" or (the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover &
Co., a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses -- securities, asset
management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 103 investment companies, 29 of which are listed on
the New York Stock Exchange, with combined total assets of approximately $98.9
billion as of December 31, 1997. The Investment Manager also manages portfolios
of pension plans, other institutions and individuals which aggregated
approximately $4 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily at an annual rate
of 0.75% of the daily net assets of the Fund up to $250 million, scaled down at
various asset levels to 0.30% of the daily net assets of the Fund exceeding $1
billion. For the fiscal year ended October 31, 1997, the Fund accrued total
compensation to the Investment Manager amounting to 0.75% of the Fund's average
daily net assets and the total expenses of Class B amounted to 2.02% of the
average daily net assets of Class B. Shares of Class A, Class C and Class D were
first issued on July 28, 1997. The expenses of the Fund include: the fee of the
Investment Manager; the fee pursuant to the Plan of Distribution (see "Purchase
of Fund Shares"); taxes; transfer agent, custodian and auditing fees; certain
legal fees; and printing and other expenses relating to the Fund's operations
which are not expressly assumed by the Investment Manager under its Investment
Management Agreement with the Fund.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The primary investment objective of the Fund is to provide a high level of
current income. As a secondary objective, the Fund will seek appreciation in the
value of its assets. The Fund will attempt to achieve its investment objectives
by investing primarily in a portfolio of fixed-income securities issued by
foreign and U.S. corporations or issued or guaranteed by foreign governments,
government
9
<PAGE>
agencies or government subdivisions, supranational organizations (or any
subdivision thereof) and the U.S. Government, its agencies and
instrumentalities. There can be no assurance that the Fund will achieve its
objectives. The investment objectives are fundamental policies of the Fund and,
as such, may not be changed without the approval of the shareholders of the
Fund.
The Fund may invest in securities issued by government entities or
corporations of any single nation and which are denominated in any single
currency. The Investment Manager will, however, actively allocate the Fund's
investments among various geographic regions, nations, currencies and
corporations or governmental entities in its attempt to maximize the dividends
paid on the Fund's shares and, if possible, the appreciation of their value. In
addition, it is the Fund's policy that, during normal market conditions, its
assets will be comprised of investments in the securities of issuers located in
at least three separate nations (which may include the United States). The
Investment Manager will consider such factors as the yield of individual
securities, the anticipated appreciation of such securities, the state of the
economies of the countries in which the investments are made, the levels of
inflation existing in such countries, the liquidity and financial soundness of
the markets in which such securities trade, the levels of inflation existing
within the relevant country and the current and anticipated relationships of
such countries' currencies to the U.S. dollar. The currency in which the Fund's
securities will be principally denominated will be a function of these factors
in that, at any given time, the Investment Manager may determine, after review
of these factors, that the fixed-income securities in a given country are
superior to the fixed-income securities in a different country, and,
accordingly, increase the proportion of the Fund's assets denominated in the
currency of the country with the superior investment climate.
It is anticipated that the securities held by the Fund in its portfolio will
be denominated, principally, in the following currencies: the United States
dollar, Australian dollar, New Zealand dollar, German mark, Japanese yen, French
franc, British pound, Canadian dollar, Mexican peso, Swiss franc, Dutch guilder,
Belgian franc, Swedish kronor, Italian lira, Finnish markka and European
Currency Unit (a weighted composite of the currencies of member states of the
European Monetary System). Securities of issuers within a given country may be
denominated in the currency of a different country.
The U.S. Government securities in which the Fund may invest include U.S.
Treasury bonds, notes and bills, which are direct obligations of the U.S.
Government as well as in securities issued or guaranteed by agencies and
instrumentalities of the U.S. Government. Some of the securities of such
agencies and instrumentalities are backed by the full faith and credit of the
U.S. (e.g., the Government National Mortgage Association), while others are not
backed by the full faith and credit of the U.S. but are backed by the credit of
the issuing agency or instrumentality (e.g., the Federal Home Loan Bank) or are
backed by an existing line of credit with the U.S. Treasury from which its
issuing agency or instrumentality may borrow (e.g., the Federal National
Mortgage Association).
The Fund may invest in fixed-income securities issued or guaranteed by
supranational organizations. Such organizations are entities designated or
supported by a government or government entity to promote economic development,
and include, among others, the Asian Development Bank, the European Coal and
Steel Community, the European Economic Community and the World Bank. These
organizations do not have taxing authority and are dependent upon their members
for payments of interest and principal. Each supranational entity's lending
activities are limited to a percentage of its total capital (including "callable
capital" contributed by members at the entity's call), reserves and net income.
Securities issued by supranational organizations may be denominated in U.S.
dollars or in foreign currencies.
10
<PAGE>
In seeking to achieve its objectives, the Fund will normally invest at least
65% of its assets in fixed-income securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities or fixed-income securities issued
by U.S. corporations, foreign governments, foreign corporations or other
entities which have been rated within the four highest categories as determined
by Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A or Baa) or Standard &
Poor's Corporation ("S&P") (AAA, AA, A or BBB), or which are unrated by such
rating agencies but which are deemed to be of comparable quality by the
Investment Manager. The ratings of fixed-income securities by Moody's and S&P
are a generally accepted barometer of credit risk. Fixed-income securities rated
Baa by Moody's have certain speculative characteristics. A description of S&P
and Moody's ratings is contained in the Statement of Additional Information.
The types of fixed-income securities invested in by the Fund include
straight debt obligations of varying maturities, such as bonds, notes, bills,
debentures, equipment lease and trust certificates, conditional sales contracts,
commercial paper, commercial bank obligations, obligations of savings
institutions, bankers' acceptances, Eurodollar certificates of deposit and fixed
and adjustable rate preferred stocks.
The Fund may invest without limitation in notes and commercial paper, the
principal amount of which is indexed to certain specific foreign currency
exchange rates. Indexed notes and commercial paper typically provide that their
principal amount is adjusted upwards or downwards (but not below zero) at
maturity to reflect fluctuations in the exchange rate between two currencies
during the period the obligation is outstanding, depending on the terms of the
specific security. In selecting the two currencies, the Investment Manager will
consider the correlation and relative yields of various currencies. The Fund
will purchase an indexed obligation using the currency in which it is
denominated and, at maturity, will receive interest and principal payments
thereon in that currency. The amount of principal payable by the issuer at
maturity, however, will vary (i.e., increase or decrease) in response to the
change (if any) in the exchange rates between the two specified currencies
during the period from the date the instrument is issued to its maturity date.
The potential for realizing gains as a result of changes in foreign currency
exchange rates may enable the Fund to hedge the currency in which the obligation
is denominated (or to effect cross-hedges against other currencies) against a
decline in the U.S. dollar value of investments denominated in foreign
currencies, while providing an attractive money market rate of return. The Fund
will purchase such indexed obligations to generate current income or for hedging
purposes and will not speculate in such obligations.
Under normal conditions, a percentage of the short-term investments in the
Fund's portfolio may be money market securities. Money market securities include
short-term obligations issued or guaranteed by the U.S. Government or foreign
governments or issued by such governments' respective agencies and
instrumentalities, bank money market instruments including certificates of
deposit, bankers' acceptances, time deposits and deposit notes and certain other
short-term obligations such as short-term commercial paper. With respect to bank
money instruments, the obligations may be issued by U.S. or foreign depository
institutions, foreign branches or subsidiaries of U.S. depository institutions
("Eurodollar" obligations), U.S. branches or subsidiaries of foreign depository
institutions ("Yankeedollar" obligations) or foreign branches or subsidiaries of
foreign depository institutions. Eurodollar and Yankeedollar obligations and
obligations of branches or subsidiaries of foreign depository institutions may
be general obligations of the parent bank or may be limited to the issuing
branch or subsidiary by the terms of the specific obligations or by government
regulation.
In addition, the Fund may invest in fixed-income securities which are
convertible into common stock, such as convertible debentures and convertible
preferred stock, and fixed-income securities to which are attached equity
features such as
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shares of common stock, warrants for the purchase of common stock,
participations based on revenues, sales or profits and other conversion and/or
exchange rights.
The Fund may also invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs) or
other similar securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for use in the United States
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
There may be periods during which, in the opinion of the Investment Manager,
market conditions warrant reduction of some or all of the Fund's securities
holdings. During such periods, the Fund may adopt a temporary "defensive"
posture in which greater than 35% of its assets are invested in cash or money
market instruments. Under such circumstances, the money market instruments in
which the Fund may invest are securities issued or guaranteed by the U.S.
Government; U.S. bank obligations; Eurodollar certificates of deposit;
obligations of American savings institutions; fully insured certificates of
deposit; and commercial paper of U.S. issuers rated within the two highest
grades by Moody's or S&P or, if not rated, are issued by a company having an
outstanding debt issue rated at least AA by S&P or Aa by Moody's.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The Fund's yield will
also vary based on the yield of the Fund's portfolio securities.
All fixed-income securities are subject to two types of risks: the credit
risk and the interest rate risk. The credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they come due. The
interest rate risk refers to the fluctuations in the net asset value of any
portfolio of fixed-income securities resulting from the inverse relationship
between price and yield of fixed-income securities; that is, when the general
level of interest rates rises, the prices of outstanding fixed-income securities
decline, and when interest rates fall, prices rise.
The Fund may also purchase fixed-income securities which are issued by U.S.
issuers and which are denominated in U.S. dollars but which return principal to
investors in amounts which are tied to the exchange rate between the U.S. dollar
and a foreign currency. The payment of interest on such securities is generally
made at a fixed U.S. dollar rate.
NON-DIVERSIFIED STATUS. The Fund is a non-diversified investment company
and, as such, is not subject to the diversification requirements of the
Investment Company Act of 1940, as amended (the "Act"). As a non-diversified
investment company, the Fund may invest a greater portion of its assets in the
securities of a single issuer and thus is subject to greater exposure to risks
such as a decline in the credit rating of that issuer. However, the Fund
anticipates that it will qualify as a regulated investment company under the
federal income tax laws and, if so qualified, will be subject to the applicable
diversification requirements of the Internal Revenue Code, as amended (the
"Code"). As a regulated investment company under the Code, the Fund may not, as
of the end of any of its fiscal quarters, have invested more than 25% of its
total assets in the securities of any one issuer (including a foreign
government), or as to 50% of its total assets, have invested more than 5% of its
total assets in the securities of a single issuer.
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FOREIGN SECURITIES. Investors should carefully consider the risks of
investing in securities of foreign issuers and securities denominated in
non-U.S. currencies. Fluctuations in the relative rates of exchange between the
currencies of different nations may affect the value of the Fund's investments.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and thereby impact upon the Fund's yield on such assets and the net asset value
of a share of the Fund as well as the amount of the Fund's distributions. For
example, if a substantial portion of the Fund's assets are denominated in
Japanese yen and the relative exchange rate of the yen falls with respect to the
U.S. dollar (i.e., a yen is worth a smaller fraction of a dollar than it had
been) then the Fund will be receiving a lesser amount of interest on its
fixed-income securities denominated in yen (when converted into U.S. dollars)
and when the Fund's assets are valued for purposes of determining the net asset
value per share of the Fund, the net assets of the Fund reflected by the
yen-denominated securities will have declined in U.S. dollar value and the net
asset value of the Fund (always stated in U.S. dollars) may have also declined.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward contracts or
futures contracts (see below). The Fund may incur certain costs in connection
with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the Fund
due to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments.
------------
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may engage in transactions in forward foreign currency contracts, options on
securities and currencies, and futures contracts and options on futures
contracts on securities, currencies and indexes. The Fund may also write options
on securities and currencies to assist it in meeting its objective of providing
a high level of current income. A discussion of these transactions follows and
is supplemented by further disclosure in the Statement of Additional
Information.
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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") involves an obligation to purchase or
sell a currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase and the foreign
currency in which the security is denominated during the period between the date
on which the security is purchased or sold and the date on which payment is made
or received.
At other times, when, for example, the Fund's Investment Manager believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar or some other foreign currency, it may enter
into a forward contract to sell, for a fixed amount of dollars or other
currency, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities (or securities which the Fund has purchased
for its portfolio) denominated in such foreign currency. Under identical
circumstances, the Fund may enter into a forward contract to sell, for a fixed
amount of U.S. dollars or other currency, an amount of foreign currency other
than the currency in which the securities to be hedged are denominated
approximating the value of some or all of the portfolio securities to be hedged.
The Investment Manager will select this method of hedging, called
"cross-hedging," when it determines that the foreign currency in which the
portfolio securities are denominated have insufficient liquidity or are trading
at a discount as compared with some other foreign currency with which it tends
to move in tandem.
In addition, when the Fund's Investment Manager anticipates purchasing
securities at some time in the future, and wishes to lock in the current
exchange rate of the currency in which those securities are denominated against
the U.S. dollar or some other foreign currency, it may enter into a forward
contract to purchase an amount of currency equal to some or all of the value of
the anticipated purchase, for a fixed amount of U.S. dollars or other currency.
The Fund may, however, close out the forward contract without purchasing the
security which was the subject of the "anticipatory" hedge.
Lastly, the Fund is permitted to enter into forward contracts with respect
to currencies in which certain of its portfolio securities are denominated and
on which options have been written (see "Options and Futures Transactions").
In all of the above circumstances, if the currency in which the Fund's
portfolio securities (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager.
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The Fund generally will not enter into a forward contract with a term of
greater than one year, although it may enter into forward contracts for periods
of up to five years. To the extent that the Fund enters into forward foreign
currency contracts to hedge against a decline in the value of portfolio holdings
denominated in a particular foreign currency resulting from currency
fluctuations, there is a risk that the Fund may nevertheless realize a gain or
loss as a result of currency fluctuations after such portfolio holdings are sold
if the Fund is unable to enter into an "offsetting" forward foreign currency
contract with the same party or another party. The Fund may be limited in its
ability to enter into hedging transactions involving forward contracts by the
Code requirements relating to qualification as a regulated investment company
(see "Dividends, Distributions and Taxes").
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on U.S. Treasury
notes, bonds and bills, on various foreign currencies and on equity securities
which are listed on several U.S. and foreign securities exchanges and are
written in over-the-counter transactions ("OTC options"). Listed options are
issued or guaranteed by the exchange on which they trade or by a clearing
corporation such as the Options Clearing Corporation ("OCC"). Ownership of a
listed call option gives the Fund the right to buy from the OCC (in the U.S.) or
other clearing corporation or exchange, the underlying security or currency
covered by the option at the stated exercise price (the price per unit of the
underlying security or currency) by filing an exercise notice prior to the
expiration date of the option. Ownership of a listed put option would give the
Fund the right to sell the underlying security or currency to the OCC (in the
U.S.) or other clearing corporation or exchange at the stated exercise price.
OTC options are purchased from or sold (written) to dealers or financial
institutions which have entered into direct agreements with the Fund. With
respect to OTC options, such variables as expiration date, exercise price and
premium will be agreed upon between the Fund and the transacting dealer, without
the intermediation of a third party such as the OCC.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities which are denominated in either U.S. dollars or foreign
currencies, without limit, in order to aid it in achieving its investment
objectives and to close out long call option positions. As a writer of a call
option, the Fund has the obligation, upon notice of exercise of the option, to
deliver the security or amount of currency underlying the option (certain listed
and OTC call options written by the Fund will be exercisable by the purchaser
only on a specific date).
COVERED PUT WRITING. As a writer of covered put options, the Fund incurs an
obligation to buy the security (or currency) underlying the option from the
purchaser of the put at the option's exercise price at any time during the
option period, at the purchaser's election (certain listed and OTC put options
written by the Fund will be exercisable by the purchaser only on a specific
date). The Fund will write put options for three purposes: (1) to receive the
premiums paid by purchasers; (2) when the Investment Manager wishes to purchase
the security underlying the option (or a security denominated in the currency
underlying the option) at a price lower than its current market price, in which
case it will write the covered put at an exercise price reflecting the lower
purchase price sought; and (3) to close out a long put option position. The
aggregate value of the obligations underlying the puts determined as of the date
the options are sold will not exceed 50% of the Fund's net assets.
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options to close out a written call position or to protect against
an increase in the price of a security it anticipates purchasing or, in the case
of call options on a foreign currency, to hedge against an adverse exchange rate
change of the currency in which the security it anticipates
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purchasing is denominated vis-a-vis the currency in which the exercise price is
denominated. The Fund may purchase put options on securities which it holds in
its portfolio only to protect itself against a decline in the value of the
security. Similarly, the Fund may purchase put options on currencies in which
securities which it holds are denominated only to protect itself against a
decline in value of such currency vis-a-vis the currency in which the exercise
price is denominated. There are no other limits on the Fund's ability to
purchase call and put options.
FUTURES CONTRACTS. The Fund may purchase and sell futures contracts that
are currently traded, or may in the future be traded, on U.S. and foreign
commodity exchanges on such underlying fixed-income securities as U.S. Treasury
bonds, notes, and bills and/or any foreign government fixed-income security
("interest rate" futures), on various currencies ("currency" futures) and on
such indexes of U.S. or foreign fixed-income securities as may exist or come
into being, such as the Moody's Investment-Grade Corporate Bond Index ("index"
futures). As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging the value of its fixed-income portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
The Fund will purchase or sell index futures contracts for the purpose of
hedging its fixed-income portfolio (or anticipated portfolio) against changes in
their prices. The Fund will purchase or sell currency futures on currencies in
which its portfolio securities (or anticipated portfolio securities) are
denominated for the purposes of hedging against anticipated changes in currency
exchange rates. In addition to the above, interest rate, index and currency
futures will be bought or sold in order to close out a short or long position
maintained by the Fund in a corresponding futures contract.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
Exchanges may limit the amount by which the price of many futures contracts
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that
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the Investment Manager could be incorrect in its expectations as to the
direction or extent of various interest rate or price movements or the time span
within which the movements take place. For example, if the Fund sold futures
contracts for the sale of securities in anticipation of an increase in interest
rates, and then interest rates went down instead, causing bond prices to rise,
the Fund would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash prices of the Fund's portfolio securities and their denominated
currencies. Another such risk is that prices of interest rate futures contracts
may not move in tandem with the changes in prevailing interest rates against
which the Fund seeks a hedge. A correlation may also be distorted by the fact
that the futures market is dominated by short-term traders seeking to profit
from the difference between a contract or security price objective and their
cost of borrowed funds. Such distortions are generally minor and would diminish
as the contract approached maturity.
The Fund, by entering into transactions in foreign futures and options
markets, will also incur risks similar to those discussed above under the
section entitled "Foreign Securities."
OTHER INVESTMENT POLICIES
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, including the risks of default or
bankruptcy of the selling financial institution, the Fund follows procedures
designed to minimize those risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions whose financial condition will be continually monitored by the
Investment Manager subject to procedures established by the Board of Trustees of
the Fund.
CONVERTIBLE SECURITIES. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The value
of a convertible security is a function of its "investment value" (its value as
if it did not have a conversion privilege), and its "conversion value" (the
security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege). To the extent that a
convertible security's investment value is greater than its conversion value,
its price will be primarily a reflection of such investment value and its price
will be likely to increase when interest rates fall and decrease when interest
rates rise, as with a fixed-income security (the credit standing of the issuer
and other factors may also have an effect on the convertible security's value).
If the conversion value exceeds the investment value, the price of the
convertible security will rise above its investment value and, in addition, the
convertible security will sell at some premium over its conversion value. (This
premium represents the price investors are willing to pay for the privilege of
purchasing a fixed-income security with a possibility of capital appreciation
due to the conversion privilege.) At such times the price
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of the convertible security will tend to fluctuate directly with the price of
the underlying equity security.
REVERSE REPURCHASE AGREEMENTS. The Fund may also use reverse repurchase
agreements as part of its investment strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are considered borrowings by the
Fund.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. There is no overall
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
PRIVATE PLACEMENTS. The Fund may invest up to 10% of its total assets in
securities which are subject to restrictions on resale because they have
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not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or which are otherwise not readily marketable. (Securities
eligible for resale pursuant to Rule 144A of the Securities Act, and determined
to be liquid pursuant to the procedures discussed in the following paragraph,
are not subject to the foregoing restriction.) These securities are generally
referred to as private placements or restricted securities. Limitations on the
resale of such securities may have an adverse effect on their marketability, and
may prevent the Fund from disposing of them promptly at reasonable prices. The
Fund may have to bear the expense of registering such securities for resale and
the risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which is limited by
the Fund's investment restrictions to 10% of the Fund's total assets. Investing
in Rule 144A securities could have the effect of increasing the level of Fund
illiquidity to the extent the Fund, at a particular time, may be unable to find
qualified institutional buyers interested in purchasing such securities.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to certain notice provisions described in the Statement of
Additional Information), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined daily,
of the loaned securities. As with any extensions of credit, there are risks of
delay in recovery and in some cases even loss of rights in the collateral should
the borrower of the securities fail financially. However, loans of portfolio
securities will only be made to firms deemed by the Investment Manager to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks.
Except as specifically noted, all investment objectives, policies and
practices discussed above are not fundamental policies of the Fund and, as such,
may be changed without shareholder approval.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
For additional risk disclosure, please refer to the discussion of specific
investments under the "Investment Objectives and Policies" section of the
Prospectus and the "Investment Practices and Policies" section of the Statement
of Additional Information.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objectives.
19
<PAGE>
The Fund is managed within InterCapital's Taxable Fixed-Income Group, which
manages 23 funds and fund portfolios, with approximately $13.3 billion in assets
at December 31, 1997. Rajesh K. Gupta, Senior Vice President of InterCapital,
and Peter J. Seeley, Vice President of InterCapital (since April, 1996), each a
member of InterCapital's Taxable Fixed-Income Group, are the primary portfolio
managers of the Fund. Mr. Gupta and Mr. Seeley have been the Fund's primary
portfolio managers since February, 1998 and December, 1994, respectively. Mr.
Gupta has been managing portfolios consisting of fixed-income securities since
June, 1987. Mr. Seeley has been a portfolio manager with InterCapital since
July, 1994, prior to which time he was a portfolio manager with Nikko Capital
Management (October, 1992-June, 1994). In determining which securities to
purchase for the Fund or hold in the Fund's portfolio, the Investment Manager
will rely on information from various sources, including research, analysis and
appraisals of brokers and dealers, including Dean Witter Reynolds Inc. ("DWR"),
Morgan Stanley & Co. Incorporated and other broker-dealer affiliates of
InterCapital, and the views of others regarding economic developments and
interest rate trends, and the Investment Manager's own analysis of factors it
deems relevant.
Personnel of the Investment Manager have substantial experience in the use
of the investment techniques described above under the heading "Options and
Futures Transactions," which techniques require skills different from those
needed to select the portfolio securities underlying various options and futures
contracts.
Securities purchased by the Fund are generally sold by dealers acting as
principal for their own accounts. Orders for transactions in other portfolio
securities and commodities are placed for the Fund with a number of brokers and
dealers, including DWR, Morgan Stanley & Co. Incorporated and other
broker-dealers that are affiliates of InterCapital. The Fund may incur brokerage
commissions on transactions conducted through such affiliates. Pursuant to an
order of the Securities and Exchange Commission, the Fund may effect principal
transactions in certain money market instruments with DWR and Morgan Stanley &
Co. Incorporated.
The Fund may sell portfolio securities without regard to the length of time
that they have been held, in order to take advantage of new investment
opportunities or yield differentials, or because the Fund desires to preserve
gains or limit losses due to changing economic conditions, interest rate trends,
or the financial condition of the issuer. It is not anticipated that the Fund's
portfolio turnover rate will exceed 300% in any one year. The Fund will incur
underwriting discount costs (on underwritten securities) and brokerage costs
commensurate with its portfolio turnover rate. Short term gains and losses may
result from such portfolio transactions. See "Dividends, Distributions and
Taxes" for a discussion of the tax implications of the Fund's transactions.
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 limitations: (i) all percentage limitations apply immediately
after a purchase or initial investment, and (ii) 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 Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry.
20
<PAGE>
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
3. Purchase or sell commodities or commodities contracts except that the Fund
may purchase or write interest rate, currency and stock and bond index futures
contracts and related options thereon.
4. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. (For the purpose of this restriction, collateral
arrangements with respect to the writing of options and collateral arrangements
with respect to initial or variation margin for futures are not deemed to be
pledges of assets.)
5. Purchase securities on margin (but the Fund may obtain short-term loans as
are necessary for the clearance of transactions). The deposit or payment by the
Fund of initial or variation margin in connection with futures contracts or
related options thereon is not considered the purchase of a security on margin.
6. Invest more than 10% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days.
Generally, OTC options and the assets used as "cover" for written OTC options
are illiquid securities. However, the Fund is permitted to treat the securities
it uses as cover for written OTC options as liquid provided it follows a
procedure whereby it will sell OTC options only to qualified dealers who agree
that the Fund may repurchase such options at a maximum price to be calculated
pursuant to a predetermined formula set forth in the option agreement. The
formula may vary from agreement to agreement, but is generally based on a
multiple of the premium received by the Fund for writing the option plus the
amount, if any, of the options intrinsic value. An OTC option is considered an
illiquid asset only to the extent that the maximum repurchase price under the
formula exceeds the intrinsic value of the option.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objectives by investing all or substantially all
of its assets in another investment company having substantially the same
investment objectives and policies as the Fund.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and Dean
Witter Distributors Inc. (the "Distributor"), an affiliate of the Investment
Manager, shares of the Fund are distributed by the Distributor and offered by
DWR and other dealers which have entered into selected dealer agreements with
the Distributor ("Selected Broker-Dealers"). The principal executive office of
the Distributor is located at Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified plans are subject
to a CDSC scaled down from 2.0% to 1.0% if redeemed within three years after
purchase.) Class C shares are sold without an initial sales charge but are
subject to a CDSC of 1.0% on
21
<PAGE>
most redemptions made within one year after purchase. Class D shares are sold
without an initial sales charge or CDSC and are available only to investors
meeting an initial investment minimum of $5 million ($25 million for certain
qualified plans), and to certain other limited categories of investors. At the
discretion of the Board of Trustees of the Fund, Class A shares may be sold to
categories of investors in addition to those set forth in this prospectus at net
asset value without a front-end sales charge, and Class D shares may be sold to
certain other categories of investors, in each case as may be described in the
then current prospectus of the Fund. See "Alternative Purchase Arrangements--
Selecting a Particular Class" for a discussion of factors to consider in
selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's existing holdings of Class
A shares of the Fund and other Dean Witter Funds that are multiple class funds
("Dean Witter Multi-Class Funds") and shares of Dean Witter Funds sold with a
front-end sales charge ("FSC Funds") and concurrent investments in Class D
shares of the Fund and other Dean Witter Multi-Class Funds will be aggregated.
Subsequent purchases of $100 or more may be made by sending a check, payable to
Dean Witter World Wide Income Trust, directly to Dean Witter Trust FSB (the
"Transfer Agent" or "DWT") at P.O. Box 1040, Jersey City, NJ 07303 or by
contacting an account executive of DWR or other Selected Broker-Dealer. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B, Class C or Class D shares. If no Class is specified, the
Transfer Agent will not process the transaction until the proper Class is
identified. The minimum initial purchase in the case of investments through
EasyInvest-SM-, an automatic purchase plan (see "Shareholder Services"), is
$100, provided that the schedule of automatic investments will result in
investments totalling $1,000 within the first twelve months. The minimum initial
purchase in the case of an "Education IRA" is $500, if the Distributor has
reason to believe that additional investments will increase the investment in
the account to $1,000 within three years. In the case of investments pursuant to
(i) Systematic Payroll Deduction Plans (including Individual Retirement Plans),
(ii) the InterCapital mutual fund asset allocation program and (iii) fee-based
programs approved by the Distributor, pursuant to which participants pay an
asset based fee for services in the nature of investment advisory or
administrative services, the Fund, in its discretion, may accept investments
without regard to any minimum amounts which would otherwise be required,
provided, in the case of Systematic Payroll Deduction Plans, that the
Distributor has reason to believe that additional investments will increase the
investment in all accounts under such Plans to at least $1,000. Certificates for
shares purchased will not be issued unless requested by the shareholder in
writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gains distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. Sales personnel of a Selected Broker-Dealer are compensated for
selling shares of the Fund by the Distributor or any of its affiliates and/or
the Selected Broker-Dealer. In addition, some sales personnel of
22
<PAGE>
the Selected Broker-Dealer will receive various types of non-cash compensation
as special sales incentives, including trips, educational and/or business
seminars and merchandise. The Fund and the Distributor reserve the right to
reject any purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 4.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 0.85% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the incep-
tion of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Fund's inception upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B. The Class B
shares' distribution fee will cause that Class to have higher expenses and pay
lower dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
23
<PAGE>
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 0.85% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 0.85% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all Dean
Witter Multi-Class Funds, shares of FSC Funds and shares of Dean Witter Funds
for which such shares have been exchanged will be included together with the
current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
24
<PAGE>
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
<C> <S> <C> <C>
- -----------------------------------------------------------
A Maximum 4.25% 0.25% No
initial sales
charge reduced for
purchases of
$25,000 and over;
shares sold
without an initial
sales charge
generally subject
to a 1.0% CDSC
during first year.
- -----------------------------------------------------------
B Maximum 5.0% CDSC 0.85% B shares convert
during the first to A shares
year decreasing to automatically
0 after six years after
approximately
ten years
- -----------------------------------------------------------
C 1.0% CDSC during 0.85% No
first year
- -----------------------------------------------------------
D None None No
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--
CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF PUBLIC OFFERING PERCENTAGE OF AMOUNT
SINGLE TRANSACTION PRICE INVESTED
- ------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $25,000........ 4.25% 4.44%
$25,000 but less
than $50,000........ 4.00% 4.17%
$50,000 but less
than $100,000....... 3.50% 3.63%
$100,000 but less
than $250,000....... 2.75% 2.83%
$250,000 but less
than $1 million..... 1.75% 1.78%
$1 million and over...... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual,
25
<PAGE>
his or her spouse and their children under the age of 21 purchasing shares for
his, her or their own accounts; (c) a trustee or other fiduciary purchasing
shares for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified under
Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue Code
of a single employer or of employers who are "affiliated persons" of each other
within the meaning of Section 2(a)(3)(c) of the Act; and for investments in
Individual Retirement Accounts of employees of a single employer through
Systematic Payroll Deduction plans; or (g) any other organized group of persons,
whether incorporated or not, provided the organization has been in existence for
at least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Dean Witter Multi-Class Funds and shares of FSC Funds. The sales
charge payable on the purchase of the Class A shares of the Fund, the Class A
shares of the other Dean Witter Multi-Class Funds and the shares of the FSC
Funds will be at their respective rates applicable to the total amount of the
combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Dean Witter Funds previously
purchased at a price including a front-end sales charge (including shares of the
Fund and other Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of shares of
FSC Funds and Class A and Class D shares that together with the current
investment amount, is equal to at least $5 million ($25 million for certain
qualified plans), such investor is eligible to purchase Class D shares subject
to the $1,000 minimum initial investment requirement of that Class of the Fund.
See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or shares of other Dean Witter Funds which were previously purchased at a
price including a front-end sales charge during the 90-day period prior to the
date of receipt by the Distributor of the Letter of Intent, or of Class A shares
of the Fund or shares of other Dean Witter Funds acquired in exchange for shares
of such funds purchased during such period at a price including a front-end
sales charge, which are still owned by the shareholder, may also be included in
determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more,
26
<PAGE>
Class A shares also may be purchased at net asset value by the following:
(1) trusts for which DWT (an affiliate of the Investment Manager) provides
discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (such
investments are subject to all of the terms and conditions of such programs,
which may include termination fees, mandatory redemption upon termination and
such other circumstances as specified in the program's agreements, and
restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section 401(a)
of the Internal Revenue Code ("Qualified Retirement Plans") with at least 200
eligible employees and for which DWT serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement;
(4) Qualified Retirement Plans for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Fund shares by such investors, if the shares are being purchased
with the proceeds from a redemption of shares of an open-end proprietary mutual
fund of the account executive's previous firm which imposed either a front-end
or deferred sales charge, provided such purchase was made within sixty days
after the redemption and the proceeds of the redemption had been maintained in
the interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--
CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement Plans,
three years) preceding the redemption. In addition, Class B shares are subject
to an annual 12b-1 fee of 0.85% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B shares since the inception of the
Fund (not including reinvestments of dividends or capital gains distributions),
less the average daily aggregate net asset value of the Fund's Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be sub-
ject to any CDSC upon redemption. Shares redeemed earlier than six years after
purchase may, however, be subject to a CDSC which will be a percentage of the
dollar amount of shares redeemed and will be assessed on an amount equal to the
lesser of the current market value or the cost of the shares being redeemed. The
size of this percentage
27
<PAGE>
will depend upon how long the shares have been held, as set forth in the
following table:
<TABLE>
<CAPTION>
CDSC AS A
YEAR SINCE PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 5.0%
Second................................ 4.0%
Third................................. 3.0%
Fourth................................ 2.0%
Fifth................................. 2.0%
Sixth................................. 1.0%
Seventh and thereafter................ None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject to
any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 2.0%
Second................................ 2.0%
Third................................. 1.0%
Fourth and thereafter................. None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption; and (iii) the current
net asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of FSC Funds or of
other Dean Witter Funds acquired in exchange for such shares. Moreover, in
determining whether a CDSC is applicable it will be assumed that amounts
described in (i), (ii) and (iii) above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (B)
distributions from an IRA or 403(b) Custodial
Account following attainment of age 59 1/2; or (C) a tax-free return of an
excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWT serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("Eligible Plan"), provided that either: (a)
the plan continues to be an Eligible Plan after the redemption; or (b) the
redemption is in connection with the
28
<PAGE>
complete termination of the plan involving the distribution of all plan assets
to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
CONVERSION TO CLASS A SHARES. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares. Shares held before May 1, 1997 will
convert to Class A shares in May, 2007. In all other instances Class B shares
will convert automatically to Class A shares, based on the relative net asset
values of the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange or
a series of exchanges, from the last day of the month in which the original
Class B shares were purchased, provided that shares originally purchased before
May 1, 1997 will convert to Class A shares in May, 2007. The conversion of
shares purchased on or after May 1, 1997 will take place in the month following
the tenth anniversary of the purchase. There will also be converted at that time
such proportion of Class B shares acquired through automatic reinvestment of
dividends and distributions owned by the shareholder as the total number of his
or her Class B shares converting at the time bears to the total number of
outstanding Class B shares purchased and owned by the shareholder. In the case
of Class B shares held by a Qualified Retirement Plan for which DWT serves as
Trustee or DWR's Retirement Plan Services serves as recordkeeper pursuant to a
written Recordkeeping Services Agreement, the plan is treated as a single
investor and all Class B shares will convert to Class A shares on the conversion
date of the first shares of a Dean Witter Multi-Class Fund purchased by that
plan. In the case of Class B shares previously exchanged for shares of an
"Exchange Fund" (see "Shareholder Services--Exchange Privilege"), the period of
time the shares were held in the Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired) is excluded from the
holding period for conversion. If those shares are subsequently re-exchanged for
Class B shares of a Dean Witter Multi-Class Fund, the holding period resumes on
the last day of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions
29
<PAGE>
made within one year after purchase (calculated from the last day of the month
in which the shares were purchased). The CDSC will be assessed on an amount
equal to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of that
section shall mean one year in the case of Class C shares. Class C shares are
subject to an annual 12b-1 fee of up to 0.85% of the average daily net assets of
the Class. Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million for
Qualified Retirement Plans for which DWT serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement) and the following categories of investors: (i) investors
participating in the InterCapital mutual fund asset allocation program pursuant
to which such persons pay an asset based fee; (ii) persons participating in a
fee-based program approved by the Distributor, pursuant to which such persons
pay an asset based fee for services in the nature of investment advisory or
administrative services (subject to all of the terms and conditions of such
programs referred to in (i) and (ii) above, which may include termination fees
mandatory redemption upon termination and such other circumstances as specified
in the programs' agreements and restrictions on transferability of Fund shares);
(iii) 401(k) plans established by DWR and SPS Transaction Services, Inc. (an
affiliate of DWR) for their employees; (iv) certain Unit Investment Trusts
sponsored by DWR; (v) certain other open-end investment companies whose shares
are distributed by the Distributor; and (vi) other categories of investors, at
the discretion of the Board, as disclosed in the then current prospectus of the
Fund. Investors who require a $5 million (or $25 million) minimum initial
investment to qualify to purchase Class D shares may satisfy that requirement by
investing that amount in a single transaction in Class D shares of the Fund and
other Dean Witter Multi-Class Funds, subject to the $1,000 minimum initial
investment required for that Class of the Fund. In addition, for the purpose of
meeting the $5 million (or $25 million) minimum investment amount, holdings of
Class A shares in all Dean Witter Multi-Class Funds, shares of FSC Funds and
shares of Dean Witter Funds for which such shares have been exchanged will be
included together with the current investment amount. If a shareholder redeems
Class A shares and purchases Class D shares, such redemption may be a taxable
event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares of
the Fund. In the case of Class A and Class C shares, the Plan provides that the
Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 0.85% of the average daily net assets of Class A
and Class C, respectively. In the case of Class B shares, the Plan provides that
the Fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 0.85% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B
30
<PAGE>
shares since the inception of the Fund (not including reinvestments of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the Fund's Class B shares redeemed since the Fund's inception upon
which a CDSC has been imposed or waived, or (b) the average daily net assets of
Class B. The fee is treated by the Fund as an expense in the year it is accrued.
In the case of Class A shares, the entire amount of the fee currently represents
a service fee within the meaning of the NASD guidelines. In the case of Class B
and Class C shares, a portion of the fee payable pursuant to the Plan, equal to
0.20% and 0.25% of the average daily net assets of each of these Classes,
respectively, is currently characterized as a service fee. A service fee is a
payment made for personal service and/or the maintenance of shareholder
accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of DWR's account executives
and others who engage in or support distribution of shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders; and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan in the case of Class B
shares to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
For the fiscal year ended October 31, 1997, Class B shares of the Fund
accrued payments under the Plan amounting to $881,250, which amount is equal to
0.85% of the average daily net assets of Class B for the fiscal year. These
payments accrued under the Plan were calculated pursuant to clause (b) of the
compensation formula under the Plan. All shares held prior to July 28, 1997 have
been designated Class B shares. For the fiscal period July 28 through October
31, 1997, Class A and Class C shares of the Fund accrued payments under the Plan
amounting to $169 and $165, respectively, which amounts on an annualized basis
are equal to 0.25% and 0.85% of the average daily net assets of Class A and
Class C, respectively, for such period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i) the
payments made by the Fund pursuant to the Plan, and (ii) the proceeds of CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B shares of the Fund had been incurred
and $750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that such
excess amounts, including the carrying charge described above, totalled
$8,370,199 at October 31, 1997, which was equal to 8.77% of the net assets of
the Fund on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses or any requirement that
the Plan be continued from year to year, such excess amount does not constitute
a liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan, and the proceeds of CDSCs paid by investors upon redemption of shares, if
for any reason the Plan is terminated the Trustees will consider at that time
the manner in which to treat such expenses. Any cumulative expenses incurred,
but not yet recovered through distribution fees or CDSCs, may or may not be
recovered through future distribution fees or CDSCs.
31
<PAGE>
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 0.85% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the Fund
that unreimbursed expenses representing a gross sales commission credited to
account executives at the time of sale totalled $715 in the case of Class C at
December 31, 1997, which amount was equal to 0.61% of the net assets of Class C
on such date, and that there were no such expenses that may be reimbursed in the
subsequent year in the case of Class A on such date. No interest or other
financing charges will be incurred on any Class A or Class C distribution
expenses incurred by the Distributor under the Plan or on any unreimbursed
expenses due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the Class
A, Class B, Class C and Class D shares will be invested together in a single
portfolio. The net asset value of each Class, however, will be determined
separately by subtracting each Class's accrued expenses and liabilities. The net
asset value per share will not be determined on Good Friday and on such other
federal and non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued (if there were no sales that
day, the security is valued at the latest bid price; in cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated as the primary market pursuant to procedures adopted by the
Trustees); and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available bid
price prior to the time of valuation. When market quotations are not readily
available, including circumstances under which it is determined by the
Investment Manager that sale and bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Fund's Trustees. For valuation purposes, quotations of foreign portfolio
securities, other assets and liabilities and forward contracts stated in foreign
currency are translated into U.S. dollar equivalents at the prevailing market
rates prior to the close of the New York Stock Exchange.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior
32
<PAGE>
to the close of the New York Stock Exchange. The values of such securities used
in computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior to
the close of the New York Stock Exchange. Occasionally, events which affect the
values of such securities and such exchange rates may occur between the times at
which they are determined and the close of the New York Stock Exchange and will
therefore not be reflected in the computation of the Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith under procedures established by and under the supervision of the
Trustees.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Redemptions and Repurchases --
Involuntary Redemption").
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within thirty days after the payment date. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases.")
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Fund Shares"). Therefore, any shareholder participating in the Withdrawal Plan
will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount. Withdrawal plan payments should not be considered
as dividends, yields or income. If periodic withdrawal plan payments
continuously exceed net investment income and net capital gains, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Each withdrawal constitutes a redemption of shares and any gain or
loss realized must be recognized for federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and
33
<PAGE>
Custodial Accounts under Section 403(b)(7) of the Internal Revenue Code.
Adoption of such plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the Transfer
Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange fee.
Shares may also be exchanged for shares of the following funds: Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust
and five Dean Witter funds which are money market funds (the "Exchange Funds").
Class A shares may also be exchanged for shares of Dean Witter Multi-State
Municipal Series Trust and Dean Witter Hawaii Municipal Trust, which are Dean
Witter Funds sold with a front-end sales charge ("FSC Funds"). Class B shares
may also be exchanged for shares of Dean Witter Global Short-Term Income Fund
Inc. ("Global Short-Term"), which is a Dean Witter Fund offered with a CDSC.
Exchanges may be made after the shares of the Fund acquired by purchase (not by
exchange or dividend reinvestment) have been held for thirty days. There is no
waiting period for exchanges of shares acquired by exchange or dividend
reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, Global
Short-Term or any Exchange Fund that is not a money market fund is on the basis
of the next calculated net asset value per share of each fund after the exchange
order is received. When exchanging into a money market fund from the Fund,
shares of the Fund are redeemed out of the Fund at their next calculated net
asset value and the proceeds of the redemption are used to purchase shares of
the money market fund at their net asset value determined the following business
day. Subsequent exchanges between any of the money market funds and any of the
Dean Witter Multi-Class Funds, FSC Funds or Global Short-Term or any Exchange
Fund that is not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a Dean Witter Multi-Class
Fund or shares of Global Short-Term, the holding period previously frozen when
the first exchange was made resumes on the last day of the month in which shares
of a Dean Witter Multi-Class Fund or shares of Global Short-Term Fund are
reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of a Dean Witter Multi-Class Fund
or in shares of Global Short-Term (see "Purchase of Fund Shares"). In the case
of exchanges of Class A shares which are subject to a CDSC, the holding period
also includes the time (calculated as described above) the shareholder was
invested in shares of a FSC Fund. In the case of shares exchanged into an
Exchange Fund on or after April 23, 1990, upon a redemption of shares which
results in a CDSC being imposed, a credit (not to exceed the amount of the CDSC)
will be given in an amount equal to the Exchange Fund 12b-1 distribution fees
incurred on or after that date which are attributable to those shares. (Exchange
Fund 12b-1 distribution fees are described in the prospectuses for those funds.)
Class B shares of the Fund acquired in exchange for Class B shares of another
Dean Witter Multi-Class Fund having a different CDSC schedule than that of this
Fund will be subject to the higher CDSC schedule, even if such shares are
subsequently re-exchanged for shares of the fund with the lower CDSC schedule.
34
<PAGE>
ADDITIONAL INFORMATION REGARDING EXPENSES. Purchases and exchanges should be
made for investment purposes only. A pattern of frequent exchanges may be deemed
by the Investment Manager to be abusive and contrary to the best interests of
the Fund's other shareholders and, at the Investment Manager's discretion, may
be limited by the Fund's refusal to accept additional purchases and/ or
exchanges from the investor. Although the Fund does not have any specific
definition of what constitutes a pattern of frequent exchanges, and will
consider all relevant factors in determining whether a particular situation is
abusive and contrary to the best interests of the Fund and its other
shareholders, investors should be aware that the Fund and each of the other Dean
Witter Funds may in their discretion limit or otherwise restrict the number of
times this Exchange Privilege may be exercised by any investor. Any such
restriction will be made by the Fund on a prospective basis only, upon notice to
the shareholder not later than ten days following such shareholder's most recent
exchange. Also, the Exchange Privilege may be terminated or revised at any time
by the Fund and/or any of such Dean Witter Funds for which shares of the Fund
have been exchanged, upon such notice as may be required by applicable
regulatory agencies. Shareholders maintaining margin accounts with DWR or
another Selected Broker-Dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. An exchange will be
treated for federal income tax purposes the same as a repurchase or redemption
of shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing or
by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fradulent 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
35
<PAGE>
the New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
with the Dean Witter Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account without a share
certificate, a written request for redemption to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder, the shares may be redeemed by surrendering the certificates with a
written request for redemption along with any additional information required by
the Transfer Agent.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next computed (see "Purchase of Fund Shares") after such repurchase
order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offer by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at net asset value next determined after a reinstatement request,
together with the proceeds, is received by the Transfer Agent and receive a pro
36
<PAGE>
rata credit for any CDSC paid in connection with such redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on sixty days' notice,
to redeem at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account opened through
EasyInvest, if after twelve months the shareholder has invested less than $1,000
in the account. However, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares is less than the applicable amount and allow the shareholder sixty
days to make an additional investment in an amount which will increase the value
of his or her account to at least the applicable amount before the redemption is
processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for
each Class of shares and intends to pay monthly income dividends and to
distribute net short-term and net long-term capital gains, if any, at least once
each year. The Fund may, however, determine either to distribute or to retain
all or part of any long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash. Shares acquired
by dividend and distribution reinvestments will not be subject to any front-end
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (See "Shareholder Services--Automatic Investment of
Dividends and Distributions".)
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term and long-term capital gains to shareholders and remain
qualified as a regulated investment company under Subchapter M of the Code, it
is not expected that the Fund will be required to pay any federal income tax on
such income and capital gains.
Gains or losses on the Fund's transactions in certain listed options on
securities and on futures and options on futures generally are treated as 60%
long-term gain/loss and 40% short-term gain/loss. When the Fund engages in
options and futures transactions, various tax regulations applicable to the Fund
may have the effect of causing the Fund to recognize a gain or loss for tax
purposes before that gain or loss is realized, or to defer recognition of a
realized loss for tax purposes. Recognition, for tax purposes, of an unrealized
loss may result in a lesser amount of the Fund's realized net gains being
available for distribution.
Shareholders will normally have to pay federal income taxes, and any
applicable state and/or local income taxes, on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent that
they are derived from net investment income and net short-term capital gains,
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash. Any
dividends declared in the last
37
<PAGE>
quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed, for tax purposes, to have been received by the
shareholder in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes,
including information as to the portion taxable as ordinary income and the
portion taxable as long-term capital gains. Shareholders will also be notified
of their proportionate share of long-term capital gains distributions that are
eligible for a reduced rate of tax under the Taxpayer Relief Act of 1997.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and has made the appropriate election with the Internal Revenue Service, the
Fund will report annually to its shareholders the amount per share of such
taxes, to enable shareholders to claim United States foreign tax credits or
deductions with respect to such taxes. In the absence of such an election, the
Fund would deduct foreign tax in computing the amount of its distributable
income.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject to
state and local taxes; therefore, each shareholder is advised to consult his or
her own tax adviser.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. These figures are computed separately
for Class A, Class B, Class C and Class D shares. Both the yield and the total
return of the Fund are based on historical earnings and are not intended to
indicate future performance. The yield of each Class of the Fund is computed by
dividing the Class's net investment income over a 30-day period by an average
value (using the average number of shares entitled to receive dividends and the
maximum offering price per share at the end of the period), all in accordance
with applicable regulatory requirements. Such amount is compounded for six
months and then annualized for a twelve-month period to derive the Fund's yield
for each Class.
The "average annual total return" of the Fund refers to a figure reflecting
the average annualized percentage increase (or decrease) in the value of an
initial investment in a Class of the Fund of $1,000 over periods of one, five
and ten years, as well as over the life of the Fund. Average annual total return
reflects all income earned by the Fund, any appreciation or depreciation of the
Fund's assets, all expenses incurred by the applicable Class and all sales
charges which would be incurred by shareholders, for the stated periods. It also
assumes reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
38
<PAGE>
and year-by-year or other types of total return figures. Such calculations may
or may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc. and Salomon Brothers Treasury Index, Salomon Brothers
World Government Index, Salomon Brothers Corporate Index, Lehman
Corporate/Government Bond Index and Donahue's Money Market Index).
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 except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and options transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In
39
<PAGE>
addition, investment personnel may not purchase or sell a security for their
personal account within thirty days before or after any transaction in any Dean
Witter Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute Advisory
Group on Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve
its investment objectives by investing all of its investable assets in a
non-diversified, open-end management investment company having the same
investment objectives and policies and substantially the same investment
restrictions as those applicable to the Fund.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
40
<PAGE>
Dean Witter
World Wide Income Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Rajesh K. Gupta
Vice President
Peter J. Seeley
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank
One Chase Plaza
New York, New York 10005
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
DEAN WITTER
WORLD WIDE
INCOME TRUST
[LOGO]
PROSPECTUS -- FEBRUARY 6, 1998
<PAGE>
WORLD WIDE'S ANNUAL
REPORT-10/31/98-
TO BE FILED BY AMENDMENT
<PAGE>
PROSPECTUS
FEBRUARY 10, 1998
Dean Witter Global Short-Term Income Fund Inc. (the "Fund") is an
open-end, non-diversified management investment company whose investment
objective is to achieve as high a level of current income as is consistent with
prudent investment risk. The Fund seeks to achieve this objective by investing
in high quality fixed-income securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, issued or guaranteed by foreign
governments, or issued by foreign or U.S. companies (including bank instruments
and commercial paper), which have remaining maturities at the time of purchase
of not more than three years. The Fund is designed for the investor who seeks a
higher yield than a money market fund and less fluctuation in net asset value
than a longer-term bond fund.
Shares of the Fund are continuously offered at net asset value.
However, redemptions and/or repurchases are subject in most cases to a
contingent deferred sales charge, scaled down from 3% to 1% of the amount
redeemed, if made within three years of purchase, which charge will be paid to
the Fund's Distributor, Dean Witter Distributors Inc. See "Redemptions and
Repurchases-- Contingent Deferred Sales Charge." In addition, the Fund pays the
Distributor a distribution fee pursuant to a Plan of Distribution at the annual
rate of 0.75% of the lesser of the (i) average daily aggregate net sales or (ii)
average daily net assets of the Fund. See "Purchase of Fund Shares--Plan of
Distribution."
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated February 10, 1998, which has been filed with
the Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone number listed on this page. The
Statement of Additional Information is incorporated herein by reference.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/4
Financial Highlights/5
The Fund and its Management/6
Investment Objective and Policies/6
Risk Considerations/10
Investment Restrictions/17
Purchase of Fund Shares/18
Shareholder Services/21
Redemptions and Repurchases/24
Dividends, Distributions and Taxes/26
Performance Information/27
Additional Information/28
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Dean Witter Global
Short-Term Income Fund Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The The Fund is an open-end, non-diversified management investment company investing in high
Fund quality fixed-income securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities, issued or guaranteed by foreign governments, or issued by foreign
or U.S. companies, which have remaining maturities at the time of purchase of not more
than three years.
- ----------------------------------------------------------------------------------------------------------
Shares Offered Shares of common stock of $0.01 par value (see page 28).
- ----------------------------------------------------------------------------------------------------------
Offering At net asset value without sales charge (see page 18). Shares redeemed within three years
Price of purchase are subject to a contingent deferred sales charge under most circumstances
(see page 24).
- ----------------------------------------------------------------------------------------------------------
Minimum Minimum initial investment, $1,000 ($100 if account is opened through EasyInvest-SM-);
Purchase minimum subsequent investment, $100 (see page 18).
- ----------------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is to achieve as high a level of current income as is
Objective consistent with prudent investment risk (see page 6).
- ----------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund and its
Manager wholly-owned subsidiary, Dean Witter Services Company Inc., serve in various investment
management, advisory, management and administrative capacities to 103 investment companies
and other portfolios with assets under management of approximately $102.9 billion at
December 31, 1997 (see page 6).
- ----------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 0.55% of the Fund's
Fee daily net assets not exceeding $500 million and 0.50% of the Fund's daily net assets on
the amount exceeding $500 million (see page 6).
- ----------------------------------------------------------------------------------------------------------
Dividends and Dividends from net investment income are declared daily and paid monthly. Distributions
Distributions from net short-term and long-term capital gains are paid at least once per year (may be
retained for reinvestment). Dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless the shareholder elects to
receive cash (see page 26).
- ----------------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. (the "Distributor"). For its services as Distributor, which
include payment of sales commissions to account executives and various other promotional
and sales related expenses, the Distributor receives from the Fund a distribution fee
accrued daily and payable monthly at the rate of 0.75% per annum of the lesser of (i) the
Fund's average daily aggregate net sales or (ii) the Fund's average daily net assets. This
fee compensates the Distributor for the services it provides in distributing shares of the
Fund and for its sales related expenses. The Distributor also receives the proceeds of any
contingent deferred sales charges (see page 19).
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Redemption-- At net asset value; redeemable involuntarily if total value of the account is less than
Contingent $100 or, if the account was opened through EasyInvest, if after twelve months the
Deferred Sales shareholder has invested less than $1,000 in the account. Although no commission or sales
Charge load is imposed upon the purchase of shares, a contingent deferred sales charge (scaled
down from 3% to 1%) is imposed on any redemption of shares if, after such redemption, the
aggregate current value of an account with the Fund falls below the aggregate amount of
the investor's purchase payments made during the three years preceding the redemption.
However, there is no charge imposed on redemption of shares purchased through reinvestment
of dividends or distributions (see page 24).
- ----------------------------------------------------------------------------------------------------------
Special The net asset value of the Fund's shares will fluctuate with changes in the market value
Risk of its portfolio securities. It should be noted, for example, that, generally, when the
Considerations level of prevailing interest rates rises, the values of the outstanding fixed-income
securities fall and when such rates fall their values rise. The Fund is a non-diversified
investment company and, as such, is not subject to the diversification requirements of the
Investment Company Act of 1940, as amended (the "Act") (see page 10). The Fund will
concentrate its investments in securities issued by companies engaged in the banking
industry. This concentration will increase the Fund's exposure to certain risks associated
with the banking industry such as adverse changes in economic and regulatory developments
affecting the banking industry, sustained interest rate increases and concentration of a
bank's loan portfolios in particular businesses undergoing economic hardship (see page 8).
It should be recognized that the foreign securities and markets in which the Fund will
invest pose different and greater risks than those customarily associated with domestic
securities and their markets. Furthermore, investors should consider other risks
associated with a portfolio of international securities, including fluctuations in foreign
currency exchange rates (i.e., if a substantial portion of the Fund's assets are
denominated in foreign currencies which decrease in value with respect to the U.S. dollar,
the value of the investor's shares and the distributions made on those shares will,
likewise, decrease in value), foreign securities exchange controls and foreign tax rates,
as well as investments in forward foreign currency contracts, options and futures
contracts (see pages 10-16). The Fund may also invest in fixed-income securities which may
be denominated in a currency of a nation other than the nation in which the issuer of such
fixed-income securities is domiciled.
</TABLE>
- --------------------------------------------------------------------------------
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THE PROSPECTUS AND IN THE
STATEMENT OF ADDITIONAL INFORMATION.
3
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended October 31, 1997.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases.................................. None
Maximum Sales Charge Imposed on Reinvested Dividends....................... None
Deferred Sales Charge
(as a percentage of the lesser of original purchase price or redemption
proceeds)................................................................ 3.0%
</TABLE>
A contingent deferred sales charge is imposed at the following declining
rates:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE PAYMENT MADE PERCENTAGE
----------------------------------------------------------------- ----------------
<S> <C>
First............................................................ 3.0%
Second........................................................... 2.0%
Third............................................................ 1.0%
Fourth and thereafter............................................ None
</TABLE>
<TABLE>
<S> <C>
Redemption Fees............................................................ None
Exchange Fee............................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- ---------------------------------------------------------------------------
Management Fees............................................................ 0.55%
12b-1 Fees*................................................................ 0.75%
Other Expenses............................................................. 0.49%
Total Fund Operating Expenses.............................................. 1.79%
</TABLE>
- ------------
* A PORTION OF THE 12B-1 FEE EQUAL TO 0.25% OF THE FUND'S AVERAGE DAILY NET
ASSETS IS CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES (SEE "PURCHASE OF
FUND SHARES").
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period:.............................................................. $ 48 $ 66 $ 97 $ 211
You would pay the following expenses on the same investment, assuming
no redemption:....................................................... $ 18 $ 56 $ 97 $ 211
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and Its Management," "Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
4
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following per share data and ratios for a share of capital stock
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The per share data and ratios should be read in
conjunction with the financial statements and the notes thereto and the
unqualified report of independent accountants which are contained in the
Statement of Additional Information. Further information about the performance
of the Fund is contained in the Fund's Annual Report to Shareholders, which may
be obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.......................... $ 9.44 $ 8.89 $ 8.73 $ 9.23 $ 9.41 $ 9.77 $ 10.00
--------- --------- --------- --------- --------- --------- ---------
Net investment income............ 0.52 0.61 0.54 0.72 0.70 0.82 0.95
Net realized and unrealized gain
(loss).......................... (0.08) 0.48 0.16 (0.66) (0.27) (0.46) (0.23)
--------- --------- --------- --------- --------- --------- ---------
Total from investment
operations...................... 0.44 1.09 0.70 0.06 0.43 0.36 0.72
--------- --------- --------- --------- --------- --------- ---------
Less dividends and distributions
from:
Net investment income.......... (1.06) (0.54) (0.44) (0.13) (0.61) (0.72) (0.95)
Paid-in-capital................ -- -- (0.10) (0.43) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions................... (1.06) (0.54) (0.54) (0.56) (0.61) (0.72) (0.95)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period... $ 8.82 $ 9.44 $ 8.89 $ 8.73 $ 9.23 $ 9.41 $ 9.77
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN+........... 4.88% 12.66% 8.27% 0.65% 4.72% 3.76% 7.49%
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 1.79% 1.66% 1.68% 1.63% 1.55% 1.55% 1.61%
Net investment income............ 5.85% 6.57% 6.17% 6.35% 6.97% 8.43% 9.49%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands....................... $61,378 $80,625 $106,939 $170,117 $305,278 $441,191 $462,263
Portfolio turnover rate.......... 264% 138% 188% 123% 221% 149% 8%
</TABLE>
- ------------
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
5
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Dean Witter Global Short-Term Income Fund Inc. (the "Fund") is an open-end,
non-diversified management investment company incorporated in the state of
Maryland on August 2, 1990.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover &
Co., a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset management
and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 103 investment companies, 29 of which are listed on
the New York Stock Exchange, with combined total assets of approximately $98.9
billion at December 31, 1997. The Investment Manager also manages and advises
portfolios of pension plans, other institutions and individuals which aggregated
approximately $4 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
The Fund's Directors review the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.55% to the Fund's net assets not exceeding $500 million and
0.50% to the Fund's net assets exceeding $500 million. For the fiscal year ended
October 31, 1997, the Fund accrued total compensation to the Investment Manager
amounting to 0.55% of the Fund's average daily net assets and the Fund's total
expenses amounted to 1.79% of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to achieve as high a level of
current income as is consistent with prudent investment risk. There is no
assurance that the objective will be achieved. The investment objective is a
fundamental policy of the Fund and cannot be changed without the approval of the
shareholders of the Fund. The following policies may be changed by the Board of
Directors without shareholder approval.
The Fund seeks to achieve its investment objective by investing at least 65%
of its total assets in high quality fixed-income securities issued or guaranteed
by foreign governments, issued by foreign or U.S. companies, or issued or
guaranteed by the U.S. Government, its agencies and instrumentalities which have
remaining maturities at the time of purchase of not more than three years (i.e.,
the average weighted maturity of the Fund's portfolio will be under three
years). In addition to securities issued by the U.S. Government, its agencies
and instrumentalities, the Fund may invest in obligations issued or guaranteed
by a foreign government or
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any of its political subdivisions, authorities, agencies or instrumentalities,
or by supranational organizations, or fixed-income securities issued by a
corporation, all of which are rated AAA or AA by Standard & Poor's Corporation
("S&P") or Aaa or Aa by Moody's Investors Services, Inc. ("Moody's") or, if
unrated, are determined by the Investment Manager to be of equivalent quality;
in certificates of deposit and bankers' acceptances issued or guaranteed by, or
time deposits maintained at, banks (including foreign branches of U.S. banks or
U.S. or foreign branches of foreign banks) having total assets of more than $500
million and deemed by the Investment Manager to be of high creditworthiness; and
commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's or Duff
1 or Duff 2 by Duff & Phelps Inc. or, if unrated, issued by U.S. or foreign
companies having outstanding debt securities rated A or higher by S&P or Moody's
and in loan participation interests having a remaining term not exceeding one
year in loans extended by banks to such companies. The Fund will have at least
65% of its total assets invested in fixed-income securities, as described above,
of issuers located in at least three different countries.
Certain foreign securities purchased by the Fund will not have received
ratings by a recognized U.S. rating agency. In such cases the Investment Manager
will review the issuers of such securities with respect to the quality of their
management, balance sheet and financial ratios, cash flows and earnings to
establish that the securities purchased by the Fund are of a comparable quality
to issuers receiving high quality ratings by a recognized U.S. rating agency.
In attempting to achieve its investment objective, the Investment Manager
will actively manage the Fund's assets in accordance with a global market
strategy which seeks to exploit spreads among short-term instruments worldwide.
As such, the Fund may experience high portfolio turnover rates (see "Portfolio
Management," page 16). Consistent with such a strategy, the Investment Manager
intends to allocate the Fund's investments among securities denominated in the
currencies of a number of foreign countries and, within each such country, among
different types of debt securities. The Investment Manager will adjust the
Fund's exposure to different currencies based on its perception of the most
favorable markets and issuers. In allocating the Fund's assets among various
markets, the Investment Manager will assess the relative yield and anticipated
direction of interest rates in particular markets, the level of inflation,
liquidity and financial soundness of each market, and the general market and
economic conditions existing in each market as well as the relationship of
currencies of various countries to the U.S. dollar and to each other. In its
evaluations, the Investment Manager will utilize its internal financial,
economic and credit analysis resources as well as information obtained from
other sources.
Under normal conditions, a significant percentage of the short-term
investments in the Fund's portfolio may be money market securities. Money market
securities include short-term obligations issued or guaranteed by the U.S.
Government or foreign governments issued by such governments' respective
agencies and instrumentalities, bank money market instruments including
certificates of deposit, bankers' acceptances, time deposits and deposit notes
and certain other short-term obligations such as short-term commercial paper.
With respect to bank money instruments, the obligations may be issued by U.S. or
foreign depository institutions, foreign branches or subsidiaries of U.S.
depository institutions ("Eurodollar" obligations), U.S. branches or
subsidiaries of foreign depository institutions ("Yankeedollar" obligations) or
foreign branches or subsidiaries of foreign depository institutions. Eurodollar
and Yankeedollar obligations and obligations of branches or subsidiaries of
foreign depository institutions may be general obligations of the parent bank or
may be limited to the issuing branch or subsidiary by the terms of the specific
obligations or by government regulation.
The Fund will invest at least 25% of its assets in securities issued by
issuers located in the U.S. As
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such, the Fund will have a greater exposure than other "global" mutual funds to
economic and political events occurring in the U.S. Changes in prevailing U.S.
interest rates, federal tax rate increases, or adverse changes in federal or
state regulations or exchange rules may all have a disproportionate impact upon
the Fund as a result of its concentration policy. Moreover, the Fund's
concentration in securities of U.S. issuers will mean that the Fund's
investments are more likely to be responsive, both positively and negatively, to
declines or advances in the U.S. dollar with respect to foreign currencies.
A substantial portion of the Fund's investments in securities of U.S.
issuers are likely to be in commercial paper, bankers acceptances and other
short-term debt instruments issued by U.S. corporations. However, at times
during which there exists large-scale political or economic uncertainty, the
Fund is likely to increase its investments in U.S. government securities. In
such cases, the securities which the Fund is most likely to purchase are U.S.
Treasury bills and U.S. Treasury notes with remaining maturities of under three
years, both of which are direct obligations of the U.S. Government. The Fund may
also purchase securities issued by various agencies and instrumentalities of the
U.S. Government. These will include obligations backed by the full faith and
credit of the United States (such as those issued by the Government National
Mortgage Association); obligations whose issuing agency or instrumentality has
the right to borrow, to meet its obligations, from an existing line of credit
with the U.S. Treasury (such as those issued by the Federal National Mortgage
Association); and obligations backed by the credit of the issuing agency or
instrumentality (such as those issued by the Federal Farm Credit System).
The securities in which the Fund will be investing may be denominated in any
currency or multinational currency. Under normal circumstances, the Fund will
invest its assets in securities denominated in at least three different
currencies, including the U.S. dollar. In addition to the U.S. dollar, such
currencies will include, among others: the Australian dollar; Deutsche mark;
Japanese yen; French franc; British pound; Canadian dollar; Swiss franc; Italian
Lira; Dutch guilder; Austrian schilling; Spanish Peseta; Swedish Krona; Mexican
peso; Thai bhat; and European Currency Unit ("ECU"). The Fund will not invest
more than 25% of its total assets in securities denominated in a single currency
or currency unit with the exception of the U.S. dollar.
The Fund may invest without limitation in notes and commercial paper, the
principal amount of which is indexed to certain specific foreign currency
exchange rates. Indexed notes and commercial paper typically provide that their
principal amount is adjusted upwards or downwards (but not below zero) at
maturity to reflect fluctuations in the exchange rate between two currencies
during the period the obligation is outstanding, depending on the terms of the
specific security. In selecting the two currencies, the Investment Manager will
consider the correlation and relative yields of various currencies. The Fund
will purchase an indexed obligation using the currency in which it is
denominated and, at maturity, will receive interest and principal payments
thereon in that currency. The amount of principal payable by the issuer at
maturity, however, will vary (i.e., increase or decrease) in response to the
change (if any) in the exchange rates between the two specified currencies
during the period from the date the instrument is issued to its maturity date.
The potential for realizing gains as a result of changes in foreign currency
exchange rates may enable the Fund to hedge the currency in which the obligation
is denominated (or to effect cross-hedges against other currencies) against a
decline in the U.S. dollar value of investments denominated in foreign
currencies, while providing an attractive money market rate of return. The Fund
will purchase such indexed obligations to generate current income or for hedging
purposes and will not speculate in such obligations.
Under normal circumstances, the Fund will invest at least 25% of its total
assets in debt instruments issued by U.S. and foreign companies engaged in the
banking industry, including bank
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holding companies. Such investments may include certificates of deposit, time
deposits, bankers' acceptances, and obligations issued by bank holding
companies, as well as repurchase agreements entered into with banks. For
temporary defensive purposes, however, the Fund may reduce its investments in
the banking industry to less than 25% of its total assets. The Fund's policy as
to concentrating its investments in the banking industry is fundamental and may
not be changed without the approval of a majority of the Fund's voting
securities.
The Fund's policy of concentrating its investments in the banking industry
will cause the Fund to have greater exposure to certain risks associated with
the banking industry. In particular, economic or regulatory developments in or
related to the banking industry will affect the value of and investment return
on the Fund's shares. Sustained increases in interest rates may adversely affect
the availability and cost of funds for a bank's lending activities;
deterioration in general economic conditions may increase a bank's exposure to
credit losses. The banking industry also is subject to the effects of the
concentration of loan portfolios in particular businesses that may be adversely
affected by economic conditions, such as real estate, energy, agriculture or
high technology-related companies. In addition, the banking industry is subject
to national and local regulation and competition among banks as well as with
other types of financial institutions. Also, the Fund's investments in
commercial banks located in several foreign countries are subject to additional
risks due to the combination in such banks of commercial banking and diversified
securities activities. As discussed above, however, the Fund will seek to
minimize its exposure to such risks by investing only in debt securities which
are determined by the Investment Manager, acting under the general supervision
of the Board of Directors, to be high quality.
As indicated above, the Fund may invest in securities denominated in a
multi-national currency unit. An illustration of a multi-national currency unit
is the ECU, which is a "basket" consisting of specified amounts of the
currencies of the member states of the European Community, a Western European
economic cooperative organization that includes France, Germany, The Netherlands
and the United Kingdom. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community to reflect
changes in relative values of the underlying currencies. The Investment Manager
does not believe that such adjustments will adversely affect holders of
ECU-denominated obligations or the marketability of such securities. European
supranational entities, in particular, issue ECU-denominated obligations. The
Fund may invest in securities denominated in the currency of one nation although
issued by a governmental entity, corporation or financial institution of another
nation. For example, the Fund may invest in a British pound-denominated
obligation issued by a United States corporation. Such investments involve
credit risks associated with the issuer and currency risks associated with the
currency in which the obligation is denominated.
The Fund also may invest in bonds and notes backed by pools of mortgage,
credit card, automobile or other types of receivables with remaining maturities
of three years or less. These structured financings will be supported by
sufficient collateral, and other credit enhancements, including letters of
credit, insurance, reserve funds and guarantees by third parties, to enable such
instruments to obtain a high quality rating by a nationally recognized
statistical rating agency or be of comparable quality as determined by the
Investment Manager. Generally, the issuers of mortgage-backed and receivable-
backed bonds, notes or pass-through certificates are special purpose entities
and do not have any significant assets other than the assets securing such
obligations. Such special-purpose entities are typically created by the
underwriters of such securities or the entity to which the receivables are
payable.
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Instruments backed by pools of mortgages and receivables may be subject to
unscheduled prepayments of principal prior to maturity. When the obligations are
prepaid, the Fund must reinvest the prepaid amounts in securities the yields of
which reflect interest rates prevailing at the time. Therefore, the Fund's
ability to maintain a portfolio which includes high-yielding asset-backed
securities will be adversely affected to the extent that pre-payments of
principal must be reinvested in securities which have lower yields than the
prepaid obligations. Moreover, prepayments of securities purchased at a premium
could result in a realized loss. In addition, certain asset-backed and
receivable-backed securities may be illiquid. As such, the Fund may be limited
in its ability to invest in such securities (see Investment Restriction Number 3
on page 18).
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The Fund's yield will
also vary based on the yield of the Fund's portfolio securities.
All fixed-income securities are subject to two types of risks: the credit
risk and the interest rate risk. The credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they come due. The
interest rate risk refers to the fluctuations in the net asset value of any
portfolio of fixed-income securities resulting from the inverse relationship
between price and yield of fixed-income securities; that is, when the general
level of interest rates rises, the prices of outstanding fixed-income securities
decline, and when interest rates fall, prices rise.
NON-DIVERSIFIED STATUS. The Fund is a non-diversified investment company
and, as such, is not subject to the diversification requirements of the Act. As
a non-diversified investment company, the Fund may invest a greater portion of
its assets in the securities of a single issuer and thus is subject to greater
exposure to risks such as a decline in the credit rating of that issuer.
However, the Fund has in the past qualified and anticipates that it will qualify
in the future as a regulated investment company under the federal income tax
laws and, to the extent so qualified, is subject to the applicable
diversification requirements of the Internal Revenue Code, as amended (the
"Code"). As a regulated investment company under the Code, the Fund may not, as
of the end of any of its fiscal quarters, have invested more than 25% of its
total assets in the securities of any one issuer (including a foreign
government), or as to 50% of its total assets, have invested more than 5% of its
total assets in the securities of a single issuer.
FOREIGN SECURITIES. Investors should carefully consider the risks of
investing in securities of foreign issuers and securities denominated in
non-U.S. currencies. Fluctuations in the relative rates of exchange between the
currencies of different nations will affect the value of the Fund's investments.
Changes in foreign currency exchange rates relative to the U.S. dollar will
affect the U.S. dollar value of the Fund's assets denominated in that currency
and thereby impact upon the Fund's yield on such assets and the net asset value
of a share of the Fund as well as the amount of the Fund's distributions. For
example, if a substantial portion of the Fund's assets is denominated in
Japanese yen and the relative exchange rate of the yen falls with respect to the
U.S. dollar (i.e., a yen is worth a smaller fraction of a dollar than it had
been) then the Fund will be receiving a lesser amount of interest on its
fixed-income securities denominated in yen (when converted into U.S. dollars)
and when the Fund's assets are valued for purposes of determining the net asset
value per share of the Fund, the net assets of the Fund reflected by the
yen-denominated securities will have declined in U.S. dollar value and the net
asset value of the Fund (always stated in U.S. dollars) may have also declined.
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Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward contracts or
futures contracts (see below). The Fund may incur certain costs in connection
with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the Fund
due to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments.
------------
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may engage in transactions in forward foreign currency contracts, options on
securities and currencies, and futures contracts and options on futures
contracts on securities, currencies and indexes. The Fund may also purchase
options on securities to facilitate its participation in the potential
appreciation of the value of the underlying securities. A discussion of these
transactions follows and is supplemented by further disclosure in the Statement
of Additional Information.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract ("forward contract") involves an obligation to purchase or
sell a currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase and the foreign
currency in which the security is denominated during the period between the date
on which
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the security is purchased or sold and the date on which payment is made or
received.
At other times, when, for example, the Fund's Investment Manager believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar or some other foreign currency, the Fund may
enter into a forward contract to sell, for a fixed amount of dollars or other
currency, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities (or securities which the Fund has purchased
for its portfolio) denominated in such foreign currency. Under identical
circumstances, the Fund may enter into a forward contract to sell, for a fixed
amount of U.S. dollars or other currency, an amount of foreign currency other
than the currency in which the securities to be hedged are denominated
approximating the value of some or all of the portfolio securities to be hedged.
This method of hedging, called "cross-hedging," will be selected by the
Investment Manager when it is determined that the foreign currency in which the
portfolio securities are denominated has insufficient liquidity or is trading at
a discount as compared with some other foreign currency with which it tends to
move in tandem.
In addition, when the Fund's Investment Manager anticipates purchasing
securities at some time in the future, and wishes to lock in the current
exchange rate of the currency in which those securities are denominated against
the U.S. dollar or some other foreign currency, the Fund may enter into a
forward contract to purchase an amount of currency equal to some or all of the
value of the anticipated purchase, for a fixed amount of U.S. dollars or other
currency. The Fund may, however, close out the forward contract without
purchasing the security which was the subject of the "anticipatory" hedge.
Lastly, the Fund is permitted to enter into forward contracts with respect
to currencies in which certain of its portfolio securities are denominated and
on which options have been written (see "Options and Futures Transactions").
In all of the above circumstances, if the currency in which the Fund's
portfolio securities (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager.
The Fund generally will not enter into a forward contract with a term of
greater than one year, although it may enter into forward contracts for periods
of up to five years. To the extent that the Fund enters into forward foreign
currency contracts to hedge against a decline in the value of portfolio holdings
denominated in a particular foreign currency resulting from currency
fluctuations, there is a risk that the Fund may nevertheless realize a gain or
loss as a result of currency fluctuations after such portfolio holdings are sold
if the Fund is unable to enter into an "offsetting" forward foreign currency
contract with the same party or another party. The Fund may be limited in its
ability to enter into hedging transactions involving forward contracts by the
Code requirements relating to qualifications as a regulated investment company
(see "Dividends, Distributions and Taxes").
OPTIONS AND FUTURES TRANSACTIONS. The Fund may purchase and sell (write)
call and put options on U.S. Treasury notes, bonds and bills and on various
foreign currencies which are listed on several U.S. and foreign securities
exchanges or are written
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in over-the-counter transactions ("OTC Options"). Listed options are issued or
guaranteed by the exchange on which they trade or by a clearing corporation such
as the Options Clearing Corporation ("OCC"). Ownership of a listed call option
gives the Fund the right to buy from the OCC (in the U.S.) or other clearing
corporation or exchange, the underlying security or currency covered by the
option at the stated exercise price (the price per unit of the underlying
security or currency) by filing an exercise notice prior to the expiration date
of the option. Ownership of a listed put option would give the Fund the right to
sell the underlying security or currency to the OCC (in the U.S.) or other
clearing corporation or exchange at the stated exercise price. OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the Fund. With OTC options, such variables
as expiration date, exercise price and premium will be agreed upon between the
Fund and the transacting dealer, without the intermediation of a third party
such as the OCC.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities which are denominated in either U.S. dollars or foreign
currencies and on the U.S. dollar and foreign currencies, without limit, in
order to hedge against the decline in the value of a security or currency in
which such security is denominated and to close out long call option positions.
As a writer of a call option, the Fund has the obligation, upon notice of
exercise of the option, to deliver the security or amount of currency underlying
the option (certain listed and OTC call options written by the Fund will be
exercisable by the purchaser only on a specific date).
COVERED PUT WRITING. As a writer of covered put options, the Fund incurs an
obligation to buy the security (or currency) underlying the option from the
purchaser of the put at the option's exercise price at any time during the
option period, at the purchaser's election (certain listed and OTC put options
written by the Fund will be excercisable by the purchaser only on a specific
date). The Fund will write put options for three purposes: (1) to receive the
premiums paid by purchasers; (2) when the Investment Manager wishes to purchase
the security underlying the option (or a security denominated in the currency
underlying the option) at a price lower than its current market price, in which
case it will write the covered put at an exercise price reflecting the lower
purchase price sought; and (3) to close out a long put option position. The
aggregate value of the obligations underlying the puts determined as of the date
the options are sold will not exceed 50% of the Fund's net assets.
PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options to close out a written call position (see "Covered Call
Writing" above) or to protect against an increase in the price of a security it
anticipates purchasing or, in the case of call options on a foreign currency, to
hedge against an adverse exchange rate change of the currency in which the
security it anticipates purchasing is denominated vis-a-vis the currency in
which the exercise price is denominated. The Fund may purchase put options on
securities which it holds in its portfolio only to protect itself against a
decline in the value of the security. The Fund may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. There are no other limits on the Fund's ability to
purchase call and put options.
FUTURES CONTRACTS. The Fund may purchase and sell futures contracts that
are currently traded, or may in the future be traded, on U.S. and foreign
commodity exchanges on common stocks, such underlying fixed-income securities as
U.S. Treasury bonds, notes, and bills and/or any foreign government fixed-income
security ("interest rate" futures), on various currencies ("currency" futures)
and on such indexes of U.S. or foreign fixed-income securities as may exist or
come into being, such as the Moody's Investment Grade Corporate Bond Index
("index" futures). As a futures contract purchaser,
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<PAGE>
the Fund incurs an obligation to take delivery of a specified amount of the
obligation underlying the contract at a specified time in the future for a
specified price. As a seller of a futures contract, the Fund incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. The Fund
will purchase and write options on futures contracts for identical purposes to
those set forth above for the purchase of a futures contract (purchase of a call
option or sale of a put option) and the sale of a futures contract (purchase of
a put option or sale of a call option), or to close out a long or short position
in futures contracts.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
Exchanges may limit the amount by which the price of many futures contracts
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Fund's Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash prices of the Fund's portfolio securities and their denominated
currencies. Another such risk is that prices of interest rate futures contracts
may not move in tandem with the changes in prevailing interest rates against
which the Fund seeks a hedge. A correlation may also be distorted by the fact
that the futures market is dominated by short-term traders seeking to profit
from the difference between a contract or security price objective and their
cost of borrowed funds. Such distortions are generally minor and would diminish
as the contract approached maturity.
The Fund, by entering into transactions in foreign futures and options
markets, will also incur risks similar to those discussed above under the
section entitled "Foreign Securities."
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund,
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<PAGE>
and which typically involve the acquisition by the Fund of debt securities from
a selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. While repurchase agreements involve
certain risks not associated with direct investments in debt securities,
including the risks of default or bankruptcy of the selling financial
institution, the Fund follows procedures to minimize such risks. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions and maintaining
adequate collateralization.
REVERSE REPURCHASE AGREEMENTS. The Fund may also use reverse repurchase
agreements as part of its investment strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. There is no overall
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have
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<PAGE>
lost an investment opportunity. There is no overall limit on the percentage of
the Fund's assets which may be committed to the purchase of securities on a
"when, as and if issued" basis. An increase in the percentage of the Fund's
assets committed to the purchase of securities on a "when, as and if issued"
basis may increase the volatility of its net asset value.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to certain notice provisions described in the Statement of
Additional Information), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined daily,
of the loaned securities.
PRIVATE PLACEMENTS. The Fund may invest up to 10% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A of the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not subject
to the foregoing restriction.) These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of such
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering such securities for resale and the risk of
substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Directors of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid", such security will
not be included within the category "illiquid securities", which is limited by
the Fund's investment restrictions to 10% of the Fund's total assets. Investing
in Rule 144A securities could have the effect of increasing the level of Fund
illiquidity to the extent the Fund, at a particular time, may be unable to find
qualified institutional buyers interested in purchasing such securities.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. The Fund is managed within
InterCapital's Taxable Fixed-Income Group, which manages twenty-five funds and
fund portfolios, with approximately $13.3 billion in assets at December 31,
1997. Rajesh K. Gupta, Senior Vice President of InterCapital and Anne Pickrell,
Vice President of InterCapital, each a member of InterCapital's Taxable
Fixed-Income Group are the Fund's primary portfolio managers. Mr. Gupta and Ms.
Pickrell have been the Fund's primary portfolio
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managers since February, 1998 and December, 1994, respectively. Mr. Gupta has
been managing portfolios consisting of fixed income securities since June, 1987.
Ms. Pickrell has been a portfolio manager at InterCapital since July, 1991. In
determining which securities to purchase for the Fund or hold in the Fund's
portfolio, the Investment Manager will rely on information from various sources,
including research, analysis and appraisals of brokers and dealers, including
Dean Witter Reynolds Inc. ("DWR"), Morgan Stanley & Co. Incorporated and other
broker-dealer affiliates of InterCapital, the views of others regarding economic
developments and interest rate trends, and the Investment Manager's own analysis
of factors it deems relevant.
Personnel of the Investment Manager have substantial experience in the use
of the investment techniques described above under the heading "Options and
Futures Transactions," which techniques require skills different from those
needed to select the portfolio securities underlying various options and futures
contracts.
Securities purchased by the Fund are generally sold by dealers acting as
principal for their own accounts. Orders for transactions in other portfolio
securities and commodities are placed for the Fund with a number of brokers and
dealers, including DWR, Morgan Stanley & Co. Incorporated and other
broker-dealers that are affiliates of InterCapital. 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 and Morgan Stanley &
Co. Incorporated.
The Fund may sell portfolio securities without regard to the length of time
that they have been held, in order to take advantage of new investment
opportunities or yield differentials, or because the Fund desires to preserve
gains or limit losses due to changing economic conditions, interest rate trends,
or the financial condition of the issuer. It is not anticipated that the Fund's
portfolio turnover rate will exceed 200% in any one year. The Fund will incur
underwriting discount costs (on underwritten securities) and brokerage costs
commensurate with its portfolio turnover rate. Short term gains and losses may
result from such portfolio transactions. See "Dividends, Distributions and
Taxes" for a discussion of the tax implications of the Fund's transactions.
The expenses of the Fund relating to its portfolio management are likely to
be greater than those incurred by other investment companies investing primarily
in securities issued by domestic issuers, as custodial costs, brokerage
commissions and other transaction charges related to investing in foreign
markets are generally higher than in the United States.
INVESTMENT RESTRICTIONS
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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 limitations: (i) all percentage limitations apply immediately
after a purchase or initial investment, and (ii) any subsequent change in any
applicable percentage resulting from market fluctu-
ations or other changes in total or net assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry, except that the Fund will concentrate in the
banking industry.
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years
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<PAGE>
of continuous operation. This restriction shall not apply to any obligation
issued or guaranteed by the United States Government, its agencies or
instrumentalities.
3. Invest more than 10% of its total assets in "illiquid securities"
(securities for which no active and substantial secondary market exists) and
repurchase agreements which have a maturity of longer than seven days.
Generally, OTC options and the assets used as "cover" for written OTC
options are "illiquid securities" (securities for which no active and
substantial secondary market exists). However, the Fund is per-
mitted to treat the securities it uses as cover for written OTC options as
liquid provided it follows a procedure whereby it will sell OTC options only to
qualified dealers who agree that the Fund may repurchase such options at a
maximum price to be calculated pursuant to a predetermined formula set forth in
the option agreement. The formula may vary from agreement to agreement, but is
generally based on a multiple of the premium received by the Fund for writing
the option plus the amount, if any, of the option's intrinsic value. An OTC
option is considered an illiquid asset only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers which have entered into selected dealer agreements with the
Distributor ("Selected Broker-Dealers"). The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Subsequent purchases of $100 or more
may be made by sending a check, payable to Dean Witter Global Short-Term Income
Fund Inc., directly to Dean Witter Trust FSB (the "Transfer Agent" or "DWT") at
P.O. Box 1040, Jersey City, NJ 07303 or by contacting an account executive of
DWR or other Selected Broker-Dealer. The minimum initial purchase, in the case
of investments through EasyInvest, an automatic purchase plan (see "Shareholder
Services"), is $100, provided that the schedule of automatic investments will
result in investments totalling at least $1,000 within the first twelve months.
The minimum initial purchase in the case of an "Education IRA" is $500, if the
Distributor has reason to believe that additional investments will increase the
investment in the account to $1,000 within three years. In the case of
investments pursuant to (i) Systematic Payroll Deduction Plans (including
Individual Retirement Plans), (ii) the InterCapital mutual fund asset allocation
program and (iii) fee-based programs approved by the Distributor, pursuant to
which participants pay an asset based fee for services in the nature of
investment advisory or administrative services, the Fund, in its discretion, may
accept investments without regard to any minimum amounts which would otherwise
be required, provided in the case of Systematic Payroll Deduction Plans, that
the Distributor has reason to believe that additional investments will increase
the investment in all accounts under such Plans to at least $1,000.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment generally is due on or before
the third business day (settlement date) after the order is placed with the
Distributor. Shares purchased through the Distributor are entitled to dividends
beginning on the next business day following settlement date. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. Shares purchased through the Transfer Agent are entitled to dividends
beginning on the next business day following receipt of an order. As noted
above, orders
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<PAGE>
placed directly with the Transfer Agent must be accompanied by payment.
Investors will be entitled to receive capital gains distributions if their order
is received by the close of business on the day prior to the record date for
such distributions. The offering price will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below).
While no sales charge is imposed at the time shares are purchased, a
contingent deferred sales charge may be imposed at the time of redemption (see
"Redemptions and Repurchases"). Sales personnel are compensated for selling
shares of the Fund at the time of their sale by the Distributor or any of its
affiliates and/or the Selected Broker-Dealer. In addition, some sales personnel
of the Selected Broker-Dealer will receive various types of non-cash
compensation as special sales incentives, including trips, educational and/or
business seminars and merchandise. The Fund and the Distributor reserve the
right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan"), under which the Fund pays the Distributor a fee, which is
accrued daily and payable monthly, at an annual rate of 0.75% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the Fund's average daily net
assets. This fee is treated by the Fund as an expense in the year it is accrued.
A portion of the fee payable pursuant to the Plan, equal to 0.25% of the Fund's
average daily net assets, is characterized as a service fee within the meaning
of NASD guidelines. The service fee is a payment made for personal service
and/or the maintenance of shareholder accounts.
Amounts paid under the Plan are paid to the Distributor to compensate it for
the services provided and the expenses borne by the Distributor and others in
the distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to and expenses of DWR
account executives and others who engage in or support distribution of shares or
who service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed distribution expenses.
For the fiscal year ended October 31, 1997, the Fund accrued payments under
the Plan amounting to $530,008, which amount is equal to 0.75% of the Fund's
average daily net assets for the fiscal year. The payments accrued under the
Plan were calculated pursuant to clause (b) of the compensation formula under
the Plan.
At any given time, the Distributor may incur expenses in distributing shares
of the Fund which may be in excess of the total of (i) the payments made by the
Fund pursuant to the Plan, and (ii) the proceeds of contingent deferred sales
charges paid by investors upon the redemption of shares (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge"). For example, if the Distributor
incurred $1 million in expenses in distributing shares of the Fund and $750,000
had been received by the Distributor as described in (i) and (ii) above, the
excess expense would amount to $250,000. The Distributor has advised the Fund
that such excess amounts, including the carrying charge described above,
totalled $7,269,740 at October 31, 1997,
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<PAGE>
which equalled 11.84% of the Fund's net assets at such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, such excess amount does not constitute a liability
of the Fund. Although there is no legal obligation for the Fund to pay expenses
incurred by the Distributor in excess of payments made to the Distributor under
the Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Directors will consider at that time the manner in which to treat such expenses.
Any cumulative expenses incurred but not yet recovered through distribution fees
or contingent deferred sales charges, may or may not be recovered through future
distribution fees or contingent deferred sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open by taking the value of all assets of the Fund, subtracting all
its liabilities, dividing by the number of shares outstanding and adjusting to
the nearest cent. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by the
New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued; if there were no sales that
day, the security is valued at the latest bid price (in cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated as the primary market pursuant to procedures adopted by the
Directors); and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available bid
price prior to the time of valuation. When market quotations are not readily
available, including circumstances under which it is determined by the
Investment Manager that sale and bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Fund's Directors. For valuation purposes, quotations of foreign portfolio
securities, other assets and liabilities and forward contracts stated in foreign
currency are translated into U.S. dollar equivalents at the prevailing market
rates prior to the close of the New York Stock Exchange. Dividends receivable
are accrued as of the ex-dividend date or as of the time that the relevant ex-
dividend date and amounts become known.
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Directors
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Directors.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Directors. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to 4:00 p.m., New York time. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times.
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Foreign currency exchange rates are also generally determined prior to 4:00
p.m., New York time. Occasionally, events which affect the values of such
securities and such exchange rates may occur between the times at which they are
determined and 4:00 p.m., New York time and will therefore not be reflected in
the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Directors.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
(collectively, with the Fund, the "Dean Witter Funds")), unless the shareholder
requests that they be paid in cash. Shares so acquired are not subject to the
imposition of a contingent deferred sales charge upon their redemption (see
"Redemptions and Repurchases"). Such dividends and distributions will be paid,
at the net asset value per share, in shares of the Fund (or in cash if the
shareholder so requests) on the monthly payment date, which will be no later
than the last business day of the month for which the dividend or distribution
is payable. Processing of dividend checks begins immediately following the
monthly payment date. Shareholders who have requested to receive dividends in
cash will normally receive their monthly dividend check during the first ten
days of the following month.
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, or from a Dean
Witter money market fund, on a semi-monthly, monthly or quarterly basis, to the
Transfer Agent for investment in shares of the Fund (see "Purchase of Fund
Shares" and "Redemptions and Repurchases--Involuntary Redemption").
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution at the net asset value per
share next determined after receipt by the Transfer Agent, by returning the
check or the proceeds to the Transfer Agent within thirty days after the payment
date. Shares so acquired are not subject to the imposition of a contingent
deferred sales charge upon their redemption (see "Redemptions and Repurchases").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September,
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable
contingent deferred sales charge will be imposed on shares redeemed under the
Withdrawal Plan (See "Redemptions and Repurchases--Contingent Deferred Sales
Charge"). Therefore, any shareholder participating in the Withdrawal Plan will
have sufficient shares redeemed from his or her account so that the proceeds
(net of any applicable contingent deferred sales charge) to the shareholder will
be the designated monthly or quarterly amount.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-
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<PAGE>
employed, Individual Retirement Accounts and Custodial Accounts under Section
403(b)(7) of the Internal Revenue Code. Adoption of such plans should be on
advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the Transfer
Agent.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for Class B shares of Dean Witter
Funds that are multiple class funds ("Dean Witter Multi-Class Funds"). Shares
may also be exchanged for shares of Dean Witter Short-Term U.S. Treasury Trust,
Dean Witter Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean
Witter Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which
are money market funds (the "Exchange Funds"). Exchanges may be made after the
shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to a Dean Witter Multi-Class Fund or any Exchange Fund that is
not a money market fund is on the basis of the next calculated net asset value
per share of each fund after the exchange order is received. When exchanging
into a money market fund from the Fund, shares of the Fund are redeemed out of
the Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following business day. Subsequent exchanges between
any of the money market funds and the Fund, any of the Dean Witter Multi-Class
Funds or any Exchange Fund that is not a money market fund can be effected on
the same basis.
No contingent deferred sales charge ("CDSC") is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate redemption.
Shares of the Fund which are exchanged for shares of a Dean Witter Multi-Class
Fund having a higher CDSC schedule than the Fund will be subject to the CDSC
schedule of the Dean Witter Multi-Class Fund, even if shares are subsequently
re-exchanged for shares of the Fund prior to redemption. Concomitantly, shares
of the Fund acquired in exchange for shares of a Dean Witter Multi-Class Fund
having a lower CDSC schedule than that of this Fund will be subject to the CDSC
schedule of this Fund, even if such shares are subsequently re-exchanged for
shares of the CDSC fund originally purchased. During the period of time the
shareholder remains in an Exchange Fund (calculated from the last day of the
month in which the Exchange Fund shares were acquired), the holding period (for
the purpose of determining the rate of the CDSC) is frozen. If those shares are
subsequently re-exchanged for shares of a Dean Witter Multi-Class Fund, the
holding period previously frozen when the first exchange was made resumes on the
last day of the month in which shares of a Dean Witter Multi-Class Fund are
reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of the Fund or in shares of a Dean
Witter Multi-Class Fund (see "Redemptions and Repurchases--Contingent Deferred
Sales Charge"). However, in the case of shares of the Fund exchanged into an
Exchange Fund on or after April 23, 1990, upon a redemption of shares which
results in a CDSC being imposed, a credit (not to exceed the amount of the CDSC)
will be given in an amount equal to the Exchange Fund 12b-1 distribution fees
incurred on or after that date which are attributable to those shares. (Exchange
Fund 12b-1 distribution fees are described in the prospectuses for those funds.)
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the
22
<PAGE>
Fund's refusal to accept additional purchases and/or exchanges from the
investor. Although the Fund does not have any specific definition of what
constitutes a pattern of frequent exchanges, and will consider all relevant
factors in determining whether a particular situation is abusive and contrary to
the best interests of the Fund and its other shareholders, investors should be
aware that the Fund and each of the other Dean Witter Funds may in their
discretion limit or otherwise restrict the number of times this Exchange
Privilege may be exercised by any investor. Any such restriction will be made by
the Fund on a prospective basis only, upon notice to the shareholder not later
than ten days following such shareholder's most recent exchange. Also, the
Exchange Privilege may be terminated or revised at any time by the Fund and/or
any of such Dean Witter Funds for which shares of the Fund have been exchanged,
upon such notice as may be required by applicable regulatory agencies.
Shareholders maintaining margin accounts with DWR or another Selected Broker-
Dealer are referred to their account executive regarding restrictions on
exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. In the case of any shareholder
holding a share certificate or certificates, no exchanges may be made until all
applicable share certificates have been received by the Transfer Agent and
deposited in the shareholder's account. An exchange will be treated for federal
income tax purposes the same as a repurchase or redemption of shares, on which
the shareholder may realize a capital gain or loss. However, the ability to
deduct capital losses on an exchange may be limited in situations where there is
an exchange of shares within ninety days after the shares are purchased. The
Exchange Privilege is only available in states where an exchange may legally be
made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing or
by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the New York
Stock Exchange is open. Any share-
holder 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
23
<PAGE>
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
with the Dean Witter Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds may
be reduced by the amount of any applicable contingent deferred sales charges
(see below). If shares are held in a shareholder's account without a share
certificate, a written request for redemption sent to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption along with any additional information
required by the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE. Shares of the Fund which are held three
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any charge upon redemption.
Shares redeemed sooner than three years after purchase may, however, be subject
to a charge upon redemption. This charge is called a "contingent deferred sales
charge" ("CDSC"), which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 3.0%
Second................................ 2.0%
Third................................. 1.0%
Fourth and thereafter................. None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the three years preceding the redemption;
(ii) the current net asset value of shares purchased more than three years prior
to the redemption; and (iii) the current net asset value of shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter Funds sold with a front-end sales charge or
of other Dean Witter Funds acquired in exchange for such shares. Moreover, in
determining whether a CDSC is applicable it will be assumed that amounts
described in (i), (ii) and (iii) above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2);
24
<PAGE>
(B) distributions from an IRA or 403(b) Custodial Account following attainment
of age 59 1/2; or (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which Dean Witter Trust FSB, which
is an affiliate of the Investment Manager, serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement ("Eligible Plan"), provided that either: (A) the plan
continues to be an Eligible Plan after the redemption; or (B) the redemption is
in connection with the complete termination of the plan involving the
distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares, as agent for the Fund, represented by a share certificate
which is delivered to any of their offices. Shares held in a shareholder's
account without a share certificate may also be repurchased by DWR and other
Selected Broker-Dealers upon the telephonic request of the shareholder. The
repurchase price is the net asset value next computed (see "Purchase of Fund
Shares") after such repurchase order is received by DWR or other Selected
Broker-Dealers, reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by the Fund,
the Distributor or DWR or other Selected Broker-Dealers. The offers by DWR and
other Selected Broker-Dealers to repurchase shares may be suspended without
notice by them at any time. In that event, shareholders may redeem their shares
through the Fund's Transfer Agent as set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances, e.g., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check (including a government, certified or bank cashier's check), payment of
the redemption proceeds may be delayed for the minimum time needed to verify
that the check used for investment has been honored (not more than fifteen days
from the time of receipt of the check by the Transfer Agent). Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their account executive regarding restrictions on redemption of
shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the redemption or
repurchase, reinstate any portion or all of the proceeds of such redemption or
repurchase in shares of the Fund at net asset value next determined after a
reinstatement request, together with the proceeds, is received by the Transfer
Agent and receive a pro-rata credit for any CDSC paid in connection with such
redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on sixty
days' notice and at net
25
<PAGE>
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 Code) whose shares due to redemptions by the shareholder have a value of
less than $100 or such lesser amount as may be fixed by the Directors or, in the
case of an account opened through EasyInvest, if after twelve months the
shareholder has invested less than $1,000 in the account. However, before the
Fund redeems such shares and sends the proceeds to the shareholder, it will
notify the shareholder that the value of the shares is less than the applicable
amount and allow the shareholder sixty days to make an additional investment in
an amount which will increase the value of his or her account to at least the
applicable amount before the redemption is processed. No CDSC will be imposed on
any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund intends to declare dividends from net
investment income on each day the New York Stock Exchange is open for business
(see "Purchase of Fund Shares"). The amount of the dividend declared may
fluctuate from day to day. Dividends are declared daily and paid monthly in
additional shares of the Fund. The Fund will distribute, at least annually, net
realized short-term and long-term capital gains, if any.
All dividends and any capital gains distributions will be paid in additional
Fund shares and automatically credited to the shareholder's account without
issuance of a share certificate unless the shareholder requests in writing that
all dividends and/or distributions be paid in cash. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions".)
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise qualify as
a regulated investment company under Subchapter M of the Code, it is not
expected that the Fund will be required to pay any federal income tax on such
income and capital gains.
Gains or losses on the Fund's transactions in certain listed options on
securities and on futures and options on futures traded on U.S. exchanges
generally are treated as 60% long-term gain or loss and 40% short-term gain or
loss. When the Fund engages in options and futures transactions, various tax
regulations applicable to the Fund may have the effect of causing the Fund to
recognize a gain or loss for tax purposes before that gain or loss is realized,
or to defer recognition of a realized loss for tax purposes. Recognition, for
tax purposes, of an unrealized loss may result in a lesser amount of the Fund's
realized net gains being available for distribution.
Shareholders will normally have to pay federal income taxes, and any
applicable state and/or local income taxes, on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent that
they are derived from net investment income and net short-term capital gains,
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1, will be deemed, for tax purposes, to
have been received by the shareholder in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. It is not anticipated that any portion of the
Fund's distributions will be eligible for the dividends received deduction to
corporate shareholders.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a
26
<PAGE>
return of a portion of each shareholder's investment. All, or a portion, of such
payments will not be taxable to shareholders.
After the end of the year, shareholders will receive full information on
their dividends and capital gains distributions for tax purposes. Shareholders
will also be notified of their proportionate share of long-term capital gains
distributions that are eligible for a reduced rate of tax under the Taxpayer
Relief Act of 1997.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy. Shareholders who are not citizens or residents
of, or entities organized in, the United States may be subject to withholding
taxes of up to 30% on certain payments received from the Fund.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and has made the appropriate election with the Internal Revenue Service, the
Fund will report annually to its shareholders the amount per share of such
taxes, to enable shareholders to claim United States foreign tax credits or
deductions with respect to such taxes. In the absence of such an election, the
Fund would deduct foreign tax in computing the amount of its distributable
income.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject to
state and local taxes; therefore, each shareholder is advised to consult his or
her own tax adviser.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return of
the Fund are based on historical earnings and are not intended to indicate
future performance. The yield of the Fund is computed by dividing the Fund's net
investment income over a 30-day period by an average value (using the average
number of shares entitled to receive dividends and the net asset value per share
at the end of the period), all in accordance with applicable regulatory
requirements. Such amount is compounded for six months and then annualized for a
twelve-month period to derive the Fund's yield.
The "average annual total return" of the Fund refers to a figure reflecting
the average annualized percentage increase (or decrease) in the value of an
initial investment in the Fund of $1,000 over a period of one year and five
years, as well as the life of the Fund. Average annual total return reflects all
income earned by the Fund, any appreciation or depreciation of the Fund's
assets, all expenses incurred by the Fund and all sales charges which would be
incurred by redeeming shareholders, for the stated periods. It also assumes
reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, and year-by-year or
other types of total return figures. Such calculations may or may not reflect
the deduction of the contingent deferred sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth
ofhypothetical investments of $10,000, $50,000 and $100,000 in shares of the
Fund. The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations
(such as mutual fund performance rankings of Lipper Analytical Services, Inc.).
27
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of the Fund are of common stock of $0.01 par
value and are equal as to earnings, assets and voting privileges. There are no
conversion, pre-emptive or other subscription rights. In the event of
liquidation, each share of common stock of the Fund is entitled to its portion
of all of the Fund's assets after all debts and expenses have been paid. The
shares do not have cumulative voting rights.
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
Directors may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Fund's By-Laws.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and options transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within thirty days before or after any transaction in any Dean Witter
Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute Advisory
Group on Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
28
<PAGE>
Dean Witter
Global Short-Term Income Fund Inc.
Two World Trade Center
New York, New York 10048
DIRECTORS
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Rajesh K. Gupta
Vice President
Anne Pickrell
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank
One Chase Plaza
New York, NY 10005
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
DEAN WITTER
GLOBAL SHORT-TERM
INCOME FUND INC.
[PHOTO]
PROSPECTUS -- FEBRUARY 10, 1998
<PAGE>
GLOBAL SHORT-TERM'S ANNUAL
REPORT-10/31/98-
TO BE FILED BY AMENDMENT
<PAGE>
MORGAN STANLEY DEAN WITTER WORLD WIDE INCOME TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of Morgan
Stanley Dean Witter World Wide Income Trust ("World Wide") to be issued pursuant
to an Agreement and Plan of Reorganization, dated October 28, 1998, between
World Wide and Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
("Global Short-Term"), in connection with the acquisition by World Wide of
substantially all of the assets, subject to stated liabilities, of Global
Short-Term. This Statement of Additional Information does not constitute a
prospectus. This Statement of Additional Information does not include all
information that a shareholder should consider before voting on the proposals
contained in the Proxy Statement and Prospectus, and, therefore, should be read
in conjunction with the related Proxy Statement and Prospectus, dated December
, 1998. A copy of the Proxy Statement and Prospectus may be obtained without
charge by mailing a written request to World Wide at Two World Trade Center, New
York, New York 10048 or by calling Morgan Stanley Dean Witter Trust FSB at (800)
869-NEWS (TOLL FREE). Please retain this document for future reference.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS DECEMBER , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.............................................................. B-3
ADDITIONAL INFORMATION ABOUT WORLD WIDE................................... B-3
FINANCIAL STATEMENTS...................................................... B-4
</TABLE>
B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated December ,
1998 (the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus
has been sent to Global Short-Term shareholders in connection with the
solicitation of proxies by the Board of Directors of Global Short-Term to be
voted at the Special Meeting of Shareholders of Global Short-Term to be held on
February 24, 1999. This Statement of Additional Information incorporates by
reference the Statement of Additional Information of World Wide dated February
6, 1998 and the Statement of Additional Information of Global Short-Term dated
February 10, 1998.
ADDITIONAL INFORMATION ABOUT WORLD WIDE
INVESTMENT OBJECTIVES AND POLICIES
For additional information about World Wide's investment objectives and
policies, see "Investment Practices and Policies" and "Investment Restrictions"
in World Wide's Statement of Additional Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of World Wide, see "The Fund and its Management" and
"Trustees and Officers" in World Wide's Statement of Additional Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about World Wide's investment manager, see "The
Fund and its Management" in World Wide's Statement of Additional Information.
For additional information about World Wide's independent auditors, see
"Independent Accountants" in World Wide's Statement of Additional Information.
For additional information about other services provided to World Wide, see
"Custodian and Transfer Agent" and "Shareholder Services" in World Wide's
Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Portfolio Transactions and Brokerage" in World Wide's Statement of Additional
Information.
DESCRIPTION OF FUND SHARES
For additional information about the voting rights and other characteristics
of the shares of World Wide, see "Description of Shares" in World Wide's
Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of World Wide's
shares and the determination of net asset value, see "Purchase of Fund Shares,"
"Redemptions and Repurchases," "Financial Statements -- October 31, Global
Short-Term" and "Shareholder Services" in World Wide's Statement of Additional
Information.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about World Wide's policies regarding dividends
and distributions and tax matters affecting World Wide and its shareholders, see
"Dividends, Distributions and Taxes" in World Wide's Statement of Additional
Information.
DISTRIBUTION OF SHARES
For additional information about World Wide's distributor and the
distribution agreement between World Wide and its distributor, see "Purchase of
Fund Shares" in World Wide's Statement of Additional Information.
B-3
<PAGE>
PERFORMANCE DATA
For additional information about World Wide's performance data, see
"Performance Information" in World Wide's Statement of Additional Information.
FINANCIAL STATEMENTS
World Wide's most recent audited financial statements are set forth in World
Wide's Annual Report for the fiscal year ended October 31, 1998, a copy of which
is incorporated by reference in the Proxy Statement and Prospectus. Global
Short-Term's most recent audited financial statements are set forth in Global
Short-Term's Annual Report for the fiscal year ended October 31, 1998, which is
incorporated by reference to the Proxy Statement and Prospectus.
B-4
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
FEBRUARY 6, 1998 WORLD WIDE
INCOME TRUST
- --------------------------------------------------------------------------------
Dean Witter World Wide Income Trust (the "Fund") is an open-end,
non-diversified management investment company, whose primary investment
objective is to earn a high level of current income. As a secondary objective,
the Fund will seek appreciation in the value of its assets. The Fund seeks to
achieve its investment objectives by investing primarily in fixed-income
securities issued or guaranteed by foreign governments, issued by foreign or
U.S. companies, or which are issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. See "Investment Practices and Policies."
A Prospectus for the Fund dated February 6, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter
World Wide Income Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and Its Management............................................................ 3
Trustees and Officers.................................................................. 6
Investment Practices and Policies...................................................... 12
Investment Restrictions................................................................ 28
Portfolio Transactions and Brokerage................................................... 30
The Distributor........................................................................ 31
Determination of Net Asset Value....................................................... 36
Purchase of Fund Shares................................................................ 36
Shareholder Services................................................................... 39
Redemptions and Repurchases............................................................ 43
Dividends, Distributions and Taxes..................................................... 45
Performance Information................................................................ 46
Description of Shares.................................................................. 48
Custodian and Transfer Agent........................................................... 48
Independent Accountants................................................................ 49
Reports to Shareholders................................................................ 49
Legal Counsel.......................................................................... 49
Experts................................................................................ 49
Registration Statement................................................................. 49
Financial Statements -- October 31, 1997............................................... 50
Report of Independent Accountants...................................................... 64
Appendix............................................................................... 65
</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
October 14, 1988.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"), a Delaware
corporation. In an internal reorganization which took place in January, 1993,
InterCapital assumed the investment advisory, administrative and management
activities previously performed by the InterCapital Division of Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital. (As
hereinafter used in this Statement of Additional Information, the terms
"InterCapital" and "Investment Manager" refer to DWR's InterCapital Division
prior to the internal reorganization and Dean Witter InterCapital Inc.
thereafter.) The daily management of the Fund is conducted by or under the
direction of officers of the Fund and of the Investment Manager, subject to
review by the Fund's Board of Trustees. Information as to these Trustees and
officers is contained under the caption "Trustees and Officers."
The Investment Manager is also the investment manager or investment adviser
of the following investment companies: Dean Witter Liquid Asset Fund Inc.,
InterCapital Income Securities Inc., Dean Witter High Yield Securities Inc.,
Dean Witter Tax-Free Daily Income Trust, Dean Witter Tax-Exempt Securities
Trust, Dean Witter Dividend Growth Securities Inc., Dean Witter Natural Resource
Development Securities Inc., Dean Witter American Value Fund, Dean Witter
Developing Growth Securities Trust, Dean Witter U.S. Government Money Market
Trust, Dean Witter Variable Investment Series, Dean Witter World Wide Investment
Trust, Dean Witter Select Municipal Reinvestment Fund, Dean Witter U.S.
Government Securities Trust, Dean Witter California Tax-Free Income Fund, Dean
Witter New York Tax-Free Income Fund, Dean Witter Convertible Securities Trust,
Dean Witter Federal Securities Trust, Dean Witter Value-Added Market Series,
High Income Advantage Trust, High Income Advantage Trust II, High Income
Advantage Trust III, Dean Witter Government Income Trust, Dean Witter Utilities
Fund, Dean Witter California Tax-Free Daily Income Trust, Dean Witter
Intermediate Income Securities, Dean Witter Capital Growth Securities, Dean
Witter New York Municipal Money Market Trust, Dean Witter European Growth Fund
Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter Precious Metals and
Minerals Trust, Dean Witter Global Short-Term Income Fund Inc., Dean Witter
Strategist Fund, Dean Witter Multi-State Municipal Series Trust, Dean Witter
Short-Term U.S. Treasury Trust, InterCapital Insured Municipal Bond Trust,
InterCapital Insured Municipal Income Trust, InterCapital Insured Municipal
Trust, InterCapital Insured Municipal Securities, InterCapital California
Insured Municipal Income Trust, InterCapital Insured California Municipal
Securities, InterCapital Quality Municipal Investment Trust, InterCapital
Quality Municipal Income Trust, InterCapital Quality Municipal Securities,
InterCapital California Quality Municipal Securities, InterCapital New York
Quality Municipal Securities, Dean Witter Global Dividend Growth Securities,
Dean Witter Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean
Witter Diversified Income Trust, Dean Witter Health Sciences Trust, Dean Witter
Retirement Series, Dean Witter Global Utilities Fund, Dean Witter International
SmallCap Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter Select Dimensions
Investment Series, Dean Witter Balanced Growth Fund, Dean Witter Balanced Income
Fund, Dean Witter Hawaii Municipal Trust, Dean Witter Japan Fund, Dean Witter
Income Builder Fund, Dean Witter Special Value Fund, Dean Witter Financial
Services Trust, Dean Witter Market Leader Trust, Dean Witter Capital
Appreciation Fund, Dean Witter Information Fund, Dean Witter Intermediate Term
U.S. Treasury Trust, Dean Witter S&P 500 Index Fund, Dean Witter Fund of Funds,
Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" PORTFOLIO, Active
Assets Money Trust, Active Assets Tax-Free Trust, Active Assets California
Tax-Free Trust, Active Assets Government Securities Trust, Municipal Income
Trust, Municipal Income Trust II, Municipal Income Opportunities Trust,
3
<PAGE>
Municipal Income Opportunities Trust II, Municipal Income Opportunities Trust
III, Municipal Income Trust III, Prime Income Trust and Municipal Premium Income
Trust. The foregoing investment companies, together with the Fund, are
collectively referred to as the Dean Witter Funds.
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following companies for
which TCW Funds Management, Inc. is the investment adviser: TCW/DW Core Equity
Trust, TCW/DW North American Government Income Trust, TCW/DW Latin American
Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth Fund, TCW/DW
Balanced Fund, TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW
Global Telecom Trust, TCW/DW Strategic Income Trust, TCW/DW Emerging Markets
Opportunities Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and TCW/DW
Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as: (i)
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; (iii) sub-administrator of MassMutual
Participation Investors and Templeton Global Governments Income Trust,
closed-end investment companies; and (iii) investment adviser of Offshore
Dividend Growth Fund and Offshore Money Market Fund, mutual funds established
under the laws of the Cayman Islands and available only to investors who are
participants in DWR's International Active Assets Account program and are
neither citizens nor residents of the United States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objectives.
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 and bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the preparation
of prospectuses, statements of additional information, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone service, heat,
light, power and other utilities provided to the Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund which were previously performed directly by InterCapital. On April 17,
1995, DWSC was reorganized in the State of Delaware, necessitating the entry
into a new Services Agreement by InterCapital and DWSC on that date. The
foregoing internal reorganizations did not result in any change in the nature or
scope of the administrative services being provided to the Fund or any of the
fees being paid by the Fund for the overall services being performed under the
terms of the existing Agreement.
Expenses not expressly assumed by the Investment Manager under the Agreement
or by the Distributor of the Fund's shares, Dean Witter Distributors Inc.
("Distributors" or the "Distributor") (see "The Distributor"), will be paid by
the Fund. These expenses will be allocated among the four classes of shares of
the Fund (each, a "Class") pro rata based on the net assets of the Fund
attributable to each Class, except as described below. Such expenses include,
but are not limited to: expenses of the Plan of Distribution pursuant to Rule
12b-1 (the "12b-1 fee") (see "The Distributor"), charges and expenses of any
registrar, custodian, stock transfer and dividend disbursing agent; brokerage
commissions; taxes; engraving and printing of share certificates; registration
costs of the Fund and its shares under federal and state securities laws; the
cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information of the Fund and
supplements thereto to the
4
<PAGE>
Fund's shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing 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.
The 12b-1 fees relating to a particular Class will be allocated directly to that
Class. In addition, other expenses associated with a particular Class (except
advisory or custodial fees) may be allocated directly to that Class, provided
that such expenses are reasonably identified as specifically attributable to
that Class and the direct allocation to that Class is approved by the Trustees.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily at an annual rate of
0.75% of the daily net assets of the Fund up to $250 million; 0.60% of the
portion of the daily net assets of the Fund exceeding $250 million but not
exceeding $500 million; 0.50% of the portion of the daily net assets of the Fund
exceeding $500 million but not exceeding $750 million; 0.40% of the portion of
the daily net assets of the Fund exceeding $750 million but not exceeding $1
billion; and 0.30% of the daily net assets of the Fund exceeding $1 billion. The
management fee is allocated among the Classes pro rata based on the net assets
attributable to each Class. For the fiscal years ended October 31, 1995, 1996
and 1997, the Fund accrued to the Investment Manager total compensation in the
amounts of $1,169,823, $933,697 and 778,248, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.
The Agreement was initially approved by the Board of Trustees on February
21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Agreement is substantially identical to a
prior investment management agreement which was initially approved by the Board
of Trustees on October 30, 1992 and by the shareholders of the Fund at a Special
Meeting of Shareholders held on January 12, 1993. The Agreement took effect on
May 31, 1997 upon the consummation of the merger of Dean Witter, Discover & Co.
with Morgan Stanley Group Inc. The Agreement may be terminated at any time,
without penalty, on thirty days' notice by the Board of Trustees of the Fund, by
the holders of a majority, as defined in the Investment Company Act of 1940 (the
"Act"), of the outstanding shares of the Fund, or by the Investment Manager. The
Agreement will automatically terminate in the event of its assignment (as
defined in the Act).
Under its terms, the Agreement had an initial term ending April 30, 1999,
and will remain in effect from year to year thereafter, provided continuance of
the Agreement is approved at least annually by the vote of the holders of a
majority (as defined in the Act) of the outstanding shares of the Fund, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Fund who are
not parties to the Agreement or "interested persons" (as defined in the Act) of
any such party (the "Independent Trustees"), which vote must be cast in person
at a meeting called for the purpose of voting on such approval.
The following owned more than 5% of the outstanding shares of Class A of the
Fund on February 3, 1998: Dean Witter Trust FSB, Rainbow Technology Corp
Retirement Plan, P.O. Box 957, Jersey City, NJ
5
<PAGE>
07303-0957 -- 8.2%; Dean Witter Trust FSB, Crowne Investment Inc. 401K Plan,
P.O. Box 957, Jersey City, NJ 07303-0957 -- 13.8%; Dean Witter Trust FSB as
Trustee FBO Alban Charitable Remainder Unitrust, P.O. Box 957, Jersey City, NJ
07303-0957 -- 29.4%; Dean Witter Trust FSB as Trustee for Fenner Inc., P.O. Box
957, Jersey City, NJ 07303-0957 -- 34.4%.
The following owned more than 5% of the outstanding shares of Class C of the
Fund on February 3, 1998: Robert A. Snider and Lillian L. Snider as Trustee of
the Snider Family Trust dated 9/30/94, 30030, Village 30, Camarillo, CA
93012-7111 -- 6.1%; Dean Witter InterCapital, Inc., Attn: Frank DeVito, 2 World
Trade Center, 73rd Fl., New York, NY 10048-0203 -- 8.7%; Dean Witter Reynolds,
as Custodian for David S. Brodnan IRA Rollover dated 07/02/97, 3950 RFD, Long
Grove, IL 60047 -- 72.8%.
The following owned more than 5% of the outstanding shares of Class D of the
Fund on February 3, 1998: Dean Witter Reynolds as Custodian for Darryl G.
Albertson Port Arch IRA Rollover dated 5/13/97, 4808 Garnet CT, Pleasanton, CA,
94566-4626--5.2%; Dean Witter Reynolds as Custodian for Roger Lancaster IRA
Rollover dated 12/03/97, 4517 Buttress CT, Concord, CA, 94518-1934--5.5%; Dean
Witter InterCapital, Inc., Attn: Frank DeVito, 2 World Trade Center, 73rd Fl.,
New York, NY 10048-0203 -- 7.8%.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use, or at any time
permit others to use, the name "Dean Witter." The Fund has also agreed that in
the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent company is terminated, the Fund will eliminate the
name "Dean Witter" from its name if DWR or its parent company shall so request.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 84 Dean Witter Funds and the 14 TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (57) ................................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Dean Witter Funds; formerly President and Chief
6111 Broken Sound Parkway, N.W. Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial Services,
Inc., the United Negro College Fund and Weirton Steel Cor-
poration.
Charles A. Fiumefreddo* (64) ......................... Chairman, Chief Executive Officer and Director of
Chairman of the Board, President, InterCapital, DWSC and Distributors; Executive Vice
Chief Executive Officer and Trustee President and Director of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of the Dean
New York, New York Witter Funds; Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Chairman and Director of Dean
Witter Trust FSB ("DWT"); Director and/or officer of
various MSDWD subsidiaries; formerly Executive Vice
President and Director of Dean Witter, Discover & Co.
(until February, 1993).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Edwin J. Garn (65) ................................... Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1972-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation (since January, 1993);
Director of Franklin Covey (time management systems), John
Alden Financial Corp. (health insurance), United Space
Alliance (joint venture between Lockheed Martin and the
Boeing Company) and Nuskin Asia Pacific (multilevel
marketing); member of the board of various civic and
charitable organizations.
John R. Haire (72) ................................... Chairman of the Audit Committee and Chairman of the
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman of
New York, New York the Audit Committee and Chairman of the Committee of the
Independent Trustees and Trustee of the TCW/DW Funds;
formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser (1964-1978).
Wayne E. Hedien (63) ................................. Retired, Director or Trustee of the Dean Witter Funds;
Trustee Director of The PMI Group, Inc. (private mortgage
c/o Gordon Altman Butowsky insurance); Trustee and Vice Chairman of The Field Museum
Weitzen Shalov & Wein of Natural History; formerly associated with the Allstate
Counsel to the Independent Trustees Companies (1966-1994), most recently as Chairman of The
114 West 47th Street Allstate Corporation (March, 1993-December, 1994) and
New York, New York Chairman and Chief Executive Officer of its wholly-owned
subsidiary, Allstate Insurance Company (July,
1989-December, 1994); director of various other business
and charitable organizations.
Dr. Manuel H. Johnson (48) ........................... Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group of
c/o Johnson Smick International, Inc. Seven Council (G7C), an international economic commission;
1133 Connecticut Avenue, N.W. Director or Trustee of the Dean Witter Funds; Trustee of
Washington, DC the TCW/DW Funds; Director of NASDAQ (since June, 1995);
Chairman and Trustee of the Financial Accounting
Foundation (oversight organization for the Financial
Accounting Standards Board); Director of Greenwich Capital
Corp. (broker-dealer): formerly Vice Chairman of the Board
of Governors of the Federal Reserve System (1986-1990) and
Assistant Secretary of the U.S. Treasury (1982-1986).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael E. Nugent (61) ............................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); director of various business
organizations.
Philip J. Purcell* (54) .............................. Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDWD, DWR and Novus Credit Services Inc.;
1585 Broadway Director of InterCapital, DWSC and Distributors; Director
New York New York or Trustee of the Dean Witter Funds; Director and/or
officer of various MSDWD subsidiaries.
John L. Schroeder (67) ............................... Retired; Director or Trustee of the Dean Witter Funds;
Trustee Trustee of the TCW/DW Funds; Director of Citizens
c/o Gordon Altman Butowsky Weitzen Utilities Company; formerly Executive Vice President and
Shalov & Wein Chief Investment Officer of the Home Insurance Company
Counsel to the Independent Trustees (August, 1991-September, 1995).
114 West 47th Street
New York, New York
Barry Fink (43) ...................................... Senior Vice President (since March, 1997) and Secretary
Vice President, Secretary and General Counsel (since February, 1997) of InterCapital
and General Counsel and DWSC; Senior Vice President (since March, 1997) and
Two World Trade Center Assistant Secretary and Assistant General Counsel (since
New York, New York February, 1997) of Distributors; Assistant Secretary of
DWR (since August, 1996); Vice President, Secretary and
General Counsel of the Dean Witter Funds and the TCW/DW
Funds (since February, 1997); previously First Vice
President (June, 1993-February, 1997), Vice President
(until June, 1993) and Assistant Secretary and Assistant
General Counsel of InterCapital and DWSC and Assistant
Secretary of the Dean Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta (37) ................................. Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Peter J. Seeley (48) ................................. Vice President of InterCapital, (since April, 1996); Vice
Vice President President of various Dean Witter Funds; previously, Senior
Two World Trade Center Fixed-Income Portfolio Manager with InterCapital (July,
New York, New York 1994-April, 1996); formerly Senior Vice President of Nikko
Capital Management (October, 1992-June, 1994).
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Thomas F. Caloia (51) ................................ First Vice President and Assistant Treasurer of Inter-
Treasurer Capital and DWSC; Treasurer of the Dean Witter Funds and
Two World Trade Center the TCW/DW Funds.
New York, New York
</TABLE>
- ------------------------
*Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Executive Vice President and Director of DWR, and Director of
SPS Transaction Services, Inc. and various other MSDWD subsidiaries, Robert S.
Giambrone, Senior Vice President of InterCapital, DWSC, Distributors and DWT and
Director of DWT, Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of InterCapital and Director of DWT, are Vice Presidents of
the Fund. Marilyn K. Cranney, First Vice President and Assistant General Counsel
of InterCapital and DWSC, Lou Anne D. McInnis, Ruth Rossi and Carsten Otto, Vice
Presidents and Assistant General Counsels of InterCapital and DWSC, and Frank
Bruttomesso and Todd Lebo, Staff Attorneys with InterCapital, are Assistant
Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same individuals
also serve as directors or trustees for all of the Dean Witter Funds, and are
referred to in this section as Trustees. As of the date of this Statement of
Additional Information, there are a total of 84 Dean Witter Funds, comprised of
128 portfolios. As of December 31, 1997, the Dean Witter Funds had total net
assets of approximately $93.7 billion and more than six million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own any
stock or other securities issued by InterCapital's parent company, MSDWD. These
are the "disinterested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with InterCapital. Four of the seven
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Dean Witter Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Trustees who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1997,
the three Committees held a combined total of seventeen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Dean Witter Funds have such a plan.
9
<PAGE>
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Trustees to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of both
Committees and guides their efforts is pivotal to the effective functioning of
the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and with
the Funds' independent auditors. He arranges for a series of special meetings
involving the annual review of investment advisory, management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Manager and other service providers. In effect,
the Chairman of the Committees serves as a combination of chief executive and
support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and as Chairman
of the Committee of the Independent Trustees and the Audit Committee of the
TCW/DW Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees, and a Chairman of their Committees,
of the caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the
10
<PAGE>
Fund pays the Chairman of the Audit Committee an annual fee of $750 and pays the
Chairman of the Committee of the Independent Trustees an additional annual fee
of $1,200). If a Board meeting and a Committee meeting, or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by the Fund. The Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended October 31, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,700
Edwin J. Garn................................................. 1,900
John R. Haire................................................. 3,850
Wayne E. Hedien............................................... 482
Dr. Manuel H. Johnson......................................... 1,850
Michael E. Nugent............................................. 1,900
John L. Schroeder............................................. 1,900
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for services
to the 84 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31, 1997.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds. Mr. Hedien's term as Director or
Trustee of each Dean Witter Fund commenced on September 1, 1997.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS FOR SERVICE
CHAIRMAN OF AS TOTAL CASH
COMMITTEES OF CHAIRMAN OF COMPENSATION
FOR SERVICE INDEPENDENT COMMITTEES OF FOR SERVICES
AS DIRECTOR OR DIRECTORS/ INDEPENDENT TO
TRUSTEE AND FOR SERVICE AS TRUSTEES AND TRUSTEES AND 84 DEAN
COMMITTEE MEMBER TRUSTEE AND AUDIT AUDIT WITTER
OF 84 DEAN COMMITTEE MEMBER COMMITTEES OF COMMITTEES OF FUNDS AND
NAME OF WITTER OF 14 TCW/DW 84 DEAN WITTER 14 TCW/DW 14 TCW/DW
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS FUNDS FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $133,602 -- -- -- $133,602
Edwin J. Garn.............. 149,702 -- -- -- 149,702
John R. Haire.............. 149,702 $73,725 $157,463 $ 25,350 406,240
Wayne E. Hedien............ 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson...... 145,702 71,125 -- -- 216,827
Michael E. Nugent.......... 149,702 73,725 -- -- 223,427
John L. Schroeder.......... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under which
an Independent Trustee who retires after serving for at least five years (or
such lesser period as may be determined by the Board) as an Independent Director
or Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Trustee referred to as
an "Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Trustee
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing
11
<PAGE>
for the remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 25.0% of his or her Eligible Compensation plus 0.4166666% of
such Eligible Compensation for each full month of service as an Independent
Director or Trustee of any Adopting Fund in excess of five years up to a maximum
of 50.0% after ten years of service. The foregoing percentages may be changed by
the Board.(1) "Eligible Compensation" is one-fifth of the total compensation
earned by such Eligible Trustee for service to the Adopting Fund in the five
year period prior to the date of the Eligible Trustee's retirement. Benefits
under the retirement program are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended October 31,
1997 and by the 57 Dean Witter Funds (including the Fund) for the year ended
December 31, 1997, and the estimated retirement benefits for the Fund's
Independent Trustees, to commence upon their retirement, from the Fund as of
October 31, 1997 and from the 57 Dean Witter Funds as of December 31, 1997.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
--------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED --------------------- -------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------------- --------------- --------------- ------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic..................... 10 50.0% $ 372 $ 20,499 $ 925 $ 47,025
Edwin J. Garn..................... 10 50.0 534 30,878 925 47,025
John R. Haire..................... 10 50.0 (798) (19,823)(3) 2,246 127,897
Wayne E. Hedien................... 9 42.5 0 0 794 39,971
Dr. Manuel H. Johnson............. 10 50.0 225 12,832 925 47,025
Michael E. Nugent................. 10 50.0 383 22,546 925 47,025
John L. Schroeder................. 8 41.7 714 39,350 771 39,504
</TABLE>
- ------------------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until June 1, 1998.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
CONVERTIBLE SECURITIES
The Fund may invest in fixed-income securities which are convertible into
common stock. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function of
its "investment value" (its value as if it did not have a conversion privilege),
and its "conversion value" (the security's worth if it were to be exchanged for
the underlying security, at market value, pursuant to its conversion privilege).
12
<PAGE>
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security. Convertible securities may be purchased by the Fund
at varying price levels above their investment values and/or their conversion
values in keeping with the Fund's objectives.
WARRANTS
The Fund may acquire warrants which are attached to fixed-income securities
purchased for its portfolio and hold such warrants until the Investment Manager
determines it is prudent to sell. Warrants are, in effect, an option to purchase
equity securities at a specific price, generally valid for a specific period of
time, and have no voting rights, pay no dividends and have no rights with
respect to the corporations issuing them. If warrants remain unexercised at the
end of the exercise period, they will lapse and the Fund's investment in them
will be lost. The prices of warrants do not necessarily move parallel to the
prices of the underlying securities.
U.S. GOVERNMENT SECURITIES
Securities issued by the U.S. Government, its agencies or instrumentalities
in which the Fund may invest include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years), all of which are direct
obligations of the U.S. Government and, as such, are backed by the "full
faith and credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the
United States. Among the agencies and instrumentalities issuing such
obligations are the Federal Housing Administration, the Government National
Mortgage Association ("GNMA"), the Department of Housing and Urban
Development, the Export-Import Bank, the Farmers Home Administration, the
General Services Administration, the Maritime Administration and the Small
Business Administration. The maturities of such obligations range from three
months to 30 years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its
obligations, from an existing line of credit with the U.S. Treasury. Among
the agencies and instrumentalities issuing such obligations are the
Tennessee Valley Authority, the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and the U.S.
Postal Service.
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which
are backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal Farm
Credit System and the Federal Home Loan Banks.
Neither the value nor the yield of the U.S. Government securities which may
be invested in by the Fund is guaranteed by the U.S. Government. Such values and
yield will fluctuate with changes in prevailing interest rates and other
factors. Generally, as prevailing interest rates rise, the value of any U.S.
Government securities held by the Fund will fall. Such securities with longer
maturities generally tend to produce higher yields and are subject to greater
market fluctuation as a result of changes in interest rates than debt securities
with shorter maturities.
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<PAGE>
ZERO COUPON TREASURY SECURITIES
A portion of the U.S. Government securities purchased by the Fund may be
"zero coupon" Treasury securities. These are U.S. Treasury bills, notes and
bonds which have been stripped of their unmatured interest coupons and receipts
or which are certificates representing interests in such stripped debt
obligations and coupons. Such securities are purchased at a discount from their
face amount, giving the purchaser the right to receive their full value at
maturity. A zero coupon security pays no interest to its holder during its life.
Its value to an investor consists of the difference between its face value at
the time of maturity and the price for which it was acquired, which is generally
an amount significantly less than its face value (sometimes referred to as a
"deep discount" price). The Fund intends to invest in such zero coupon treasury
securities as STRIPS, Treasury Receipts, Physical Coupons, and Proprietary
Receipts.
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
MONEY MARKET INSTRUMENTS
As stated in the Prospectus, the money market instruments which the Fund may
purchase include U.S. Government securities, bank obligations, Eurodollar
certificates of deposit, obligations of savings institutions, fully insured
certificates of deposit and commercial paper. Such securities are limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1,000,000,000 or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of
$1,000,000,000 or more;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1,000,000,000
or more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1,000,000,000, if the
principal amount of the obligation is insured by the Bank Insurance Fund or the
Savings Association Insurance Fund (each of which is administered by the Federal
Deposit Insurance Corporation), limited to $100,000 principal amount per
certificate and to 10% or less of the Fund's total assets in all such
obligations and in all illiquid assets, in the aggregate;
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's ("S&P") or the highest grade by Moody's or, if not rated,
issued by a company having an outstanding debt issue rated at least AA by S&P or
Aa by Moody's.
14
<PAGE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between currency
traders and their customers. Such forward contracts will only be entered into
with United States banks and their foreign branches, insurance companies and
other dealers whose assets total $1 billion or more or foreign banks whose
assets total $1 billion or more. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades.
When management of the Fund believes that the currency of a particular
foreign country may suffer a substantial movement against the U.S. dollar, it
may enter into a forward contract to purchase or sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the Investment Manager believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will be served. The Fund's custodian bank will place
cash, U.S. Government securities, high grade debt securities or other liquid
securities in a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward contracts
entered into under the circumstances set forth above. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Fund of a foreign currency, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency. It is impossible to forecast the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio securities
if its market value exceeds the amount of foreign currency the Fund is obligated
to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has
15
<PAGE>
agreed to sell exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call or put option on a fixed-income
security or the currency in which it is denominated, it may wish to enter into a
forward contract to purchase or sell the foreign currency in which the security
is denominated. A forward contract would, for example, hedge the risk of the
security on which a call currency option has been written declining in value to
a greater extent than the value of the premium received for the option. The Fund
will maintain with its Custodian at all times, cash, U.S. Government securities,
or other liquid portfolio securities in a segregated account equal in value to
all forward contract obligations and option contract obligations entered into in
hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and covered put options on eligible
portfolio securities and stock indexes and purchase options of the same series
to effect closing transactions, and may hedge against potential changes in the
market value of investments (or anticipated investments) and facilitate the
reallocation of the Fund's assets into and out of equities and fixed-income
securities by purchasing put and call options on portfolio (or eligible
portfolio) securities and engaging in transactions involving futures contracts
and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on Exchanges (currently the Chicago Board Options
Exchange, American Stock Exchange, New York Stock Exchange, Pacific Stock
Exchange and Philadelphia Stock Exchange) and are written in over-the-counter
transactions ("OTC Options"). Listed options are issued by the Options Clearing
Corporation ("OCC"). Ownership of a listed call option gives the Fund the right
to buy from the OCC the underlying security covered by the option at the stated
exercise price (the price per unit of the underlying security) by filing an
exercise notice prior to the expiration date of the option. The writer (seller)
of the option would then have the obligation to sell to the OCC the underlying
security at that exercise price prior to the expiration date of the option,
regardless of its then current market price. Ownership of a listed put option
would give the Fund the right to sell the underlying security to the OCC at the
stated exercise price. Upon notice of exercise of the put option, the writer of
the put would have the obligation to purchase the underlying security from the
OCC at the exercise price.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited
16
<PAGE>
number of new expirations as the original ones expire. Options trading on each
issue of bonds or notes will thus be phased out as new options are listed on
more recent issues, and options representing a full range of expirations will
not ordinarily be available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian, so that they will
be treated as being covered.
OPTIONS ON GNMA CERTIFICATES. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, the Fund, as
a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy its
delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Fund will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA Certificates
in the cash market in order to maintain its cover. A GNMA Certificate held by
the Fund to cover an option position in any but the nearest expiration month may
cease to represent cover for the option in the event of a decline in the GNMA
coupon rate at which new pools are originated under the FHA/VA loan ceiling in
effect at any given time, as such decline may increase the prepayments made on
other mortgage pools. If this should occur, the Fund will no longer be covered,
and the Fund will either enter into a closing purchase transaction or replace
such Certificate with a Certificate which represents cover. When the Fund closes
out its position or replaces such Certificate, it may realize an unanticipated
loss and incur transaction costs.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S. dollar against such foreign currency. The Fund may also purchase
call and put options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which
it is denominated and the U.S. dollar, then a loss to the Fund occasioned by
such value decline would be ameliorated by receipt of the premium on the option
sold. At the same time, however, the Fund gives up the benefit of any rise in
value of the relevant portfolio securities above the exercise price of the
option and, in fact, only receives a benefit from the writing of the option to
the extent that the value of the portfolio securities falls below the price of
the premium received. A put option on a foreign currency would be written by the
Fund for the same reason it would purchase a call option, namely, to hedge
against an increase in the U.S. dollar value of a foreign security which the
Fund anticipates purchasing. Here, the receipt of the premium would offset, to
the extent of the size of the premium, any increased cost to the Fund resulting
from an increase in the U.S. dollar value of the foreign security. However, the
Fund could not benefit from any decline in the cost of the foreign security
which is greater than the price of the premium received. The Fund may also write
options to close out long put and call option positions.
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<PAGE>
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless and until, in the Investment Manager's opinion, the
market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in connection with
the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
OTC OPTIONS. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the Fund. With OTC options, such variables
as expiration date, exercise price and premium will be agreed upon between the
Fund and the transacting dealer, without the intermediation of a third party
such as the OCC. If the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms of
that option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted to
write covered call options on portfolio securities and the currencies in which
they are denominated, without limit, in order to aid in achieving its investment
objectives. Generally, a call option is "covered" if the Fund owns, or has the
right to acquire, without additional cash consideration (or for additional cash
consideration held for the Fund by its Custodian in a segregated account) the
underlying security (currency) subject to the option except that in the case of
call options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills of a
different series from those underlying the call option, but with a principal
amount and value corresponding to the exercise price and a maturity date no
later than that of the security (currency) deliverable under the call option. A
call option is also covered if the Fund holds a call on the same security as the
underlying security (currency) of the written option, where the exercise price
of the call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the mark
to market difference is maintained by the Fund in cash, U.S. Government
securities or other liquid portfolio securities which the Fund holds in a
segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (currencies) alone. Moreover,
the premium received will offset a portion of the potential loss incurred by the
Fund if the securities
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<PAGE>
(currencies) underlying the option are ultimately sold (exchanged) by the Fund
at a loss. The premium received will fluctuate with varying economic market
conditions. If the market value of the portfolio securities (or the currencies
in which they are denominated) upon which call options have been written
increases, the Fund may receive a lower total return from the portion of its
portfolio upon which calls have been written than it would have had such calls
not been written.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the amount of the premium received
on the call option is more or less than the cost of effecting the closing
purchase transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received for the option less the commission paid.
Options written by the Fund will normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written. See "Risks of Options Transactions," below.
COVERED PUT WRITING. As stated in the Prospectus, as a writer of a covered
put option, the Fund incurs an obligation to buy the security underlying the
option from the purchaser of the put, at the option's exercise price at any time
during the option period, at the purchaser's election (certain listed and OTC
put options written by the Fund will be exercisable by the purchaser only on a
specific date). A put is "covered" if, at all times, the Fund maintains, in a
segregated account maintained on its behalf at the Fund's Custodian, cash, U.S.
Government securities or other liquid portfolio securities in an amount equal to
at least the exercise price of the option, at all times during the option
period. Similarly, a short put position could be covered by the Fund by its
purchase of a put option on the same security (currency) as the underlying
security of the written option, where the exercise price of the purchased option
is equal to or more than the exercise price of the put written or less than the
exercise price of the put written if the marked to market difference is
maintained by the Fund in cash, U.S. Government securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained at
its Custodian. In writing puts, the Fund assumes the risk of loss should the
market value of the underlying security (currency) decline below the exercise
price of the option (any loss being decreased by the receipt of the premium on
the option written). In the case of listed options, during the option period,
the Fund may be required, at any time, to make payment of the exercise price
against delivery of the underlying security (currency). The operation of and
limitations on covered put options in other respects are substantially identical
to those of call options.
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<PAGE>
The Fund will write put options for three purposes: (1) to receive the
income derived from the premiums paid by purchasers; (2) when the Investment
Manager wishes to purchase the security (or a security denominated in the
currency underlying the option) underlying the option at a price lower than its
current market price, in which case it will write the covered put at an exercise
price reflecting the lower purchase price sought; and (3) to close out a long
put option position. The potential gain on a covered put option is limited to
the premium received on the option (less the commissions paid on the
transaction) while the potential loss equals the differences between the
exercise price of the option and the current market price of the underlying
securities (currencies) when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency, to hedge against an adverse exchange rate move
of the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. If the price
of the security (or value of the currency in which it is denominated) underlying
the option fails to rise above the exercise price by an amount exceeding the
price of the option premium, the Fund will sustain a loss equal to some or all
of the premium price. The purchase of the call option to effect a closing
transaction on a call written over-the-counter may be a listed or an OTC option.
In either case, the call purchased is likely to be on the same securities
(currencies) and have the same terms as the written option. If purchased
over-the-counter, the option would generally be acquired from the dealer or
financial institution which purchased the call written by the Fund.
The Fund may purchase put options on securities (currencies) which it holds
in its portfolio only to protect itself against a decline in the value of the
security. If the value of the underlying security (currency) were to fall below
the exercise price of the put purchased in an amount greater than the premium
paid for the option, the Fund would incur no additional loss. The Fund may also
purchase put options to close out written put positions in a manner similar to
call options closing purchase transactions. In addition, the Fund may sell a put
option which it has previously purchased prior to the sale of the securities
(currencies) underlying such option. Such a sale would result in a net gain or
loss depending on whether the amount received on the sale is more or less than
the premium and other transaction costs paid on the put option which is sold.
And such gain or loss could be offset in whole or in part by a change in the
market value of the underlying security (currency). If a put option purchased by
the Fund expired without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security (or the value of its denominated currency) increase, but has
retained the risk of loss should the price of the underlying security (or the
value of its denominated currency) decline. The secured put writer also retains
the risk of loss should the market value of the underlying security (or the
value of its denominated currency) decline below the exercise price of the
option less the premium received on the sale of the option. In both cases, the
writer has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver or receive the
underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so. A secured put option writer who is unable to
effect a closing purchase transaction or to purchase an offsetting OTC option
would continue to bear the risk of decline in the market price of the underlying
security until the option
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expires or is exercised. In addition, a secured put writer would be unable to
utilize the amount held in cash or U.S. Government or other liquid portfolio
securities as security for the put option for other investment purposes until
the exercise or expiration of the option.
As discussed in the Prospectus, the Fund's ability to close out its position
as a writer of an option is dependent upon the existence of a liquid secondary
market on Option Exchanges. There is no assurance that such a market will exist,
particularly in the case of OTC options, as such options will generally only be
closed out by entering into a closing purchase transaction with the purchasing
dealer. However, the Fund may be able to purchase an offsetting option which
does not close out its position as a writer but constitutes an asset of equal
value to the obligation under the option written. If the Fund is not able to
either enter into a closing purchase transaction or purchase an offsetting
position, it will be required to maintain the securities subject to the call, or
the collateral underlying the put, even though it might not be advantageous to
do so, until a closing transaction can be entered into (or the option is
exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would generally continue to be
excercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company and the Fund's intention to qualify as such (see
"Dividends, Distributions and Taxes" in the Prospectus).
FUTURES CONTRACTS. As stated in the Prospectus, the Fund may purchase and
sell interest rate, currency, and index futures contracts ("futures contracts"),
that are traded on U.S. and foreign commodity exchanges, on such underlying
securities as U.S. Treasury bonds, notes and bills and/or any foreign government
fixed-income security ("interest rate" futures), on various currencies
("currency futures") and on such indexes of U.S. and foreign fixed-income
securities as may exist or come into being, such as the Moody's Investment-Grade
Corporate Bond Index ("index" futures).
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The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) against changes in prevailing interest rates and to
alter the Fund's asset allocation in fixed-income securities. If the Investment
Manager anticipates that interest rates may rise and, concomitantly, the price
of fixed-income securities fall, or wishes to decrease the Fund's asset
allocation in fixed-income securities, the Fund may sell an interest rate
futures contract or a bond index futures contract. If declining interest rates
are anticipated or if the Investment Manager wishes to increase the Fund's asset
allocation of fixed-income securities, the Fund may purchase an interest rate
futures contract to protect against a potential increase in the price of U.S.
Government securities the Fund intends to purchase. Subsequently, appropriate
fixed-income securities may be purchased by the Fund in an orderly fashion; as
securities are purchased, corresponding futures positions would be terminated by
offsetting sales of contracts.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of security (currency) and the same delivery date. If the offsetting sale
price exceeds the purchase price, the purchaser would realize a gain, whereas if
the purchase price exceeds the offsetting sale price, the purchaser would
realize a loss. There is no assurance that the Fund will be able to enter into a
closing transaction.
INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other liquid portfolio
securities equal to approximately 3% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits of cash or U.S. Government
securities or other liquid portfolio securities called "variation margin," with
the Fund's futures contract clearing broker, which are reflective of price
fluctuations in the futures contract. Currently, interest rate futures contracts
can be purchased on debt securities such as U.S. Treasury Bills and Bonds, U.S.
Treasury Notes with Maturities between 6 1/2 and 10 years, GNMA Certificates and
Bank Certificates of Deposit.
CURRENCY FUTURES. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for a
set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and under
the same circumstances as forward foreign currency exchange contracts. The
Investment Manager will assess such factors as cost spreads, liquidity and
transaction costs in determining whether to utilize futures contracts or forward
contracts its in foreign currency transactions and hedging strategy. Currently,
currency futures exist for, among other foreign currencies, the Japanese yen,
West German marks, Canadian dollars, British pound, Swiss franc and European
currency unit.
Purchasers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within
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the country issuing the underlying currency. Thus, the Fund must accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign restrictions or regulation regarding the maintenance of foreign banking
arrangements by U.S. residents and may be required to pay any fees, taxes or
charges associated with such delivery which are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the Investment Manager's opinion, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying foreign
currency futures contracts.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or gain.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an Exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid), to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Investment
Manager wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, augment the total return of the
Fund and thereby provide a further hedge against losses resulting from price
declines in portions of the Fund's portfolio.
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The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. In addition, in accordance with the
regulations of the Commodity Futures Trading Commission ("CFTC") under which the
Fund is exempted from registration as a commodity pool operator, the Fund may
only enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. As stated
in the Prospectus, the Fund may sell a futures contract to protect against the
decline in the value of securities (or the currency in which they are
denominated) held by the Fund. However, it is possible that the futures market
may advance and the value of securities (or the currency in which they are
denominated) held in the portfolio of the Fund may decline. If this occurred,
the Fund would lose money on the futures contract and also experience a decline
in value of its portfolio securities. However, while this could occur for a very
brief period or to a very small degree, over time the value of a diversified
portfolio will tend to move in the same direction as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currencies) decreases, then the
Fund may determine not to invest in the securities as planned and will realize a
loss on the futures contract that is not offset by a reduction in the price of
the securities.
If the Fund has sold a call option in a futures contract, it will cover this
position by holding, in a segregated account maintained at its Custodian, cash,
U.S. Government securities or other liquid portfolio securities equal in value
(when added to any initial or variation margin on deposit) to the market value
of the securities (currencies) underlying the futures contract or the exercise
price of the option. Such a position may also be covered by owning the
securities (currencies) underlying the futures contract, or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the Fund
by its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
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contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit the Fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may occasion delays in the
settlement of the Fund's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Fund's portfolio securities (and the
currencies in which they are denominated). Another such risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the Fund seeks a hedge. A correlation
may also be distorted by the fact that the futures market is dominated by
short-term traders seeking to profit from the difference between a contract or
security price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Fund and the
movements in the prices of the securities (currencies) which are the subject of
the hedge. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationship between the debt securities
or currency markets and futures markets could result. Price distortions could
also result if investors in futures contracts opt to make or take delivery of
underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position, and in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel
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or prevent the Fund from closing out a contract which may result in reduced gain
or increased loss to the Fund. The absence of a liquid market in futures
contracts might cause the Fund to make or take delivery of the underlying
securities (currencies) at a time when it may be disadvantageous to do so.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes" in the
Prospectus).
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities (currencies).
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. A repurchase agreement may be
viewed as a type of secured lending by the Fund which typically involves the
acquisition by the Fund of government 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") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked-to-market daily to determine that the full
value of the collateral, as specified in the agreement, does not decrease below
the repurchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested from the counterparty and will be added to the
account to maintain full collateralization. In the event the original seller
defaults on its obligations to repurchase, as a result of its bankruptcy or
otherwise, the Fund will seek to sell the collateral, which action could involve
costs or delays. In such case, the Fund's ability to dispose of the collateral
to recover its investment may be restricted or delayed.
The Fund will accrue interest from the institution until the time when the
repurchase is to occur. Although such date is deemed by the Fund to be the
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits 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. Repurchase agreements will be transacted only with large,
well-capitalized and well-established financial institutions whose financial
condition will be continuously monitored by the Investment Manager subject to
procedures established by the Trustees. The procedures also require that the
collateral underlying the agreement be specified. The Fund does not presently
intend to enter into repurchase agreements so that more than 5% of the Fund's
net assets are subject to such agreements.
REVERSE REPURCHASE AGREEMENTS
The Fund may also use reverse repurchase agreements for purposes of meeting
redemptions or as part of its investment strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price.
Generally, the effect of such a transaction is that the Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise. Opportunities
to achieve this advantage may not always be available, and the Fund intends to
use the reverse repurchase technique only when it will be to its
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advantage to do so. The Fund will establish a segregated account with its
custodian bank in which it will maintain cash or cash equivalents or other
liquid portfolio securities (i.e. U.S. Government securities) equal in value to
its obligations in respect of reverse repurchase agreements. Reverse repurchase
agreements are considered borrowings by the Fund and, in accordance with legal
requirements, the Fund will maintain an asset coverage (including the proceeds)
of at least 300% with respect to all reverse repurchase agreements. Reverse
repurchase agreements may not exceed 10% of the Fund's total assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
As discussed in the Prospectus, from time to time, in the ordinary course of
business, the Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis. When
such transactions are negotiated, the price is fixed at the time of the
commitment, but delivery and payment can take place a month or more after the
date of the commitment. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during this period. While
the Fund will only purchase securities on a when-issued, delayed delivery or
forward commitment basis with the intention of acquiring the securities, the
Fund may sell the securities before the settlement date, if it is deemed
advisable. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in determining the net
asset value of the Fund. At the time of delivery of the securities, the value
may be more or less than the purchase price. The Fund will also establish a
segregated account with the Fund's custodian bank in which it will continuously
maintain cash or U.S. Government securities or other liquid portfolio securities
equal in value to commitments for such when-issued or delayed delivery
securities; subject to this requirement, the Fund may purchase securities on
such basis without limit. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued or delayed delivery
basis may increase the volatility of the Fund's net asset value. The Investment
Manager and the Trustees do not believe that the Fund's net asset value or
income will be adversely affected by its purchase of securities on such basis.
WHEN, AS AND IF ISSUED SECURITIES
As discussed in the Prospectus, the Fund may purchase securities on a "when,
as and if issued" basis under which the issuance of the security depends upon
the occurrence of a subsequent event, such as approval of a merger, corporate
reorganization, leveraged buyout or debt restructuring. The commitment for the
purchase of any such security will not be recognized in the portfolio of the
Fund until the Investment Manager determines that issuance of the security is
probable. At such time, the Fund will record the transaction and, in determining
its net asset value, will reflect the value of the security daily. At such time,
the Fund will also establish a segregated account with its custodian bank in
which it will continuously maintain cash or U.S. Government securities or other
liquid portfolio securities equal in value to recognized commitments for such
securities. Settlement of the trade will occur within five business days of the
occurrence of the subsequent event. The value of the Fund's commitments to
purchase the securities of any one issuer, together with the value of all
securities of such issuer owned by the Fund, may not exceed 5% of the value of
the Fund's total assets at the time the initial commitment to purchase such
securities is made (see "Investment Restrictions"). Subject to the foregoing
restrictions, the Fund may purchase securities on such basis without limit. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value. The Investment Manager and the Trustees do not believe that
the net asset value of the Fund will be adversely affected by its purchase of
securities on such basis. The Fund may also sell securities on a "when, as and
if issued" basis provided that the issuance of the security will result
automatically from the exchange or conversion of a security owned by the Fund at
the time of the sale.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the
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<PAGE>
Fund (subject to notice provisions described below), and are at all times
secured by cash or appropriate high-grade debt obligations, which are maintained
in a segregated account pursuant to applicable regulations and that are at least
equal to the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive the income on the
loaned securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations. The
Fund will not lend its portfolio securities if such loans are not permitted by
the laws or regulations of any state in which its shares are qualified for sale
and will not lend more than 25% of the value of its total assets. A loan may be
terminated by the borrower on one business days' notice, or by the Fund on two
business days' notice. If the borrower fails to deliver the loaned securities
within two days after receipt of notice, the Fund could use the collateral to
replace the securities while holding the borrower liable for any excess of
replacement cost over collateral. As with any extensions of credit, there are
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Fund's management to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks. Upon termination of the loan, the
borrower is required to return the securities to the Fund. Any gain or loss in
the market price during the loan period would inure to the Fund. The
creditworthiness of firms to which the Fund lends its portfolio securities will
be monitored on an ongoing basis by the Investment Manager pursuant to
procedures adopted and reviewed, on an ongoing basis, by the Board of Trustees
of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities. The Fund has not
to date lent any of its portfolio securities.
PORTFOLIO TRADING
It is anticipated that the Fund's portfolio turnover rate will not exceed
300% in any one year. A 300% turnover rate would occur, for example, if 300% of
the securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
The Fund may not:
1. Invest in securities of any issuer if, to the knowledge of the
Fund, any officer or trustee 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 issuers.
2. Purchase or sell real estate or interests therein, although the
Fund may purchase securities of issuers which engage in real estate
operations and securities secured by real estate or interests therein.
3. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
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<PAGE>
4. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets. However, the Fund may invest up to 10% of the value of its total
assets in the securities of foreign investment companies, but only under
circumstances where purchase of the securities of foreign investment
companies would secure entry to national markets which are otherwise not
open to the Fund for investment or where the security is issued by a foreign
bank which is deemed to be an investment company under U.S. securities laws
and/or regulations.
The Fund anticipates that it will incur any indirect expenses incurred
through investment in a foreign investment company, such as the payment of a
management fee. Furthermore, it should be noted that foreign investment
companies are not subject to the U.S. securities laws and may be subject to
fewer or less stringent regulations than U.S. investment companies.
5. Borrow money (except insofar as the Fund may be deemed to have
borrowed by entrance into a reverse repurchase agreement up to an amount not
exceeding 10% of the Fund's total assets), except that the Fund may borrow
from a bank for temporary or emergency purposes in amounts not exceeding 5%
(taken at the lower of cost or current value) of its total assets (not
including the amount borrowed).
6. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(5). For the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial or variation margin for futures are not deemed to be pledges of
assets.
7. Issue senior securities as defined in the Act except insofar as
the Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement; (b) purchasing
any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling futures contracts, forward foreign exchange contracts or options;
(d) borrowing money in accordance with restrictions described above; or (e)
lending portfolio securities.
8. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objectives and policies; (b) by investment in
repurchase or reverse repurchase agreements; or (c) by lending its portfolio
securities.
9. Make short sales of securities.
10. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the purchase
of a security on margin.
11. 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.
12. Invest for the purpose of exercising control or management of any
other issuer.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objectives by investing all or substantially all
of its assets in another investment company having substantially the same
investment objectives and policies as the Fund.
29
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
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. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. The Fund expects that the primary market for the securities in
which it intends to invest will generally be the over-the-counter market. In the
over-the-counter market, securities are generally traded 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 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. Options and futures
transactions will usually be effected through a broker and a commission will be
charged. 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 fiscal years ended October 31, 1995, 1996 and 1997, the
Fund paid a total of $63,973, $53,726 and $18,640, respectively, in brokerage
commissions.
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase 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, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain initial
and secondary public offerings, the Investment Manager may utilize a pro rata
allocation process based on the size of the Dean Witter Funds involved and the
number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager from obtaining a high quality of
brokerage and research services. In seeking to determine the reasonableness of
brokerage commissions paid in any transaction, the Investment Manager relies
upon its experience and knowledge regarding commissions generally charged by
various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on such
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.
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 prices 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
30
<PAGE>
information or opinions pertaining to investment; wire services; and appraisals
or evaluations of portfolio securities. During the fiscal year ended October 31,
1997, the Fund did not direct the payment of any brokerage commissions because
of research services provided.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the management fee paid to the Investment
Manager is not reduced by any amount that may be attributable to the value of
such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers. During the fiscal years ended October 31, 1995, 1996 and
1997, 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, Morgan Stanley & Co. Incorporated and other affiliated
brokers and dealers. In order for an affiliated broker or dealer to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by DWR and Morgan Stanley & Co. Incorporated must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on an exchange during a comparable period of time. This
standard would allow the affiliated broker or dealer to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the Trustees of the Fund,
including a majority of the Trustees who are not "interested" persons of the
Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer are consistent with the foregoing standard. During
the fiscal years ended October 31, 1995, 1996 and 1997, the Fund did not effect
any securities transactions with or through an affiliated broker or dealer.
During the fiscal year ended October 31, 1997, the Fund did not acquire any
securities of the ten brokers who executed the largest dollar amounts of the
Fund's portfolio transactions or of the ten dealers who executed the largest
dollar amounts of principal transactions with the Fund during the period, or
securities of the parents of those broker-dealers.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDWD. The Trustees of the
Fund, including a majority of the Trustees who are not, and were not at the time
they voted, interested persons of the Fund, as defined in the Act (the
"Independent Trustees"), approved, at their meeting held on June 30, 1997, the
current Distribution Agreement appointing the Distributor as exclusive
distributor of the Fund's shares and providing for the Distributor to bear
distribution expenses not borne by the Fund. The current Distribution Agreement
is substantively identical to the Fund's previous distribution agreement in all
material respects, except for the dates of effectiveness. By its terms, the
Distribution Agreement has an initial term ending April 30, 1998, and will
remain in effect from year to year thereafter if approved by the Board.
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<PAGE>
The Distributor bears all expenses incurred in providing services under the
Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws and pays filing fees in
accordance with state securities laws. The Fund and the Distributor have agreed
to indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. Under the Distribution Agreement, the
Distributor uses its best efforts in rendering services to the Fund, but in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations, the Distributor is not liable to the Fund or any
of its shareholders for any error of judgment or mistake of law or for any act
or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan") pursuant to which each Class, other than Class D, pays the
Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 0.85% of the average daily net assets of Class A and
Class C, respectively, and, with respect to Class B, 0.85% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or upon which such charge has been
waived, or (b) the average daily net assets of Class B. The Distributor also
receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares" in
the Prospectus). The Distributor has informed the Fund that it and/or DWR
received (a) approximately $338,000, $109,685 and $67,575 in contingent deferred
sales charges from Class B for the fiscal years ended October 31, 1995, 1996 and
1997, respectively, and (b) approximately $0 in front-end sales charges from
Class A for the fiscal year ended October 31, 1997, none of which was retained
by the Distributor. No contingent deferred sales charges were received from
Class A or Class C for the fiscal year ended October 31, 1997.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.20% of the average daily net assets of Class B
and 0.25% of the average daily net assets of Class C are currently each
characterized as a "service fee" under the Rules of the Association of the
National Association of Securities Dealers, Inc. (of which the Distributor is a
member). The "service fee" is a payment made for personal service and/or the
maintenance of shareholder accounts. The remaining portion of the Plan fees
payable by a Class, if any, is characterized as an "asset-based sales charge" as
such is defined by the aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Trustees, including
all of the Trustees of the Fund who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan (the "Independent 12b-1 Trustees"), cast in person at a
meeting called for the purpose of voting on the Plan, on January 31, 1989, by
DWR as the then sole shareholder of the Fund on February 1, 1989 and by the
shareholders holding a majority, as defined in the Act, of the outstanding
voting securities of the Fund at a Special Meeting of Shareholders of the Fund
held on June 26, 1990.
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all of the Independent 12b-1 Trustees, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon an internal reorganization the share distribution activities
theretofore performed for the Fund by DWR were assumed by the Distributor and
DWR's sales activities
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<PAGE>
are now being performed pursuant to the terms of a selected dealer agreement
between the Distributor and DWR. The amendments provide that payments under the
Plan will be made to the Distributor rather than to DWR as before the amendment,
and that the Distributor in turn is authorized to make payments to DWR, its
affiliates or other selected broker-dealers (or direct that the Fund pay such
entities directly). The Distributor is also authorized to retain part of such
fee as compensation for its own distribution-related expenses. At their meeting
held on April 28, 1993, the Trustees, including a majority of the Independent
12b-1 Trustees, approved certain technical amendments to the Plan in connection
with amendments adopted by the National Association of Securities Dealers, Inc.
to its Rules of the Association. At their meeting held on October 26, 1995, the
Trustees of the Fund, including all of the Independent 12b-1 Trustees, approved
an amendment to the Plan to permit payments to be made under the Plan with
respect to certain distribution expenses incurred in connection with the
distribution of shares, including personal services to shareholders with respect
to holdings of such shares, of an investment company whose assets are acquired
by the Fund in a tax-free reorganization. At their meeting held on June 30,
1997, the Trustees, including a majority of the Independent 12b-1 Trustees,
approved amendments to the Plan to reflect the multiple-class structure for the
Fund, which took effect on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended by the Distributor under the Plan and
the purpose for which such expenditures were made. Class B shares of the Fund
accrued amounts payable to the Distributor under the Plan, during the fiscal
year ended October 31, 1997, of $881,250. This amount is equal to 0.85% of the
Fund's average daily net assets for the fiscal year and was calculated pursuant
to clause (b) of the compensation formula under the Plan. This amount is treated
by the Fund as an expense in the year it is accrued. For the fiscal period July
28 through October 31, 1997, Class A and Class C shares of the Fund accrued
payments under the Plan amounting to $169 and $165, respectively, which amounts
are equal to 0.25% and 0.85% of the average daily net assets of Class A and
Class C, respectively, for such period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set forth
in the Prospectus.
With respect to Class A shares, DWR compensates its account executives by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 4.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.20% of the current value of
the respective accounts for which they are the account executives or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by employer-sponsored 401(k) and other
plans qualified under Section 401(a) of the Internal Revenue Code ("Qualified
Retirement Plans") for which Dean Witter Trust FSB ("DWT") serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, the Investment Manager compensates DWR's
account executives by paying them, from its own funds, a gross sales credit of
1.0% of the amount sold.
With respect to Class B shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 4.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.20% of the current value (not including reinvested
dividends or distributions) of the amount sold in all cases. In the case of
Class B shares purchased on or after July 28, 1997 by Qualified Retirement Plans
for which DWT serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, DWR
compensates its account executives by paying them, from its own funds, a gross
sales credit of 3.0% of the amount sold.
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<PAGE>
With respect to Class C shares, DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 0.85% of the current value of
the respective accounts for which they are the account executives of record.
With respect to Class D shares other than shares held by participants in
InterCapital's mutual fund asset allocation program, the Investment Manager
compensates DWR's account executives by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of up
to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid if
the Class D shares are redeemed in the first year and a chargeback of 50% of the
amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's account executives by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the account executives of record (not including accounts of
participants in the InterCapital mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR to
its account executives and DWR's Fund-associated distribution-related expenses,
including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (d) other
expenses relating to branch promotion of Fund sales. The distribution fee that
the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred under the Plan on behalf of the Fund and, in the
case of Class B shares, opportunity costs, such as the gross sales credit and an
assumed interest charge thereon ("carrying charge"). In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received by
the Distributor upon redemption of shares of the Fund. No other interest charge
is included as a distribution expense in the Distributor's calculation of its
distribution costs for this purpose. The broker's call rate is the interest rate
charged to securities brokers on loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of Class
A, and 0.85%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C will
be reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to account executives, such amounts shall be
determined at the beginning of each calendar quarter by the Trustees, including
a majority of the Independent 12b-1 Trustees. Expenses representing the service
fee (for Class A) or a gross sales credit or a residual to account executives
(for Class C) may be reimbursed without prior determination. In the event that
the Distributor proposes that monies shall be reimbursed for other than such
expenses, then in making quarterly determinations of the amounts that may be
reimbursed by the Fund, the Distributor will provide and the Trustees will
review a quarterly budget of projected distribution expenses to be incurred on
behalf of the Fund, together with a report explaining the purposes and
anticipated benefits of incurring such expenses. The Trustees will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A and
Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended October 31, 1997 to the Distributor. The
Distributor and DWR estimate that they have spent,
34
<PAGE>
pursuant to the Plan, $36,026,861 on behalf of the Fund since the inception of
the Fund. It is estimated that this amount was spent in approximately the
following ways: (i) 7.13% ($2,568,946)--advertising and promotional expenses;
(ii) 0.59% ($212,634)--printing of prospectuses for distribution to other than
current shareholders; and (iii) 92.28% ($33,245,281)--other expenses, including
the gross sales credit and the carrying charge, of which 14.86% ($4,939,032)
represents carrying charges, 33.12% ($11,011,131) represents commission credits
to DWR branch offices for payments of commissions to account executives; and
52.02% ($17,295,118) represents overhead and other branch office
distribution-related expenses. These amounts represent amounts paid by Class B
only; there were no Class A or Class C shares outstanding on such date. The
amounts accrued by Class A and Class C for distribution during the fiscal period
July 28 through October 31, 1997 were for expenses that relate to compensation
of sales personnel and associated overhead expenses.
In the case of Class B shares at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares the
excess distribution expenses, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares, totalled $8,370,199 as of
October 31, 1997. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses with respect to Class B
shares or any requirement that the Plan be continued from year to year, this
excess amount does not constitute a liability of the Fund. Although there is no
legal obligation for the Fund to pay expenses incurred in excess of payments
made to the Distributor under the Plan and the proceeds of contingent deferred
sales charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in which
to treat such expenses. Any cumulative expenses incurred, but not yet recovered
through distribution fees or contingent deferred sales charges, may or may not
be recovered through future distribution fees or contingent deferred sales
charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct financial
interest in the operation of the Plan except to the extent that the Distributor,
InterCapital, DWR, DWSC or certain of their employees may be deemed to have such
an interest as a result of benefits derived from the successful operation of the
Plan or as a result of receiving a portion of the amounts expended thereunder by
the Fund.
Under its terms, the Plan had an initial term ending April 30, 1989, and
will remain in effect from year to year thereafter, provided such continuance is
approved annually by a vote of the Independent 12b-1 Trustees in the manner
described above. Prior to the Board's approval of amendments to the Plan to
reflect the multiple-class structure for the Fund, the most recent continuance
of the Plan for one year, until April 30, 1998, was approved by the Board of
Trustees of the Fund, including a majority of the Independent 12b-1 Trustees, at
a Board meeting held on April 24, 1997. Prior to approving continuation of the
Plan, the Trustees requested and received from the Distributor and reviewed all
the information which they deemed necessary to arrive at an informed
determination. In making their determination to continue the Plan, the Trustees
considered: (1) the Fund's experience under the Plan and whether such experience
indicates that the Plan is operating as anticipated; (2) the benefits the Fund
had obtained, was obtaining and would be likely to obtain under the Plan; and
(3) what services had been provided and were continuing to be provided under the
Plan to the Fund and its shareholders. Based upon their review, the Trustees of
the Fund, including each of the Independent 12b-1 Trustees, determined that
continuation of the Plan would be in the best interest of the Fund and would
have a reasonable likelihood of continuing to benefit the Fund and its
shareholders. In the Trustees' quarterly review of the Plan, they will consider
its continued appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of
35
<PAGE>
the Independent 12b-1 Trustees or by a vote of a majority of the outstanding
voting securities of the Fund (as defined in the Act) on not more than thirty
days' written notice to any other party to the Plan. So long as the Plan is in
effect, the election and nomination of Independent 12b-1 Trustees shall be
committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
As stated in the Prospectus, short-term securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost,
unless the Trustees determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other short-term debt securities will be valued on a
mark-to-market basis until such time as they reach a remaining maturity of sixty
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Listed options are valued at the latest sale
price on the exchange on which they are listed unless no sales of such options
have taken place that day, in which case they will be valued at the mean between
their latest bid and asked prices. Unlisted options are valued at the mean
between their latest bid and asked prices. Futures are valued at the latest sale
price on the commodities exchange on which they trade unless the Trustees
determine such price does not reflect their market value. All other securities
and other assets are valued at their fair value as determined in good faith
under procedures established by and under the supervision of the Trustees.
The net asset value per share for each Class of shares of the Fund is
determined once daily as of 4:00 p.m., New York time (or, on days when the New
York Stock Exchange closes prior to 4:00 p.m., at such earlier time), on each
day that the New York Stock Exchange is open. The New York Stock Exchange
currently observes the following holidays: New Year's Day, Reverend Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Dean Witter Funds that are multiple class funds
("Dean Witter Multi-Class Funds") or shares of other Dean Witter Funds sold with
a front-end sales charge purchased at a price including a front-end sales charge
having a current value of $5,000, and purchases $20,000 of additional shares of
the Fund, the sales charge applicable to the $20,000 purchase would be 4.0% of
the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Distributor or Dean Witter Trust FSB (the "Transfer Agent")
fails to confirm the investor's represented holdings.
36
<PAGE>
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Dean Witter Funds
held by the shareholder which were previously purchased at a price including a
front-end sales charge (including shares of the Fund and other Dean Witter Funds
acquired in exchange for those shares, and including in each case shares
acquired through reinvestment of dividends and distributions) will be added to
the cost or net asset value of shares of the Fund owned by the investor.
However, shares of "Exchange Funds" (see "Shareholder Services--Exchange
Privilege") and the purchase of shares of other Dean Witter Funds will not be
included in determining whether the stated goal of a Letter of Intent has been
reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to a
CDSC payable upon most redemptions within six years after purchase. As stated in
the Prospectus, a CDSC will be imposed on any redemption by an investor if after
such redemption the current value of the investor's Class B shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current net
asset value of shares purchased through reinvestment of dividends or
distributions of the Fund or another Dean Witter Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) the current net asset value of shares
acquired in exchange for (i) shares of Dean Witter front-end sales charge funds,
or (ii) shares of other Dean Witter Funds for which shares of front-end sales
charge funds have been exchanged (see "Shareholder Services--Exchange
Privilege"), plus
37
<PAGE>
(d) increases in the net asset value of the investor's shares above the total
amount of payments for the purchase of Fund shares made during the preceding six
(three) years. The CDSC will be paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Dean Witter front-end sales charge funds, or
for shares of other Dean Witter funds for which shares of front-end sales charge
funds have been exchanged. A portion of the amount redeemed which exceeds an
amount which represents both such increase in value and the value of shares
purchased more than six years (or, in the case of shares held by certain
Qualified Retirement Plans, three years) prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/ or shares
acquired in the above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable to
most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ---------------------------------------- ---------------------
<S> <C>
First................................... 5.0%
Second.................................. 4.0%
Third................................... 3.0%
Fourth.................................. 2.0%
Fifth................................... 2.0%
Sixth................................... 1.0%
Seventh and thereafter.................. None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified Retirement
Plans for which DWT serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ---------------------------------------- ---------------------
<S> <C>
First................................... 2.0%
Second.................................. 2.0%
Third................................... 1.0%
Fourth and thereafter................... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
38
<PAGE>
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the Transfer
Agent. This is an open account in which shares owned by the investor are
credited by the Transfer Agent in lieu of issuance of a share certificate. If a
share certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares and may be redeposited
in the account at any time. There is no charge to the investor for issuance of a
certificate. Whenever a shareholder-instituted transaction takes place in the
Shareholder Investment Account, the shareholder will be mailed a confirmation of
the transaction from the Fund or from DWR or other selected broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid, at the net asset value per share, in
shares of the applicable Class of the Fund (or in cash if the shareholder so
requests) as of the close of business on the record date. At any time an
investor may request the Transfer Agent, in writing, to have subsequent
dividends and/or capital gains distributions paid to him or her in cash rather
than shares. To assure sufficient time to process the change, such request
should be received by the Transfer Agent at least five business days prior to
the record date of the dividend or distribution. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payments will be made to DWR or other selected
broker-dealer, and will be forwarded to the shareholder, upon the receipt of
proper instructions. It has been and remains the Fund's policy and practice
that, if checks for dividends or distributions paid in cash remain uncashed, no
interest will accrue on amounts represented by such uncashed checks.
TARGETED DIVIDENDS.-SM- In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Dean Witter Fund
other than Dean Witter World Wide Income Trust or in another Class of Dean
Witter World Wide Income Trust. Such investment will be made as described above
for automatic investment in shares of the applicable Class of the Fund, at the
net asset value per share of the selected Dean Witter Fund as of the close of
business on the payment date of the dividend or distribution and will begin to
earn dividends, if any, in the selected Dean Witter Fund the next business day.
To participate in the Targeted Dividends program, shareholders should contact
their DWR or other selected broker-dealer account executive or the Transfer
Agent. Shareholders of the Fund must be shareholders of the selected Class of
the Dean Witter Fund targeted to receive investments from dividends at the time
they enter the Targeted Dividends program. Investors should review the
prospectus of the targeted Dean Witter Fund before entering the program.
EASYINVEST.-SM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated
39
<PAGE>
the same business day the transfer of funds is effected (subject to any
applicable sales charges). Shares of the Dean Witter money market funds redeemed
in connection with EasyInvest are redeemed on the business day preceding the
transfer of funds. For further information or to subscribe to EasyInvest,
shareholders should contact their DWR or other selected broker-dealer account
executive or the Transfer Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares of
the applicable Class at net asset value, without the imposition of a CDSC upon
redemption, by returning the check or the proceeds to the Transfer Agent within
30 days after the payment date. If the shareholder returns the proceeds of a
dividend or distribution, such funds must be accompanied by a signed statement
indicating that the proceeds constitute a dividend or distribution to be
invested. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any amount, not less
than $25, or in any whole percentage of the account balance, on an annualized
basis. Any applicable CDSC will be imposed on shares redeemed under the
Withdrawal Plan (see "Purchase of Fund Shares"). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable CDSC) to the
shareholder will be the designated monthly or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent within five business days after the date of redemption.
The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her Account Executive or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature guarantees
required in the manner described above. The shareholder may also terminate the
Withdrawal Plan at any time by written notice to the Transfer Agent. In the
event of such termination, the account will be continued as a regular
shareholder investment account. The shareholder may also redeem all or part of
the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
40
<PAGE>
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to Dean Witter World Wide Income Trust, and indicating the
selected Class, directly to the Fund's Transfer Agent. In the case of Class A
shares, after deduction of any applicable sales charge, the balance will be
applied to the purchase of Fund shares, and, in the case of shares of the other
Classes, the entire amount will be applied to the purchase of Fund shares, at
the net asset value per share next computed after receipt of the check or
purchase payment by the Transfer Agent. The shares so purchased will be credited
to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of the same Class of shares of any other
Dean Witter Multi-Class Fund without the imposition of any exchange fee. Shares
may also be exchanged for shares of any of the following funds: Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust
and five Dean Witter Funds which are money market funds (the foregoing nine
funds are hereinafter referred to as the "Exchange Funds"). Class A shares may
also be exchanged for shares of Dean Witter Multi-State Municipal Series Trust
and Dean Witter Hawaii Municipal Trust, which are Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Class B shares may also be exchanged for
shares of Dean Witter Global Short-Term Income Fund Inc. ("Global Short-Term"),
which is a Dean Witter Funds offered with a CDSC. Exchanges may be made after
the shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment. An exchange
will be treated for federal income tax purposes the same as a repurchase or
redemption of shares, on which the shareholder may realize a capital gain or
loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the captions "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Dean Witter
Multi-Class Fund or Global Short-Term are exchanged for shares of an Exchange
Fund, the exchange is executed at no charge to the shareholder, without the
imposition of the CDSC at the time of the exchange. During the period of time
the shareholder remains in the Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired), the holding period
or "year since purchase payment made" is frozen. When shares are redeemed out of
an Exchange Fund, they will be subject to a CDSC which would be based upon the
period of time the shareholder held shares in a Dean Witter Multi-Class Fund or
in Global Short-Term. However, in the case of shares exchanged for shares of an
Exchange Fund on or after April 23, 1990, upon a redemption of shares which
results in a CDSC being imposed, a credit (not to exceed the amount of the CDSC)
will be given in an amount equal to the Exchange Fund 12b-1 distribution fees
incurred on or after that date which are attributable to those shares.
Shareholders acquiring shares of an Exchange Fund or a money market fund
pursuant to this exchange privilege may exchange those shares back into a Dean
Witter Multi-Class Fund or Global Short-Term from the Exchange Fund, with no
CDSC being imposed on such exchange. The holding period previously frozen when
shares were first exchanged for shares of the Exchange Fund resumes on the last
day of the month in which shares of a Dean Witter Multi-Class Fund or Global
Short-Term Fund are reacquired. A CDSC is imposed only upon an ultimate
redemption, based upon the time (calculated as described above) the shareholder
was invested in a CDSC Fund, a Dean Witter Multi-Class Fund or in
41
<PAGE>
Global Short-Term. In the case of exchanges of Class A shares which are subject
to a CDSC, the holding period also includes the time (calculated as described
above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Dean Witter Multi-Class Fund or in
Global Short-Term are exchanged for shares of a Dean Witter Multi-Class Fund,
shares of Global Short-Term, shares of a FSC Fund, or shares of an Exchange
Fund, the date of purchase of the shares of the fund exchanged into, for
purposes of the CDSC upon redemption, will be the last day of the month in which
the shares being exchanged were originally purchased. In allocating the purchase
payments between funds for purposes of the CDSC, the amount which represents the
current net asset value of shares at the time of the exchange which were (i)
purchased more than one, three or six years (depending upon the CDSC schedule
applicable to the shares) prior to the exchange, (ii) originally acquired
through reinvestment of dividends or distributions of the Fund or another Dean
Witter Fund and (iii) acquired in exchange for shares of FSC Funds, or for
shares of other Dean Witter Funds for which shares of FSC Funds have been
exchanged (all such shares called "Free Shares"), will be exchanged first. After
an exchange, all dividends earned on shares in an Exchange Fund will be
considered Free Shares. If the exchanged amount exceeds the value of such Free
Shares, an exchange is made, on a block-by-block basis, of non-Free Shares held
for the longest period of time (except that with respect to Class B shares, if
shares held for identical periods of time but subject to different CDSC
schedules are held in the same Exchange Privilege account, the shares of that
block that are subject to a lower CDSC rate will be exchanged prior to the
shares of that block that are subject to a higher CDSC rate). Shares equal to
any appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free Shares of
the fund exchanged into will be equal to the lesser of (a) the purchase payments
for, or (b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on a
pro rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the Prospectus under the caption
"Purchase of Fund Shares," any applicable CDSC will be imposed upon the ultimate
redemption of shares of any fund, regardless of the number of exchanges since
those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. The
Transfer Agent shall be liable for its own negligence and not for the default or
negligence of its correspondents or for losses in transit. The Fund shall not be
liable for any default or negligence of the Transfer Agent, the Distributor or
any selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid Asset
Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter New York
Municipal Money Market Trust and Dean Witter California Tax-Free Daily Income
Trust, although those funds may, at their discretion, accept initial investments
of as low as $1,000. The minimum initial
42
<PAGE>
investment for the Exchange Privilege account of each Class is $10,000 for Dean
Witter Short-Term U.S. Treasury Trust, although that fund, at its discretion,
may accept initial purchases of as low as $5,000. The minimum initial investment
for the Exchange Privilege account of each Class is $5,000 for Dean Witter
Special Value Fund. The minimum initial investment for the Exchange Privilege
account of each Class for all other Dean Witter Funds for which the Exchange
Privilege is available is $1,000.) Upon exchange into an Exchange Fund, the
shares of that fund will be held in a special Exchange Privilege Account
separately from accounts of those shareholders who have acquired their shares
directly from that fund. As a result, certain services normally available to
shareholders of those funds, including the check writing feature, will not be
available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of an
Exchange Fund pursuant to the Exchange Privilege, and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective(s), policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption. The share certificate, or an accompanying
stock power, and the request for redemption, must be signed by the shareholder
or shareholders exactly as the shares are registered. Each request for
redemption, whether or not accompanied by a share certificate, must be sent to
the Fund's Transfer Agent, which will redeem the shares at their net asset value
next computed (see "Purchase of Fund Shares" in the Prospectus) after it
receives the request, and certificate, if any, in good order. Any redemption
request received after such computation will be redeemed at the next determined
net asset value. The term "good order" means that the share certificate, if any,
and request for redemption are properly signed, accompanied by any documentation
required by the Transfer Agent, and bear signature guarantees when required by
the Fund or the Transfer Agent. If redemption is requested by a corporation,
partnership, trust or fiduciary, the Transfer Agent may require that written
evidence of authority acceptable to the Transfer Agent be submitted before such
request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address,
43
<PAGE>
signatures must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A stock power may be obtained from any dealer or commercial bank.
The Fund may change the signature guarantee requirements from time to time upon
notice to shareholders, which may be by means of a supplement to the prospectus
or a new prospectus.
REPURCHASE. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by DWR
and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares of any Class presented for repurchase or redemption will be
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. Such payment may be postponed
or the right of redemption suspended at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a certified or bank cashier's
check), payment of redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the proceeds of the check by the
Transfer Agent). It has been and remains the Fund's policy and practice that, if
checks for redemption proceeds remain uncashed, no interest will accrue on
amounts represented by such uncashed checks. Shareholders maintaining margin
accounts with DWR or another selected broker-dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may within 35 days after the date of
redemption or repurchase reinstate any portion of all of the proceeds of such
redemption or repurchase in shares of the Fund in the same Class at the net
asset value next determined after a reinstatement request, together with such
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes,
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
44
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will pay federal income
tax thereon, and, if the Fund makes an election, the shareholders would include
such undistributed gains in their income and shareholders will be able to claim
their share of the tax paid by the Fund as a credit against their individual
federal income tax.
In computing net investment income, the Fund will not amortize premiums or
accrue discounts on fixed-income securities in the portfolio, except those
original issue discounts or acquisition discounts for which accrual is required
for federal income tax purposes. Additionally, with respect to market discounts
on bonds, a portion of any capital gain realized upon disposition may be
characterized as taxable ordinary income. Realized gains and losses on security
transactions are determined on the identified cost method.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by the Fund for more than
twelve months. Gains or losses on the sale of securities held for twelve months
or less will be short-term gains or losses.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction. The Treasury intends to issue regulations to
permit shareholders to take into account their proportionate share of the Fund's
capital gains distributions that will be subject to a reduced rate under the
Taxpayer Relief Act of 1997. The Taxpayer Relief Act reduced the maximum tax on
long-term capital gains from 28% to 20%; however, it also lengthened the
required holding period to obtain this lower rate from more than twelve months
to more than eighteen months. These lower rates do not apply to collectibles and
certain other assets. Additionally, the maximum capital gain rate for assets
that are held more than five years and that are acquired after December 31, 2000
is 18%.
Any ordinary income 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 company by the exact amount of
the dividend or capital gains distribution. Furthermore, capital gains
distributions and ordinary income dividends are subject to federal income taxes.
If the net asset value of the shares should be reduced below a shareholder's
cost as a result of the payment of dividends or realized long-term capital
gains, such payment 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 taxable to the shareholder. Therefore, an investor should consider the tax
implications of purchasing Fund shares immediately prior to a dividend or
distribution record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains during the
six-month period.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986 (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.
In addition, the Fund intends to distribute to its shareholders each calendar
year a sufficient amount of ordinary income and capital gains to avoid the
imposition of a 4% excise tax. Shareholders will normally have to pay federal
income taxes, and any state and/or local income taxes, on the dividends and
distributions they receive from the Fund. Such dividends and distributions, to
the extent that they are derived from net investment income or short-term
capital gains, are taxable to the shareholder as ordinary income regardless of
whether the shareholder receives such payments in additional shares or in cash.
Any dividends declared in the last quarter of any calendar year which are paid
in the following year prior to February 1 will be deemed received by the
shareholder in the prior year.
Dividends, interest and capital gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States
45
<PAGE>
may reduce or eliminate such taxes. Investors may be entitled to claim United
States foreign tax credits with respect to such taxes, subject to certain
provisions and limitations contained in the Code. If more than 50% of the Fund's
total assets at the close of its fiscal year consist of securities of foreign
corporations, the Fund would be eligible and would determine whether or not to
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their respective pro rata
portions of such withholding taxes in their United States income tax returns as
gross income, treat such respective pro rata portions as taxes paid by them, and
deduct such respective pro rata portions in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their United States
income taxes. If the Fund does elect to file the election with the Internal
Revenue Service, the Fund will report annually to its shareholders the amount
per share of such withholding.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies will be qualifying income for purposes of
determining whether the Fund qualifies as a regulated investment company. It is
currently unclear, however, who will be treated as the issuer of a foreign
currency instrument or how foreign currency options, futures, or forward foreign
currency contracts will be valued for purposes of the regulated investment
company diversification requirements applicable to the Fund. The Fund may
request a private letter ruling from the Internal Revenue Service on some or all
of these issues.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts," and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains derived with respect to foreign fixed-income securities
are also subject to Section 988 treatment. In general, however, Code Section 988
gains or losses will increase or decrease the amount of the Fund's investment
company taxable income available to be distributed to shareholders as ordinary
income, rather than increasing or decreasing the amount of the Fund's net
capital gain. Additionally, if Code Section 988 losses exceed other investment
company taxable income during a taxable year, the Fund would not be able to make
any ordinary dividend distributions.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes,
including information as to the portion taxable as ordinary income, the portion
taxable as long-term capital gains and the portion eligible for the dividends
received deduction. To avoid being subject to a 31% federal backup withholding
tax on taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers must
be furnished and certified as to their accuracy.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. These
figures are computed separately for Class A, Class B, Class C and Class D
shares. Yield is calculated for any 30-day period as follows: the amount of
interest income for each security in the Fund's portfolio is determined in
accordance with regulatory requirements; the total for the entire portfolio
constitutes the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income" of each Class. The
resulting amount is divided by the product of the maximum offering price per
share on the last day of the period multiplied by the average number of shares
of the applicable Class outstanding during the period that were entitled to
dividends. This amount is added to 1 and raised to the sixth power. 1 is then
subtracted from the result and the difference is multiplied by 2 to arrive at
the annualized yield. The yields for the 30-day period ended October 31, 1997,
calculated pursuant to the formula described above, were 4.86%, 4.52%, 4.50%,
and 5.26% for Class A, Class B, Class C, and Class D, respectively.
46
<PAGE>
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D for specified periods by
determining the aggregate percentage rate which will result in the ending value
of a hypothetical $1,000 investment made at the beginning of the period. For the
purpose of this calculation, it is assumed that all dividends and distributions
are reinvested. The formula for computing aggregate total return involves a
percentage obtained by dividing the ending value by the initial $1,000
investment and subtracting 1 from the result. The ending redeemable value is
reduced by any CDSC at the end of the period. Based on the foregoing
calculations, the total returns for the period July 28, 1997 through October 31,
1997 were -2.08%, 1.12% and 2.44% for Class A, Class C and Class D,
respectively.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value is
reduced by any CDSC at the end of the one, five or ten year or other period. For
the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual total
return involves a percentage obtained by dividing the ending redeemable value by
the amount of the initial investment, taking a root of the quotient (where the
root is equivalent to the number of years in the period) and subtracting 1 from
the result. The average annual returns of the Fund for the fiscal year ended
October 31, 1997, for the five years ended October 31, 1997 and for the period
March 30, 1989 (commencement of the Fund's operations) through October 31, 1997
were 2.21%, 7.08% and 7.07%, respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for Class A
or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the performance quoted. For example, the average annual
total return of the Fund may be calculated in the manner described above, but
without deduction for any applicable sales charge. Based on this calculation,
the average annual total returns of Class B for the fiscal year ended October
31, 1997, for the five years ended October 31, 1997 and for the period March 30,
1989 (commencement of operations) through October 31, 1997 were 7.05%, 7.38% and
7.07%, respectively.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without the reduction for any sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based upon the foregoing
calculation, the total return for Class B for the fiscal year ended October 31,
1997 was 7.05%, for the five years ended October 31, 1997 was 42.78%, and for
the period March 30, 1989 (commencement of operations) through October 31, 1997
was 79.87%. Based on the foregoing calculations, the total returns for Class A,
Class C and Class D for the period July 28 through October 31, 1997 were 2.27%,
2.12% and 2.44%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,575, $48,250 and $97,250 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each
47
<PAGE>
of Class B, Class C and Class D, as the case may be. Investments of $10,000,
$50,000 and $100,000 in each Class at inception of the Class would have grown
(declined) to the following amounts at October 31, 1997:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION ---------------------------------
CLASS DATE $10,000 $50,000 $100,000
- ------------------------------------------------------------------ ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Class A........................................................... 7/28/97 $ 9,792 $ 49,345 $ 99,458
Class B........................................................... 3/30/89 $ 17,987 $ 89,935 $ 179,870
Class C........................................................... 7/28/97 $ 10,212 $ 51,060 $ 102,120
Class D........................................................... 7/28/97 $ 10,244 $ 51,220 $ 102,440
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES OF THE FUND
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. All of the Trustees have been elected by the shareholders of the Fund,
most recently at a Special Meeting of Shareholders held on May 21, 1997. The
Trustees themselves have the power to alter the number and the terms of office
of the Trustees, and they may at any time lengthen 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 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 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's property
for satisfaction of claims arising in connection with the affairs of the Fund.
With the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liabilities
in connection with the affairs of the Fund.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. The Trustees have not presently authorized any such
additional series or classes of shares other than as set forth in the
Prospectus.
The Trust 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 Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust FSB, Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07302 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust FSB is an affiliate of Dean Witter InterCapital Inc., the Fund's
Investment Manager and Dean Witter Distributors Inc., the Fund's Distributor. As
Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust FSB's
responsibilities include maintaining shareholder accounts, disbursing cash
dividends and reinvesting dividends, processing account registration changes,
handling purchase and redemption transactions, mailing prospectuses and reports,
mailing and tabulating proxies, processing share certificate transactions, and
maintaining shareholder records and lists. For these services Dean Witter Trust
FSB receives a per shareholder account fee.
48
<PAGE>
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report, containing
financial statements audited by independent accountants, will be sent to
shareholders each year.
The Fund's fiscal year ends on October 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund for the year ended October 31, 1997
included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
49
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT & CORPORATE BONDS (78.0%)
GREECE (2.3%)
GOVERNMENT OBLIGATION
GRD 613,000 Republic of Greece+....................................................... 11.00% 11/26/99 $ 2,150,019
-------------
SPAIN (6.5%)
GOVERNMENT OBLIGATION
ESP 865,000 Spain Treasury Bond+...................................................... 11.45 08/30/98 6,231,657
-------------
UNITED STATES (69.2%)
U. S. GOVERNMENT & AGENCY OBLIGATIONS
$ 1,029 Federal National Mortgage Assoc........................................... 7.00 05/01/12 1,042,609
10/15/22-
23,873 Government National Mortgage Assoc........................................ 7.00 09/15/27 23,992,124
14,000 Government National Mortgage Assoc........................................ 7.00 * 14,070,000
9,750 U.S. Treasury Bond+....................................................... 13.125 05/15/01 12,029,745
13,000 U.S. Treasury Bond+....................................................... 6.375 08/15/27 13,397,540
1,500 U.S. Treasury Note+....................................................... 6.125 08/15/07 1,533,045
-------------
TOTAL UNITED STATES............................................................................. 66,065,063
-------------
TOTAL GOVERNMENT & CORPORATE BONDS
(IDENTIFIED COST $76,293,615)................................................................... 74,446,739
-------------
SHORT-TERM INVESTMENTS (31.9%)
TIME DEPOSITS (a) (22.6%)
CANADA (2.0%)
BANKING - INTERNATIONAL
Ca$ 2,665 Chase Manhattan Bank...................................................... 3.438 11/06/97 1,892,218
-------------
DENMARK (4.0%)
BANKING - INTERNATIONAL
DKr 24,756 Unibank................................................................... 3.70 11/07/97 3,771,194
-------------
GREECE (5.9%)
BANKING - INTERNATIONAL
GRD 1,528,466 Bankers Trust............................................................. 13.20 11/28/97 5,606,168
-------------
ITALY (6.8%)
BANKING - INTERNATIONAL
ITL 11,028,927 Morgan Guaranty Trust Co.................................................. 6.65 11/05/97 6,515,813
-------------
SWEDEN (3.9%)
BANKING - INTERNATIONAL
SEK 18,093 Chase Manhattan Bank...................................................... 4.063 11/07/97 2,411,275
10,000 Unibank................................................................... 4.15 11/07/97 1,332,711
-------------
TOTAL SWEDEN.................................................................................... 3,743,986
-------------
TOTAL TIME DEPOSITS
(IDENTIFIED COST $21,160,403)................................................................... 21,529,379
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT & AGENCY OBLIGATIONS (b) (9.3%)
GERMANY (9.0%)
DEM 4,000 German Treasury Bill...................................................... 3.23% 01/16/98 $ 2,303,796
11,000 German Treasury Bill+..................................................... 3.55 04/17/98 6,276,315
-------------
TOTAL GERMANY................................................................................... 8,580,111
-------------
UNITED STATES (0.3%)
$ 300 Federal Home Loan Mortgage Corp........................................... 5.65 11/03/97 299,906
-------------
TOTAL GOVERNMENT & AGENCY OBLIGATIONS
(AMORTIZED COST $8,627,041)..................................................................... 8,880,017
-------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $29,787,444)................................................................... 30,409,396
-------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $106,081,059) (c)...................................................................... 109.9% 104,856,135
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.......................................................... (9.9) (9,468,177)
------- -------------
NET ASSETS.............................................................................................. 100.0% $ 95,387,958
------- -------------
------- -------------
</TABLE>
- ---------------------
+ Some or all of these securities are segregated in connection with open
forward foreign currency contracts.
* Security purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date; the actual principal amount
and maturity date will be determined upon settlement.
(a) Subject to withdrawal restrictions until maturity.
(b) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $1,387,963 and the
aggregate gross unrealized depreciation is $2,612,887, resulting in net
unrealized depreciation of $1,224,924.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1997:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- ------------------------------------------------------------------------
<S> <C> <C> <C>
DKr 24,773,811 $3,796,148 11/07/97 $ 22,241
DEM 10,950,000 $6,378,889 01/30/98 (86,798)
---------------
Net unrealized depreciation.................... $ (64,557)
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $106,081,059).......................................................... $ 104,856,135
Unrealized appreciation on open forward foreign currency contracts........................ 22,241
Cash...................................................................................... 245,403
Receivable for:
Investments sold...................................................................... 2,291,514
Compensated forward foreign currency contracts........................................ 2,109,981
Interest.............................................................................. 1,339,920
Capital stock sold.................................................................... 36,442
Prepaid expenses and other assets......................................................... 92,769
-------------
TOTAL ASSETS......................................................................... 110,994,405
-------------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts........................ 86,798
Payable for:
Investments purchased................................................................. 14,158,375
Compensated forward foreign currency contracts........................................ 985,842
Capital stock repurchased............................................................. 100,896
Plan of distribution fee.............................................................. 68,835
Investment management fee............................................................. 60,958
Accrued expenses and other payables....................................................... 144,743
-------------
TOTAL LIABILITIES.................................................................... 15,606,447
-------------
NET ASSETS........................................................................... $ 95,387,958
-------------
-------------
COMPOSITION OF NET ASSETS:
Paid-in-capital........................................................................... $ 100,436,492
Net unrealized depreciation............................................................... (1,296,360)
Accumulated undistributed net investment income........................................... 450,900
Accumulated net realized loss............................................................. (4,203,074)
-------------
NET ASSETS........................................................................... $ 95,387,958
-------------
-------------
CLASS A SHARES:
Net Assets................................................................................ $682,253
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................. 75,651
NET ASSET VALUE PER SHARE............................................................ $9.02
-------------
-------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE)...................................... $9.42
-------------
-------------
CLASS B SHARES:
Net Assets................................................................................ $94,555,831
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................. 10,474,852
NET ASSET VALUE PER SHARE............................................................ $9.03
-------------
-------------
CLASS C SHARES:
Net Assets................................................................................ $110,971
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................. 12,302
NET ASSET VALUE PER SHARE............................................................ $9.02
-------------
-------------
CLASS D SHARES:
Net Assets................................................................................ $38,903
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................. 4,310
NET ASSET VALUE PER SHARE............................................................ $9.03
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME (net of $51,246 foreign withholding tax).................................. $ 8,390,219
-------------
EXPENSES
Plan of distribution fee (Class A shares)................................................. 169
Plan of distribution fee (Class B shares)................................................. 881,250
Plan of distribution fee (Class C shares)................................................. 165
Investment management fee................................................................. 778,248
Transfer agent fees and expenses.......................................................... 133,901
Custodian fees............................................................................ 97,154
Professional fees......................................................................... 78,655
Shareholder reports and notices........................................................... 66,818
Registration fees......................................................................... 33,144
Directors' fees and expenses.............................................................. 17,422
Other..................................................................................... 7,530
-------------
TOTAL EXPENSES....................................................................... 2,094,456
-------------
NET INVESTMENT INCOME................................................................ 6,295,763
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments........................................................................... (4,239,848)
Futures contracts..................................................................... 601,882
Foreign exchange transactions......................................................... 6,060,428
-------------
NET GAIN............................................................................. 2,422,462
-------------
Net change in unrealized appreciation/ depreciation on:
Investments........................................................................... (1,286,181)
Translation of forward foreign currency contracts, other assets and liabilities
denominated in foreign currencies................................................... (371,054)
-------------
NET DEPRECIATION..................................................................... (1,657,235)
-------------
NET GAIN............................................................................. 765,227
-------------
NET INCREASE.............................................................................. $ 7,060,990
-------------
-------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1997* 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................. $ 6,295,763 $ 7,960,163
Net realized gain..................................................... 2,422,462 6,519,431
Net change in unrealized appreciation/depreciation.................... (1,657,235) 169,336
-------------- --------------
NET INCREASE..................................................... 7,060,990 14,648,930
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A shares.................................................... (6,031) --
Class B shares.................................................... (10,673,831) (11,619,991)
Class C shares.................................................... (1,171) --
Class D shares.................................................... (283) --
-------------- --------------
TOTAL DIVIDENDS.................................................. (10,681,316) (11,619,991)
-------------- --------------
Net decrease from transactions in shares of beneficial interest....... (15,013,234) (27,172,888)
-------------- --------------
NET DECREASE..................................................... (18,633,560) (24,143,949)
NET ASSETS:
Beginning of period................................................... 114,021,518 138,165,467
-------------- --------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $450,900 AND
$3,202,026, RESPECTIVELY)......................................... $ 95,387,958 $ 114,021,518
-------------- --------------
-------------- --------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter World Wide Income Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The Fund's primary investment objective
is to provide a high level of current income and, as a secondary objective,
seeks appreciation in the value of its assets. The Fund was organized as a
Massachusetts business trust on October 14, 1988 and commenced operations on
March 30, 1989. On July 28, 1997, the Fund commenced offering three classes of
shares, with the then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
these estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) all portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (2) futures contracts
are valued at the latest sale price on the commodities exchange on which they
trade unless the Trustees determine that such price does not reflect their
market value, in which case it will be valued at fair value as determined by the
Trustees; (3) when market quotations are not readily available, including
circumstances under which it is determined by Dean Witter InterCapital Inc. (the
"Investment Manager") that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain portfolio securities may be valued by an
outside pricing service approved by the Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research and evaluations by
54
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
its staff, including review of broker-dealer market price quotations, if
available, in determining what it believes is the fair valuation of the
securities valued by such pricing service; and (5) short-term debt securities
having a maturity date of more than sixty days at time of purchase are valued on
a mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments at a set price on a future date. Upon
entering into such a contract, the Fund is required to pledge to the broker
cash, U.S. Government securities or other liquid portfolio securities equal to
the minimum initial margin requirements of the applicable futures exchange.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract
which is known as variation margin. Such receipts or payments are recorded by
the Fund as unrealized gains or losses. Upon closing of the contract, the Fund
realizes a gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
E. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for
55
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
federal income tax purposes. The Fund does not isolate that portion of the
results of operations arising as a result of changes in the foreign exchange
rates from the changes in the market prices of the securities.
F. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized foreign currency gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
G. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
H. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager the
Fund pays a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.75% to the portion of daily net assets not exceeding
$250 million; 0.60% to the portion of daily net assets exceeding $250 million
but not exceeding $500 million; 0.50% to the portion of daily net assets
exceeding $500 million but not exceeding $750 million; 0.40% to the portion of
daily net assets exceeding $750 million but not exceeding $1 billion; and 0.30%
to the portion of daily net assets exceeding $1 billion.
56
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A - up to 0.25% of the
average daily net assets of Class A; (ii) Class B - 0.85% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since inception of
the Fund (not including reinvestment of dividend or capital gain distributions)
less the average net asset value of the Class B shares redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed or
waived; or (b) the average daily net assets of Class B; and (iii) Class C - up
to 0.85% of the average daily net assets of Class C. In the case of Class A
shares, amounts paid under the Plan are paid to the Distributor for services
provided. In the case of Class B and Class C shares, amounts paid under the Plan
are paid to the Distributor for services provided and the expenses borne by it
and others in the distribution of the shares of these Classes, including the
payment of commissions for sales of these Classes and incentive compensation to,
and expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and others who engage in or
support distribution of the shares or who service shareholder accounts,
including overhead and telephone expenses; printing and distribution of
prospectuses and reports used in connection with the offering of these shares to
other than current shareholders; and preparation, printing and distribution of
sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate DWR and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to
57
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $8,370,199 at October 31, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.85% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended October 31, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
0.85%, respectively.
The Distributor has informed the Fund that for the year ended October 31, 1997,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares $67,575. The respective shareholders pay such charges
which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1997 aggregated
$306,368,737 and $321,049,399, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $184,895,045 and
$143,030,418, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At October 31, 1997, the Fund had transfer agent
fees and expenses payable of approximately $1,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended October 31, 1997 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$2,434. At October 31, 1997, the Fund had an accrued pension liability of
$48,664 which is included in accrued expenses in the Statement of Assets and
Liabilities.
58
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold.............................................. 80,739 $ 714,181 -- --
Reinvestment of dividends......................... 237 2,107 -- --
Redeemed.......................................... (5,325) (47,905) -- --
------------- ------------- ------------- -------------
Net increase--Class A............................. 75,651 668,383 -- --
------------- ------------- ------------- -------------
CLASS B SHARES
Sold.............................................. 3,523,435 31,673,600 2,050,224 $ 18,600,786
Reinvestment of dividends......................... 689,236 6,224,070 718,178 6,456,463
Redeemed.......................................... (5,959,324) (53,726,739) (5,765,210) (52,230,137)
------------- ------------- ------------- -------------
Net decrease--Class B............................. (1,746,653) (15,829,069) (2,996,808) (27,172,888)
------------- ------------- ------------- -------------
CLASS C SHARES*
Sold.............................................. 12,172 107,627 -- --
Reinvestment of dividends......................... 130 1,156 -- --
------------- ------------- ------------- -------------
Net increase--Class C............................. 12,302 108,783 -- --
------------- ------------- ------------- -------------
CLASS D SHARES*
Sold.............................................. 4,286 38,458 -- --
Reinvestment of dividends......................... 24 211 -- --
------------- ------------- ------------- -------------
Net increase--Class D............................. 4,310 38,669 -- --
------------- ------------- ------------- -------------
Net decrease in Fund.............................. (1,654,390) $ (15,013,234) (2,996,808) $ (27,172,888)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<C> <S>
<FN>
- ---------------------
* For the period July 28, 1997 (issue date) through October 31, 1997.
</TABLE>
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1997, the Fund utilized approximately $873,000
of its net capital loss carryover. At October 31, 1997, the Fund had a net
capital loss carryover of approximately $5,327,000 which will be available
through October 31, 2002 to offset future capital gains to the extent provided
by regulations.
As of October 31, 1997, the Fund had temporary book/tax differences primarily
attributable to the mark-to-market of open forward foreign currency exchange
contracts and compensated forward foreign currency exchange contracts and
permanent book/tax differences primarily attributable to foreign currency gains.
To reflect reclassifications arising from the permanent differences, accumulated
net realized loss was charged $1,590,042, paid-in-capital was credited $44,385
and accumulated undistributed net investment income was credited $1,634,427.
59
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage its foreign currency exposure or to sell, for a fixed amount of
U.S. dollars or other currency, the amount of foreign currency approximating the
value of some or all of its holdings denominated in such foreign currency or an
amount of foreign currency other than the currency in which the securities to be
hedged are denominated approximating the value of some or all of its holdings to
be hedged. Additionally, when the Investment Manager anticipates purchasing
securities at some time in the future, the Fund may enter into a forward
contract to purchase an amount of currency equal to some or all the value of the
anticipated purchase for a fixed amount of U.S. dollars or other currency.
To hedge against adverse interest rate, foreign currency and market risks, the
Fund may enter into written options on interest rate futures and interest rate
futures contracts ("derivative investments").
Forward contracts and derivative instruments involve elements of market risk in
excess of the amount reflected in the Statement of Assets and Liabilities. The
Fund bears the risk of an unfavorable change in the foreign exchange rates
underlying the forward contracts. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms
of their contracts.
At October 31, 1997, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions and to manage
foreign currency exposure.
60
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31 FOR THE YEAR ENDED OCTOBER 31 MARCH 30, 1989*
----------------------------------------- ------------------------------------------- THROUGH
1997**++ 1996 1995 1994 1993 1992 1991 1990 OCTOBER 31, 1989
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period.... $ 9.33 $ 9.08 $ 8.55 $ 9.39 $ 9.11 $ 9.11 $ 10.38 $ 9.55 $ 10.00
-------- --------- --------- --------- --------- --------- --------- --------- ------
Net investment income... 0.55 0.60 0.55 0.55 0.59 0.62 0.82 0.95 0.49
Net realized and
unrealized gain
(loss)................. 0.07 0.48 0.48 (0.92) 0.27 0.01 (0.99) 0.78 (0.45)
-------- --------- --------- --------- --------- --------- --------- --------- ------
Total from investment
operations............. 0.62 1.08 1.03 (0.37) 0.86 0.63 (0.17) 1.73 0.04
-------- --------- --------- --------- --------- --------- --------- --------- ------
Less dividends and
distributions from:
Net investment
income............... (0.92) (0.83) (0.50) (0.22) (0.58) (0.63) (0.86) (0.90) (0.49)
Net realized gain.... -- -- -- -- -- -- (0.24) -- --
Paid-in-capital...... -- -- -- (0.25) -- -- -- -- --
-------- --------- --------- --------- --------- --------- --------- --------- ------
Total dividends and
distributions.......... (0.92) (0.83) (0.50) (0.47) (0.58) (0.63) (1.10) (0.90) (0.49)
-------- --------- --------- --------- --------- --------- --------- --------- ------
Net asset value, end of
period................. $ 9.03 $ 9.33 $ 9.08 $ 8.55 $ 9.39 $ 9.11 $ 9.11 $ 10.38 $ 9.55
-------- --------- --------- --------- --------- --------- --------- --------- ------
-------- --------- --------- --------- --------- --------- --------- --------- ------
TOTAL INVESTMENT
RETURN+................. 7.05% 12.60% 12.45% (3.99)% 9.72% 7.13% (1.75)% 19.22% 0.40%(1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 2.02% 1.96% 1.93% 1.91% 1.87% 1.87% 1.76% 1.81% 1.90%(2)
Net investment income... 6.07% 6.39% 6.21% 5.87% 6.39% 6.78% 8.45% 9.76% 9.10%(2)
SUPPLEMENTAL DATA:
Net assets, end of
period, in thousands... $94,556 $114,022 $138,165 $179,563 $275,319 $324,185 $421,051 $462,709 $388,578
Portfolio turnover
rate................... 345% 263% 254% 229% 229% 214% 245% 109% 113%(1)
<FN>
- ---------------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated as Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 8.97
------
Net investment income................................................. 0.15
Net realized and unrealized gain...................................... 0.05
------
Total from investment operations...................................... 0.20
------
Less dividends from net investment income............................. (0.15)
------
Net asset value, end of period........................................ $ 9.02
------
------
TOTAL INVESTMENT RETURN+.............................................. 2.27%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.46%(2)
Net investment income................................................. 6.69%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $682
Portfolio turnover rate............................................... 345%
</TABLE>
<TABLE>
<S> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 8.97
------
Net investment income................................................. 0.14
Net realized and unrealized gain...................................... 0.05
------
Total from investment operations...................................... 0.19
------
Less dividends from net investment income............................. (0.14)
------
Net asset value, end of period........................................ $ 9.02
------
------
TOTAL INVESTMENT RETURN+.............................................. 2.12%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.00%(2)
Net investment income................................................. 5.89%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $111
Portfolio turnover rate............................................... 345%
<FN>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 8.97
------
Net investment income................................................. 0.16
Net realized and unrealized gain...................................... 0.05
------
Total from investment operations...................................... 0.21
------
Less dividends from net investment income............................. (0.15)
------
Net asset value, end of period........................................ $ 9.03
------
------
TOTAL INVESTMENT RETURN+.............................................. 2.44%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.16%(2)
Net investment income................................................. 6.83%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $39
Portfolio turnover rate............................................... 345%
<FN>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
DEAN WITTER WORLD WIDE INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER WORLD WIDE 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 present fairly, in all
material respects, the financial position of Dean Witter World Wide Income Trust
(the "Fund") at October 31, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1997 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
DECEMBER 17, 1997
64
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
<TABLE>
<S> <C>
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 rated 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 over the future. Uncertainty of position characterizes
bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable investments.
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 represent 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.
</TABLE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its corporate and
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.
65
<PAGE>
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. 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 catagories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's 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.
<TABLE>
<S> <C>
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 could lead to inadequate capacity
to meet timely interest and principal payment.
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.
</TABLE>
66
<PAGE>
<TABLE>
<S> <C>
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.
D Debt rated D is in default. The D rating is assigned on the day an interest or
principal payment is missed.
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.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by Standard & Poor's 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. The categories are as follows:
Issues 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.
<TABLE>
<S> <C>
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.
</TABLE>
67
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 10, 1998
DEAN WITTER
GLOBAL SHORT-TERM
INCOME FUND INC.
- ----------------------------------------------------------------------
Dean Witter Global Short-Term Income Fund Inc. (the "Fund") is an open-end,
non-diversified management investment company, whose investment objective is to
achieve as high a level of current income as is consistent with prudent
investment risk. The Fund seeks to achieve its investment objective by investing
in high quality fixed-income securities issued or guaranteed by foreign
governments, issued by foreign or U.S. companies, or issued or guaranteed by the
U.S. Government, its agencies and instrumentalities which have remaining
maturities at the time of purchase of not more than three years. The Fund is
designed for the investor who seeks a higher yield than a money market fund and
less fluctuation in net asset value than a longer-term bond fund.
A Prospectus for the Fund dated February 10, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Dean Witter Distributors Inc. or from Dean Witter
Reynolds Inc., at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and more
detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter
Global Short-Term Income Fund Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Directors and Officers................................................................. 6
Investment Practices and Policies...................................................... 12
Investment Restrictions................................................................ 28
Portfolio Transactions and Brokerage................................................... 29
The Distributor........................................................................ 31
Determination of Net Asset Value....................................................... 34
Shareholder Services................................................................... 35
Redemptions and Repurchases............................................................ 39
Dividends, Distributions and Taxes..................................................... 41
Performance Information................................................................ 43
Description of Common Stock............................................................ 44
Custodian and Transfer Agent........................................................... 44
Independent Accountants................................................................ 45
Reports to Shareholders................................................................ 45
Legal Counsel.......................................................................... 45
Experts................................................................................ 45
Registration Statement................................................................. 45
Financial Statements--October 31, 1997................................................. 46
Report of Independent Accountants...................................................... 59
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund was incorporated under the laws of the State of Maryland on August
2, 1990.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
a Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. InterCapital is a wholly-owned
subsidiary of Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"), a Delaware
corporation. In an internal reorganization which took place in January, 1993,
InterCapital assumed the investment advisory, administrative and management
activities previously performed by the InterCapital Division of Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital. (As
hereinafter used in this Statement of Additional Information, the terms
"InterCapital" and "Investment Manager" refer to DWR's InterCapital Division
prior to the internal reorganization and Dean Witter InterCapital Inc.
thereafter.) The daily management of the Fund is conducted by or under the
direction of officers of the Fund and of the Investment Manager, subject to
review by the Fund's Board of Directors. Information as to these Directors and
Officers is contained under the caption "Directors and Officers".
InterCapital is also the investment manager or investment adviser of the
following investment companies: Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., Dean Witter High Yield Securities Inc., Dean Witter
Tax-Free Daily Income Trust, Dean Witter Developing Growth Securities Trust,
Dean Witter American Value Fund, Dean Witter Dividend Growth Securities Inc.,
Dean Witter Natural Resource Development Securities Inc., Dean Witter U.S.
Government Money Market Trust, Dean Witter California Tax-Free Income Fund, 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 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, Dean Witter Government Income Trust,
Dean Witter California Tax-Free Daily Income Trust, Dean Witter Utilities Fund,
Dean Witter Strategist Fund, Dean Witter World Wide Income Trust, Dean Witter
Intermediate Income Securities, Dean Witter Capital Growth Securities, Dean
Witter European Growth Fund Inc., Dean Witter Pacific Growth Fund Inc., Dean
Witter Precious Metals and Minerals Trust, Dean Witter Multi-State Municipal
Series Trust, Dean Witter New York Municipal Money Market Trust, InterCapital
Quality Municipal Investment Trust, Dean Witter Short-Term U.S. Treasury Trust,
InterCapital Insured Municipal Bond Trust, InterCapital Insured Municipal Trust,
InterCapital Quality Municipal Income Trust, Dean Witter Diversified Income
Trust, Dean Witter Health Sciences 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 Global Utilities Fund,
Dean Witter Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean
Witter International SmallCap Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter
Select Dimensions Series, Dean Witter Balanced Growth Fund, Dean Witter Balanced
Income Fund, Dean Witter Hawaii Municipal Trust, Dean Witter Japan Fund, Dean
Witter Income Builder Fund, Dean Witter Special Value Fund, Dean Witter
Financial Services Trust, Dean Witter Market Leader Trust, Dean Witter S&P 500
Index Fund, Dean Witter Fund of Funds, Morgan Stanley Dean Witter Competitive
Edge Fund, "BEST IDEAS" PORTFOLIO, Dean Witter Capital Appreciation Fund, Dean
Witter Intermediate Term U.S. Treasury Trust, Dean Witter Information Fund,
InterCapital Insured Municipal Securities, InterCapital Insured California
Municipal Securities, InterCapital Insured Municipal Income Trust, InterCapital
California Insured Municipal Income Trust, Active Assets Money Trust, Active
Assets California Tax-Free Trust, Active Assets Tax-Free Trust, 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,
Municipal Premium Income Trust and Prime Income Trust. The foregoing investment
companies, together with the Fund, are collectively referred to as the Dean
Witter Funds.
3
<PAGE>
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
companies for which TCW Funds Management, Inc. is the investment adviser: TCW/DW
Core Equity Trust, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth
Fund, TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW Emerging Markets
Opportunities Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW Global Telecom Trust,
TCW/DW Strategic Income Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002
and TCW/DW Term Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as:
(i) administrator of The BlackRock Strategic Term Trust Inc., a closed-end
investment company; (ii) sub-administrator of MassMutual Participation Investors
and Templeton Global Governments Income Trust, closed-end investment companies;
and (iii) investment adviser of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in DWR's International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
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 and bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the preparation
of prospectuses, statements of additional information, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone service, heat,
light, power and other utilities provided to the Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to the
Fund which were previously performed directly by InterCapital. On April 17,
1995, DWSC was reorganized in the State of Delaware, necessitating the entry
into a new Services Agreement by InterCapital on that date. The foregoing
internal reorganizations did not result in any change in the nature or scope of
the administrative services being provided to the Fund or any of the fees being
paid by the Fund for the overall services being performed under the terms of the
existing Agreement.
Expenses not expressly assumed by the Investment Manager under the Agreement
or by the Distributor of the Fund's shares (see "The Distributor") will be paid
by the Fund. Such expenses include, but are not limited to: expenses of the Plan
of Distribution pursuant to Rule 12b-1 (see "The Distributor"), charges and
expenses of any registrar, custodian, stock transfer and dividend disbursing
agent; brokerage commissions; taxes; engraving and printing of stock
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 Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Directors 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 Directors 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;
4
<PAGE>
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.
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 annual
rate of 0.55% to the Fund's daily net assets not exceeding $500 million and
0.50% to the Fund's daily net assets exceeding $500 million. For the fiscal
years ended October 31, 1995, 1996 and 1997, the Fund accrued $716,948, $504,723
and $388,672, respectively, to the Investment Manager pursuant to the Agreement.
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 Investment Manager paid the organizational expenses of the Fund, in the
amount of approximately $150,000, incurred prior to the offering of the Fund's
shares. The Fund has reimbursed the Investment Manager for such expenses, in
accordance with the terms of the Underwriting Agreement between the Fund and
DWR. The Fund has deferred and is amortizing the reimbursed expenses on the
straight line method over a period not to exceed five years from the date of
commencement of the Fund's operations.
The Agreement was initially approved by the Board of Directors on February
21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Agreement is substantially identical to a
prior investment management agreement which was initially approved by the Board
of Directors on October 30, 1992, and by the shareholders of the Fund at a
Special Meeting of Shareholders held on January 12, 1993. The Agreement took
effect on May 31, 1997 upon the consummation of the merger of Dean Witter,
Discover & Co. with Morgan Stanley Group Inc. The Agreement may be terminated at
any time, without penalty, on thirty days' notice by the Board of Directors 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 has an
initial term ending April 30, 1999 and will remain in effect from year to year
thereafter, provided continuance of the Agreement is approved at least annually
by the vote of the holders of a majority, as defined in the Act, of the
outstanding shares of the Fund, or by the Board of Directors of the Fund;
provided that in either event such continuance is approved annually by the vote
of a majority of the Directors of the Fund who are not parties to the 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.
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 Investment Manager and
the Fund is terminated, or if the affiliation between the Investment Manager 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.
5
<PAGE>
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
The Directors 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 84 Dean Witter Funds and the 14 TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (57) Chairman and Chief Executive Officer of Levitz Furniture
Director Corporation (since November 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Dean Witter Funds; formerly President and Chief
6111 Broken Sound Parkway, N.W. Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial Services,
Inc., the United Negro College Fund and Weirton Steel Cor-
poration.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of
Chairman of the Board, President, Chief InterCapital, Dean Witter Distributors Inc. ("Distribu-
Executive Officer and Trustee tors") and DWSC; Executive Vice President and Director of
Two World Trade Center DWR; Chairman, Director or Trustee, President and Chief
New York, New York 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 FSB ("DWT");
Director and/ or officer of various MSDWD subsidiaries;
formerly Executive Vice President and Director of Dean
Witter Discover & Co. (until February, 1993).
Edwin J. Garn (65) Director or Trustee of the Dean Witter Funds; formerly
Director United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1972-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation (since January, 1993);
Director of Franklin Covey (time management systems), John
Alden Financial Corp. (health insurance), United Space
Alliance (joint venture between Lockheed Martin and the
Boeing Company) and Nuskin Asia Pacific (multilevel
marketing); member of the board of various civic and
charitable organizations.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
John R. Haire (72) Chairman of the Audit Committee and Chairman of the
Director Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman of
New York, New York the Audit Committee and Chairman of the Committee of the
Independent Trustees and Trustee of the TCW/DW Funds;
formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser (1964-1978).
Wayne E. Hedien (63) Retired, Director or Trustee of the Dean Witter Funds;
Director Director of The PMI Group, Inc. (private mortgage
c/o Gordon Altman Butowsky insurance); Trustee and Vice Chairman of The Field Museum
Weitzen Shalov & Wein of Natural History; formerly associated with the Allstate
Counsel to the Independent Directors Companies (1966-1994), most recently as Chairman of The
114 West 47th Street Allstate Corporation (March, 1993-December, 1994) and
New York, New York Chairman and Chief Executive Officer of its wholly-owned
subsidiary, Allstate Insurance Company (July,
1989-December, 1994); director of various other business
and charitable organizations.
Dr. Manuel H. Johnson (48) Senior Partner, Johnson Smick International, Inc., a
Director consulting firm; Co-Chairman and a founder of the Group of
c/o Johnson Smick International, Inc. Seven Council (G7C), an international economic commission;
1133 Connecticut Avenue, N.W. Trustee of the TCW/DW Funds; Director of Greenwich Capital
Washington, D.C. Markets Inc. (broker-dealer); Director of NASDAQ (since
June, 1995); Chairman and Trustee of the Financial
Accounting Foundation (oversight organization for the
Financial Accounting Standards Board); formerly Vice
Chairman of the Board of Governors of the Federal Reserve
System (1986-1990) and Assistant Secretary of the U.S.
Treasury (1982-1986).
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private
Director investment partnership; Director or Trustee of the Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); Director of various business
organizations.
Philip J. Purcell* (54) Chairman of the Board of Directors and Chief Executive
Director Officer of MSDWD, DWR and Novus Credit Services Inc.;
1585 Broadway Director of InterCapital, DWSC and Distributors; Director
New York, New York or Trustee of the Dean Witter Funds; Director and/or
officer of various MSDWD subsidiaries.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
John L. Schroeder (67) Retired; Director or Trustee of the Dean Witter Funds;
Director Trustee of the TCW/DW Funds; Director of Citizens
c/o Gordon Altman Butowsky Utilities Company; formerly Executive Vice President and
Weitzen Shalov & Wein Chief Investment Officer of the Home Insurance Company
Counsel to the Independent Directors (August, 1991-September, 1995).
114 West 47th Street
New York, New York
Barry Fink (43) Senior Vice President (since March, 1997) and Secretary
Vice President, Secretary and General Counsel (since February, 1997) of InterCapital
and General Counsel and DWSC; Senior Vice President (since March, 1997) and
Two World Trade Center Assistant Secretary and Assistant General Counsel (since
New York, New York February, 1997) of Distributors; Assistant Secretary of
DWR (since August, 1996); Vice President, Secretary and
General Counsel of the Dean Witter Funds and the TCW/ DW
Funds (since February, 1997); previously First Vice
President (June, 1993-February, 1997), Vice President
(until June, 1993) and Assistant Secretary and Assistant
General Counsel of InterCapital and DWSC and Assistant
Secretary of the Dean Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta (37) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Anne Pickrell (44) Vice President of InterCapital (since April 1996); Vice
Vice President President of various Dean Witter Funds; formerly Assistant
Two World Trade Center Vice President of InterCapital (April 1992-April 1996).
New York, New York
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of
Treasurer InterCapital and DWSC; Treasurer of the Dean Witter Funds
Two World Trade Center and the TCW/DW Funds.
New York, New York
</TABLE>
- ------------------------
*Denotes Directors who are "interested persons" of the Fund, as defined in the
Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Mitchell M. Merin, President and Chief Strategic Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWT and
Director of DWT, Executive Vice President and Director of DWR and Director of
SPS Transaction Services Inc. and various other MSDWD subsidiaries, Robert S.
Giambrone, Senior Vice President of InterCapital, DWSC, Distributors and DWT and
Director of DWT, Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of InterCapital and Director of DWT, and Kevin Hurley, Paul
D. Vance and Ira N. Ross, Senior Vice Presidents of InterCapital, are Vice
Presidents of the Fund. Marilyn K. Cranney, First Vice President and Assistant
General Counsel of InterCapital and DWSC, LouAnne D. McInnis, Ruth Rossi and
Carsten Otto, Vice Presidents and Assistant General Counsels of InterCapital and
DWSC, and Frank Bruttomesso and Todd Lebo, Staff Attorneys with InterCapital,
are Assistant Secretaries of the Fund.
8
<PAGE>
THE BOARD OF DIRECTORS, THE INDEPENDENT DIRECTORS, AND THE COMMITTEES
The Board of Directors consists of nine (9) directors. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Directors. As of the date of this
Statement of Additional Information, there are a total of 84 Dean Witter Funds,
comprised of 128 portfolios. As of December 31, 1997, the Dean Witter Funds had
total net assets of approximately $93.7 billion and more than six million
shareholders.
Seven Directors (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own any
stock or other securities issued by InterCapital's parent company, MSDWD. These
are the "disinterested" or "independent" Directors. The other two Directors (the
"management Directors") are affiliated with InterCapital. Four of the seven
independent Directors are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Directors. The Dean Witter Funds seek as Independent Directors
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand by
others and for whom there is often competition. To accept a position on the
Funds' Boards, such individuals may reject other attractive assignments because
the Funds make substantial demands on their time. Indeed, by serving on the
Funds' Boards, certain Directors who would otherwise be qualified and in demand
to serve on bank boards would be prohibited by law from doing so.
All of the Independent Directors serve as members of the Audit Committee and
the Committee of the Independent Directors. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1997,
the three Committees held a combined total of seventeen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Directors or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Directors is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Directors are required to select and nominate individuals to
fill any Independent Director vacancy on the Board of any Fund that has a Rule
12b-1 plan of distribution. Most of the Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT DIRECTORS AND AUDIT COMMITTEE
The Chairman of the Committee of the Independent Directors and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Directors to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees
9
<PAGE>
will need to form a judgment on various issues, and arranges to have that
information furnished to Committee members. He also arranges for the services of
independent experts and consults with them in advance of meetings to help refine
reports and to focus on critical issues. Members of the Committees believe that
the person who serves as Chairman of both Committees and guides their efforts is
pivotal to the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Directors and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service providers.
In effect, the Chairman of the Committees serves as a combination of chief
executive and support staff of the Independent Directors.
The Chairman of the Committee of the Independent Directors and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee/Director of the Dean Witter Funds and as an Independent Trustee and as
Chairman of the Committee of the Independent Trustees and the Audit Committee of
the TCW/DW Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS FOR ALL DEAN
WITTER FUNDS
The Independent Directors and the Funds' management believe that having the
same Independent Directors for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Directors for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Directors of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Directors arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Directors serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Directors, and a Chairman of their Committees,
of the caliber, experience and business acumen of the individuals who serve as
Independent Directors of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT DIRECTORS
The Fund pays each Independent Director an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Directors or committees of the
Board of Directors attended by the Director (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Directors an additional annual fee of $1,200). If a Board
meeting and a Committee meeting, or more than one Committee meeting, take place
on a single day, the Directors are paid a single meeting fee by the Fund. The
Fund also reimburses such Directors for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Directors and
officers of the Fund who are or have been employed by the Investment Manager or
an affiliated company receive no compensation or expense reimbursement from the
Fund.
The following table illustrates the compensation paid to the Fund's
Independent Directors by the Fund for the fiscal year ended October 31, 1997.
10
<PAGE>
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT DIRECTOR FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,700
Edwin J. Garn................................................. 1,900
John R. Haire................................................. 3,850
Wayne E. Hedien............................................... 482
Dr. Manuel H. Johnson......................................... 1,850
Michael E. Nugent............................................. 1,900
John L. Schroeder............................................. 1,900
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Directors for the calendar year ended December 31, 1997 for services
to the 84 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 14 TCW/DW Funds that were in operation at December 31, 1997.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Dean Witter Money Market Funds. Mr. Hedien's term as Director or
Trustee of each Dean Witter Fund commenced on September 1, 1997.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS FOR SERVICE
CHAIRMAN OF AS TOTAL CASH
COMMITTEES OF CHAIRMAN OF COMPENSATION
FOR SERVICE INDEPENDENT COMMITTEES OF FOR SERVICES
AS DIRECTOR OR DIRECTORS/ INDEPENDENT TO
TRUSTEE AND FOR SERVICE AS TRUSTEES AND TRUSTEES AND 84 DEAN
COMMITTEE MEMBER TRUSTEE AND AUDIT AUDIT WITTER
OF 84 DEAN COMMITTEE MEMBER COMMITTEES OF COMMITTEES OF FUNDS AND
NAME OF WITTER OF 14 TCW/DW 84 DEAN WITTER 14 TCW/DW 14 TCW/DW
INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS FUNDS FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
Michael Bozic.............. $133,602 -- -- -- $133,602
<S> <C> <C> <C> <C> <C>
Edwin J. Garn.............. 149,702 -- -- -- 149,702
John R. Haire.............. 149,702 $73,725 $157,463 $ 25,350 406,240
Wayne E. Hedien............ 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson...... 145,702 71,125 -- -- 216,827
Michael E. Nugent.......... 149,702 73,725 -- -- 223,427
John L. Schroeder.......... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds, including the Fund, have adopted a retirement program under which
an Independent Director who retires after serving for at least five years (or
such lesser period as may be determined by the Board) as an Independent Director
or Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Director referred to
as an "Eligible Director") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72). Annual payments are
based upon length of service. Currently, upon retirement, each Eligible Director
is entitled to receive from the Adopting Fund, commencing as of his or her
retirement date and continuing for the remainder of his or her life, an annual
retirement benefit (the "Regular Benefit") equal to 25.0% of his or her Eligible
Compensation plus 0.4166666% of such Eligible Compensation for each full month
of service as an Independent Director or Trustee of any Adopting Fund in excess
of five years up to a maximum of 50.0% after ten years of service. The foregoing
percentages may be changed by the
11
<PAGE>
Board.(1) "Eligible Compensation" is one-fifth of the total compensation earned
by such Eligible Director for service to the Adopting Fund in the five year
period prior to the date of the Eligible Director's retirement. Benefits under
the retirement program are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Directors by the Fund for the fiscal year ended October 31,
1997 and by the 57 Dean Witter Funds (including the Fund) for the year ended
December 31, 1997, and the estimated retirement benefits for the Fund's
Independent Directors, to commence upon their retirement, from the Fund as of
October 31, 1997 and from the 57 Dean Witter Funds as of December 31, 1997.
RETIREMENT BENEFITS FROM THE FUND AND ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS RETIREMENT BENEFITS ESTIMATED ANNUAL
-------------------------------------- ACCRUED AS EXPENSES BENEFITS
ESTIMATED UPON RETIREMENT(2)
CREDITED YEARS ESTIMATED ----------------------- ----------------------
OF SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------------- ------------------- ----------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic..................... 10 50.0% $ 372 $ 20,499 $ 925 $ 47,025
Edwin J. Garn..................... 10 50.0 534 30,878 925 47,025
John R. Haire..................... 10 50.0 (798) (19,823 (3) 2,246 127,897
Wayne E. Hedien................... 9 42.5 0 0 794 39,971
Dr. Manuel H. Johnson............. 10 50.0 225 12,832 925 47,025
Michael E. Nugent................. 10 50.0 383 22,546 925 47,025
John L. Schroeder................. 8 41.7 714 39,350 771 39,504
</TABLE>
- ------------------------
(1) An Eligible Director may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Director
and his or her spouse on the date of such Eligible Director's retirement.
The amount estimated to be payable under this method, through the remainder
of the later of the lives of such Eligible Director and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Director may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Director's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until June 1, 1998.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Directors as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between currency
traders and their customers. Such forward contracts will only be entered into
with United States banks and their foreign branches, insurance
12
<PAGE>
companies and other dealers whose assets total $1 billion or more, or foreign
banks whose assets total $1 billion or more. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
When the Fund's Investment Manager believes that the currency of a
particular foreign country may suffer a substantial movement against the U.S.
dollar, it may enter into a forward contract to purchase or sell, for a fixed
amount of dollars or other currency, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. The Fund will also not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall diversification
strategies. However, the management of the Fund believes that it is important to
have the flexibility to enter into such forward contracts when it determines
that the best interests of the Fund will be served. The Fund's custodian bank
will place cash, U.S. Government securities, high grade debt securities or other
liquid securities in a segregated account of the Fund in an amount equal to the
value of the Fund's total assets committed to the consummation of forward
contracts entered into under the circumstances set forth above. If the value of
the securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to such
contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Fund of a foreign currency, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency. It is impossible to forecast the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio securities
if its market value exceeds the amount of foreign currency the Fund is obligated
to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell or purchase an amount of the relevant foreign currency
equal to some or all of the principal value of the security.
At times when the Fund has written a call or put option on a fixed-income
security or the currency in which it is denominated, it may wish to enter into a
forward contract to purchase or sell the foreign currency in which the security
is denominated. A forward contract would, for example, hedge the risk of
13
<PAGE>
the security on which a call currency option has been written declining in value
to a greater extent than the value of the premium received for the option. The
Fund will maintain with its Custodian at all times cash, U.S. Government
securities or other appropriate high grade debt obligations in a segregated
account equal in value to all forward contract obligations and option contract
obligations entered into in hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and covered put options on eligible
portfolio securities and purchase options of the same series to effect closing
transactions, and may hedge against potential changes in the market value of its
investments (or anticipated investments) by purchasing put and call options on
portfolio (or eligible portfolio) securities (and the currencies in which they
are denominated) and engaging in transactions involving futures contracts and
options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and on various
foreign currencies are listed on several U.S. and foreign securities exchanges
and are written in over-the-counter transactions ("OTC Options"). Listed options
are issued or guaranteed by the exchange on which they trade or by a clearing
corporation such as the Options Clearing Corporation ("OCC"). Ownership of a
listed call option gives the Fund the right to buy from the OCC (in the U.S.) or
other clearing corporation or exchange, the underlying security or currency
covered by the option at the stated exercise price (the price per unit of the
underlying security or currency) by filing an exercise notice prior to the
expiration date of the option. The writer (seller) of the option would then have
the obligation to sell, to the OCC (in the U.S.) or other clearing corporation
or exchange, the underlying security or currency at that exercise price prior to
the expiration date of the option, regardless of its then current market price.
Ownership of a listed put option would give the Fund the right to sell the
underlying security or currency to the OCC (in the U.S.) or other clearing
corporation or exchange at the stated exercise price. Upon notice of exercise of
the put option, the writer of the option would have the obligation to purchase
the underlying security or currency from the OCC (in the U.S.) or other clearing
corporation or exchange at the exercise price.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian, so that they will
be treated as being covered.
14
<PAGE>
OPTIONS ON GNMA CERTIFICATES. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, the Fund, as
a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy its
delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Fund will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA Certificates
in the cash market in order to maintain its cover. A GNMA Certificate held by
the Fund to cover an option position in any but the nearest expiration month may
cease to represent cover for the option in the event of a decline in the GNMA
coupon rate at which new pools are originated under the FHA/VA loan ceiling in
effect at any given time, as such decline may increase the prepayments made on
other mortgage pools. If this should occur, the Fund will no longer be covered,
and the Fund will either enter into a closing purchase transaction or replace
such Certificate with a Certificate which represents cover. When the Fund closes
out its position or replaces such Certificate, it may realize an unanticipated
loss and incur transaction costs.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S. dollar against such foreign currency. The Fund may also purchase
call and put options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which
it is denominated and the U.S. dollar, then a loss to the Fund occasioned by
such value decline would be ameliorated by receipt of the premium on the option
sold. At the same time, however, the Fund gives up the benefit of any rise in
value of the relevant portfolio securities above the exercise price of the
option and, in fact, only receives a benefit from the writing of the option to
the extent that the value of the portfolio securities falls below the price of
the premium received. The Fund may also write options to close out long call
option positions. A put option on a foreign currency would be written by the
Fund for the same reason it would purchase a call option, namely, to hedge
against an increase in the U.S. dollar value of a foreign security which the
Fund anticipates purchasing. Here, the receipt of the premium would offset, to
the extent of the size of the premium, any increased cost to the Fund resulting
from an increase in the U.S. dollar value of the foreign security. However, the
Fund could not benefit from any decline in the cost of the foreign security
which is greater than the price of the premium received. The Fund may also write
options to close out long put and call option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless and until, in the opinion of the Investment Manager,
the market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in connection with
the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign
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securities held in a "hedged" investment portfolio. Because foreign currency
transactions occurring in the interbank market involve substantially larger
amounts than those that may be involved in the use of foreign currency options,
investors may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
OTC OPTIONS. Exchange-listed options are issued by the OCC (in the U.S.) or
other clearing corporation or exchange which assures that all transactions in
such options are properly executed. OTC options are purchased from or sold
(written) to dealers or financial institutions which have entered into direct
agreements with the Fund. With OTC options, such variables as expiration date,
exercise price and premium will be agreed upon between the Fund and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities or
amount of foreign currency underlying an option it has written, in accordance
with the terms of that option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted to
write covered call options on portfolio securities and on the U.S. Dollar and
foreign currencies in which they are denominated, without limit, in order to aid
in achieving its investment objectives. Generally, a call option is "covered" if
the Fund owns, or has the right to acquire, without additional cash
consideration (or for additional cash consideration held for the Fund by its
Custodian in a segregated account) the underlying security (currency) subject to
the option except that in the case of call options on U.S. Treasury Bills, the
Fund might own U.S. Treasury Bills of a different series from those underlying
the call option, but with a principal amount and value corresponding to the
exercise price and a maturity date no later than that of the security (currency)
deliverable under the call option. A call option is also covered if the Fund
holds a call on the same security as the underlying security (currency) of the
written option, where the exercise price of the call used for coverage is equal
to or less than the exercise price of the call written or greater than the
exercise price of the call written if the mark to market difference is
maintained by the Fund in cash, U.S. Government securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained
with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (currencies) alone. Moreover,
theand premium will be agreed upon between the Fund and the transacting dealer,
without the intermediation of a third party such as the OCC. If the transacting
dealer fails to make or take delivery of the securities or amount of foreign
currency underlying an option it has written, in accordance with the terms of
that option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted to
write covered call options on portfolio securities and on the U.S. Dollar and
foreign currencies in which they are denominated, without limit, in order to aid
in achieving its investment objectives. Generally, a call option is "covered" if
the Fund owns, or has the right to acquire, without additional cash
consideration (or for additional cash consideration held for the Fund by its
Custodian in a segregated account) the underlying security (currency) subject to
the option except that in the case of call options on U.S. Treasury Bills, the
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Fund might own U.S. Treasury Bills of a different series from those underlying
the call option, but with a principal amount and value corresponding to the
exercise price and a maturity date no later than that of the security (currency)
deliverable under the call option. A call option is also covered if the Fund
holds a call on the same security as the underlying security (currency) of the
written option, where the exercise price of the call used for coverage is equal
to or less than the exercise price of the call written or greater than the
exercise price of the call written if the mark to market difference is
maintained by the Fund in cash, U.S. Government securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained
with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (currencies) alone. Moreover,
theand premium will be agreed upon between the Fund and the transacting dealer,
without the intermediation of a third party such as the OCC. If the transacting
dealer fails to make or take delivery of the securities or amount of foreign
currency underlying an option it has written, in accordance with the terms of
that option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted to
write covered call options on portfolio securities and on the U.S. Dollar and
foreign currencies in which they are denominated, without limit, in order to aid
in achieving its investment objectives. Generally, a call option is "covered" if
the Fund owns, or has the right to acquire, without additional cash
consideration (or for additional cash consideration held for the Fund by its
Custodian in a segregated account) the underlying security (currency) subject to
the option except that in the case of call options on U.S. Treasury Bills, the
Fund might own U.S. Treasury Bills of a different series from those underlying
the call option, but with a principal amount and value corresponding to the
exercise price and a maturity date no later than that of the security (currency)
deliverable under the call option. A call option is also covered if the Fund
holds a call on the same security as the underlying security (currency) of the
written option, where the exercise price of the call used for coverage is equal
to or less than the exercise price of the call written or greater than the
exercise price of the call written if the mark to market difference is
maintained by the Fund in cash, U.S. Government securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained
with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (currencies) alone. Moreover,
theand premium will be agreed upon between the Fund and the transacting dealer,
without the intermediation of a third party such as the OCC. If the transacting
dealer fails to make or take delivery of the securities or amount of foreign
currency underlying an option it has written, in accordance with the terms of
that option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted to
write covered call options on portfolio securities and on the U.S. Dollar and
foreign currencies in which they are denominated, without limit, in order to aid
in achieving its investment objectives. Generally, a call option is "covered" if
the Fund owns, or has the right to acquire, without additional cash
consideration (or for additional cash consideration held for the Fund by its
Custodian in a segregated account) the underlying security (currency) subject to
the option except that in the case of call options on U.S. Treasury Bills, the
Fund might own U.S. Treasury Bills of a different series from those underlying
the call option, but with a principal amount and value corresponding to the
exercise price and a maturity date no later than that of the security (currency)
deliverable under the call option. A call option is also covered if the Fund
holds a call on the same security as the underlying security (currency) of the
written option, where the exercise price of the call used for coverage is equal
to or less than the exercise price of the call written or greater
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than the exercise price of the call written if the mark to market difference is
maintained by the Fund in cash, U.S. Government securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained
with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (currencies) alone. Moreover,
the premium received will offset a portion of the potential loss incurred by the
Fund if the securities (currencies) underlying the option are ultimately sold
(exchanged) by the Fund at a loss. Furthermore, a premium received on a call
written on a foreign currency will ameliorate any potential loss of value on the
portfolio security due to a decline in the value of the currency. However,
during the option period, the covered call writer has, in return for the premium
on the option, given up the opportunity for capital appreciation above the
exercise price should the market price of the underlying security (or the
exchange rate of the currency in which it is denominated) increase, but has
retained the risk of loss should the price of the underlying security (or the
exchange rate of the currency in which it is denominated) decline. The premium
received will fluctuate with varying economic market conditions. If the market
value of the portfolio securities (or the currencies in which they are
denominated) upon which call options have been written increases, the Fund may
receive a lower total return from the portion of its portfolio upon which calls
have been written than it would have had such calls not been written.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. The Fund may realize a net gain or loss from a closing
purchase transaction depending upon whether the amount of the premium received
on the call option is more or less than the cost of effecting the closing
purchase transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received on the option less the commission paid.
Options written by the Fund will normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written. See "Risks of Options Transactions," below.
COVERED PUT WRITING. As stated in the Prospectus, as a writer of a covered
put option, the Fund incurs an obligation to buy the security underlying the
option from the purchaser of the put, at the option's exercise price at any time
during the option period, at the purchaser's election (certain listed and OTC
put options written by the Fund will be exercisable by the purchaser only on a
specific date). A put is "covered" if, at all times, the Fund maintains, in a
segregated account maintained on its behalf at the Fund's Custodian, cash, U.S.
Government securities or other liquid portfolio securities in an amount equal to
at least the exercise price of the option, at all times during the option
period. Similarly, a short
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put position could be covered by the Fund by its purchase of a put option on the
same security (currency) as the underlying security of the written option, where
the exercise price of the purchased option is equal to or more than the exercise
price of the put written or less than the exercise price of the put written if
the marked to market difference is maintained by the Fund in cash, U.S.
Government securities or other liquid portfolio securities which the Fund holds
in a segregated account maintained at its Custodian. In the case of listed
options, during the option period, the Fund may be required, at any time, to
make payment of the exercise price against delivery of the underlying security
(currency). The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.
The Fund will write put options for three purposes: (1) to receive the
income derived from the premiums paid by purchasers; (2) when the Investment
Manager wishes to purchase the security (or a security denominated in the
currency underlying the option) underlying the option at a price lower than its
current market price, in which case it will write the covered put at an exercise
price reflecting the lower purchase price sought; and (3) to close out a long
put option position. The potential gain on a covered put option is limited to
the premium received on the option (less the commissions paid on the
transaction) while the potential loss equals the differences between the
exercise price of the option and the current market price of the underlying
securities (currencies) when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency, to hedge against an adverse exchange rate move
of the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The purchase
of the call option to effect a closing transaction on a call written
over-the-counter may be a listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the same
terms as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution which purchased
the call written by the Fund.
The Fund may purchase put options on securities (currencies) which it holds
in its portfolio to protect itself against a decline in the value of the
security and to close out written put option positions. If the value of the
underlying security (currency) were to fall below the exercise price of the put
purchased in an amount greater than the premium paid for the option, the Fund
would incur no additional loss. In addition, the Fund may sell a put option
which it has previously purchased prior to the sale of the securities
(currencies) underlying such option. Such a sale would result in a net gain or
loss depending on whether the amount received on the sale is more or less than
the premium and other transaction costs paid on the put option which is sold.
And such gain or loss could be offset in whole or in part by a change in the
market value of the underlying security (currency). If a put option purchased by
the Fund expired without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager to forecast correctly interest rates and
market movements. If the market value of the portfolio securities upon which
call options have been written increases, the Fund may receive a lower total
return from the portion of its portfolio upon which calls have been written than
it would have had such calls not been written. In writing puts, the Fund assumes
the risk of loss should the market value of the underlying securities decline
below the exercise price of the option (any loss being decreased by the receipt
of the premium on the option written). During the option period, the covered
call writer has, in return for the premium on the option, given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security (or the value of its denominated currency)
increase, but has retained the risk of loss should the price of the underlying
security (or the value of its denominated currency) decline. The writer has no
control over the time when it may be
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required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so. A secured put option writer who is unable to
effect a closing purchase transaction or to purchase an offsetting OTC option
would continue to bear the risk of decline in the market price of the underlying
security until the option expires or is exercised. In addition, a secured put
writer would be unable to utilize the amount held in cash or U.S. Government
securities or other liquid portfolio securities as security for the put option
for other investment purposes until the exercise or expiration of the option.
As discussed in the Prospectus, the Fund's ability to close out its position
as a writer of an option is dependent upon the existence of a liquid secondary
market on Option Exchanges. There is no assurance that such a market will exist,
particularly in the case of OTC options, as such options will generally only be
closed out by entering into a closing purchase transaction with the purchasing
dealer. However, the Fund may be able to purchase an offsetting option which
does not close out its position as a writer but constitutes an asset of equal
value to the obligation under the option written. If the Fund is not able to
either enter into a closing purchase transaction or purchase an offsetting
position, it will be required to maintain the securities subject to the call, or
the collateral underlying the put, even though it might not be advantageous to
do so, until a closing transaction can be entered into (or the option is
exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an exchange; (v) inadequacy of the facilities of an exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
OCC as a result of trades on that exchange would generally continue to be
exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Fund's management.
Each of the exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract (whether
or not covered) which may be written by a single investor, whether acting alone
or in concert with others (regardless of whether such options are written on the
same or different exchange or are held or written on one or more accounts or
through one or more brokers). An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. These position limits may restrict the number of listed options
which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
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The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification as
a regulated investment company and the Fund's intention to qualify as such (see
"Dividends, Distributions and Taxes" in the Prospectus).
FUTURES CONTRACTS. As stated in the Prospectus, the Fund may purchase and
sell interest rate, currency, and index futures contracts ("futures contracts"),
that are traded on U.S. and foreign commodity exchanges, on such underlying
securities as U.S. Treasury bonds, notes and bills and/or any foreign government
fixed-income security ("interest rate" futures), on various currencies
("currency futures") and on such indexes of U.S. and foreign securities as may
exist or come into being ("index" futures).
The Fund will purchase or sell interest rate futures contracts for the
purpose or hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
If the Investment Manager anticipates that interest rates may rise and,
concomitantly, the price of certain of its portfolio securities fall, the Fund
may sell an interest rate futures contract. If declining interest rates are
anticipated, the Fund may purchase an interest rate futures contract to protect
against a potential increase in the price of securities the Fund intends to
purchase. Subsequently, appropriate securities may be purchased by the Fund in
an orderly fashion; as securities are purchased, corresponding futures positions
would be terminated by offsetting sales of contracts.
The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that the
prices of securities held by the Fund may fall, the Fund may sell an index
futures contract. Conversely, if the Fund wishes to hedge against anticipated
price rises in those securities which the Fund intends to purchase, the Fund may
purchase an index futures contract.
The Fund will purchase or sell currency futures on currencies in which its
portfolio securities (or anticipated portfolio securities) are denominated for
the purposes of hedging against anticipated changes in currency exchange rates.
The Fund will enter into currency futures contracts for the same reasons as set
forth above for entering into forward foreign currency contracts; namely, to
"lock-in" the value of a security purchased or sold in a given currency
vis-a-vis a different currency or to hedge against an adverse currency exchange
rate movement of a portfolio security's (or anticipated portfolio security's)
denominated currency vis-a-vis a different currency.
In addition to the above, interest rate, index and currency futures will be
bought or sold in order to close out a short or long position maintained by the
Fund in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of security (currency) and the same delivery date. If the offsetting sale
price exceeds the purchase price, the purchaser would realize a gain, whereas if
the purchase price exceeds the offsetting sale price, the purchaser would
realize a loss. There is no assurance that the Fund will be able to enter into a
closing transaction.
INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other liquid portfolio
securities equal to approximately 2% of the contract amount. Initial margin
requirements are established by the exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the exchanges.
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Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits of cash or U.S. Government
securities or other liquid portfolio securities called "variation margin," with
the Fund's futures contract clearing broker, which are reflective of price
fluctuations in the futures contract. Currently, interest rate futures contracts
can be purchased on debt securities such as U.S. Treasury Bills and Bonds, U.S.
Treasury Notes with Maturities between 6 1/2 and 10 years, GNMA Certificates and
Bank Certificates of Deposit.
CURRENCY FUTURES. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for a
set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and under
the same circumstances as forward foreign currency exchange contracts. The
Investment Manager will assess such factors as cost spreads, liquidity and
transaction costs in determining whether to utilize futures contracts or forward
contracts in its foreign currency transactions and hedging strategy. Currently,
currency futures exist for, among other foreign currencies, the Japanese yen,
West German marks, Canadian dollars, British pound, Swiss franc and European
currency unit.
Purchasers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, the Fund must accept or make delivery of the underlying foreign currency
in accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery which
are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the Investment Manager's opinion, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying foreign
currency futures contracts.
INDEX FUTURES CONTRACTS. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or gain.
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OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Investment
Manager wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, provide a further hedge against
losses resulting from price declines in portions of the Fund's portfolio.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. In addition, in accordance with the
regulations of the Commodity Futures Trading Commission ("CFTC") under which the
Fund is exempted from registration as a commodity pool operator, the Fund may
only enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The
successful use of futures and related options depends on the ability of the
Investment Manager to accurately predict market and interest rate movements. As
stated in the Prospectus, the Fund may sell a futures contract to protect
against the decline in the value of securities (or the currency in which they
are denominated) held by the Fund. However, it is possible that the futures
market may advance and the value of securities (or the currency in which they
are denominated) held in the portfolio of the Fund may decline. If this
occurred, the Fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currencies) decreases, then the
Fund may determine not to invest in the securities as planned and will realize a
loss on the futures contract that is not offset by a reduction in the price of
the securities.
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<PAGE>
If the Fund has sold a call option on a futures contract, it will cover this
position by holding, in a segregated account maintained at its Custodian, cash,
U.S. Government securities or other liquid portfolio securities equal in value
(when added to any initial or variation margin on deposit) to the market value
of the securities (currencies) underlying the futures contract or the exercise
price of the option. Such a position may also be covered by owning the
securities (currencies) underlying the futures contract, or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract it will
hold cash, U.S. Government securities or other liquid portfolio securities equal
to the purchase price of the contract (less the amount of initial or variation
margin on deposit) in a segregated account maintained for the Fund by its
Custodian. Alternatively, the Fund could cover its long position by purchasing a
put option on the same futures contract with an exercise price as high or higher
than the price of the contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit the Fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may occasion delays in the
settlement of the Fund's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Fund's portfolio securities (and the
currencies in which they are denominated). Another such risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the Fund seeks a hedge. A correlation
may also be distorted by the fact that the futures market is dominated by
short-term traders seeking to profit from the difference between a contract or
security price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
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<PAGE>
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Fund and the
movements in the prices of the securities (currencies) which are the subject of
the hedge. If participants in the futures market elect to close out their
contracts through offsetting transactions rather than meet margin deposit
requirements, distortions in the normal relationship between the debt securities
or currency markets and futures markets could result. Price distortions could
also result if investors in futures contracts opt to make or take delivery of
underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends may still not result in a successful hedging
transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position, and in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel or prevent the Fund from closing
out a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to make
or take delivery of the underlying securities (currencies) at a time when it may
be disadvantageous to do so.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes" in the
Prospectus).
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities (currencies).
OTHER INVESTMENT POLICIES
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. A
repurchase agreement may be viewed as a type of secured lending by the Fund
which typically involves the acquisition by the Fund of government 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") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
collateral will be maintained in a segregated account and will be
marked-to-market daily to determine that the full value of the collateral, as
specified in the agreement, is always at least equal to the purchase price plus
accrued interest. If required, additional collateral will be requested from the
counterparty and when received added to the account to maintain full
collateralization. In the event the original seller defaults on its obligations
to repurchase, as a result of its bankruptcy or otherwise, the Fund will seek to
sell the collateral, which action could involve costs or delays. In such case,
the Fund's ability to dispose of the collateral to recover its investment may be
restricted or delayed.
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<PAGE>
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. Repurchase agreements will be transacted only with large,
well-capitalized and well-established financial institutions whose financialor
prevent the Fund from closing out a contract which may result in reduced gain or
increased loss to the Fund. The absence of a liquid market in futures contracts
might cause the Fund to make or take delivery of the underlying securities
(currencies) at a time when it may be disadvantageous to do so.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such (see "Dividends, Distributions and Taxes" in the
Prospectus).
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities (currencies).
OTHER INVESTMENT POLICIES
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. A
repurchase agreement may be viewed as a type of secured lending by the Fund
which typically involves the acquisition by the Fund of government 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") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
collateral will be maintained in a segregated account and will be
marked-to-market daily to determine that the full value of the collateral, as
specified in the agreement, is always at least equal to the purchase price plus
accrued interest. If required, additional collateral will be requested from the
counterparty and when received added to the account to maintain full
collateralization. In the event the original seller defaults on its obligations
to repurchase, as a result of its bankruptcy or otherwise, the Fund will seek to
sell the collateral, which action could involve costs or delays. In such case,
the Fund's ability to dispose of the collateral to recover its investment may be
restricted or delayed.
The Fund will accrue interest from the institution until the time when the
repurchase is to occur. Although such date is deemed by the Fund to be the
maturity date of a repurchase agreement, the maturities of securities subject to
repurchase agreements are not subject to any limits 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. Repurchase agreements will be transacted only with large,
well-capitalized and well-established financial institutions whose financial
condition will be continuously monitored by the management of the Fund subject
to procedures established by the Directors. The procedures also require that the
collateral underlying the agreement be specified.
REVERSE REPURCHASE AGREEMENTS. The Fund may also use reverse repurchase
agreements for purposes of meeting redemptions or as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase
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<PAGE>
the same assets at a later date at a fixed price. Generally, the effect of such
a transaction is that the Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise. Opportunities to achieve this advantage
may not always be available, and the Fund intends to use the reverse repurchase
technique only when it will be to its advantage to do so. The Fund will
establish a segregated account with its custodian bank in which it will maintain
cash or cash equivalents or other liquid portfolio securities (i.e. U.S.
Government securities) equal in value to its obligations in respect of reverse
repurchase agreements. Reverse repurchase agreements are considered borrowings
by the Fund and, in accordance with legal requirements, the Fund will maintain
an asset coverage (including the proceeds) of at least 300% with respect to all
reverse repurchase agreements. Reverse repurchase agreements may not exceed 10%
of the Fund's total assets. The Fund will make no purchases of portfolio
securities while it is still subject to a reverse repurchase agreement.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. As
discussed in the Prospectus, from time to time, in the ordinary course of
business, the Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis. When
such transactions are negotiated, the price is fixed at the time of the
commitment, but delivery and payment can take place a month or more after the
date of the commitment. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during this period. While
the Fund will only purchase securities on a when-issued, delayed delivery or
forward commitment basis with the intention of acquiring the securities, the
Fund may sell the securities before the settlement date, if it is deemed
advisable. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security in determining the net
asset value of the Fund. At the time of delivery of the securities, the value
may be more or less than the purchase price. The Fund will also establish a
segregated account with the Fund's custodian bank in which it will continuously
maintain cash or U.S. Government securities or other liquid portfolio securities
equal in value to commitments for such when-issued or delayed delivery
securities; subject to this requirement, the Fund may purchase securities on
such basis without limit. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued or delayed delivery
basis may increase the volatility of the Fund's net asset value. The Fund's
management and the Directors do not believe that the Fund's net asset value or
income will be adversely affected by its purchase of securities on such basis.
WHEN, AS AND IF ISSUED SECURITIES. As discussed in the Prospectus, the Fund
may purchase securities on a "when, as and if issued" basis under which the
issuance of the security depends upon the occurrence of a subsequent event, such
as approval of a merger, corporate reorganization, leveraged buyout or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will continuously maintain cash or
U.S. Government securities or other liquid portfolio securities equal in value
to recognized commitments for such securities. Settlement of the trade will
occur within five business days of the occurrence of the subsequent event. The
value of the Fund's commitments to purchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund, may
not exceed 5% of the value of the Fund's total assets at the time the initial
commitment to purchase such securities is made (see "Investment Restrictions").
Subject to the foregoing restrictions, the Fund may purchase securities on such
basis without limit. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value. The Fund's management and the
Directors do not believe that the net asset value of the Fund will be adversely
affected by its
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<PAGE>
purchase of securities on such basis. The Fund may also sell securities on a
"when, as and if issued" basis provided that the issuance of the security will
result automatically from the exchange or conversion of a security owned by the
Fund at the time of the sale.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described below), and are at all times
secured by cash or appropriate high grade debt obligations, which are maintained
in a segregated account pursuant to applicable regulations and that are at least
equal to the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive the income on the
loaned securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations. The
Fund will not lend its portfolio securities if such loans are not permitted by
the laws or regulations of any state in which its shares are qualified for sale
and will not lend more than 25% of the value of its total assets. A loan may be
terminated by the borrower on one business day's notice, or by the Fund on two
business days' notice. If the borrower fails to deliver the loaned securities
within two days after receipt of notice, the Fund could use the collateral to
replace the securities while holding the borrower liable for any excess of
replacement cost over collateral. As with any extensions of credit, there are
risks of delay in recovery and in some cases even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Fund's management to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks. Upon termination of the loan, the
borrower is required to return the securities to the Fund. Any gain or loss in
the market price during the loan period would inure to the Fund. The
creditworthiness of firms to which the Fund lends its portfolio securities will
be monitored on an ongoing basis by the Fund's management pursuant to procedures
adopted and reviewed, on an ongoing basis, by the Board of Directors of the
Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities. The Fund has not
to date nor does it presently intend to lend any of its portfolio securities in
the foreseeable future.
PORTFOLIO TURNOVER. Although it is anticipated that portfolio turnover will
not exceed 200% in any one year, the Fund's portfolio turnover rate for the
fiscal year ended October 31, 1997 was 264%. The portfolio turnover rate was
higher than usual due to temporary uncertainity regarding the progress of the
European Monetary Union early in the year, necessitating a reallocation of the
Fund's investments within European markets, and subsequently, from Europe to the
U.S. market.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein, although the Fund
may purchase securities of issuers which engage in real estate
operations and securities secured by real estate or interests therein.
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2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of companies which operate, invest in, or
sponsor such programs.
3. Borrow money (except insofar as the Fund may be deemed to have
borrowed by entrance into a reverse repurchase agreement up to an
amount not exceeding 10% of the Fund's total assets), except that the Fund
may borrow from a bank for temporary or emergency purposes in amounts not
exceeding 5% (taken at the lower of cost or current value) of its total
assets (not including the amount borrowed). The Fund will not purchase
portfolio securities while any borrowings, including reverse repurchase
agreements, of the Fund are outstanding.
4. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement; (b) purchasing
any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling futures contracts, forward foreign exchange contracts or options;
(d) borrowing money in accordance with restrictions described above; or (e)
lending portfolio securities.
5. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objectives and policies; (b) by investment in
repurchase or reverse repurchase agreements; or (c) by lending its portfolio
securities.
6. 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.
7. Invest for the purpose of exercising control or management of any
other issuer.
8. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or write interest rate, currency and stock and bond
index futures contracts and related options thereon.
9. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings. (For the purpose of this restriction,
collateral arrangements with respect to the writing of options and
collateral arrangements with respect to initial or variation margin for
futures are not deemed to be pledges of assets.)
10. Purchase securities on margin (but the Fund may obtain short-term
loans as are necessary for the clearance of transactions). The
deposit or payment by the fund of initial or variation margin in connection
with futures contracts or related options thereon is not considered the
purchase of a security on margin.
11. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition.
12. Invest more than 5% of its net assets in warrants (valued at the
lower of cost or market), including not more than 2% of such assets
which are not listed on the New York or American Stock Exchange. However,
warrants acquired by the Fund in units or attached to other securities may
be deemed to be without value.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Board of Directors, 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. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. The Fund
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<PAGE>
expects that the primary market for the securities in which it intends to invest
will generally be the over-the-counter market. In the over-the-counter market,
securities are generally traded 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 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. Options and futures transactions will
usually be effected through a broker and a commission will be charged. 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
fiscal years ended October 31, 1995, 1996 and 1997 the Fund paid $9,450, $2,100
and $14,578, respectively, in brokerage commissions on portfolio securities
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, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain initial
and secondary public offerings, the Investment Manager may utilize a pro-rata
allocation process based on the size of the Dean Witter Funds involved and the
number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager from obtaining a high quality of
brokerage and research services. In seeking to determine the reasonableness of
brokerage commissions paid in any transaction, the Investment Manager relies
upon its experience and knowledge regarding commissions generally charged by
various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on such
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.
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 prices 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
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<PAGE>
the Investment Manager and thereby reduce its expenses, it is of indeterminable
value and the management fee paid to the Investment Manager is not reduced by
any amount that may be attributable to the value of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR, Morgan Stanley & Co. Incorporated and other affiliated
brokers and dealers. In order for an affiliated broker or dealer to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by DWR and Morgan Stanley & Co. Incorporated must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on an exchange during a comparable period of time. This
standard would allow the affiliated broker or dealer to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the Directors of the Fund,
including a majority of the Directors who are not "interested" persons of the
Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer are consistent with the foregoing standard. The Fund
did not pay DWR any brokerage commissions during the fiscal year ended October
31, 1997.
Section 11(a) of the Securities Exchange Act of 1934 generally prohibits
members of the United States national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts which they
manage. To the extent Section 11(a) would apply to acting as a broker for the
Fund in any of its portfolio transactions executed on any such securities
exchange of which it is a member, appropriate written consents have been given
in Rule 11a2-2(T).
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDWD. The Directors of
the Fund, including a majority of the Directors who are not, and were not at the
time they voted, interested persons of the Fund, as defined in the Act (the
"Independent Directors"), approved, at their meeting held on October 30, 1992,
the current Distribution Agreement appointing the Distributor as exclusive
distributor of the Fund's shares and providing for the Distributor to bear
distribution expenses not borne by the Fund. The current Distribution Agreement
is substantively identical to the Fund's previous distribution agreement in all
material respects, except for the dates of effectiveness. The current
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 had 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. At their
meeting held on April 24, 1997, the Directors, including all of the Independent
Directors, approved the continuation of the Distribution Agreement until April
30, 1998.
The Distributor bears all expenses incurred in providing services under the
Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial
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<PAGE>
typesetting, printing and distribution of prospectuses and supplements thereto
to shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws. The Fund and the Distributor
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses its best efforts in rendering services to the
Fund, but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations, the Distributor is not liable to the Fund
or any of its shareholders for any error of judgment or mistake of law or for
any act or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION. To compensate the Distributor for the services
provided and for the expenses borne by the Distributor or any selected dealer
under the Distribution Agreement, the Fund has adopted a Plan of Distribution
pursuant to Rule 12b-1 under the Act (the "Plan") pursuant to which the Fund
pays the Distributor compensation accrued daily and payable monthly at the
annual rate of 0.75% of the lesser of: (a) the average daily aggregate gross
sales of the Fund's shares since the inception of the Fund (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's shares redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed or upon
which such charge has been waived; or (b) the Fund's average daily net assets.
The Distributor also receives the proceeds of contingent deferred sales charges
imposed on certain redemptions of shares, which are separate and apart from
payments made pursuant to the Plan (see "Redemption and Repurchases--Contingent
Deferred Sales Charge" in the Prospectus). The Distributor of the shares of the
Fund has informed the Fund that it received approximately $106,991, $32,838 and
17,250 in contingent deferred sales charges for the fiscal years ended October
31, 1995, 1996 and 1997, respectively.
At their meeting held on October 30, 1992, the Directors of the Fund,
including all of the Directors who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan (the "Independent 12b-1 Directors"), 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 for the Fund by DWR were assumed
by the Distributor and DWR's sales activities are now being performed pursuant
to the terms of a selected dealer agreement between the Distributor and DWR. The
amendments provide that payments under the Plan will be made to the Distributor
rather than to DWR as they had been before the amendment, and that the
Distributor in turn is authorized to make payments to DWR, its affiliates or
other selected broker-dealers (or direct that the Fund pay such entities
directly). The Distributor is also authorized to retain part of such fee as
compensation for its own distribution-related expenses. At their meeting held on
April 28, 1993, the Directors, including a majority of the Independent 12b-1
Directors, also approved certain technical amendments to the Plan in connection
with amendments adopted by the National Association of Securities Dealers, Inc.
to its Rules of Fair Practice. At their meeting held on October 26, 1995, the
Directors of the Fund, including all of the Independent 12b-1 Directors,
approved an amendment to the Plan to permit payments to be made under the Plan
with respect to certain distribution expenses incurred in connection with the
distribution of shares, including personal services to shareholders with respect
to holdings of such shares, of an investment company whose assets are acquired
by the Fund in a tax-free reorganization.
The Distributor has informed the Fund that a portion of the fees payable by
the Fund each year pursuant to the Plan equal to 0.25% of the Fund's average
daily net assets is characterized as a "service fee" under the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (of which
thevDistributor is a member). Such portion of the fee is a payment made for
personal service and/or the maintenance of shareholder accounts. The remaining
portion of the Plan fees payable by the Fund is characterized as an "asset-based
sales charge" as defined in the aforementioned Rules of Fair Practice.
Pursuant to the Plan and as required by Rule 12b-1, the Directors receive
and review promptly after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended by the Distributor under the
Plan and the purpose for which such expenditures were made. The Fund accrued
amounts payable to the Distributor under the Plan, during the fiscal year ended
October 31,
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<PAGE>
1997, of $530,008. This amount is equal to payments required to be paid monthly
by the Fund which were computed at the annual rate of 0.75% of the average daily
net assets. This 12b-1 fee is treated by the Fund as an expense in the year it
is accrued.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method shares of the Fund are
sold without a sales load being deducted at the time of purchase, so that the
full amount of an investor's purchase payment will be invested in shares without
any deduction for sales charges. Shares of the Fund may be subject to a
contingent deferred sales charge, payable to the Distributor, if redeemed during
the three years after their purchase. DWR compensates its account executives by
paying them, from its own funds, commissions for the sale of the Fund's shares,
currently a gross sales credit of up to 3% of the amount sold and an annual
residual commission of up to 0.25 of 1% of the current value of the amount sold.
The gross sales credit is a charge which reflects commissions paid by DWR to its
account executives and DWR's Fund associated distribution-related expenses,
including sales compensation, and overhead and other branch office distribution-
related expenses including: (a) the expenses of operating DWR's branch offices
in connection with the sale of Fund shares, including lease costs, the salaries
and employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs of
client sales seminars; (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund share sales. The distribution fee that the Distributor
receives from the Fund under the Plan, in effect, offsets distribution expenses
incurred under the Plan on behalf of the Fund and its opportunity costs, such as
the gross sales credit and an assumed interest charge thereon ("carrying
charge"). In the Distributor's reporting of the distribution expenses to the
Fund, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross sales credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received by
the Distributor upon redemption of shares of the Fund. No other interest charge
is included as a distribution expense in the Distributor's calculation of its
distribution costs for this purpose. The broker's call rate is the interest rate
charged to securities brokers on loans secured by exchange-listed securities.
The Fund paid 100% of the $530,008 accrued under the Plan for the fiscal
year ended October 31, 1997 to the Distributor. The Distributor and DWR estimate
that they have spent, pursuant to the Plan, $23,503,404 on behalf of the Fund
since the inception of the Fund. It is estimated that this amount was spent in
approximately the following ways: (i) 9.01% ($2,117,863) -- advertising and
promotional expenses; (ii) 0.80% ($188,821) -- printing of prospectuses for
distribution to other than current shareholders; and (iii) 90.19% ($21,196,720)
- -- other expenses, including the gross sales credit and the carrying charge, of
which 10.06% ($2,132,588) represents carrying charges, 35.20% ($7,461,701)
represents commission credits to DWR branch offices for payments of commissions
to account executives and 54.74% ($11,602,431) represents overhead and other
branch office distribution-related expenses.
At any given time, the expenses of distributing shares of the Fund may be
more or less than the total of (i) the payments made by the Fund pursuant to the
Plan and (ii) the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares. DWR has advised the Fund that such excess
amount, including the carrying charge designed to approximate the opportunity
costs incurred by DWR which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's shares, totalled $7,269,740 as of October 31, 1997. Because there is no
requirement under the Plan that the Distributor be reimbursed for all its
expenses or any requirement that the Plan be continued from year to year, this
excess amount does not constitute a liability of the Fund. Although there is no
legal obligation for the Fund to pay expenses incurred in excess of payments
made to the Distributor under the Plan and the proceeds of contingent deferred
sales charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Directors will consider at that time the manner in which
to treat such expenses. Any cumulative expenses incurred but not yet recovered
through distribution fees or contingent deferred sales charges, may or may not
be recovered through future distribution fees or contingent deferred sales
charges.
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<PAGE>
No interested person of the Fund, nor any Director of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that the
Distributor, InterCapital, DWR or certain of their employees may be deemed to
have such an interest as a result of benefits derived from the successful
operation of the Plan or as a result of receiving a portion of the amounts
expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1991, and
provided that it will remain in effect from year to year thereafter, provided
such continuance is approved annually by a vote of the Directors, including a
majority of the Independent 12b-1 Directors. The Plan was initially submitted to
and approved by the Directors of the Fund, including a majority of the
Independent 12b-1 Directors, at their meeting held on April 29, 1992 and
subsequently by the shareholders at the Special Meeting of Shareholders held on
June 24, 1992. Continuation of the Plan was most recently approved by the
Directors, including a majority of the Independent 12b-1 Directors, on April 24,
1997 at a meeting called for the purpose of voting on such Plan. At that
meeting, the Directors and the Independent 12b-1 Directors, after evaluating all
the information they deemed necessary to make an informed determination of
whether or not the Plan should be continued, approved the continuation of the
Plan until April 30, 1998. In making their determination to continue the Plan,
the Directors considered: (1) the Fund's experience under the Plan and whether
such experience indicates that the Plan is operating as anticipated; (2) the
benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan; and (3) what services had been provided and were continuing to
be provided under the Plan to the Fund and its shareholders. Based upon their
review, the Directors of the Fund, including each of the Independent 12b-1
Directors, determined that continuation of the Plan would be in the best
interest of the Fund and would have a reasonable likelihood of continuing to
benefit the Fund and its shareholders. In the Directors' quarterly review of the
Plan, they will consider its continued appropriateness and the level of
compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
Fund, and all material amendments of the Plan must also be approved by the
Director in the manner described above. The Plan may be terminated at any time,
without payment of any penalty, by vote of a majority of the Independent 12b-1
Directors or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the Act) on not more than thirty days' written notice to any
other party to the Plan. So long as the Plan is in effect, the election and
nomination of Independent Directors shall be committed to the discretion of the
Independent Directors.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
As stated in the Prospectus, short-term securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost,
unless the Directors determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Directors. Other short-term debt securities will be valued on
a mark-to-market basis until such time as they reach a remaining maturity of
sixty days, whereupon they will be valued at amortized cost using their value on
the 61st day unless the Directors determine such does not reflect the
securities' market value, in which case these securities will be valued at their
fair market value as determined by the Directors. All other securities and other
assets are valued at their fair value as determined in good faith under
procedures established by and under the supervision of the Directors.
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time) on each day that the New York Stock Exchange
is open and on each other day in which there is a sufficient degree of trading
in the Fund's investments to affect the net asset value, except that the net
asset value may not be computed on a day on which no orders to purchase, or
tenders to sell or redeem, Fund shares have been received, by taking the value
of all assets of the Fund, subtracting its liabilities, dividing by the number
of shares outstanding and adjusting to the nearest cent. The New York Stock
Exchange
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<PAGE>
currently observes the following holidays: New Year's Day, Reverend Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The Board of Directors has adopted a procedure to value over-the-counter
options purchased or sold by the Fund whereby the Investment Manager will secure
daily bid and asked quotations from the counterparty to the option, and value
the option at the mean of such bid and asked quotations.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the 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 confirmation of the transaction from
the Fund or from DWR or other selected broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the Fund, unless the
shareholder requests that they be paid in cash. Each purchase of shares of the
Fund is made upon the condition that the Transfer Agent is thereby automatically
appointed as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and distributions
will be paid, at the net asset value per share, in shares of the Fund (or in
cash if the shareholder so requests) on the monthly payment date, which will be
no later than the last business day of the month for which the dividend or
distribution is payable. Processing of dividend checks begins immediately
following the monthly payment date. Shareholders who have requested to receive
dividends in cash will normally receive their monthly dividend check during the
first ten days of the following month. At any time an investor may request the
Transfer Agent, in writing, to have subsequent dividends and/or capital gains
distributions paid to him or her in cash rather than shares. To assure
sufficient time to process the change, such request should be received by the
Transfer Agent at least five business days prior to the record date of the
dividend or distribution. In the case of recently purchased shares for which
registration instructions have not been received on the record date, cash
payments will be made to DWR or other selected broker-dealer, and will be
forwarded to the shareholder, upon the receipt of proper instructions. It has
been and remains the Fund's policy and practice that, if checks for dividends or
distributions paid in cash remain uncashed, no interest will accrue on amounts
represented by such uncashed checks.
TARGETED DIVIDENDS.-SM- In states where it is legally permissable,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of an open-end Dean Witter Fund other than Dean
Witter Global Short-Term Income Fund Inc. Such investment will be made as
described above for automatic investment in shares of the Fund, at the net asset
value per share of the selected Dean Witter Fund as of the close of business on
the payment date of the dividend or distribution, and will begin to earn
dividends, if any, in the selected Dean Witter Fund the next business day. To
participate in the Targeted Dividends program, shareholders should contact their
DWR or other selected broker-dealer account executive or the Transfer Agent.
Shareholders of the Fund must be shareholders of the Dean Witter Fund targeted
to receive investments from dividends at the time they enter the Targeted
Dividends Program. Investors should review the prospectus of the Targeted Dean
Witter Fund before entering the program.
EASYINVEST.-SM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
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<PAGE>
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected (subject to any applicable sales charges). For
further information or to subscribe to EasyInvest, shareholders should contact
their DWR or other selected broker-dealer account executive or the Transfer
Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution at the net
asset value next determined after receipt by the Transfer Agent, without the
imposition of a contingent deferred sales charge upon redemption, by returning
the check or the proceeds to the Transfer Agent within 30 days after the payment
date. If the shareholder returns the proceeds of a dividend or distribution,
such funds must be accompanied by a signed statement indicating that the
proceeds constitute a dividend or distribution to be invested. Such investment
will be made at the net asset value per share next determined after receipt of
the check or proceeds by the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any amount, not less
than $25, or in any whole percentage of the account balance, on an annualized
basis. Any applicable contingent deferred sales charge will be imposed on shares
redeemed under the Withdrawal Plan (see "Redemptions and Repurchases--Contingent
Deferred Sales Charge" in the Prospectus). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable contingent
deferred sales charge) to the shareholder will be the designated monthly or
quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent within five business days after the date of redemption.
The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the contingent deferred sales charge
applicable to the redemption of shares purchased during the preceding six years
(see "Redemptions and Repurchases-- Contingent Deferred Sales Charge").
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 a commercial bank or trust company (not a savings bank), or by a
member of a national securities exchange. 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 "Redemptions and Repurchases" in the Prospectus) at
any time.
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<PAGE>
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
a shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to Dean Witter Global
Short-Term Income Fund Inc., directly to the Fund's Transfer Agent. Such amounts
will be applied to the purchase of Fund shares at the net asset value per share
next computed after receipt of the check or purchase payment by the Transfer
Agent. The shares so purchased will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of the Fund may exchange their shares
for Class B shares of Dean Witter Funds that are multiple class funds ("Dean
Witter Multi-Class Funds"). Shares may also be exchanged for shares of any of
the following funds: Dean Witter Short-Term Bond Fund, Dean Witter Short-Term
U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean Witter
Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which are money
market funds (the foregoing nine funds are hereinafter referred to as the
"Exchange Funds"). Exchanges may be made after the shares of the Fund acquired
by purchase (not by exchange or dividend reinvestment) have been held for thirty
days. There is no waiting period for exchanges of shares acquired by exchange or
dividend reinvestment. An exchange will be treated for federal income tax
purposes the same as a repurchase or redemption of shares, on which the
shareholder may realize a gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the captions "Exchange
Privilege" and "Contingent Deferred Sales Charge," a contingent deferred sales
charge ("CDSC") may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of the Fund or any
Dean Witter Multi-Class Fund are exchanged for shares of an Exchange Fund, the
exchange is executed at no charge to the shareholder, without the imposition of
the CDSC at the time of the exchange. During the period of time the shareholder
remains in the Exchange Fund (calculated from the last day of the month in which
the the Exchange Fund shares were acquired) the holding period or "year since
purchase payment made" is frozen. When shares are redeemed out of an Exchange
Fund, they will be subject to a CDSC which would be based upon the period of
time the shareholder held shares in the Fund or in a Dean Witter Multi-Class
Fund. However, in the case of shares exchanged for shares of an Exchange Fund on
or after April 23, 1990, upon a redemption of shares which results in a CDSC
being imposed, a credit (not to exceed the amount of the CDSC) will be given in
an amount equal to the Exchange Fund 12b-1 distribution fees which are
attributable to those shares. Shareholders acquiring shares of an Exchange Fund
pursuant to this exchange privilege may exchange those shares back into the Fund
or a Dean Witter Multi-Class Fund, with no CDSC being imposed on such exchange.
The holding period previously frozen when shares were first exchanged for shares
of the Exchange Fund resumes on the last day of the month in which shares of the
Fund or of a Dean Witter Multi-Class Fund are reacquired. A CDSC is imposed only
upon an ultimate redemption, based upon the time (calculated as described above)
the shareholder was invested in the Fund or in a Dean Witter Multi-Class Fund.
If shares of the Fund are exchanged for shares of a Dean Witter Multi-Class
Fund having a CDSC which is imposed at a higher rate or is subject to a
different time schedule than the CDSC imposed upon a redemption of a share of
the Fund, the higher CDSC will be imposed upon redemption of shares of the fund
exchanged into. Likewise, if shares of a Dean Witter Multi-Class Fund are
exchanged for shares of the Fund, upon redemption of shares of the Fund, a CDSC
will be imposed in accordance with the CDSC
37
<PAGE>
schedule applicable to the fund with the higher CDSC. Moreover, if shares of the
Fund are exchanged for shares of a Dean Witter Multi-Class Fund with a different
CDSC schedule imposing a higher CDSC and are subsequently exchanged again for
shares of the Fund, the higher CDSC will still apply upon ultimate redemption of
shares of the Fund.
When shares initially purchased in the Fund or in a Dean Witter Multi-Class
Fund are exchanged for shares of the Fund, shares of a Dean Witter Multi-Class
Fund, or shares of an Exchange Fund, the date of purchase of the shares of the
fund exchanged into, for purposes of the CDSC upon redemption, will be the last
day of the month in which the shares being exchanged were originally purchased.
In allocating the purchase payments between funds for purposes of the CDSC, the
amount which represents the current net asset value of shares at the time of the
exchange which were (i) purchased more than 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 (of the Fund or
another Dean Witter Fund) and (iii) acquired in exchange for shares of Dean
Witter Funds sold with a front-end sales charge, or for shares of other Dean
Witter Funds for which shares of Dean Witter Funds sold with a front-end sales
charge have been exchanged (all such shares called "Free Shares"), will be
exchanged first. After an exchange, all dividends earned on shares in an
Exchange Fund will be considered Free Shares. If the exchanged amount exceeds
the value of such Free Shares, an exchange is made, on a block-by-block basis,
of non-Free Shares held for the longest period of time (except that if shares
held for identical periods of time but subject to different CDSC schedules are
held in a block in the same Exchange Privilege account, the shares of that block
that are subject to a lower CDSC rate will be exchanged prior to the shares of
that block that are subject to a higher CDSC rate). Shares equal to any
appreciation in the value of non-Free shares exchanged will be treated as Free
Shares, and the amount of the purchase payments for the non-Free Shares of the
fund exchanged into will be equal to the lesser of (a) the purchase payments
for, or (b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free Shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on a
pro rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the Prospectus under the caption
"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.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean Witter New York Municipal Money Market
Trust, Dean Witter Tax-Free Daily Income Trust and Dean Witter California
Tax-Free Daily Income Trust, although those funds may, at their discretion,
accept initial
38
<PAGE>
investments of as low as $1,000. The minimum initial investment the Class B
Exchange Privilege account is $10,000 for Dean Witter Short-Term U.S. Treasury
Trust, although that fund, in its discretion, may accept initial purchases of as
low as $5,000. The minimum initial investment for the Class B Exchange Privilege
account is $5,000 for Dean Witter Special Value Fund. The minimum initial
investment for the Class B Exchange Privilege Account of all other Dean Witter
Funds for which the Exchange Privilege is available is $1,000.) Upon exchange
into an Exchange Fund, the shares of that fund will be held in a special
Exchange Privilege Account separately from accounts of those shareholders who
have acquired their shares directly from that fund. As a result, certain
services normally available to shareholders of 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 for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of an
Exchange Fund pursuant to the Exchange Privilege, and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective(s), policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of the Fund can be redeemed
for cash at any time at the net asset value per share next determined; however,
such redemption proceeds may be reduced by the amount of any applicable
contingent deferred sales charges. If shares are held in a shareholder's account
without a share certificate, a written request for redemption to the Fund's
Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder the shares may be redeemed by
surrendering the certificates with a written request for redemption. The share
certificate, or an accompanying stock power, and the request for redemption,
must be signed by the shareholder or shareholders exactly as the shares are
registered. Each request for redemption, whether or not accompanied by a share
certificate, must be sent to the Fund's Transfer Agent, which will redeem the
shares at their net asset value next computed (see "Purchase of Fund Shares" in
the Prospectus) after it receives the request, and certificate, if any, in good
order. Any redemption request received after such computation will be redeemed
at the next determined net asset value. The term "good order" means that the
share certificate, if any, and request for redemption are properly signed,
accompanied by any documentation required by the Transfer Agent, and bear
signature guarantees when required by the Fund or the Transfer Agent. If
redemption is requested by a corporation, partnership, trust or fiduciary, the
Transfer Agent may require that written evidence of authority acceptable to the
Transfer Agent be submitted before such request is accepted.
39
<PAGE>
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a supplement
to the prospectus or a new prospectus.
CONTINGENT DEFERRED SALES CHARGE. As stated in the Prospectus, a contingent
deferred sales charge ("CDSC") will be imposed on any redemption by an investor
if after such redemption the current value of the investor's shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Fund shares during the preceding three years. However, no CDSC will
be imposed to the extent that the net asset value of the shares redeemed does
not exceed: (a) the current net asset value of shares purchased more than three
years prior to the redemption, plus (b) the current net asset value of shares
purchased through reinvestment of dividends or distributions of the Fund or
another Dean Witter Fund (see "Shareholder Services--Targeted Dividends"), plus
(c) the current net asset value of shares acquired in exchange for (i) shares of
Dean Witter front-end sales charge funds, or (ii) shares of other Dean Witter
Funds for which shares of front-end sales charge funds have been exchanged (see
"Shareholder Services--Exchange Privilege"), plus (d) increases in the net asset
value of the investor's shares above the total amount of payments for the
purchase of Fund shares made during the preceding three years. The CDSC will be
paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last three years will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than three years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter front-end sales charge funds, or for shares
of other Dean Witter funds for which shares of front-end sales charge funds have
been exchanged. A portion of the amount redeemed which exceeds an amount which
represents both such increase in value and the value of shares purchased more
than three years prior to the redemption and/or shares purchased through
reinvestment of dividends or distributions and/or shares acquired in the
above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Fund shares until the time of
redemption of such shares. For purposes of determining the number of years from
the time of any payment for the purchase of shares, all payments made during a
month will be aggregated and deemed to have been made on the last day of the
month. The following table sets forth the rates of the CDSC:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
---------------------------- -------------------
<S> <C>
First............................................. 3.0%
Second............................................ 2.0%
Third............................................. 1.0%
Fourth and thereafter............................. None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable three year period. This will result in any such CDSC being imposed at
the lowest possible rate. Accordingly, shareholders may redeem, without
incurring any CDSC, amounts equal to any net increase in the value of their
shares above the amount of
40
<PAGE>
their purchase payments made within the past three years and amounts equal to
the current value of shares purchased more than three years prior to the
redemption and shares purchased through reinvestment of dividends or
distributions or acquired in exchange for shares of Dean Witter front-end sales
charge funds, or for shares of other Dean Witter Funds for which shares of
front-end sales charge funds have been exchanged. The CDSC will be imposed in
accordance with the table shown above, on any redemptions within three years of
purchase which are in excess of these amounts and which redemptions are not (a)
requested within one year of death or initial determination of disability of a
shareholder, or (b) made pursuant to certain taxable distributions from
retirement plans or retirement accounts, as described in the Prospectus.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares presented for repurchase or redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate and/or
written request in "good order". Such payment may be postponed or the right of
redemption suspended at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) during any other period when the Securities and Exchange
Commission by order so permits; provided that applicable rules and regulations
of the Securities and Exchange Commission shall govern as to whether the
conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a certified or bank cashier's
check), payment of redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of investment of the proceeds of the check by
the Transfer Agent). It has been and remains the Fund's policy and practice
that, if checks for redemption proceeds remain uncashed, no interest will accrue
on amounts represented by such uncashed checks. Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the contingent deferred sales charge or free of such charge
(and with regard to the length of time shares subject to the charge have been
held), any transfer involving less than all of the shares in an account will be
made on a pro-rata basis (that is, by transferring shares in the same proportion
that the transferred shares bear to the total shares in the account immediately
prior to the transfer). The transferred shares will continue to be subject to
any applicable contingent deferred sales charge as if they had not been so
transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may within 30 days after the date of
redemption or repurchase reinstate any portion of all of the proceeds of such
redemption or repurchase in shares of the Fund at the net asset value next
determined after a reinstatement request, together with such proceeds, is
received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes,
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to distribute
or to retain all or part of any net long-term capital gains in any year for
reinvestment. If any such gains are retained, the Fund will
41
<PAGE>
pay federal income tax thereon, and, if the Fund makes an election, the
shareholders would include such undistributed gains in their income and
shareholders will be able to claim their share of the tax paid by the Fund as a
credit against their individual federal income tax.
Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be generally short-term gains or losses. The Treasury
intends to issue regulations to permit shareholders to take into account their
proportionate share of the Fund's capital gains distributions that will be
subject to a reduced rate under the Taxpayer Relief Act of 1997. The Taxpayer
Relief Act reduced the maximum tax on long-term capital gains from 28% to 20%;
however, it also lengthened the required holding period to obtain this lower
rate from more than twelve months to more than eighteen months. These lower
rates do not apply to collectibles and certain other assets. Additionally, the
maximum capital gain rate for assets that are held more than five years and that
are acquired after December 31, 2000 is 18%.
The Fund intends to remain qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (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. In addition, the
Fund intends to distribute to its shareholders each calendar year a sufficient
amount of ordinary income and capital gains to avoid the imposition of a 4%
excise tax.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains during the
six-month period.
Dividends, interest and capital gains received by the Fund may give rise to
withhholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits or
deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% of the Fund's total assets
at the close of its fiscal year consist of securities of foreign corporations,
the Fund would be eligible and would determine whether or not to file an
election with the Internal Revenue Service pursuant to which shareholders of the
Fund will be required to include their respective pro rata portions of such
withholding taxes in their United States income tax returns as gross income,
treat such respective pro rata portions as taxes paid by them, and deduct such
respective pro rata portions in computing their taxable income or,
alternatively, use them as foreign tax credits against their United States
income taxes. The Fund will report annually to its shareholders the amount per
share of such withholding.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies are currently considered to be qualifying
income for purposes of determining whether the Fund qualifies as a regulated
investment company. It is currently unclear, however, who will be treated as the
issuer of certain foreign currency instruments or
42
<PAGE>
how foreign currency options, futures, or forward foreign currency contracts
will be valued for purposes of the regulated investment company diversification
requirements applicable to the Fund. The Fund may request a private letter
ruling from the Internal Revenue Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts", and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary dividend distributions.
Shareholders are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. Yield
is calculated for any 30-day period as follows: the amount of interest and/or
dividend income for each security in the Fund's portfolio is determined in
accordance with regulatory requirements; the total for the entire portfolio
constitutes the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income". The resulting amount
is divided by the product of the net asset value per share on the last day of
the period multiplied by the average number of Fund shares outstanding during
the period that were entitled to dividends. This amount is added to 1 and raised
to the sixth power. 1 is then subtracted from the result and the difference is
multiplied by 2 to arrive at the annualized yield. For the 30-day period ended
October 31, 1997, the Fund's yield, calculated pursuant to the formula described
above, was 4.70%.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value is
reduced by any contingent deferred sales charge at the end of the one, five or
ten year or other period. For the purpose of this calculation, it is assumed
that all dividends and distributions are reinvested. The formula for computing
the average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a root
of the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result. The average annual total return of
the Fund for the fiscal year ended October 31, 1997, for the five years ended
October 31, 1997 and for the period November 1, 1990 (commencement of
operations) through October 31, 1997 were 2.07%, 6.16% and 6.00%, respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. Such calculations may or may not reflect the
deduction of the contingent deferred sales charge which, if reflected, would
reduce the performance quoted. For example, the average annual total return of
the Fund may be calculated in the manner described above, but without deduction
for any applicable contingent deferred sales charge. Based on this calculation,
the average annual total return for the Fund for the fiscal year ended October
31, 1997, for the five years ended October 31, 1997 and for the period November
1, 1990 through October 31, 1997 were 4.88%, 6.16% and 6.00%, respectively.
43
<PAGE>
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without the
reduction for any contingent deferred sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the Fund's total return for the fiscal year ended October 31, 1997,
for the five years ended October 31, 1997 and for the period November 1, 1990
through October 31, 1997 were 4.88%, 34.82% and 50.38%, respectively.
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 1 to the Fund's
aggregate total return to date (expressed as a decimal and without taking into
account the effect of any applicable contingent deferred sales charge) and
multiplying by $10,000, $50,000 or $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
$15,038, $75,190 and $150,380, respectively, at October 31, 1997.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------
The Fund is authorized to issue 500,000,000 shares of common stock of $0.01
par value. Shares of the Fund, when issued, are fully paid, non-assessable,
fully transferable and redeemable at the option of the holder. All shares are
equal as to earnings, assets and voting privileges. There are no conversion,
preemptive or other subscription rights. In the event of liquidation, each share
of common stock of the Fund is entitled to its portion of all of the Fund's
assets after all debts and expenses have been paid. Except for agreements
entered into by the Fund in its ordinary course of business within the
limitations of the Fund's fundamental investment policies (which may be modified
only by shareholder vote), the Fund will not issue any securities other than
common stock.
The shares of the Fund do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so, and in such
event, the holders of the remaining less than 50% of the shares voting for the
election of directors will not be able to elect any person or persons to the
Board of Directors.
The Fund's By-Laws provide that one or more of the Fund's Directors may be
removed, either with or without cause, at any time by the affirmative vote of
the Fund's shareholders holding a majority of the outstanding shares entitled to
vote for the election of Directors. A special meeting of the shareholders of the
Fund will be called by the Fund's Secretary upon the written request of
shareholders entitled to vote at least 10% of the Fund's outstanding shares. The
Fund will also comply with the provisions of Section 16(c) of the Act.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 is the
Custodian of the Fund's assets in the United States and around the world. As
Custodian, The Chase Manhattan Bank has contracted with various foreign banks
and depositaries to hold portfolio securities of non-U.S. issuers on behalf of
the Fund. Any of the Fund's cash balances with the Custodian in excess of
$100,000 are unprotected by federal deposit insurance. Such balances may, at
times, be substantial.
Dean Witter Trust FSB, Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust FSB is an affiliate of Dean Witter InterCapital Inc., the Fund's
Investment
44
<PAGE>
Manager and Dean Witter Distributor Inc., the Fund's Distributor. As Transfer
Agent and Dividend Disbursing Agent, Dean Witter Trust FSB's responsibilities
include maintaining shareholder accounts, disbursing cash dividends and
reinvesting dividends, processing account registration changes, handling
purchase and redemption transactions, mailing prospectuses and reports, mailing
and tabulating proxies, processing share certificate transactions, and
maintaining shareholder records and lists. For these services Dean Witter Trust
FSB receives a per shareholder account fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on October 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Directors.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund for the year ended October 31, 1997
included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
45
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT & CORPORATE BONDS (72.3%)
GREECE (2.3%)
GOVERNMENT OBLIGATION
GRD 397,000 Republic of Greece+........................................................ 11.00% 11/26/99 $ 1,392,427
-----------
ITALY (3.1%)
GOVERNMENT OBLIGATION
ITL 2,950,000 Italy Treasury Bond+....................................................... 9.50 02/01/01 1,937,515
-----------
SPAIN (5.3%)
GOVERNMENT OBLIGATION
ESP 455,000 Spain Treasury Bond........................................................ 11.45 08/30/98 3,277,923
-----------
UNITED STATES (61.6%)
BANKS (33.6%)
$ 3,000 Bank One Columbus+......................................................... 7.375 12/01/02 3,149,130
3,000 Bankers Trust NY Corp...................................................... 8.125 04/01/02 3,207,030
2,000 Chase Manhattan Corp....................................................... 7.50 12/01/97 2,002,780
2,000 Chase Manhattan Corp....................................................... 9.75 11/01/01 2,249,020
1,020 First Interstate+.......................................................... 11.00 03/05/98 1,037,523
1,910 NationsBank Corp........................................................... 6.625 01/15/98 1,913,744
5,000 NBD Bank N.A.+............................................................. 6.85 05/11/98 5,032,450
2,000 Wachovia Corp.+............................................................ 7.00 12/15/99 2,039,120
-----------
20,630,797
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (28.0%)
12,745 Federal National Mortgage Assoc............................................ 7.00 12/01/11-
09/01/12 12,911,773
4,150 U.S. Treasury Note+........................................................ 6.125 08/15/07 4,241,425
-----------
17,153,198
-----------
TOTAL UNITED STATES............................................................................ 37,783,995
-----------
TOTAL GOVERNMENT & CORPORATE BONDS
(IDENTIFIED COST $44,181,093).................................................................. 44,391,860
-----------
SHORT-TERM INVESTMENTS (24.0%)
TIME DEPOSITS (a) (21.2%)
CANADA (2.0%)
BANKING - INTERNATIONAL
Ca$ 1,705 Chase Manhattan Bank....................................................... 3.375 11/06/97 1,210,594
-----------
DENMARK (3.8%)
BANKING - INTERNATIONAL
DKr 15,234 Unibank.................................................................... 3.70 11/07/97 2,320,664
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GREECE (3.5%)
BANKING - INTERNATIONAL
GRD 591,800 Bankers Trust.............................................................. 13.20% 11/28/97 $ 2,170,626
-----------
ITALY (3.2%)
BANKING - INTERNATIONAL
ITL 3,339,562 Morgan Guaranty Trust Co................................................... 6.65 11/05/97 1,972,990
-----------
SWEDEN (3.8%)
BANKING - INTERNATIONAL
SEK 8,288 Unibank.................................................................... 4.15 11/07/97 1,104,551
9,000 Bank of New York........................................................... 3.75 11/07/97 1,199,441
-----------
TOTAL SWEDEN................................................................................... 2,303,992
-----------
UNITED STATES (4.9%)
BANKING - INTERNATIONAL
$ 3,000 Bank of America............................................................ 5.35 11/03/97 3,000,000
-----------
TOTAL TIME DEPOSITS
(IDENTIFIED COST $12,832,970).................................................................. 12,978,866
-----------
GOVERNMENT OBLIGATION (b) (2.8%)
GERMANY
DEM 3,000 German Treasury Bill 3.23 01/16/98 1,727,847
(AMORTIZED COST $1,677,099)................................................
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $14,510,069).................................................................. 14,706,713
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $58,691,162)(C)........................................................... 96.3 % 59,098,573
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................. 3.7 2,279,115
------ ------------
NET ASSETS................................................................................. 100.0 % $ 61,377,688
------ ------------
------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
- ---------------------
+ Some or all of these securities are segregated in connection with open
forward foreign currency contracts.
(a) Subject to withdrawal restrictions until maturity.
(b) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $668,838 and the
aggregate gross unrealized depreciation is $261,427, resulting in net
unrealized appreciation of $407,411.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1997:
<TABLE>
<CAPTION>
IN UNREALIZED
CONTRACTS EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- ---------------------------------------------------------------
<S> <C> <C> <C>
DKr 15,244,960 $2,336,020 11/07/97 13,686
DEM 5,760,000 $3,355,470 01/30/98 (45,658 )
---------------
Net
unrealized
depreciation... $ (31,972 )
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $58,691,162)............................. $59,098,573
Unrealized appreciation on open forward foreign contracts... 13,686
Foreign currency............................................ 4,068
Receivable for:
Investments sold........................................ 1,508,675
Compensensated forward foreign currency contracts....... 1,110,830
Interest................................................ 870,240
Capital stock sold...................................... 58,260
Prepaid expenses and other assets........................... 29,473
-----------
TOTAL ASSETS........................................... 62,693,805
-----------
LIABILITIES:
Unrealized depreciation on open forward foreign contracts... 45,658
Payable to bank............................................. 137,469
Payable for:
Compensated forward foreign currency contracts.......... 611,044
Capital stock repurchased............................... 297,465
Plan of distribution fee................................ 39,117
Investment management fee............................... 28,686
Dividends to shareholders............................... 23,338
Accrued expenses and other payables......................... 133,340
-----------
TOTAL LIABILITIES...................................... 1,316,117
-----------
NET ASSETS............................................. $61,377,688
-----------
-----------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $67,956,823
Net unrealized appreciation................................. 370,965
Dividends in excess of net investment income................ (453,928)
Accumulated net realized loss............................... (6,496,172)
-----------
NET ASSETS............................................. $61,377,688
-----------
-----------
NET ASSET VALUE PER SHARE,
6,961,037 SHARES OUTSTANDING (500,000,000 SHARES AUTHORIZED
OF$.01 PAR VALUE)..........................................
$8.82
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME (net of $43,215 foreign withholding tax).... $ 5,400,162
-----------
EXPENSES
Plan of distribution fee.................................... 530,008
Investment management fee................................... 388,672
Transfer agent fees and expenses............................ 80,080
Professional fees........................................... 78,537
Shareholder reports and notices............................. 60,818
Custodian fees.............................................. 58,656
Registration fees........................................... 46,155
Directors' fees and expenses................................ 16,903
Other....................................................... 7,680
-----------
TOTAL EXPENSES......................................... 1,267,509
-----------
NET INVESTMENT INCOME.................................. 4,132,653
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................. (3,954,138)
Futures contracts....................................... 270,856
Foreign exchange transactions........................... 3,669,056
-----------
NET LOSS............................................... (14,226)
-----------
Net change in unrealized appreciation/depreciation on:
Investments............................................. (731,226)
Translation of forward foreign currency contracts, other
assets and
liabilities denominated in foreign currencies......... (208,054)
-----------
NET DEPRECIATION....................................... (939,280)
-----------
NET LOSS............................................... (953,506)
-----------
NET INCREASE................................................ $ 3,179,147
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 4,132,653 $ 6,030,423
Net realized gain (loss).................................... (14,226) 4,923,619
Net change in unrealized depreciation....................... (939,280) (157,589)
---------------- ----------------
NET INCREASE........................................... 3,179,147 10,796,453
Dividends from net investment income........................ (8,518,932) (5,418,221)
Net decrease from capital stock transactions................ (13,908,008) (31,691,587)
---------------- ----------------
NET DECREASE........................................... (19,247,793) (26,313,355)
NET ASSETS:
Beginning of period......................................... 80,625,481 106,938,836
---------------- ----------------
END OF PERIOD
(INCLUDING DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME
OF $453,928 AND UNDISTRIBUTED NET INVESTMENT INCOME OF
$3,329,736, RESPECTIVELY)............................... $ 61,377,688 $ 80,625,481
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Global Short-Term Income Fund Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a
non-diversified, open-end management investment company. The Fund's investment
objective is to achieve as high a level of current income as is consistent with
prudent investment risk. The Fund was incorporated in Maryland on August 2, 1990
and commenced operations on November 1, 1990.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and disclosures. Actual results could differ from those
estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) all portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (2) futures contracts
are valued at the latest sale price on the commodities exchange on which they
trade unless the Directors determine that such price does not reflect their
market value, in which case it will be valued at fair value as determined by the
Directors; (3) when market quotations are not readily available, including
circumstances under which it is determined by Dean Witter InterCapital Inc. (the
"Investment Manager") that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Directors (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain portfolio securities may be valued by an
outside pricing service approved by the Directors. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the securities valued by
such pricing service; and (5) short-term debt securities having a maturity date
of more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
52
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments at a set price on a future date. Upon
entering into such a contract, the Fund is required to pledge to the broker
cash, U.S. Government securities or other liquid portfolio securities equal to
the minimum initial margin requirements of the applicable futures exchange.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract
which is known as variation margin. Such receipts or payments are recorded by
the Fund as unrealized gains or losses. Upon closing of the contract, the Fund
realizes a gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
D. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized foreign currency gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
53
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
F. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager, the
Fund pays the Investment Manager a management fee, accrued 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: 0.55% to the portion of the
daily net assets not exceeding $500 million and 0.50% to the portion of the
daily net assets exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued
54
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
daily and payable monthly, at an annual rate of 0.75% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's shares since the Fund's
inception (not including reinvestment of dividend or capital gains
distributions) less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or (b)
the Fund's average daily net assets. Amounts paid under the Plan are paid to the
Distributor to compensate it for the services provided and the expenses borne by
it and others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares and incentive compensation to, and
expenses of, account executives of Dean Witter Reynolds Inc., an affiliate of
the Investment Manager and Distributor, and others who engage in or support
distribution of the Fund's shares or who service shareholder accounts, including
overhead and telephone expenses, printing and distribution of prospectuses and
reports used in connection with the offering of the Fund's shares to other than
current shareholders and preparation, printing and distribution of sales
literature and advertising materials. In addition, the Distributor may utilize
fees paid pursuant to the plan to compensate DWR and other selected
broker-dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
distribution expenses.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Directors will consider at that
time the manner in which to treat such expenses. The Distributor has advised the
Fund that such excess amounts, including carrying charges, totaled $7,269,740 at
October 31, 1997.
The Distributor has informed the Fund that for the year ended October 31, 1997,
it received $17,250 in contingent deferred sales charges from certain
redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1997 aggregated
$154,406,212 and $166,741,713, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $63,205,850 and
$48,207,977, respectively.
55
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At October 31, 1997, the Fund had transfer agent
fees and expenses payable of approximately $1,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended October 31, 1997 included
in Directors' fees and expenses in the Statement of Operations amounted to
$2,081. At October 31, 1997, the Fund had an accrued pension liability of
$46,264 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Sold.............................................. 18,695,388 $166,394,203 9,251,527 $ 85,394,562
Reinvestment of dividends......................... 566,141 5,089,726 348,451 3,177,482
----------- ------------ ----------- -------------
19,261,529 171,483,929 9,599,978 88,572,044
Repurchased....................................... (20,837,578) (185,391,937) (13,089,159) (120,263,631)
----------- ------------ ----------- -------------
Net decrease...................................... (1,576,049) $(13,908,008) (3,489,181) $ (31,691,587)
----------- ------------ ----------- -------------
----------- ------------ ----------- -------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
At October 31, 1997, the Fund had an approximate net capital loss carryover of
$6,970,000, which may be used to offset future capital gains to the extent
provided by regulations, which is available through October 31 of the following
years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- ------------------------------
2001 2002 2003 2005
- ------ ------ ------ ------
<S> <C> <C> <C>
$ 741 $4,853 $1,162 $ 214
- ------ ------ ------ ------
- ------ ------ ------ ------
</TABLE>
As of October 31, 1997, the Fund had temporary book/tax differences primarily
attributable to the mark-to-market of open forward foreign currency exchange
contracts and compensated forward foreign currency exchange contracts and
permanent book/tax differences primarily attributable to
56
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
foreign currency gains. To reflect reclassifications arising from the permanent
differences, accumulated net realized loss was charged and dividends in excess
of net investment income was credited $602,615.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage its foreign currency exposure or to sell, for a fixed amount of
U.S. dollars or other currency, the amount of foreign currency approximating the
value of some or all of its holdings denominated in such foreign currency or an
amount of foreign currency other than the currency in which the securities to be
hedged are denominated approximating the value of some or all of its holdings to
be hedged. Additionally, when the Investment Manager anticipates purchasing
securities at some time in the future, the Fund may enter into a forward
contract to purchase an amount of currency equal to some or all the value of the
anticipated purchase for a fixed amount of U.S. dollars or other currency.
To hedge against adverse interest rate, foreign currency and market risks, the
Fund may enter into forward written options on interest rate futures and
interest rate future contracts ("derivative investments").
Forward contracts and derivative instruments involve elements of market risk in
excess of the amount reflected in the Statement of Assets and Liabilities. The
Fund bears the risk of an unfavorable change in the foreign exchange rates
underlying the forward contracts. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms
of their contracts.
At October 31, 1997, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions and to manage
foreign currency exposure.
At October 31, 1997, the Fund held a concentration of investments in securities
of issuers in the banking industry representing 54.8% of the Fund's net assets.
57
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 9.44 $ 8.89 $ 8.73 $ 9.23 $ 9.41 $ 9.77 $ 10.00
--------- --------- --------- --------- --------- --------- ---------
Net investment income.............. 0.52 0.61 0.54 0.72 0.70 0.82 0.95
Net realized and unrealized gain
(loss)............................ (0.08) 0.48 0.16 (0.66) (0.27) (0.46) (0.23)
--------- --------- --------- --------- --------- --------- ---------
Total from investment operations... 0.44 1.09 0.70 0.06 0.43 0.36 0.72
--------- --------- --------- --------- --------- --------- ---------
Less dividends and distributions
from:
Net investment income........... (1.06) (0.54) (0.44) (0.13) (0.61) (0.72) (0.95)
Paid-in-capital................. -- -- (0.10) (0.43) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions..................... (1.06) (0.54) (0.54) (0.56) (0.61) (0.72) (0.95)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period..... $ 8.82 $ 9.44 $ 8.89 $ 8.73 $ 9.23 $ 9.41 $ 9.77
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN+........... 4.88% 12.66% 8.27% 0.65% 4.72% 3.76% 7.49%
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.79% 1.66% 1.68% 1.63% 1.55% 1.55% 1.61%
Net investment income.............. 5.85% 6.57% 6.17% 6.35% 6.97% 8.43% 9.49%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $61,378 $80,625 $106,939 $170,117 $305,278 $441,191 $462,263
Portfolio turnover rate............ 264% 138% 188% 123% 221% 149% 8%
<FN>
- ---------------------
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter Global Short-Term
Income Fund Inc. (the "Fund") at October 31, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the seven
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
DECEMBER 17, 1997
59
<PAGE>
MORGAN STANLEY DEAN WITTER WORLD WIDE INCOME TRUST
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated herein by reference to Item 27 of,
and Exhibit 1, to Post-Effective Amendment No. 11 to Registrant's Registration
Statement on Form N-1A, dated February 6, 1998 which was
filed electronically pursuant to Regulation S-T on February 6, 1998
("Post-Effective Amendment No. 11") as an amendment to Registrant's Registration
Statement on Form N-1A (File Nos. 811-5744 and 33-26375) filed on December 29,
1988 (the "Registration Statement").
ITEM 16. EXHIBITS
<TABLE>
<C> <S> <C>
(1) (a) Declaration of Trust dated October 13, 1988 ("Declaration of Trust")
(incorporated herein by reference to Exhibit 1 of Registrant's
initial Registration Statement)
(b) Amendment Establishing and Designating Additional Classes of Shares
to Declaration of Trust (incorporated herein by reference to Exhibit
1 to Post-Effective Amendment No. 10)
(2) Amended and Restated By-Laws of Registrant (incorporated herein by
reference to Exhibit 2 to Post-Effective Amendment No. 11)
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit A
to the Proxy Statement and Prospectus)
(5) Not Applicable
(6) Form of Amended Investment Management Agreement between the Registrant and
Morgan Stanley Dean Witter Advisors Inc.
(7) (a) Form of Amended Distribution Agreement between Registrant and Morgan
Stanley Dean Witter Distributors Inc.
(b) Form of Selected Dealer's Agreement (incorporated herein by reference
to Exhibit 6 to Post-Effective Amendment No. 8 to Registrant's
Registration Statement ("Post-Effective Amendment No. 8")).
(8) Not Applicable
(9) (a) Custody Agreement dated September 20, 1991 (incorporated herein by
reference to Exhibit 8 to Post-Effective Amendment No. 8)
(b) Form of Amended and Restated Transfer Agency and Service Agreement
between the Registrant and Morgan Stanley Dean Witter Trust FSB
(10) (a) Amended and Restated Plan of Distribution pursuant to Rule 12b-1,
dated July 28, 1997 (incorporated herein by reference to Exhibit 15
to Post-Effective Amendment No. 10)
(b) Amended Multiple Class Plan pursuant to Rule 18f-3
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S> <C>
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens LLP
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
regarding tax matters
(13) Form of Amended Services Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Services Company Inc.
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the
Investment Company Act of 1940, for its fiscal year ended October 31,
1997 (incorporated herein by reference to Form 24f-2 filed with the
Securities and Exchange Commission on December 29, 1997)
(b) Form of Proxy
</TABLE>
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a part
of this registration statement on Form N-14 by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial BONA FIDE offering of them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 3rd day of November, 1998.
MORGAN STANLEY DEAN WITTER
WORLD WIDE INCOME TRUST
By: /s/ BARRY FINK
--------------------------------------
Barry Fink
VICE PRESIDENT AND SECRETARY
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------------------------------------- ----------------------------------- --------------------
<C> <C> <S> <C>
1. Principal Executive Officer
/s/ CHARLES A. FIUMEFREDDO Chairman, President, Chief
--------------------------------- Executive Officer and Trustee October 28, 1998
Charles A. Fiumefreddo
2. Principal Financial Officer
/s/ THOMAS F. CALOIA
--------------------------------- Treasurer October 28, 1998
Thomas F. Caloia
3. Majority of Trustees
/s/ MICHAEL BOZIC
--------------------------------- Trustee October 28, 1998
Michael Bozic
/s/ EDWIN J. GARN
--------------------------------- Trustee October 28, 1998
Edwin J. Garn
/s/ JOHN R. HAIRE
--------------------------------- Trustee October 28, 1998
John R. Haire
/s/ WAYNE E. HEDIEN
--------------------------------- Trustee October 28, 1998
Wayne E. Hedien
/s/ DR. MANUEL H. JOHNSON
--------------------------------- Trustee October 28, 1998
Dr. Manuel H. Johnson
/s/ MICHAEL E. NUGENT
--------------------------------- Trustee October 28, 1998
Michael E. Nugent
/s/ PHILIP J. PURCELL
--------------------------------- Trustee October 28, 1998
Philip J. Purcell
/s/ JOHN L. SCHROEDER
--------------------------------- Trustee October 28, 1998
John L. Schroeder
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- ---- --------------------------------------------------- ---
<C> <S> <C> <C>
(6 ) Form of Amended Investment Management Agreement
between the Registrant and Morgan Stanley Dean
Witter Advisors Inc.
(7 ) (a) Form of Amended Distribution Agreement between
Registrant and Morgan Stanley Dean Witter
Distributors Inc.
(9 ) (b) Form of Amended and Restated Transfer Agency
and Service Agreement between the Registrant
and Morgan Stanley Dean Witter Trust FSB
(10 ) (b) Amended Multiple-Class Plan pursuant to Rule
18f-3.
(11 ) (a) Opinion and consent of Gordon Altman Butowsky
Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens LLP
(12 ) Opinion and consent of Gordon Altman Butowsky
Weitzen Shalov & Wein regarding tax matters
(13 ) Form of Amended Services Agreement between Morgan
Stanley Dean Witter Advisors Inc. and Morgan
Stanley Dean Witter Services Company Inc.
(14 ) Consent of Independent Accountants
(16 ) Powers of Attorney
(17 ) (b) Form of Proxy
</TABLE>
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, and amended as of April 30,
1998, by and between Dean Witter World Wide 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 and commodities markets and securities and commodities 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 and commodities 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 agencies). 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 who are also directors, officers or
<PAGE>
employees of the Investment Manager, and provide such office space, facilities
and equipment and such clerical help and bookkeeping services as the Fund shall
reasonably require in the conduct of its business. The Investment Manager shall
also bear the cost of telephone service, heat, light, power and other utilities
provided to the Fund.
5. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including without limitation: fees pursuant to any plan of
distribution that the Fund may adopt; the charges and expenses of any registrar,
any custodian or depository appointed by the Fund for the safekeeping of its
cash, portfolio securities or commodities 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 transactions to which the
Fund is a party; all taxes, including securities or commodities 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
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 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
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 the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Trustees of the Fund who are not interested
persons (as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; 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 Investment
Manager monthly compensation determined by applying the following annual rates
to the Fund's daily net assets: 0.75% of daily net assets up to $250 million;
0.60% of the next $250 million; 0.50% of the next $250 million; 0.40% of the
next $250 million; and 0.30% of daily net assets over $1 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 computations 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 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,
distribution fees and extraordinary expenses (including but not
2
<PAGE>
limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) 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 securities in the Fund's portfolio accrued
to and including the last day of the Fund's fiscal year, and dividends declared
on 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 sale 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 Trustee, 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, 1999 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 Investment Company Act of
1940, as amended (the "Act"), of the outstanding voting securities of the Fund
or by the 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 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 (to the extent required by the Act and
the rules thereunder) unless such automatic terminations 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 the 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 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,
conflicts with the applicable provisions of the Act, the latter shall control.
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
3
<PAGE>
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, Morgan Stanley Dean Witter
& Co., 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 World Wide Income
Trust, dated October 13, 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 World Wide
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 World Wide 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 World Wide Income Trust, but the Trust Estate only
shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on April 30, 1998 in New York, New York.
<TABLE>
<S> <C> <C>
DEAN WITTER WORLD WIDE INCOME TRUST
By: /s/ BARRY FINK
.................................................................
Attest:
/s/ FRANK BRUTTOMESSO
................................................................
DEAN WITTER INTERCAPITAL INC.
By: /s/ CHARLES A. FIUMEFREDDO
.................................................................
Attest:
/s/ MARILYN K. CRANNEY
................................................................
</TABLE>
4
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 28th day of July, 1997, and amended as of June 22,
1998, between each of the open-end investment companies to which Morgan Stanley
Dean Witter Advisors Inc. acts as investment manager, that are listed on
Schedule A, as may be amended from time to time (each, a "Fund" and
collectively, the "Funds"), and Morgan Stanley Dean Witter Distributors Inc., a
Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, each Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and it is in the
interest of each Fund to offer its shares for sale continuously, and
WHEREAS, each Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of each Fund's transferable
shares, of $0.01 par value (the "Shares"), to commence on the date listed above,
in order to promote the growth of each Fund and facilitate the distribution of
its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. APPOINTMENT OF THE DISTRIBUTOR.
(a) Each Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Fund to sell Shares to the public on the terms set forth
in this Agreement and that Fund's prospectus and the Distributor hereby accepts
such appointment and agrees to act hereunder. Each 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 each 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 that 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 the
1940 Act or as the 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 each Fund, except that the
exclusive rights granted to the Distributor to sell the Shares shall not apply
to Shares issued by each 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; (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 EACH FUND. The Shares are offered in
four classes (each, a "Class"), as described in the Prospectus, as amended or
supplemented from time to time.
(a) The Distributor shall have the right to buy from each Fund the Shares of
the particular class needed, but not more than the Shares needed (except for
clerical errors in transmission), to fill unconditional orders for Shares of the
applicable class placed with the Distributor by investors or 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,
used in determining the public offering price on which such orders were based.
1
<PAGE>
(b) The Shares are to be resold by the Distributor at the public offering
price of Shares of the applicable class as set forth in the Prospectus, to
investors or to securities dealers, including DWR, who have entered into
selected dealer agreements with the Distributor upon the terms and conditions
set forth in Section 7 hereof ("Selected Dealers").
(c) Each 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(f) hereof. Each 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 a Fund, makes it impracticable to sell its Shares.
(d) Each Fund, or any agent of a 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 a Fund; provided, however, that a 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
each 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).
(e) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct each 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 each 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 of a Fund may be tendered for redemption
at any time, and each Fund agrees to redeem its Shares so tendered in accordance
with the applicable provisions set forth in its 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 less any applicable contingent deferred sales charge
("CDSC"). Upon any redemption of Shares the Fund shall pay the total amount of
the redemption price in New York Clearing House funds in accordance with
applicable provisions of the Prospectus.
(b) The redemption by a Fund of any of its Class A Shares purchased by or
through the Distributor will not affect the applicable front-end sales charge
secured by the Distributor or any Selected Dealer in the course of the original
sale, except that if any Class A Shares are tendered for redemption within seven
business days after the date of the confirmation of the original purchase, the
right to the applicable front-end sales charge shall be forfeited by the
Distributor and the Selected Dealer which sold such Shares.
(c) The proceeds of any redemption of Class A, Class B or Class C Shares
shall be paid by each Fund as follows: (i) any applicable CDSC shall be paid to
the Distributor or to the Selected Dealer, or, when applicable, pursuant to the
Rules of the Association of the National Association of Securities Dealers, Inc.
("NASD"), retained by the Fund and (ii) the balance shall be paid to the
redeeming shareholders, in each case in accordance with applicable provisions of
its Prospectus in New York Clearing House funds. The Distributor is authorized
to direct a Fund to pay directly to the Selected Dealer any CDSC payable by a
Fund to the Distributor in respect of Class A, Class B, or Class C Shares sold
by the Selected Dealer to the redeeming shareholders.
(d) 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 each
Fund's Prospectus. The Distributor shall promptly transmit to the transfer agent
of the Fund
2
<PAGE>
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.
(e) The Distributor is authorized, as agent for each Fund, to repurchase
Shares held in a shareholder's account with a Fund for which no share
certificate has been issued, upon the telephonic request of the shareholders, 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 a 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.
(f) Redemption of its Shares or payment by a 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 a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or
during any other period when the SEC, by order, so permits.
(g) With respect to its 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 a 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
shall maintain, a record of such orders. The Distributor is further authorized
to obtain from the Fund, and shall maintain, a record of payment made directly
to the Selected Dealer on behalf of the Distributor.
SECTION 5. DUTIES OF THE FUND.
(a) Each 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 its Shares, including one
certified copy, upon request by the Distributor, of all financial statements
prepared by the Fund and examined by independent accountants. Each Fund shall,
at the expense of the Distributor, make available to the Distributor such number
of copies of its Prospectus as the Distributor shall reasonably request.
(b) Each Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and 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) Each Fund shall use its best efforts to pay the filing fees for an
appropriate number of its Shares to be sold under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by a Fund at any
time in its discretion. As provided in Section 8(c) hereof, such filing fees
shall be paid by the Fund. The Distributor shall furnish any information and
other material relating to its affairs and activities as may be required by a
Fund in connection with the sale of its Shares in any state.
(d) Each Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of its annual and
interim reports.
SECTION 6. DUTIES OF THE DISTRIBUTOR.
(a) The Distributor shall sell shares of each Fund through DWR and may sell
shares through other securities dealers and its own Financial Advisors, and
shall devote reasonable time and effort to promote sales of the 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 may act as principal underwriter for other registered investment
companies, so long as the performance of its obligations
3
<PAGE>
hereunder is not impaired thereby. It is also understood that Selected Dealers,
including DWR, may also sell shares for other registered investment companies.
(b) Neither the Distributor nor any Selected Dealer shall 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 appropriate Fund.
(c) The Distributor agrees that it will at all times comply with the
applicable terms and limitations of the Rules of the Association of the NASD.
SECTION 7. SELECTED DEALERS AGREEMENTS.
(a) The Distributor shall have the right to enter into selected dealer
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 a Fund. Shares sold to Selected Dealers shall be for resale by such
dealers only at the public offering price set forth in the Prospectus. With
respect to Class A Shares, in such agreement the Distributor shall have the
right to fix the portion of the applicable front-end sales charge which may be
allocated to the Selected Dealers.
(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 each
Fund, for the confirmation of sales of its 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) Each Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of legal counsel including counsel to the Directors/Trustees
of each Fund who are not interested persons (as defined in the 1940 Act) of the
Fund or the Distributor, and independent accountants, in connection with the
preparation and filing of any required Registration Statements and Prospectuses
and all amendments and supplements thereto, and the expense of preparing,
printing, mailing and otherwise distributing prospectuses and statements of
additional information, annual or interim reports or proxy materials to
shareholders.
(b) The Distributor shall bear all expenses incurred by it in connection
with its duties and activities under this Agreement including the payment to
Selected Dealers of any sales commissions, service fees and other expenses for
sales of a Fund's Shares (except such expenses as are specifically undertaken
herein by a Fund) incurred or paid by Selected Dealers, including DWR. The
Distributor shall bear the costs and expenses of preparing, printing and
distributing any supplementary sales literature used by the Distributor or
furnished by it for use by Selected Dealers in connection with the offering of
the Shares for sale. Any expenses of advertising incurred in connection with
such offering will also be the obligation of the Distributor. It is understood
and agreed that, so long as a Fund's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act ("Rule 12b-1 Plan") continues in effect, any expenses
incurred by the Distributor hereunder may be paid in accordance with the terms
of such Rule 12b-1 Plan.
(c) Each Fund shall pay the filing fees, and, if necessary or advisable in
connection therewith, bear the cost and expense of qualifying each 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 to
offer Shares therein until the Fund decides to discontinue selling Shares
pursuant to Section 5(c) hereof.
SECTION 9. INDEMNIFICATION.
(a) Each 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
4
<PAGE>
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 and Statement of Additional Information, as from
time to time amended and supplemented, or the annual or interim reports to
shareholders of a 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 a 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 a
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 a 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 any 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 uch 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 claim 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. Each Fund will be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense, of any such suit brought to enforce any such liability, but if a
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 person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. Each Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors/Trustees in connection with the issuance or sale of the Shares.
(b) (i) The Distributor shall indemnify and hold harmless each Fund and each
of its Directors/ Trustees and officers and each person, if any, who controls
the Fund against any loss, liability, claim, damage, or expense described in the
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 a Fund in writing by or on behalf of the Distributor
for use in connection with the Registration Statement or related Prospectus and
Statement of Additional Information, as from time to time amended, or the annual
or interim reports to shareholders.
(ii) The Distributor shall indemnify and hold harmless each Fund and
each 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 Section 4(g) hereof and pay the proceeds to, or as directed by, 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 Section 3(e) hereof.
(iii) In case any action shall be brought against a Fund or any person
so indemnified by this Section 9(b) in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties given
to a 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.
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<PAGE>
(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 indemnifiying 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 a Fund on the one hand and the 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 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 a 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 a 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 the
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 a Fund or the Distributor and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Each Fund and the Distributor agree that it would not be
just and equitable ifcontribution 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 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 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 remain in force until April 30, 1999, and thereafter, but only so long as
such continuance is specifically approved at least annually by (i) the Board of
Directors/Trustees of each 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 Directors/ 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 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.
This Agreement may be terminated at any time without the payment of any
penalty, by the Directors/ Trustees of a Fund, by a majority of the
Directors/Trustees of a Fund who are not interested persons of the Fund and who
have no direct or indirect financial interest in this Agreement, or by vote of a
majority of the outstanding voting securities of a 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 "interested 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
Directors/Trustees of a Fund, or by the vote of a majority of outstanding voting
securities of a Fund, and (ii) a majority of those Directors/Trustees of a Fund
who are not parties to this Agreement or interested persons of any such party
and who have no direct
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<PAGE>
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. ADDITIONAL FUNDS. If at any time another Fund desires to
appoint the Distributor as its principal underwriter and distributor under this
Agreement, it shall notify the Distributor in writing. If the Distributor is
willing to serve as the Fund's principal underwriter and distributor under this
Agreement, it shall notify the Fund in writing, whereupon such other Fund shall
become a Fund hereunder.
SECTION 13. 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 the applicable law of the State of New York, or any of the
provisions herein, conflicts with the applicable provisions of the 1940 Act, the
latter shall control.
SECTION 14. PERSONAL LIABILITY. With respect to any Fund that is organized
as an unincorporated business trust under the laws of the Commonwealth of
Massachusetts, its Declaration of the Trust (each, a "Declaration") is on file
in the office of the Secretary of the Commonwealth of Massachusetts. Each
Declaration provides that the name of the Fund 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 any Fund 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 any Fund, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.
ON BEHALF OF THE FUNDS SET FORTH ON
SCHEDULE A, ATTACHED HERETO
By: ..................................
MORGAN STANLEY DEAN WITTER
DISTRIBUTORS INC.
By: ..................................
7
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
SCHEDULE A
AT JULY 22, 1998
<TABLE>
<S> <C>
1) Morgan Stanley Dean Witter American Value Fund
2) Morgan Stanley Dean Witter Balanced Growth Fund
3) Morgan Stanley Dean Witter Balanced Income Fund
4) Morgan Stanley Dean Witter California Tax-Free Income Fund
5) Morgan Stanley Dean Witter Capital Appreciation Fund
6) Morgan Stanley Dean Witter Capital Growth Securities
7) Morgan Stanley Dean Witter Competitive Edge Fund
8) Morgan Stanley Dean Witter Convertible Securities Trust
9) Morgan Stanley Dean Witter Developing Growth Securities Trust
10) Morgan Stanley Dean Witter Diversified Income Trust
11) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
12) Morgan Stanley Dean Witter Equity Fund
13) Morgan Stanley Dean Witter European Growth Fund Inc.
14) Morgan Stanley Dean Witter Federal Securities Trust
15) Morgan Stanley Dean Witter Financial Services Trust
16) Morgan Stanley Dean Witter Fund of Funds
17) Dean Witter Global Asset Allocation Fund
18) Morgan Stanley Dean Witter Global Dividend Growth Securities
19) Morgan Stanley Dean Witter Global Utilities Fund
20) Morgan Stanley Dean Witter Growth Fund
21) Morgan Stanley Dean Witter Health Sciences Trust
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Builder Fund
24) Morgan Stanley Dean Witter Information Fund
25) Morgan Stanley Dean Witter Intermediate Income Securities
26) Morgan Stanley Dean Witter International SmallCap Fund
27) Morgan Stanley Dean Witter Japan Fund
28) Morgan Stanley Dean Witter Market Leader Trust
29) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
30) Morgan Stanley Dean Witter Mid-Cap Growth Fund
31) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
32) Morgan Stanley Dean Witter New York Tax-Free Income Fund
33) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
34) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
35) Morgan Stanley Dean Witter Research Fund
36) Morgan Stanley Dean Witter Special Value Fund
37) Morgan Stanley Dean Witter S&P 500 Index Fund
38) Morgan Stanley Dean Witter S&P 500 Select Fund
39) Morgan Stanley Dean Witter Strategist Fund
40) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
41) Morgan Stanley Dean Witter U.S. Government Securities Trust
42) Morgan Stanley Dean Witter Utilities Fund
43) Morgan Stanley Dean Witter Value-Added Market Series
44) Morgan Stanley Dean Witter Value Fund
45) Morgan Stanley Dean Witter Worldwide High Income Fund
46) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
8
<PAGE>
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
MORGAN STANLEY DEAN WITTER TRUST FSB
[open-end funds]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Article 1 Terms of Appointment....................................................................... 15
Article 2 Fees and Expenses.......................................................................... 16
Article 3 Representations and Warranties of MSDW TRUST............................................... 17
Article 4 Representations and Warranties of the Fund................................................. 17
Article 5 Duty of Care and Indemnification........................................................... 18
Article 6 Documents and Covenants of the Fund and MSDW TRUST......................................... 19
Article 7 Duration and Termination of Agreement...................................................... 20
Article 8 Assignment................................................................................. 20
Article 9 Affiliations............................................................................... 20
Article 10 Amendment.................................................................................. 21
Article 11 Applicable Law............................................................................. 21
Article 12 Miscellaneous.............................................................................. 21
Article 13 Merger of Agreement........................................................................ 22
Article 14 Personal Liability......................................................................... 22
</TABLE>
<PAGE>
AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 1st day of August, 1997 by and
between each of the Funds listed on the signature pages hereof, each of such
Funds acting severally on its own behalf and not jointly with any of such other
Funds (each such Fund hereinafter referred to as the "Fund"), each such Fund
having its principal office and place of business at Two World Trade Center, New
York, New York, 10048, and MORGAN STANLEY DEAN WITTER TRUST FSB ("MSDW TRUST"),
a federally chartered savings bank, having its principal office and place of
business at Harborside Financial Center, Plaza Two, Jersey City, New Jersey
07311.
WHEREAS, the Fund desires to appoint MSDW TRUST as its transfer agent,
dividend disbursing agent and shareholder servicing agent and MSDW TRUST desires
to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
ARTICLE 1 TERMS OF APPOINTMENT; DUTIES OF MSDW TRUST
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints MSDW TRUST to act as, and MSDW TRUST 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 MSDW TRUST agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and MSDW TRUST, MSDW TRUST shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the
custodian of the assets of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and issue certificates therefor or hold such Shares in book form
in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the
Custodian;
(iv) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over or cause to
be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may be
reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain pursuant
to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934 Act")
a record of the total
1
<PAGE>
number of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. MSDW TRUST shall
also provide to the Fund on a regular basis the total number of Shares
that are authorized, issued and outstanding and shall notify the Fund in
case any proposed issue of Shares by the Fund would result in an
overissue. In case any issue of Shares would result in an overissue, MSDW
TRUST shall refuse to issue such Shares and shall not countersign and
issue any certificates requested for such Shares. When recording the
issuance of Shares, MSDW TRUST 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), MSDW TRUST shall:
(i) perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, shareholder servicing agent
in connection with dividend reinvestment, accumulation, open-account or
similar plans (including without limitation any periodic investment plan
or periodic withdrawal program), including but not limited to,
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, receiving and tabulating proxies, mailing
shareholder reports and prospectuses to current Shareholders, withholding
taxes on U.S. resident and non-resident alien accounts, preparing and
filing appropriate forms required with respect to dividends and
distributions by federal tax authorities for all Shareholders, preparing
and mailing confirmation forms and statements of account to Shareholders
for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity
statements for Shareholders and providing Shareholder account
information;
(ii) open any and all bank accounts which may be necessary or
appropriate in order to provide the foregoing services; and
(iii) provide a system that will enable the Fund to monitor the total
number of Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall:
(i) identify to MSDW TRUST in writing those transactions and assets
to be treated as exempt from Blue Sky reporting for each State; and
(ii) verify the inclusion on the system prior to activation of each
State in which Fund shares may be sold and thereafter monitor the daily
purchases and sales for shareholders in each State. The responsibility of
MSDW TRUST for the Fund's status under the securities laws of any State
or other jurisdiction is limited to the inclusion on the system of each
State as to which the Fund has informed MSDW TRUST that shares may be
sold in compliance with state securities laws and the reporting of
purchases and sales in each such State to the Fund as provided above and
as agreed from time to time by the Fund and MSDW TRUST.
(d) MSDW TRUST shall provide such additional services and functions not
specifically described herein as may be mutually agreed between MSDW TRUST
and the Fund. Procedures applicable to such services may be established from
time to time by agreement between the Fund and MSDW TRUST.
ARTICLE 2 FEES AND EXPENSES
2.1 For performance by MSDW TRUST pursuant to this Agreement, each Fund
agrees to pay MSDW TRUST 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-
2
<PAGE>
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 MSDW
TRUST.
2.2 In addition to the fees paid under Section 2.1 above, the Fund agrees to
reimburse MSDW TRUST for out of pocket expenses in connection with the services
rendered by MSDW TRUST hereunder. In addition, any other expenses incurred by
MSDW TRUST at the request or with the consent of the Fund will be reimbursed by
the Fund.
2.3 The Fund agrees to pay all fees and reimbursable expenses within a
reasonable period of time following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to MSDW TRUST by the Fund
upon request prior to the mailing date of such materials.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF MSDW TRUST
MSDW TRUST represents and warrants to the Fund that:
3.1 It is a federally chartered savings bank whose principal office is in
New Jersey.
3.2 It is and will remain registered with the U.S. Securities and Exchange
Commission ("SEC") as a Transfer Agent pursuant to the requirements of Section
17A of the 1934 Act.
3.3 It is empowered under applicable laws and by its charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to MSDW TRUST 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.
3
<PAGE>
ARTICLE 5 DUTY OF CARE AND INDEMNIFICATION
5.1 MSDW TRUST shall not be responsible for, and the Fund shall indemnify
and hold MSDW TRUST 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 MSDW TRUST 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 MSDW TRUST or its agents or subcontractors
of information, records and documents which (i) are received by MSDW TRUST
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 MSDW TRUST or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities or Blue Sky
laws of any State or other jurisdiction that notice of offering of such
Shares in such State or other jurisdiction or in violation of any stop order
or other determination or ruling by any federal agency or any State or other
jurisdiction with respect to the offer or sale of such Shares in such State
or other jurisdiction.
5.2 MSDW TRUST 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 MSDW TRUST as a result of the lack of good faith, negligence
or willful misconduct of MSDW TRUST, its officers, employees or agents.
5.3 At any time, MSDW TRUST 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 MSDW TRUST
under this Agreement, and MSDW TRUST 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.
MSDW TRUST, its agents and subcontractors shall be protected and indemnified in
acting upon any paper or document furnished by or on behalf of the Fund,
reasonably believed to be genuine and to have been signed by the proper person
or persons, or upon any instruction, information, data, records or documents
provided to MSDW TRUST 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. MSDW TRUST, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signature of the officers of the Fund, and the proper countersignature
of any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
5.4 In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
5.5 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
4
<PAGE>
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 MSDW TRUST
6.1 The Fund shall promptly furnish to MSDW TRUST the following, unless
previously furnished to Dean Witter Trust Company, the prior transfer agent of
the Fund:
(a) If a corporation:
(i) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of MSDW TRUST and the execution and
delivery of this Agreement;
(ii) A certified copy of the Articles of Incorporation and By-Laws
of the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Directors
designating persons authorized to give instructions on behalf of the Fund
and signature cards bearing the signature of any officer of the Fund or
any other person authorized to sign written instructions on behalf of the
Fund;
(iv) A specimen of the certificate for Shares of the Fund in the
form approved by the Board of Directors, with a certificate of the
Secretary of the Fund as to such approval;
(b) If a business trust:
(i) A certified copy of the resolution of the Board of Trustees of
the Fund authorizing the appointment of MSDW TRUST and the execution and
delivery of this Agreement;
(ii) A certified copy of the Declaration of Trust and By-Laws of the
Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Trustees
designating persons authorized to give instructions on behalf of the Fund
and signature cards bearing the signature of any officer of the Fund or
any other person authorized to sign written instructions on behalf of the
Fund;
(iv) A specimen of the certificate for Shares of the Fund in the
form approved by the Board of Trustees, with a certificate of the
Secretary of the Fund as to such approval;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the
1933 Act or the 1940 Act;
(d) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan, program or service offered
or to be offered by the Fund; and
(e) Such other certificates, documents or opinions as MSDW TRUST deems
to be appropriate or necessary for the proper performance of its duties.
6.2 MSDW TRUST 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.
5
<PAGE>
6.3 MSDW TRUST shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable and as
required by applicable laws and regulations. To the extent required by Section
31 of the 1940 Act, and the rules and regulations thereunder, MSDW TRUST agrees
that all such records prepared or maintained by MSDW TRUST relating to the
services performed by MSDW TRUST 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 MSDW TRUST 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 MSDW TRUST and the
Fund.
6.5 In case of any request or demands for the inspection of the Shareholder
records of the Fund, MSDW TRUST will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such inspection. MSDW
TRUST reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by its counsel that it may be held liable for the
failure to exhibit the Shareholder records to such person.
ARTICLE 7 DURATION AND TERMINATION OF AGREEMENT
7.1 This Agreement shall remain in full force and effect until August 1,
2000 and from year-to-year thereafter unless terminated by either party as
provided in Section 7.2 hereof.
7.2 This Agreement may be terminated by the Fund on 60 days written notice,
and by MSDW TRUST 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, MSDW TRUST 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.
8.3 MSDW TRUST 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 MSDW TRUST; provided, however,
that such person or entity has and maintains the qualifications, if any,
required to perform such obligations and duties, and that MSDW TRUST 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 MSDW TRUST may now or hereafter, without the consent of or notice to the
Fund, function as transfer agent and/or shareholder servicing agent for any
other investment company registered with the SEC under the 1940 Act and for any
other issuer, including without limitation any investment company whose adviser,
administrator, sponsor or principal underwriter is or may become affiliated with
Morgan Stanley Dean Witter & Co. or any of its direct or indirect subsidiaries
or affiliates.
6
<PAGE>
9.2 It is understood and agreed that the Directors or Trustees (as the case
may be), officers, employees, agents and shareholders of the Fund, and the
directors, officers, employees, agents and shareholders of the Fund's investment
adviser and/or distributor, are or may be interested in MSDW TRUST as directors,
officers, employees, agents and shareholders or otherwise, and that the
directors, officers, employees, agents and shareholders of MSDW TRUST 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 Morgan Stanley Dean Witter Advisors Inc. or any of its
affiliates ("Additional Funds") desires to retain MSDW TRUST to act as transfer
agent, dividend disbursing agent and/or shareholder servicing agent, and MSDW
TRUST desires to render such services, such services shall be provided pursuant
to a letter agreement, substantially in the form of Exhibit A hereto, between
MSDW TRUST 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 MSDW TRUST 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 MSDW TRUST and the Fund issued by a
surety company satisfactory to MSDW TRUST, except that MSDW TRUST may accept an
affidavit of loss and indemnity agreement executed by the registered holder (or
legal representative) without surety in such form as MSDW TRUST deems
appropriate indemnifying MSDW TRUST and the Fund for the issuance of a
replacement certificate, in cases where the alleged loss is in the amount of
$1,000 or less.
12.3 In the event that any check or other order for payment of money on the
account of any Shareholder or new investor is returned unpaid for any reason,
MSDW TRUST 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 MSDW TRUST may, in its sole
discretion, deem appropriate or as the Fund and, if applicable, the Distributor
may instruct MSDW TRUST.
12.4 Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or to MSDW TRUST 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
7
<PAGE>
To MSDW TRUST:
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attention: President
ARTICLE 13 MERGER OF AGREEMENT
13.1 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
ARTICLE 14 PERSONAL LIABILITY
14.1 In the case of a Fund organized as a Massachusetts business trust, a
copy of the Declaration of Trust of the Fund is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against, a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.
MORGAN STANLEY DEAN WITTER FUNDS
MONEY MARKET FUNDS
1. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Morgan Stanley Dean Witter U.S. Government Money Market Trust
4. Active Assets Government Securities Trust
5. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
6. Active Assets Tax-Free Trust
7. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
8. Morgan Stanley Dean Witter New York Municipal Money Market Trust
9. Active Assets California Tax-Free Trust
EQUITY FUNDS
10. Morgan Stanley Dean Witter American Value Fund
11. Morgan Stanley Dean Witter Mid-Cap Growth Fund
8
<PAGE>
12. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
13. Morgan Stanley Dean Witter Capital Growth Securities
14. Morgan Stanley Dean Witter Global Dividend Growth Securities
15. Morgan Stanley Dean Witter Income Builder Fund
16. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
17. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
18. Morgan Stanley Dean Witter Developing Growth Securities Trust
19. Morgan Stanley Dean Witter Health Sciences Trust
20. Morgan Stanley Dean Witter Capital Appreciation Fund
21. Morgan Stanley Dean Witter Information Fund
22. Morgan Stanley Dean Witter Value-Added Market Series
23. Morgan Stanley Dean Witter European Growth Fund Inc.
24. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
25. Morgan Stanley Dean Witter International SmallCap Fund
26. Morgan Stanley Dean Witter Japan Fund
27. Morgan Stanley Dean Witter Utilities Fund
28. Morgan Stanley Dean Witter Global Utilities Fund
29. Morgan Stanley Dean Witter Special Value Fund
30. Morgan Stanley Dean Witter Financial Services Trust
31. Morgan Stanley Dean Witter Market Leader Trust
32. Morgan Stanley Dean Witter Fund of Funds
33. Morgan Stanley Dean Witter S&P 500 Index Fund
34. Morgan Stanley Dean Witter Competitive Edge Fund
35. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
36. Morgan Stanley Dean Witter Equity Fund
37. Morgan Stanley Dean Witter Growth Fund
BALANCED FUNDS
38. Morgan Stanley Dean Witter Balanced Growth Fund
39. Morgan Stanley Dean Witter Balanced Income Trust
ASSET ALLOCATION FUNDS
40. Morgan Stanley Dean Witter Strategist Fund
41. Dean Witter Global Asset Allocation Fund
9
<PAGE>
FIXED INCOME FUNDS
42. Morgan Stanley Dean Witter High Yield Securities Inc.
43. Morgan Stanley Dean Witter High Income Securities
44. Morgan Stanley Dean Witter Convertible Securities Trust
45. Morgan Stanley Dean Witter Intermediate Income Securities
46. Morgan Stanley Dean Witter Short-Term Bond Fund
47. Morgan Stanley Dean Witter World Wide Income Trust
48. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
49. Morgan Stanley Dean Witter Diversified Income Trust
50. Morgan Stanley Dean Witter U.S. Government Securities Trust
51. Morgan Stanley Dean Witter Federal Securities Trust
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
54. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
55. Morgan Stanley Dean Witter Limited Term Municipal Trust
56. Morgan Stanley Dean Witter California Tax-Free Income Fund
57. Morgan Stanley Dean Witter New York Tax-Free Income Fund
58. Morgan Stanley Dean Witter Hawaii Municipal Trust
59. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
60. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
SPECIAL PURPOSE FUNDS
61. Dean Witter Retirement Series
62. Morgan Stanley Dean Witter Variable Investment Series
63. Morgan Stanley Dean Witter Select Dimensions Investment Series
TCW/DW FUNDS
64. TCW/DW North American Government Income Trust
65. TCW/DW Latin American Growth Fund
66. TCW/DW Income and Growth Fund
67. TCW/DW Small Cap Growth Fund
68. TCW/DW Total Return Trust
69. TCW/DW Global Telecom Trust
70. TCW/DW Mid-Cap Equity Trust
10
<PAGE>
71. TCW/DW Emerging Markets Opportunities Trust
By: ------------------------------------------
Barry Fink
VICE PRESIDENT AND GENERAL COUNSEL
ATTEST:
- ------------------------------
ASSISTANT SECRETARY
MORGAN STANLEY DEAN WITTER TRUST FSB
By:
------------------------------------------
John Van Heuvelen
PRESIDENT
ATTEST:
- ------------------------------
EXECUTIVE VICE PRESIDENT
11
<PAGE>
EXHIBIT A
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, (INSET NAME OF INVESTMENT COMPANY) a (Massachusetts
business trust/Maryland corporation) (the "Fund"), desires to employ and appoint
Morgan Stanley Dean Witter Trust FSB ("MSDW TRUST") 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
MSDW TRUST of fees as set out in the fee schedule attached hereto as Schedule A,
MSDW TRUST shall provide such services to the Fund pursuant to the terms and
conditions set forth in the Transfer Agency and Service Agreement annexed
hereto, as if the Fund was a signatory thereto.
Please indicate MSDW TRUST's acceptance of employment and appointment by the
Fund in the capacities set forth above by so indicating in the space provided
below.
Very truly yours,
(NAME OF FUND)
By:
-----------------------------------------
Barry Fink
VICE PRESIDENT AND GENERAL COUNSEL
ACCEPTED AND AGREED TO:
MORGAN STANLEY DEAN WITTER TRUST FSB
<TABLE>
<S> <C>
By:
-------------------
Its:
-------------------
Date:
-------------------
</TABLE>
12
<PAGE>
SCHEDULE A
<TABLE>
<S> <C>
Fund: Morgan Stanley Dean Witter World Wide Income Trust
Fees: (1) Annual maintenance fee of $13.20 per shareholder account, payable monthly.
(2) A fee equal to 1/12 of the fee set forth in (1) above, for providing Forms
1099 for accounts closed during the year, payable following the end of the
calendar year.
(3) Out-of-pocket expenses in accordance with Section 2.2 of the Agreement.
(4) Fees for additional services not set forth in this Agreement shall be as
negotiated between the parties.
</TABLE>
13
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
INTRODUCTION
This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the
Investment Company Act of 1940, as amended (the "1940 Act"), effective as of
July 28, 1997, and amended as of June 22, 1998. The Plan relates to shares of
the open-end investment companies to which Morgan Stanley Dean Witter Advisors
Inc. acts as investment manager, that are listed on Schedule A, as may be
amended from time to time (each, a "Fund" and collectively, the "Funds"). The
Funds are distributed pursuant to a system (the "Multiple Class System") in
which each class of shares (each, a "Class" and collectively, the "Classes") of
a Fund represents a pro rata interest in the same portfolio of investments of
the Fund and differs only to the extent outlined below.
I. DISTRIBUTION ARRANGEMENTS
One or more Classes of shares of the Funds are offered for purchase by
investors with the sales load structures described below. In addition, pursuant
to Rule 12b-1 under the 1940 Act, the Funds have each adopted a Plan of
Distribution (the "12b-1 Plan") under which shares of certain Classes are
subject to the service and/or distribution fees ("12b-1 fees") described below.
1. CLASS A SHARES
Class A shares are offered with a front-end sales load ("FESL"). The
schedule of sales charges applicable to a Fund and the circumstances under which
the sales charges are subject to reduction are set forth in each Fund's current
prospectus. As stated in each Fund's current prospectus, Class A shares may be
purchased at net asset value (without a FESL): (i) in the case of certain large
purchases of such shares; and (ii) by certain limited categories of investors,
in each case, under the circumstances and conditions set forth in each Fund's
current prospectus. Class A shares purchased at net asset value may be subject
to a contingent deferred sales charge ("CDSC") on redemptions made within one
year of purchase. Further information relating to the CDSC, including the manner
in which it is calculated, is set forth in paragraph 6 below. Class A shares are
also subject to payments under each Fund's 12b-1 Plan to reimburse Morgan
Stanley Dean Witter Distributors Inc., Dean Witter Reynolds Inc. ("DWR"), its
affiliates and other broker-dealers for distribution expenses incurred by them
specifically on behalf of the Class, assessed at an annual rate of up to 0.25%
of average daily net assets. The entire amount of the 12b-1 fee represents a
service fee within the meaning of National Association of Securities Dealers,
Inc. ("NASD") guidelines.
2. CLASS B SHARES
Class B shares are offered without a FESL, but will in most cases be subject
to a six-year declining CDSC which is calculated in the manner set forth in
paragraph 6 below. Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a three-year declining CDSC
which is calculated in the manner set forth in paragraph 6 below. The schedule
of CDSC charges applicable to each Fund is set forth in each Fund's current
prospectus. With the exception of certain of the Funds which have a different
formula described below (Morgan Stanley Dean Witter American Value Fund, Morgan
Stanley Dean Witter Natural Resource Development Securities Inc., Morgan Stanley
Dean Witter Strategist Fund and Morgan Stanley Dean Witter Dividend Growth
Securities Inc.)(1), Class B shares are also subject to a
- ------------
(1)The payments under the 12b-1 Plan for each of Morgan Stanley Dean Witter
American Value Fund, Morgan Stanley Dean Witter Natural Resource Development
Securities Inc. and Morgan Stanley Dean Witter Dividend Growth Securities Inc.
are assessed at the annual rate of 1.0% of the lesser of: (a) the
1
<PAGE>
fee under each Fund's respective 12b-1 Plan, assessed at the annual rate of up
to 1.0% of either: (a) the lesser of (i) the average daily aggregate gross sales
of the Fund's Class B shares since the inception of the Fund (not including
reinvestment of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since the
Fund's inception upon which a CDSC has been imposed or waived, or (ii) the
average daily net assets of Class B; or (b) the average daily net assets of
Class B. A portion of the 12b-1 fee equal to up to 0.25% of the Fund's average
daily net assets is characterized as a service fee within the meaning of the
NASD guidelines and the remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge. Also, Class B shares have a
conversion feature ("Conversion Feature") under which such shares convert to
Class A shares after a certain holding period. Details of the Conversion Feature
are set forth in Section IV below.
3. CLASS C SHARES
Class C shares are offered without imposition of a FESL, but will in most
cases be subject to a CDSC of 1.0% on redemptions made within one year after
purchase. Further information relating to the CDSC is set forth in paragraph 6
below. In addition, Class C shares, under each Fund's 12b-1 Plan, are subject to
12b-1 payments to reimburse Morgan Stanley Dean Witter Distributors Inc., DWR,
its affiliates and other broker-dealers for distribution expenses incurred by
them specifically on behalf of the Class, assessed at the annual rate of up to
1.0% of the average daily net assets of the Class. A portion of the 12b-1 fee
equal to up to 0.25% of the Fund's average daily net assets is characterized as
a service fee within the meaning of NASD guidelines. Unlike Class B shares,
Class C shares do not have the Conversion Feature.
4. CLASS D SHARES
Class D shares are offered without imposition of a FESL, CDSC or a 12b-1 fee
for purchases of Fund shares by (i) investors meeting an initial minimum
investment requirement and (ii) certain other limited categories of investors,
in each case, as may be approved by the Boards of Directors/Trustees of the
Funds and as disclosed in each Fund's current prospectus.
5. ADDITIONAL CLASSES OF SHARES
The Boards of Directors/Trustees of the Funds have the authority to create
additional Classes, or change existing Classes, from time to time, in accordance
with Rule 18f-3 under the 1940 Act.
6. CALCULATION OF THE CDSC
Any applicable CDSC is calculated based upon the lesser of net asset value
of the shares at the time of purchase or at the time of redemption. The CDSC
does not apply to amounts representing an increase in share value due to capital
appreciation and shares acquired through the reinvestment of dividends or
- ------------
average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Fund's Plan (not including reinvestment of dividends or capital
gains distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the Plan's inception upon which a
contingent deferred sales charge has been imposed or waived, or (b) the average
daily net assets of Class B attributable to shares issued, net of related shares
redeemed, since inception of the Plan. The payments under the 12b-1 Plan for the
Morgan Stanley Dean Witter Strategist Fund are assessed at the annual rate of:
(i) 1% of the lesser of (a) the average daily aggregate gross sales of the
Fund's Class B shares since the effectiveness of the first amendment of the Plan
on November 8, 1989 (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the effectiveness of the first amended Plan, upon
which a contingent deferred sales charge has been imposed or waived, or (b) the
average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since the effectiveness of the first amended Plan; plus
(ii) 0.25% of the average daily net assets of Class B attributable to shares
issued, net of related shares redeemed, prior to effectiveness of the first
amended Plan.
2
<PAGE>
capital gains distributions. The CDSC schedule applicable to a Fund and the
circumstances in which the CDSC is subject to waiver are set forth in each
Fund's prospectus.
II. EXPENSE ALLOCATIONS
Expenses incurred by a Fund are allocated among the various Classes of
shares pro rata based on the net assets of the Fund attributable to each Class,
except that 12b-1 fees relating to a particular Class are allocated directly to
that Class. In addition, other expenses associated with a particular Class
(except advisory or custodial fees), may be allocated directly to that Class,
provided that such expenses are reasonably identified as specifically
attributable to that Class and the direct allocation to that Class is approved
by the Fund's Board of Directors/Trustees.
III. CLASS DESIGNATION
All shares of the Funds held prior to July 28, 1997 (other than the shares
held by certain employee benefit plans established by DWR and its affiliate, SPS
Transaction Services, Inc., shares of Funds offered with a FESL, and shares of
Morgan Stanley Dean Witter Balanced Growth Fund and Morgan Stanley Dean Witter
Balanced Income Fund) have been designated Class B shares. Shares held prior to
July 28, 1997 by such employee benefit plans have been designated Class D
shares. Shares held prior to July 28, 1997 of Funds offered with a FESL have
been designated Class D shares. In addition, shares of Morgan Stanley Dean
Witter American Value Fund purchased prior to April 30, 1984, shares of Morgan
Stanley Dean Witter Strategist Fund purchased prior to November 8, 1989 and
shares of Morgan Stanley Dean Witter Natural Resource Development Securities
Inc. and Morgan Stanley Dean Witter Dividend Growth Securities Inc. purchased
prior to July 2, 1984 (with respect to such shares of each Fund, including such
proportion of shares acquired through reinvestment of dividends and capital
gains distributions as the total number of shares acquired prior to each of the
preceding dates in this sentence bears to the total number of shares purchased
and owned by the shareholder of that Fund) have been designated Class D shares.
Shares of Morgan Stanley Dean Witter Balanced Growth Fund and Morgan Stanley
Dean Witter Balanced Income Fund held prior to July 28, 1997 have been
designated Class C shares except that shares of Morgan Stanley Dean Witter
Balanced Growth Fund and Morgan Stanley Dean Witter Balanced Income Fund held
prior to July 28, 1997 that were acquired in exchange for shares of an
investment company offered with a CDSC have been designated Class B shares and
those that were acquired in exchange for shares of an investment company offered
with a FESL have been designated Class A shares.
IV. THE CONVERSION FEATURE
Class B shares held before May 1, 1997 will convert to Class A shares in
May, 2007, except that Class B shares which were purchased before July 28, 1997
by trusts for which Morgan Stanley Dean Witter Trust FSB ("MSDW Trust") provides
discretionary trustee services converted to Class A shares on August 29, 1997
(the CDSC was not applicable to such shares upon the conversion). In all other
instances, Class B shares of each Fund will automatically convert to Class A
shares, based on the relative net asset values of the shares of the two Classes
on the conversion date, which will be approximately ten (10) years after the
date of the original purchase. Conversions will be effected once a month. The 10
year period will be calculated from the last day of the month in which the
shares were purchased or, in the case of Class B shares acquired through an
exchange or a series of exchanges, from the last day of the month in which the
original Class B shares were purchased, provided that shares originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. Except
as set forth below, the conversion of shares purchased on or after May 1, 1997
will take place in the month following the tenth anniversary of the purchase.
There will also be converted at that time such proportion of Class B shares
acquired through automatic reinvestment of dividends owned by the shareholder as
the total number of his or her Class B shares converting at the time bears to
the total number of outstanding Class B shares purchased and owned by the
shareholder. In the case of Class B shares held by a 401(k) plan or other plan
qualified under Section 401(a) of the Internal Revenue Code (the "Code") and for
which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, all Class B
shares will convert to Class A shares on the conversion date of the first shares
of a Fund purchased by that
3
<PAGE>
plan. In the case of Class B shares previously exchanged for shares of an
"Exchange Fund" (as such term is defined in the prospectus of each Fund), the
period of time the shares were held in the Exchange Fund (calculated from the
last day of the month in which the Exchange Fund shares were acquired) is
excluded from the holding period for conversion. If those shares are
subsequently re-exchanged for Class B shares of a Fund, the holding period
resumes on the last day of the month in which Class B shares are reacquired.
Effectiveness of the Conversion Feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel to the effect that (i) the conversion of shares does not constitute a
taxable event under the Code; (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion; and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The Conversion Feature may be suspended if the Ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B fees under the applicable Fund's 12b-1 Plan.
V. EXCHANGE PRIVILEGES
Shares of each Class may be exchanged for shares of the same Class of the
other Funds and for shares of certain other investment companies without the
imposition of an exchange fee as described in the prospectuses and statements of
additional information of the Funds. The exchange privilege of each Fund may be
terminated or revised at any time by the Fund upon such notice as may be
required by applicable regulatory agencies as described in each Fund's
prospectus.
VI. VOTING
Each Class shall have exclusive voting rights on any matter that relates
solely to its 12b-1 Plan, except that Class B shareholders will have the right
to vote on any proposed material increase in Class A's expenses, including
payments under the Class A 12b-1 Plan, if such proposal is submitted separately
to Class A shareholders. If the amount of expenses, including payments under the
Class A 12b-1 Plan, is increased materially without the approval of Class B
shareholders, the Fund will establish a new Class A for Class B shareholders
whose shares automatically convert on the same terms as applied to Class A
before the increase. In addition, each Class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one Class
differ from the interests of any other Class.
4
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
SCHEDULE A
AT JULY 22, 1998
<TABLE>
<S> <C>
1) Morgan Stanley Dean Witter American Value Fund
2) Morgan Stanley Dean Witter Balanced Growth Fund
3) Morgan Stanley Dean Witter Balanced Income Fund
4) Morgan Stanley Dean Witter California Tax-Free Income Fund
5) Morgan Stanley Dean Witter Capital Appreciation Fund
6) Morgan Stanley Dean Witter Capital Growth Securities
7) Morgan Stanley Dean Witter Competitive Edge Fund
8) Morgan Stanley Dean Witter Convertible Securities Trust
9) Morgan Stanley Dean Witter Developing Growth Securities Trust
10) Morgan Stanley Dean Witter Diversified Income Trust
11) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
12) Morgan Stanley Dean Witter Equity Fund
13) Morgan Stanley Dean Witter European Growth Fund Inc.
14) Morgan Stanley Dean Witter Federal Securities Trust
15) Morgan Stanley Dean Witter Financial Services Trust
16) Morgan Stanley Dean Witter Fund of Funds
17) Dean Witter Global Asset Allocation Fund
18) Morgan Stanley Dean Witter Global Dividend Growth Securities
19) Morgan Stanley Dean Witter Global Utilities Fund
20) Morgan Stanley Dean Witter Growth Fund
21) Morgan Stanley Dean Witter Health Sciences Trust
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Builder Fund
24) Morgan Stanley Dean Witter Information Fund
25) Morgan Stanley Dean Witter Intermediate Income Securities
26) Morgan Stanley Dean Witter International SmallCap Fund
27) Morgan Stanley Dean Witter Japan Fund
28) Morgan Stanley Dean Witter Market Leader Trust
29) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
30) Morgan Stanley Dean Witter Mid-Cap Growth Fund
31) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
32) Morgan Stanley Dean Witter New York Tax-Free Income Fund
33) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
34) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
35) Morgan Stanley Dean Witter Research Fund
36) Morgan Stanley Dean Witter Special Value Fund
37) Morgan Stanley Dean Witter S&P 500 Index Fund
38) Morgan Stanley Dean Witter S&P 500 Select Fund
39) Morgan Stanley Dean Witter Strategist Fund
40) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
41) Morgan Stanley Dean Witter U.S. Government Securities Trust
42) Morgan Stanley Dean Witter Utilities Fund
43) Morgan Stanley Dean Witter Value-Added Market Series
44) Morgan Stanley Dean Witter Value Fund
45) Morgan Stanley Dean Witter Worldwide High Income Fund
46) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
5
<PAGE>
November 2, 1998
Morgan Stanley Dean Witter World Wide Income Trust
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This opinion is being furnished to Morgan Stanley Dean Witter World Wide
Income Trust, a Massachusetts business trust (the "Trust"), in connection with
the Registration Statement on Form N-14 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "1933 Act"), to be filed by the Trust in
connection with the acquisition by the Trust of substantially all the assets of
Morgan Stanley Dean Witter Global Short-Term Income Fund Inc. ("Global
Short-Term"), in exchange for shares of beneficial interest, par value $.01, of
the Trust ("Shares") and the assumption by the Trust of certain stated
liabilities of Global Short-Term pursuant to an Agreement and Plan of
Reorganization dated as of October 28, 1998 between the Trust and Global
Short-Term (the "Reorganization Agreement"). We have examined such statutes,
regulations, corporate records and other documents and reviewed such questions
of law as we deemed necessary or appropriate for the purposes of this opinion.
As to matters of Massachusetts law contained in this opinion, we have relied
upon the opinion of Lane Altman & Owens LLP, dated November 2, 1998.
Based upon the foregoing, we are of the opinion that the Shares when issued,
as described in the Reorganization Agreement, will be duly authorized and,
assuming receipt of the consideration to be paid therefor, upon delivery as
provided in the Reorganization Agreement, will be legally issued, fully paid and
non-assessable (except for the potential liability of shareholders described in
the Trust's Prospectus dated February 6, 1998 under the caption "Additional
Information").
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. We do
not thereby admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
<TABLE>
<S> <C>
Very truly yours,
/s/ GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
</TABLE>
<PAGE>
LANE ALTMAN & OWENS LLP 101 Federal Street Telephone
COUNSELLORS AT LAW Boston, (617) 345-9800
Massachusetts Telefax
02110 (617) 345-0400
November 2, 1998
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
Dear Sirs:
We understand that the trustees of Morgan Stanley Dean Witter World Wide
Income Trust, a Massachusetts business trust (the "Trust"), intend, on or about
November 2, 1998, to cause to be filed on behalf of the Trust a Registration
Statement on Form N-14 (the "Registration Statement") in connection with the
acquisition (the "Acquisition") by the Trust of substantially all the assets of
Morgan Stanley Dean Witter Global Short-Term Income Fund Inc. ("Global
Short-Term"), in exchange for shares of beneficial interest of the Trust (the
"Shares"), and the assumption by the Trust of certain stated liabilities of
Global Short-Term pursuant to an Agreement and Plan of Reorganization dated as
of October 28, 1998 between the Trust and Global Short-Term (the "Agreement").
We further understand that the Shares will be issued pursuant to the Agreement.
You have requested that we act as special counsel to the Trust with respect
to the laws of the Commonwealth of Massachusetts on certain specified matters,
and in such capacity we are furnishing you with this opinion. You have not asked
for, and we do not offer, an opinion on any other matter or transaction related
to the Trust, Global Short Term, the Acquisition, the Agreement or any matter
related thereto, except as specifically set forth below.
The Trust is a business trust created under an Agreement and Declaration of
Trust finally executed, delivered and filed in Boston, Massachusetts on October
13, 1988 (as amended, the "Trust Agreement"). The Trustees of the Trust (as
defined in the Trust Agreement) (the "Trustees") have the powers set forth in
the Trust Agreement, subject to the terms, provisions and conditions provided
therein.
In connection with our opinions delivered herein, we have examined the
following items some of which have been provided to us by, or on behalf of, you:
(i) a copy of the Agreement in the form to be executed by the Trust and Global
Short-Term; (ii) a copy of the Trust Agreement; (iii) a copy of the Amended and
Restated By-laws of the Trust effective as of October 23, 1997; (iv) a
Certificate of Legal Existence for the Trust provided by the Secretary of State
of the Commonwealth of Massachusetts dated October 28, 1998; and (v) copies of
the Registration Statement on Form N-14 to be filed by the Trust and the Trust's
current Prospectus and Statement of Additional Information.
In rendering this opinion we have assumed, without independent verification,
(i) the due authority of all individuals signing in representative capacities
and the genuineness of signatures, (ii) the authenticity, completeness and
continued effectiveness of all documents or copies furnished to us, (iii) that
resolutions approving the Registration Statement, the Acquisition and the
Agreement have been duly adopted by the Trustees, (iv) that no amendments,
agreements, resolutions or actions have been approved, executed or adopted which
would limit, supersede or modify the items described above, and (v) that the
by-laws filed as an exhibit to the Registration Statement have been duly adopted
by the Trustees. We have also examined such questions of law as we have
concluded necessary or appropriate for purposes of the opinions expressed below.
Where documents are referred to in resolutions approved by the Trustees, or in
the Registration Statement, we assume such documents are the same as in the most
recent form provided to
<PAGE>
Gordon Altman Butowsky
November 2, 1998
Page 2
us, whether as an exhibit to the Registration Statement, or otherwise. When any
opinion set forth below relates to the existence or standing of the Trust, such
opinion is based entirely upon and is limited by the items referred to above,
and we understand that the foregoing assumptions, limitations and qualifications
are acceptable to you.
Based upon the foregoing, and with respect to Massachusetts law only (except
that no opinion is herein expressed with respect to compliance with the
Massachusetts Uniform Securities Act), to the extent that Massachusetts law may
be applicable, and without reference to the laws of any of the other several
states or of the United States of America, including State and Federal
securities laws, we are of the opinion that:
1. The Trust is a business trust with transferable shares, organized in
compliance with the requirements of The Commonwealth of Massachusetts, and the
Trust Agreement is legal and valid.
2. The Shares to be issued as described in the Registration Statement,
including any Exhibits thereto, have been duly authorized and, assuming receipt
of the consideration to be paid therefor, upon delivery as provided in the
Agreement, will be validly issued, fully paid and nonassessable (except for the
potential liability of shareholders described in the Trust's current Prospectus
under the caption "Additional Information").
We understand that you will rely on this opinion solely in connection with
your opinion to be filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement. We hereby consent to such use of this
opinion and we also consent to the filing of said opinion with the Securities
and Exchange Commission. In so consenting, we do not thereby admit to be within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
LANE ALTMAN & OWENS LLP
<PAGE>
November 2, 1998
Morgan Stanley Dean Witter World Wide
Income Trust
Two World Trade Center
New York, New York 10048
Morgan Stanley Dean Witter Global
Short-Term Income Fund Inc.
Two World Trade Center
New York, New York 10048
Gentlemen:
You have requested our opinion as to the Federal income tax consequences of
the transaction (the "Reorganization") described below pursuant to which (i)
substantially all assets of Morgan Stanley Dean Witter Global Short-Term Income
Fund Inc., a Maryland corporation ("Global Short-Term"), will be combined with
those of Morgan Stanley Dean Witter World Wide Income Trust, a Massachusetts
business trust ("World Wide"), in exchange for shares of World Wide ("World Wide
Shares"), and the assumption by World Wide of certain liabilities of Global
Short-Term (the "Liabilities"); (ii) Global Short-Term will be liquidated; and
(iii) the World Wide Shares will be distributed to the holders ("Global
Short-Term Shareholders") of shares in Global Short-Term ("Global Short-Term
Shares").
We have examined and are familiar with such documents, records and other
instruments as we have deemed appropriate for purposes of this opinion letter,
including the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 on Form N-14, relating to World Wide
Shares (the "Registration Statement") which includes, as a part thereof, the
proxy statement of Global Short-Term (the "Global Short-Term Proxy"), which will
be used to solicit proxies of Global Short-Term Shareholders in connection with
the Special Meeting of Global Short-Term Shareholders and the Agreement and Plan
of Reorganization by and between World Wide and Global Short-Term (the "Plan").
In rendering this opinion, we have assumed that the Reorganization will be
carried out pursuant to the terms of the Plan, that factual statements and
information contained in the Registration Statement, the Global Short-Term Proxy
and other documents, records and instruments supplied to us are correct and that
there will be no material change with respect to such facts or information prior
to the time of the Reorganization. In rendering our opinion, we have also relied
on the representations and facts discussed below which have been provided to us
by Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), World Wide and
Global Short-Term, and we have assumed that such representations and facts will
remain correct at the time of the Reorganization.
FACTS
World Wide is an open-end non-diversified management investment company
engaged in the continuous offering of its shares to the public. Since its
inception, World Wide has conducted its affairs so as to qualify, and has
elected to be taxed, as a regulated investment company under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Global Short-Term is an open-end non-diversified management investment
company engaged in the continuous offering of its shares to the public. Since
its inception, Global Short-Term has conducted its affairs so as to qualify, and
has elected to be taxed, as a regulated investment company under Section 851 of
the Code.
The Board of Trustees of World Wide and the Board of Directors of Global
Short-Term have each determined, for valid business reasons, that it is
advisable to combine the assets of World Wide and Global Short-Term into one
fund.
In view of the above, the Board of Directors of Global Short-Term adopted
the Plan, subject to, among other things, approval by Global Short-Term
Shareholders.
<PAGE>
Pursuant to the Plan, Global Short-Term will transfer all of its assets to
World Wide in exchange for World Wide Shares (including fractional World Wide
Shares) and the assumption by World Wide of the Liabilities. Immediately
thereafter, Global Short-Term will distribute the World Wide Shares to Global
Short-Term Shareholders in exchange for and in cancellation of their Global
Short-Term Shares and in complete liquidation of Global Short-Term.
Each of the following representations, among other representations, has been
made to us in connection with the Reorganization by MSDW Advisors, by Global
Short-Term and by World Wide.
(1) To the best of the knowledge of the management of MSDW Advisors, Global
Short-Term, World Wide, and their affiliates, there is no plan or intention on
the part of Global Short-Term Shareholders to redeem, sell, exchange or
otherwise dispose of a number of World Wide Shares that would reduce Global
Short-Term Shareholders' ownership of World Wide Shares to a number of World
Wide Shares having a value, as of the date of the Reorganization, of less than
fifty percent of the value of all of the formerly outstanding Global Short-Term
Shares as of such date;
(2) World Wide has no plan or intention to reacquire any of the World Wide
Shares to be issued pursuant to the Reorganization except to the extent
necessary to comply with its legal obligation to redeem its own shares;
(3) The Liabilities to be assumed by or transferred to World Wide were
incurred by Global Short-Term in the ordinary course of business and are
associated with the assets being transferred to World Wide;
(4) The amount of the Liabilities will not exceed the aggregate adjusted
basis of Global Short-Term for its assets transferred to World Wide;
(5) World Wide has no plan or intention to sell or otherwise dispose of more
than fifty percent of the assets of Global Short-Term acquired in the
Reorganization, except for dispositions made in the ordinary course of business;
(6) There is no indebtedness between Global Short-Term and World Wide that
was issued, acquired or will be settled at a discount;
(7) Global Short-Term has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the end of its last complete taxable year and will qualify as a regulated
investment company for its taxable year ending on the date of the
Reorganization;
(8) World Wide has been a regulated investment company within the meaning of
Section 851 of the Code since the date of its organization through the date
hereof and will qualify as a regulated investment company for its taxable year
ending on October 31, 1999;
(9) Global Short-Term will have no accumulated earnings and profits as of
the close of its taxable year ending on the date of the Reorganization.
OPINION
Based on the Code, Treasury Regulations issued thereunder, Internal Revenue
Service Rulings and the relevant case law, as of the date hereof, and on the
facts, representations and assumptions set forth above, and the documents,
records and other instruments we have reviewed, it is our opinion that the
Federal income tax consequences of the Reorganization to World Wide, Global
Short-Term and the Global Short-Term Shareholders will be as follows:
(1) The transfer of substantially all of Global Short-Term's assets in
exchange for World Wide Shares and the assumption by World Wide of Liabilities
of Global Short-Term, followed by the distribution by Global Short-Term of World
Wide Shares to the Global Short-Term Shareholders in exchange for their Global
Short-Term Shares, will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code, and Global Short-Term and World Wide will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code;
<PAGE>
(2) No gain or loss will be recognized by World Wide upon the receipt of the
assets of Global Short-Term solely in exchange for World Wide Shares and the
assumption of the Liabilities by World Wide;
(3) No gain or loss will be recognized by Global Short-Term upon the
transfer of the assets of Global Short-Term to World Wide, in exchange for World
Wide Shares and the assumption of the Liabilities by World Wide, or upon the
distribution of World Wide Shares to Global Short-Term Shareholders in exchange
for their Global Short-Term Shares as provided in the Plan;
(4) No gain or loss will be recognized by Global Short-Term Shareholders
upon the exchange of their Global Short-Term Shares for World Wide Shares;
(5) The aggregate tax basis for World Wide Shares received by each Global
Short-Term Shareholder pursuant to the Reorganization will be the same as the
aggregate tax basis of the Global Short-Term Shares held by each such Global
Short-Term Shareholder immediately prior to the Reorganization;
(6) The holding period of World Wide Shares to be received by each Global
Short-Term Shareholder will include the period during which the Global
Short-Term Shares surrendered in exchange therefor were held (provided such
Global Short-Term Shares were held as capital assets on the date of the
Reorganization);
(7) The tax basis of the assets of Global Short-Term acquired by World Wide
will be the same as the tax basis of such assets to Global Short-Term
immediately prior to the Reorganization; and
(8) The holding period of the assets of Global Short-Term in the hands of
World Wide will include the period during which those assets were held by Global
Short-Term.
We are not expressing an opinion as to any aspect of the Reorganization
other than those opinions expressly stated above.
As noted above, this opinion is based upon our analysis of the Code,
Treasury Regulations issued thereunder, Internal Revenue Service Rulings and
case law which we deem relevant as of the date hereof. No assurances can be
given that there will not be a change in the existing law or that the Internal
Revenue Service will not alter its present views, either prospectively or
retroactively, or adopt new views with regard to any of the matters upon which
we are rendering this opinion, nor can any assurances be given that the Internal
Revenue Service will not audit or question the treatment accorded to the
Reorganization on the Federal income tax returns of World Wide, Global
Short-Term or the Global Short-Term Shareholders.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement and the Global Short-Term Proxy constituting a
part thereof.
<TABLE>
<S> <C>
Very truly yours,
/s/ GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
</TABLE>
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995, and amended as of June 22,
1998, by and between Morgan Stanley Dean Witter Advisors Inc., a Delaware
corporation (herein referred to as "MSDW Advisors"), and Morgan Stanley Dean
Witter Services Company Inc., a Delaware corporation (herein referred to as
"MSDW Services").
WHEREAS, MSDW Advisors 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 MSDW Advisors 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, MSDW Advisors desires to retain MSDW Services to perform the
administrative services as described below; and
WHEREAS, MSDW Services desires to be retained by MSDW Advisors 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. MSDW Services agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, MSDW
Services 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 MSDW Advisors of available funds for
investment, the reconciliation of account information and balances among the
Fund's custodian, transfer agent and dividend disbursing agent and MSDW
Advisors, 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 MSDW Advisors enters into an Investment Management
Agreement with another investment company, and wishes to retain MSDW Services to
perform administrative services hereunder, it shall notify MSDW Services in
writing. If MSDW Services is willing to render such services, it shall notify
MSDW Advisors in writing, whereupon such other Fund shall become a Fund as
defined herein.
2. MSDW Services 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 MSDW Services shall be deemed to include
officers of MSDW Services and persons employed or otherwise retained by MSDW
Services (including officers and employees of MSDW Advisors, with the consent of
MSDW Advisors) to furnish services, statistical and other factual data,
information with respect to technical and scientific developments, and such
other information, advice and assistance as MSDW Services may desire. MSDW
Services shall maintain each Fund's records and books of account
1
98NYC8262
<PAGE>
(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, MSDW Services shall surrender
to MSDW Advisors or to the Fund such of the books and records so requested.
3. MSDW Advisors will, from time to time, furnish or otherwise make
available to MSDW Services such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as MSDW Services
may 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 MSDW Services, MSDW Advisors shall pay to MSDW Services
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 MSDW Services' 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 MSDW Advisors 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 Morgan Stanley 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. MSDW Services 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 MSDW Services, and such clerical help and bookkeeping services as
MSDW Services shall reasonably require in performing its duties hereunder.
7. MSDW Services will use its best efforts in the performance of
administrative activitives on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, MSDW Services 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 MSDW Services 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 MSDW Advisors, MSDW
Advisors shall retain ultimate responsibility for all services to be performed
hereunder by MSDW Services. MSDW Services shall indemnify MSDW Advisors and hold
it harmless from any liability that MSDW Advisors may incur arising out of any
act or failure to act by MSDW Services 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, MSDW Services, and in any person
controlling, controlled by or under common control with MSDW Services, and that
MSDW Services and any person controlling, controlled by or under common control
with MSDW
2
<PAGE>
Services may have an interest in the Fund. It is also understood that MSDW
Services and any affiliated persons thereof or any persons controlling,
controlled by or under common control with MSDW Services 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, 1999, 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 event that the Investment Management
Agreement between any Fund and MSDW Advisors 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 written agreement executed by each of the parties hereto.
11. This Agreement may be assigned by either party with the written consent
of the other party.
12. 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 amended, on June 22, 1998 in New York, New York.
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER ADVISORS INC.
By: -----------------------------------------
Attest:
- ---------------------------------------------
MORGAN STANLEY DEAN WITTER SERVICES COMPANY
INC.
By: -----------------------------------------
Attest:
- ---------------------------------------------
</TABLE>
3
<PAGE>
SCHEDULE A
MORGAN STANLEY DEAN WITTER FUNDS
AS AMENDED AS OF JULY 22, 1998
OPEN-END FUNDS
<TABLE>
<C> <S>
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 Retirement Series
6. Morgan Stanley Dean Witter American Value Fund
7. Morgan Stanley Dean Witter Balanced Growth Fund
8. Morgan Stanley Dean Witter Balanced Income Fund
9. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
10. Morgan Stanley Dean Witter California Tax-Free Income Fund
11. Morgan Stanley Dean Witter Capital Appreciation Fund
12. Morgan Stanley Dean Witter Capital Growth Securities
13. Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
14. Morgan Stanley Dean Witter Convertible Securities Trust
15. Morgan Stanley Dean Witter Developing Growth Securities Trust
16. Morgan Stanley Dean Witter Diversified Income Trust
17. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
18. Morgan Stanley Dean Witter Equity Fund
19. Morgan Stanley Dean Witter European Growth Fund Inc.
20. Morgan Stanley Dean Witter Federal Securities Trust
21. Morgan Stanley Dean Witter Financial Services Trust
22. Morgan Stanley Dean Witter Fund of Funds
(i) Domestic Portfolio
(ii) International Portfolio
23. Morgan Stanley Dean Witter Global Dividend Growth Securities
24. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25. Morgan Stanley Dean Witter Global Utilities Fund
26. Morgan Stanley Dean Witter Growth Fund
27. Morgan Stanley Dean Witter Hawaii Municipal Trust
28. Morgan Stanley Dean Witter Health Sciences Trust
29. Morgan Stanley Dean Witter High Yield Securities Inc.
30. Morgan Stanley Dean Witter Income Builder Fund
31. Morgan Stanley Dean Witter Information Fund
32. Morgan Stanley Dean Witter Intermediate Income Securities
33. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34. Morgan Stanley Dean Witter International SmallCap Fund
35. Morgan Stanley Dean Witter Japan Fund
36. Morgan Stanley Dean Witter Limited Term Municipal Trust
37. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38. Morgan Stanley Dean Witter Market Leader Trust
39. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40. Morgan Stanley Dean Witter Mid-Cap Growth Fund
41. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43. Morgan Stanley Dean Witter New York Municipal Money Market Trust
</TABLE>
A-1
<PAGE>
<TABLE>
<C> <S>
44. Morgan Stanley Dean Witter New York Tax-Free Income Fund
45. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47. Morgan Stanley Dean Witter Select Dimensions Investment Series
(i) American Value Portfolio
(ii) Balanced Growth Portfolio
(iii) Developing Growth Portfolio
(iv) Diversified Income Portfolio
(v) Dividend Growth Portfolio
(vi) Emerging Markets Portfolio
(vii) Global Equity Portfolio
(viii) Growth Portfolio
(ix) Mid-Cap Growth Portfolio
(x) Money Market Portfolio
(xi) North American Government Securities Portfolio
(xii) Utilities Portfolio
(xiii) Value-Added Market Portfolio
48. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
49. Morgan Stanley Dean Witter U.S. Government Money Market Trust
50. Morgan Stanley Dean Witter Utilities Fund
51. Morgan Stanley Dean Witter Short-Term Bond Fund
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Special Value Fund
54. Morgan Stanley Dean Witter Strategist Fund
55. Morgan Stanley Dean Witter S&P 500 Index Fund
56. Morgan Stanley Dean Witter S&P 500 Select Fund
57. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
58. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
59. Morgan Stanley Dean Witter U.S. Government Securities Trust
60. Morgan Stanley Dean Witter Value Fund
61. Morgan Stanley Dean Witter Value-Added Market Series
62. Morgan Stanley Dean Witter Variable Investment Series
(i) Capital Appreciation Portfolio
(ii) Capital Growth Portfolio
(iii) Competitive Edge "Best Ideas" Portfolio
(iv) Dividend Growth Portfolio
(v) Equity Portfolio
(vi) European Growth Portfolio
(vii) Global Dividend Growth Portfolio
(viii) High Yield Portfolio
(ix) Income Builder Portfolio
(x) Money Market Portfolio
(xi) Quality Income Plus Portfolio
(xii) Pacific Growth Portfolio
(xiii) S&P 500 Index Portfolio
(xiv) Strategist Portfolio
(xv) Utilities Portfolio
63. Morgan Stanley Dean Witter World Wide Income Trust
64. Morgan Stanley Dean Witter Worldwide High Income Fund
65. Dean Witter Global Asset Allocation Fund
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
CLOSED-END FUNDS
<C> <S>
66. High Income Advantage Trust
67. High Income Advantage Trust II
68. High Income Advantage Trust III
69. InterCapital Income Securities Inc.
70. Dean Witter Government Income Trust
71. InterCapital Insured Municipal Bond Trust
72. InterCapital Insured Municipal Trust
73. InterCapital Insured Municipal Income Trust
74. InterCapital California Insured Municipal Income Trust
75. InterCapital Insured Municipal Securities
76. InterCapital Insured California Municipal Securities
77. InterCapital Quality Municipal Investment Trust
78. InterCapital Quality Municipal Income Trust
79. InterCapital Quality Municipal Securities
80. InterCapital California Quality Municipal Securities
81. InterCapital New York Quality Municipal Securities
</TABLE>
A-3
<PAGE>
SCHEDULE B
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES
AS AMENDED AS OF JUNE 22, 1998
Monthly compensation calculated daily by applying the following annual rates
to a fund's daily net assets:
<TABLE>
<S> <C>
FIXED INCOME FUNDS
Morgan Stanley Dean Witter Balanced Income Fund 0.060% of the daily net assets.
Morgan Stanley Dean Witter California Tax-Free Income Fund 0.055% of the portion of the daily net assets not exceeding $500
million; 0.0525% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.050% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; 0.0475% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.25 billion; and
0.045% of the portion of the daily net assets exceeding $1.25
billion.
Morgan Stanley Dean Witter Convertible Securities Trust 0.060% of the portion of the daily net assets not exceeding $750
million; 0.055% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; 0.050% of the portion
of the daily net assets of the exceeding $1 billion but not
exceeding $1.5 billion; 0.0475% of the portion of the daily net
assets exceeding $1.5 billion but not exceeding $2 billion;
0.045% of the portion of the daily net assets exceeding $2
billion but not exceeding $3 billion; and 0.0425% of the portion
of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Diversified Income Trust 0.040% of the daily net assets.
Morgan Stanley Dean Witter Federal Securities Trust 0.055% of the portion of the daily net assets not exceeding $1
billion; 0.0525% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.050% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2 billion; 0.0475% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.045% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $5 billion; 0.0425% of the portion of the daily net
assets exceeding $5 billion but not exceeding $7.5 billion;
0.040% of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0375% of the portion of
the daily net assets exceeding $10 billion but not exceeding
$12.5 billion; and 0.035% of the portion of the daily net assets
exceeding $12.5 billion.
Morgan Stanley Dean Witter Global Short-Term Income Fund Inc. 0.055% of the portion of the daily net assets not exceeding $500
million; and 0.050% of the portion of the daily net assets
exceeding $500 million.
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Hawaii Municipal Trust 0.035% of the daily net assets.
Morgan Stanley Dean Witter High Yield Securities Inc. 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of 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 $2 billion; 0.0325%
of the portion of the daily net assets exceeding $2 billion but
not exceeding $3 billion; and 0.030% of the portion of daily net
assets exceeding $3 billion.
Morgan Stanley Dean Witter Intermediate Income Securities 0.060% of the portion of the daily net assets not exceeding $500
million; 0.050% of the portion of the daily net assets exceeding
$500 million but not exceeding $750 million; 0.040% of the
portion of the daily net assets exceeding $750 million but not
exceeding $1 billion; and 0.030% of the portion of the daily net
assets exceeding $1 billion.
Morgan Stanley Dean Witter Intermediate Term 0.035% of the daily net assets.
U.S. Treasury Trust
Morgan Stanley Dean Witter Limited Term Municipal Trust 0.050% of the daily net assets.
Morgan Stanley Dean Witter Multi-State Municipal Series Trust (10 0.035% of the daily net assets.
Series)
Morgan Stanley Dean Witter New York Tax-Free Income Fund 0.055% of the portion of the daily net assets not exceeding $500
million; and 0.0525% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Retirement Series--Intermediate Income 0.065% of the daily net assets.
Securities Series
U.S. Government Securities Series 0.065% of the daily net assets.
Morgan Stanley Dean Witter Select Dimensions Investment Series-- 0.039% of the daily net assets.
North American Government Securities Portfolio
Morgan Stanley Dean Witter Select Municipal Reinvestment Fund 0.050% of the daily net assets.
Morgan Stanley Dean Witter Short-Term Bond Fund 0.070% of the daily net assets.
Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust 0.035% of the daily net assets.
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Tax-Exempt Securities Trust 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of 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; and 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.25 billion;
.0325% of the portion of the daily net assets exceeding $1.25
billion.
Morgan Stanley Dean Witter U.S. Government Securities Trust 0.050% of the portion of the daily net assets not exceeding $1
billion; 0.0475% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.045% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2 billion; 0.0425% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.040% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $5 billion; 0.0375% of the portion of the daily net
assets exceeding $5 billion but not exceeding $7.5 billion;
0.035% of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0325% of the portion of
the daily net assets exceeding $10 billion but not exceeding
$12.5 billion; and 0.030% of the portion of the daily net assets
exceeding $12.5 billion.
Morgan Stanley Dean Witter Variable Investment Series--High Yield 0.050% of the portion of the daily net assets not exceeding $500
Portfolio million; and 0.0425% of the daily net assets exceeding $500
million.
Quality Income Plus Portfolio 0.050% of the portion of the daily the net assets up to $500
million; and 0.045% of the portion of the daily net assets
exceeds $500 million.
Morgan Stanley Dean Witter World Wide Income Trust 0.075% of the portion of the daily net assets up to $250 million;
0.060% of the portion of the daily net assets exceeding $250
million but not exceeding $500 million; 0.050% of the portion of
the daily net assets of the exceeding $500 million but not
exceeding $750 million; 0.040% of the portion of the daily net
assets exceeding $750 million but not exceeding $1 billion; and
0.030% of the portion of the daily net assets exceeding $1
billion.
Morgan Stanley Dean Witter Worldwide High Income Fund 0.060% of the daily net assets.
EQUITY FUNDS
Morgan Stanley Dean Witter American Value Fund 0.0625% of the portion of the daily net assets not exceeding $250
million; 0.050% of the portion of the daily net assets exceeding
$250 million but not exceeding $2.25 billion; 0.0475% of the
portion of the daily net assets exceeding $2.25 billion but not
exceeding $3.5 billion; 0.0450% of the portion of the daily net
assets exceeding $3.5 billion but not exceeding $4.5 billion; and
0.0425% of the portion of the daily net assets exceeding $4.5
billion.
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Balanced Growth Fund 0.060% of the daily net assets.
Morgan Stanley Dean Witter Capital Appreciation Fund 0.075% of the portion of the daily net assets not exceeding $500
million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Capital Growth Securities 0.065% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion exceeding $500 million but not
exceeding $1 billion; 0.050% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion; and
0.0475% of the portion of the daily net assets exceeding $1.5
billion.
Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" 0.065% of the portion of the daily net assets not exceeding $1.5
Portfolio billion; and 0.0625% of the portion of the daily net assets
exceeding $1.5 billion.
Morgan Stanley Dean Witter Developing Growth Securities Trust 0.050% of the portion of the daily net assets not exceeding $500
million; and 0.0475% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Dividend Growth Securities Inc. 0.0625% of the portion of the daily net assets not exceeding $250
million; 0.050% of the portion of the daily net assets exceeding
$250 million but not exceeding $1 billion; 0.0475% of the portion
of the daily net assets exceeding $1 billion but not exceeding $2
billion; 0.045% of the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; 0.0425% of the portion
of the daily net assets exceeding $3 billion but not exceeding $4
billion; 0.040% of the portion of the daily net assets exceeding
$4 billion but not exceeding $5 billion; 0.0375% of the portion
of the daily net assets exceeding $5 billion but not exceeding $6
billion; 0.035% of the portion of the daily net assets exceeding
$6 billion but not exceeding $8 billion; 0.0325% of the portion
of the daily net assets exceeding $8 billion but not exceeding
$10 billion; 0.030% of the portion of the daily net assets
exceeding $10 billion but not exceeding $15 billion; and 0.0275%
of the portion of the daily net assets exceeding $15 billion.
Morgan Stanley Dean Witter 0.051% of the daily net assets.
Equity Fund
Morgan Stanley Dean Witter European Growth Fund Inc. 0.060% of the portion of the daily net assets not exceeding $500
million; 0.057% of the portion of the daily net assets exceeding
$500 million but not exceeding $2 billion; and 0.054% of the
portion of the daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter Financial Services Trust 0.075% of the daily net assets.
Morgan Stanley Dean Witter Fund of Funds-
Domestic Portfolio None
International Portfolio None
</TABLE>
B-4
<PAGE>
<TABLE>
<S> <C>
Dean Witter Global Asset Allocation Fund 0.070% of the daily net assets.
Morgan Stanley Dean Witter Global Dividend Growth Securities 0.075% of the portion of the daily net assets not exceeding $1
billion; 0.0725% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.070% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2.5 billion; 0.0675% of the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3.5 billion; 0.0650% of
the portion of the daily net assets exceeding $3.5 billion but
not exceeding $4.5 billion; and 0.0625% of the portion of the
daily net assets exceeding $4.5 billion.
Morgan Stanley Dean Witter Global Utilities Fund 0.065% of the portion of the daily net assets not exceeding $500
million; and 0.0625% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Growth Fund 0.048% of the portion of daily net assets not exceeding $750
million; 0.045% of the portion of daily net assets exceeding $750
million but not exceeding $1.5 billion; and 0.042% of the portion
of daily net assets exceeding $1.5 billion.
Morgan Stanley Dean Witter Health Sciences Trust 0.10% of the portion of daily net assets not exceeding $500
million; and 0.095% of the portion of daily net assets exceeding
$500 million.
Morgan Stanley Dean Witter Income Builder Fund 0.075% of the portion of the net assets not exceeding $500
million; and 0.0725% of the portion of daily net assets exceeding
$500 million.
Morgan Stanley Dean Witter Information Fund 0.075% of the portion of the daily net assets not exceeding $500
million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter International SmallCap Fund 0.075% of the daily net assets.
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Japan Fund
Morgan Stanley Dean Witter Market Leader Trust 0.075% of the daily net assets.
Morgan Stanley Dean Witter 0.075 of the daily net assets.
Mid-Cap Dividend Growth Securities
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding $500
Mid-Cap Growth Fund million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Natural Resource Development 0.0625% of the portion of the daily net assets not exceeding $250
Securities Inc. million and 0.050% of the portion of the daily net assets
exceeding $250 million.
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Pacific Growth Fund Inc. 0.060% of the portion of the daily net assets not exceeding $1
billion; 0.057% of the portion of the daily net assets exceeding
$1 billion but not exceeding $2 billion; and 0.054% of the
portion of the daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter Precious Metals and 0.080% of the daily net assets.
Minerals Trust
Dean Witter Retirement Series--
American Value Series 0.085% of the daily net assets.
Capital Growth Series 0.085% of the daily net assets.
Dividend Growth Series 0.075% of the daily net assets.
Global Equity Series 0.10% of the daily net assets.
Strategist Series 0.085% of the daily net assets.
Utilities Series 0.075% of the daily net assets.
Value Added Market Series 0.050% of the daily net assets.
Morgan Stanley Dean Witter Select Dimensions Investment Series--
American Value Portfolio 0.0625% of the daily net assets.
Balanced Growth Portfolio 0.065% of the daily net assets.
Developing Growth Portfolio 0.050% of the daily net assets.
Diversified Income Portfolio 0.040% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding $500
million; and 0.050% of the portion of the daily net assets
exceeding $500 million.
Emerging Markets Portfolio 0.075% of the daily net assets.
Global Equity Portfolio 0.10% of the daily net assets.
Growth Portfolio 0.048% of the daily net assets.
Mid-Cap Growth Portfolio 0.075% of the daily net assets
Utilities Portfolio 0.065% of the daily net assets.
Value-Added Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter Special Value Fund 0.075% of the daily net assets.
Morgan Stanley Dean Witter Strategist Fund 0.060% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.050% of the portion
of the daily net assets exceeding $1 billion but not exceeding
$1.5 billion; 0.0475% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2.0 billion; and 0.045%
of the portion of the daily net assets exceeding $2.0 billion.
Morgan Stanley Dean Witter 0.040% of the daily net assets.
S&P 500 Index Fund
Morgan Stanley Dean Witter 0.060% of the daily net assets.
S&P 500 Select Fund
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Utilities Fund 0.065% of the portion of the daily net assets not exceeding $500
million; 0.055% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.0525% of the portion
of the daily net assets exceeding $1 billion but not exceeding
$1.5 billion; 0.050% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2.5 billion; 0.0475% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $3.5 billion; 0.045% of the portion of the daily
net assets exceeding $3.5 but not exceeding $5 billion; and
0.0425% of the daily net assets exceeding $5 billion.
Morgan Stanley Dean Witter Value Fund 0.10% of the daily net assets.
Morgan Stanley Dean Witter Value-Added Market Series 0.050% of the portion of the daily net assets not exceeding $500
million; 0.45% of the portion of the daily net assets exceeding
$500 million but not exceeding $1 billion; 0.0425% of the portion
of the daily net assets exceeding $1.0 billion but not exceeding
$2.0 billion; and 0.040% of the portion of the daily net assets
exceeding $2 billion.
Morgan Stanley Dean Witter Variable Investment Series--
Capital Appreciation Portfolio 0.075% of the daily net assets.
Capital Growth Portfolio 0.065% of the daily net assets.
Competitive Edge "Best Ideas" Portfolio 0.065% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding $500
million; and 0.050% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.0475% of
the portion of the daily net assets exceeding $1.0 billion but
not exceeding $2.0 billion; and 0.045% of the portion of the
daily net assets exceeding $2 billion.
Equity Portfolio 0.050% of the portion of the daily net assets not exceeding $1
billion; and 0.0475% of the portion of the daily net assets
exceeding $1 billion.
European Growth Portfolio 0.060% of the portion of the daily net assets not exceeding $500
million; and 0.057% of the portion of the daily net assets
exceeding $500 million.
Income Builder Portfolio 0.075% of the daily net assets.
S&P 500 Index Portfolio 0.040% of the daily net assets.
Strategist Portfolio 0.050% of the daily net assets.
Utilities Portfolio 0.065% of the portion of the daily net assets not exceeding $500
million and 0.055% of the portion of the daily net assets
exceeding $500 million.
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C>
MONEY MARKET FUNDS
Active Assets Trusts: 0.050% of the portion of the daily net assets not exceeding $500
(1) Active Assets Money Trust million; 0.0425% of the portion of the daily net assets exceeding
(2) Active Assets Tax-Free Trust $500 million but not exceeding $750 million; 0.0375% of the
(3) Active Assets California Tax-Free Trust portion of the daily net assets exceeding $750 million but not
(4) Active Assets Government Securities Trust 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.
Morgan Stanley Dean Witter California Tax-Free Daily 0.050% of the portion of the daily net assets not exceeding $500
Income Trust million; 0.0425% of the portion of 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.
Morgan Stanley Dean Witter Liquid Asset Fund Inc. 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of 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 $1.35 billion;
0.0325% of the portion of the daily net assets exceeding $1.35
billion but not exceeding $1.75 billion; 0.030% of the portion of
the daily net assets exceeding $1.75 billion but not exceeding
$2.15 billion; 0.0275% of the portion of the daily net assets
exceeding $2.15 billion but not exceeding $2.5 billion; 0.025% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $15 billion; 0.0249% of the portion of the daily
net assets exceeding $15 billion but not exceeding $17.5 billion;
and 0.0248% of the portion of the daily net assets exceeding
$17.5 billion.
</TABLE>
B-8
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding $500
New York Municipal Money million; 0.0425% of the portion of the daily net assets exceeding
Market Trust $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.
Dean Witter Retirement Series--
Liquid Asset Series 0.050% of the daily net assets.
U.S. Government Money 0.050% of the daily net assets.
Market Series
Morgan Stanley Dean Witter Select Dimensions Investment Series--
Money Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding $500
Tax-Free Daily Income Trust million; 0.0425% of the portion of 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.
Morgan Stanley Dean Witter U.S. Government Money Market Trust 0.050% of the portion of the daily net assets not exceeding $500
million; 0.0425% of the portion of 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.
Morgan Stanley Dean Witter Variable Investment Series-- Money 0.050% of the daily net assets.
Market Portfolio
</TABLE>
B-9
<PAGE>
Monthly compensation calculated weekly by applying the following annual
rates to a fund's weekly net assets:
<TABLE>
<S> <C>
CLOSED-END FUNDS
Dean Witter Government 0.060% of the average weekly net assets.
Income Trust
High Income Advantage Trust 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750
million; 0.040% of the portion of average weekly net assets
exceeding $750 million and not exceeding $1 billion; and
0.030% of the portion of average weekly net assets exceeding
$1 billion.
High Income Advantage Trust II 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750
million; 0.040% of the portion of average weekly net assets
exceeding $750 million and not exceeding $1 billion; and
0.030% of the portion of average weekly net assets exceeding
$1 billion.
High Income Advantage Trust III 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750
million; 0.040% of the portion of the average weekly net
assets exceeding $750 million and not exceeding $1 billion;
and 0.030% of the portion of average weekly net assets
exceeding $1 billion.
InterCapital Income Securities Inc. 0.050% of the average weekly net assets.
InterCapital Insured Municipal Bond Trust 0.035% of the average weekly net assets.
InterCapital Insured Municipal Trust 0.035% of the average weekly net assets.
InterCapital Insured Municipal Income Trust 0.035% of the average weekly net assets.
InterCapital California Insured Municipal 0.035% of the average weekly net assets.
Income Trust
InterCapital Quality Municipal Investment 0.035% of the average weekly net assets.
Trust
InterCapital New York Quality Municipal 0.035% of the average weekly net assets.
Securities
InterCapital Quality Municipal Income Trust 0.035% of the average weekly net assets.
</TABLE>
B-10
<PAGE>
<TABLE>
<S> <C>
InterCapital Quality Municipal Securities 0.035% of the average weekly net assets.
InterCapital California Quality Municipal 0.035% of the average weekly net assets.
Securities
InterCapital Insured Municipal Securities 0.035% of the average weekly net assets.
InterCapital Insured California Municipal 0.035% of the average weekly net assets.
Securities
</TABLE>
B-11
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading "Financial Statements
and Experts" in the Proxy Statement and the Prospectus constituting parts of
this registration statement on Form N-14 (the "Registration Statement"). We also
consent to the references to us under the headings "Independent Accountants" and
"Experts" in the Morgan Stanley Dean Witter World Wide Income Trust's (the
"Fund") Statement of Additional Information dated February 6, 1998 and to the
reference to us under the heading "Financial Highlights" in the Fund's
Prospectus dated February 6, 1998 which Statement of Additional Information and
Prospectus have been incorporated by reference into this Registration Statement.
We also consent to the references to us under the headings "Independent
Accountants" and "Experts" in Morgan Stanley Dean Witter Global Short-Term
Income Fund Inc.'s Statement of Additional Information dated February 10, 1998
and to the reference to us under the heading "Financial Highlights" in that
fund's Prospectus dated February 10, 1998 which Statement of Additional
Information and Prospectus have been incorporated by reference into this
Registration Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 2, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David M. Butowsky, Stuart M. Strauss and Ronald
M. Feiman and each and any one of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-14 of Morgan Stanley Dean Witter World Wide Income Trust, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ MICHAEL BOZIC
- ------------------------------ Trustee October 28, 1998
Michael Bozic
/s/ EDWIN J. GARN
- ------------------------------ Trustee October 28, 1998
Edwin J. Garn
/s/ JOHN R. HAIRE
- ------------------------------ Trustee October 28, 1998
John R. Haire
/s/ WAYNE E. HEDIEN
- ------------------------------ Trustee October 28, 1998
Wayne E. Hedien
/s/ DR. MANUEL H. JOHNSON
- ------------------------------ Trustee October 28, 1998
Dr. Manuel H. Johnson
/s/ MICHAEL E. NUGENT
- ------------------------------ Trustee October 28, 1998
Michael E. Nugent
/s/ JOHN L. SCHROEDER
- ------------------------------ Trustee October 28, 1998
John L. Schroeder
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry Fink and Marilyn K. Cranney and each and
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form N-14 of Morgan
Stanley Dean Witter World Wide Income Trust, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause to
be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ CHARLES A. FIUMEFREDDO
- ------------------------------ Trustee October 28, 1998
Charles A. Fiumefreddo
/s/ PHILIP J. PURCELL
- ------------------------------ Trustee October 28, 1998
Philip J. Purcell
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER
GLOBAL SHORT-TERM INCOME FUND INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1999
The undersigned shareholder of Morgan Stanley Dean Witter
Global Short-Term Income Fund Inc. ("Global Short-Term") does
hereby appoint [BARRY FINK, ROBERT M. SCANLAN, and ROBERT
GIAMBRONE] and each of them, as attorneys-in-fact and proxies of
the undersigned, each with the full power of substitution, to
attend the Special Meeting of Shareholders of Global Short-Term to
be held on February 24, 1999, at Conference Room A, 44th Floor,
Two World Trade Center, New York, New York at 9:00 A.M., New York
time, and at all adjournments thereof and to vote the shares held
in the name of the undersigned on the record date for said meeting
for the Proposal specified on the reverse side hereof. Said
attorneys-in-fact shall vote in accordance with their best
judgment as to any other matter.
(CONTINUED ON REVERSE SIDE)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL SET FORTH ON THE
REVERSE HEREOF AND AS RECOMMENDED BY THE BOARD OF DIRECTORS.
IMPORTANT -- THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE
SIDE.
<PAGE>
/x/ PLEASE MARK BOXES
IN BLACK OR BLUE INK
FOR AGAINST ABSTAIN
/ / / / / /
The Proposal:
Approval of the Agreement and Plan of Reorganization, dated as of October 28,
1998, pursuant to which substantially all of the assets of Global
Short-Term would be combined with those of Morgan Stanley Dean Witter World
Wide Income Trust ("World Wide") and shareholders of Global Short-Term would
become shareholders of World Wide receiving Class A shares in
World Wide with a value equal to the value of their holdings in Global
Short-Term.
Please Sign personally. If the shares are registered in more than one name,
each joint owner or each fiduciary should sign personally.
Only authorized officers should sign for corporations.
Date
------------------------------------------------------------------------
Please make sure to sign and date
this Proxy using black or blue ink.
-----------------------
Shareholder sign in
the box above
-----------------------
Co-Owner (if any) sign
in the box above
- --------------------------------------------------------------------------------
PRX 00107 -- PLEASE DETACH AT PERFORATION - -
MORGAN STANLEY DEAN WITTER
GLOBAL SHORT-TERM INCOME FUND INC.
- -------------------------------------------------------------------------------
IMPORTANT
PLEASE SEND IN YOUR PROXY......TODAY!
YOU ARE URGED TO DATE AND SIGN THE ATTACHED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. THIS WILL HELP SAVE THE
EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT
RESPONDED.
