<PAGE>
PROSPECTUS
FEBRUARY 1, 1996
Dean Witter Precious Metals and Minerals Trust (the "Fund") is an
open-end diversified management investment company, whose investment objective
is capital appreciation. The Fund will seek to achieve its investment objective
by investing in the securities of foreign and domestic companies engaged in the
exploration, mining, fabrication, processing, distribution or trading of
precious metals and minerals or in companies engaged in financing, managing,
controlling or operating companies engaged in these activities and also by
investing a portion of its assets in gold, silver, platinum and palladium
bullion and coins. (See "Investment Objective and Policies").
Shares of the Fund are continuously offered at net asset value
without the imposition of a sales charge. However, redemptions and/or
repurchases are subject in most cases to a contingent deferred sales charge,
scaled down from 5% to 1% of the amount redeemed, if made within six years of
purchase, which charge will be paid to the Fund's Distributor, Dean Witter
Distributors Inc. See "Redemptions and Repurchases--Contingent Deferred Sales
Charge." In addition, the Fund pays the Distributor a Rule 12b-1 distribution
fee pursuant to a Plan of Distribution at the annual rate of 1.0% 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 1, 1996, 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 below. 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/3
Financial Highlights/4
The Fund and Its Management/5
Investment Objective and Policies/5
Risk Considerations/7
Investment Restrictions/12
Purchase of Fund Shares/13
Shareholder Services/16
Redemptions and Repurchases/18
Dividends, Distributions and Taxes/20
Performance Information/21
Additional Information/22
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
Precious Metals and Minerals 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
Fund open-end, diversified management investment company. The Fund invests in the securities of foreign
and domestic companies engaged in the exploration, mining, fabrication, processing, distribution or
trading of precious metals and minerals or in companies engaged in financing, managing, controlling
or operating companies engaged in these activities. The Fund also invests in gold, silver, platinum
and palladium bullion and coins directly.
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Shares Offered Shares of beneficial interest with $0.01 par value (see page 21).
- ----------------------------------------------------------------------------------------------------------------------
Offering At net asset value without sales charge (see page 12). Shares redeemed within six years of purchase
Price are subject to a contingent deferred sales charge under most circumstances (see page 18).
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Minimum Minimum initial investment, $1,000 ($100 of the accounts opened through EasyInvest). Minimum
Purchase subsequent investment, $100 (see page 12).
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Investment The investment objective of the Fund is to provide long-term capital appreciation.
Objective
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-
Manager owned subsidiary, Dean Witter Services Company Inc., serve in various investment management,
advisory, management and administrative capacities to ninety-five investment companies and other
portfolios with assets under management of approximately $79.5 billion at December 31, 1995 (see
page 5).
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Management The Investment Manager receives a monthly fee at the annual rate of 0.80% of daily net assets. This
Fee fee is higher than that paid by most other investment companies (see page 5).
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Dividends Dividends from net investment income and distributions from net capital gains, if any, are paid at
least once per year. Dividends and capital gains distributions are automatically reinvested in
additional shares at net asset value unless the shareholder elects to receive cash (see page 19).
- ----------------------------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. (the "Distributor"). The Distributor receives from the Fund a
and distribution fee accrued daily and payable monthly at the rate of 1% per annum of the lesser of (i)
Distribution the Fund's average daily aggregate net sales or (ii) the Fund's average daily net assets. This fee
Fee compensates the Distributor for the services provided in distributing shares of the Fund and for
sales-related expenses. The Distributor also receives the proceeds of any contingent deferred sales
charges (see page 13).
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Redemption-- Shares are redeemable by the shareholder at net asset value. An account may be involuntarily
Contingent redeemed if the total value of the account is less than $100 or, if the account was opened through
Deferred EasyInvest, if after twelve months the Shareholder has invested less than $1,000 in the account.
Sales Although no commission or sales load is imposed upon the purchase of shares, a contingent deferred
Charge sales charge (scaled down from 5% to 1%) is imposed on any redemption of shares if after such
redemption the aggregate current value of an account with the Fund falls below the aggregate amount
of the investor's purchase payments made during the six years preceding the redemption. However,
there is no charge imposed on redemption of shares purchased through reinvestment of dividends or
distributions (see pages 17-19).
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Risks The net asset value of the Fund's shares will fluctuate with changes in the market value of its
portfolio securities and with fluctuations in the prices of precious metals and minerals. The prices
of precious metals and minerals are affected by various world-wide economic, financial and political
factors and such prices may be subject to sharp fluctuations over short periods of time (see page
7). Additionally, the Fund's investments in foreign securities involve certain risks due to changes
in currency exchange rates, foreign securities exchange controls and foreign tax rates (see page 7).
The Fund's use of options and futures transactions may also involve special risks (see page 8).
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</TABLE>
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE
IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION.
2
<PAGE>
SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended October 31, 1995.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases.............................................. None
Maximum Sales Charge Imposed on Reinvested Dividends................................... None
Deferred Sales Charge
(as a percentage of the lesser of original purchase price or redemption proceeds).... 5.0%
A contingent deferred sales charge is imposed at the following declining rates:
</TABLE>
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT MADE PERCENTAGE
- -------------------------------------------------------------------------------------------- ---------------
<S> <C>
First....................................................................................... 5.0%
Second...................................................................................... 4.0%
Third....................................................................................... 3.0%
Fourth...................................................................................... 2.0%
Fifth....................................................................................... 2.0%
Sixth....................................................................................... 1.0%
Seventh and thereafter...................................................................... None
</TABLE>
<TABLE>
<S> <C>
Redemption Fees....................................................................... None
Exchange Fee.......................................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------------
Management Fees....................................................................... .80%
12b-1 Fees*........................................................................... 1.00%
Other Expenses........................................................................ .49%
Total Fund Operating Expenses......................................................... 2.29%
<FN>
- ------------
* 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>
<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:.............................................................. $ 73 $ 101 $ 142 $ 262
You would pay the following expenses on the same investment, assuming
no redemption:....................................................... $ 23 $ 71 $ 122 $ 262
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto, and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request of the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31 AUGUST 6, 1990*
-------------------------------------------- THROUGH
1995 1994 1993 1992 1991 OCTOBER 31, 1990
-------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $11.45 $10.80 $7.87 $8.59 $8.57 $10.00
-------- ------- ------- ------- ------- --------
Net investment income (loss).................... (0.08) (0.06) (0.04) (0.05) 0.06 0.05
Net realized and unrealized gain (loss)......... (1.38) 0.73 2.97 (0.62) 0.03 (1.48)
-------- ------- ------- ------- ------- --------
Total from investment operations................ (1.46) 0.67 2.93 (0.67) 0.09 (1.43)
-------- ------- ------- ------- ------- --------
Less dividends and distributions from:
Net investment income......................... -0- -0- -0- (0.04) (0.07) -0-
Net realized gain............................. (0.22) (0.02) -0- (0.01) -0- -0-
-------- ------- ------- ------- ------- --------
Total dividends and distributions............... (0.22) (0.02) -0- (0.05) (0.07) -0-
-------- ------- ------- ------- ------- --------
Net asset value, end of period.................. $9.77 $11.45 $10.80 $7.87 $8.59 $8.57
-------- ------- ------- ------- ------- --------
-------- ------- ------- ------- ------- --------
TOTAL INVESTMENT RETURN+.......................... (12.78)% 6.18 % 37.23 % (7.97)% 1.23% (14.30)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................................ 2.29 % 2.28 % 2.79 % 3.30 % 2.18%(4) 1.49 %(2)(3)
Net investment income (loss).................... (0.70)% (0.87)% (1.07)% (0.74)% 0.93%(4) 2.99 %(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands......... $55,448 $73,444 $45,204 $15,135 $11,246 $5,843
Portfolio turnover rate......................... 23% 46% 25% 9% 11% -0-%(1)
<FN>
- ---------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER (AFTER APPLICATION OF THE FUND'S EXPENSE LIMITATION), THE
ABOVE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD HAVE BEEN
3.50% AND 0.98%, RESPECTIVELY.
(4) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER (AFTER APPLICATION OF THE FUND'S EXPENSE LIMITATION), THE
ABOVE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD HAVE BEEN
3.50% AND (0.39)%, RESPECTIVELY.
</TABLE>
4
<PAGE>
THE FUND AND ITS MANAGEMENT
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Dean Witter Precious Metals and Minerals Trust (the "Fund") is an open-end,
diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of Massachusetts on December 28, 1989.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Dean Witter, Discover & Co. ("DWDC"), a
balanced financial services organization providing a broad range of nationally
marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-five investment companies, thirty of which
are listed on the New York Stock Exchange, with combined assets of approximately
$76.9 billion at December 31, 1995. The Investment Manager also manages
portfolios of pension plans, other institutions and individuals which aggregated
approximately $2.6 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund. The Fund's
Trustees review the various services provided by or under the direction of the
Investment Manager to ensure that the Fund's general investment policies and
programs are being properly carried out and that administrative services are
being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.80% of the Fund's net assets. For the fiscal year ended October
31, 1995, the Fund accrued total compensation to the Investment Manager
amounting to 0.80% of the Fund's average daily net assets and the Fund's total
expenses amounted to 2.29% of the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is long-term capital appreciation. The
Fund will attempt to achieve its investment objective by investing principally
in the securities of foreign and domestic companies engaged in the exploration,
mining, fabrication, processing, distribution or trading of precious metals and
minerals or in companies engaged in financing, managing, controlling or
operating companies engaged in these activities and also by investing a portion
of its assets in gold, silver, platinum and palladium bullion and coins. There
can be no assurance that the Fund's investment objective will be achieved. The
investment objective of the Fund is a fundamental policy and,
as such, may not be changed without the approval of the shareholders of the
Fund. Because the securities in which the Fund invests may involve risks not
associated with more traditional investments, an investment in the Fund, by
itself, should not be considered a balanced investment program.
Except during temporary defensive periods, the Fund will invest at least 65%
of its total assets in precious metals and minerals securities and precious
metals bullion and coins as well as other precious metals-related investments
(such as debt instruments indexed to or payable in precious metals warrants).
This concentration policy is a fundamental policy of the Fund.
5
<PAGE>
The precious metals and minerals securities in which the Fund will invest
include foreign and domestic common stocks, securities convertible into common
stocks, preferred stocks, debt securities, precious metals indexed debt
securities and options issued by companies engaged in the exploration, mining,
fabricating, processing, distributing or trading of precious metals and
minerals. A company will be considered to be principally engaged in such
activities if it derives more than 50% of its income or devotes 50% or more of
its assets to such activities.
Up to 35% of the Fund's total assets may be invested in (a) common stocks of
companies that derive less than 50% of their income or devote 50% or less of
their assets to precious metals and minerals activities, (b) long-term U.S.
Government securities (securities guaranteed as to principal and interest by the
U.S. Government or its agencies or instrumentalities) and (c) short-term money
market instruments such as obligations of, or guaranteed by, the United States
government, its agencies or instrumentalities; commercial paper; banker's
acceptances and certificates of deposit of U.S. domestic banks, including
foreign branches of domestic banks, with assets of $500 million or more; time
deposits; or debt securities rated within the two highest grades by Moody's
Investors Service ("Moody's") or Standard & Poor's Corporation ("S&P") or, if
not rated, are of comparable quality as determined by the Investment Manager and
which mature within one year from the date of purchase. Investments in
short-term money market instruments may equal more than 35% of the Fund's assets
during temporary defensive periods. Additionally, within the percentage
limitation described above, up to 20% of the Fund's total assets may be invested
in long-term U.S. Government securities in order to offset the possible decline
in the value of precious metals and precious metals securities during periods of
low inflation rates.
Because most of the world's gold production is outside of the United States,
the Fund expects that a majority of its assets will be invested in the
securities of foreign issuers. The percentage of assets invested in particular
countries or regions, however, will change from time to time according to the
Investment Manager's judgement of their political stability and economic
outlook. Under normal market conditions, the Fund intends to invest at least 30%
of its assets in the securities of foreign issuers. Such securities may be 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 with a European bank. 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 the European securities markets. In the event that
ADRs or EDRs are not available for a particular security, the Fund nevertheless
may invest in that security. Such securities may or may not be listed on a
foreign securities exchange.
The Fund will also invest a portion of its assets in gold, silver, platinum
and palladium bullion and coins (or certificates, receipts or contracts
representing ownership interests in these precious metals). While it is intended
that no more than 25% of the Fund's total assets will be invested in such
bullion or coins, the Fund's investment in bullion or coins may be further
restricted in order to comply with regulations of states where the Fund's shares
are qualified for sale.
Bullion and coins will only be bought from and sold to U.S. and foreign
banks, regulated U.S. commodities exchanges, exchanges affiliated with a
regulated U.S. stock exchange, and dealers who are members of, or affiliated
with members of, a regulated U.S. commodities exchange, in accordance with
applicable investment laws. Gold, silver, platinum and palladium bullion will
not be
pur-
6
<PAGE>
chased in any form that is not readily marketable. Coins will not be purchased
for their numismatic value and will not be considered for purchase if they
cannot be bought or sold in an active market. Any bullion or coins purchased by
the Fund will be delivered to and stored with a qualified custodian bank in the
U.S. Investors should note that bullion and coins do not generate income,
offering only the potential for capital appreciation or depreciation, and in
these transactions the Fund may encounter higher custody and transaction costs
than those normally associated with the ownership of securities, as well as
shipping and insurance costs. The Fund may attempt to minimize the costs
associated with actual custody of bullion or coins by the use of receipts or
certificates representing ownership interests in these precious metals. The
Fund's Investment Manager believes that investments in precious metals
themselves could serve to moderate fluctuations in the value of the Fund's
portfolio since at times the prices of precious metals have tended not to
fluctuate as widely as the securities of issuers engaged in the mining of such
metals.
RISK CONSIDERATIONS
Investments related to gold and other precious metals and minerals are
considered speculative and are impacted by a host of world-wide economic,
financial and political factors. Prices of gold and other precious metals may
fluctuate sharply over short periods of time due to changes in inflation or
expectations regarding inflation in various countries, the availability of
supplies of these precious metals, changes in industrial and commercial demand,
metal sales by governments, central banks or international agencies, investment
speculation, monetary and other economic policies of various governments and
governmental restrictions on the private ownership of certain precious metals
and minerals.
At the present time, there are five major producers of gold bullion. In
order of magnitude they are: the Republic of South Africa, the successor states
of the former Soviet Union, Canada, the United States and Australia. Political
and economic conditions in these countries may have a direct effect on the
mining, distribution and price of gold and sales of central bank gold holdings.
FOREIGN SECURITIES. The Fund expects that a significant portion of its
assets will be invested in securities of foreign issuers because companies
engaged in activities relating to precious metals and minerals are frequently
located outside the United States. Investments in the securities of foreign
issuers involve special risks. These risks include: less public information
available about foreign companies than is available about U.S. companies; less
government regulation of stock exchanges, brokers, listed companies and banks in
foreign countries than in the United States; foreign stock markets have less
volume than the United States markets and the securities of some foreign
companies are less liquid and more volatile than the securities of comparable
United States companies; foreign companies, generally, are not subject to the
uniform accounting, auditing and financial reporting standards and practices
applicable to United States companies; the possibility of expropriation of
assets, or confiscatory taxation of investments or nationalization of bank
deposits by foreign governments; the possible establishment of exchange controls
and currency blockages by foreign governments; adverse political and economic
developments and the difficulties of obtaining and enforcing a judgement against
the issuers of foreign securities; and fluctuations in foreign currency exchange
rates which may affect the value of the Fund's portfolio securities (and
consequently the net asset value of the Fund's shares), the value of dividends
and interest earned and gains and losses realized on the sale of securities, and
the value of net investment income and unrealized appreciation or depreciation
of investments. In addition, differences in clearance and settlement procedures
on foreign markets may occasion delays in settlements of the Fund's trades
effected in such markets. As such, the 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
securi-
7
<PAGE>
ties 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.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
As a way of managing exchange rate risks, the Fund may enter into foreign
currency exchange transactions either on a cash basis at the rate prevailing in
the currency exchange market, or by entering into forward foreign currency
exchange contracts to buy or sell currencies.
A forward foreign currency exchange contract ("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 may be
bought or sold to protect the Fund's portfolio, to some degree, against a
possible loss resulting from an adverse change in the relationship between
foreign currencies and the U.S. dollar. Forward contracts can be used to protect
the value of the Fund's investment securities by establishing a rate of exchange
that the Fund can achieve at some future point in time; they do not eliminate
fluctuations in the underlying prices of the securities. Additionally, although
forward contracts tend to minimize the risk of loss due to a decline in the
value of the hedged currency, at the same time, they tend to limit any potential
gains that might result should the value of such currency increase. The Fund
does not intend to commit more than 20% of the value of its total assets to
forward contracts for position hedging at any one time. Additionally, the Fund,
generally, will not enter into a forward contract with a term greater than one
year.
OPTIONS AND FUTURES TRANSACTIONS
The Fund is permitted to enter into call and put options on equity
securities listed on various U.S. securities exchanges ("Listed Options") and
written in over-the-counter transactions ("OTC options").
Listed options are issued by the Options Clearing Corporation ("OCC").
OTC options are purchased from or sold (written) to dealers or financial
institutions which have entered into direct agreements with the Fund. The Fund
is permitted to write covered call options on portfolio securities, without
limit, in order to aid it in achieving its investment objective.
The Fund may purchase listed or OTC put or call options on its portfolio
securities in amounts exceeding no more than 10% of its total assets.
The Fund may purchase call options only to close out a covered call position
or to protect against an increase in the price of a security it anticipates
purchasing. 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. There are no other limits on the Fund's ability to purchase call and
put options.
The Fund may enter into futures contracts on precious metals as a hedge
("precious metals futures") against changes in the price of precious metals held
or intended to be acquired by the Fund, but not for speculation or for achieving
leverage. The Fund's hedging activities may include purchases of futures
contracts as an offset against the effect of anticipated increases in the price
of a precious metal which the Fund intends to acquire ("anticipatory hedge") or
sales of futures contracts as an offset against the effect of anticipated
declines in the price of a precious metal which the Fund owns ("hedge against an
existing position").
The Fund may enter into precious metals forward contracts which are similar
to precious metals futures contracts, in that they provide for the purchase or
sale of precious metals at an agreed price with delivery to take place at an
agreed future time. However, unlike futures contracts, forward contracts are
negotiated contracts which are primarily used in the dealer market. Unlike the
futures contract market, which is regulated by the Commodity Futures Trading
Commission ("CFTC") and by the regulations of the commodity exchanges, the
forward
con-
8
<PAGE>
tract market is unregulated. The Fund will use forward contracts for the same
hedging purposes as those applicable to futures contracts, as described above.
The Fund may also purchase and write call and put options on futures
contracts which are traded on an Exchange and enter into closing transactions
with respect to such options to terminate an existing position.
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 and the
sale of a futures contract or to close out a long or short position in futures
contracts.
The Fund may also purchase put or call options on precious metals futures
contracts. Such options would be purchased solely for hedging purposes similar
to those applicable to the purchase and sale of futures contracts. The Fund may
not purchase options on precious metals and precious metals futures contracts if
the premiums paid for all such options, together with margin deposits on
precious metals futures contracts, would exceed 5% of the Fund's total assets at
the time the option is purchased. The Fund may also write covered call options
on precious metal futures contracts.
The Fund may not enter into futures contracts or 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.
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. Also,
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 assets are not speculative in nature,
there are risks inherent in the use of such instruments. One such risk is that
the Investment Manager could be incorrect in its expectations as to the
direction or extent of various price movements or the time span within which the
movements take place.
Another risk which may arise in employing futures contracts to protect
against the price volatility of the Fund's assets is that the prices of precious
metals subject to futures contracts (and thereby the futures contract prices)
may correlate imperfectly with the prices of such assets. 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.
Precious metals futures and forward prices can be volatile and are
influenced principally by changes in spot market prices, which in turn are
affected by a variety of political and economic factors. In addition,
expectations of changing market conditions may at times influence the prices of
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<PAGE>
futures and forward contracts, and changes in the cost of holding physical
precious metals, including storage, insurance and interest expense, will also
affect the relationship between spot and futures or forward prices. While the
correlation between changes in prices of futures and forward contracts and
prices of the precious metals being hedged by such contracts has historically
been very strong, the correlation may at times be imperfect and even a well
conceived hedge may be unsuccessful to some degree because of market behavior or
unexpected precious metals price trends. To the extent that interest rates move
in a direction opposite to that anticipated, the Fund may realize a loss on a
futures transaction not offset by an increase in the value of portfolio
securities. Moreover there is a possibility of a lack of a liquid secondary
market for closing out a futures position or futures option. The success of any
hedging technique depends upon the Investment Manager's accuracy in predicting
the direction of a market. If these predictions are incorrect, the Fund may
realize a loss.
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 a purchase of a
call or put option on a futures contract would result in a loss to the Fund when
the purchase or sale of a futures contract would not result in a loss, such as
when there is no movement in the prices of the underlying securities. The
writing of a put or call option on a futures contract involves risks similar to
those relating to transactions in futures contracts as are described above.
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, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by the Investment
Manager subject to procedures established by the Board of Trustees of the Fund.
In addition, the value of the collateral underlying the repurchase agreement
will be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement.
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.
PRIVATE PLACEMENTS. The Fund may invest up to 5% 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
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.
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 100% of the market value determined
daily of the loaned securities. The Fund may lend up to 10% of the value of its
total assets.
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.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital, the
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<PAGE>
views of Trustees of the Fund and others regarding economic developments and
interest rate trends; and the Investment Manager's own analysis of factors it
deems relevant.
The Fund is managed within InterCapital's Growth Group, which manages 29 funds
and fund portfolios with approximately $9.3 billion in assets at December 31,
1995. Konrad Krill, Vice President of InterCapital, and a member of
InterCapital's Growth Group, is the primary portfolio manager of the Fund. Mr.
Krill has been a portfolio manager of the Fund since May, 1994 and has been the
sole portfolio manager of the Fund since April, 1995. He has been a portfolio
manager or investment analyst at InterCapital for over five years.
In selecting particular investments for the Fund's portfolio, the Investment
Manager will consider a wide variety of factors including current and
anticipated prices for precious metals and minerals, the extent and quality of
the issuer's metals reserves (including ore grades of metals mined by the
issuer), the quality of the issuer's management, the financial condition of the
issuer, present and anticipated levels of taxation on the operating income of
the issuer, labor relations, the issuer's mining, processing and fabricating
costs and techniques, and the marketability of the issuer's securities and the
price at which the issuer's precious metals and minerals are sold in the free
market.
Orders for transactions in other portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including DWR. 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. The
Fund's normal expectation in purchasing a security is that its anticipated
performance level will be reached over the longer, rather than the shorter,
term. Historically, stock prices of companies in the precious metals industry
have been volatile. The rate of portfolio turnover will not be a limiting factor
when portfolio changes are deemed appropriate. It is not anticipated that the
portfolio trading will result in the Fund's portfolio turnover rate exceeding
100%. A more extensive discussion of the Fund's portfolio brokerage policies is
set forth in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (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. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities).
2. Purchase more than 10% of all outstanding voting securities of any one
issuer.
3. Invest more than 10% of its total assets in illiquid securities (OTC
options and securities which are not readily marketable or which are subject to
legal or contractual restrictions on resale) and repurchase agreements which
have a maturity of longer than seven days.
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<PAGE>
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
5. Borrow money, 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).
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares to the public on a continuous basis. Pursuant to
a Distribution Agreement between the Fund and Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager, shares of the Fund are
distributed by the Distributor and offered by DWR and other dealers who have
entered into selected dealer agreements with the Distributor ("Selected
Broker-Dealers"). The principal executive office of the Distributor is located
at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Minimum subsequent purchases of $100
or more may be made by sending a check, payable to Dean Witter Precious Metals
and Minerals Trust, directly to Dean Witter Trust Company (the "Transfer Agent")
at P.O. Box 1040, Jersey City, NJ 07303 or by contacting an account executive of
DWR or other Selected Broker-Dealer. 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.
In the case of investments pursuant to Systematic Payroll Deduction Plans
(including Individual Retirement Plans), the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required if the Fund has reason to believe that additional investments will
increase the investment in all accounts under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless a request is made by
the shareholder in writing to the Transfer Agent. The offering price will be the
net asset value per share next determined following receipt of an order (see
"Determination of Net Asset Value").
Shares of the Fund are sold through the Distributor on a normal 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. Shares of the
Fund purchased through the Distributor are entitled to dividends beginning on
the next business day following settlement date. Since DWR and other Selected
Broker-Dealers forward investors' funds on settlement date they will benefit
from the temporary use of the funds if payment is made prior thereto. As noted
above, orders placed directly with the Transfer Agent must be accompanied by
payment. Investors will be entitled to receive 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 distributions (those investing through the
Distributor or other Selected Broker-Dealer will receive dividends declared the
next business day after the order is settled). While no sales charge is imposed
at the time shares are purchased, a contingent deferred sales charge may be
imposed at the time of redemption (see "Redemptions and Repurchases"). Sales
personnel are compensated for selling shares of the Fund at the time of their
sale by the Distributor and/or Selected Broker-Dealer. In addition, some sales
personnel of the Selected Broker-Dealer will receive various types of non-cash
compensation as special sales incentives, including trips, educational and/or
business seminars and merchandise. The Fund and the Distributor reserve the
right to reject any purchase orders.
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<PAGE>
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 1.0% 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 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'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 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, 1995, the Fund accrued payments under the Plan amounting to
$646,161, which amount is equal to 1.0% of the Fund's average daily net assets
for the fiscal period.
At any given time, the expenses of distributing shares of the Fund may be in
excess of the total of (i) the payments made by the Fund pursuant to the Plan,
and (ii) the proceeds of contingent deferred sales charges paid by investors
upon the redemption of shares (see "Redemptions and Repurchases--Contingent
Deferred Sales Charge"). For example, if $1 million in expenses in distributing
shares of the Fund had been incurred and $750,000 had been received as described
in (i) and (ii) above, the excess would amount to $250,000. The Distributor has
advised the Fund that such excess amounts including the carrying charge
described above, totalled $2,752,595 at October 31, 1995, which was 4.96% of the
Fund's net assets on such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, this excess amount does not constitute a liability
of the Fund. Although there is no legal obligation for the Fund to pay expenses
incurred in excess of payments made to the Distributor under the Plan and the
proceeds of contingent deferred sales charges paid by investors upon redemption
of shares, if for any reason the Plan is terminated, the Trustees will consider
at that time the manner in which to treat such expenses. Any cumulative expenses
incurred, but not yet recovered through distribution fees or contingent deferred
sales charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined 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
deter-
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<PAGE>
mined 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 or quoted by NASDAQ is valued at its latest
sale price on that exchange or quotation service prior to the time assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where a security is traded on more than one exchange, the
security is 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 bid price. When market quotations are not readily available, including
circumstances under which it is determined by the Investment Manager that the
sale or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the 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. Dividend income and other
distributions are recorded on the ex-dividend date, except for certain dividends
from foreign securities which are recorded as soon as the Fund is informed after
the ex-dividend date.
Short-term debt securities with remaining maturities of sixty days or less
to maturity 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 utilizes a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
Gold and silver bullion will be valued at the last spot settlement price on
the Commodity Exchange, Inc. and other precious metals (such as platinum and
palladium) and minerals will be valued at the last spot settlement price or, if
not available, the settlement price of the nearest contract month on the New
York Mercantile Exchange. If prices are not available on any of these exchanges
on any given day, the relevant precious metal or mineral will be valued at
prices in the bullion markets or other markets approved by the Trustees for that
purpose; if there is no readily available market quotation, then bullion will be
valued in a manner, at fair value, as determined in good faith by the Trustees.
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 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.
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<PAGE>
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").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. (see "Purchase of First Shares" and "Redemptions and
Repurchases--Involuntary Redemptions").
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 the shares redeemed under
the Withdrawal Plan (see "Redemptions and Repurchases--Contingent Deferred Sales
Charge"). Therefore, any shareholder participating in the Withdrawal Plan will
have sufficient shares redeemed from his or her account so that the proceeds
(net of any applicable contingent deferred sales charge) to the shareholder will
be the designated monthly or quarterly amount.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the Transfer
Agent.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for shares of other Dean Witter
Funds sold with a contingent deferred sales charge ("CDSC funds"), and for
shares of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term
Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced Growth
Fund, Dean Witter Balanced Income Fund, Dean Witter Intermediate Term U.S.
Treasury Trust and five Dean Witter Funds which are money market funds (the
foregoing eleven non-CDSC funds are hereinafter referred to as the "Exchange
Funds"). Exchanges may be made after the shares of the Fund acquired by purchase
(not by exchange or dividend reinvestment) have been held for 30 days. There is
no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share of
each fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following
busi-
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<PAGE>
ness day. Subsequent exchanges between any of the money market funds and any of
the CDSC funds can be effected on the same basis. No contingent deferred sales
charge ("CDSC") is imposed at the time of any exchange although any applicable
CDSC will be imposed upon ultimate redemption. Shares of the Fund acquired in
exchange for shares of another CDSC fund having a different CDSC schedule than
that of this Fund will be subject to the CDSC schedule of that 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 the Exchange
Fund, (calculated from the last day of the month in which the Exchange Fund
shares were acquired), the holding period (for the purpose of determining the
rate of the CDSC) is frozen. If those shares are subsequently reexchanged for
shares of a CDSC fund, the holding period previously frozen when the first
exchange was made resumes on the last day of the month in which shares of a CDSC
fund are reacquired. Thus, the CDSC is based upon the time (calculated as
described above) the shareholder was invested in a CDSC fund (see "Redemptions
and Repurchases-- Contingent Deferred Sales Charge"). However, in the case of
shares of the Fund exchanged into an Exchange Fund, 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, if any, are described in the
prospectuses for those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds") but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders and,
at the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/ or exchanges from the investor. Although the
Fund does not have any specific definition of what constitutes a pattern of
frequent exchanges, and will consider all relevant factors in determining
whether a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange.
Also, the Exchange Privilege may be terminated or revised at any time by the
Fund and/or any of such Dean Witter Funds for which shares of the Fund have been
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares, on
which the shareholder may realize a capital gain or loss. However, the ability
to deduct capital losses on an
17
<PAGE>
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 other Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their DWR account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing or
by contacting the Transfer Agent at (800) 869-NEWS (toll free). The Fund will
employ reasonable procedures to confirm that exchange instructions communicated
over the telephone are genuine. Such procedures may include requiring various
forms of personal identification such as name, mailing address, Social Security
or other tax identification number and DWR or other Selected Broker-Dealer
account number (if any). Telephone instructions may also be recorded. If such
procedures are not employed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean Witter
Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
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 to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder, the shares may be redeemed by surrendering the certificates with a
written request for redemption along with any additional information required by
the Transfer Agent.
CONTINGENT DEFERRED SALES CHARGE. Shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any charge upon redemption.
Shares redeemed sooner than six years after purchase may, however, be subject to
a charge upon redemption. This charge is called a "contingent deferred sales
charge" ("CDSC"), which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will
18
<PAGE>
depend upon how long the shares have been held, as set forth in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- ----------------------------------- ------------------------
<S> <C>
First.............................. 5.0%
Second............................. 4.0%
Third.............................. 3.0%
Fourth............................. 2.0%
Fifth.............................. 2.0%
Sixth.............................. 1.0%
Seventh and thereafter............. None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption; (ii)
the current net asset value of shares purchased more than six years prior to the
redemption; and (iii) the current net asset value of shares purchased through
reinvestment of dividends or distributions and/or shares acquired in exchange
for shares of Dean Witter Funds sold with a front-end sales charge or of other
Dean Witter Funds acquired in exchange for such shares. Moreover, in determining
whether a CDSC is applicable it will be assumed that amounts described in (i),
(ii) and (iii) above (in that order) are redeemed first.
In addition, 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
corporate or self-employed retirement plan qualified under Section 401(k) of the
Internal Revenue Code 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 Company,
an affiliate of the Investment Manager, serves as recordkeeper or Trustee
("Eligible 401(k) Plan"), provided that either: (A) the plan continues to be an
Eligible 401(k) 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 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.
19
<PAGE>
The CDSC, if any, will be the only fee imposed by the Fund, the Distributor,
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, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the redemption or
repurchase, reinstate any portion or all of the proceeds of such redemption or
repurchase in shares of the Fund at net asset value next determined after a
reinstatement request, together with the proceeds, is received by the Transfer
Agent and receive a pro-rata credit for any CDSC paid in connection with such
redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on sixty days' notice,
to redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares have a value of
less than $100 or such lesser amount as may be fixed by the Fund's Trustees.
However, before the Fund redeems such shares and sends the proceeds to the
shareholder, it will notify the shareholder that the value of the shares is less
than $100 and allow him or her sixty days to make an additional investment in an
amount which will increase the value of his or her account to $100 or more
before the redemption is processed or, in the case of an account opened through
EasyInvest, if after twelve months the shareholder has less than $1,000 in the
account. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund currently intends to pay dividends
and to distribute all of the Fund's net investment income and net realized
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 net long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
Fund shares (without sales charge) and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends 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 capital gains to shareholders and otherwise remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code,
(the "Code"), it is not expected that the Fund will be required to pay any
federal income tax on such income and capital gains. Shareholders who are
required to pay taxes on their income will normally have to pay Federal income
taxes, and any
applica-
20
<PAGE>
ble 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 payments in additional shares or in cash.
Income received by the Fund may give rise to foreign taxes imposed and
withheld in foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. If more than 50 percent of the
Fund's total assets at the close of its fiscal year consist of securities of
foreign corporations, the Fund will be eligible to file an election with the
Internal Revenue Service under which shareholders of the Fund would be required
to include their pro rata portions of foreign taxes withheld by foreign
countries as gross income in their federal income tax returns. These pro rata
portions of foreign taxes withheld may be taken by the Shareholder as a credit
or deduction in computing federal income taxes. If the election is filed, the
Fund will report to its shareholders the amount per share of such foreign taxes
withheld and the amount of foreign tax credit or deduction available for federal
income tax purposes. In the absence of such an election, the Fund would deduct
foreign tax in computing the amount of its distributable income.
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 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.
As a regulated investment company, the Fund is subject to the requirement
that less than 30% of its gross income be derived from the sale or other
disposition of securities and certain other investments held for less than three
months. This requirement may limit the Fund's ability to engage in options and
futures transactions.
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.
After the end of the year, shareholders will receive full information on
their dividends and capital gains distributions for tax purposes. To avoid being
subject to a 31% federal backup withholding tax on taxable dividends, capital
gains distributions and the proceeds of redemptions and repurchases,
shareholders' taxpayer identification numbers must be furnished and certified as
to their accuracy.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject to
state and local taxes; therefore, each shareholder is advised to consult his or
her own tax adviser.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. 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 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.
21
<PAGE>
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 of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the Fund.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations
(such as mutual fund performance rankings of Lipper Analytical Services, Inc.)
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that 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 thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Dean Witter Fund is engaged at the same time in a purchase or sale of the same
security. The Code of Ethics bans the purchase of securities in an initial
public offering, and also prohibits engaging in futures and options transactions
and profiting on short-term trading (that is, a purchase within sixty days of a
sale or a sale within sixty days of a purchase) of a security. In addition,
investment personnel may not purchase or sell a security for their personal
account within thirty days before or after any transaction in any Dean Witter
Fund managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the recent report by the Investment Company Institute
Advisory Group on Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
22
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS DEAN WITTER RETIREMENT SERIES
Dean Witter Liquid Asset Fund Inc. Liquid Asset Series
Dean Witter Tax-Free Daily Income Trust U.S. Government Money Market Series
Dean Witter New York Municipal Money U.S. Government Securities Series
Market Trust Intermediate Income Securities Series
Dean Witter California Tax-Free Daily American Value Series
Income Trust Capital Growth Series
Dean Witter U.S. Government Money Dividend Growth Series
Market Trust Stategist Series
EQUITY FUNDS Utilities Series
Dean Witter American Value Fund Value-Added Market Series
Dean Witter Natural Resource Global Equity Series
Development Securities Inc. ASSET ALLOCATION FUNDS
Dean Witter Dividend Growth Securities Dean Witter Strategist Fund
Inc. Dean Witter Global Asset Allocation
Dean Witter Developing Growth Fund
Securities Trust ACTIVE ASSETS ACCOUNT PROGRAM
Dean Witter World Wide Investment Trust Active Assets Money Trust
Dean Witter Value-Added Market Series Active Assets Tax-Free Trust
Dean Witter Utilities Fund Active Assets California Tax-Free Trust
Dean Witter Precious Metals and Active Assets Government Securities
Minerals Trust Trust
Dean Witter Capital Growth Securities
Dean Witter European Growth Fund Inc.
Dean Witter Pacific Growth Fund Inc.
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth
Securities
Dean Witter Global Utilities Fund
Dean Witter International Small Cap
Fund
Dean Witter Mid-Cap Fund
Dean Witter Balanced Growth Fund
Dean Witter Capital Appreciation Fund
Dean Witter Information Fund
FIXED-INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
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 World Wide Income Trust
Dean Witter Intermediate Income
Securities
Dean Witter Global Short-Term Income
Fund Inc.
Dean Witter Multi-State Municipal
Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury
Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal
Trust
Dean Witter Short-Term Bond Fund
Dean Witter National Municipal Trust
Dean Witter High Income Securities
Dean Witter Balanced Income Fund
Dean Witter Hawaii Municipal Trust
Dean Witter Intermediate Term U.S.
Treasury Trust
<PAGE>
Dean Witter Dean Witter
Precious Metals and Minerals Trust Precious
Two World Trade Center Metals and
New York, New York 10048 Minerals
TRUSTEES Trust
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Konrad Krill
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
PROSPECTUS -- FEBRUARY 1, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
PRECIOUS METALS
FEBRUARY 1, 1996 AND MINERALS TRUST
- --------------------------------------------------------------------------------
Dean Witter Precious Metals and Minerals Trust (the "Fund") is an open-end,
diversified management investment company, whose investment objective is capital
appreciation. The Fund seeks to achieve its investment objective by investing in
the securities of foreign and domestic companies engaged in the exploration,
mining, fabrication, distribution, processing or trading of precious metals and
minerals or in companies engaged in financing, managing, controlling or
operating companies engaged in these activities and also by investing a portion
of its assets in gold, silver, platinum and palladium bullion and coins. See
"Investment Practices and Policies."
A Prospectus for the Fund dated February 1, 1996, 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
Precious Metals and
Minerals Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and Its Management.............................................. 3
Trustees and Officers.................................................... 6
Investment Practices and Policies........................................ 12
Investment Restrictions.................................................. 22
Portfolio Transactions and Brokerage..................................... 24
The Distributor.......................................................... 26
Determination of Net Asset Value......................................... 29
Shareholder Services..................................................... 29
Redemptions and Repurchases.............................................. 34
Dividends, Distributions and Taxes....................................... 36
Performance Information.................................................. 38
Description of Shares of the Fund........................................ 39
Custodian and Transfer Agent............................................. 39
Independent Accountants.................................................. 40
Reports to Shareholders.................................................. 40
Validity of Shares of Beneficial Interest................................ 40
Legal Counsel............................................................ 40
Experts.................................................................. 40
Registration Statement................................................... 40
Financial Statements--October 31, 1995................................... 41
Report of Independent Accountants........................................ 51
</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
December 28, 1989.
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 Dean Witter, Discover & Co. ("DWDC"), a Delaware corporation. In
an internal reorganization which took place in January, 1993, InterCapital
assumed the investment advisory, administrative and management activities
previously performed by the InterCapital Division of Dean Witter Reynolds Inc.
("DWR"), a broker-dealer affiliate of InterCapital. (As hereinafter used in this
Statement of Additional Information, the terms "InterCapital" and "Investment
Manager" refer to DWR's InterCapital Division prior to the 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 of investments by the
Fund's Trustees. In addition, Trustees of the Fund provide guidance on economic
factors and interest rate trends. Information as to these Trustees and Officers
is contained under the caption "Trustees and Officers".
InterCapital is also the investment manager or investment adviser of the
following investment companies: Active Assets Money Trust, Active Assets
Tax-Free Trust, Active Assets California Tax-Free Trust, Active Assets
Government Securities Trust, 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 Strategist Fund, Dean
Witter World Wide 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 Global Short-Term Income Fund Inc., Dean Witter Multi-State
Municipal Series Trust, Dean Witter Premier Income Trust, Dean Witter Short-Term
U.S. Treasury Trust, InterCapital Insured Municipal Bond Trust, InterCapital
Insured Municipal Trust, InterCapital Quality Municipal Investment Trust,
InterCapital Quality Municipal Income Trust, InterCapital Insured Municipal
Income Trust, InterCapital California Insured Municipal Income Trust, Dean
Witter Diversified Income Trust, Dean Witter Health Sciences Trust, Dean Witter
Retirement Series, Dean Witter Global Dividend Growth Securities, Dean Witter
Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, InterCapital
Quality Municipal Securities, InterCapital California Quality Municipal
Securities, InterCapital New York Quality Municipal Securities, InterCapital
Insured Municipal Securities, InterCapital Insured California Municipal
Securities, Dean Witter Global Utilities Fund, Dean Witter National Municipal
Trust, Dean Witter High Income Securities, Dean Witter International SmallCap
Fund, Dean Witter Mid-Cap Growth Fund, Dean Witter Select Dimensions Investment
Series, Dean Witter Global Asset Allocation Fund, Dean Witter Balanced Growth,
Dean Witter Balanced Income Fund, Dean Witter Hawaii Municipal Trust, Dean
Witter Capital Appreciation Fund, Dean Witter Information Fund, Dean Witter
Intermediate Term U.S. Treasury Trust, 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
3
<PAGE>
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 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-advisor to Templeton
Global Opportunities Trust, an open-end investment company; (ii) administrator
of The Black Rock Strategic Term Trust Inc., a closed-end investment company;
and (iii) sub-administrator of Mass Mutual Participation Investors and Templeton
Global Governments Income Trust, closed-end investment companies.
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, 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 Management 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. The expenses borne by the Fund 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 share certificates; registration costs of the Fund and its shares
under federal and state securities laws; the cost and expense of printing,
including typesetting, and distributing Prospectuses and Statements of
Additional Information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Trustees or members of any advisory board or
committee who are not employees of the Investment Manager or any corporate
affiliate of the Investment Manager; all expenses incident to any dividend,
withdrawal or redemption options; charges and expenses of any outside service
used for pricing of the Fund's shares; fees and expenses of legal counsel,
including counsel to the Trustees who are not interested persons of the Fund or
of the Investment Manager (not including compensation or expenses of attorneys
who are employees of the Investment Manager) and independent accountants;
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 at an annual rate of
.80% of the daily net assets of the Fund. Total compensation accrued to the
Investment Manager under the Agreement and for the fiscal years ended October
31, 1993, October 31, 1994 and October 31, 1995 was $211,463, $530,057, and
$516,929 respectively.
Pursuant to the Agreement, total operating expenses of the Fund are subject
to applicable limitations under rules and regulations of states where the Fund
is authorized to sell its shares. Therefore, operating expenses are effectively
subject to the most restrictive of such limitations as the same may be amended
from time to time. Presently, the most restrictive limitation is as follows. If,
in any fiscal year, the Fund's total operating expenses, exclusive of taxes,
interest, brokerage fees, distribution fees and extraordinary expenses (to the
extent permitted by applicable state securities laws and regulations), exceed
2 1/2% of the first $30,000,000 of average daily net assets, 2% of the next
$70,000,000 and 1 1/2% of any excess over $100,000,000, the Investment Manager
will reimburse the Fund for the amount of such excess. Such amount, if any, will
be calculated daily and credited on a monthly basis. For the fiscal years ended
October 31, 1993, October 31, 1994 and October 31, 1995, the Fund did not exceed
the expense limitation.
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 has paid the organizational expenses of the Fund
incurred prior to the offering of the Fund's shares. The Fund has reimbursed the
Investment Manager for such expenses. 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 Trustees on October 30,
1992 and by the Shareholders of the Fund at a Special Meeting of Shareholders on
January 12, 1993. The Agreement is substantially identical to a prior Investment
Management Agreement which was initially approved by the trustees on February
15, 1990 and by DWR as the then sole shareholder on June 7,1990 and by the
Shareholders of the Fund at a Special Meeting of Shareholders on September 20,
1991. The Agreement took effect on June 30, 1993 upon the Spin-off by Sears,
Roebuck & Co. of its remaining shares of DWDC. The Agreement may be terminated
at any time, without penalty, on thirty days' notice by the Trustees of the
Fund, by the holders of a majority as defined in the 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 had an initial term ending April 30, 1994,
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. At their meeting
held on April 20, 1995, the Fund's Board of Trustees, including all of the
Independent Trustees, approved the continuation of the Agreement until April 30,
1996.
5
<PAGE>
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use, or at any time
permit others to use, the name "Dean Witter". The Fund has also agreed that in
the event the 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 79 Dean Witter Funds and the 12 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 (54) ................................... 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 Chairman and Chief Executive
Officer (January, 1987-August, 1990) and President and
Chief Operating Officer (August, 1990-February, 1991) of
the Sears Merchandise Group of Sears, Roebuck and Co.;
Director of Eaglemark Financial Services, Inc., the United
Negro College Fund, Weirton Steel Corporation and Domain
Inc. (home decor retailer).
Charles A. Fiumefreddo* (62) ......................... Chairman, Chief Executive Officer and Director of
Chairman of the Board, President, Chief InterCapital; Distributors and DWSC; Executive Vice
Executive Officer and Trustee President and Director of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of 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 Company ("DWTC"); formerly Executive Vice
President and Director of DWDC (until February, 1993);
Director and/or officer of various DWDC subsidiaries.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Edwin J. Garn (63) ................................... Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman Chemical Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1971-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Chemical Corporation (since January,
1993); Director of Franklin Quest (time management sys-
tems) and John Alden Financial Corporation; member of the
board of various civic and charitable organizations.
John R. Haire (70) ................................... 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; Trustee of
New York, New York the TCW/DW Funds; formerly President, Council for Aid to
Education (1978-October, 1989) and Chairman and Chief
Executive Officer of Anchor Corporation, an Investment
Adviser (1964-1978); Director of Washington National Cor-
poration (insurance).
Dr. Manuel H. Johnson (46) ........................... Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Koch Professor of International Eco-
c/o Johnson Smick International, Inc. nomics and Director of the Center for Global Market
1133 Connecticut Avenue, N.W. Studies at George Mason University (since September,
Washington, D.C. 1990); Co-Chairman and a founder of the Group of Seven
Council (G7C), an international economic commission (since
September, 1990); Director or Trustee of the Dean Witter
Funds; Trustee of the TCW/DW Funds; Director of NASDAQ
(since June, 1995); Director of Greenwich Capital Markets
Inc. (broker-dealer); formerly Vice Chairman of the Board
of Governors of the Federal Reserve System (February,
1986-August, 1990) and Assistant Secretary of the U.S.
Treasury (1982-1986).
Paul Kolton (72) ..................................... Director or Trustee of the Dean Witter Funds; Chairman of
Trustee the Audit Committee and Chairman of the Committee of the
c/o Gordon Altman Butowsky Weitzen Independent Trustees and Trustee of the TCW/DW Funds;
Shalov & Wein formerly Chairman of the Financial Accounting Standards
Counsel to the Independent Trustees Advisory Council and Chairman and Chief Executive Officer
114 West 47th Street of the American Stock Exchange; Director of UCC Investors
New York, New York Holdings Inc. (Uniroyal Chemical Company, Inc.); director
or trustee of various not-for-profit organizations.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael E. Nugent (59) ............................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership (since April, 1988); Director or
c/o Triumph Capital, L.P. Trustee of the Dean Witter Funds; Trustee of the TCW/DW
237 Park Avenue Funds; formerly Vice President, Bankers Trust Company and
New York, New York BT Capital Corporation (1984-1988); Director of various
business organizations.
Philip J. Purcell* (52) .............................. Chairman of the Board of Directors and Chief Executive
Trustee Officer of DWDC, DWR and Novus Credit Services Inc.;
Two World Trade Center Director of InterCapital, DWSC and Distributors; Director
New York, New York or Trustee of the Dean Witter Funds; Director and/or
officer of various DWDC subsidiaries.
John L. Schroeder (65) ............................... Retired; formerly Executive Vice President and Chief
Trustee Investment Officer of the Home Insurance Company (August,
c/o Gordon Altman Butowsky Weitzen 1991-September, 1995); Director or Trustee of the Dean
Shalov & Wein Witter Funds; Director of Citizens Utilities Company;
Counsel to the Independent Trustees formerly Chairman and Chief Investment Officer of
114 West 47th Street Axe-Houghton Management and the Axe- Houghton Funds
New York, New York (April, 1983-June, 1991) and President of USF&G Financial
Services, Inc. (June, 1990-June, 1991).
Sheldon Curtis* (64) ................................. Senior Vice President, Secretary and General Counsel of
Vice President, Secretary InterCapital and DWSC; Senior Vice President and Secretary
and General Counsel of DWTC; Senior Vice President, Assistant Secretary and
Two World Trade Center Assistant General Counsel of Distributors; Assistant
New York, New York Secretary of DWR; Vice President, Secretary and General
Counsel of the Dean Witter Funds and the TCW/DW Funds.
Konrad Krill (36) .................................... Vice President (since April, 1994) of InterCapital; Vice
Vice President President of various Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (49) ................................ First Vice President (since May, 1991) and Assistant
Treasurer Treasurer (since January, 1993) of InterCapital; First
Two World Trade Center Vice President and Assistant Treasurer of DWSC and
New York, New York Treasurer of the Dean Witter Funds and the TCW/DW Funds;
previously Vice President of InterCapital.
</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 DWTC and
Director of DWTC, David A Hughey, Executive Vice President and Chief
Administrative Officer of InterCapital, DWSC, Distributors and DWTC and Director
of DWTC, Edmund C. Puckhaber, Executive Vice President of InterCapital, Robert
S. Giambrone, Senior Vice President of InterCapital, DWSC Distributors and DWTC
and Joseph J. McAlinden, Paul D. Vance and Ira W. Ross, Senior Vice Presidents
of InterCapital, are Vice Presidents of the Fund. Marilyn K. Cranney and Barry
Fink, First Vice Presidents and Assistant General Counsels of InterCapital, and
LouAnne D. McInnis and Ruth Rossi, Vice Presidents and Assistant General
Counsels of InterCapital, and Carsten Otto, a Staff Attorney with InterCapital,
are Assistant Secretaries of the Fund.
8
<PAGE>
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 79 Dean Witter Funds, comprised of
119 portfolios. As of December 31, 1995, the Dean Witter Funds had total net
assets of approximately $71.5 billion and more than five 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, DWDC. These
are the "disinterested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with InterCapital. Five 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, 1995,
the three Committees held a combined total of fifteen meetings. The Committees
hold some meetings at InterCapital's offices and some outside of InterCapital.
Management Trustees or officers do not attend these meetings unless and until
they are invited for purposes of furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to time.
The Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEES
The Chairman of the Committees 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
9
<PAGE>
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 all three 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 Committees 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 of
the TCW/DW Funds. The current Committee Chairman has had more than 35 years
experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees, and a Chairman of their Committees,
of the caliber, experience and business acumen of the individuals who serve as
Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 ($1,200 prior
to September 30, 1995) plus a per meeting fee of $50 for meetings of the Board
of Trustees or committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an annual fee of $750 ($1,000
prior to January 31, 1995) and pays the Chairman of the Committee of the
Independent Trustees an additional annual fee of $2,400, in each case inclusive
of the Committee meeting fees). 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.
10
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended October 31, 1995.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- ------------------------------------------------------------ -------------
<S> <C>
Jack F. Bennett............................................. $ 1,900
Michael Bozic............................................... 1,900
Edwin J. Garn............................................... 2,000
John R. Haire............................................... 4,600*
Dr. Manuel H. Johnson....................................... 2,000
Paul Kolton................................................. 2,000
Michael E. Nugent........................................... 1,850
John L. Schroeder........................................... 2,000
</TABLE>
- ------------
* Of Mr. Haire's compensation from the Fund, $3,400 was paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($1,000).
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1995 for services
to the 79 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Kolton
and Nugent, the 11 TCW/DW Funds that were in operation at December 31, 1995.
With respect to Messrs. Haire, Johnson, Kolton and Nugent, the TCW/DW Funds are
included solely because of a limited exchange privilege between those Funds and
five Dean Witter Money Market Funds. Mr. Schroeder was elected as a Trustee of
the TCW/DW Funds on April 20, 1995.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE FOR SERVICE AS TOTAL CASH
AS DIRECTOR OR CHAIRMAN OF COMPENSATION
TRUSTEE AND FOR SERVICE AS COMMITTEES OF FOR SERVICES TO
COMMITTEE MEMBER TRUSTEE AND INDEPENDENT 79 DEAN WITTER
OF 79 DEAN COMMITTEE MEMBER DIRECTORS/ FUNDS
WITTER OF 11 TCW/DW TRUSTEES AND AND 11
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS AUDIT COMMITTEES TCW/DW FUNDS
- ----------------------------------------------------- ---------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Michael Bozic........................................ $126,050 -- -- $126,050
Edwin J. Garn........................................ 136,450 -- -- 136,450
John R. Haire........................................ 98,450 $82,038 $217,350** 397,838
Dr. Manuel H. Johnson................................ 136,450 82,038 -- 218,488
Paul Kolton.......................................... 136,450 54,788 36,900*** 228,138
Michael E. Nugent.................................... 124,200 75,038 -- 199,238
John L. Schroeder.................................... 136,450 46,964 -- 183,414
</TABLE>
- ------------
** For the 79 Dean Witter Funds in operations at December 31, 1995.
*** For the 11 TCW/DW Funds in operations at December 31, 1995.
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.
11
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
As discussed in the Prospectus, the Fund may invest up to 35% of its total
assets in, among other securities, securities issued by the U.S. Government, its
agencies or instrumentalities. Such securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years), all of which are direct
obligations of the U.S. Government and, as such, are backed by the "full
faith and credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the
United States. Among the agencies and instrumentalities issuing such
obligations are the Federal Housing Administration, the Government National
Mortgage Association ("GNMA"), the Department of Housing and Urban
Development, the Export-Import Bank, the Farmers Home Administration, the
General Services Administration, the Maritime Administration and the Small
Business Administration. The maturities of such obligations range from three
months to 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 are 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. The Fund may invest up to 20% of its total assets in
long-term U.S. Government securities.
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 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
12
<PAGE>
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. See
"Dividends, Distributions and Taxes" for a discussion of the tax treatment of
zero coupon Treasury securities.
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).
FOREIGN SECURITIES
As discussed in the Prospectus, investing in securities issued by companies
whose principal business activities are outside the United States may involve
risks not present in domestic investments. For example, there is generally less
publicly available information about foreign companies, particularly those not
subject to the disclosure and reporting requirements of the U.S. securities
laws. Foreign issuers are generally not bound by uniform accounting, auditing
and financial reporting requirements comparable to those applicable to U.S.
issuers. Foreign stock markets, while growing in volume and sophistication, are
generally not as developed as those in the U.S. and securities of some foreign
issuers, particularly those located in developing countries, may be less liquid
and more volatile than securities of comparable U.S. companies. Foreign
brokerage commissions are generally higher than commissions on securities traded
in the U.S. and foreign securities trading practices, including those involving
securities settlement, may expose the Fund's portfolio to increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer. Moreover,
there is generally less overall governmental supervision and regulation of
securities exchanges, brokers and listed companies than in the U.S.
Investments in foreign securities also involve the risk of possible adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets,
political or financial instability or diplomatic and other developments which
could affect such investments. In addition, since the securities of foreign
issuers are generally denominated in foreign currencies, fluctuations in
monetary exchange rates will affect the dollar value of the Fund's foreign
investments.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
As discussed in the Prospectus, the Fund may enter into foreign currency
exchange transactions as a way of managing exchange rate risks. 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 (usually large, commercial banks) and their customers.
Such forward contracts will only be entered into with United States banks and
their foreign branches 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.
The Fund may enter into a forward contract under the following
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency or is informed that it will
receive a dividend denominated in a foreign currency, it may desire to "lock in"
the U.S. dollar price of the security or the value of the dividend. By entering
into a forward contract for the purchase or sale, for a fixed amount of U.S.
dollars, of the amount of foreign currency involved in the underlying securities
transaction or dividend payment, the Fund will be able to protect itself against
a possible low resulting from and adverse change in the relationship between the
U.S. dollar and the respective foreign currency during the period between (i)
the time the security is purchased or sold and
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the date on which payment is made or received or (ii) the time the dividend is
declared by an issuer and the date when it is received by the Fund. Second, when
management of the Fund believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, it may enter
into a forward contract to sell, for a fixed amount of dollars, 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 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, debt securities or equity
securities in a separate 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 separate 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.
At the maturity of a 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 security if its market value exceeds the amount
of foreign currency the Fund is obligated to deliver.
If the Fund retains the portfolio security 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. The Fund generally will not enter
into a forward contract for a term greater than one year.
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 may purchase options of the same series to effect
closing transactions. The Fund may also hedge against potential changes in the
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market value of its investments, or anticipated investments, by purchasing put
and call options on portfolio securities and engaging in transactions involving
futures contracts and options on such contracts.
COVERED CALL WRITING. As stated in the Prospectus, the Fund is permitted to
write covered call options on portfolio securities, 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 or 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
deliverable under the call option. A call option is also covered if the Fund
holds a call on the same security as the underlying security of the written
option, where the exercise price of the call used for coverage is equal to or
less than the exercise price of the call written or greater than the exercise
price of the call written if the mark to market difference is maintained by the
Fund in cash, U.S. Government securities or other high grade debt obligations
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 or currencies alone. Moreover,
the premium received will offset a portion of the potential loss incurred by the
Fund if the securities underlying the option are ultimately sold or 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 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 over-the-counter ("OTC") options,
during the option period, the Fund may be required, at any time, to deliver the
underlying security against payment of the exercise price on any calls it has
written (exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of an underlying security or to enable the Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. The Fund may realize a net gain or loss from a
closing purchase transaction depending upon whether the amount of the premium
received on the call option is more or less than the cost of effecting the
closing purchase transaction. Any loss incurred in a closing purchase
transaction may be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part or exceeded by
a decline in the market value of the underlying security or 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 during
the option period. If a call option is exercised, the Fund realizes a gain or
loss from the sale of the underlying security equal to the difference between
the purchase price of the underlying security and the proceeds of the sale of
the security plus the premium received for on the option less the commission
paid.
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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 and Futures
Transactions," below.
COVERED PUT WRITING. As stated in the Prospectus, the Fund may write
covered put options on portfolio securities. 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 high grade obligations 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 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 high grade debt obligations which the
Fund holds in a segregated account maintained at its Custodian. In writing puts,
the Fund assumes the risk of loss should the market value of the underlying
security decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). In the case of
listed options, during the option period, the Fund may be required, at any time,
to make payment of the exercise price against delivery of the underlying
security. The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.
The Fund will write put options for three purposes: (1) to receive the
income derived from the premiums paid by purchasers; (2) when the Investment
Manager wishes to purchase the security underlying the option at a price lower
than its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought; 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 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 10% 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. 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 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 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 were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. The Fund may also purchase put options to
close out written put positions in a manner similar to call options closing
purchase transactions. In addition, the Fund may sell a put option which it has
previously purchased prior to the sale of the securities underlying such option.
Such a sale would result in a net gain or loss depending on whether the amount
received on the sale is more or less than the premium and other transaction
costs paid on the put option which is sold. Any such gain or loss could be
offset in whole or in part by a change in the market value of the underlying
security. If a put option purchased by the Fund expired without being sold or
exercised, the premium would be lost.
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RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security increase, but has retained the risk of loss should the price
of the underlying security decline. The secured put writer also retains the risk
of loss should the market value of the underlying security decline below the
exercise price of the option less the premium received on the sale of the
option. In both cases, the writer has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option, it cannot sell the underlying security until the
option expires or the option is exercised. Accordingly, a covered call option
writer may not be able to sell an underlying security at a time when it might
otherwise be advantageous to do so. A secured put option writer who is unable to
effect a closing purchase transaction or to purchase an offsetting OTC option
would continue to bear the risk of decline in the market price of the underlying
security until the option 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 high grade short-term obligations 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 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
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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.
FUTURES CONTRACTS AND OPTIONS THEREON. As stated in the Prospectus, the
Fund may invest in futures contracts on precious metals ("futures contracts")
and related options thereon. These futures contracts and related options thereon
will be used only as a hedge against anticipated changes in the prices of
precious metals. A futures contract sale creates an obligation by the Fund, as
seller, to deliver cash or the specific type of instrument called for in the
contract at a specified future time for a specified price. A futures contract
purchase would create an obligation by the Fund, as purchaser, to take delivery
of cash or the specific type of financial instrument at a specified future time
at a specified price. The specific securities delivered or taken, respectively,
at settlement date would not be determined until or near that date. The
determination would be in accordance with the rules of the exchange on which the
futures contract sale or purchase was effected.
Although the terms of futures contracts specify actual delivery or receipt
of securities or specific instrument, in most instances the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out of a futures contract is usually effected by entering into an offsetting
transaction. An offsetting transaction for a futures contract sale is effected
by the Fund entering into a futures contract purchase for the same aggregate
amount of the specific type of financial instrument and same delivery date. If
the price in the sale exceeds the price in the offsetting purchase, the Fund is
immediately paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sale price, the Fund pays the difference and realizes
a loss. Similarly, the closing out of a futures contract purchase is effected by
the Fund entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Fund realizes a gain, and if the offsetting sale
price is less than the purchase price, the Fund realizes a loss. 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 futures contracts and options thereon. The initial
margin requirements vary according to the type of the underlying security. 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 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. 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 held in the portfolio of the Fund may
decline. If this occurred, the
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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 assets it intends to buy, and the value of such assets decreases, then
the Fund may determine not to invest in the securities as planned and will
realize a loss on the futures contract that is not offset by a reduction in the
price of the securities.
In order to assure that the Fund is entering into transactions in futures
contracts for hedging purposes as such is defined by the Commodity Futures
Trading Commission either: 1) a substantial majority (i.e., approximately 75%)
of all anticipatory hedge transactions (transactions in which the Fund does not
own at the time of the transaction, but expects to acquire, the securities
underlying the relevant futures contract) involving the purchase of futures
contracts will be completed by the purchase of securities which are the subject
of the hedge or 2) the underlying value of all long positions in futures
contracts will not exceed the total value of a) all short-term debt obligations
held by the Fund; b) cash held by the Fund; c) cash proceeds due to the Fund on
investments within thirty days; d) the margin deposited on the contracts; and e)
any unrealized appreciation in the value of the contracts.
If the Fund 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 assets, including high grade debt
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 assets, including high grade debt 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
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with 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 Fund assets is that the prices subject to futures
contracts (and thereby the futures
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contract prices) may correlate imperfectly with the behavior of the cash prices
of the Fund's assets. 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 asset 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 assets 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 assets
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 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 assets at a time when it may be
disadvantageous to do so.
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 assets.
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, does not decrease below the purchase price plus accrued interest.
If such decrease occurs, additional collateral will be requested from the
counterparty and when reviewed added 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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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. During the fiscal year ended
October 31, 1995, the Fund did not enter into repurchase agreements in an amount
greater than 5% of the Fund's net 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 high grade debt 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. During the fiscal year ended October 31, 1995, the Fund did not purchase
any such securities.
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 high grade debt 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 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. During the
fiscal year ended October 31, 1995, the Fund did not purchase any when, as and
if issued securities.
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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 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 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. During the
fiscal year ended October 31, 1995, the Fund did not loan any of its portfolio
securities.
WARRANTS. The Fund may acquire warrants attached to other securities and,
in addition may invest up to 5% of the value of its total assets in warrants,
including up to 2% of such assets in warrants not listed on the New York or
American Stock Exchanges or a recognized foreign stock exchange. 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 corporation issuing them.
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.
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<PAGE>
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. Invest more than 10% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available)
and repurchase agreements which have a maturity of longer than seven days.
The staff of the Securities and Exchange Commission ("SEC") has taken the
position that purchased OTC options and the assets used as "cover" for
written OTC options are illiquid securities. The Investment Manager
disagrees with this position. Nevertheless, the Fund has agreed to treat OTC
options and the covering assets thereon as illiquid securities for purposes
of this investment restriction.
4. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition of assets or, by purchase in the open market of securities of
closed-end investment companies where no underwriter's or dealer's
commission or profit, other than customary broker's commissions, is involved
and only if immediately thereafter not more than 10% of the Trust's total
assets would be invested in such securities.
5. Purchase or sell commodities or commodities contracts (other than
precious metals or minerals commodities or contracts) provided
however that the Fund may invest in futures and related options thereon.
6. 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.
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 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. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in
restriction (6). 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.
9. 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 agreements; or (c) by lending its portfolio securities.
10. Make short sales of securities.
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.
13. Invest in warrants (other than warrants acquired by the Fund as part
of a unit or attached to securities at the time of purchase) if, as a
result, the investments would exceed 5% of the value of the Fund's total
assets of which not more than 2% of the Fund's total assets may be invested
in warrants not listed on the New York or American Stock Exchange or a
recognized foreign stock exchange.
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.
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<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, October 31, 1994 and
October 31, 1993, the Fund paid $145,843, $270,567, and $160,768 in brokerage
commissions respectively.
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, the main
factors considered are the respective investment objectives, the relative size
of portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the Fund and
other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration 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.
24
<PAGE>
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. During the fiscal year ended October 31, 1995 the Fund directed
the payment of $114,174 in brokerage commissions in connection with transactions
in the aggregate amount of $23,614,956 to brokers because of research services
provided.
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. In order for DWR to effect any portfolio transactions for
the Fund, the commissions, fees or other remuneration received by DWR must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow DWR to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. Furthermore, the Board of 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 DWR
are consistent with the foregoing standard. The Fund does not reduce the
management fee it pays to the Investment Manager by the amount of brokerage
commissions it may pay to DWR. During the fiscal years ended October 31, 1995,
October 31, 1994 and October 31, 1993, the Fund paid a total of $22,154,
$15,880, and $10,015, respectively in brokerage commissions to DWR. During the
fiscal year ended October 31, 1995 the brokerage commissions paid to DWR
represented approximately 15.19% of the total brokerage commissions paid by the
Fund during the year and were paid on account of transactions having an
aggregate dollar value equal to approximately 20.26% of the aggregate dollar
value of all portfolio transactions of the Fund during the year for which
commissions were paid.
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, permits such exchange members to execute such securities transactions on
an exchange only if the affiliate or account expressly consents. To the extent
Section 11(a) would apply to DWR 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.
PORTFOLIO TRADING
It is anticipated that the Fund's portfolio turnover rate will not exceed
100% in any one year. A 100% turnover rate would occur, for example, if 100% of
the securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year. During the fiscal years ended October 31, 1995, October 31, 1994 and
October 31, 1993, the Fund's portfolio turnover rates were 23%, 46%, and 25%,
respectively.
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<PAGE>
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 DWDC. 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 October 30, 1992,
approved 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. By its terms, the Distribution
Agreement had an initial term ending April 30, 1994, and will remain in effect
from year to year thereafter if approved by the Board. At their meeting held on
April 20, 1995, the Trustees, including all of the Independent Trustees,
approved the continuation of the Distribution Agreement until April 30, 1996.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto to prospective Shareholders. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. The Fund 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
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 1.0% 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
"Redemptions and Repurchases -- Contingent Deferred Sales Charge" in the
Prospectus. The Distributor, has informed the Fund that for the fiscal years
ended October 31, 1995, October 31, 1994 and October 31, 1993, it and/or DWR
received approximately $234,131, $203,000, and $101,000, respectively in
contingent deferred sales charges.
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 the
Distributor 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 such is defined by the aforementioned Rules of Fair Practice.
The Plan was adopted by a vote of the Trustees of the Fund on February 15,
1990, and on April 12, 1990, at a Meeting of the Trustees called for the purpose
of voting on such Plan. The vote included the
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<PAGE>
vote of a majority 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"). In
making their decision to adopt the Plan, the Trustees requested from DWR and
received such information as they deemed necessary to make an informed
determination as to whether or not adoption of the Plan was in the best
interests of the shareholders of the Fund. After due consideration of the
information received, the Trustees, including the Independent 12b-1 Trustees,
determined that adoption of the Plan would benefit the shareholders of the Fund.
DWR, as the then sole shareholder of the Fund, approved the Plan on June 7,
1990, whereupon the Plan went into effect.The shareholders of the Fund, holding
a majority, as defined in the Act, of the outstanding voting securities of the
Fund, approved the Plan at a Special Meeting of Shareholders held on September
20, 1991.
Under its terms, the Plan had an initial term ending April 30, 1991 and
provides that it will remain in effect from year to year thereafter, provided
such continuance is approved annually by a vote of the Trustees in the manner
described above. The most recent continuance of the Plan for one year, until
April 30, 1996, was approved by the Board of Trustees of the Fund, including a
majority of the Independent 12b-1 Trustees on April 20, 1995. Prior to approving
the continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated; (2)
the benefits the Fund had obtained, was obtained 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 Trustee's quarterly review of the Plan, they
will consider its continued appropriateness and the level of compensation
provided herein.
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all of the Independent 12b-1 Trustees, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon the reorganization described above the share distribution
activities theretofore performed for the Fund by DWR were assumed by the
Distributor and DWR's sales activities are now being performed pursuant to the
terms of a selected dealer agreement between the Distributor and DWR. The
amendments provide that payments under the Plan will be made to the Distributor
rather than to DWR as before the amendment, and that the Distributor in turn is
authorized to make payments to DWR, its affiliates or other selected
broker-dealers (or direct that the Fund pay such entities directly). The
Distributor is also authorized to retain part of such fee as compensation for
its own distribution-related expenses. At their meeting held on April 28, 1993,
the Trustees, including a majority of the Independent 12b-1 Trustees, also
approved certain technical amendments to the Plan in connection with recent
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
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.
Pursuant to the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. The Fund accrued amounts payable to the
Distributor under the Plan, during the fiscal year ended October 31, 1994, of
$662,571. This amount is equal to payments required to be paid monthly by the
Fund which were computed at the annual rate of 1.0% of the average daily net
assets of the Fund 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.
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<PAGE>
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 six 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 5% of the amount sold and an annual
residual commission of up to .25 of 1% of the current value of the amount sold
(not including reinvested dividends and distributions). 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. 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 DWR's 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 $646,161 accrued under the Plan for the fiscal
year ended October 31, 1995 to the Distributor. The Distributor and DWR estimate
that they have spent, pursuant to the Plan, $5,178,575 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) 22.16% ($1,147,407 )--advertising and
promotional expenses; (ii) 2.20% ($114,022 )--printing of prospectuses for
distribution to other than current shareholders; and (iii) 75.64%
($3,917,146)--other expenses, including the gross sales credit and the carrying
charge, of which 5.55% ($217,270) represents carrying charges, 37.89%
($1,484,390) represents commission credits to DWR branch offices for payments of
commissions to account executives and 56.56% ($2,215,486) 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. The Distributor has advised the Fund that
the excess 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
the sale of Fund's shares, totalled $2,752,595 as of October 31, 1995. Because
there is no requirement under the Plan that the Distributor be reimbursed for
all distribution expenses or any requirement that the Plan be continued from
year to year, this excess amount does not constitute a liability of the Fund.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. Any cumulative expenses
incurred, but not yet recovered through distribution fees or contingent deferred
sales charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
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 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.
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
Trustees in the manner described above. The Plan may be
termi-
28
<PAGE>
nated at any time, without payment of any penalty, by vote of a majority of the
Independent 12b-1 Trustees or by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the Act) on not more than thirty days'
written notice to any other party to the Plan. So long as the Plan is in effect,
the election and nomination of Independent Trustees shall be committed to the
discretion of the Independent Trustees.
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) (which corresponds to the closing time on
various options exchanges) on each day that the New York Stock Exchange is open
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 currently observes the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Short-term debt securities with remaining maturities of 60 days or less to
maturity at the time of purchase are valued at amortized cost, unless the
Trustees determine such does not reflect the securities' fair 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 60 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' fair value, in
which case these securities will be valued at their fair value as determined by
the Trustees. Options are valued at the mean between their latest bid and asked
prices. Futures are valued at the last sale price as of the close of the
commodities exchange on which they trade unless the Trustees determine that such
price does not reflect their market value, in which case they will be valued at
their fair value as determined by the Trustees. All other securities and other
assets are valued at their fair value as determined in good faith under
procedures established by and under the supervision of the Trustees.
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. 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 Trustees.
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
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
29
<PAGE>
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) 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.
TARGETED DIVIDENDS.-TM- In states where it is legally permissible,
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 Convertible Securities Trust. 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.-TM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing account at the net asset value calculated the same business day the
transfer of funds is effected. 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. Any shareholder
who receives a cash payment representing a dividend or distribution may invest
such dividend or distribution at the net asset value per share, without the
imposition of a contingent deferred sales charge upon redemption, by returning
the check or the proceeds to the Transfer Agent within thirty days after the
payment date. If the shareholder returns the proceeds of a dividend or
distribution, such funds must be accompanied by a signed statement indicating
that the proceeds constitute a dividend or distribution to be invested. Such
investment will be made at the net asset value per share next determined after
receipt of the check or proceeds by the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a 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.
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
30
<PAGE>
and normally a check for the proceeds will be mailed by the Transfer Agent, or
amounts credited to a shareholder's DWR or other selected broker-dealer
brokerage account, within five business days after the date of redemption. The
Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic Withdrawal Plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the 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 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.
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
Precious Metals and Minerals Trust, 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 shares of other Dean Witter Funds sold with a contingent deferred sales
charge ("CDSC funds"), 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 Balanced Growth Fund, Dean Witter Balanced Income Fund, Dean Witter
Intermediate Term U.S. Treasury Trust and five Dean Witter Funds which are money
market funds (the foregoing eleven non-CDSC funds are hereinafter collectively
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 30 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 "Exchange
Privilege" and "Contingent Deferred Sales Charge", a contingent deferred sales
charge ("CDSC") may be imposed upon a
31
<PAGE>
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 other CDSC 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 Exchange Fund shares
were acquired), the holding period or "year since purchase payment made" is
frozen. When shares are redeemed out the Exchange Fund, they will be subject to
a CDSC which would be based upon the period of time the shareholder held shares
in a CDSC fund. However, in the case of shares of the Fund exchanged into an
Exchange Fund, upon a redemption of shares which results in a CDSC being
imposed, a credit (not to exceed the amount of the CDSC) will be given in an
amount equal to the Exchange Fund 12b-1 distribution fees incurred on or after
that date which are attributable to those shares. Shareholders acquiring shares
of an Exchange Fund pursuant to this exchange privilege may exchange those
shares back into a CDSC fund from an 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 CDSC 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.
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
When shares initially purchased in a CDSC fund are exchanged for shares of
another CDSC fund, or for shares of 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 and (iii) acquired in exchange for shares of 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 (all such shares called "Free
Shares"), will be exchanged first. Shares of Dean Witter American Value Fund
acquired prior to April 30, 1984, shares of Dean Witter Dividend Growth
Securities Inc. and Dean Witter Natural Resource Development Securities Inc.
acquired prior to July 2, 1984, and Dean Witter Strategist Fund acquired prior
to November 8, 1989, are also considered Free Shares and will be the first Free
Shares to be exchanged. 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 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
32
<PAGE>
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 Tax-Free Daily Income Trust,
Dean Witter California Tax-Free Daily Income Trust and Dean Witter New York
Municipal Money Market Trust although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum investment for Dean
Witter Short-Term U.S. Treasury Trust is $10,000, although that fund, in its
discretion, may accept initial purchases as low as $5,000. The minimum initial
investment 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
Exchange Funds pursuant to this Exchange Privilege, and provided further that
the Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective, policies and restrictions.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. An exchange will be treated for federal income tax purposes
the same as a repurchase or redemption of shares, on which the shareholder may
realize a capital gain or loss. However, the ability to deduct capital losses on
an exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
For further information regarding the Fund's Exchange Privilege,
shareholders should contact their DWR or other selected broker-dealer account
executive or the Transfer Agent.
33
<PAGE>
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 (see below). 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, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a new
prospectus.
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 six 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
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 six years. The CDSC will be
paid to the Distributor. In addition, no CDSC will be imposed on redemptions of
shares which were purchased by certain Unit Investment Trusts (on which a sales
charge has been paid) or which are attributable to reinvestment of dividends or
distributions from, or the proceeds of, certain Unit Investment Trusts.
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 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 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 the
shares of other
34
<PAGE>
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 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
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ---------------------------------------- -------------------
<S> <C>
First................................... 5.0%
Second.................................. 4.0%
Third................................... 3.0%
Fourth.................................. 2.0%
Fifth................................... 2.0%
Sixth................................... 1.0%
Seventh and thereafter.................. None
</TABLE>
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 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 their purchase payments made within the past six
years and amounts equal to the current value of shares purchased more than six
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 six
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. 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. 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 certificate 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 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.
35
<PAGE>
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 thirty 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 pay federal income
tax thereon, and will notify shareholders that, following an election by the
Fund, the shareholders will be required to include such undistributed gains in
their taxable income and will be able to claim their share of the tax paid by
the Fund as a credit against their individual federal income tax.
Because the Fund intends to distribute all of its net investment income and
capital gains to shareholders and otherwise continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, it is not
expected that the Fund will be required to pay any federal income tax.
Shareholders will normally have to pay federal income taxes, and any state
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 calendar year.
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 one
year. Gains or losses on the sale of securities held for one year or less will
be short-term capital gains or losses.
The Fund has qualified and 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 to the extent that it distributes such income and capital gains to its
shareholders. 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.
Current federal tax law requires that a holder (such as the Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the Fund receives no interest payment
in cash on the security during the year. As an investment company, the Fund must
pay out substantially all of its net investment income each year. Accordingly,
the Fund, to the extent it invests in zero coupon Treasury securities, may be
required to pay out as an income distribution each year an amount which is
greater than the total amount of cash receipts of interest the Fund actually
36
<PAGE>
received. Such distributions will be made from the available cash of the Fund or
by liquidation of portfolio securities if necessary. If a distribution of cash
necessitates the liquidation of portfolio securities, the Investment Manager
will select which securities to sell. The Fund may realize a gain or loss from
such sales. In the event the Fund realizes net capital gains from such
transactions, its shareholders may receive a larger capital gain distribution,
if any, than they would in the absence of such transactions.
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 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 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.
Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction if
the Fund were the shareholder claiming the dividends received deduction. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund had held
for a minimum period, usually 46 days. Any distributions made by the Fund will
not be eligible for the dividends received deduction with respect to shares
which are held by the shareholder for 45 days or less. Any long-term capital
gain distributions will also not be eligible for the dividends received
deduction. The ability to take the dividends received deduction will also be
limited in the case of a Fund shareholder which incurs or continues indebtedness
which is directly attributable to its investment in the Fund.
After the end of the 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.
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 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 will be
eligible 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. The Fund will report annually to its shareholders the amount per
share of such withholding.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level which could not be eliminated by distributions to shareholders. The U.S.
Treasury is currently considering various solutions to this problem and, in any
event, it is not anticipated that any taxes on the Fund with respect to
investments in PFIC's would be significant.
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
37
<PAGE>
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, 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. 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 period August 6, 1990
(commencement of operations) through October 31, 1995 and for the fiscal year
ended October 31, 1995 was 0.09% and -17.04% 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 of the Fund for the fiscal year ended October
31, 1995 and for the period August 6, 1990 through October 31, 1995 was -12.78%
and 0.28% respectively.
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 years ended October 31, 1995 and for the
period August 6, 1990 through October 31, 1995 was -12.78% and 1.47%
respectively.
38
<PAGE>
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 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 $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 $10,147, $50,735 and $101,470
respectively at October 31, 1995.
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
of beneficial interest held.
All of the Trustees, except for Messrs. Bozic, Purcell and Schroeder, have
been elected by the shareholders of the Fund, most recently at a Special Meeting
of Shareholders held on January 12, 1993. Messrs. Bozic, Purcell and Schroeder
were elected by the other Trustees of the Fund on April 8, 1994. The Trustees
themselves have the power to alter the number and the terms of office of the
Trustees, and they may at any time lengthen their own terms or make their terms
of unlimited duration and appoint their own successors, provided that always at
least a majority of the Trustees has been elected by the shareholders of the
Fund. Under certain circumstances the Trustees may be removed by action of the
Trustees. The shareholders also have the right under certain circumstances to
remove the Trustees. The voting rights of shareholders are not cumulative, so
that holders of more than 50 percent of the shares voting can, if they choose,
elect all Trustees being selected, while the holders of the remaining shares
would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). However, the Trustees have not authorized
any such additional series or classes of shares.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his/her or its own
bad faith, willful misfeasance, gross negligence, or reckless disregard of his
duties. It also provides that all third persons shall look solely to the Fund
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated above, the Declaration of Trust provides
that a Trustee, officer, employee or agent is entitled to be indemnified against
all liability in connection with the affairs of the Fund.
The 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 Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager and Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts, including
providing subaccounting and recordkeeping services for certain retirement
accounts; disbursing cash dividends and reinvesting dividends; processing
account registration
39
<PAGE>
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 Company receives a per shareholder account fee from the Fund.
Wilmington Trust Company, Rodney Square North, Wilmington, Delaware 19890
acts as Sub-Custodian for the storing, transferring and delivering of the
precious metals owned by the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
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.
VALIDITY OF SHARES OF BENEFICIAL INTEREST
- --------------------------------------------------------------------------------
The validity of shares offered by the Prospectus will be passed upon for the
Fund by Sheldon Curtis, Esq., who is an officer and General Counsel of the
Investment Manager and an officer and General Counsel of the Fund.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund for the year ended October 31, 1995
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.
40
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (88.6%)
AUSTRALIA (15.8%)
DIAMOND MINING
358,400 Ashton Mining Ltd.................... $ 449,433
--------------
GOLD
425,000 Delta Gold*.......................... 910,860
37,767 Goldfields Ltd.*..................... 93,284
612,385 Gold Mines of Kalgoorlie Ltd......... 488,683
15,000 Lihir Gold Limited (ADR)*............ 331,875
400,000 Macraes Mining Co. Ltd............... 525,920
249,950 Mount Edon Gold Mines Ltd............ 596,481
190,000 Newcrest Mining Ltd.................. 779,760
175,000 Niugini Mining Ltd................... 363,090
375,000 Normandy Poseidon Ltd................ 441,750
100,000 North Flinders Mines Ltd............. 539,600
300,000 Pasminco Ltd......................... 330,600
360,000 Placer Pacific Ltd................... 681,264
150,000 Plutonic Resources Ltd............... 684,000
200,000 Ross Mining N.L...................... 165,680
140,000 Sons of Gwalia Ltd................... 691,600
109,375 Western Mining Corp. Holdings Ltd.... 699,913
--------------
8,324,360
--------------
TOTAL AUSTRALIA...................... 8,773,793
--------------
CANADA (38.9%)
GOLD
90,000 Agnico-Eagle Mines Ltd............... 990,000
216,750 Barrick Gold Corp.................... 5,012,344
115,000 Cambior, Inc......................... 1,134,590
140,200 Dayton Mining Corp.*................. 490,644
135,000 Echo Bay Mines Ltd................... 1,215,000
60,000 Goldcorp, Inc........................ 513,774
36,600 Golden Knight Resources, Inc......... 183,000
140,000 Hemlo Gold Mines, Inc................ 1,172,752
125,000 Kinross Gold Corp.*.................. 930,750
60,000 Miramar Mining Corp.*................ 307,146
115,000 Pegasus Gold, Inc.................... 1,265,000
140,000 Placer Dome, Inc..................... 3,062,500
200,000 Prime Resources Group, Inc.*......... 1,451,980
135,000 Rayrock Yellowknife Resources,
Inc.*................................ 1,005,210
100,000 Royal Oak Mines, Inc.*............... 364,850
55,000 Teck Corp. (B Shares)................ 1,013,589
220,000 TVX Gold, Inc.*...................... 1,430,000
--------------
TOTAL CANADA......................... 21,543,129
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM (2.0%)
GOLD
65,000 Ashanti Goldfields Ltd............... $ 1,145,625
--------------
UNITED STATES (31.9%)
ALUMINUM
17,000 Aluminum Co. of America.............. 867,000
15,000 Reynolds Metals Co................... 755,625
--------------
1,622,625
--------------
COPPER
10,000 Phelps Dodge Corp.................... 633,750
--------------
GOLD
200,000 Amax Gold, Inc....................... 1,125,000
180,000 Battle Mountain Gold Co. (Class A)... 1,372,500
100,000 Canyon Resources Corp.*.............. 193,750
100,000 Freeport-McMoran Copper & Gold, Inc.
(Class A)............................ 2,287,500
40,000 Golden Star Resources Ltd............ 195,000
75,000 Homestake Mining Co.................. 1,153,125
38,000 Newmont Gold Co...................... 1,368,000
70,000 Newmont Mining Corp.................. 2,642,500
200,000 Santa Fe Pacific Gold Corp........... 1,975,000
--------------
12,312,375
--------------
PLATINUM & PALLADIUM
55,000 Stillwater Mining Co.*............... 914,375
--------------
SILVER
91,040 Coeur D'Alene Mines Corp............. 1,536,300
90,000 Hecla Mining Co.*.................... 663,750
--------------
2,200,050
--------------
TOTAL UNITED STATES.................. 17,683,175
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $52,959,092)........ 49,145,722
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (6.3%)
$ 500 U.S. Treasury Note
7.875% due 01/15/98.................. $ 522,422
1,325 U.S. Treasury Note
7.875% due 11/15/99.................. 1,422,305
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------------------------------------------------------
<C> <S> <C>
$ 500 U.S. Treasury Note
8.75% due 08/15/00................... $ 560,156
900 U.S. Treasury Note
7.50% due 05/15/02................... 977,203
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $3,235,808)......... 3,482,086
--------------
SHORT-TERM INVESTMENTS (a) (4.9%)
U.S. GOVERNMENT AGENCIES
2,725 Federal Home Loan Mortgage Corp.
5.65% to 5.82% due 11/01/95 to
11/02/95
(Amortized Cost $2,724,871).......... 2,724,871
--------------
TOTAL INVESTMENTS
(IDENTIFIED COST $58,919,771)
(b).......................... 99.8% 55,352,679
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES........ 0.2 95,605
----- -----------
NET ASSETS................... 100.0% $55,448,284
----- -----------
----- -----------
<FN>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes is $59,387,630; the
aggregate gross unrealized appreciation is $3,020,119 and the aggregate
gross unrealized depreciation is $7,055,070, resulting in net unrealized
depreciation of $4,034,951.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $58,919,771)............................. $55,352,679
Cash........................................................ 46,480
Receivable for:
Investments sold........................................ 296,690
Shares of beneficial interest sold...................... 140,878
Interest................................................ 100,320
Dividends............................................... 46,700
Prepaid expenses and other assets........................... 25,399
-----------
TOTAL ASSETS........................................... 56,009,146
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 348,303
Plan of distribution fee................................ 52,813
Shares of beneficial interest repurchased............... 43,515
Investment management fee............................... 42,250
Accrued expenses and other payables......................... 73,981
-----------
TOTAL LIABILITIES...................................... 560,862
-----------
NET ASSETS:
Paid-in-capital............................................. 58,446,449
Net unrealized depreciation................................. (3,567,018)
Accumulated net investment loss............................. (30,895)
Accumulated undistributed net realized gain................. 599,748
-----------
NET ASSETS............................................. $55,448,284
-----------
-----------
NET ASSET VALUE PER SHARE,
5,676,294 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.77
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $44,966 foreign withholding tax).......... $ 554,607
Interest.................................................... 471,146
-----------
TOTAL INCOME........................................... 1,025,753
-----------
EXPENSES
Plan of distribution fee.................................... 646,161
Investment management fee................................... 516,929
Transfer agent fees and expenses............................ 105,850
Professional fees........................................... 66,179
Shareholder reports and notices............................. 50,614
Custodian fees.............................................. 29,064
Trustees' fees and expenses................................. 21,472
Organizational expenses..................................... 18,336
Registration fees........................................... 17,910
Other....................................................... 4,558
-----------
TOTAL EXPENSES......................................... 1,477,073
-----------
NET INVESTMENT LOSS.................................... (451,320)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................. 1,085,755
Foreign exchange transactions........................... (205)
-----------
TOTAL GAIN............................................. 1,085,550
-----------
Net change in unrealized appreciation on:
Investments............................................. (9,565,996)
Translation of other assets and liabilities denominated
in foreign currencies................................. 64
-----------
TOTAL DEPRECIATION..................................... (9,565,932)
-----------
NET LOSS............................................... (8,480,382)
-----------
NET DECREASE................................................ $(8,931,702)
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................... $ (451,320) $ (575,765)
Net realized gain........................................... 1,085,550 1,811,762
Net change in unrealized appreciation....................... (9,565,932) 866,334
---------------- ----------------
NET INCREASE (DECREASE)................................ (8,931,702) 2,102,331
Distributions from net realized gain........................ (1,383,398) (85,434)
Net increase (decrease) from transactions in shares of
beneficial interest....................................... (7,680,413) 26,223,045
---------------- ----------------
TOTAL INCREASE (DECREASE).............................. (17,995,513) 28,239,942
NET ASSETS:
Beginning of period......................................... 73,443,797 45,203,855
---------------- ----------------
END OF PERIOD
(INCLUDING A NET INVESTMENT LOSS OF $30,895 AND $0,
RESPECTIVELY)........................................... $ 55,448,284 $73,443,797
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Precious Metals and Minerals Trust (the "Fund") is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund was organized as a
Massachusetts business trust on December 28, 1989 and commenced operations on
August 6, 1990.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American 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 by the Trustees; (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; (3) when market quotations are not readily available, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); and (4) 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.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. 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 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
46
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995, CONTINUED
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.
D. 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.
E. 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 that 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.
F. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Fund in the amount of
approximately $120,000 and was reimbursed for the full amount thereof. Such
expenses were fully amortized as of August 5, 1995.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays a management fee,
accrued daily and payable monthly, by applying the annual rate of 0.80% to the
net assets of the Fund determined as of the close of each business day.
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
47
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995, CONTINUED
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 daily and payable
monthly, at an annual rate of 1.0% 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 gain 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, the
account executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other employees or selected dealers 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 be compensated under the Plan for its opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred by
the Distributor but not yet recovered, may be recovered through future
distribution fees from the Fund and contingent deferred sales charges from the
Fund's shareholders.
The Distributor has informed the Fund that for the year ended October 31, 1995,
it received approximately $234,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares. The Fund's shareholders pay such
charges which are not an expense of the Fund.
48
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995, CONTINUED
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, 1995 aggregated
$13,945,439 and $22,089,007, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $505,313 and $506,172,
respectively.
For the year ended October 31, 1995, the Fund incurred brokerage commissions of
$22,154 with DWR for portfolio transactions executed on behalf of the Fund. At
October 31, 1995, the Fund's receivable for investments sold included an
unsettled trade with DWR of $77,247.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At October 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $13,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 10,016,172 $ 104,853,425 11,161,794 $129,170,304
Reinvestment of distributions.................................... 130,623 1,296,062 6,713 77,805
----------- -------------- ----------- ------------
10,146,795 106,149,487 11,168,507 129,248,109
Repurchased...................................................... (10,882,589) (113,829,900) (8,942,956) (103,025,064)
----------- -------------- ----------- ------------
Net increase (decrease).......................................... (735,794) $ (7,680,413) 2,225,551 $ 26,223,045
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of October 31, 1995, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to a net operating loss. To reflect
reclassifications arising from permanent book/tax differences for the year ended
October 31, 1995, paid-in-capital was charged $378,237, accumulated
undistributed net realized gain was charged $42,188 and accumulated net
investment loss was credited $420,425.
49
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
AUGUST 6,
1990*
FOR THE YEAR ENDED OCTOBER 31 THROUGH
----------------------------------------------------- OCTOBER
1995 1994 1993 1992 1991 31, 1990
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period............... $ 11.45 $ 10.80 $ 7.87 $ 8.59 $ 8.57 $ 10.00
--------- --------- --------- --------- --------- ---------
Net investment income (loss)....... (0.08) (0.06) (0.04) (0.05) 0.06 0.05
Net realized and unrealized gain
(loss)............................ (1.38) 0.73 2.97 (0.62) 0.03 (1.48)
--------- --------- --------- --------- --------- ---------
Total from investment operations... (1.46) 0.67 2.93 (0.67) 0.09 (1.43)
--------- --------- --------- --------- --------- ---------
Less dividends and distributions
from:
Net investment income........... -- -- -- (0.04) (0.07) --
Net realized gain............... (0.22) (0.02) -- (0.01) -- --
--------- --------- --------- --------- --------- ---------
Total dividends and
distributions..................... (0.22) (0.02) -- (0.05) (0.07) --
--------- --------- --------- --------- --------- ---------
Net asset value, end of period..... $ 9.77 $ 11.45 $ 10.80 $ 7.87 $ 8.59 $ 8.57
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN+........... (12.78)% 6.18% 37.23% (7.97)% 1.23% (14.30)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 2.29% 2.28% 2.79% 3.30% 2.18%(4) 1.49%(2)(3)
Net investment income (loss)....... (0.70)% (0.87)% (1.07)% (0.74)% 0.93%(4) 2.99%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $55,448 $73,444 $45,204 $15,135 $11,246 $5,843
Portfolio turnover rate............ 23% 46% 25% 9% 11% -- %(1)
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager (after application of the Fund's expense limitation),
the above annualized expense and net investment income ratios would have
been 3.50% and 0.98%, respectively.
(4) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager (after application of the Fund's expense limitation),
the above annualized expense and net investment income ratios would have
been 3.50% and (0.39)%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER PRECIOUS METALS AND MINERALS TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER PRECIOUS METALS AND MINERALS 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 Precious Metals and
Minerals Trust (the "Fund") at October 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended and for the period August 6, 1990 (commencement of
operations) through October 31, 1990, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
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, 1995 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 14, 1995
- --------------------------------------------------------------------------------
1995 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended October 31, 1995, the Fund paid to
shareholders $0.21 per share from long-term capital gains.
51
