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PROSPECTUS
JANUARY 12, 1994
Dean Witter Premier Income Trust (the "Fund") is an open-end,
diversified management investment company, whose investment objective is to earn
a high level of current income consistent with low volatility of principal. The
Fund seeks to achieve its investment objective by investing primarily in high
quality fixed rate and adjustable rate mortgage-backed securities and other
asset-backed securities which either are issued or guaranteed by the United
States Government, its agencies or instrumentalities, or rated Aaa by Moody's
Investors Service, Inc. or AAA by Standard & Poor's Corporation or, if not
rated, determined to be of comparable quality. See "Investment Objective and
Policies."
Pursuant to a Plan of Distribution pursuant to Rule 12b-1 under
the Investment Company Act of 1940, the Fund may reimburse the Distributor, in
an amount equal to payments not exceeding the annual rate of 0.20% of the
average daily net assets of the Fund, for specific expenses incurred in
promoting the distribution of the Fund's shares.
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 January 12, 1994, 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
PREMIER INCOME TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR
(800) 526-3143
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
Investment Restrictions/14
Purchase of Fund Shares/15
Shareholder Services/17
Redemptions and Repurchases/19
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 Distributors Inc.
Distributor
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PROSPECTUS SUMMARY
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<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 investing primarily in high-quality fixed
rate and adjustable rate mortgage-backed securities and in asset-backed securities.
Shares Shares of beneficial interest with $0.01 par value (see page 22).
Offered
Offering The price of the shares offered by this prospectus varies with the changes in the value of the
Price Fund's investments. The offering price, determined once daily as of 4:00 p.m., New York time, on
each day that the New York Stock Exchange is open, is equal to the net asset value plus a sales
charge of 3.0% of the offering price, scaled down on purchases of $100,000 or over (see page 15).
Minimum Minimum initial investment, $1,000. Minimum subsequent investment, $100 (see page 15).
Purchase
Investment The investment objective of the Fund is to earn a high level of current income consistent with
Objective low volatility of principal.
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its
Manager and wholly-owned subsidiary, Dean Witter Services Company Inc., serve in various investment
Sub-Advisor management, advisory, management and administrative capacities to seventy-nine investment
companies and other portfolios with assets of approximately $70.7 billion at November 30, 1993.
BlackRock Financial Management L.P. (the "Sub-Advisor") has been retained by the Investment
Manager to provide investment advice and manage the Fund's portfolio. The Sub-Advisor currently
serves as the investment adviser to fixed income investors in the United States and overseas
through funds with combined net assets in excess of $18 billion (see page 5).
Management The Investment Manager receives a monthly fee at the annual rate of 0.50% of daily net assets.
Fee The Sub-Advisor receives a monthly fee from the Investment Manager equal to 40% of the Investment
Manager's monthly fee (see page 5).
Dividends Income dividends are declared daily and paid monthly; capital gains distributions, if any, are
paid at least annually. Income dividends and capital gains distributions are automatically
reinvested in additional shares at net asset value unless the shareholder elects to receive cash.
Plan of The Fund is authorized to reimburse Dean Witter Distributors Inc. (the "Distributor") for
Distribution specific expenses incurred in promoting the distribution of the Fund's shares pursuant to a Plan
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940. Reimbursement
may in no event exceed an amount equal to payments at the annual rate of 0.20 of 1% of average
daily net assets of the Fund (see page 16). The Distributor also receives a sales charge of 3% of
the offering price.
Special The net asset value of the Fund's shares will fluctuate with changes in the market value of its
Risk portfolio securities. Mortgage-backed and asset-backed securities have different characteristics
Considerations than traditional debt securities, primarily in that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time (see page 7).
Mortgage-backed and asset-backed securities generally decrease in value as a result of increases
in interest rates and may benefit less than other fixed-income securities from declining interest
rates because of prepayment risks. The types of mortgage-backed securities in which the Fund may
invest include derivative products such as collaterized mortgage obligations and stripped
mortgage-backed securities, which are highly sensitive to changes in prepayment and interest
rates and have special characteristics and risks (see pages 8 and 9). Asset-backed securities
involve certain risks not posed by mortgage-backed securities, resulting mainly from the fact
that asset-backed securities do not usually contain the complete benefit of a security interest
in the related collateral (see page 10). In addition, the Fund may utilize certain investment
techniques, including options and futures for hedging purposes, and the use of leverage,
including reverse repurchase agreements and dollar rolls, which entail additional risks (see
pages 11-13).
Reduced Right of Accumulation; Letter of Intent; Automatic Investment of Dividends and Distributions;
Sales EasyInvest-SM-; Systematic Withdrawal Plan; Exchange Privilege (see pages 16-19).
Charges and
Shareholder
Services
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION.
2
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
year ended October 31, 1993.
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................................... 3.0%
Maximum Sales Charge Imposed on Reinvested Dividends.................................... None
Deferred Sales Charge................................................................... None
Redemption Fees......................................................................... None
Exchange Fee............................................................................ None
ANNUAL FUND EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fees......................................................................... 0.50%
12b-1 Fees*............................................................................. 0.19%
Other Expenses.......................................................................... 0.91%
Total Fund Expenses..................................................................... 1.60%
</TABLE>
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* THE 12B-1 FEE IS CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES.
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<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.......... $ 46 $ 79 $ 114 $ 214
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE MORE 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" and "Purchase of Fund Shares."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period and the data relating to debt outstanding
have been audited by Price Waterhouse, independent accountants. This data should
be read in conjunction with the financial statements, notes thereto, and the
unqualified report of independent accountants which are contained in the
Statement of Additional Information. Further information about the performance
of the Fund is contained in the Fund's Annual Report to Shareholders, which may
be obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 1, 1991*
ENDED ENDED THROUGH
OCTOBER 31, 1993 OCTOBER 31, 1992 OCTOBER 31, 1991
----------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $9.69 $9.95 $9.60
-------- ----------------- -----------------
Net investment income......................... 0.73 0.71 0.26
Net realized and unrealized gain (loss) on
investments.................................. (0.45) (0.21) 0.37
-------- ----------------- -----------------
Total from investment operations................ 0.28 0.50 0.63
-------- ----------------- -----------------
Less dividends and distributions:
Dividends from net investment income.......... (0.61) (0.71) (0.26)
Distribution from net realized gain on
investments.................................. (0.18) (0.05) (0.02)
-------- ----------------- -----------------
Total dividends and distributions............... (0.79) (0.76) (0.28)
-------- ----------------- -----------------
Net asset value, end of period.................. $9.18 $9.69 $9.95
-------- ----------------- -----------------
-------- ----------------- -----------------
TOTAL INVESTMENT RETURN+.......................... 2.87% 5.18% 6.41%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........ $90,260 $154,860 $132,219
Ratio of expenses to average net assets:
Operating expenses............................ 0.95% 0.99% 0.85%(2)
Interest expense.............................. 0.65% 0.61% 0.84%(2)
Total expenses.............................. 1.60% 1.60% 1.69%(2)(3)
Ratio of net investment income to average net
assets........................................... 7.32% 7.05% 7.50%(2)(3)
Portfolio turnover rate........................... 412% 254% 91%
<FN>
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+ DOES NOT REFLECT THE DEDUCTION OF SALES LOAD.
* DATE OF COMMENCEMENT OF OPERATIONS.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE ASSUMED BY THE INVESTMENT
MANAGER, THE ABOVE ANNUALIZED EXPENSE RATIO WOULD HAVE BEEN 1.85% ($.065
PER SHARE) AND THE ABOVE ANNUALIZED NET INVESTMENT INCOME RATIO WOULD HAVE
BEEN 7.34% ($.253 PER SHARE).
</TABLE>
<TABLE>
<CAPTION>
AVERAGE AMOUNT AVERAGE NUMBER AVERAGE AMOUNT OF
AMOUNT OF DEBT OF DEBT OF FUND SHARES FUND'S DEBT PER
OUTSTANDING AT OUTSTANDING DURING OUTSTANDING DURING SHARE
YEAR END OF PERIOD THE PERIOD THE PERIOD DURING THE PERIOD
- ---------------------------------------------- -------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
1993.......................................... $ 10,855,000 $ 24,425,664 13,722,283 $ 1.78
1992.......................................... $ 8,600,000 $ 20,123,140 14,571,640 $ 1.38
1991.......................................... $ 34,909,000 $ 17,673,706 12,163,651 $ 1.45
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
IN THE STATEMENT OF ADDITIONAL INFORMATION
4
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THE FUND AND ITS MANAGEMENT
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Dean Witter Premier Income 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 March 27, 1991.
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 seventy-nine investment companies, twenty-seven of
which are listed on the New York Stock Exchange, with combined total assets of
approximately $68.7 billion at November 30, 1993. The Investment Manager also
manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $2.0 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and supervise the investment of the Fund's
assets. InterCapital has retained Dean Witter Services Company Inc. to perform
the aforementioned administrative services for the Fund.
Under a Sub-Advisory Agreement between BlackRock Financial Management L.P.
(the "Sub-Advisor") and the Investment Manager, the Sub-Advisor provides the
Fund with investment advice and portfolio management relating to the Fund's
investments in portfolio securities, subject to the overall supervision of the
Investment Manager. The Fund's Trustees review the various services provided by
or under the direction of the Investment Manager and the Sub-Advisor 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.
The Sub-Advisor, whose address is 345 Park Avenue, New York, New York 10154,
is a Delaware limited partnership organized in April, 1988 by Laurence D. Fink,
Ralph L. Schlosstein and The Blackstone Group (a private investment bank). The
Sub-Advisor's general partners are Messrs. Fink and Schlosstein and Blackstone
Financial Management Inc. (all the stock of which is owned by partners of The
Blackstone Group). The Sub-Advisor serves as investment adviser to fixed-income
investors in the U.S. and overseas with combined net assets in excess of $18
billion as of November 30, 1993.
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 0.50% to the Fund's net assets. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Advisor monthly compensation equal to 40% of its monthly compensation.
For the fiscal year ended October 31, 1993, the Fund accrued total
compensation to the Investment Manager amounting to 0.50% of the Fund's average
daily net assets (of which 40% was accrued to the Sub-Advisor by the Investment
Manager) and the Fund's total expenses amounted to 1.60% of the Fund's average
daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to earn a high level of current
income consistent with low volatility of principal. The Fund's investment
objective is a fundamental policy and may not be changed without shareholder
approval. There is no assurance that the objective will be achieved. The
5
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following policies may be changed by the Board of Trustees without shareholder
approval.
The Fund seeks to achieve its investment objective by investing under normal
circumstances at least 65% of its total assets in (i) fixed rate and adjustable
rate mortgage-backed securities ("Mortgage-Backed Securities") and (ii)
securities backed by other assets, such as automobile or credit card receivables
and home equity loans ("Asset-Backed Securities"). The Fund will only purchase
Mortgage-Backed Securities and Asset-Backed Securities which are issued or
guaranteed by the United States Government, its agencies or instrumentalities or
are rated Aaa by Moody's Investors Service, Inc. ("Moody's") or AAA by Standard
& Poor's Corporation ("S&P") or, if not rated, determined to be of comparable
quality by the Investment Manager and the Sub-Advisor. (Currently there are no
Asset-Backed Securities issued or guaranteed by the United States Government,
its agencies or instrumentalities.) The Fund expects that under normal
circumstances the market value dollar weighted average life (or period until the
next reset date) of the Fund's portfolio securities will be no greater than five
years.
The Fund seeks to achieve low volatility by investing in a diversified
portfolio of securities which the Investment Manager and the Sub-Advisor believe
will, in the aggregate, be resistant to significant fluctuations in market
value. The Investment Manager and Sub-Advisor believe that the Fund's policies
of purchasing shorter term Mortgage-Backed and Asset-Backed Securities will
reduce the volatility of the Fund's net asset value over the long term. Although
the values of fixed-income securities generally increase during periods of
declining interest rates and decrease during periods of increasing interest
rates, the extent of these fluctuations has historically generally been smaller
for short term securities than for securities with longer maturities.
Conversely, the yield available on short term securities has also historically
been lower on average than those available from longer term securities.
While the Fund invests primarily in Mortgage-Backed Securities and
Asset-Backed Securities, under ordinary circumstances it may invest up to 35% of
its total assets in (i) U.S. Government securities (securities guaranteed as to
principal and interest by the United States or its agencies or
instrumentalities), (ii) corporate debt securities, including adjustable rate
securities, rated Aaa by Moody's or AAA by S&P or, if unrated, determined to be
of comparable quality by the Fund's Trustees, (iii) with respect to up to 5% of
the Fund's total assets, high quality municipal securities, including zero
coupon securities, with the highest rating by Moody's or S&P, or (iv) money
market instruments. U.S. Government securities in which the Fund may invest
include Treasury bills, notes and bonds, including zero coupon securities. Money
market instruments in which the Fund may invest are securities issued or
guaranteed by the U.S. Government (Treasury bills, notes and bonds, including
zero coupon securities); bank obligations; Eurodollar certificates of deposit;
obligations of savings institutions; fully insured certificates of deposit; and
commercial paper rated within the two highest grades by Moody's or S&P or, if
not rated, issued by a company having an outstanding debt issue rated AAA by S&P
or Aaa by Moody's.
In an effort to increase investment return or to hedge the Fund's portfolio,
the Fund may engage in various investment techniques, including reverse
repurchase agreements, dollar rolls, purchasing and selling call and put
options, entering into interest rate futures contracts and related options,
purchasing securities on a when-issued, delayed delivery or forward commitment
basis and lending portfolio securities (see "Other Investment Policies" below).
There may be periods during which, in the opinion of the Investment Manager
and the Sub-Advisor, market conditions warrant reduction of some or all of the
Fund's securities holdings. During such periods, the Fund may adopt a temporary
"defensive" posture in which greater than 35% of its total assets are invested
in U.S. Government securities, money market instruments or cash.
6
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MORTGAGE-BACKED SECURITIES
Mortgage-Backed Securities are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
secured by real property. The term Mortgage-Backed Securities as used herein
includes adjustable rate mortgage securities and derivative mortgage products
such as collateralized mortgage obligations, stripped Mortgage-Backed Securities
and other products described below.
There are currently three basic types of Mortgage-Backed Securities: (i)
those issued or guaranteed by the United States Government or one of its
agencies or instrumentalities, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC") (securities issued by GNMA, but
not those issued by FNMA or FHLMC, are backed by the "full faith and credit" of
the United States); (ii) those issued by private issuers that represent an
interest in or are collateralized by Mortgage-Backed Securities issued or
guaranteed by the United States Government or one of its agencies or
instrumentalities; and (iii) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or Mortgage-Backed
Securities without a government guarantee but usually having some form of
private credit enhancement.
The Fund will invest in mortgage pass-through securities representing
participation interests in pools of residential mortgage loans originated by
United States governmental or private lenders and guaranteed, to the extent
provided in such securities, by the United States Government or one of its
agencies or instrumentalities. Such securities, which are ownership interests in
the underlying mortgage loans, differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually semiannually)
and principal payments at maturity or on specified call dates. Mortgage
pass-through securities provide for monthly payments that are a "pass-through"
of the monthly interest and principal payments (including any prepayments) made
by the individual borrowers on the pooled mortgage loans, net of any fees paid
to the guarantor of such securities and the servicer of the underlying mortgage
loans.
The guaranteed mortgage pass-through securities in which the Fund invests
include those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA certificates
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. FNMA is a federally chartered,
privately owned corporation and FHLMC is a corporate instrumentality of the
United States. FNMA and FHLMC certificates are not backed by the full faith and
credit of the United States but the issuing agency or instrumentality has the
right to borrow, to meet its obligations, from an existing line of credit with
the U.S. Treasury.
Certificates for Mortgage-Backed Securities evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the payment of
principal and interest on mortgages underlying the certificates, whether or not
such amounts are collected by the issuer on the underlying mortgages.
ADJUSTABLE RATE MORTGAGE SECURITIES. The Fund may also invest in adjustable
rate mortgage securities ("ARMs"), which are pass-through mortgage securities
collateralized by mortgages with adjustable rather than fixed rates. ARMs
eligible for inclusion in a mortgage pool generally provide for a fixed initial
mortgage interest rate for either the first three, six, twelve or thirteen
scheduled monthly payments. Thereafter, the interest rates are subject to
periodic adjustment based on changes to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for additional limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient
7
<PAGE>
to pay the interest accruing on an ARM, any such excess interest is added to the
principal balance of the mortgage loan, which is repaid through future monthly
payments. If the monthly payment for such an instrument exceeds the sum of the
interest accrued at the applicable mortgage interest rate and the principal
payment required at such point to amortize the outstanding principal balance
over the remaining term of the loan, the excess is utilized to reduce the then
outstanding principal balance of the ARM.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES. Private mortgage pass-through
securities are structured similarly to the GNMA, FNMA and FHLMC mortgage
pass-through securities and are issued by originators of and investors in
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. These securities usually are backed by a pool of conventional fixed
rate or adjustable rate mortgage loans. Since private mortgage pass-through
securities typically are not guaranteed by an entity having the credit status of
GNMA, FNMA and FHLMC, such securities generally are structured with one or more
types of credit enhancement. Types of credit enhancements are described under
"Asset-Backed Securities" below.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTICLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by GNMA, FNMA or FHLMC Certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multiclass pass-through
securities. CMOs may be issued by agencies or instrumentalities of the United
States government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing. The
issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage
Investment Conduit ("REMIC"). REMICs include governmental and/or private
entities that issue a fixed pool of mortgages secured by an interest in real
property. REMICs are similar to CMOs in that they issue multiple classes of
securities, but unlike CMOs, which are required to be structured as debt
securities, REMICs may be structured as indirect ownership interests in the
underlying assets of the REMICs themselves. However, there are no effects on the
Fund from investing in CMOs issued by entities that have elected to be treated
as REMICs, and all future references to CMOs shall also be deemed to include
REMICs. In addition, in reliance upon an interpretation by the staff of the
Securities and Exchange Commission, the Fund may invest without limitation in
CMOs and other Mortgage-Backed Securities which are not by definition excluded
from the provisions of the Investment Company Act of 1940, as amended, and which
have obtained exemptive orders from such provisions from the Securities and
Exchange Commission.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis. Certain CMOs may have variable or floating
interest rates and others may be stripped (securities which provide only the
principal or interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of a CMO series in a number of different ways.
Gen-
8
<PAGE>
erally, the purpose of the allocation of the cash flow of a CMO to the various
classes is to obtain a more predictable cash flow to the individual tranches
than exists with the underlying collateral of the CMO. As a general rule, the
more predictable the cash flow is on a CMO tranche, the lower the anticipated
yield will be on that tranche at the time of issuance relative to prevailing
market yields on Mortgage-Backed Securities. As part of the process of creating
more predictable cash flows on most of the tranches in a series of CMOs, one or
more tranches generally must be created that absorb most of the volatility in
the cash flows on the underlying mortgage loans. The yields on these tranches
are generally higher than prevailing market yields on Mortgage-Backed Securities
with similar maturities. As a result of the uncertainty of the cash flows of
these tranches, the market prices of and yield on these tranches tend to be more
volatile.
The Fund also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped Mortgage-Backed Securities are
derivative multiclass mortgage securities. Stripped Mortgage-Backed Securities
may be issued by agencies or instrumentalities of the United States government,
or by private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing.
Stripped Mortgage-Backed Securities usually are structured with two classes
that receive different proportions of the interest and principal distribution on
a pool of Mortgage Assets. A common type of Stripped Mortgage-Backed Securities
will have one class receiving some of the interest and most of the principal
from the Mortgage Assets, while the other class will receive most of the
interest and the remainder of the principal. In the most extreme case, one class
will receive all of the interest (the interest-only or "IO" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). PO classes generate income through the accretion of the deep discount at
which such securities are purchased, and, while PO classes do not receive
periodic payments of interest, they receive monthly payments associated with
scheduled amortization and principal prepayment from the Mortgage Assets
underlying the PO class. The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying Mortgage Assets, and a rapid rate of principal payments may
have a material adverse effect on the Fund's yield to maturity. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial investment in these
securities even if the securities are rated Aaa by Moody's or AAA by S&P.
The Fund may purchase Stripped Mortgage-Backed Securities for income, or for
hedging purposes to protect the Fund's portfolio against interest rate
fluctuations. For example, since an IO class will tend to increase in value as
interest rates rise, it may be utilized to hedge against a decrease in value of
other fixed-income securities in a rising interest rate environment. The Fund
understands that the staff of the Securities and Exchange Commission considers
privately issued Stripped Mortgage-Backed Securities representing interest only
or principal only components of U.S. Government or other debt securities to be
illiquid securities. The Fund will treat such securities as illiquid so long as
the staff maintains such position. Stripped Mortgage-Backed Securities issued by
the U.S. Government or its agencies, and which are backed by fixed-rate
mort-
9
<PAGE>
gages, will be treated as liquid provided they are so determined by, or under
procedures approved by, the Board of Trustees. The Fund may not invest more than
10% of its total assets in illiquid securities (see "Investment Restrictions"
below).
ASSET-BACKED SECURITIES
The securitization techniques used to develop Mortgage-Backed Securities are
also applied to a broad range of other assets. Through the use of trusts and
special purpose corporations, various types of assets, primarily automobile and
credit card receivables and home equity loans, are being securitized in
pass-through structures similar to the mortgage pass-through structures
described above or in a pay-through structure similar to the CMO structure.
New instruments and variations of existing Mortgage-Backed Securities and
Asset-Backed Securities continue to be developed. The Fund may invest in any
such instruments or variations as may be developed, to the extent consistent
with its investment objective and policies and applicable regulatory
requirements.
TYPES OF CREDIT ENHANCEMENT. Mortgage-Backed Securities and Asset-Backed
Securities are often backed by a pool of assets representing the obligations of
a number of different parties. To lessen the effect of failures by obligors on
underlying assets to make payments, those securities may contain elements of
credit support, which fall into two categories: (i) liquidity protection and
(ii) protection against losses resulting from ultimate default by an obligor on
the underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from default ensures ultimate payment of the
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantees, insurance policies or letters of credit obtained
by the issuer or sponsor from third parties, through various means of
structuring the transaction or through a combination of such approaches. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk associated with the
underlying assets. Delinquencies or losses in excess of those anticipated could
adversely affect the return on an investment in a security. The Fund will not
pay any fees for credit support, although the existence of credit support may
increase the price of a security.
RISK FACTORS
Mortgage-Backed and Asset-Backed Securities have certain different
characteristics than traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. As a
result, if the Fund purchases such a security at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Alternatively, if the Fund purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. The Fund may invest a
portion of its assets in derivative Mortgage-Backed Securities such as Stripped
Mortgage-Backed Securities which are highly sensitive to changes in prepayment
and interest rates. The Investment Manager and the Sub-Advisor will seek to
manage these risks (and potential benefits) by investing in a variety of such
securities and through hedging techniques.
Mortgage-Backed Securities and Asset-Backed Securities, like all fixed
income securities, generally decrease in value as a result of increases in
interest rates. In addition, although generally the value of fixed-income
securities increases during periods of falling interest rates and, as stated
above, decreases during periods of rising interest rates, as a result of
prepayments and other factors, this is not always the case with respect to
Mortgage-Backed Securities and Asset-Backed Securities.
10
<PAGE>
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Fund are likely to be greater during a period
of declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Asset-Backed
Securities, although less likely to experience the same prepayment rates as
Mortgage-Backed Securities, may respond to certain of the same factors
influencing prepayments, while at other times different factors, such as changes
in credit use and payment patterns resulting from social, legal and economic
factors, will predominate. Mortgage-Backed Securities and Asset-Backed
Securities generally decrease in value as a result of increases in interest
rates and may benefit less than other fixed income securities from declining
interest rates because of the risk of prepayment.
There are certain risks associated specifically with CMOs. CMOs issued by
private entities are not U.S. Government securities and are not guaranteed by
any government agency, although the securities underlying a CMO may be subject
to a guarantee. Therefore, if the collateral securing the CMO, as well as any
third party credit support or guarantees, is insufficient to make payment, the
holder could sustain a loss. However, as stated above, the Fund will invest only
in CMOs which are rated AAA by S&P or Aaa by Moody's or, if unrated, are
determined to be of comparable quality. Also, a number of different factors,
including the extent of prepayment of principal of the Mortgage Assets, affect
the availability of cash for principal payments by the CMO issuer on any payment
date and, accordingly, affect the timing of principal payments on each CMO
class.
Asset-Backed Securities involve certain risks that are not posed by
Mortgage-Backed Securities, resulting mainly from the fact that Asset-Backed
Securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.
OTHER INVESTMENT POLICIES
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities, from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security at a specified price and at
a fixed time in the future, usually not more than seven days from the date of
purchase. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize those risks.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
11
<PAGE>
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund foregoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account with its custodian bank in
which it will maintain cash, U.S. Government securities or other liquid high
grade debt obligations equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar
rolls involve the risk that the market value of the securities the Fund is
obligated to repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a reverse repurchase agreement
or dollar roll files for bankruptcy or becomes insolvent, the Fund's use of the
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage, and are considered borrowings by the Fund. Under the
requirements of the Investment Company Act of 1940, as amended (the "Act"), the
Fund is required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. However, under normal
circumstances the Fund does not expect to engage in reverse repurchase
agreements and dollar rolls with respect to greater than 25% of the Fund's total
assets.
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. 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. The Fund will establish a segregated
account with its custodian bank in which it will maintain cash, U.S. Government
securities or other liquid high grade debt obligations equal in value to its
obligations in respect of when-issued or delayed delivery securities and forward
commitments. The Fund's ability to enter into such transactions is not otherwise
limited, but the Fund expects that under normal circumstances no more than 15%
of the Fund's total assets will be so invested.
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, U.S. Government
securities or other high grade debt securities, which are maintained in a
segregated account pursuant to applicable regulations and that are at least
equal to the market value, determined daily, of the loaned securities.
PRIVATE PLACEMENTS. The Fund may invest 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. 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
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<PAGE>
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.
OPTIONS AND FUTURES TRANSACTIONS. The Fund is permitted to enter into call
and put options on U.S. Treasury notes, bonds and bills which are listed on
Exchanges and written in over-the-counter transactions ("OTC options"). Listed
options are issued by the Options Clearing Corporation ("OCC"). OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the Fund. The Fund may purchase listed and
over-the-counter call and put options on U.S. Government securities and
Mortgage-Backed Securities in amounts equalling up to 5% of its total assets.
The Fund may purchase call and put options on securities which it holds (or has
the right to acquire) in its portfolio only for hedging purposes.
The Fund may also purchase and sell interest rate futures contracts
("futures contracts") that are traded on U.S. commodity exchanges on such
underlying securities as U.S. Treasury bonds, notes and bills, Eurodollar
instruments and Mortgage-Backed Securities. The Fund will purchase or sell
futures contracts only for the purpose of hedging its portfolio (or anticipated
portfolio) securities against changes in prevailing interest rates, and not for
speculative purposes.
The Fund may also purchase 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.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. Exchanges may limit the amount by
which the price of a futures contract may move on any day. If the price moves
equal the daily limit on successive days, then it may prove impossible to
liquidate a futures position until the daily limit moves have ceased.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Investment Manager or Sub-Advisor could be incorrect
in its expectations as to the direction or extent of various interest rate
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities. Another such risk is that the price of the futures
contract may not move in tandem with the change in prevailing interest rates
against which the Fund seeks a hedge. A correlation may 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. See the Statement of Additional Information
for further discussion of such risks.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager and the
Sub-Advisor with a view to achieving the Fund's investment objective. As a
result of the Fund's investment objective and policies, and the nature of the
Mortgage-Backed
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<PAGE>
Securities and Asset-Backed Securities markets, the Fund's portfolio turnover
rate may exceed 200%, but is not expected to exceed 300%. Short-term gains and
losses may result from such portfolio transactions. See "Dividends,
Distributions and Taxes" for a discussion of the tax implications of the Fund's
trading policy.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Investment Manager and the Sub-Advisor 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 views of Trustees of the Fund and
others regarding economic developments and interest rate trends; and the
Investment Manager's and Sub-Advisor's own analysis of factors they deem
relevant. The Fund is part of the Dean Witter family of mutual funds and is
managed by its Investment Manager, InterCapital, and by its Sub-Advisor,
BlackRock Financial Management ("BlackRock"). BlackRock manages in excess of $18
billion of net assets on behalf of individual and institutional investors,
including 21 closed-end funds and 3 open-end funds. Along with BlackRock's
portfolio management team, Scott Amero has been the Fund's primary portfolio
manager since its inception. Mr. Amero is a Partner of BlackRock and a member of
its Investment Strategy Committee, and is a specialist in the mortgage and short
duration sectors. His areas of expertise include asset-backed securities,
adjustable rate mortgage securities and other short duration mortgage products.
Prior to joining BlackRock in 1990, Mr. Amero was a Vice President in Fixed
Income Research at The First Boston Corporation, where he became the firm's
primary strategist for short duration securities.
Brokerage commissions are not normally charged on the purchase or sale of
Mortgage-Backed Securities or U.S. Government securities, but such transactions
generally involve costs in the form of spreads between bid and asked prices.
Orders for transactions in portfolio securities are placed for the Fund with a
number of brokers and dealers, which may include 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.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act.
The Fund may not:
1. With respect 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 25% or more of the value of its total assets in securities of
issuers in any one industry, except that the Fund will invest at least 25% of
its assets in Mortgage-Backed and Asset-Backed Securities under normal market
conditions. This restriction does not apply to obligations issued or
guaranteed by the United States Government or its agencies or
instrumentalities.
4. Invest more than 10% of its total assets in "illiquid securities" and
repurchase agreements which have a maturity of longer than seven days. The
staff of the Securities and Exchange Commission has taken the position that
OTC options are illiquid securities. The Investment Manager and Sub-Advisor
disagree with this position. Nevertheless, the Fund has agreed to treat OTC
options as illiquid securities for purposes of this investment restriction so
long as the staff maintains such position.
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<PAGE>
5. 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 Mortgage-Backed
Securities or Asset-Backed Securities or to any obligation of the United
States Government, its agencies or instrumentalities.
6. Purchase or sell commodities or commodities contracts except that the
Fund may purchase and sell interest rate futures contracts and related
options thereon.
7. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings. (For the purpose of this restriction, collateral
arrangements with respect to initial or variation margin for futures are not
deemed to be pledges of assets.)
8. Purchase securities on margin (but the Fund may obtain short-term
loans as are necessary for the clearance of transactions). The deposit or
payment by the Fund of initial or variation margin in connection with futures
contracts or related options thereon is not considered the purchase of a
security on margin.
9. Borrow money in excess of 33 1/3% of the Fund's total assets
(including the proceeds of the borrowings).
If a percentage restriction is adhered to at the time of investment (except
in the case of Restriction 9), 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.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager, pursuant to a
Distribution Agreement between the Fund and 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. Subsequent purchases of $100 or more
may be made by sending a check, payable to Dean Witter Premier Income Trust,
directly to Dean Witter Trust Company (the "Transfer Agent") at P.O. Box 1040,
Jersey City, NJ 07303 or by contacting an account executive of DWR or other
Selected Broker-Dealer. In the case of investments pursuant to systematic
payroll deduction plans (including individual retirement plans), the Fund, in
its discretion, may accept investments without regard to any minimum amounts
which would otherwise be required if the Fund has reason to believe that
additional investments will increase the investment in all accounts under such
plans to at least $1,000. Certificates for shares purchased will not be issued
unless 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" below),
plus a sales charge (expressed as a percentage of the offering price) on a
single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
----------------------------------------
PERCENTAGE APPROXIMATE
AMOUNT OF OF PUBLIC PERCENTAGE OF
SINGLE TRANSACTION OFFERING PRICE AMOUNT INVESTED
- ---------------------- ----------------- ---------------------
<S> <C> <C>
Less than $100,000.... 3.00% 3.09%
$100,000 but less than
$250,000............. 2.50 2.56
$250,000 but less than
$500,000............. 2.00 2.04
$500,000 but less than
$1,000,000........... 1.25 1.27
$1,000,000 and over... -0- -0-
</TABLE>
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his or her
own accounts;
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<PAGE>
(c) a trustee or other fiduciary purchasing shares for a single trust estate or
a single fiduciary account; (d) a pension, profit-sharing or other employee
benefit plan qualified or non-qualified under Section 401 of the Internal
Revenue Code; (e) tax-exempt organizations enumerated in Section 501(c)(3) or
(13) of the Internal Revenue Code; (f) employee benefit plans qualified under
Section 401 of the Internal Revenue Code of a single employer or of employers
who are "affiliated persons" of each other within the meaning of Section
2(a)(3)(c) of the Act and for investments in Individual Retirement Accounts of
employees of a single employer through Systematic Payroll Deduction Plans, or
(g) any other organized group of persons, whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
Shares of the Fund are sold through the Distributor on a normal five
business day settlement basis; that is, payment is due on the fifth business day
(settlement date) after the order is placed with the Distributor. Shares of the
Fund purchased through the Distributor are entitled to any dividends declared
beginning on the next business day following settlement date. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. Shares purchased through the Transfer Agent are entitled to any
dividends declared beginning on the next business day following receipt of an
order. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive capital gains
distributions if their order is received by the close of business on the day
prior to the record date for such distributions. The Fund and/or the Distributor
reserve the right to reject any purchase order.
REDUCED SALES CHARGE
RIGHT OF ACCUMULATION. Investors may benefit from a reduction of the sales
charges in accordance with the above schedule if the cumulative net asset value
of shares of the Fund purchased in a single transaction, together with shares
previously purchased which are held at the time of such transaction, amounts to
$100,000 or more.
The Distributor must be notified by the shareholder at the time a purchase
order is placed that the purchase qualifies for the reduced charge under the
Right of Accumulation. Similar notification must be made in writing by the
shareholder when such an order is placed by mail. The reduced sales charge will
not be granted if: (a) such notification is not furnished at the time of the
order; or (b) a review of the records of the Distributor or the Transfer Agent
fails to confirm the investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of shares of the Fund from the
Distributor. The cost of shares of the Fund which were previously purchased at a
price including a front-end sales charge during the 90-day period prior to the
date of receipt by the Distributor of the Letter of Intent, which are still
owned by the shareholder, may also be included in determining the applicable
reduction.
For further information concerning purchases of the Fund's shares, contact
the Distributor or consult the Statement of Additional Information.
PLAN OF DISTRIBUTION
The Fund has entered into a Plan of Distribution pursuant to Rule 12b-1
under the Act, whereby the expenses of certain activities and services by DWR
and others who engage in or support distribution of Fund shares or who service
shareholder accounts, including overhead and telephone expenses incurred in
connection with the distribution of the Fund's shares, are reimbursed.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed an amount equal to a payment
at the annual rate of 0.20 of 1% of the average daily net assets of the Fund.
Expenses incurred by the Distributor pursuant to the Plan in any fiscal year
will not be reimbursed by the Fund through payments
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<PAGE>
accrued in any subsequent fiscal year. No interest or other financial charges
will be incurred on any distribution expense incurred by the Distributor under
the Plan or on any unreimbursed expenses due to the Distributor pursuant to the
Plan. The fee payable pursuant to the Plan, equal to 0.20% of the Fund's average
daily net assets, is characterized as a service fee within the meaning of NASD
guidelines. The Fund accrued $251,868 to the Distributor, pursuant to the Plan
of Distribution, for the year ended October 31, 1993. This is an accrual at the
annual rate of 0.20% of the Fund's average daily net assets.
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 on each day that the New York Stock Exchange is open by
taking the value of all assets of the Fund, subtracting all its liabilities,
dividing by the number of shares outstanding and adjusting to the nearest cent.
The net asset value per share will not be determined on Good Friday and on such
other federal and non-federal holidays as are observed by the New York Stock
Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange is valued
at its last 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 closing
bid price, and (2) all portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price prior to the
time of valuation. When market quotations are not readily available, including
circumstances under which it is determined by the Investment Manager and/or the
Sub-Advisor that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees (valuation of securities for which market quotations are not
readily available may also be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors).
Certain of the Fund's portfolio securities for which reliable market
quotations are generally not readily available are valued by an outside pricing
service approved by the Fund's Trustees. The pricing service utilizes a
computerized grid matrix and/ or research and evaluations by its staff in
determining what it believes is the fair value of the portfolio securities
valued by such pricing service.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' fair value, in which case these
securities will be valued at their fair value as determined by the Trust
ees.
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. Each purchase of shares of the Fund is made
upon the condition that the Transfer Agent is thereby automatically appointed as
agent of the investor to receive all dividends and capital gains distributions
on shares owned by the investor. Such dividends and distributions will be paid
in shares of the Fund (or in cash if the shareholder so requests) at the net
asset value per share (without sales charge) on the monthly payment date, which
will be no later than the last business day of the month for which the dividend
or distribution is payable. Processing of dividend checks begins immediately
following the monthly payment date. Shareholders who have requested to receive
dividends in cash will normally receive their monthly dividend checks during the
first ten days of the following month.
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<PAGE>
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund.
SYSTEMATIC WITHDRAWAL PLAN. A 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 offering price. The plan provides for monthly or quarterly
(March, June, September, December) checks in any dollar amount, not less than
$25 or in any whole percentage of the account balances, on an annualized basis.
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.
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 front-end (at time of purchase) sales charge
("FESC funds"), for shares of Dean Witter Funds sold with a contingent deferred
sales charge ("CDSC funds"), and for shares of Dean Witter Short-Term U.S.
Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean Witter Short-Term
Bond Fund and five Dean Witter Funds which are money market funds (the foregoing
eight non-FESC and non-CDSC funds are hereinafter referred to as the "Exchange
Funds"). Exchanges may be made after the shares of the Fund acquired by purchase
(not by exchange or dividend reinvestment) have been held for thirty days. There
is no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment. However, shares of CDSC funds, including shares acquired in
exchange for shares of FESC funds, may not be exchanged for shares of FESC
funds. Thus, shareholders who exchange their Fund shares for shares of CDSC
funds may subsequently exchange those shares for shares of other CDSC funds or
Exchange Funds but may not reacquire FESC fund shares by exchange.
An exchange to another FESC fund, to a CDSC fund or to an Exchange Fund that
is not a money-market fund is on the basis of the next calculated net asset
value per share of each fund after the exchange order is received. When
exchanging into a money market fund from the Fund, shares of the Fund are
redeemed out of the Fund at their next calculated net asset value and the
proceeds of the redemption are used to purchase shares of the money market fund
at their net asset value determined the following business day. Subsequent
exchanges between any of the Exchange Funds, FESC funds and CDSC funds can be
effected on the same basis (except that CDSC fund shares may not be exchanged
for shares of FESC funds). Shares of a CDSC fund acquired in exchange for shares
of an FESC fund (or in exchange for shares of other Dean Witter Funds for which
shares of an FESC fund have been exchanged) are not subject to any contingent
deferred sales charge 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
Wit-
18
<PAGE>
ter Funds for which shares of the Fund may be exchanged, upon such notice as may
be required by applicable regulatory agencies. Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on exchange of shares of the Fund
pledged in their margin account.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization form,
copies of which may be obtained from the Transfer Agent to initiate an exchange.
If the Authorization Form is used, exchanges may be made in writing or by
contacting the Transfer Agent at (800) 526-3143 (toll free). The Fund will
employ reasonable procedures to confirm that exchange instructions communicated
over the telephone are genuine. Such procedures may include requiring various
forms of personal identification such as name, mailing address, social security
or other tax identification number and DWR or other Selected Broker-Dealer
account number (if any). Telephone instructions may also be recorded. If such
procedures are not employed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the Dean Witter
Funds in the past.
For additional information about the Exchange Privilege, shareholders should
contact their DWR or other Selected Broker-Dealer account executive or the
Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at
their current net asset value per share (without any redemption or other
charge). If shares are held in a shareholder's account without a share
certificate, a written request for redemption is required. If certificates are
held by the shareholder(s), the shares may be redeemed by surrendering the
certificate(s) with a written request for redemption along with any additional
information required by the Transfer Agent.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may 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 determined (see "Purchase of Fund Share -- Determination of Net Asset
Value") after such repurchase order is received. Repurchase orders received by
DWR and other Selected Broker-Dealers prior to 4:00 p.m., New York time, on any
business day will be priced at the net asset value per share that is based on
that day's close. Repurchase orders received after 4:00 p.m., New York time,
will be priced on the basis of the next business day's close. Selected Broker-
Dealers may charge for their services in connection with the repurchase, but the
Fund, DWR and the Distributor do not charge a fee. Payment for shares
19
<PAGE>
repurchased may be made by the Fund to DWR and other Selected Broker-Dealers for
the account of the shareholder. The offer by DWR and other Selected
Broker-Dealers to repurchase shares from dealers or shareholders may be
suspended 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 at
times 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 30 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 their net asset value (without a sales charge) next
determined after a reinstatement request, together with the proceeds, is
received by the Transfer Agent.
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 as a result of redemptions or repurchases, or such lesser amount
as may be fixed by the Board of Trustees. However, before the Fund redeems such
shares and sends the proceeds to the shareholder, it will notify the shareholder
that the value of the shares is less than $100 and allow the shareholder sixty
days to make an additional investment in an amount which will increase the value
of the account to $100 or more before the redemption is processed.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends from net
investment income on each day the New York Stock Exchange is open for business
to shareholders of record as of the close of business the preceding business
day. Such dividends are paid monthly. The Fund intends to distribute all of the
Fund's net investment income on an annual basis.
Net realized short-term and long-term capital gains, if any, will be
distributed at least once per year, although the Investment Manager reserves the
right to retain a portion of long-term gains for reinvestment.
All dividends and 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 be paid in cash. (See
"Shareholder Services -- Automatic Investment of Dividends and Distributions".)
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
federal income tax on such income and capital gains.
20
<PAGE>
Gains or losses on the Fund's transactions in listed options on securities,
futures and options on futures may be treated as 60% long-term 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 short-term gains being available for
distribution.
Shareholders who are required to pay taxes on their income will normally
have to pay federal income taxes, and any applicable state and/or local income
taxes, on the dividends and distributions they receive from the Fund. Such
dividends and distributions, to the extent that they are derived from net
investment income and net short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. Any dividends
declared in the last quarter of any calendar year which are paid in the
following year prior to February 1 will be deemed received by the shareholder in
the prior year.
After the end of the calendar year, shareholders will be sent full
information on their dividends and any capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as capital gains and any portion treated as a non-taxable
return of capital. Any such return of capital will reduce the shareholders' tax
basis in their shares. To avoid being subject to a 31% federal backup
withholding tax on taxable dividends, distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers must
be furnished and certified as to their accuracy.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the corporate dividends received deduction.
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 advisor. Shareholders will be notified annually by the Fund as to
the Federal tax status of dividends and distributions paid or retained by the
Fund.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return of
the Fund are based on historical earnings and are not intended to indicate
future performance. The yield of the Fund is computed by dividing the Fund's net
investment income over a 30-day period by an average value (using the average
number of shares entitled to receive dividends and the maximum offering price
per share at the end of the period), all in accordance with applicable
regulatory requirements. Such amount is compounded for six months and then
annualized for a twelve-month period to derive the Fund's yield.
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 one year, as well as over the life
of the Fund. Average annual total return reflects all income earned by the Fund,
any appreciation or depreciation of the Fund's assets, all expenses incurred by
the Fund and all sales charges incurred by shareholders, for the period. It also
assumes reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time
21
<PAGE>
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 front-end
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 by adding 1 to the Fund's aggregate total
return to date and multiplying by $9,700, $48,500 and $97,500 ($10,000, $50,000
and $100,000 adjusted for 3%, 3% and 2.5% sales charges, respectively. The Fund
from time to time may also advertise its performance relative to certain
performance rankings and indexes compiled by independent organizations (such as
Lipper Analytical Services, Inc.).
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 and requires that
notice of such disclaimer be given in each instrument entered into or executed
by the Fund, and provides for indemnification and reimbursement of expenses out
of the Fund's property for any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Fund itself would be unable to meet its obligations. Given the above
limitations on shareholder personal liability, and the nature of the Fund's
assets and operations, the possibility of the Fund being unable to meet its
obligations is remote and, in the opinion of Massachusetts counsel to the Fund,
the risk to Fund shareholders of personal liability is remote.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund 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 U.S. Government Money U.S. Government Money
Market Trust Market Series
Dean Witter Tax-Free Daily Income Trust U.S. Government
Securities Series
Dean Witter California Tax-Free Daily Intermediate Income
Income Trust Securities Series
Dean Witter New York Municipal American Value Series
Money Market Trust
Capital Growth Series
Dividend Growth Series
EQUITY FUND Strategist Series
Dean Witter American Value Fund Utilities Series
Dean Witter Natural Resource Development Value-Added Market
Securities Inc. Series
Dean Witter Dividend Growth Securities Inc. Global Equity Series
Dean Witter Developing Growth Securities Trust
Dean Witter World Wide Investment Trust
Dean Witter Equity Income Trust ASSET ALLOCATION FUNDS
Dean Witter Value-Added Market Series Dean Witter Managed
Assets Trust
Dean Witter Utilities Fund Dean Witter Strategist
Fund
Dean Witter Capital Growth Securities
Dean Witter European Growth Fund Inc.
Dean Witter Precious Metals and Minerals Trust ACTIVE ASSETS ACCOUNT
PROGRAM
Dean Witter Pacific Growth Fund Inc. Active Assets Money
Trust
Dean Witter Health Services Trust Active Assets Tax-Free
Trust
Dean Witter Global Dividend Growth Securities Active Assets
California Tax-Free
Trust
Active Assets
Government Securities
Trust
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
<PAGE>
Dean Witter Premier Income Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
Jack F. Bennett
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Albert T. Sommers
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
110 Washington Street
New York, New York 10286
TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
SUB-ADVISOR
BlackRock Financial Management L.P.
DEAN WITTER
PREMIER INCOME
TRUST
Prospectus
January 12, 1994
1/12/94
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 12, 1994 [LOGO]
- --------------------------------------------------------------------------------
Dean Witter Premier Income Trust (the "Fund") is an open-end, diversified
management investment company, whose investment objective is to earn a high
level of current income consistent with low volatility of principal. The Fund
seeks to achieve its investment objective by investing primarily in high-quality
Mortgage-Backed Securities and securities backed by other assets ("Asset-Backed
Securities").
A Prospectus for the Fund dated January 12, 1994, 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 number 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
Premier Income Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Trustees and Officers.................................................................. 8
Investment Practices and Policies...................................................... 11
Investment Restrictions................................................................ 22
Portfolio Transactions and Brokerage................................................... 23
The Distributor........................................................................ 24
Determination of Net Asset Value....................................................... 28
Shareholder Services................................................................... 29
Redemptions and Repurchases............................................................ 32
Dividends, Distributions and Taxes..................................................... 33
Performance Information................................................................ 35
Description of Shares.................................................................. 36
Custodian and Transfer Agent........................................................... 37
Independent Accountants................................................................ 37
Reports to Shareholders................................................................ 37
Legal Counsel.......................................................................... 37
Experts................................................................................ 37
Registration Statement................................................................. 38
Financial Statements -- October 31, 1993............................................... 39
</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
March 27, 1991.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc., a Delaware corporation, (the "Investment
Manager" or "InterCapital"), whose address is Two World Trade Center, New York,
New York 10048, is the Fund's Investment Manager. 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 and Sub-Advisor, subject to review by the
Fund's Board of 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: Dean Witter Liquid Asset Fund Inc., InterCapital
Income Securities Inc., InterCapital Insured Municipal Bond Trust, InterCapital
Insured Municipal Trust, InterCapital Quality Municipal Investment Trust,
InterCapital Quality Municipal Income Trust, Dean Witter Diversified Income
Trust, Dean Witter Health Sciences Trust, Dean Witter Retirement Series, Dean
Witter High Yield Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean
Witter Developing Growth Securities Trust, Dean Witter Tax-Exempt Securities
Trust, Dean Witter Natural Resource Development Securities Inc., Dean Witter
Dividend Growth Securities Inc., Dean Witter American Value Fund, Dean Witter
U.S. Government Money Market Trust, Dean Witter Variable Investment Series, Dean
Witter World Wide Investment Trust, Dean Witter Select Municipal Reinvestment
Fund, Dean Witter U.S. Government Securities Trust, Dean Witter California
Tax-Free Income Fund, Dean Witter Equity Income Trust, Dean Witter New York
Tax-Free Income Fund, Dean Witter Convertible Securities Trust, Dean Witter
Federal Securities Trust, Dean Witter Managed Assets Trust, High Income
Advantage Trust, High Income Advantage Trust II, High Income Advantage Trust
III, Dean Witter Government Income Trust, Dean Witter Value-Added Market Series,
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 Precious Metals and Minerals Trust, Dean Witter Global
Short-Term Income Fund Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter
Multi-State Municipal Series Trust, Dean Witter Short-Term U.S. Treasury Trust,
Active Assets Money Trust, Active Assets Tax-Free Trust, Active Assets
California Tax-Free Trust, Active Assets Government Securities Trust,
InterCapital Insured Municipal Income Trust, InterCapital California Insured
Municipal Income Trust, InterCapital Quality Municipal Securities, InterCapital
California Quality Municipal Securities, InterCapital New York Quality Municipal
Securities, Dean Witter Global Dividend Growth Securities, Dean Witter Limited
Term Municipal Trust, Dean Witter Short-Term Bond Fund, Municipal Income Trust,
Municipal Income Trust II, Municipal
3
<PAGE>
Income Opportunities Trust, Municipal Income Opportunities Trust II, Municipal
Income Opportunities Trust III, Municipal Income Trust III, Prime Income Trust
and Municipal Premium Income Trust. The foregoing investment companies, together
with the Fund, are collectively referred to as the Dean Witter Funds. In
addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned subsidiary
of InterCapital, serves as manager for the following companies for which TCW
Funds Management, Inc. is the investment adviser: TCW/DW Core Equity Trust,
TCW/DW North American Government Income Trust, TCW/DW Latin American Growth
Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth Fund, TCW/DW
Balanced Fund, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and TCW/DW Term
Trust 2003 (the "TCW/DW Funds"). InterCapital also serves as: (i) sub-adviser to
Templeton Global Opportunities Trust, an open-end investment company; (ii)
administrator of The BlackRock Strategic Term Trust Inc., a closed-end
investment company; and (iii) sub-administrator of MassMutual Participation
Investors and Templeton Global Governments Income Trust, closed-end investment
companies.
The Investment Manager also serves as an investment adviser for Dean Witter
World Wide Investment Fund, an investment company organized under the laws of
Luxembourg, shares of which are not available for purchase in the United States
or by American citizens outside the United States.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
supervise the investment of the Fund's assets. The Investment Manager, through
consultation with BlackRock Financial Management L.P. (the "Sub-Advisor") and
through its own portfolio management staff, obtains and evaluates such
information and advice relating to the economy, securities markets, and specific
securities as it considers necessary or useful to continuously oversee the
management of the assets of the Fund in a manner consistent with its investment
objective.
Under the terms of the Management Agreement, the Investment Manager also
maintains certain of the Fund's books and records and furnishes, at its own
expense, such office space, facilities, equipment, clerical help and bookkeeping
and certain legal services as the Fund may reasonably require in the conduct of
its business, including the preparation of prospectuses, statements of
additional information, proxy statements and reports required to be filed with
federal and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Investment Manager, necessary or desirable). In addition, the Investment Manager
pays the salaries of all personnel, including officers of the Fund, who are
employees of the Investment Manager. The Investment Manager also bears the cost
of telephone service, heat, light, power and other utilities provided to the
Fund.
On December 31, 1993, InterCapital effected an internal reorganization
pursuant to which administrative activities previously performed by InterCapital
are instead performed by DWSC. Pursuant to the reorganization, InterCapital has
entered into a Services Agreement pursuant to which DWSC provides administrative
services to the Fund that were previously performed directly by InterCapital.
The foregoing internal reorganization did not result in any change of 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
Management Agreement, by the Sub-Advisor pursuant to the Sub-Advisory Agreement
(see below), or by the Distributor of the
4
<PAGE>
Fund's shares (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 Sub-Advisor or any corporate affiliate of the
Investment Manager or Sub-Advisor; 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 the Fund's legal
counsel, including counsel to the Trustees who are not interested persons of the
Fund or of the Investment Manager or Sub-Advisor (not including compensation or
expenses of attorneys who are employees of the Investment Manager or
Sub-Advisor) and independent accountants; membership dues of industry
associations; interest on Fund borrowings; postage; insurance premiums on
property or personnel (including officers and directors) of the Fund which inure
to its benefit; extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification relating
thereto); and all other costs of the Fund's operation.
The Management 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 Management Agreement in no
way restricts the Investment Manager from acting as investment manager or
adviser to others.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the annual
rate of 0.50% to the Fund's daily net assets. For the fiscal years ended October
31, 1993, 1992 and for the fiscal period July 1, 1991 (commencement of
operations) through October 31, 1991, the Fund accrued to the Investment Manager
total compensation under the Management Agreement in the amounts of $657,860,
$722,695 and $199,332, respectively.
Pursuant to a Sub-Advisory Agreement between the Investment Manager and the
Sub-Advisor, the Sub-Advisor has been retained, subject to the overall
supervision of the Investment Manager and the Trustees of the Fund, to
continuously furnish investment advice concerning individual portfolio security
selections.
The Sub-Advisor is an affiliate of The Blackstone Group ("Blackstone"), a
private investment bank founded in 1985 by Peter G. Peterson, former Chairman
and Chief Executive Officer of Lehman Brothers Kuhn Loeb, Inc.("Lehman") and
former Secretary of Commerce of the United States, and Stephen A. Schwarzman, a
former Lehman partner and former Chairman of Lehman's Merger and Acquisition
Committee. Mr. Peterson is the Chairman of Blackstone and Mr. Schwarzman is the
President and Chief Executive Officer.
The Sub-Advisor provides asset management services with respect to high
quality fixed income instruments, with particular emphasis on Mortgage-Backed
Securities. The Sub-Advisor currently serves
5
<PAGE>
as the investment adviser to fixed income investors in the United States and
overseas through several funds with combined net assets under management in
excess of $18 billion. These include twenty-one closed-end investment companies:
The BlackRock Income Trust Inc., The BlackRock Target Term Trust Inc., The
BlackRock Advantage Term Trust Inc., The BlackRock Strategic Term Trust Inc.,
The BlackRock 1998 Term Trust Inc., The BlackRock Municipal Term Trust Inc., The
BlackRock Insured Municipal Term Trust Inc., The BlackRock North American
Government Income Trust Inc., The BlackRock Investment Quality Term Trust Inc.,
The BlackRock Insured Municipal 2008 Term Trust Inc., The BlackRock California
Insured Municipal 2008 Term Trust Inc., The BlackRock Florida Insured Municipal
2008 Term Trust Inc., The BlackRock New York Insured Municipal 2008 Term Trust
Inc., The BlackRock 1999 Term Trust Inc., The BlackRock Investment Quality
Municipal Trust Inc., The BlackRock California Investment Quality Municipal
Trust Inc., The BlackRock Florida Investment Quality Municipal Trust Inc., The
BlackRock New York Investment Quality Municipal Trust Inc., The BlackRock New
Jersey Investment Quality Municipal Trust Inc., The BlackRock Investment Grade
2009 Term Trust Inc. and The BlackRock 2001 Term Trust Inc., which were designed
for individual investors and are listed on either the New York or American Stock
Exchange. Each of these funds is a closed-end management investment company that
invests primarily in investment grade Mortgage-Backed and Asset-Backed
Securities and in securities that are issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities or invests in Municipal
Securities. Another fund, BlackRock Short Duration L.P., was privately placed
with institutional investors, and invests in high credit quality short-duration
fixed income instruments. The Sub-Advisor also serves as the investment advisor
to six offshore funds: BlackRock Fund for Fannie Mae Mortgage Securities,
BlackRock Freddie Mac Mortgage Securities Fund, BFM Mortgage Performance Fund,
BFM Libor Mortgage Fund, BSY Financial Corp. and Gemini I. Each of these funds
invests primarily in U.S. Mortgage-Backed Securities. In addition, the
Sub-Advisor serves as investment advisor to several institutional investors in
separate accounts.
The Sub-Advisor's general and limited partners and employees include several
individuals with extensive experience in creating, evaluating and investing in
Mortgage-Backed Securities, Asset-Backed Securities and hedging products. Prior
to co-founding the Sub-Advisor (of which he is a general partner), from July
1976 to March 1988, Laurence D. Fink was employed by The First Boston
Corporation where he had been a Managing Director since January 1979. At First
Boston, he was a member of the Management Committee and co-head of its Taxable
Fixed Income Division. He also managed the Financial Futures and Fixed Income
Options Department and the Mortgage and Real Estate Products Group. Ralph L.
Schlosstein, President and a co-founder of the Sub-Advisor (of which he is a
general partner), was employed by Shearson Lehman Brothers Inc. from February
1981 to March 1988 and became a Managing Director in August, 1984. At Shearson
Lehman, he was co-head of the Mortgage and Savings Institutions Group. Messrs.
Fink and Schlosstein, along with other members of the Sub-Advisor, were
instrumental in many of the major innovations in these securities markets,
including the creation of the fixed and floating rate collateralized mortgage
obligation, asset-backed securities and the senior-subordinated mortgage
pass-through securities.
Both the Investment Manager and the Sub-Advisor have authorized any of their
directors, partners, officers and employees who have been elected as Trustees or
officers of the Fund to serve in the capacities in which they have been elected.
Services furnished by directors, the Investment Manager and the Sub-Advisor may
be furnished by directors, partners, officers and employees of the Investment
Manager and the Sub-Advisor. In connection with the services rendered by the
Sub-Advisor, the Sub-
6
<PAGE>
Advisor bears the following expenses: (a) the salaries and expenses of its
personnel; and (b) all expenses incurred by it in connection with performing the
services provided by it as Sub-Advisor, as described above.
As full compensation for the services and facilities furnished to the Fund
and the Investment Manager and expenses of the Fund and the Investment Manager
assumed by the Sub-Advisor, the Investment Manager pays the Sub-Advisor monthly
compensation equal to 40% of the Investment Manager's monthly compensation
payable under the Management Agreement. For the fiscal years ended October 31,
1993, 1992 and for the fiscal period from July 1, 1991 through October 31, 1991,
the Investment Manager informed the Fund that the Investment Manager accrued to
the Sub-Advisor total compensation under the Sub-Advisory Agreement of $263,144,
$289,078 and $79,733, respectively.
Pursuant to the Management Agreement and the Sub-Advisory 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. Pursuant to the Sub-Advisory Agreement, if any
such reimbursement is made by the Investment Manager, the Investment Manager
will, in turn, be reimbursed for 40% of such payment by the Sub-Advisor. The
reimbursement, if any, will be calculated daily and credited on a monthly basis.
The Investment Manager paid the organizational expenses of the Fund incurred
prior to the offering of the Fund's shares. The Fund reimbursed the Investment
Manager for $150,000 of such expenses, in accordance with the terms of the
Underwriting Agreement between the Fund and DWR. The Fund has deferred and is
amortizing the reimbursed expenses on the straight line method over a period not
to exceed five years from the date of commencement of the Fund's operations.
The Management Agreement and the Sub-Advisory Agreement were initially
approved by the Trustees on April 16, 1991 and by DWR as the then sole
shareholder on May 15, 1991. Under their terms and by approval of the Trustees,
including a majority of the Independent Trustees at their meeting held on April
29, 1992, the agreements will continue in effect until April 30, 1993, and from
year to year thereafter, provided continuance of the agreements are 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 continuances are approved annually by the vote of a
majority of the Independent Trustees, which votes must be cast in person at a
meeting called for the purpose of voting on such approval.
At their meeting held on October 30, 1992, the Trustees of the Fund,
including all the Trustees of the Fund who are not parties to the Investment
Management Agreement or "interested persons" (as defined in the Investment
Company Act of 1940 (the "Act")) of any such party (the "Independent Trustees"),
approved the assumption by InterCapital of DWR's rights and duties under the
Investment Management Agreement, which assumption took place upon the
reorganization described above. At a special meeting of shareholders held on
January 12, 1993, the shareholders voted to approve a new Investment
7
<PAGE>
Management Agreement with InterCapital and a new Sub-Advisory Agreement with the
Sub-Advisor to become effective upon the spin-off by Sears, Roebuck and Co. of
its remaining shares of DWDC, which Agreements took effect on June 30, 1993, and
will continue in effect until April 30, 1994. Both agreements may be terminated
at any time, without penalty, on thirty days' notice by the Trustees of the
Fund, by the holders of a majority (as defined in the Act), of the outstanding
shares of the Fund, by the Investment Manager, or the Sub-Advisor (Sub-Advisory
Agreement only). The agreements will automatically terminate in the event of
their assignment (as defined in the Act).
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 Management 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 Dean Witter Funds and the TCW/DW Funds are shown
below.
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------
<S> <C>
Jack F. Bennett Retired; Director or Trustee of the Dean Witter Funds; formerly
Trustee Senior Vice President and Director of Exxon Corporation
141 Taconic Road (1975-January, 1989) and Under Secretary of the U.S. Treasury for
Greenwich, Connecticut Monetary Affairs (1974-1975); Director of Philips Electronics N.V.
(electronics), Tandem Computers Inc. and Massachusetts Mutual
Insurance Co.; director or trustee of various not-for-profit and
business organizations.
Charles A. Fiumefreddo* Chairman, Chief Executive Officer and Director of InterCapital,
Chairman of the Board, Dean Witter Distributors Inc. and DWSC; Executive Vice President
President, Chief Executive Officer and Director of DWR; Chairman, Director or Trustee, President and
and Trustee Chief Executive Officer of the Dean Witter Funds; Chairman, Chief
Two World Trade Center Executive Officer and Trustee of the TCW/DW Funds; Chairman and
New York, New York Director of Dean Witter Trust Company ("DWTC") (since October,
1989); Director and/or officer of various DWDC subsidiaries;
formerly Executive Vice President and Director of DWDC (until
February, 1993).
Edwin J. Garn Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking
2000 Eagle Gate Tower Committee (1980-1986); formerly Mayor of Salt Lake City, Utah
Salt Lake City, Utah (1971-1974); formerly Astronaut, Space Shuttle Discovery (April
12-19, 1985); Vice Chairman, Huntsman Chemical Corporation (since
January, 1993); member of the board of various civic and
charitable organizations.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------
<S> <C>
John R. Haire Chairman of the Audit Committee and Chairman of the Committee of
Trustee the Independent Directors or Trustees and Director or Trustee of
439 East 51st Street the Dean Witter Funds; Trustee of the TCW/DW Funds; formerly
New York, New York President, Council for Aid to Education (1978-October, 1989) and
Chairman and Chief Executive Officer of Anchor Corporation, an
Investment Adviser (1964-1978); Director of Washington National
Corporation (insurance) and Bowne & Co. Inc., (printing).
Dr. John E. Jeuck Retired; Director or Trustee of the Dean Witter Funds; formerly
Trustee Robert Law Professor of Business Administration, Graduate School
70 East Cedar Street of Business, University of Chicago (until July 1989); Business
Chicago, Illinois Consultant.
Dr. Manuel H. Johnson Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Koch Professor of International Economics and Director of
7521 Old Dominion Drive the Center for Global Market Studies at George Mason University
Maclean, Virginia (since September, 1990); Co-Chairman and a founder of the Group of
Seven Council (G7C), an international economic commission (since
September, 1990); Director or Trustee of the Dean Witter Funds;
Trustee of the TCW/DW Funds; Director of Greenwich Capital
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 Director or Trustee of the Dean Witter Funds; Chairman of the
Trustee Audit Committee and Chairman of the Committee of the Independent
9 Hunting Ridge Road Trustees and Trustee of the TCW/DW Funds; formerly Chairman of the
Stamford, Connecticut Financial Accounting Standards Advisory Council and Chairman and
Chief Executive Officer of the American Stock Exchange; Director
of UCC Investors Holding Inc. (Uniroyal Chemical Company);
director or trustee of various not-for-profit organizations.
Michael E. Nugent General Partner, Triumph Capital, L.P., a private investment
Trustee partnership (since April, 1988); Director or Trustee of the Dean
237 Park Avenue Witter Funds, and Trustee of the TCW/DW Funds; formerly Vice
New York, New York President, Bankers Trust Company and BT Capital Corporation
(September, 1984-March, 1988); Director of various business
organizations.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- --------------------------------------------- ------------------------------------------------------------------
<S> <C>
Albert T. Sommers Senior Fellow and Economic Counselor (formerly Senior Vice
Trustee President and Chief Economist) of the Conference Board, a
845 Third Avenue not-for-profit business research organization; President, Albert
New York, New York T. Sommers, Inc., an economic consulting firm; Director or Trustee
of the Dean Witter Funds; formerly Chairman, Price Advisory
Committee of the Council on Wage and Price Stability (December,
1979 - December, 1980); Economic Adviser, The Ford Foundation;
Director of Grow Group, Inc. (chemicals), MSI Inc. (medical
services) and Westbridge Capital, Inc. (insurance).
Edward R. Telling* Retired; Director or Trustee of the Dean Witter Funds; formerly
Trustee Chairman of the Board of Directors and Chief Executive Officer
Sears Tower (1978-1985) and President (from January 1981-March 1982 and from
Chicago, Illinois February 1984-August 1984) of Sears, Roebuck and Co.
Sheldon Curtis Senior Vice President, Secretary and General Counsel of
Vice President, Secretary and InterCapital and DWSC; Senior Vice President and Secretary of DWTC
General Counsel (since October, 1989); Senior Vice President, Assistant Secretary
Two World Trade Center and Assistant General Counsel of Dean Witter Distributors Inc.;
New York, New York Assistant Secretary of DWDC and DWR; Vice President, Secretary and
General Counsel of the Dean Witter Funds and the TCW/DW Funds.
Thomas F. Caloia First Vice President (since May 1991) and Assistant Treasurer
Treasurer (since April, 1988) of InterCapital; First Vice President and
Two World Trade Center Assistant Treasurer of DWSC and Treasurer of the Dean Witter Funds
New York, New York and the TCW/DW Funds; previously Vice President of InterCapital.
<FN>
- ---------
*Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
</TABLE>
In addition, Robert M. Scanlan, President of InterCapital, and David A.
Hughey and Edmund C. Puckhaber, Executive Vice Presidents of InterCapital, are
Vice Presidents of the Fund, and Barry Fink, First Vice President and Assistant
General Counsel of InterCapital, and Marilyn K. Cranney, Lawrence S. Lafer, Lou
Anne D. McInnis and Ruth Rossi, Vice Presidents and Assistant General Counsels
of InterCapital, are Assistant Secretaries of the Fund.
The Fund pays each Trustee who is not an employee or former employee of the
Investment Manager or an affiliated company an annual fee of $1,200 ($1,600
prior to December 31, 1993) plus $50 for each meeting of the Trustees, the Audit
Committee or the Committee of Independent Trustees attended by the Trustee in
person (the Fund pays the Chairman of the Audit Committee an additional annual
fee of $1,000 ($1,200 prior to December 31, 1993) and pays the Chairman of the
Committee of the Independent Trustees an 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. Effective January 1, 1994, the Fund has adopted a
10
<PAGE>
retirement program under which an Independent Trustee who retires after a
minimum required period of service would be entitled to retirement payments upon
reaching the eligible retirement age (normally, after attaining age 72) based
upon length of service and computed as a percentage of one-fifth of the total
compensation earned by such Trustee for service to the Fund in the five-year
period prior to the date of the Trustee's retirement. 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. As of the date of this Statement of Additional Information, the aggregate
shares of the Fund owned by the Fund's officers and Trustees as a group was less
than 1 percent of the Fund's shares of beneficial interest outstanding. For the
fiscal year ended October 31, 1993, the Fund accrued a total of $20,295 for
Trustees' fees and expenses.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
As discussed in the Prospectus, the Fund may invest 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
11
<PAGE>
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 is not limited as to the maturities of the U.S. Government securities in
which it may invest with respect to 35% of its total assets.
ZERO COUPON SECURITIES
A portion of the U.S. Government securities purchased by the Fund may be
"zero coupon" Treasury securities. The Fund may invest in zero coupon securities
up to 5% of its total assets. Zero coupon Treasury securities 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). To the extent the Fund invests in zero
coupon securities, it will not earn current cash income available for
distribution to shareholders. However, the Fund will invest in zero coupon
securities only when the Investment Manager and Sub-Advisor believe that there
will be cash in the Fund's portfolio representing return of principal on
portfolio securities of the Fund at least equal to the income on the zero coupon
securities. However, in order to distribute the accrued income from any zero
coupon securities, it may be necessary for the Fund to sell some of its
portfolio securities, which may occur at a time when the Fund would not
otherwise have chosen to sell such portfolio securities.
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. However, 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).
MORTGAGE-BACKED SECURITIES
As discussed in the Prospectus, the Mortgage-Backed Securities purchased by
the Fund evidence an interest in a specific pool of mortgages. Such securities
are issued by GNMA, FNMA and FHLMC.
GNMA CERTIFICATES. GNMA is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development. The
National Housing Act of 1934, as amended (the "Housing Act"), authorized GNMA to
guarantee the timely payment of the principal of and interest on certificates
that are based on and backed by a pool of mortgage loans insured by the Federal
Housing Administration under the Housing Act, or Title V of the Housing Act of
1949 ("FHA Loans"), or
12
<PAGE>
guaranteed by the Veterans' Administration under the Servicemen's Readjustment
Act of 1944, as amended ("VA Loans"), or by pools of other eligible mortgage
loans. The Housing Act provides that the full faith and credit of the U.S.
Government is pledged to the payment of all amounts that may be required to be
paid under any guarantee. In order to meet its obligations under such guarantee,
GNMA is authorized to borrow from the U.S. Treasury with no limitations as to
amount.
The GNMA Certificates will represent a pro rata interest in one or more
pools of the following types of mortgage loans; (i) fixed rate level payment
mortgage loans; (ii) fixed rate graduated payment mortgage loans; (iii) fixed
rate growing equity mortgage loans; (iv) fixed rate mortgage loans secured by
manufactured (mobile) homes; (v) mortgage loans on multifamily residential
properties under construction; (vi) mortgage loans on completed multifamily
projects; (vii) fixed rate mortgage loans as to which escrowed funds are used to
reduce the borrower's monthly payments during the early years of the mortgage
loans ("buydown" mortgage loans); (viii) mortgage loans that provide for
adjustments in payments based on periodic changes in interest rates or in other
payment terms of the mortgage loans; and (ix) mortgage-backed serial notes. All
of these mortgage loans will be FHA Loans or VA Loans and, except as otherwise
specified above, will be fully-amortizing loans secured by first liens on one-to
four-family housing units.
FNMA CERTIFICATES. FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act. FNMA was originally established in 1938 as a U.S.
Government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder owned and privately managed corporation by
legislation enacted in 1968. FNMA provides funds to the mortgage market
primarily by purchasing home mortgage loans from local lenders, thereby
replenishing their funds for additional lending. FNMA acquires funds to purchase
home mortgage loans from many capital market investors that may not ordinarily
invest in mortgage loans directly, thereby expanding the total amount of funds
available for housing.
Each FNMA Certificate will entitle the registered holder thereof to receive
amounts representing such holder's pro rata interest in scheduled principal
payments and interest payments (at such FNMA Certificate's pass-through rate,
which is net of any servicing and guarantee fees on the underlying mortgage
loans), and any principal prepayments on the mortgage loans in the pool
represented by such FNMA Certificate and such holder's proportionate interest in
the full principal amount of any foreclosed or otherwise finally liquidated
mortgage loan. The full and timely payment of principal of and interest on each
FNMA Certificate will be guaranteed by FNMA, which guarantee is not backed by
the full faith and credit of the U.S. Government.
Each FNMA Certificate will represent a pro rata interest in one or more
pools of FHA Loans, VA Loans or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate mortgage loans secured by multifamily
projects.
FHLMC CERTIFICATES. FHLMC is a corporate instrumentality of the United
States created pursuant to the Emergency Home Finance Act of 1970, as amended
(the "FHLMC Act"). FHLMC was established primarily for the purpose of increasing
the availability of mortgage credit for the financing of needed
13
<PAGE>
housing. The principal activity of FHLMC currently consists of the purchase of
first lien, conventional, residential mortgage loans and participation interests
in such mortgage loans and the resale of the mortgage loans so purchased in the
form of mortgage securities, primarily FHLMC Certificates.
FHLMC guarantees to each registered holder of a FHLMC Certificate the timely
payment of interest at the rate provided for by such FHLMC Certificate, whether
or not received. FHLMC also guarantees to each registered holder of a FHLMC
Certificate ultimate collection of all principal of the related mortgage loans,
without any offset or deduction, but does not, generally, guarantee the timely
payment of scheduled principal. FHLMC may remit the amount due on account of its
guarantee of collection of principal at any time after default on an underlying
mortgage loan, but not later than 30 days following (i) foreclosure sale, (ii)
payment of a claim by any mortgage insurer or (iii) the expiration of any right
of redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. The obligations of FHLMC under its guarantee are obligations solely
of FHLMC and are not backed by the full faith and credit of the U.S. Government.
FHLMC Certificates represent a pro rata interest in a group of mortgage
loans (a "FHLMC Certificate group") purchased by FHLMC. The mortgage loans
underlying the FHLMC Certificates will consist of fixed rate or adjustable rate
mortgage loans with original terms to maturity of between ten and thirty years,
substantially all of which are secured by first liens on one-to four-family
residential properties or multifamily projects. Each mortgage loan must meet the
applicable standards set forth in the FHLMC Act. A FHLMC Certificate group may
include whole loans, participation interests in whole loans and undivided
interests in whole loans and participations comprising another FHLMC Certificate
group.
CORPORATE DEBT SECURITIES
As described in the Prospectus, the Fund may purchase corporate debt
securities rated Aaa by Moody's or AAA by S&P or, if unrated, deemed to be of
comparable quality by the Fund's Trustees. These debt securities may have
adjustable or fixed rates of interest and in certain instances may be secured by
assets of the issuer. Adjustable rate corporate debt securities, which the Fund
may purchase up to 5% of its total assets, may have features similar to those of
adjustable rate Mortgage-Backed Securities, but corporate debt securities,
unlike Mortgage-Backed Securities, are not subject to prepayment risk other than
through contractual call provisions which generally impose a penalty for
prepayment. Fixed rate debt securities also may be subject to call provisions.
MUNICIPAL OBLIGATIONS
The Fund may invest up to 5% of its total assets in Municipal Obligations
(consisting of Municipal Bonds, Municipal Notes and Municipal Commercial Paper)
rated in the highest rating category by Moody's Investor Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P"). The Municipal Obligations
in which the Fund may invest include "zero coupon" Municipal Obligations. Any
Municipal Obligation which depends directly or indirectly on the credit of the
United States Government shall be considered to have the highest rating by
Moody's and S&P.
Municipal Bonds and Municipal Notes are debt obligations of a state, its
cities, municipalities and municipal agencies which generally have maturities,
at the time of their issuance, of either one year or more (Bonds) or from six
months to three years (Notes). Municipal Commercial Paper consists of short-term
obligations of municipalities which may be issued at a discount and are
sometimes referred to as
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Short-Term Discount Notes. An obligation shall be considered a Municipal Bond,
Municipal Note or Municipal Commercial Paper only if, in the opinion of bond
counsel, the interest payable thereon is exempt from federal income tax.
The two principal classifications of Municipal Bonds, Notes and Commercial
Paper are "general obligation" and "revenue" bonds, notes or commercial paper.
General obligation bonds, notes or commercial paper are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Issuers of general obligation bonds, notes or commercial paper include
a state, its counties, cities, towns and other governmental units. Revenue
bonds, notes or commercial paper are payable from the revenues derived from a
particular facility or class of facilities or, in some cases, from specific
revenue sources. Revenue bonds, notes or commercial paper are issued for a wide
variety of purposes, including the financing of electric, gas, water and sewer
systems and other public utilities; industrial development and pollution control
facilities; single and multi-family housing units; public buildings and
facilities; air and marine ports, transportation facilities such as toll roads,
bridges and tunnels; and health and educational facilities such as hospitals and
dormitories. They rely primarily on user fees to pay debt service, although the
principal revenue source is often supplemented by additional security features
which are intended to enhance the creditworthiness of the issuer's obligations.
In some cases, particularly revenue bonds issued to finance housing and public
buildings, a direct or implied "moral obligation" of a governmental unit may be
pledged to the payment of debt service. In other cases, a special tax or other
charge may augment user fees.
Included within the revenue bonds category are participations in lease
obligations or installment purchase contracts (hereinafter collectively called
"lease obligations") of municipalities. State and local governments issue lease
obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer) have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to notice
provisions described below), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are 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
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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. The Fund did not lend any
of its portfolio securities during its fiscal year ended October 31, 1993.
A loan may be terminated by the borrower on one business day's notice, or by
the Fund on two business days' notice. If the borrower fails to deliver the
loaned securities within two days after receipt of notice, the Trust could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Fund's management to be creditworthy and when the income which can be
earned from such loans justifies the attendant risks. Upon termination of the
loan, the borrower is required to return the securities to the Fund. Any gain or
loss in the market price during the loan period would inure to the Fund. The
creditworthiness of firms to which the Fund lends its portfolio securities will
be monitored on an ongoing basis by the Investment Manager pursuant to
procedures adopted and reviewed, on an ongoing basis, by the Board of Trustees
of the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities.
OPTIONS AND FUTURES TRANSACTIONS
OPTIONS ON TREASURY BONDS AND NOTES. Because trading interest in options
written on Treasury bonds and notes tends to center mostly on the most recently
auctioned issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new expirations
as the original ones expire. Options trading on each issue of bonds or notes
will thus be phased out as new options are listed on more recent issues, and
options representing a full range of expirations will not ordinarily be
available for every issue on which options are traded.
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase put options on securities which it holds
(or has the right to acquire) in its portfolio only to protect itself against a
decline in the value of the security. If the value of the underlying security
were to fall below the exercise price of the put purchased in an amount greater
than the premium paid for the option, the Fund would incur no additional loss.
In addition, the Fund may sell a put option which it has previously purchased
prior to the sale of the securities underlying such option. Such a sale would
result in a net gain or loss depending on whether the amount received on the
sale is more or less than the premium and other transaction costs paid on the
put option which is sold. Any such gain or loss could be offset in whole or in
part by a change in the market value of the underlying security. If a put option
purchased by the Fund expired without being sold or exercised, the premium would
be lost.
RISKS OF OPTIONS TRANSACTIONS. 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
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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 and the Sub-Advisor.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
INTEREST RATE FUTURES CONTRACTS. As a purchaser of an interest rate futures
contract ("futures contract"), the Fund incurs an obligation to take delivery of
a specified amount of the obligation underlying the futures contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell futures contracts for the purpose of hedging
its portfolio (or anticipated portfolio) securities against changes in
prevailing interest rates. If the Investment Manager and the Sub-Advisor
anticipate that interest rates may rise and, concomitantly, the price of U.S.
Government or other debt securities fall, the Fund may sell a futures contract.
If declining interest rates are anticipated, the Fund may purchase a futures
contract to protect against a potential increase in the price of U.S. Government
or other debt securities the Fund intends to purchase. Subsequently, appropriate
U.S. Government or other debt securities may be purchased by the Fund in an
orderly fashion; as securities are purchased, corresponding futures positions
would be terminated by offsetting sales of contracts. In addition, futures
contracts will be bought or sold in order to close out a short or long position
in a corresponding futures contract.
As discussed in the Prospectus, the Fund may invest in Mortgage-Backed
Securities, such as floating rate CMOs or adjustable rate Mortgage-Backed
Securities, which have interest rates subject to periodic adjustment based on
changes to a designated index. One index which may serve as such a benchmark is
the London Interbank Offered Rate, or LIBOR. In order for the Fund to hedge its
exposure to fluctuations in short-term interest rates for its portfolio
securities subject to the LIBOR rate, the Fund may purchase or sell futures
contracts on U.S. dollar denominated Eurodollar instruments linked to the LIBOR
rate.
Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. A futures contract sale is closed out
by effecting a futures contract purchase for the same aggregate amount of the
specific type of security and the same delivery date. If the sale price exceeds
the offsetting purchase price, the seller would be paid the difference and would
realize a gain. If the offsetting purchase price exceeds the sale price, the
seller would pay the difference and would realize a loss. Similarly, a futures
contract purchase is closed out by effecting a futures contract sale for the
same aggregate amount of the specific type of security and the same delivery
date. If the offsetting sale price exceeds the purchase price, the purchaser
would realize a gain, whereas if the purchase price exceeds the offsetting sale
price, the purchaser would realize a loss. There is no assurance that the Fund
will be able to enter into a closing transaction.
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When the Fund enters into a futures contract it is initially required to
deposit with its Custodian, in a segregated account in the name of the broker
performing the transaction an "initial margin" of cash or U.S. Government
securities equal to approximately 2-3% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits into the segregated account,
maintained at its Custodian for that purpose, of cash or U.S. Government
securities, called "variation margin", in the name of the broker, which are
reflective of price fluctuations in the futures contract. Currently, interest
rate futures contracts can be purchased on debt securities such as U.S. Treasury
Bills and Bonds, Eurodollar instruments, U.S. Treasury Notes with Maturities
between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates of Deposit.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase call and put options on
futures contracts which are traded on an Exchange and enter into closing
transactions with respect to such options to terminate an existing position. An
option on a futures contract gives the purchaser the right (in return for the
premium paid), and the writer the obligation, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the term of
the option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option is accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract at the
time of exercise exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option on the futures contract.
The Fund will purchase options on futures contracts for identical purposes
to those set forth above for the purchase of a futures contract (purchase of a
call option or sale of a put option) and the sale of a futures contract
(purchase of a put option or sale of a call option), or to close out a long or
short position in futures contracts. If, for example, the Investment Manager and
the Sub-Advisor wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its U.S. Government
securities portfolio, it might purchase a put option on an interest rate futures
contract, the underlying security of which correlates with the portion of the
portfolio the Investment Manager seeks to hedge.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. In addition, in accordance with the
regulations of the Commodity Futures Trading Commission ("CFTC")
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under which the Fund is exempted from registration as a commodity pool operator,
the Fund may only enter into futures contracts and options on futures contracts
transactions for purposes of hedging a part or all of its portfolio.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. As stated
in the Prospectus, the Fund may sell a futures contract to protect against the
decline in the value of U.S. Government securities held by the Fund. However, it
is possible that the futures market may advance and the value of securities held
in the Fund's portfolio may decline. If this were to occur, the Fund would lose
money on the futures contracts and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief period or
to a very small degree, over time the market prices of the securities of a
diversified portfolio will tend to move in the same direction as the prices of
futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of U.S. Government securities it intends to buy, and the value of such
securities decreases, then the Fund may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
In order to assure that the Fund is entering into transactions in futures
contracts for hedging purposes as such is defined by the Commodities Futures
Trading Commission either: (1) a substantial majority (i.e., approximately 75%)
of all anticipatory hedge transactions (transactions in which the Fund does not
own at the time of the transaction, but expects to acquire, the securities
underlying the relevant futures contract) involving the purchase of futures
contracts will be completed by the purchase of securities which are the subject
of the hedge, or (2) the underlying value of all long positions in futures
contracts will not exceed the total value of (a) all short-term debt obligations
held by the Fund; (b) cash held by the Fund; (c) cash proceeds due to the Fund
on investments within thirty days; (d) the margin deposited on the contracts;
and (e) any unrealized appreciation in the value of the contracts.
If the Fund maintains a short position in a futures contract, it will cover
this position by holding, in a segregated account maintained at its Custodian,
cash, U.S. Government securities or other high grade debt obligations equal in
value (when added to any initial or variation margin on deposit) to the market
value of the securities underlying the futures contract. Such a position may
also be covered by owning the securities underlying the futures contract, or by
holding a call option permitting the Fund to purchase the same contract at a
price no higher than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract, it
will hold cash, U.S. Government securities or other high grade debt obligations
equal to the purchase price of the contract (less the amount of initial or
variation margin on deposit) in a segregated account maintained for the Fund by
its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
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contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
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.
Transactions are entered into by the Fund only with broker or financial
institutions deemed creditworthy by the Investment Manager and the Sub-Advisor.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities is that the prices of securities
subject to futures contracts (and thereby the futures contract prices) may
correlate imperfectly with the behavior of the cash prices of the Fund's
portfolio securities. Another such risk is that prices of interest rate futures
contracts may not move in tandem with the changes in prevailing interest rates
against which the Fund seeks a hedge. A correlation may also be distorted by the
fact that the futures market is dominated by short-term traders seeking to
profit from the difference between a contract or security price objective and
their cost of borrowed funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
As stated in the Prospectus, there may exist an imperfect correlation
between the price movements of futures contracts purchased by the Fund and the
movements in the prices of the securities which are the subject of the hedge. If
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet margin deposit requirements,
distortions in the normal relationships between the debt securities and futures
market could result. Price distortions could also result if investors in futures
contracts opt to make or take delivery of underlying securities rather than
engage in closing transactions due to the resultant reduction in the liquidity
of the futures market. In addition, due to the fact that, from the point of view
of speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of U.S. Government
securities and movements in the prices of futures contracts, a correct forecast
of interest rate trends by the Investment Manager may still not result in a
successful hedging transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which the Fund may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent the Fund from closing out a contract which may
result in reduced gain or increased loss to the Fund. The absence of a liquid
market in futures contracts might cause the Fund to make or take delivery of the
underlying securities at a time when it may be disadvantageous to do so.
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
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paid for the options (plus transaction costs). However, there may be
circumstances when the purchase of a call or put option on a futures contract
would result in a loss to the Fund notwithstanding that the purchase or sale of
a futures contract would not result in a loss, as in the instance where there is
no movement in the prices of the futures contracts or underlying U.S. Government
securities.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested or
used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") 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
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 and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to any
limits.
While repurchase agreements involve certain risks not associated with direct
investment 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 and
Sub-Advisor subject to procedures established by the Board of Trustees of the
Fund. In addition, as described above, the value of the collateral underlying
the repurchase agreement will be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial institution, the Fund will
seek to liquidate such collateral. However, the exercising of the Fund's right
to liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss. It
is the current policy of the Fund not to invest in repurchase agreements that do
not mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amounts to more than 10% of its total assets.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
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 -- i.e., delivery and payment can take place a month or more after the
date of the transactions. 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
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with the Fund's custodian bank in which it will continuously maintain cash, 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. The Investment Manager
and the Sub-Advisor and the Board of Trustees do not believe that the Fund's net
asset value or income will be adversely affected by its purchase of securities
on such basis.
PORTFOLIO TURNOVER
The Fund may sell portfolio securities without regard to the length of time
they have been held whenever such sale will, in the opinions of the Investment
Manager and the Sub-Advisor, strengthen the Fund's position and contribute to
its investment objective. As a result of the Fund's investment objective and
policies, and the nature of the Mortgage-Backed Securities and Asset-Backed
Securities markets, the Fund's portfolio turnover rate may exceed 200%. During
the fiscal years ended October 31, 1993 and 1992, the Fund's portfolio turnover
rates were 412% and 254%, respectively. Due to the restructuring of the Fund's
portfolio by the Sub-Advisor, the Fund's portfolio turnover rate during the
fiscal year ended October 31, 1993 substantially exceeded the portfolio turnover
rate during the preceding fiscal year.
INVESTMENT RESTRICTIONS
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In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of issuers
which engage in real estate operations and securities secured by real estate
or interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
3. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets. For this purpose, Mortgage-Backed Securities and Asset-Backed
Securities are not deemed to be investment companies.
4. Issue senior securities as defined in the Act, except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any reverse repurchase agreement or dollar roll; (b) borrowing
money or other leveraging; or (c) purchasing any securities on a when-
issued, delayed delivery or forward commitment basis.
5. Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase or
reverse purchase agreements; or (c) by lending its portfolio securities.
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6. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
7. Invest for the purpose of exercising control or management of any
other issuer.
8. Make short sales of securities or maintain a short position.
9. Invest in securities of any issuer if, to the knowledge of the Fund,
any officer or trustee of the Fund, or any officer, director or partner of
the Investment Manager or Sub-Advisor owns more than 1/2 of 1% of the
outstanding voting 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 voting securities of such issuers.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of the foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Trustees of the Fund, the
Investment Manager and the Sub-Advisor are responsible for the investment
decisions and the placing of the orders for portfolio transactions for the Fund.
The Fund's portfolio transactions will occur primarily with issuers,
underwriters or major dealers acting as principals. Such transactions are
normally on a net basis and do not involve payment of brokerage commissions. The
cost of securities purchased from an underwriter usually includes a commission
paid by the issuer to the underwriters; transactions with dealers normally
reflect the spread between bid and asked prices. Options and futures
transactions will usually be effected through a broker and a commission will be
charged. During the fiscal years ended October 31, 1993 and 1992 and for the
fiscal period from July 1, 1991 through October 31, 1991, the Fund did not pay
any brokerage commissions.
The Investment Manager and the Sub-Advisor currently serve 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 and the Sub-Advisor to cause purchase or sale
transactions to be allocated among the Fund and others whose assets it manages
in such manner as it deems equitable. In making such allocations among the Fund
and other client accounts, 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 and
futures contracts for its portfolio is that primary consideration will be given
to obtaining the most favorable prices and efficient execution of transactions.
In seeking to implement the Fund's policies, the Investment Manager and the
Sub-Advisor effect transactions with those brokers and dealers who the
Investment Manager and the Sub-Advisor believe provide the most favorable prices
and are capable of providing efficient executions. If the Investment Manager or
the Sub-Advisor believes such price and execution 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
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and/or the Sub-Advisor. Such services may include, but are not limited to, any
one or more of the following: information as to the availability of securities
for purchase or sale; statistical or factual information or opinions pertaining
to investment; wire services; and appraisals or evaluations of portfolio
securities.
The information and services received by the Investment Manager and the
Sub-Advisor from brokers and dealers may be of benefit to the Investment Manager
and the Sub-Advisor 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 the Sub-Advisor and thereby reduce its expenses, it is of indeterminable
value and the fees paid to the Investment Manager and the Sub-Advisor are not
reduced by any amount that may be attributable to the value of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (I.E., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers. During the fiscal year ended October 31, 1992, the Fund did
not effect any principal transactions with DWR.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR. In order for DWR to effect portfolio transactions for the
Fund, the commissions, fees or other remuneration received by DWR must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow DWR to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. Furthermore, the Trustees of the Fund,
including a majority of the Trustees who are not "interested" Trustees, 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 DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into a
selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of 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, a
Distribution Agreement appointing the Distributor exclusive distributor of the
Fund's shares which Agreement provided for the Distributor to bear distribution
expenses not borne by the Fund. At the same meeting, the Trustees of the Fund,
including all of the Independent Trustees, approved a new Distribution Agreement
between the Fund and the Distributor, which took effect on June 30, 1993 upon
the spin-off by Sears,
24
<PAGE>
Roebuck and Co. of its remaining shares of DWDC. The new Distribution Agreement
is substantively identical to the current Distribution Agreement in all material
respects, except for the dates of effectiveness. By its terms, the Distribution
Agreement has an initial term ending April 30, 1994, and provides that it will
remain in effect from year to year thereafter if approved by the Board.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws. 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"). The Plan was approved by the Trustees on April 16, 1991, and
by DWR as the Fund's then sole shareholder on May 15, 1991 and by the
shareholders holding a majority, as defined in the Act, of the outstanding
voting securities of the Fund at a Special Meeting of shareholders of the Fund
held on June 29, 1992. The vote of the Trustees, which was cast in person at a
meeting called for the purpose of voting on such Plan, included a majority of
the Trustees who are not and were not at the time of their voting interested
persons of the Fund and who have and had at the time of their votes no direct or
indirect financial interest in the operation of the Plan (the "Independent 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.
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.
The Fund is authorized to reimburse the Distributor for specific expenses
the distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. Reimbursement is made through
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<PAGE>
monthly payments in amounts determined in advance of each fiscal quarter by the
Trustees, including a majority of the Independent 12b-1 Trustees. The amount of
each monthly payment may in no event exceed an amount equal to a payment at the
annual rate of 0.20 of 1% of the average daily net assets of the shares of the
Fund during the month. Such payment is treated by the Fund as an expense in the
year it is accrued. No interest or other financing charges will be incurred by
the Distributor for which reimbursement payments under the Plan will be made. In
addition, no interest charges, if any, incurred on any distribution expense
incurred by the Distributor pursuant to the Plan, will be reimbursable under the
Plan.
The Distributor has informed the Fund that the fee payable by the Fund each
year pursuant to the Plan not to exceed to 0.20% 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). The fee is a payment made for personal service and/or the
maintenance of shareholder accounts.
Under the Plan, 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.
For the fiscal year ended October 31, 1993, the Fund paid a total of
$251,868 pursuant to the Plan. Such payment amounted to an annual rate of 0.19
of 1% of the Fund's average daily net assets for such fiscal period. It is
estimated that the amount paid by the Fund for distribution was for expenses
which relate to compensation of sales personnel and associated overhead
expenses. The Distributor has informed the Fund that it received sales charges
on sales of the Fund's shares in the approximate amounts of $4,162,000,
$1,291,000 and $224,000 for the period July 1, 1991 through October 31, 1991
(commencement of operations) and for the fiscal years ended 1992 and 1993,
respectively.
The Plan has an initial term which ended April 30, 1992, and provides that
from year to year thereafter it will continue in effect, provided such
continuance is approved annually by a vote of the Trustees, including a majority
of the Independent 12b-1 Trustees. Most recent continuance of the Plan for one
year, until April 30, 1994, was approved by the Board of Trustees of the Fund,
including a majority of the Independent 12b-1 Trustees, at a Board meeting held
on April 28, 1993. At that meeting, 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. Prior to approving the
continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated: (2)
the benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan; and (3) what services had been provided and were continuing to
be provided under the Plan to the Fund and its shareholders. Based upon their
review, the Trustees of the Fund, including each of the independent 12b-1
Trustees, determined that continuation of the Plan would be in the best interest
of the Fund and would have a reasonable likelihood of continuing to benefit the
Fund and its shareholders. In the Trustees' quarterly review of the Plan, they
will consider its continued appropriateness and the level of compensation
provided herein. An amendment to increase materially the maximum amount
authorized to be spent under the Plan and Agreement on behalf
26
<PAGE>
of the Fund must be approved by the shareholders of the Fund, and all material
amendments to the Plan must be approved by the Trustees in the manner described
above. The Plan may be terminated on behalf of the Fund at any time, without
payment of any penalty, by vote of the holders 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 30 days written notice to
any other party to the Plan. So long as the Plan is in effect, the selection or
nomination of the Independent 12b-1 Trustees is committed to the discretion of
the Independent 12b-1 Trustees.
Under the Plan, the Distributor provides the Fund, for review by the
Trustees, and the Trustees review, promptly after the end of each fiscal
quarter, a written report regarding the incremental distribution expenses
incurred by the Distributor on behalf of the Fund during such fiscal quarter,
which report includes (1) an itemization of the types of expenses and the
purposes therefor; (2) the amounts of such expenses; and (3) a description of
the benefits derived by the Fund. In the Trustees' quarterly review of the Plan
they consider its continued appropriateness and the level of compensation
provided therein.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, had any direct or indirect
financial interest in the operation of the Plan except to the extent that the
Investment Manager or certain of its 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.
REDUCED SALES CHARGE
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $100,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds shares
of the Fund having a current value of $25,000 and purchases $75,000 of
additional shares of the Fund, the sales charge applicable to the $75,000
purchase would be 2.50% of the offering price.
The Distributor must be notified by the dealer or the shareholder at the
time a purchase order is placed that the purchase qualifies for the reduced
charge under the Right of Accumulation. Similar notification must be made in
writing by the dealer or shareholder when such an order is placed by mail. The
reduced sales charge will not be granted if: (a) such notification is not
furnished at the time of the order; or (b) a review of the records of the
Distributor or Dean Witter Trust Company (the "Transfer Agent") fails to confirm
the investor's represented holdings.
LETTER OF INTENT. As discussed in the prospectus under the caption "Reduced
Sales Charges," reduced sales charges are available to investors who enter into
a written Letter of Intent providing for the purchase, within a thirteen-month
period, of shares of the Fund from the Distributor or from a single dealer which
has entered into a Selected Dealer Agreement with the Distributor.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase made during the period will receive the reduced sales commission
applicable to the amount represented by the goal, as if it were a single
purchase. A number of shares equal in value to 5% of the dollar amount of the
Letter of Intent will be held in escrow by the Transfer Agent, in the name of
the shareholder. The initial purchase under a Letter of Intent must be equal to
at least 5% of the stated investment goal.
27
<PAGE>
The Letter of Intent does not obligate the Investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under RIGHT OF ACCUMULATION, but
there will be no retroactive reduction of sales charges on previous purchases.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
As stated in the Prospectus, short-term debt securities with remaining
maturities of sixty days or less at the time of purchase are valued at amortized
cost, unless the Trustees determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other short-term debt securities will be valued on a
mark-to-market basis until such time as they reach a remaining maturity of sixty
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. Listed options are valued at the latest sale
price on the exchange on which they are listed unless no sales of such options
have taken place that day, in which case they will be valued at the mean between
their latest bid and asked prices. Unlisted options are valued at the mean
between their latest bid and asked prices. Futures are valued at the latest sale
price on the commodities exchange on which they trade unless the Trustees
determine such price does not reflect their market value, in which case they
will be valued at their fair value as determined by the Trustees. All other
securities and other assets are valued at their fair value as determined in good
faith under procedures established by and under the supervision of the Trustees.
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time on each day that the New York Stock Exchange is open by
taking the value of all assets of the Fund, subtracting its liabilities,
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.
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<PAGE>
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 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 another selected
broker-dealer.
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 next determined after
receipt by the Transfer Agent, without the imposition of a sales charge, 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. 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 offering price.
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.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent within five business days after the date of redemption.
The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Systematic Withdrawal Plan, withdrawals made concurrently with purchases of
additional shares are inadvisable because of the sales charges applicable to the
purchase of additional shares.
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible
29
<PAGE>
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her Account Executive or by written
notification to the Transfer Agent. In addition, the party and/or the address to
which checks are mailed may be changed by written notification to the Transfer
Agent, with signature guarantees required in the manner described above. The
shareholder may also terminate the Withdrawal Plan at any time by written notice
to the Transfer Agent. In the event of such termination, the account will be
continued as a regular shareholder investment account. The shareholder may also
redeem all or part of the shares held in the Withdrawal Plan account (see
"Redemptions and Repurchases" in the Prospectus) at any time.
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
Premier Income 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 FESC Funds, for
shares of Dean Witter CDSC Funds, and for shares of Dean Witter Short-Term U.S.
Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean Witter Short-Term
Bond Fund and five Dean Witter Funds which are money market funds (the foregoing
eight non-CDSC funds are hereinafter referred to as the "Exchange Funds").
Exchanges may be made after the shares of the CDSC fund or FESC fund acquired by
purchase (not by exchange or dividend reinvestment) have been held for thirty
days. There is no holding period for exchanges of shares acquired by exchange or
dividend reinvestment. However, shares of CDSC funds, including shares acquired
in exchange for shares of FESC funds, may not be exchanged for shares of FESC
funds. Thus, shareholders who exchange their Fund shares for shares of CDSC
funds may subsequently exchange those shares for shares of other CDSC funds or
Exchange Funds but may not reacquire FESC fund shares by exchange. 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).
The Transfer Agent acts as agent for shareholders of the Fund in effecting
redemptions of Fund shares and in applying the proceeds to the purchase of other
fund shares. In the absence of negligence on its part, neither the Transfer
Agent nor the Fund shall be liable for any redemption of Fund shares caused by
unauthorized telephone instructions. Accordingly, in such event, the investor
shall bear the risk of loss. The staff of the Securities and Exchange Commission
is currently considering the propriety of such a policy.
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<PAGE>
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. The
Transfer Agent shall be liable for its own negligence and not for the default or
negligence of its correspondents or for losses in transit. The Fund shall not be
liable for any default or negligence of the Transfer Agent, the Distributor or
any selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust,
Dean Witter New York Municipal Money Market Trust and Dean Witter California
Tax-Free Daily Income Trust although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum initial investment
for Dean Witter Short-Term U.S. Treasury Trust is $10,000, although that fund,
in its discretion, may accept initial investments of 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 an
Exchange Fund pursuant to the Exchange Privilege and provided further that the
Exchange Privilege may be terminated or materially revised without notice at
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, (d) during any
other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective(s), policies and restrictions.
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
31
<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.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
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 for 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 certified or bank cashier's
check), payment of redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another selected
broker-dealer are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin accounts.
REINSTATEMENT PRIVILEGE. As described in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 30 days after the date of
redemption or repurchase, reinstate any portion of all of the proceeds of such
redemption or repurchase in shares of the Fund at the net asset value (without
sales charge) 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.
INVOLUNTARY REDEMPTION. As described in the Prospectus, due to the
relatively high cost of handling small investments, the Fund reserves the right
to redeem, at net asset value, the shares of any shareholder whose shares have a
value of less than $100, or such lesser amount as may be fixed by the Board of
Trustees. However, before the Fund redeems such shares and sends the proceeds to
the shareholder,
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<PAGE>
it will notify the shareholder that the value of the shares is less than $100
and allow him or her 60 days to make an additional investment in an amount which
will increase the value of his or her account to $100 or more before the
redemption is processed.
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
determining their taxable income and may 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
year which are paid in the following year prior to February 1 will be deemed
received by the shareholder in the prior year.
Gains or losses on the sales of securities by the Fund generally will be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be short-term capital gains or losses.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction.
At October 31, 1993 the Fund had net capital loss carryovers of
approximately $5,235,000 which will be available through October 31, 2001 to
offset net realized gains, to the extent provided by regulations.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of the gross income be derived from
gains from the sale or other disposition of securities held for less than three
months. Accordingly, the Fund may be restricted in the writing of options on
securities held for less than three months, in the writing of options which
expire in less than three months, and in effecting closing transactions with
respect to call or put options which have been written or purchased less than
three months prior to such transactions. The Fund may also be restricted in its
ability to engage in transactions involving futures contracts.
Under current federal law, the Fund will receive net investment income in
the form of interest cash payments by virtue of holding fixed-income securities,
including Treasury bills, notes and bonds, and will recognize income
attributable to it from holding original issue discount securities, including
zero coupon Treasury securities. Current federal tax law requires that a holder
(such as the Fund) of an original issue discount security accrue a portion of
the discount at which the security was purchased as income each
33
<PAGE>
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 original issue discount securities, may be required to pay out as
an income distribution each year an amount which is greater than the total
amount of cash receipts of interest the Fund actually received. Such
distributions will be made from the available cash of the Fund or by the
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.
In computing net investment income, the Fund will amortize premiums or
accrue discounts on fixed-income securities in the portfolio. Realized gains and
losses on security transactions are determined on the identified cost method.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable at either ordinary or capital gain rates.
Therefore, an investor should consider the tax implications of purchasing Fund
shares immediately prior to a dividend or distribution record date.
The straddle rules of Section 1092 of the Internal Revenue Code where
applicable (i) require the Fund to defer losses incurred on certain transactions
involving securities, options and futures contracts, (ii) may affect the Fund's
holding period on the asset underlying an option or futures contract and (iii)
in certain instances, may convert a short-term capital loss to a long-term
capital loss.
Exchange-traded futures contracts, listed options on futures contracts and
listed options on U.S. Government securities are classified as "Section 1256"
contracts under the Internal Revenue Code. Section 1256 contracts are required
to be marked-to-market at the end of the Fund's fiscal year, for purpose of
Federal income tax calculations. The character of gain or loss resulting from
the sale, disposition, closing out, expiration, other termination or
mark-to-market of Section 1256 contracts is generally treated as long-term
capital gain or loss to the extent of 60 percent thereof and short-term capital
gain or loss to the extent of 40 percent thereof.
Over-the-counter options are not classified as Section 1256 contracts and
are not subject to the mark-to-market or 60 percent-40 percent taxation rules.
When put options purchased by the Fund are exercised, the gain or loss realized
on the sales of the underlying securities may be either short-term or long-term,
generally depending upon the holding period of the securities. In determining
the amount of gain or loss, the sales proceeds are reduced by the premium paid
for over-the-counter puts or increased by the premium received for
over-the-counter calls.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes,
including information as to the portion taxable as ordinary income, any portion
taxable as long-term capital gains and any portion treated as a non-taxable
return of
34
<PAGE>
capital. Any such return of capital will reduce the shareholders' tax basis in
their shares. To avoid being subject to a 31% federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of redemptions
and repurchases, shareholders' taxpayer identification numbers must be furnished
and certified as to their accuracy.
Shareholders should consult their attorneys or tax advisers regarding
specific questions as to state or local taxes and as to the applicability of the
foregoing to their current federal tax situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. Yield
is calculated for any 30-day period as follows: the amount of interest and/or
dividend income for each security in the Fund's portfolio is determined in
accordance with regulatory requirements; the total for the entire portfolio
constitutes the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income". The resulting amount
is divided by the product of the maximum offering price per share on the last
day of the period multiplied by the average number of Fund shares outstanding
during the period that were entitled to dividends. This amount is added to 1 and
raised to the sixth power. 1 is then subtracted from the result and the
difference is multiplied by 2 to arrive at the annualized yield. For the 30-day
period ended October 31, 1993, the Fund's yield, calculated pursuant to this
formula, was 6.54%.
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. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result. The average
annual total returns of the Fund for the fiscal year ended October 31, 1993 and
for the period from July 1, 1991 (commencement of operations) through October
31, 1993 were -0.21% and 4.85%, 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 calculation may or may not reflect the
imposition of the maximum front end sales charge. In addition, the Fund may also
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 by the initial $1,000
investment and subtracting 1 from the result. Based on this calculation, the
average annual total return of the Fund, excluding the imposition of the
front-end sales charge, for the fiscal year ended October 31, 1993 and for the
period from July 1, 1991 through October 31, 1993 were 2.87% and 6.22%,
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
35
<PAGE>
made at the beginning of the period. For the purpose of this calculation, it is
assumed that all dividends and distributions are reinvested. The formula for
computing aggregate total return involves a percentage obtained by dividing the
ending value by the initial $1,000 investment and subtracting 1 from the result.
Based on the foregoing calculation, the Fund's total return for the fiscal year
ended October 31, 1993 and for the period from July 1, 1991 through October 31,
1993 were -0.21% and 11.69%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return to date and multiplying by $9,700, $48,500 or $97,500
($10,000, $50,000 or $100,000 adjusted for a 3%, 3% and 2.5% sales charge).
Investments of $10,000 and $50,000 adjusted for a 3% sales charge in the Fund at
inception would have grown to $11,169 and $55,843 respectively and an investment
of $100,000 adjusted for a 2.5% sales charge, in the Fund from inception would
have grown to $112,262 at October 31, 1993.
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
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. The Trustees have been elected by the shareholders of the Fund. The
Trustees themselves have the power to alter the number and the terms of office
of the Trustees, and they may at any time lengthen their own terms or make their
terms of unlimited duration and appoint their own successors, provided that
always at least a majority of the Trustees has been elected by the shareholders
of the Fund. Under certain circumstances the Trustees may be removed by action
of the Trustees. The shareholders also have the right under certain
circumstances to remove the Trustees. The voting rights of shareholders are not
cumulative, so that holders of more than 50 percent of the shares voting can, if
they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees.
The 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.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). However, the Trustees have not authorized
any such additional series or classes of shares.
The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his/her or
its own bad faith, willful misfeasance, gross negligence, or reckless disregard
of his/her or its duties. It also provides that all third persons shall look
solely to the Fund's property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
36
<PAGE>
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 110 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. 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 of Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts; disbursing
cash dividends and reinvesting dividends; processing account registration
changes; handling purchase and redemption transactions; mailing prospectuses and
reports; mailing and tabulating proxies; processing share certificate
transactions; and maintaining shareholder records and lists. For these services
Dean Witter Trust Company receives a per shareholder account fee from the Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on October 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund included in 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,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
37
<PAGE>
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.
38
<PAGE>
DEAN WITTER PREMIER INCOME TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATES VALUE
- ---------------------------------------------------------------------- ---------- ----------------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE PASS-THROUGH CERTIFICATES (67.5%)
FEDERAL HOME LOAN MORTGAGE CORP. PC GOLD
$ 1,975............................................................. 8.50% 7/01/06 $ 2,086,842
1,633............................................................. 9.00 1/01/24 1,733,355
5,227............................................................. 9.00 5/01/06 5,575,980
------------
9,396,177
------------
FEDERAL HOME LOAN MORTGAGE CORP. PC
6,396 ++.......................................................... 7.375 3/01/06 6,636,211
2,282............................................................. 7.75 8/01/08 2,376,406
2,758............................................................. 9.00 4/01/03 2,896,573
------------
11,909,190
------------
FEDERAL NATIONAL MORTGAGE ASSOC.
1,796............................................................. 8.00 11/01/98 1,868,911
3,368++........................................................... 8.00 6/01/14 3,537,457
2,620............................................................. 11.00 8/01/06 2,818,367
------------
8,224,735
------------
GOVERNMENT NATIONAL MORTGAGE ASSOC.
7,752............................................................. 5.00+ 9/20/23 7,955,167
6,335............................................................. 5.50+ 10/20/22 6,513,335
7,724............................................................. 6.00+ 9/20/22 7,957,687
------------
22,426,189
------------
GOVERNMENT NATIONAL MORTGAGE ASSOC.
4,429............................................................. 7.25 11/15/04-4/15/06 4,683,539
4,000............................................................. 8.00 * 4,267,520
------------
8,951,059
------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE
PASS-THROUGH CERTIFICATES
(IDENTIFIED COST $58,410,771) 60,907,350
------------
COLLATERALIZED MORTGAGE OBLIGATIONS (28.6%)
FEDERAL HOME LOAN MORTGAGE CORP. 1584 FB
4,996............................................................... 2.875+ 9/15/23 5,270,513
FEDERAL NATIONAL MORTGAGE ASSOC. 1993-19E ++
5,000............................................................... 5.00 3/25/17 4,912,500
FEDERAL NATIONAL MORTGAGE ASSOC. 1993-25C ++
5,000............................................................... 5.00 1/25/17 4,909,589
FEDERAL HOME LOAN MORTGAGE CORP. 1288 A
3,448............................................................... 5.10 11/15/02 3,456,227
FIRST BOSTON MORTGAGE SECURITIES CORP. 1993-M1
1,996............................................................... 6.013+ 9/25/06 2,025,222
FEDERAL HOME LOAN MORTGAGE CORP. 1333-F
5,104............................................................... 6.50 7/15/22 5,178,387
RESIDENTIAL FUNDING CORP. 1992-S2 CLASS A17 (TAC I/O)
2................................................................ 16856.861+ 1/25/22 64,544
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $30,539,677) 25,816,982
------------
</TABLE>
39
<PAGE>
DEAN WITTER PREMIER INCOME TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1993 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATES VALUE
- ------------------------------------------------------------ ------ -------- -----------
<S> <C> <C> <C>
CORPORATE BOND (3.4%)
International Bank for Reconstruction and Development
(Identified Cost $2,970,334)
$ 3,650.................................................... 0.00+% 8/07/97 $ 3,037,530
-----------
ASSET-BACKED SECURITY (3.3%)
Peoples Bank Credit Card Master Trust 1993-1
(Identified Cost $2,997,656)
3,000................................................... 4.80 12/15/98 3,008,438
-----------
102.8% 92,770,300
TOTAL INVESTMENTS (IDENTIFIED COST $94,918,438)(A)..................
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS...................... (2.8) (2,510,096)
-------- -----------
NET ASSETS.......................................................... 100.0% $90,260,204
-------- -----------
-------- -----------
<FN>
- ---------------
</TABLE>
<TABLE>
<S> <C>
I/O -- INTEREST ONLY SECURITY
PC --PARTICIPATION CERTIFICATE
TAC --TARGETED AMORTIZATION CLASS
* SECURITIES PURCHASED ON A FORWARD COMMITMENT BASIS WITH AN APPROXIMATE PRINCIPAL AMOUNT AND NO
DEFINITE MATURITY DATE; THE ACTUAL PRINCIPAL AMOUNT AND MATURITY DATE WILL BE DETERMINED UPON
SETTLEMENT.
+ FLOATING RATE SECURITIES. RATE SHOWN IS THE RATE IN EFFECT AT OCTOBER 31, 1993.
++ SOME OR ALL OF THESE SECURITIES ARE PLEDGED IN CONNECTION WITH THE REVERSE REPURCHASE AGREEMENTS.
(A) THE AGGREGATE COST OF INVESTMENTS FOR FEDERAL INCOME TAX PURPOSES IS $94,918,438; THE AGGREGATE
GROSS UNREALIZED APPRECIATION IS $1,457,141 AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS
$3,605,279, RESULTING IN NET DEPRECIATION OF $2,148,138.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
DEAN WITTER PREMIER INCOME TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1993
- --------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $94,918,438) (Note 1)......................... $ 92,770,300
Cash............................................................. 17,023
Receivable for:
Investments sold............................................... 41,359,018
Interest....................................................... 730,025
Principal paydowns............................................. 487,226
Shares of beneficial interest sold............................. 11,468
Deferred organizational expenses (Note 1)........................ 79,886
Prepaid expenses and other receivables........................... 215,090
-------------
TOTAL ASSETS............................................... 135,670,036
-------------
LIABILITIES:
Reverse repurchase and dollar roll agreements (Note 6)........... 16,063,333
Payable for:
Investments purchased.......................................... 28,708,501
Shares of beneficial interest repurchased...................... 384,558
Dividends to shareholders...................................... 32,139
Investment management fee (Note 2)............................... 41,749
Plan of distribution fee (Note 3)................................ 16,699
Accrued expenses and other payables (Note 4)..................... 162,853
-------------
TOTAL LIABILITIES.......................................... 45,409,832
-------------
NET ASSETS:
Paid in capital.................................................. 96,334,183
Accumulated net realized loss on investments..................... (5,234,397)
Net unrealized depreciation on investments....................... (2,148,138)
Accumulated undistributed net investment income.................. 1,308,556
-------------
NET ASSETS................................................. $ 90,260,204
-------------
-------------
NET ASSET VALUE PER SHARE, (9,832,273 shares outstanding;
unlimited shares authorized of $.01 par value)................. $9.18
-------------
-------------
MAXIMUM OFFERING PRICE PER SHARE (net asset value plus 3.09% of
net asset value)*.............................................. $9.46
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
INTEREST INCOME........................................... $ 11,752,328
---------------
EXPENSES
Investment management fee (Note 2)...................... 657,860
Plan of distribution fee (Note 3)....................... 251,868
Professional fees....................................... 103,445
Transfer agent fees and expenses (Note 4)............... 61,373
Shareholder reports and notices......................... 51,934
Registration fees....................................... 37,688
Custody fees............................................ 30,431
Organizational expenses (Note 1)........................ 29,967
Trustees' fees and expenses............................. 20,295
Other................................................... 9,569
---------------
1,254,430
TOTAL OPERATING EXPENSES..........................
Interest expense from reverse repurchase agreements
(Note 6)............................................... 862,962
---------------
TOTAL EXPENSES.................................... 2,117,392
---------------
NET INVESTMENT INCOME........................... 9,634,936
---------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTE 1):
Net realized loss on investments........................ (5,234,554)
Net change in unrealized depreciation on investments.... 397,575
---------------
NET LOSS ON INVESTMENTS........................... (4,836,979)
---------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS..................................... $ 4,797,957
---------------
---------------
<FN>
- -------------
* On sales of $100,000 or more, the offering price is reduced.
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1993 OCTOBER 31, 1992
----------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............... $ 9,634,936 $ 10,189,640
Net realized (loss) gain on
investments........................ (5,234,554) 3,139,374
Net change in unrealized
depreciation/appreciation on
investments........................ 397,575 (6,463,853)
----------------- ----------------
Net increase in net assets
resulting from operations......... 4,797,957 6,865,161
----------------- ----------------
Dividends and distributions to
shareholders from:
Net investment income............... (8,326,380) (10,246,315)
Net realized gain on investments.... (2,813,443) (705,315)
----------------- ----------------
(11,139,823) (10,951,630)
----------------- ----------------
Net (decrease) increase from
transactions in shares of beneficial
interest (Note 5).................... (58,257,655) 26,726,857
----------------- ----------------
Total (decrease) increase....... (64,599,521) 22,640,388
NET ASSETS:
Beginning of period................... 154,859,725 132,219,337
----------------- ----------------
END OF PERIOD (including undistributed
net investment income of $1,308,556
and $0, respectively)................. $ 90,260,204 $ 154,859,725
----------------- ----------------
----------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER PREMIER INCOME TRUST
FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED OCTOBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH:
Cash Flows from Operating Activities:
Net investment income................................................................ $ 9,634,936
Adjustments to reconcile net investment income to net cash provided by operating
activities:
Decrease in receivables and other assets related to operations..................... 688,776
Increase in payables related to operations......................................... 90,324
Net amortization of discount/premium............................................... 940,139
-------------
Net cash from operating activities............................................... 11,354,175
-------------
Cash Flows provided by Investing Activities:
Purchases of investments............................................................. (657,783,041)
Principal prepayments/sales of investments........................................... 736,865,293
Net sales/maturities of short-term investments....................................... 9,053,192
-------------
Net cash provided by investing activities........................................ 88,135,444
-------------
Cash Flows used for Financing Activities:
Shares of beneficial interest sold................................................... 31,204,346
Shares of beneficial interest repurchased............................................ (93,806,277)
Net proceeds from issuance of reverse repurchase and dollar roll agreements.......... (32,920,203)
-------------
(95,522,134)
Dividends and distributions to shareholders (net of reinvestments of $7,199,190) (3,968,373)
-------------
Net cash used for financing activities........................................... (99,490,507)
-------------
Net decrease in cash................................................................... (888)
Cash at beginning of year.............................................................. 17,911
-------------
CASH AT END OF YEAR.................................................................... $ 17,023
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
DEAN WITTER PREMIER INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- Dean Witter Premier Income Trust
(the "Fund") is registered under the Investment Company Act of 1940, as amended
(the "Act"), as a diversified, open-end management investment company. It was
organized on March 27, 1991 as a Massachusetts business trust and on May 15,
1991 issued 10,420 shares of beneficial interest for $100,032 to Dean Witter
Reynolds Inc., an affiliate of the Investment Manager, to effect the Fund's
initial capitalization. The Fund commenced operations on July 1, 1991.
The following is a summary of the significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity portfolio security listed or
traded on the New York or American Stock Exchange is valued at its latest
sale price on that exchange (if there were no sales that day, the security
is valued at the closing bid price); (2) all portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest bid price prior to the time of valuation; (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 Fund's Trustees (valuation of debt securities
for which market quotations are not readily available may also be based upon
current market prices of securities which are comparable in coupon, rating
and maturity or an appropriate matrix utilizing similar factors). Certain of
the Fund's portfolio securities for which reliable market quotations are
generally not readily available may be valued by an outside pricing service
approved by the Fund's Trustees. The pricing service utilizes a computerized
grid matrix and/or research and evaluations by its staff in determining what
it believes is the fair value of the portfolio securities valued by such
pricing service; and (4) short-term securities having a maturity date of
more than 60 days are valued on a "mark-to-market" basis, that is, at prices
based on market quotations for securities of similar type, yield, quality
and maturity, until 60 days prior to maturity and thereafter at amortized
value based on the value on the 61st day to maturity. Short-term securities
having a maturity date of 60 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). In computing net
investment income, the Fund amortizes premiums and accrues discounts on
fixed income securities in the portfolio. Realized gains and losses on
security transactions are determined on the identified cost method. Interest
income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records
dividends and distributions to its shareholders on the record date.
E. ORGANIZATIONAL EXPENSES -- The Fund has reimbursed the Investment
Manager, hereafter defined, for $150,000 of organizational expenses. The
reimbursed expenses have been deferred and are being amortized by the Fund
on the straight-line method over a period of five years from the
commencement of operations.
F. REPURCHASE AGREEMENTS -- The Fund's custodian takes possession on behalf
of the Fund of the collateral pledged for investments in repurchase
agreements. It is the policy of the Fund to value the underlying collateral
daily on a mark-to-market basis to determine that the value, including
43
<PAGE>
DEAN WITTER PREMIER INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
accrued interest, is at least equal to the repurchase price plus accrued
interest. In the event of default of the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS -- Pursuant to an
Investment Management Agreement with Dean Witter InterCapital Inc. (the
"Investment Manager"), formerly the InterCapital Division of Dean Witter
Reynolds Inc., the Fund pays its Investment Manager a management fee accrued
daily and payable monthly by applying the annual rate of .50% 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 office space and facilities, equipment, clerical,
bookkeeping and certain legal services, and pays the salaries of all personnel,
including officers of the Fund who are employees of the Investment Manager. The
Investment Manager also bears the cost of telephone services, heat, light, power
and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between BlackRock Financial Management L.P.,
(the "Sub-Advisor") and the Investment Manager, the Sub-Advisor provides the
Fund with investment advice and portfolio management relating to the Fund's
investment in securities, subject to the overall supervision of the Investment
Manager. As compensation for its services provided pursuant to the Sub-Advisory
Agreement, the Investment Manager pays the Sub-Advisor monthly compensation
equal to 40% of its monthly compensation.
3. PLAN AND AGREEMENT OF DISTRIBUTION -- Shares of beneficial interest of the
Fund are distributed by Dean Witter Distributors Inc. (the "Distributor"), an
affiliate of the Investment Manager. Previously the shares were distributed by
Dean Witter Reynolds Inc. ("DWR"), also an affiliate of the Investment Manager,
exclusively through its own sales organization. The Fund has entered into a Plan
and Agreement of Distribution (the "Plan"), pursuant to Rule 12b-1 under the
Act, with the Distributor whereby the Distributor finances certain activities in
connection with the distribution of shares of the Fund.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses that
the Trustees determine to reimburse as described below. The following activities
and services may be provided by the Distributor under the Plan: (1) compensation
to sales representatives of DWR and other broker-dealers; (2) sales incentives
and bonuses to sales representatives and to marketing personnel in connection
with promoting sales of the Fund's shares; (3) expenses incurred in connection
with promoting sales of the Fund's shares; (4) preparing and distributing sales
literature; and (5) providing advertising and promotional activities, including
direct mail solicitation and television, radio, newspaper, magazine and other
media advertisements.
The Fund is authorized to reimburse the Distributor for specific expenses
the Distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. The amount of each monthly reimbursement payment may in no event
exceed an amount equal to payment at the annual rate of .20% of the Fund's
average daily net assets during the month. For the year ended October 31, 1993,
the distribution fee accrued was at the annual rate of .20%.
Dean Witter Reynolds Inc., the Fund's principal underwriter, has informed
the Fund that it received approximately $224,000 in commissions from the sale of
the Fund's shares of beneficial interest. Such commissions are not an expense of
the Fund; they are deducted from the proceeds of sales of shares of beneficial
interest.
44
<PAGE>
DEAN WITTER PREMIER INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and the proceeds from sales/prepayments of securities for the year
ended October 31, 1993, excluding short-term investments, were as follows:
<TABLE>
<CAPTION>
SALES/
PURCHASES PREPAYMENTS
---------------- ----------------
<S> <C> <C>
U.S. Government Agencies and Obligations.................. $ 588,089,710 $ 664,184,674
Non Government CMOs....................................... 34,470,783 32,465,377
Asset-Backed Securities................................... 33,787,500 57,043,880
</TABLE>
Dean Witter Trust Company ("DWTC"), an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. The Fund incurred transfer agent
fees and expenses of $61,373 with DWTC for the year ended October 31, 1993, of
which $10,257 was payable at October 31, 1993.
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, 1993 OCTOBER 31, 1992
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Sold.................................... 2,978,014 $ 28,675,877 8,729,752 $ 86,591,731
Reinvestment of dividends and
distributions.......................... 753,734 7,199,190 654,527 6,472,788
------------ --------------- ------------ ---------------
3,731,748 35,875,067 9,384,279 93,064,519
Repurchased............................. (9,880,854) (94,132,722) (6,691,002) (66,337,662)
------------ --------------- ------------ ---------------
Net (decrease) increase................. (6,149,106) $ (58,257,655) 2,693,277 $ 26,726,857
------------ --------------- ------------ ---------------
------------ --------------- ------------ ---------------
</TABLE>
6. REVERSE REPURCHASE AND DOLLAR ROLL AGREEMENTS -- The Fund may use reverse
repurchase and dollar roll agreements as part of its investment strategy.
Reverse repurchase agreements involve sales by the Fund of portfolio securities
concurrently with an agreement by the Fund to repurchase the same securities at
a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous only if the interest cost to the
Fund of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise. Reverse repurchase agreements are collateralized by Fund
securities with a market value in excess of the Fund's obligation under the
contract. At October 31, 1993 the reverse repurchase agreements outstanding were
$10,855,000 with rates of 3.20% and 3.33% and maturity dates of November 1, 1993
and November 4, 1993, respectively. Securities valued at $11,211,550 were
pledged as collateral.
The Fund may enter into dollar rolls in which the Fund sells mortgage-backed
securities and simultaneously contracts to repurchase substantially similar
securities on a specified future date. Dollar rolls are accounted for as a
financing arrangement; the difference between the sale and the repurchase price
is recorded as deferred income and amortized to interest income.
7. FEDERAL INCOME TAX STATUS -- At October 31, 1993 the Fund had net capital
loss carryovers of approximately $5,235,000 which will be available through
October 31, 2001 to offset net realized gains, to the extent provided by
regulations.
45
<PAGE>
DEAN WITTER PREMIER INCOME TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data and ratios for a share of beneficial interest outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 1, 1991*
ENDED ENDED THROUGH
OCTOBER 31, 1993 OCTOBER 31, 1992 OCTOBER 31, 1991
----------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $9.69 $9.95 $9.60
-------- ----------------- -----------------
Net investment income......................... 0.73 0.71 0.26
Net realized and unrealized gain (loss) on
investments.................................. (0.45) (0.21) 0.37
-------- ----------------- -----------------
Total from investment operations................ 0.28 0.50 0.63
-------- ----------------- -----------------
Less dividends and distributions:
Dividends from net investment income.......... (0.61) (0.71) (0.26)
Distribution from net realized gain on
investments.................................. (0.18) (0.05) (0.02)
-------- ----------------- -----------------
Total dividends and distributions............... (0.79) (0.76) (0.28)
-------- ----------------- -----------------
Net asset value, end of period.................. $9.18 $9.69 $9.95
-------- ----------------- -----------------
-------- ----------------- -----------------
TOTAL INVESTMENT RETURN+.......................... 2.87% 5.18% 6.41%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........ $90,260 $154,860 $132,219
Ratio of expenses to average net assets:
Operating expenses............................ 0.95% 0.99% 0.85%(2)
Interest expense.............................. 0.65% 0.61% 0.84%(2)
Total expenses.............................. 1.60% 1.60% 1.69%(2)(3)
Ratio of net investment income to average net
assets........................................... 7.32% 7.05% 7.50%(2)(3)
Portfolio turnover rate........................... 412% 254% 91%
<FN>
- ------------------------
+ DOES NOT REFLECT THE DEDUCTION OF SALES LOAD.
* DATE OF COMMENCEMENT OF OPERATIONS.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE ASSUMED BY THE INVESTMENT
MANAGER, THE ABOVE ANNUALIZED EXPENSE RATIO WOULD HAVE BEEN 1.85% ($.065
PER SHARE) AND THE ABOVE ANNUALIZED NET INVESTMENT INCOME RATIO WOULD HAVE
BEEN 7.34% ($.253 PER SHARE).
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER PREMIER INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Dean Witter Premier Income Trust
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Dean Witter Premier Income
Trust (the "Fund") at October 31, 1993, the results of its operations and its
cash flows 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 two years in the period then ended and for the period July 1, 1991
(commencement of operations) through October 31, 1991, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at October 31, 1993 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE
New York, New York
December 27, 1993
1993 FEDERAL TAX NOTICE
For the year ended October 31, 1993, the Fund paid to shareholders $0.02281 per
share from long-term capital gains.
47
