<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 1996
REGISTRATION NO.: 33-44782
811-6515
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
[X]
PRE-EFFECTIVE AMENDMENT NO.
[ ]
POST-EFFECTIVE AMENDMENT NO. 4
[X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
[X]
AMENDMENT NO. 5
[X]
-----------
DEAN WITTER DIVERSIFIED INCOME TRUST
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
-----------
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
_X_ on February 1, 1996 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (A)(1) OF RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. PURSUANT TO SECTION (B)(2) OF RULE 24F-2, THE
REGISTRANT FILED A RULE 24F-2 NOTICE FOR ITS FISCAL YEAR ENDED OCTOBER 31,
1995 WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1995.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A
PART A
ITEM CAPTION PROSPECTUS
- ------------- -------------------------------------------------------
<S> <C>
1. .......... Cover Page
2. .......... Summary of Fund Expenses; Prospectus Summary
3. .......... Financial Highlights; Performance Information
4. .......... Investment Objective and Policies; The Fund and its Management;
Cover Page; Investment Restrictions; Prospectus Summary;
Financial Highlights
5. .......... The Fund and Its Management; Back Cover; Investment Objective
and Policies
6. .......... Dividends, Distributions and Taxes; Additional
Information
7. .......... Purchase of Fund Shares; Shareholder Services
8. .......... Redemptions and Repurchases; Shareholder Services
9. .......... Not Applicable
</TABLE>
<TABLE>
<CAPTION>
PART B
ITEM STATEMENT OF ADDITIONAL INFORMATION
- ------------- -------------------------------------------------------
<S> <C>
10. ......... Cover Page
11. ......... Table of Contents
12. ......... The Fund and Its Management
13. ......... Investment Practices and Policies; Investment
Restrictions; Portfolio Transactions and Brokerage
14. ......... The Fund and Its Management; Trustees and Officers
15. ......... Trustees and Officers
16. ......... The Fund and Its Management; The Distributor; Custodian
and Transfer Agent; Independent Accountants
17. ......... Portfolio Transactions and Brokerage
18. ......... Description of Shares of the Fund;
19. ......... Redemption and Repurchases; Statement of Assets and
Liabilities; Shareholder Services
20. ......... Dividends, Distributions and Taxes
21. ......... The Distributor
22. ......... Performance Information
23. ......... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
FEBRUARY 1, 1996
Dean Witter Diversified Income Trust (the "Fund") is an open-end
diversified management investment company whose primary investment objective is
a high level of current income. As a secondary objective, the Fund seeks to
maximize total return but only to the extent consistent with its primary
objective. The Fund seeks to achieve its objectives by equally allocating its
assets among three separate groupings of various types of fixed income
securities. Up to one-third of the securities in which the Fund may invest will
include securities rated Baa/BBB or lower. (See "Investment Objective and
Policies.")
Shares of the Fund are continuously offered at net asset value without
the imposition of a sales charge. However, redemptions and/or repurchases are
subject in most cases to a contingent deferred sales charge, scaled down from
5% to 1% of the amount redeemed, if made within six years of purchase, which
charge will be paid to the Fund's Distributor, Dean Witter Distributors Inc.
See "Redemptions and Repurchases--Contingent Deferred Sales Charge." In
addition, the Fund pays the Distributor a Rule 12b-1 distribution fee
pursuant to a Plan of Distribution at the annual rate of 0.85% of the lesser
of the (i) average daily aggregate net sales or (ii) average daily net assets
of the Fund. See "Purchase of Fund Shares--Plan of Distribution."
This Prospectus sets forth concisely the information you should know
before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated February 1, 1996, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed below. The
Statement of Additional Information is incorporated herein by reference.
DIVERSIFIED INCOME TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
(800) 526-3143
869-NEWS (TOLL-FREE)
TABLE OF CONTENTS
Prospectus Summary/ 2
Summary of Fund Expenses/ 3
Financial Highlights/ 4
The Fund and its Management/ 4
Investment Objectives and Policies/ 5
Risk Considerations/ 12
Investment Restrictions/ 20
Purchase of Fund Shares/ 21
Shareholder Services/ 23
Redemptions and Repurchases/ 26
Dividends, Distributions and Taxes/ 28
Performance Information/ 29
Additional Information/ 30
Appendix--Ratings of Investments/ 31
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
<PAGE>
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The The Fund is organized as a Massachusetts business trust, and is an open-end diversified management
Fund investment company which allocates an equal portion of its total assets among three groupings of fixed-income
securities.
- ----------------- ------------------------------------------------------------------------------------------------------------
Shares Shares of beneficial interest with $0.01 par value (see page 28).
Offered
- ----------------- ------------------------------------------------------------------------------------------------------------
Offering At net asset value without sales charge (see page 20). Shares redeemed within six years of purchase are
Price subject to a contingent deferred sales charge under most circumstances (see pages 25-26).
- ----------------- ------------------------------------------------------------------------------------------------------------
Minimum Minimum initial investment, $1000 ($100 if the account is opened through EasyInvest); minimum subsequent
Purchase investment, $100 (see page 20).
- ----------------- ------------------------------------------------------------------------------------------------------------
Investment A high level of current income; total return (income plus capital appreciation) is a secondary objective.
Objectives
- ----------------- ------------------------------------------------------------------------------------------------------------
Investment A balanced allocation of assets consisting of approximately one-third of the Trust's assets invested equally
Policies in each of the following categories: 1. high quality fixed-income securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, issued or guaranteed by foreign governments, or issued by
foreign or U.S. companies which include bank instruments, commercial paper, loan participation interests and
certain indexed securities, which have remaining maturities at the time of purchase of not more than three
years; 2. high quality fixed rate and adjustable rate mortgage-backed securities and asset-backed securities
and U.S. Treasury securities; and 3. high yield, high risk fixed-income securities, primarily rated Baa/BBB
or lower, and non-rated securities of comparable quality. (see pages 5-19).
- ----------------- ------------------------------------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management
and administrative capacities to ninety-four investment companies and other portfolios with assets of
approximately $79.5 billion at December 31, 1995 (see page 4).
- ----------------- ------------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 0.40% of daily net assets (see page 5).
Fee
- ----------------- ------------------------------------------------------------------------------------------------------------
Dividends and Dividends are declared and paid monthly. Capital gains distributions, if any, are paid at least once a year
Capital Gains or are retained for reinvestment by the Fund. Dividends and capital gains distributions are automatically
Distributions invested in additional shares at net asset value unless the shareholder elects to receive cash (see page 26).
- ----------------- ------------------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. (the "Distributor"). The Distributor receives from the Fund a distribution fee
and accrued daily and payable monthly at the rate of 0.85% per annum of the lesser of (i) the Fund's average
Distribution daily aggregate net sales or (ii) the Fund's average daily net assets. This fee compensates the Distributor
Fee for the services provided in distributing shares of the Fund and for sales-related expenses. The Distributor
also receives the proceeds of any contingent deferred sales charges (see pages 20-21).
- ----------------- ------------------------------------------------------------------------------------------------------------
Redemption-- Shares are redeemable by the shareholder at net asset value. An account may be involuntarily redeemed if the
Contingent total value of the account is less than $100 or, if the account was opened through EasyInvest, if after
Deferred twelve months the shareholder has invested less than $1,000 in the account. Although no commission or sales
Sales load is imposed upon the purchase of shares, a contingent deferred sales charge (scaled down from 5% to 1%) is
Charge imposed on any redemption of shares if after such redemption the aggregate current value of an account
with the Fund falls below the aggregate amount of the investor's purchase payments made during the six years
preceding the redemption. However, there is no charge imposed on redemption of shares purchased through
reinvestment of dividends or distributions (see pages 25-26).
- ----------------- ------------------------------------------------------------------------------------------------------------
Risks The value of the Fund's portfolio securities, and therefore the net asset value of the Fund's shares, may
increase or decrease due to various factors, principally changes in prevailing interest rates. Generally, a
rise in interest rates will result in a decrease in net asset value, while a drop in interest rates will
result in an increase in net asset value. Mortgage-backed securities are subject to prepayments or
refinancings of the mortgage pools underlying such securities which may have an impact upon the yield and
the net asset value of the Fund's shares. Asset-backed securities involve risks resulting mainly from the
fact that such securities do not usually contain the complete benefit of a security interest in the related
collateral. Certain of the high yield, high risk fixed-income securities in which the Fund may invest are
subject to greater risk of loss of income and principal than the higher rated lower yielding fixed-income
securities. The foreign securities and markets in which the Fund will invest pose different and generally
greater risks than those risks customarily associated with domestic securities and markets including
fluctuations in foreign currency exchange rates, foreign tax rates and foreign securities exchange controls.
The Fund may enter into repurchase agreements and reverse repurchase agreements, may purchase securities on
a when-issued and delayed delivery basis and may utilize certain investment techniques including options and
futures for hedging purposes all of which involve certain special risks (see pages 11 through 18).
- ----------------- ------------------------------------------------------------------------------------------------------------
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in the Prospectus and in the Statement of Additional Information.
2
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The expenses and fees set forth in the table are for
the fiscal year ended October 31, 1995.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
- ---------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases .......................... None
Maximum Sales Charge Imposed on Reinvested Dividends ............... None
Deferred Sales Charge 5.0%
(as a percentage of the lesser of original purchase price
or redemption proceeds) .........................................
</TABLE>
A contingent deferred sales charge is imposed at the following declining
rates:
<TABLE>
<CAPTION>
Year Since Purchase Payment Made Percentage
- ------------------------------------ --------------
<S> <C>
First .............................. 5.0%
Second ............................. 4.0%
Third .............................. 3.0%
Fourth ............................. 2.0%
Fifth .............................. 2.0%
Sixth .............................. 1.0%
Seventh and thereafter ............. None
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Redemption Fees .................................................... None
Exchange Fee ....................................................... None
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
- -------------------------------------------------------------------------
Management Fees .................................................. 0.40%
12b-1 Fees* ...................................................... 0.85%
Other Expenses ................................................... 0.19%
Total Fund Operating Expenses .................................... 1.44%
</TABLE>
- ------------
* A portion of the 12b-1 fee equal to 0.20% of the Fund's average daily
net assets is characterized as a service fee within the meaning of
National Association of Securities Dealers, Inc. ("NASD") guidelines
(see "Purchase of Fund Shares").
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------- -------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period: ........................................ $65 $76 $99 $173
You would pay the following expenses on the same investment,
assuming no redemption: ................................... $15 $46 $79 $173
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements, notes thereto and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information. Further information about the performance of the Fund
is contained in the Fund's Annual Report to Shareholders, which may be
obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31 APRIL 9, 1992*
---------------------------------- THROUGH
1995 1994 1993 OCTOBER 31, 1992
- -------------------------------------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period . $ 9.37 $10.20 $10.01 $10.00
---------- ---------- ---------- ----------------
Net investment income ................. 0.77 0.74 0.77 0.37
Net realized and unrealized gain
(loss) ............................... 0.20 (0.80) 0.20 --
---------- ---------- ---------- ----------------
Total from investment operations ..... 0.97 (0.06) 0.97 0.37
---------- ---------- ---------- ----------------
Less dividends and distributions from:
Net investment income ................ (0.72) (0.64) (0.73) (0.36)
Net realized gain .................... -- (0.01) (0.05) --
Paid-in-capital ...................... -- (0.12) -- --
---------- ---------- ---------- ----------------
Total dividends and distributions .... (0.72) (0.77) (0.78) (0.36)
---------- ---------- ---------- ----------------
Net asset value, end of period ....... $ 9.62 $ 9.37 $10.20 $10.01
========== ========== ========== ================
TOTAL INVESTMENT RETURN+ .............. 10.76% (0.69)% 10.00% 3.73%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .............................. 1.44% 1.51% 1.58%(4) 0.85%(2)(3)
Net investment income ................. 8.30% 7.91% 7.92%(4) 7.86%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands ............................ $542,544 $407,038 $167,137 $55,297
Portfolio turnover rate ............... 87% 60% 117% 37%(1)
</TABLE>
- ------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 2.08% and 6.63%, respectively.
(4) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above expense and net
investment income ratios would have been 1.66% and 7.84%, respectively.
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Diversified 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 The Commonwealth of Massachusetts on December 20, 1991.
4
<PAGE>
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048,
is the Fund's Investment Manager. The Investment Manager, which was
incorporated in July, 1992, is a wholly-owned subsidiary of Dean Witter,
Discover & Co. ("DWDC"), a balanced financial services organization providing
a broad range of nationally marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-four investment companies, thirty of
which are listed on the New York Stock Exchange, with combined total assets
of approximately $76.9 billion as of December 31, 1995. The Investment
Manager also manages portfolios of pension plans, other institutions and
individuals which aggregated approximately $2.6 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. InterCapital has retained Dean Witter Services Company
Inc. to perform the aforementioned administrative services for the Fund. The
Fund's Trustees review the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general
investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory
manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.40% to the Fund's net assets determined as of the close of
each business day. For the fiscal year ended October 31, 1995, the Fund
accrued total compensation to the Investment Manager amounting to 0.40% of
the Fund's average daily net assets and the Fund's total expenses amounted to
1.44% of the Fund's average daily net assets.
INVESTMENT OBJECTIVES AND POLICIES
- -----------------------------------------------------------------------------
The primary investment objective of the Fund is to provide a high level of
current income. As a secondary objective the Fund seeks to maximize total
return but only to the extent consistent with its primary objective. The
investment objectives of the Fund are fundamental policies and may not be
changed without the approval of the holders of a majority of the Fund's
shares. There is no assurance that the Fund's investment objectives will be
achieved.
The Fund will seek to achieve its investment objectives by investing at
least 65% of its total assets in fixed-income securities and by equally
allocating, under normal circumstances, an approximately one-third portion of
its total assets among three separate groupings of various types of fixed-
income securities. The Investment Manager will adjust the Fund's assets not
less than quarterly to reflect any changes in the relative values of the
securities in each grouping so that following the adjustment the value of the
Fund's investments in each grouping will be equal to the extent practicable.
The three groupings in which the Fund will invest its total assets are as
follows:
1. High quality fixed-income securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or high quality fixed income
securities issued or guaranteed by a foreign government or supranational
organization or any of their political subdivisions, authorities, agencies or
instrumentalities or fixed income securities issued by a corporation, all of
which are rated AAA or AA by Standard & Poor's Corporation ("S&P") or Aaa or
Aa by Moody's Investors Service, Inc. ("Moody's") or, if unrated, are
determined by the Investment Manager to be of equivalent quality; in
certificates of deposit
5
CAPITAL PRINTING SYSTEMS]
<PAGE>
and bankers' acceptances issued or guaranteed by, or time deposits maintained
at, banks (including foreign branches of U.S. banks or U.S. or foreign
branches of foreign banks) having total assets of more than $500 million and
determined by the Investment Manager to be of high creditworthiness;
commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's or
Duff 1 or Duff 2 by Duff & Phelps Inc. or, if unrated, issued by U.S. or
foreign companies having outstanding debt securities rated A or higher by S&P
or Moody's; and in loan participation interests having a remaining term not
exceeding one year in loans extended by banks to such companies. Certain
foreign securities purchased by the Fund will not have received ratings by a
recognized U.S. rating agency. In such cases the Investment Manager will
review the issuers of such securities with respect to the quality of their
management, balance sheet and financial ratios, cash flows and earnings to
establish that the securities purchased by the Fund are of a comparable
quality to issuers receiving high quality ratings by a recognized U.S. rating
agency. All of the securities described above will have remaining maturities,
at the time of purchase, of not more than three years.
The Investment Manager will actively manage the Fund's assets in this
grouping in accordance with a global market strategy (see "Portfolio
Management," page 18). Consistent with such a strategy, the Investment
Manager intends to allocate the Fund's investments among securities
denominated in the currencies of a number of foreign countries and, within
each such country, among different types of debt securities. The Investment
Manager will adjust the Fund's exposure to different currencies based on its
perception of the most favorable markets and issuers. In allocating the
Fund's assets among various markets, the Investment Manager will assess the
relative yield and anticipated direction of interest rates in particular
markets, the level of inflation, liquidity and financial soundness of each
market, and the general market and economic conditions existing in each
market as well as the relationship of currencies of various countries to the
U.S. dollar and to each other. In its evaluations, the Investment Manager
will utilize its internal financial, economic and credit analysis resources
as well as information obtained from other sources.
A portion of the Fund's investments in securities of U.S. issuers are
likely to be in commercial paper, bankers acceptances and other short-term
debt instruments issued by U.S. corporations. However, at times during which
there exists large-scale political or economic uncertainty, the Fund is
likely to increase its investments in U.S. Government securities. In such
cases, the securities which the Fund is most likely to purchase are U.S.
Treasury bills and U.S. Treasury notes with remaining maturities of under
three years, both of which are direct obligations of the U.S. Government. The
Fund may also purchase securities issued by various agencies and
instrumentalities of the U.S. Government. These will include obligations
backed by the full faith and credit of the United States (such as those
issued by the Government National Mortgage Association); obligations whose
issuing agency or instrumentality has the right to borrow, to meet its
obligations, from an existing line of credit with the U.S. Treasury (such as
those issued by the Federal National Mortgage Association); and obligations
backed by the credit of the issuing agency or instrumentality (such as those
issued by the Federal Farm Credit System).
The securities in which the Fund will be investing may be denominated in
any currency or multinational currency, including the U.S. dollar. In
addition to the U.S. dollar, such currencies will include, among others: the
Australian dollar; Deutsche mark; Japanese yen; French franc; British pound;
Canadian dollar; Swiss franc; Dutch guilder; Austrian schilling; Spanish
peseta; Swedish krona; and European Currency Unit ("ECU").
The Fund may invest, without limitation in this grouping, in notes and
commercial paper, the principal amount of which is indexed to certain
specific foreign currency exchange rates. Indexed notes and commercial paper
typically provide that their principal amount is adjusted upwards or
downwards (but not below zero) at maturity to reflect fluctuations in the
exchange rate between two currencies during
6
<PAGE>
the period the obligation is outstanding, depending on the terms of the
specific security. In selecting the two currencies, the Investment Manager
will consider the correlation and relative yields of various currencies. The
Fund will purchase an indexed obligation using the currency in which it is
denominated and, at maturity, will receive interest and principal payments
thereon in that currency. The amount of principal payable by the issuer at
maturity, however, will vary (i.e., increase or decrease) in response to the
change (if any) in the exchange rates between the two specified currencies
during the period from the date the instrument is issued to its maturity
date. The potential for realizing gains as a result of changes in foreign
currency exchange rates may enable the Fund to hedge the currency in which
the obligation is denominated (or to effect cross-hedges against other
currencies) against a decline in the U.S. dollar value of investments
denominated in foreign currencies, while providing an attractive money market
rate of return. The Fund will purchase such indexed obligations to generate
current income or for hedging purposes and will not speculate in such
obligations.
As indicated above, the Fund may invest in securities denominated in a
multi-national currency unit. An illustration of a multi-national currency
unit is the ECU, which is a "basket" consisting of specified amounts of the
currencies of the member states of the European Community, a Western European
economic cooperative organization that includes, among other countries,
France, West Germany, The Netherlands and the United Kingdom. The specific
amounts of currencies comprising the ECU may be adjusted by the Council of
Ministers of the European Community to reflect changes in relative values of
the underlying currencies. The Investment Manager does not believe that such
adjustments will adversely affect holders of ECU-denominated obligations or
the marketability of such securities. European supranational entities, in
particular, issue ECU- denominated obligations. The Fund may invest in
securities denominated in the currency of one nation although issued by a
governmental entity, corporation or financial institution of another nation.
For example, the Fund may invest in a British pound- denominated obligation
issued by a United States corporation. Such investments involve credit risks
associated with the issuer and currency risks associated with the currency in
which the obligation is denominated.
2. (i) Fixed-rate and adjustable rate mortgage- backed securities
("Mortgage-Backed Securities") which are issued or guaranteed by the United
States Government, its agencies or instrumentalities or by private issuers
which are rated Aaa by Moody's or AAA by S&P or, if not rated, are determined
to be of comparable quality by the Investment Manager; (ii) securities backed
by other assets such as automobile or credit card receivables and home equity
loans ("Asset-Backed Securities") which are rated Aaa by Moody's or AAA by
S&P or, if not rated are determined to be of comparable quality by the
Investment Manager; (iii) U.S Treasury securities (bills, notes, bonds and
zero coupon securities) (without restrictions as to remaining maturity at
time of purchase) and (iv) U.S. Government agency securities (discount notes,
medium-term notes, debentures and zero coupon securities) (without
restrictions as to remaining maturity at time of purchase). The term
Mortgage-Backed Securities as used herein includes adjustable rate mortgage
securities and derivative mortgage products such as collateralized mortgage
obligations and stripped mortgage-backed securities, all as 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
7
<PAGE>
by private issuers that represent an interest in or are collateralized by
whole mortgage loans or Mortgage- Backed Securitieswithout 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 such as banks, broker-dealers
and financing corporations 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 may
invest include those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA
certificates are direct obligations of the U.S. Government and, as such, are
backed by the "full faith and credit" of the United States. FNMA 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. The U.S. Treasury has
no legal obligation to provide such line of credit and may choose not to do
so.
Certificates for Mortgage-Backed Securities evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the payment
of principal and interest on mortgages underlying the certificates, whether
or not such amounts are collected by the issuer on the underlying mortgages.
Adjustable Rate Mortgage Securities. The Fund may also invest in
adjustable rate mortgage securities ("ARMs"), which are pass-through mortgage
securities collateralized by mortgages with adjustable rather than fixed
rates. ARMs eligible for inclusion in a mortgage pool generally provide for a
fixed initial mortgage interest rate for either the first three, six, twelve
or thirteen scheduled monthly payments. Thereafter, the interest rates are
subject to periodic adjustment based on changes to a designated benchmark
index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain
ARMs provide for additional limitations on the maximum amount by which the
mortgage interest rate may adjust for any single adjustment period.
Alternatively, certain ARMs contain limitations on changes in the required
monthly payment. In the event that a monthly payment is not sufficient to pay
the interest accruing on an ARM, any such excess interest is added to the
principal balance of the mortgage loan, which is repaid through future
monthly payments. If the monthly payment for such an instrument exceeds the
sum of the interest accrued at the applicable mortgage interest rate and the
principal payment required at such point to amortize the outstanding
principal balance over the remaining term of the loan, the excess is utilized
to reduce the then outstanding principal balance of the ARM.
Private Mortgage Pass-Through Securities. 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 conven-
8
<PAGE>
tional fixed rate or adjustable rate mortgage loans. Since private mortgage
pass-through securities typically are not guaranteed by an entity having the
credit status of GNMA, FNMA and FHLMC, such securities generally are
structured with one or more types of credit enhancement.
Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. 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 a recent 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 semi-annual basis. Certain CMOs may have variable or
floating interest rates and others may be stripped (securities which provide
only the principal or interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of a CMO series in a number of different ways.
Generally, the purpose of the allocation of the cash flow of a CMO to the
various classes is to obtain a more predictable cash flow to the individual
tranches than exists with the underlying collateral of the CMO. As a general
rule, the more predictable the cash flow is on a CMO tranche, the lower the
anticipated yield will be on that tranche at the time of issuance relative to
prevailing market yields on Mortgage-Backed Securities. As part of the
process of creating more predictable cash flows on most of the tranches in a
series of CMOs, one or more tranches generally must be created that absorb
most of the volatility in the cash flows on the underlying mortgage loans.
The yields on these tranches are generally higher than prevailing market
yields on Mortgage-Backed Securities with similar maturities. As a result of
the uncertainty of the cash flows of these tranches, the market prices of and
yield on these tranches generally are more volatile.
The Fund also may invest in, among other things, parallel pay CMOs and
Planned Amortization
9
<PAGE>
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 repayments 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 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 a position. The Fund may not invest more than 10%
of its total assets in illiquid securities.
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 objectives and policies and applicable regulatory
requirements.
Zero Coupon Securities. A portion of the fixed- income securities
purchased by the Fund may be zero coupon securities. Such securities are
purchased at a discount from their face amount, giving
10
<PAGE>
the purchaser the right to receive their full value at maturity. The interest
earned on such securities is, implicitly, automatically compounded and paid
out at maturity. While such compounding at a constant rate eliminates the
risk of receiving lower yields upon reinvestment of interest if prevailing
interest rates decline, the owner of a zero coupon security will be unable to
participate in higher yields upon reinvestment of interest received on
interest-paying securities if prevailing interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities generally are subject to substantially
greater price fluctuations during periods of changing prevailing interest
rates than are comparable securities which pay interest on a current basis.
Current federal tax law requires that a holder (such as the Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the Fund receives no interest
payments in cash on the security during the year.
3. High yield, high risk fixed-income securities rated Baa or lower by
Moody's or BBB or lower by S&P or, if not rated, are determined by the
Investment Manager to be of comparable quality. The high yield, high risk
fixed-income securities in this grouping may include both convertible and
nonconvertible debt securities and preferred stock. Fixed-income securities
rated Baa by Moody's or BBB by S&P have speculative characteristics greater
than those of more highly rated bonds, while fixed-income securities rated Ba
or BB or lower by Moody's and Standard & Poor's, respectively, are considered
to be speculative investments. Furthermore, the Fund does not have any
minimum quality rating standard for its investments. As such, the Fund may
invest in securities rated as low as Caa, Ca or C by Moody's or CCC, CC, C or
C1 by Standard & Poor's. Fixed-income securities rated Caa or Ca by Moody's
may already be in default on payment of interest or principal, while bonds
rated C by Moody's, their lowest bond rating, can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
Bonds rated C1 by S&P, their lowest bond rating, are no longer making
interest payments.
During temporary defensive periods when market conditions warrant
reduction of some or all of the Fund's securities holdings or when
temporarily holding cash pending investment, this portion of the Fund may
invest in U.S. Treasury securities or other money market instruments. Under
such circumstances the money market instruments in which this portion of the
Fund may invest, in addition to U.S. Treasury securities (bills, notes, bonds
and zero coupons securities), are American bank obligations, such as
certificates of deposit; Eurodollar certificates of deposit; obligations of
American savings institutions; and commercial paper of American issuers rated
within the two highest grades by Moody's or S&P or, if not rated, are issued
by a company having an outstanding debt issue rated at least AA by S&P or Aa
by Moody's.
A description of corporate bond ratings is contained in the Appendix.
Non-rated securities will also be considered for investment by the Fund when
the terms of the securities themselves makes them appropriate investments for
the Fund.
The ratings of fixed-income securities by Moody's and S&P are a generally
accepted barometer of credit risk. However, as the creditworthiness of
issuers of lower-rated fixed-income securities is more problematical than
that of issuers of higher-rated fixed-income securities, the achievement of
the Fund's investment objectives will be more dependent upon the Investment
Manager's own credit analysis than would be the case with a mutual fund
investing primarily in higher quality bonds. The Investment Manager will
utilize a security's credit rating as simply one indication of an issuer's
creditworthiness and will principally rely upon its own analysis of any
security currently held by the Fund or potentially purchasable by the Fund
for its portfolio.
11
<PAGE>
RISK CONSIDERATIONS
All fixed-income securities are subject to two types of risks: the credit
risk and the interest rate risk. The credit risk relates to the ability of
the issuer to meet interest or principal payments or both as they come due.
Generally, higher yielding fixed-income securities are subject to a credit
risk to a greater extent than lower yielding fixed-income securities. The
interest rate risk refers to the fluctuations in the net asset value of any
portfolio of fixed-income securities resulting from the inverse relationship
between price and yield of fixed-income securities; that is, when the general
level of interest rates rises, the prices of outstanding fixed-income
securities decline, and when interest rates fall, prices rise.
Foreign Securities. Investors should carefully consider the risks of
investing in securities of foreign issuers and securities denominated in
non-U.S. currencies. Fluctuations in the relative rates of exchange between
the currencies of different nations may affect the value of the Fund's
investments. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Fund's assets denominated in
that currency and thereby impact upon the Fund's yield on such assets and the
net asset value of a share of the Fund as well as the value of the Fund's
distributions. For example, if a substantial portion of the Fund's assets are
denominated in Japanese yen and the relative exchange rate of the yen falls
with respect to the U.S. dollar (i.e., a yen is worth a smaller fraction of a
dollar than it had been) then the Fund will be receiving a lesser amount of
interest on its fixed-income securities denominated in yen (when converted
into U.S. dollars) and when the Fund's assets are valued for purposes of
determining the net asset value per share of the Fund, the net assets of the
Fund reflected by the yen-denominated securities will have declined in U.S.
dollar value and the net asset value of the Fund (always stated in U.S.
dollars) may have also declined.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade. The foreign currency
transactions of the Fund will be conducted on a spot basis or through forward
contracts or futures contracts (see below). The Fund may incur certain costs
in connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer
of Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available
information about such companies. Moreover, foreign companies are generally
not subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than the U.S. In addition,
differences in clearance and settlement procedures on foreign markets may
occasion delays in settlements of Fund trades effected in such markets.
Inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities and the inability of the Fund to make intended security purchases
due to settlement problems could result in a failure of the Fund to make
potentially advantageous investments.
-----------
Mortgage-Backed and Asset-Backed Securities. Mortgage-Backed and
Asset-Backed Securities have certain different characteristics than
traditional
12
<PAGE>
debt securities. Among the major differences are that interest and principal
payments are made more frequently, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if the Fund purchases such
a security at a premium, a prepayment rate that is faster than expected may
reduce yield to maturity, while a prepayment rate that is slower than
expected may have the opposite effect of increasing yield to maturity.
Alternatively, if the Fund purchases these securities at a discount, faster
than expected prepayments will increase, while slower than expected
prepayments may reduce, yield to maturity. 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 will seek to manage
these risks (and potential benefits) by investing in a variety of such
securities and through hedging techniques.
Mortgage-Backed 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 and Asset-Backed Securities.
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 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.
-----------
High Yield Securities. Because of the special nature of the Fund's
investment in high yield securities, commonly known as "junk bonds", the
Invest-
13
<PAGE>
ment Manager must take account of certain special considerations in assessing
the risks associated with such investments. Although the growth of the high
yield securities market in the 1980s had paralleled a long economic
expansion, recently many issuers have been affected by adverse economic and
market conditions. It should be recognized that an economic downturn or
increase in interest rates is likely to have a negative effect on the high
yield bond market and on the value of the high yield securities held by the
Fund, as well as on the ability of the securities' issuers to repay principal
and interest on their borrowings.
The prices of high yield securities have been found to be less sensitive
to changes in prevailing interest rates than higher-rated investments, but
are likely to be more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial
stress which would adversely affect their ability to service their principal
and interest payment obligations, to meet their projected business goals or
to obtain additional financing. If the issuer of a fixed-income security
owned by the Fund defaults, the Fund may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and change can be
expected to result in an increased volatility of market prices of high yield
securities and a concomitant volatility in the net asset value of a share of
the Fund. Moreover, the market prices of certain of the Fund's portfolio
securities which are structured as zero coupon and payment-in-kind securities
are affected to a greater extent by interest rate changes and thereby tend to
be more volatile than securities which pay interest periodically and in cash
(see "Dividends, Distributions and Taxes" for a discussion of the tax
ramifications of investments in such securities).
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse
effect on the market prices of certain securities. The limited liquidity of
the market may also adversely affect the ability of the Fund's Trustees to
arrive at a fair value for certain high yield securities at certain times and
could make it difficult for the Fund to sell certain securities.
New laws and proposed new laws may have a potentially negative impact on
the market for high yield bonds. For example, present legislation requires
federally-insured savings and loan associations to divest their investments
in high yield bonds. This legislation and other proposed legislation may have
an adverse effect upon the value of high yield securities and a concomitant
negative impact upon the net asset value of a share of the Fund.
During the fiscal year ended October 31, 1995, the monthly dollar weighted
average ratings of the debt obligations held by the Fund, expressed as a
percentage of the Fund's total investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
RATINGS INVESTMENTS
- ----------- ---------------------
<S> <C>
AAA/Aaa 67.2%
AA/Aa 1.3%
A/A 0.3%
BBB/Baa 0.6%
BB/Ba 6.6%
B/B 10.3%
CCC/Caa 9.2%
CC/Ca 0.0%
C/C 0.0%
D 0.0%
Unrated 4.5%
</TABLE>
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 pro-
14
<PAGE>
cedures designed to minimize those risks. These procedures include effecting
repurchase transactions only with large, well-capitalized and well-
established financial institutions whose financial condition will be
continually monitored by the Investment Manager subject to procedures
established by the Board of Trustees of the Fund. In addition, the value of
the collateral underlying the repurchase agreement will be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement.
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. During the reverse repurchase
agreement period, the Fund continues to receive principal and interest
payments on these securities. 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
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. 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.
There is no overall limit on the percentage of the Fund's assets which may be
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis may increase the volatility of the Fund's net asset
value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subse-
15
<PAGE>
quent event, such as approval of a merger, corporate reorganization,
leveraged buyout or debt restructuring. If the anticipated event does not
occur and the securities are not issued, the Fund will have lost an
investment opportunity. There is no overall limit on the percentage of the
Fund's assets which may be committed to the purchase of securities on a
"when, as and if issued" basis. An increase in the percentage of the Fund's
assets committed to the purchase of securities on a "when, as and if issued"
basis may increase the volatility of its net asset value.
Restricted Securities. The Fund may invest up to 5% of its total assets in
securities for which there is no readily available market including certain
of those which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act") or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are
not subject to the foregoing restriction.) These securities are generally
referred to as private placements or restricted securities. Limitations on
the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act of 1933, which permits the Fund to sell restricted securities
to qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by
the Fund. If a restricted security is determined to be "liquid," such
security will not be included within the category "illiquid securities,"
which under current policy may not exceed 15% of the Fund's total assets.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
cash equivalents such as money market instruments, 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. In the
event the borrower defaults on its obligation to return the loaned
securities, as a result of bankruptcy or otherwise, the Fund will seek to
sell the collateral, which action could involve costs or delays. In such case
the Fund's ability to recover its investment may be restricted or delayed.
Common Stocks. The Fund may invest in common stocks in an amount up to 20%
of its total assets in the circumstances described below when consistent with
the Fund's investment objectives.
The Fund may acquire common stocks when attached to or included in a unit
with fixed-income securities, or when acquired upon conversion of
fixed-income securities or upon exercise of warrants attached to fixed-income
securities and may purchase common stocks directly when such acquisitions are
determined by the Investment Manager to further the Fund's investment
objectives.
For example, the Fund may purchase the common stock of companies involved
in takeovers or recapitalizations where the issuer, or a controlling
stockholder, has offered, or pursuant to a "going private" transaction is
effecting, an exhange of its common stock for newly-issued fixed-income
securities. By purchasing the common stock of the company issuing the
fixed-income securities prior to the consummation of the transaction or
exchange offer, the Fund will be able to obtain the fixed- income securities
directly from the issuer at their face value, eliminating the payment of a
dealer's mark-up otherwise payable when fixed-income securities are acquired
from third parties, thereby
16
<PAGE>
increasing the net yield to the shareholders of the Fund. While the Fund will
incur brokerage commissions in connection with its purchase of common stocks,
it is anticipated that the amount of such commissions will be significantly
less than the amount of such mark-up.
Fixed-income securities acquired by the Fund through the purchase of
common stocks under the circumstances described in the preceding paragraph
are subject to the general credit risks and interest rate risks to which all
fixed-income securities purchased by the Fund are subject. Such securities
generally will be rated Baa/BBB or lower as are the other high yield, high
risk fixed income securities in which the Fund may invest. In addition, since
corporations involved in takeover situations are often highly leveraged, that
factor will be evaluated by the Investment Manager as part of its credit risk
determination with respect to the purchase of particular common stocks for
the Fund's investment portfolio. In the event the Fund purchases common stock
of a corporation in anticipation of a transaction (pursuant to which the
common stock is to be exchanged for fixed-income securities) which fails to
take place, the Investment Manager will continue to hold such common stocks
for the Fund's portfolio only if it determines that continuing to hold such
common stock under those circumstances is consistent with the Fund's
investment objectives.
OPTIONS AND FUTURES TRANSACTIONS
The Fund is permitted to enter into call and put options on its portfolio
securities, including U.S. Government Securities and Mortgage-Backed
Securities and on various foreign currencies which are listed on several U.S.
and foreign securities exchanges and are written in over-the-counter
transactions ("OTC options"). Listed options are issued or guaranteed by the
exchange on which they trade or by a clearing corporation such as the Options
Clearing Corporation ("OCC"). The Fund is permitted to write covered call
options on portfolio securities which are denominated in either U.S. dollars
or foreign currencies, without limit, in order to hedge against the decline
in the value of a security or currency in which such security is denominated
and to close out long call option positions. The Fund may purchase listed and
OTC call and put options in amounts equalling up to 5% of its total assets.
The Fund may purchase call options only to close out a covered call position
or to protect against an increase in the price of a security it anticipates
purchasing or, in the case of call options on a foreign currency, to hedge
against an adverse exchange rate change of the currency in which the security
it anticipates purchasing is denominated vis-a-vis the currency in which the
exercise price is denominated. The Fund may purchase put options on
securities which it holds in its portfolio only to protect itself against a
decline in the value of the security. The Fund may also purchase put options
to close out written put positions. There are no other limits on the Fund's
ability to purchase call and put options.
The Fund may purchase and sell financial futures contracts that are
currently traded, or may in the future be traded, on U.S. and foreign
commodity exchanges on such underlying fixed-income securities as U.S.
Treasury bonds, notes, and bills, Mortgage-Backed Securities and/or any
foreign government fixed-income security ("interest rate" futures), on
various currencies ("currency" futures) and on such indexes of U.S. or
foreign fixed-income securities as may exist or come into being, such as the
Moody's Investment Grade Corporate Bond Index ("index" futures). The Fund
will purchase or sell interest rate futures contracts for the purpose of
hedging some or all of the value of its portfolio securities (or anticipated
portfolio securities) against changes in prevailing interest rates. The Fund
will purchase or sell index futures contracts for the purpose of hedging some
or all of its portfolio (or anticipated portfolio) securities against changes
in their prices.
The Fund may also purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position. The Fund will
purchase and write options on futures contracts for identical purposes to
those
17
<PAGE>
set forth above for the purchase of a futures contract and the sale of a
futures contract or to close out a long or short position in futures
contracts.
Risks of Options and Futures Transactions. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures
contract, only if a liquid secondary market exists for options or futures
contracts of that series. There is no assurance that such a market will
exist, particularly in the case of OTC options, as such options will
generally only be closed out by entering into a closing purchase transaction
with the purchasing dealer. Also, Exchanges may limit the amount by which the
price of many futures contracts may move on any day. If the price moves equal
the daily limit on successive days, then it may prove impossible to liquidate
a futures position until the daily limit moves have ceased.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk is that the Fund's Investment Manager could be
incorrect in its expectations as to the direction or extent of various
interest rate or price movements or the time span within which the movements
take place. For example, if the Fund sold futures contracts for the sale of
securities in anticipation of an increase in interest rates, and then
interest rates went down instead, causing bond prices to rise, the Fund would
lose money on the sale. Another risk which will arise in employing futures
contracts to protect against the price volatility of portfolio securities is
that the prices of securities, currencies and indexes subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the U.S. dollar cash prices of the Fund's portfolio
securities and their denominated currencies. Another such risk is that prices
of interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the Fund seeks a hedge. See the
Statement of Additional Information for further discussion of such risks.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
In order to hedge against adverse price movements in the securities held
in its portfolio and the currencies in which they are denominated (as well as
the securities it might wish to purchase and their denominated currencies)
the Fund may engage in transactions in forward foreign currency contracts. A
forward foreign currency exchange contract ("forward contract") involves an
obligation to purchase or sell a currency at a future date, which may be any
fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. The Fund may enter into
forward contracts as a hedge against fluctuations in future foreign exchange
rates.
The Fund will enter into forward contracts under various circumstances.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in"
the price of the security in U.S. dollars or some other foreign currency
which the Fund is temporarily holding in its portfolio. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars or
other currency, of the amount of foreign currency involved in the underlying
security transactions, the Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between
the U.S. dollar or other currency which is being used for the security
purchase and the foreign currency in which the security is denominated during
the period between the date on which the security is purchased or sold and
the date on which payment is made or received.
At other times, when, for example, the Investment Manager believes that
the currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar or some other foreign currency, the Fund may enter
into a forward contract to sell, for a fixed amount of dollars or other
currency, the amount of foreign currency approximating the value of some or
all of the Fund's portfolio securities (or securities which the Fund has
purchased for its portfolio) denominated in such foreign
18
<PAGE>
currency. Under identical circumstances, the Fund may enter into a forward
contract to sell, for a fixed amount of U.S. dollars or other currency, an
amount of foreign currency other than the currency in which the securities to
be hedged are denominated approximating the value of some or all of the
portfolio securities to be hedged. This method of hedging, called
"cross-hedging," will be selected by the Investment Manager when it is
determined that the foreign currency in which the portfolio securities are
denominated has insufficient liquidity or are trading at a discount as
compared with some other foreign currency with which it tends to move in
tandem.
In addition, when the Fund's Investment Manager anticipates purchasing
securities at some time in the future, and wishes to lock in the current
exchange rate of the currency in which those securities are denominated
against the U.S. dollar or some other foreign currency, the Fund may enter
into a forward contract to purchase an amount of currency equal to some or
all of the value of the anticipated purchase, for a fixed amount of U.S.
dollars or other currency. The Fund may, however, close out the forward
contract prior to purchasing the security which was the subject of the
anticipatory hedge.
Lastly, the Fund is permitted to enter into forward contracts with respect
to currencies in which certain of its portfolio securities are denominated
and on which options have been written (see "Options and Futures
transactions").
In all of the above circumstances, if the currency in which the Fund's
portfolio securities (or anticipated portfolio securities) are denominated
rises in value with respect to the currency which is being purchased (or
sold), then the Fund will have realized fewer gains than had the Fund not
entered into the forward contracts. Moreover, the precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible, since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and
the date it matures. The successful use of the foregoing investment practices
draws upon the Investment Manager's special skills and experience with
respect to such instruments and usually depends upon the Investment Manager's
ability to forecast currency exchange rate movements correctly. Should
exchange rates move in an unexpected manner, the Fund may not achieve the
anticipated benefits of forward contracts or may realize losses and thus be
in a worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts and options on futures contracts, there are
no daily price fluctuation limits with respect to options on currencies and
forward contracts, and adverse market movements could therefore continue to
an unlimited extent over a period of time. In addition, the correlation
between movements in the prices of such instruments and movements in the
price of currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.
The Fund is not required to enter into such transactions with regard to
its foreign currency-denominated securities and will not do so unless deemed
appropriate by the Investment Manager. The Fund generally will not enter into
a forward contract with a term of greater than one year, although it may
enter into forward contracts for periods of up to five years. The Fund may be
limited in its ability to enter into hedging transactions involving forward
contracts by the Internal Revenue Code requirements relating to
qualifications as a regulated investment company (see "Dividends,
Distributions and Taxes").
Except as specified, the investment policies and practices discussed above
are not fundamental policies of the Fund and may be changed without
shareholder approval.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objectives. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on
19
<PAGE>
information from various sources, including the rating of the security,
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 own analysis of factors
they deem relevant. The Fund is managed within InterCapital's Taxable Income
Group, which manages 25 funds and fund portfolios, with approximately $13.5
billion in assets at December 31, 1995. Peter M. Avelar, Rajesh K. Gupta and
Vinh Q. Tran have been the primary portfolio managers of the Fund since its
inception. Peter M. Avelar, Senior Vice President of InterCapital, has been
managing portfolios comprised of high yield fixed-income securities at
InterCapital for over five years. Rajesh K. Gupta, Senior Vice President of
InterCapital, has been managing portfolios comprised of government securities
at InterCapital for over five years. Vinh Q. Tran, Vice President of
InterCapital, has been managing portfolios comprised of worldwide
fixed-income securities at InterCapital for over five years.
Securities purchased by the Fund are generally sold by dealers acting as
principal for their own accounts. Brokerage commissions are not normally
charged but such transactions generally involve costs in the form of spreads
between bid and asked prices. Orders for transactions in other portfolio
securities and commodities are placed for the Fund with a number of brokers
and dealers, including Dean Witter Reynolds Inc. ("DWR") a broker-dealer
affiliate of InterCapital. Pursuant to an order of the Securities and
Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with DWR. In addition, the Fund may incur brokerage
commissions on transactions conducted through DWR.
The Fund may sell portfolio securities without regard to the length of
time that they have been held, in order to take advantage of new investment
opportunities or yield differentials, or because the Fund desires to preserve
gains or limit losses due to changing economic conditions, interest rate
trends, or the financial condition of the issuer.
The expenses of the Fund relating to its portfolio management are likely
to be greater than those incurred by other investment companies investing
primarily in securities issued by domestic issuers such as custodial costs,
brokerage commissions and other transaction charges related to investing on
foreign markets are generally higher than in the United States. Short-term
gains and losses may result from the aforementioned portfolio transactions.
See "Dividends, Distributions and Taxes" for a discussion of the tax
implications of the Fund's trading policy.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For
purposes of the following limitations (with the exception of Restriction 4):
(i) all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets
does not require elimination of any security from the portfolio.
The Fund may not:
1. Invest more than 5% of its total assets in the securities of any one
issuer (other than obligations of, or guaranteed by, the United States
Government, its agencies or instrumentalities).
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years
of continuous operation. This restriction shall not apply to Mortgage-Backed
20
<PAGE>
and Asset-Backed Securities or to any obligation issued or guaranteed by the
United States Government, its agencies or instrumentalities.
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 total assets in Mortgage-Backed Securities under normal market
conditions. For the purpose of this restriction, gas, electric, water and
telephone utilities will be treated as being a separate industry. This
restriction does not apply to obligations issued or guaranteed by the United
States Government or its agencies or instrumentalities.
4. Borrow money in excess of 33 1/3 % of the Fund's total assets
(including the proceeds of the borrowings).
5. Purchase more than 10% of the voting securities, or more than 10% of
any class of securities, of any issuer. For purposes of this restriction, all
outstanding debt securities of an issuer are considered as one class and all
preferred stocks of an issuer are considered as one class.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment
Manager, shares of the Fund are distributed by the Distributor and offered by
DWR and other dealers 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 Diversified
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. The minimum initial purchase in the case
of investments through EasyInvest, an automatic purchase plan (see
"Shareholder Services"), is $100, provided that the schedule of automatic
investments will result in investments totalling at least $1,000 within the
first twelve months. In the case of investments pursuant to Systematic
Payroll Deduction Plans (including Individual Retirement Plans), the Fund, in
its discretion, may accept investments without regard to any minimum amounts
which would otherwise be required if the Fund has reason to believe that
additional investments will increase the investment in all accounts under
such Plans to at least $1,000. Certificates for shares purchased will not be
issued unless a request is made by the shareholder in writing to the Transfer
Agent. The offering price will be the net asset value per share next
determined following receipt of an order (see "Determination of Net Asset
Value").
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. As noted above, orders placed directly with the Transfer
Agent must be accompanied by payment. Investors will be entitled to receive
dividends and capital gains distributions if their order is received by the
close of business on the day prior to the record date for such distributions.
While no sales charge is imposed at the time shares are purchased, a
contingent deferred sales charge may be imposed at the time of redemption
(see "Redemptions and Repurchases"). Sales personnel are compensated for
selling shares of the Fund at the time of their sale
21
<PAGE>
by the Distributor and/or Selected Broker-Dealer. In addition, some sales
personnel of the Selected Broker-Dealer will receive various types of
non-cash compensation as special sales incentives, including trips,
educational and/or business seminars and merchandise. The Fund and the
Distributor reserve the right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan"), under which the Fund pays the Distributor a fee, which
is accrued daily and payable monthly, at an annual rate of 0.85% of the
lesser of: (a) the average daily aggregate gross sales of the Fund's shares
since the inception of the Fund (not including reinvestments of dividends or
capital gains distributions), less the average daily aggregate net asset
value of the Fund's shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived; or (b) the
Fund's average daily net assets. This fee is treated by the Fund as an
expense in the year it is accrued. A portion of the fee payable pursuant to
the Plan, equal to 0.20% of the Fund's average daily net assets, is
characterized as a service fee within the meaning of NASD guidelines. The
service fee is a payment made for personal and/or maintenance of shareholder
accounts.
Amounts paid under the Plan are paid to the Distributor to compensate it
for the services provided and the expenses borne by the Distributor and
others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares and incentive compensation to and
expenses of DWR's account executives and others who engage in or support
distribution of shares, including overhead and telephone expenses; printing
and distribution of prospectuses and reports used in connection with the
offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan to compensate DWR and other Selected Broker-Dealers for their
opportunity costs in advancing such amounts, which compensation would be in
the form of a carrying charge on any unreimbursed distribution expenses.
For the fiscal year ended October 31, 1995, the Fund accrued payments
under the Plan amounting to $3,986,348, which amount is equal to 0.85% of the
Fund's average daily net assets for the fiscal period. These payments accrued
under the Plan were calculated pursuant to clause (b) of the compensation
formula under the Plan.
At any given time, the expenses in distributing shares of the Fund may be
in excess of the total of (i) the payments made by the Fund pursuant to the
Plan, and (ii) the proceeds of contingent deferred sales charges paid by
investors upon the redemption of shares (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge"). For example, if $1 million
in expenses in distributing shares of the Fund had been incurred and $750,000
had been received as described in (i) and (ii) above, the excess expense
would amount to $250,000. The Distributor has advised the Fund that such
excess amount, including the carrying charge described above, totalled
$10,053,611 at October 31, 1995, which was equal to 1.85% of the Fund's net
assets on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses or any requirement
that the Plan be continued from year to year, this excess amount does not
constitute a liability of the Fund. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan, and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated the Trustees will consider at that time the manner in
which to treat such expenses. Any cumulative expenses incurred, but not yet
recovered through distribution fees or contingent deferred sales charges, may
or may not be recovered through future distribution fees or contingent
deferred sales charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined by taking the
value of all the assets of
22
<PAGE>
the Fund, subtracting all liabilities, dividing by the number of shares
outstanding and adjusting the result to the nearest cent. The net asset value
per share is determined by the Investment Manager as of 4:00 P.M. New York
time (or, on days when the New York Stock Exchange closes prior to 4:00 P.M.,
at such earlier time) on each day that the New York Stock Exchange is open.
The net asset value per share will not be determined on Good Friday and on
such other federal and non-federal holidays as are observed by the New York
Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange or quoted by NASDAQ is valued at its
latest sale price on that exchange or quotation service prior to the time
assets are valued; if there were no sales that day, the security is valued at
the latest bid price (in cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market pursuant to procedures adopted by the Trustees); and (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price. When market quotations are not
readily available, including circumstances under which it is determined by
the Investment Manager that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Fund's Trustees. For valuation purposes,
quotations of foreign portfolio securities, other assets and liabilities and
forward contracts stated in foreign currency are translated into U.S. dollar
equivalents at the prevailing market rates prior to the close of the New York
Stock Exchange.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service utilizes
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
Generally, trading in foreign securities, as well as corporate bonds,
United States Government securities and money market instruments, is
substantially completed each day at various times prior to the regular close
of the New York Stock Exchange. The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior to
the regular close of the New York Stock Exchange. Occasionally, events which
affect the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the New York
Stock Exchange and will therefore not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith under procedures established by
and under the supervision of the Trustees.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the 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
23
<PAGE>
that they be paid in cash. Shares so acquired are not subject to the
imposition of a contingent deferred sales charge upon their redemption (see
"Redemptions and Repurchases").
EasyInvest (Service Mark) . 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 Fund's Transfer Agent for
investment in shares of the Fund. (See "Purchase of Fund Shares" and
"Redemptions and Repurchases--Involuntary Redemption").
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September, December) checks in any dollar amount, not less than $25, or in
any whole percentage of the account balance, on an annualized basis. Any
applicable contingent deferred sales charge will be imposed on shares
redeemed under the Withdrawal Plan (see "Redemptions and Repurchases--
Contingent Deferred Sales Charge"). Therefore, any shareholder participating
in the Withdrawal Plan will have sufficient shares redeemed from his or her
account so that the proceeds (net of any applicable contingent deferred sales
charge) to the shareholder will be the designated monthly or quarterly
amount.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
Tax Sheltered Retirement Plans. Retirement plans are available through the
Distributor for use by corporations, the self-employed, eligible Individual
Retirement Accounts and Custodial Accounts under Section 403(b)(7) of the
Internal Revenue Code. Adoption of such plans should be on advice of legal
counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the
Transfer Agent.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for shares of other Dean Witter
Funds sold with a contingent deferred sales charge ("CDSC funds"), and for
shares of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited
Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced
Growth Fund, Dean Witter Balanced Income Fund, Dean Witter Intermediate Term
U.S. Treasury Trust and five Dean Witter Funds which are money market funds
(the foregoing eleven non-CDSC funds are hereinafter referred to as the
"Exchange Funds"). Exchanges may be made after the shares of the Fund
acquired by purchase (not by exchange or dividend reinvestment) have been
held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share
of each fund after the exchange order is received. When exchanging into a
money market fund from the Fund, shares of the Fund are redeemed out of the
Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following business day. Subsequent exchanges
between any of the money market funds and any of the CDSC funds can be
effected on the same basis. No contingent deferred sales charge ("CDSC") is
imposed at the time of any exchange, although any applicable CDSC will be
imposed upon ultimate redemption. Shares of the Fund acquired in exchange for
shares of another CDSC fund having a different CDSC schedule than that of
this Fund will be subject to the CDSC schedule of this Fund, even if such
shares are subsequently re-exchanged for
24
<PAGE>
shares of the CDSC fund originally purchased. During the period of time the
shareholder remains in the Exchange Fund (calculated from the last day of the
month in which the Exchange Fund shares were acquired), the holding period
(for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently reexchanged for shares of a CDSC fund, the holding
period previously frozen when the first exchange was made resumes on the last
day of the month in which shares of a CDSC fund are reacquired. Thus, the
CDSC is based upon the time (calculated as described above) the shareholder
was invested in a CDSC fund (see "Redemptions and Repurchases--Contingent
Deferred Sales Charge"). However, in the case of shares of the Fund exchanged
into an Exchange Fund, upon a redemption of shares which results in a CDSC
being imposed, a credit (not to exceed the amount of the CDSC) will be given
in an amount equal to the Exchange Fund 12b-1 distribution fees which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds") but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for
shares of other Dean Witter Funds for which shares of a front-end sales
charge fund have been exchanged) are not subject to any CDSC upon their
redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders
and, at the Investment Manager's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor.
Although the Fund does not have any specific definition of what constitutes a
pattern of frequent exchanges, and will consider all relevant factors in
determining whether a particular situation is abusive and contrary to the
best interests of the Fund and its other shareholders, investors should be
aware that the Fund and each of the other Dean Witter Funds may in their
discretion limit or otherwise restrict the number of times this Exchange
Privilege may be exercised by any investor. Any such restriction will be made
by the Fund on a prospective basis only, upon notice to the shareholder not
later than ten days following such shareholder's most recent exchange.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated
for federal income tax purposes the same as a repurchase or redemption of
shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in
situations where there is an exchange of shares wihin ninety days after the
shares are purchased. The Exchange Privilege is only available in states
where an exchange may legally be made.
Also, the Exchange Privilege may be terminated or revised at any time by
the Fund and/or any of such Dean Witter Funds for which shares of the Fund
may be exchanged, upon such notice as may be required by applicable
regulatory agencies.
If DWR or other Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their 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
25
<PAGE>
which may be obtained from the Transfer Agent, to initiate an exchange. If
the Authorization Form is used, exchanges may be made in writing or by
contacting the Transfer Agent at (800) 869-NEWS (toll free). The Fund will
employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. Such procedures may include
requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may
also be recorded. If such procedures are not employed, the Fund may be liable
for any losses due to unauthorized or fraudulent instructions. Telephone
exchange instructions will be accepted if received by the Transfer Agent
between 9:00 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
experience of the Dean Witter Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. Shares of the Fund can be redeemed for cash at any time at
their current net asset value per share next determined; however, such
redemption proceeds may be reduced by the amount of any applicable contingent
deferred sales charges (see below). If shares are held in a shareholder's
account without a share certificate, a written request for redemption sent to
the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required.
If certificates are held by the shareholder(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.
Contingent Deferred Sales Charge. Shares of the Fund which are held for
six years or more after purchase (calculated from the last day of the month
in which the shares were purchased) will not be subject to any charge upon
redemption. Shares redeemed sooner than six years after purchase may,
however, be subject to a charge upon redemption. This charge is called a
"contingent deferred sales charge" ("CDSC"), which will be a percentage of
the dollar amount of shares redeemed and will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The size of this percentage will depend upon how long the shares
have been held, as set forth in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- -------------------------- -----------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption;
(ii) the current net asset value of shares purchased more than six years
prior to the redemption; and (iii) the current net asset value of shares
26
<PAGE>
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Dean Witter Funds sold with a front-end
sales charge or of other Dean Witter Funds acquired in exchange for such
shares. Moreover, in determining whether a CDSC is applicable it will be
assumed that amounts described in (i), (ii) and (iii) above (in that order)
are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in
a qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination
of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self- employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2 );
(B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2 ; or (C) a tax-free return of an excess contribution
to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) of
the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which Dean Witter Trust
Company, an affiliate of the Investment Manager, serves as recordkeeper or
Trustee ("Eligible 401(k) Plan"), provided that either: (A) the plan
continues to be an Eligible 401(k) Plan after the redemption; or (B) the
redemption is in connection with the complete termination of the plan
involving the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
Repurchase. DWR and other Selected Broker- Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker- Dealers
upon the telephonic request of the shareholder. The repurchase price is the
net asset value next computed (see "Purchase of Fund Shares") after such
repurchase order is received by DWR or other Selected Broker-Dealer, reduced
by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund, the
Distributor, DWR, and other Selected Broker-Dealers. The offer by DWR and
other Selected Broker-Dealers to repurchase shares may be suspended without
notice by them at any time. In that event, shareholders may redeem their
shares through the Fund's Transfer Agent as set forth above under
"Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances. If the shares to be redeemed have
recently been purchased by check, payment of the redemption pro-
27
<PAGE>
ceeds may be delayed for the minimum time needed to verify that the check
used for investment has been honored (not more than fifteen days from the
time of receipt of the check by the Transfer Agent). Shareholders maintaining
margin accounts with DWR or another Selected Broker-Dealer are referred to
their account executive regarding restrictions on redemption of shares of the
Fund pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the redemption or
repurchase, reinstate any portion or all of the proceeds of such redemption
or repurchase in shares of the Fund at the net asset value next determined
after a reinstatement request, together with the proceeds, is received by the
Transfer Agent and receive a pro rata credit for any CDSC paid in connection
with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right, on sixty days'
notice, to redeem at their net asset value the shares of any shareholder
(other than shares held in an Individual Retirement Account or Custodial
Account under Section 403(b)(7) of the Internal Revenue Code) whose shares
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 or, in the case of an account opened through
EasyInvest, if after twelve months the shareholder has invested less than
$1,000 in the account. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund intends to declare and pay monthly
income dividends and to distribute net short-term and net long-term capital
gains, if any, at least once each year. The Fund may, however, determine
either to distribute or to retain all or a portion of any long-term capital
gains in any year for reinvestment.
All dividends and capital gains distributions will be paid in additional
Fund shares and automatically credited to the shareholder's account without
issuance of a share certificate unless the shareholder requests in writing
that all dividends and/or distributions be paid in cash. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions".)
Taxes. Because the Fund intends to distribute all of its net investment
income and net 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.
Gains or losses on the Fund's transactions in certain listed options on
and futures and options on futures traded on U.S. exchanges generally are
treated as 60% long-term gain or loss and 40% short-term gain or loss. When
the Fund engages in options and futures transactions, various tax regulations
applicable to the Fund may have the effect of causing the Fund to recognize a
gain or loss for tax purposes before that gain or loss is realized, or to
defer recognition of a realized loss for tax purposes. Recognition, for tax
purposes, of an unrealized loss may result in a lesser amount of the Fund's
realized net gains being available for distribution.
Shareholders 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
28
<PAGE>
dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash.
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. Since the Fund's income is expected
to be derived primarily from interest rather than dividends, only a small
portion, if any, of the Fund's dividends and distributions is expected to be
eligible for the dividends received deduction to corporation shareholders.
After the end of the calendar year, shareholders will receive full
information on their dividends and capital gains distributions for tax
purposes.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished
and certified as to their accuracy. Shareholders who are not citizens or
residents of, or entities organized in, the United States may be subject to
withholding taxes of up to 30% on certain payments received from the Fund.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and has made the appropriate election with the Internal Revenue Service, the
Fund will report annually to its shareholders the amount per share of such
taxes, to enable shareholders to claim United States foreign tax credits or
deductions with respect to such taxes. In the absence of such an election,
the Fund would deduct foreign tax in computing the amount of its
distributable income.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject
to state and local taxes; therefore, each shareholder is advised to consult
his or her own tax adviser.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return
of the Fund are based on historical earnings and are not intended to indicate
future performance. The yield of the Fund is computed by dividing the Fund's
net investment income over a 30-day period by an average value (using the
average number of shares entitled to receive dividends and the net asset
value per share at the end of the period), all in accordance with applicable
regulatory requirements. Such amount is compounded for six months and then
annualized for a twelve-month period to derive the Fund's yield.
The "average annual total return" of the Fund refers to a figure
reflecting the average annualized percentage increase (or decrease) in the
value of an initial investment in the Fund of $1,000 over 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 and all expenses incurred
by the Fund, for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, and year-by-year
or other types of total return figures. The Fund may also advertise the
growth of hypothetical investments of $10,000, $50,000 and $100,000 in shares
of the Fund. The Fund from time to time may also advertise its performance
relative to certain performance rankings and indexes compiled by independent
organizations (such as mutual fund performance rankings of Lipper Analytical
Services, Inc.).
29
<PAGE>
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 the
obligations of the Fund. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Fund, requires that Fund obligations include such disclaimer and provides for
indemnification and reimbursement of expenses out of the Fund's property for
any shareholder held personally liable for the obligations of the Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be
unable to meet its obligations. Given the above limitations on shareholder
personal liability and the nature of the Fund's assets and operations, the
possibility of the Fund being unable to meet its obligations is remote and,
in the opinion of Massachusetts counsel to the Fund, the risk to Fund
shareholders of personal liability is remote.
Code of Ethics. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no Dean Witter Fund is engaged at
the same time in a purchase or sale of the same security. The Code of Ethics
bans the purchase of securities in an initial public offering, and also
prohibits engaging in futures and options transactions and profiting on
short-term trading (that is, a purchase within sixty days of a sale or a sale
within sixty days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account
within thirty days before or after any transaction in any Dean Witter Fund
managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the recent report by the Investment Company Institute
Advisory Group on Personal Investing.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone number or address set forth on the front cover
of this Prospectus.
30
<PAGE>
APPENDIX--RATINGS OF INVESTMENTS
- -----------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
<TABLE>
<CAPTION>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected
nor poorly secured. Interest payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as
well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal payments may be very moderate, and therefore
not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable investments. Assurance of interest
and principal payments or of maintenance of other terms of the contract over any long period of time may
be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements
of danger with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
</TABLE>
31
<PAGE>
Conditional Rating: Municipal bonds for which the security depends upon
the completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience,
(c) rentals which begin when facilities are completed, or (d) payments to
which some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination of
basis of condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in
each generic rating classification from Aa through B in its corporate and
municipal bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and a modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess
of nine months. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3
have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
<TABLE>
<CAPTION>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest-rated
issues only in small degree.
32
<PAGE>
A Debt rated A has a strong capacity to pay interest and repay principal although they are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher-rated
categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated BB has less near-term vulnerability to default than other speculative grade debt. However, it faces major
ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payment.
B Debt rated B has a greater vulnerability to default but presently has the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic conditions would likely impair capacity or willingness
to pay interest and repay principal.
CCC Debt rated CCC has a current identifiable vulnerability to default, and is dependent upon favorable business, financial
and economic conditions to meet timely payments of interest and repayments of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal.
CC The rating CC is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC
rating.
C The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC--debt
rating.
CI The rating CI is reserved for income bonds on which no interest is being paid.
NR Indicates that no rating has been requested, that there is insufficient information on which to base a rating or
that Standard & Poor's does not rate a particular type of obligation as a matter of policy.
Bonds rated BB, B, CCC, CC and C are regarded as having predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show
relative standing within the major ratings categories.
In the case of municipal bonds, the foregoing ratings are sometimes followed by a "p" which indicates that the rating
is provisional. A provisional rating assumes the successful completion of the project being financed by the bonds
being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood or risk of default upon failure of such completion.
</TABLE>
33
<PAGE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to
purchase or sell a security. The ratings are based upon current information
furnished by the issuer or obtained by S&P from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded into
group categories, ranging from "A" for the highest quality obligations to "D"
for the lowest. Ratings are applicable to both taxable and tax-exempt
commercial paper. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2 and 3 to indicate the relative degree of safety.
<TABLE>
<CAPTION>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong. However, the relative degree
of safety is not as overwhelming as for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this designation are, however, somewhat
more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
</TABLE>
34
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS
Dean Witter Liquid Asset Fund Inc.
Dean Witter Tax-Free Daily Income Trust
Dean Witter U.S. Government Money Market Trust
Dean Witter California Tax-Free Daily Income Trust
Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
Dean Witter American Value Fund
Dean Witter Natural Resource Development Securities Inc.
Dean Witter Dividend Growth Securities Inc.
Dean Witter Developing Growth Securities Trust
Dean Witter World Wide Investment Trust
Dean Witter Equity Income Trust
Dean Witter Value-Added Market Series
Dean Witter Utilities Fund
Dean Witter Capital Growth Securities
Dean Witter European Growth Fund Inc.
Dean Witter Pacific Growth Fund Inc.
Dean Witter Precious Metals and Minerals Trust
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth Securities
Dean Witter Global Utilities Fund
Dean Witter International SmallCap Fund
Dean Witter Mid-Cap Growth Fund
Dean Witter Balanced Growth Fund
Dean Witter Capital Appreciation Fund
Dean Witter Information Fund
FIXED-INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter New York Tax-Free Income Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income Securities
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal Trust
Dean Witter Short-Term Bond Fund
Dean Witter National Municipal Trust
Dean Witter High Income Securities
Dean Witter Balanced Income Fund
Dean Witter Hawaii Municipal Trust
Dean Witter Intermediate Term U.S. Treasury Trust
DEAN WITTER RETIREMENT SERIES
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
ASSET ALLOCATION FUNDS
Dean Witter Strategist Fund
Dean Witter Global Asset Allocation Fund
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
<PAGE>
Dean Witter
Diversified Income Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Peter M. Avelar
Vice President
Rajesh K. Gupta
Vice President
Vinh Q. Tran
Vice President
Thomas F. Caloia
Treasurer
CUSTODIANS
The Bank of New York
90 Washington Street
New York, New York 10286
The Chase Manhattan Bank
One Chase Plaza
New York, New York 10005
TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital, Inc.
DEAN WITTER
DIVERSIFIED
INCOME
TRUST
PROSPECTUS--FEBRUARY 1, 1996
<PAGE>
DEAN WITTER
DIVERSIFIED
INCOME
TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1996
- -----------------------------------------------------------------------------
Dean Witter Diversified Income Trust (the "Fund") is an open-end,
diversified management investment company whose primary investment objective
is a high level of current income. As a secondary objective, the Fund seeks
to maximize total return but only to the extent consistent with its primary
objective. The Fund seeks to achieve its investment objectives by equally
allocating its assets among three separate groupings of various types of
fixed income securities. Certain of the securities in which the Fund may
invest will include securities rated Baa/BBB or lower.
A Prospectus for the Fund dated February 1, 1996, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below
or from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean
Witter Reynolds Inc. at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the
Prospectus.
Dean Witter
Diversified Income Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management ............ 3
Trustees and Officers .................. 6
Investment Practices and Policies ..... 12
Investment Restrictions ................ 31
Portfolio Transactions and Brokerage.... 32
The Distributor ........................ 34
Shareholder Services ................... 37
Redemptions and Repurchases ............ 42
Dividends, Distributions and Taxes .... 44
Performance Information ................ 46
Description of Shares of the Fund ..... 47
Custodian and Transfer Agent .......... 47
Independent Accountants ................ 48
Reports to Shareholders ................ 48
Legal Counsel .......................... 48
Experts ................................ 48
Registration Statement ................. 48
Financial Statements--October 31, 1995.. 49
Report of Independent Accountants ..... 67
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on December 20, 1991.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment
Manager"), a Delaware corporation, whose address is Two World Trade Center,
New York, New York 10048, is the Fund's Investment Manager. InterCapital is a
wholly-owned subsidiary of Dean Witter, Discover & Co. ("DWDC") a Delaware
corporation. In an internal reorganization which took place in January, 1993,
InterCapital assumed the investment advisory, administrative and management
activities previously performed by the InterCapital Division of Dean Witter
Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital. (As 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 to Dean Witter InterCapital Inc. thereafter). The
daily management of the Fund is conducted by or under the direction of
officers of the Fund and of the Investment Manager, subject to review 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 and
administrator) of the following investment companies: Dean Witter Liquid
Asset Fund Inc., InterCapital Income Securities Inc., InterCapital Insured
Municipal Bond Trust, InterCapital Quality Municipal Investment Trust,
InterCapital Insured Municipal Trust, InterCapital Quality Municipal Income
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, InterCapital Insured Municipal Securities,
InterCapital California Insured Municipal Securities, Dean Witter High Yield
Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
Developing Growth Securities Trust, Dean Witter Tax-Exempt Securities Trust,
Dean Witter Natural Resource Development Securities Inc., Dean Witter
Dividend Growth Securities Inc., Dean Witter American Value Fund, Dean Witter
U.S. Government Money Market Trust, Dean Witter Variable Investment Series,
Dean Witter World Wide Investment Trust, Dean Witter Select Municipal
Reinvestment Fund, Dean Witter U.S. Government Securities Trust, Dean Witter
California Tax-Free Income Fund, Dean Witter Equity Income Trust, Dean Witter
New York Tax-Free Income Fund, Dean Witter-Convertible Securities Trust, Dean
Witter Federal Securities Trust, Dean Witter Value-Added Market Series, High
Income Advantage Trust, High Income Advantage Trust II, High Income Advantage
Trust III, Dean Witter Government Income Trust, Dean Witter Utilities Fund,
Dean Witter California Tax-Free Daily Income Trust, Dean Witter Strategist
Fund, Dean Witter World Wide Income Trust, Dean Witter Intermediate Income
Securities, Dean Witter New York Municipal Money Market Trust, Dean Witter
Capital Growth Securities, Dean Witter European Growth Fund Inc., Dean Witter
Precious Metals and Minerals Trust, Dean Witter Global Short-Term Income Fund
Inc., Dean Witter Pacific Growth Fund Inc., Dean Witter Multi-State Municipal
Series Trust, Dean Witter Premier Income Trust, Dean Witter Short-Term U.S.
Treasury Trust, Dean Witter Health Sciences Trust, Dean Witter Retirement
Series, Dean Witter Limited Term Municipal Trust, Dean Witter Short-Term
Bond, Dean Witter Global Dividend Growth Securities, Dean Witter Global
Utilities Fund, Dean Witter National Municipal Trust, Dean Witter High Income
Securities, Dean Witter International Small Cap Fund, Dean Witter Mid-Cap
Growth Fund, Dean Witter Select Dimensions Investment Series, Dean Witter
Global Asset Allocation Fund, Dean Witter Balanced Growth Fund, Dean Witter
Balanced Income Fund, Dean Witter Hawaii Municipal Trust, Dean Witter Capital
Appreciation Fund, Dean Witter Intermediate Term U.S. Treasury Trust, Dean
Witter Information Fund, Active Assets Money Trust, Active Assets Tax-Free
Trust, Active Assets California Tax-Free Trust, Active Assets Government
Securities Trust, Municipal Income Trust, Municipal Income Trust II,
Municipal Income Trust III, Municipal Income Opportunities Trust, Municipal
Income Opportunities Trust II, Municipal Income Opportunities Trust III,
Prime Income Trust and Municipal Premium Income Trust. The foregoing
3
<PAGE>
investment companies, together with the Fund, are collectively referred to as
the Dean Witter Funds. In addition, InterCapital serves as manager for the
following companies for which TCW Funds Management, Inc. is the investment
adviser: TCW/DW Core Equity Trust, TCW/DW North American Government Income
Trust, TCW/DW Latin American Growth Fund, TCW/DW Income and Growth Fund,
TCW/DW Small Cap Growth Fund, TCW/DW Balanced Fund, TCW/DW Total Return
Trust, TCW/DW Mid-Cap Equity Trust, TCW/DW Emerging Market Opportunities
Trust, TCW/DW Term Trust 2000, TCW/DW Term Trust 2002 and TCW/DW Term Trust
2003 (the "TCW/DW Funds"). InterCapital also serves as (i) sub-adviser to
Templeton Global Opportunities Trust, an open-end investment company; (ii)
administrator of The Black Rock Strategic Term Trust Inc., a closed-end
investment company; and (iii) sub-administrator of Mass Mutual Participation
Investors and Templeton Global Governments Income Trust, closed-end
investment companies.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage
the investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the
preparation of prospectuses, proxy statements and reports required to be
filed with Federal and state securities commissions (except insofar as the
participation or assistance of independent accountants and attorneys is, in
the opinion of the Investment Manager, necessary or desirable). In addition,
the Investment Manager pays the salaries of all personnel, including officers
of the Fund, who are employees of the Investment Manager. The Investment
Manager also bears the cost of telephone service, heat, light, power and
other utilities provided to the Fund.
Effective December 31, 1993, pursuant to a Services Agreement between
InterCapital and DWSC, DWSC began to provide the administrative services to
the Fund which were previously performed directly by InterCapital. On April
17, 1995, DWSC was reorganized in the State of Delaware, necessitating the
entry into a new Services Agreement by InterCapital and DWSC on that date.
The foregoing internal reorganizations did not result in any change in the
nature or scope of the administrative services being provided to the Fund or
any of the fees being paid by the Fund for the overall services being
performed under the terms of the existing Management Agreement.
Expenses not expressly assumed by the Investment Manager under the
Agreement (see "The Fund and its Management" in the Prospectus), or by the
Distributor of the 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 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 proxy statements and reports to shareholders;
fees and travel expenses of Trustees or members of any advisory board or
committee who are not employees of the Investment Manager or any corporate
affiliate of the Investment Manager; all expenses incident to any dividend,
withdrawal or redemption options; charges and expenses of any outside service
used for pricing of the Fund's shares; fees and expenses of legal counsel,
including counsel to the Trustees who are not interested persons of the Fund
or of the Investment Manager (not including compensation or expenses of
attorneys who are employees of the Investment Manager) and independent
accountants; membership dues of industry associations; interest on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Trustees) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification relating thereto); and all other
costs of the Fund's operation.
4
<PAGE>
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.40% to the net assets of the Fund, determined as of the
close of each business day. 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 applicable limitations as the
same may be amended from time to time. Presently, the most restrictive
limitation to which the Fund is subject is as follows: if, in any fiscal
year, the Fund's total operating expenses, exclusive of taxes, interest,
brokerage fees, distribution fees and extraordinary expenses (to the extent
permitted by applicable state securities laws and regulations), exceed
2 1/2% of the first $30,000,000 of average daily net assets, 2% of the next
$70,000,000 and 1 1/2 % of any excess over $100,000,000, the Investment
Manager will reimburse the Fund for the amount of such excess. Such amount,
if any, will be calculated daily and credited on a monthly basis. The
Investment Manager assumed all operating expenses (except the 12b-1 fee and
brokerage fees) and waived the compensation provided for in the Management
Agreement until January 1, 1993. For the fiscal years ended October 31, 1994
and October 31, 1995, the Fund did not exceed the expense limitation. During
the fiscal period April 9, 1992 through October 31, 1992, the fee payable
under the Management Agreement was waived by the Investment Manager. Total
compensation accrued to the Investment Manager under the Agreement for the
fiscal year ended October 31, 1993 (after fee waiver and expense assumption)
and for the fiscal years ended October 31, 1994 and October 31, 1995 amounted
to $375,426, $1,257,413 and $1,875,972, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Investment Manager has paid the organizational expenses of the Fund
prior to the offering of the Fund's shares. The Fund has agreed to reimburse
the Investment Manager for such expenses in an amount up to a maximum of
$200,000. The Fund has deferred and is amortizing the organizational expenses
on the straight-line method over a period not to exceed five years from the
date of commencement of the Fund's operations.
The Agreement was initially approved by the Board of Trustees on October
30, 1992 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on January 12, 1993. The Agreement is substantially
identical to a prior investment management agreement which was initially
approved by the Board of Trustees on January 23, 1992, and by DWR, as the
then sole shareholder of the Fund on February 25, 1992. The Agreement took
effect on June 30, 1993 upon the spin-off by Sears, Roebuck and Co. of its
remaining shares of DWDC. The Agreement may be terminated at any time,
without penalty, on thirty days' notice by the Board of Trustees of the Fund,
by the holders of a majority, as defined in the Investment Company Act of
1940, as amended (the "Act"), of the outstanding shares of the Fund, or by
the Investment Manager. The Agreement will automatically terminate in the
event of its assignment (as defined in the Act). Under its terms, the
Agreement had an initial term ending April 30, 1994 and will remain in effect
from year to year thereafter, provided continuance of the Agreement is
approved at least annually by the vote of the holders of a majority, as
defined in the Act, of the outstanding shares of the Fund, or by the Board of
Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Fund who
are not parties to the Agreement or "interested persons" (as defined in the
Act) of any such party, which vote must be cast in person at a meeting called
for the purpose of voting on such approval. At their meeting held on April
20, 1995, the Fund's Board of Trustees, including all of the Independent
Trustees, approved the continuation of the Agreement until April 30, 1996.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWR. The Fund has agreed that DWR or its parent company may use or, at any
time, permit others to use, the name "Dean Witter". The Fund has also agreed
that in the event the Agreement is terminated, or if the affiliation between
InterCapital and its parent is terminated, the Fund will eliminate the name
"Dean Witter" from its name if DWR or its parent company shall so request.
5
<PAGE>
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital and with the 79 Dean Witter Funds and the 12 TCW/DW Funds are
shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------------- --------------------------------------------------------
<S> <C>
Michael Bozic (54) Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Dean Witter Funds; formerly President and Chief Executive
6111 Broken Sound Parkway, N.W. Officer of Hills Department Stores (May, 1991-July, 1995);
Boca Raton, Florida formerly Chairman and Chief Executive Officer (January,
1987-August, 1990) and President and Chief Operating Officer
(August, 1990-February, 1991) of the Sears Merchandise Group
of Sears, Roebuck and Co.; Director or Trustee of the Dean
Witter Funds; Director of Eaglemark Financial Services Inc.,
the United Negro College Fund, Weirton Steel Corporation and
Domain Inc. (home decor retailer).
Charles A. Fiumefreddo* (62) Chairman, Chief Executive Officer and Director of InterCapital,
Chairman of the Board, Dean Witter Distributors Inc. and DWSC; Executive Vice President
President, Chief Executive Officer and Trustee and Director of DWR; Chairman, Director or Trustee, President
Two World Trade Center and Chief Executive Officer of the Dean Witter Funds; Chairman,
New York, New York Chief Executive Officer and Trustee of the TCW/DW Funds; Chairman
and Director of Dean Witter Trust Company ("DWTC"); Director
and/or officer of various DWDC subsidiaries; formerly Executive
Vice President and Director of DWDC (until February, 1993).
Edwin J. Garn (63) Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah) (1974- 1992) and Chairman, Senate
c/o Huntsman Chemical Corporation Banking Committee (1980-1986); formerly Mayor of Salt Lake
500 Huntsman Way City, Utah (1971-1974); formerly Astronaut, Space Shuttle
Salt Lake City, Utah Discovery (April 12-19, 1985); Vice Chairman, Huntsman Chemical
Corporation (since January, 1993); Director of Franklin Quest
(time management systems) and John Alden Financial Corporation;
member of the board of various civic and charitable
organizations.
John R. Haire (70) Chairman of the Audit Committee and Chairman of the Committee
Trustee of the Independent Directors or Trustees and Director or Trustee
Two World Trade Center of the Dean Witter Funds; Trustee of the TCW/DW Funds; formerly
New York, New York President, Council for Aid to Education (1978-October, 1989),
Chairman and Chief Executive Officer of Anchor Corporation,
an Investment Adviser (1964-1978); Director of Washington
National Corporation (insurance).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------------- --------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (46) Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm; Koch Professor of International Economics and Director
c/o Johnson Smick International, Inc. of the Center for Global Market Studies at George Mason
1133 Connecticut Avenue, N.W. University (since September, 1990); Director or Trustee of
Washington, D.C. the Dean Witter Funds; Trustee of the TCW/DW Funds; Director
of NASDAQ (since June, 1995); Co-Chairman and a founder of
the Group of Seven Council (G7C), an international economic
commission (since September, 1990); Director of Greenwich
Capital Markets, Inc. (broker-dealer); formerly Vice Chairman
of the Board of Governors of the Federal Reserve System
(February, 1986-August, 1990) and Assistant Secretary of the
U.S. Treasury (1982-1986).
Paul Kolton (72) Director or Trustee of the Dean Witter Funds; Chairman of
Trustee the Audit Committee and Chairman of the Committee of the
c/o Gordon Altman Butowsky Weitzen Independent Trustees and Trustee of the TCW/DW Funds; formerly
Shalov & Wein Chairman of the Financial Accounting Standards Advisory Council
Counsel to the Independent Trustees and Chairman and Chief Executive Officer of the American Stock
114 West 47th Street Exchange; Director of UCC Investors Holding Inc. (Uniroyal
New York, New York Chemical Company Inc.); Director or trustee of various
not-for-profit organizations.
Michael E. Nugent (59) General Partner, Triumph Capital, L.P., a private investment
Trustee partnership (since April, 1988); Director or Trustee of the
c/o Triumph Capital, L.P. Dean Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital Corporation
New York, New York (1984-1988); Director of various business organizations.
Philip J. Purcell* (52) Chairman of the Board of Directors and Chief Executive Officer
Trustee of DWDC, DWR and Novus Credit Services Inc.; Director of
Two World Trade Center InterCapital, DWSC and Distributors; Director or Trustee of
New York, New York the Dean Witter Funds; Director and/or officer of various
DWDC subsidiaries.
John L. Schroeder (65) Retired; formerly Executive Vice President and Chief Investment
Trustee Officer of the Home Insurance Company (August,
c/o Gordon Altman Butowsky 1991-September, 1995); Director or Trustee of the Dean Witter
Weitzen, Shalov & Wein Funds; Director of Citizens Utilities Company; formerly
Counsel to the Independent Trustees Chairman and Chief Investment Officer of Axe-Houghton
114 West 47th Street Management and the Axe-Houghton Funds (April, 1983-June, 1991)
New York, New York and President of USF&G Financial Services, Inc. (June,
1990-June, 1991).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------------------- --------------------------------------------------------
<S> <C>
Sheldon Curtis (64) Senior Vice President and General Counsel of InterCapital;
Vice President, Secretary and General Counsel ior Vice President, Assistant Secretary and Assistant
Two World Trade Center General Counsel of Dean Witter Distributors Inc.; Senior Vice
New York, New York President and Secretary of DWTC (since October, 1989); Assistant
Secretary of DWR; Vice President, Secretary and General Counsel
of the Dean Witter Funds and the TCW/DW Funds.
Peter M. Avelar (37) Senior Vice President of InterCapital (since April, 1992);
Vice President Vice President of various Dean Witter Funds; formerly Vice
Two World Trade Center President of InterCapital (December, 1990-April, 1992).
New York, New York
Rajesh K. Gupta (35) Senior Vice President of InterCapital (since April, 1991);
Vice President previously Vice President of InterCapital; Vice President
Two World Trade Center of various Dean Witter Funds.
New York, New York
Vinh Q. Tran (49) Vice President of InterCapital (since February, 1989); Vice
Vice President President of various Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (49) First Vice President (since May, 1991) and Assistant Treasurer
Treasurer (since January, 1993) of InterCapital; First Vice President
Two World Trade Center and Assistant Treasurer of DWSC and Treasurer of the Dean
New York, New York Witter Funds and the TCW/DW Funds; previously Vice President
of InterCapital.
</TABLE>
- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Robert M. Scanlan, President of InterCapital and Chief
Operating Officer of InterCapital and DWSC, Executive Vice President of
Distributors and DWTC and Director of DWTC, David A. Hughey, Executive Vice
President and Chief Administrative Officer of InterCapital, DWSC,
Distributors and DWTC and Director of DWTC, Edmund C. Puckhaber, Executive
Vice President of InterCapital, Robert S. Giambrone, Senior Vice President of
InterCapital, DWSC, Distributors and DWTC and Joseph J. McAlinden, Senior
Vice President of InterCapital, are Vice Presidents of the Fund, and Barry
Fink and Marilyn K. Cranney, First Vice Presidents of InterCapital, and Lou
Anne D. McInnis and Ruth Rossi, Vice Presidents and Assistant General
Counsels of InterCapital, and Carsten Otto, a Staff Attorney with
InterCapital, are Assistant Secretaries of the Fund.
BOARD OF TRUSTEES; RESPONSIBILITIES AND COMPENSATION OF INDEPENDENT TRUSTEES
The Board of Trustees consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of
this Statement of Additional Information, there are a total of 79 Dean Witter
Funds, comprised of 119 portfolios. As of December 31, 1995, the Dean Witter
Funds had total net assets of approximately $71.5 billion and more than five
million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own
any stock or other securities issued by InterCapital's parent company, DWDC.
These are the "disinterested" or "independent" Trustees. The other two
Trustees (the "Management Trustees") are affiliated with InterCapital. Five
of the seven Independent Trustees are also Independent Trustees of the TCW/DW
Funds.
8
<PAGE>
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Dean Witter Funds seek as Independent
Trustees individuals of distinction and experience in business and finance,
government service or academia; these are people whose advice and counsel are
valuable and in demand by others and for whom there is often competition. To
accept a position on the Funds' Boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their
time. Indeed, by serving on the Funds' Boards, certain Trustees who would be
qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the Independent Trustees serve as members of the Audit Committee
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the calendar year ended December
31, 1995, the three Committees held a combined total of fifteen meetings. The
Committees hold some meetings at InterCapital's offices and some outside of
InterCapital. Management directors do not attend these meetings, unless and
until they are invited for purposes of furnishing information or making a
report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements, continually
reviewing Fund performance, checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Most of the Dean Witter Funds
have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has established a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEES
The Chairman of the Committees maintains an office at the Funds'
headquarters in New York. He is responsible for keeping abreast of regulatory
and industry developments and the Funds' operations and management. He
screens and/or prepares written materials and identifies critical issues for
the Independent Trustees to consider, develops agendas for Committee
meetings, determines the type and amount of information that the Committees
will need to form a judgment on the issues, and arranges to have that
information furnished to Committee members. He also arranges for the services
of independent experts and consults with them in advance of meetings to help
refine reports and to focus on critical issues. Members of the Committees
believe that the person who serves as Chairman of all three Committees and
guides their efforts is pivotal to the effective functioning of the
Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service
providers. In effect, the Chairman of the Committees serves as a combination
of chief executive and support staff of the Independent Trustees.
The Chairman of the Committees is not employed by any other organization
and devotes his time primarily to the services he performs as Committee
Chairman and Independent Trustee of the Dean Witter Funds and as an
Independent Trustee of the TCW/DW Funds. The current Committee Chairman has
had more than 35 years experience as a senior executive in the investment
company industry.
9
<PAGE>
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of
separate groups of Independent Trustees arriving at conflicting decisions
regarding operations and management of the Funds and avoids the cost and
confusion that would likely ensue. Finally, having the same Independent
Trustees serve on all Fund Boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of Independent
Trustees, and a Chairman of their Committees, of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 ($1,200
prior to September 30, 1995) plus a per meeting fee of $50 for meetings of
the Board of Trustees or committees of the Board of Trustees attended by the
Trustee (the Fund pays the Chairman of the Audit Committee an annual fee of
$750 ($1,000 prior to January 1, 1995) and pays the Chairman of the Committee
of the Independent Trustees an additional annual fee of $2,400, in each case
inclusive of the Committee meeting fees). The Fund also reimburses such
Trustees for travel and other out-of-pocket expenses incurred by them in
connection with attending such meetings. Trustees and officers of the Fund
who are or have been employed by the Investment Manager or an affiliated
company receive no compensation or expense reimbursement from the Fund.
The Fund has adopted a retirement program under which an Independent
Trustee who retires after serving for at least five years (or such lesser
period as may be determined by the Board) as an Independent Director or
Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Trustee referred to
as an "Eligible Trustee") is entitled to retirement payments upon reaching
the eligible retirement age (normally, after attaining age 72). Annual
payments are based upon length of service. Currently, upon retirement, each
Eligible Trustee is entitled to receive from the Fund, commencing as of his
or her retirement date and continuing for the remainder of his or her life,
an annual retirement benefit (the "Regular Benefit") equal to 25.0% of his or
her Eligible Compensation plus 0.4166666% of such Eligible Compensation for
each full month of service as an Independent Director or Trustee of any
Adopting Fund in excess of five years up to a maximum of 50.0% after ten
years of service. The foregoing percentages may be changed by the Board.(1)
"Eligible Compensation" is one-fifth of the total compensation earned by such
Eligible Trustee for service to the Fund in the five year period prior to the
date of the Eligible Trustee's retirement. Benefits under the retirement
program are not secured or funded by the Fund. As of the date of this
Statement of Additional Information, 57 Dean Witter Funds have adopted the
retirement program.
- ------------
(1) An Eligible Trustee may elect alternate payments of his or her
retirement benefits based upon the combined life expectancy of such
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. The amount estimated to be payable under this
method, through the remainder of the later of the lives of such Eligible
Trustee and spouse, will be the actuarial equivalent of the Regular
Benefit. In addition, the Eligible Trustee may elect that the surviving
spouse's periodic payment of benefits will be equal to either 50% or
100% of the previous periodic amount, an election that, respectively,
increases or decreases the previous periodic amount so that the
resulting payments will be the actuarial equivalent of the Regular
Benefit.
10
<PAGE>
The following table illustrates the compensation paid and the retirement
benefits accrued to the Fund's Independent Trustees by the Fund for the
fiscal year ended October 31, 1995 and the estimated retirement benefits for
the Fund's Independent Trustees as of October 31, 1995.
<TABLE>
<CAPTION>
FUND COMPENSATION ESTIMATED RETIREMENT BENEFITS
-------------------------------- ---------------------------------------------------------------
ESTIMATED
RETIREMENT CREDITED YEARS ESTIMATED ESTIMATED
AGGREGATE BENEFITS OF SERVICE AT PERCENTAGE OF ESTIMATED ANNUAL
NAME OF INDEPENDENT COMPENSATION ACCRUED AS FUND RETIREMENT ELIGIBLE ELIGIBLE BENEFITS UPON
TRUSTEE FROM THE FUND EXPENSES (MAXIMUM 10) COMPENSATION COMPENSATION(2) RETIREMENT(3)
- -------------------------- --------------- --------------- -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack F. Bennett ........... $1,900 $2,244 8 46.0% $1,283 $ 590
Michael Bozic ............. 1,900 379 10 57.5 1,950 1,121
Edwin J. Garn ............. 2,000 740 10 57.5 1,950 1,121
John R. Haire ............. 4,600(4) 5,903 10 57.5 4,245 2,441
Dr. Manuel H. Johnson .... 2,000 291 10 57.5 1,950 1,121
Paul Kolton ............... 2,000 2,348 10 57.0 1,445 824
Michael E. Nugent ......... 1,850 553 10 57.5 1,950 1,121
John L. Schroeder ......... 2,000 744 8 47.9 1,950 934
</TABLE>
- ------------
(2) Based on current levels of compensation.
(3) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(4) Of Mr. Haire's compensation from the Fund, $3,400 was paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($1,000).
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1995 for
services to the 79 Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Kolton and Nugent, the 11 TCW/DW Funds that were in operation at
December 31, 1995. With respect to Messrs. Haire, Johnson, Kolton and Nugent,
the TCW/DW Funds are included solely because of a limited exchange privilege
between those Funds and five Dean Witter Money Market Funds. Mr. Schroeder
was elected as a Trustee of the TCW/DW Funds on April 20, 1995.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS TOTAL CASH
FOR SERVICE AS CHAIRMAN OF COMPENSATION
DIRECTOR OR FOR SERVICE AS COMMITTEES OF FOR SERVICES
TRUSTEE AND TRUSTEE AND INDEPENDENT TO 79 DEAN
COMMITTEE MEMBER COMMITTEE MEMBER DIRECTORS/ WITTER FUNDS
NAME OF INDEPENDENT OF 79 DEAN OF 11 TCW/DW TRUSTEES AND AND 11 TCW/DW
TRUSTEE WITTER FUNDS FUNDS AUDIT COMMITTEES FUNDS
- -------------------------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Michael Bozic ............. $126,050 -- -- $126,050
Edwin J. Garn ............. 136,450 -- -- 136,450
John R. Haire ............. 98,450 $82,038 $217,350(5) 397,838
Dr. Manuel H. Johnson .... 136,450 82,038 -- 218,488
Paul Kolton ............... 136,450 54,788 36,900(6) 228,138
Michael E. Nugent ......... 124,200 75,038 -- 199,238
John L. Schroeder ......... 136,450 46,964 -- 183,414
</TABLE>
- ------------
(5) For the 79 Dean Witter Funds in operation at December 31, 1995.
(6) For the 11 TCW/DW Funds in operation at December 31, 1995.
11
<PAGE>
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
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. The U.S. Treasury has no legal obligation to provide
such line of credit and may choose not to do so.
(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,
economic factors and fiscal and monetary policies. Generally, as prevailing
interest rates rise, the value of any U.S. Government securities held by the
Fund will fall. Such securities with longer maturities generally tend to
produce higher yields and are subject to greater market fluctuation as a
result of changes in interest rates than debt securities with shorter
maturities.
MORTGAGE-BACKED SECURITIES
Certain of the U.S. Government securities in which the Fund may invest,
e.g., certificates issued by GNMA, FNMA and FHLMC, are "mortgage-backed
securities," which 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 timely payment of the principal and
interest on mortgages underlying the certificates, whether or not such
amounts are collected by the issuer on the underlying mortgages. (A
pass-through security is formed when mortgages are pooled together and
undivided interests in the pool or pools are sold. The cash flow from the
mortgages is passed through to the holders of the securities in the form of
periodic payments of interest, principal and prepayments net of a service
fee).
The average life of such certificates varies with the maturities of the
underlying mortgage instruments, which may be up to thirty years but which
may include mortgage instruments with maturities
12
<PAGE>
of fifteen years, adjustable rate mortgage instruments, variable rate
mortgage instruments, graduated rate mortgage instruments and/or other types
of mortgage instruments. The assumed average life of mortgages backing the
majority of GNMA and FNMA certificates is twelve years, and of FHLMC
certificates is ten years. This average life is likely to be substantially
shorter than the original maturity of the mortgage pools underlying the
certificates, as a pool's duration may be shortened by unscheduled or early
payments of principal on the underlying mortgages. (Such prepayments occur
when the holder of an individual mortgage prepays the remaining principal
before the mortgage's scheduled maturity date.) In periods of falling
interest rates, the rate of prepayment tends to increase thereby shortening
the actual average life of a pool of mortgage-related securities. Conversely,
in periods of rising rates, the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the pool. Prepayment rates vary
widely, and therefore it is not possible to accurately predict the average
life or realized yield of a particular pool.
The occurrence of mortgage prepayments is affected by factors including
the prevailing level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
Prepayment rates are important because of their effect on the yield and price
of the securities. If the Fund has purchased securities backed by pools
containing mortgages whose yields exceed the prevailing interest rate, any
premium (i.e., a price in excess of principal amount) paid for such
securities may be lost. As a result, the net asset value of shares of the
Fund and the Fund's ability to achieve its investment objectives may be
adversely affected by mortgage prepayments.
GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed securities, which
evidence an undivided interest in a pool or pools of mortgages insured by the
Federal Housing Administration ("FHA") or the Farmers Home Administration or
guaranteed by the Veterans Administration ("VA"). The GNMA Certificates that
the Fund will invest in are the "modified pass-through" type in that GNMA
guarantees the timely payment of monthly installments of principal and
interest due on the mortgage pool whether or not such amounts are collected
by the issuer on the underlying mortgages. The National Housing Act provides
that the full faith and credit of the United States is pledged to the timely
payment of principal and interest by GNMA of the amounts due on the GNMA
Certificates. Additionally, GNMA is empowered to borrow without limitation
from the U.S. Treasury if necessary to make any payments required under its
guarantee.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments some of which have maturities of 30 years.
The average life of the GNMA Certificate is likely to be substantially less
than the original maturity of the underlying mortgage pool because of
prepayments or refinancing of the mortgages or foreclosure. (Due to GNMA
guarantee, foreclosures impose no risk to principal investments.) Statistics
indicate that the average life of the type of mortgages backing the majority
of GNMA Certificates is approximately 12 years and for this reason it is
standard practice to treat GNMA Certificates as 30-year mortgage-backed
securities which prepay fully in the twelfth year.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the actual maturities of the underlying
instruments and the associated average life assumption. Historically, actual
average life has been consistent with the 12-year assumption referred to
above. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificates. Such
prepayments are passed through to the registered holder of the Certificate
along with the regular monthly payments of principal and interest, which has
the effect of reducing future payments, and consequently the yield.
Reinvestment by the Fund of prepayments may occur at higher or lower interest
rates than the original investment.
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
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.
13
<PAGE>
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. The FHLMC
has the right, however, to borrow from an existing line of credit with the
U.S. Treasury in order to meet its obligations.
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.
FNMA Certificates. The Federal National Mortgage Association ("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. FNMA Certificates have an assumed average life similar
to GNMA Certificates.
ZERO COUPON SECURITIES
Zero coupon securities are debt obligations which do not entitle the
holder to any periodic payments prior to maturity and are issued and trade at
a discount from their face amounts. The discount varies depending on the time
remaining until maturity, prevailing interest rates, liquidity of the
security and perceived credit quality of the issuer. There are currently two
basic types of zero coupon securities, those created by separating the
interest and principal components of a previously issued interest-paying
security and those originally issued in the form of a face amount only
security with no interest payments prior to maturity. Zero coupon securities
may be created by separating the interest and principal
14
<PAGE>
components of securities (i) issued or guaranteed by the U.S. Government or
one of its agencies or instrumentalities or (ii) issued or guaranteed by
municipal issuers or (iii) issued by private corporate issuers. In addition,
they may be issued directly by private corporate or tax-exempt issuers. The
U.S. Treasury zero coupon securities in which the Trust may invest will
either be acquired through the U.S. Treasury's STRIPS program in which
selected Treasury securities are maintained in the book-entry system operated
by the Federal Reserve Banks in a manner that permits separate trading and
ownership of the component interest and principal payments on such Treasury
securities or through the acquisition of deposit receipts which evidence
ownership of direct interests in such component parts. Investment banks may
strip U.S. Treasury and municipal securities and sell the strips under
proprietary names. Zero coupon securities of the U.S. Government and certain
of its agencies and instrumentalities, foreign governments, private issuers
and municipal issuers, including state and local governments and certain of
their agencies and instrumentalities, are currently available.
Zero coupon securities do not entitle the holder to any periodic payments
prior to maturity and therefore are issued and trade at a discount from their
face or par value. The discount, in the absence of financial difficulties of
the issuer, decreases as the final maturity of the security approaches. Zero
coupon securities can be sold prior to their due date in the secondary market
at the then prevailing market price, which depends primarily on the time
remaining to maturity, prevailing levels of interest rates and the perceived
credit quality of the issuer. The market prices of zero coupon securities are
more volatile than the market prices of securities of comparable quality and
similar maturity that pay interest periodically and may respond to a greater
degree to fluctuations in interest rates than do such non-zero coupon
securities.
Because accrued income on zero coupon securities of municipal issuers is
generally not taxable to holders, zero coupon securities of municipal issuers
have lower yields than other zero coupon securities. The accrued income on
securities in which the Trust intends to invest will generally not be taxable
to the Trust; however, when distributed to shareholders, the accrued income
will be taxed in the same manner as other distributions. Any accrued income
from zero coupon securities of municipal issuers which is not distributed
will increase the net asset value of the Trust's shares. Tax-exempt income
attributable to zero coupon securities of municipal issuers and retained by
the Trust is expected to constitute a portion of the liquidating distribution
returned to investors at the termination of the Trust. See "Dividends and
Distributions; Dividend Reinvestment Plan."
Current federal income tax law requires that a holder of a zero coupon
security report as income each year the portion of the original issue
discount on such security (other than tax-exempt original issue discount from
a zero coupon security of a municipal issuer) that accrues during that year
even though the holder receives no cash payments during the year. Current
federal income tax law also requires that companies such as the Trust which
seek to qualify for pass-through federal income tax treatment as regulated
investment companies distribute substantially all of their net investment
income each year, including tax-exempt and non-cash income. See "Taxation."
Accordingly, although the Trust will receive no payments on its zero coupon
securities prior to their maturity, it will be required, in order to maintain
its desired tax treatment, to include in its distribution calculation the
income attributable to its zero coupon securities. If the income attributable
to zero coupon securities exceeds 10% of the Trust's net investment income
each year, the Trust may have to liquidate portfolio securities at a time
when it may not be advantageous to do so in order to raise cash to meet such
distribution requirements. See "Dividends and Distributions; Dividend
Reinvestment Plan."
HIGH YIELD SECURITIES
As discussed in the Prospectus, the Fund will also invest in high yield,
high risk fixed-income securities rated Baa or lower by Moody's Investors
Service Inc. ("Moody's"), or BBB or lower by Standard & Poor's Corporation
("Standard & Poor's). The ratings of fixed-income securities by Moody's and
Standard & Poor's are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's standpoint.
15
<PAGE>
Such limitations include the following: the rating of an issuer is heavily
weighted by past developments and does not necessarily reflect probable
future conditions; there is frequently a lag between the time a rating is
assigned and the time it is updated; and there may be varying degrees of
difference in credit risk of securities in each rating category. The
Investment Manager will attempt to reduce the overall portfolio credit risk
through diversification and selection of portfolio securities based on
considerations mentioned below.
While the ratings provide a generally useful guide to credit risks, they
do not, nor do they purport to, offer any criteria for evaluating the
interest rate risk. Changes in the general level of interest rates cause
fluctuations in the prices of fixed-income securities already outstanding and
will therefore result in fluctuation in net asset value of the Fund's shares.
The extent of the fluctuation is determined by a complex interaction of a
number of factors. The Investment Manager will evaluate those factors it
considers relevant and will make portfolio changes when it deems it
appropriate in seeking to reduce the risk of depreciation in the value of the
Fund's portfolio. However, in seeking to achieve the Fund's primary
objective, there will be times, such as during periods of rising interest
rates, when depreciation and realization of capital losses on securities in
the portfolio will be unavoidable. Moreover, medium and lower-rated
securities and non-rated securities of comparable quality tend to be subject
to wider fluctuations in yield and market values than higher rated
securities. Such fluctuations after a security is acquired do not affect the
cash income received from that security but are reflected in the net asset
value of the Fund's portfolio.
FOREIGN SECURITIES
Foreign investments involve certain risks, including the political or
economic instability of the issuer or of the country of issue, the difficulty
of predicting international trade patterns and the possibility of imposition
of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of United States corporations or of the
United States Government. In addition, there may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There is generally less government regulation of stock exchanges,
brokers and listed companies abroad than in the United States, and with
respect to certain foreign countries, there is a possibility of expropriation
or confiscatory taxation, or diplomatic developments which could affect
investment in those countries. Finally, in the event of a default of any such
foreign debt obligations, it may be more difficult for the Fund to obtain or
to enforce a judgment against the issuers of such securities. In addition to
the above-mentioned risks, securities denominated in foreign currency,
whether issued by a foreign or a domestic issuer, may be affected favorably
or unfavorably by changes in currency rates and in exchange control
regulations, and costs may be incurred in connection with conversions between
various currencies. It may not be possible to hedge against the risks of
currency fluctuation.
OTHER INVESTMENT POLICIES
Repurchase Agreements. When cash may be available for only a few days, it
may be invested by the Fund in repurchase agreements until such time as it
may otherwise be invested or used for payments of obligations of the Fund. A
repurchase agreement may be viewed as a type of secured lending by the Fund
which typically involves the acquisition by the Fund of government securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Fund will sell
back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time
in the future, usually not more than seven days from the date of purchase.
The collateral will be maintained in a segregated account and will be
marked-to-market daily to determine whether the full value of the collateral,
as specified in the agreement, is always at least equal to the purchase price
plus accrued interest. If required, additional collateral will be requested
from the counterparty and when received added to the account to maintain full
collateralization. In the event the original seller defaults on its
obligations to repurchase, as a result of its bankruptcy or otherwise, the
Fund will seek to sell the collateral, which action could involve costs
16
<PAGE>
or delays. In such case, the Fund's ability to dispose of the collateral to
recover its investment may be restricted or delayed. The Fund will accrue
interest from the institution until the time when the repurchase is to occur.
Although such date is deemed by the Fund to be the maturity date of a
repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed
to minimize such risks. Repurchase agreements will be transacted only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continuously monitored by the management of the
Fund subject to procedures established by the Trustees. The procedures also
require that the collateral underlying the agreement be specified. The Fund
does not presently intend to enter into repurchase agreements so that more
than 5% of the Fund's total assets are subject to such agreements. For the
fiscal period ended October 31, 1995, the Fund did not enter into repurchase
agreements in an amount exceeding 5% of its total assets.
Reverse Repurchase Agreements. The Fund may also use reverse repurchase
agreements for purposes of meeting redemptions or as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of
portfolio assets concurrently with an agreement by the Fund to repurchase the
same assets at a later date at a fixed price. Generally, the effect of such a
transaction is that the Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise. Opportunities to achieve this
advantage may not always be available, and the Fund intends to use the
reverse repurchase technique only when it will be to its advantage to do so.
The Fund will establish a segregated account with its custodian bank in which
it will maintain cash or cash equivalents or other portfolio securities
(i.e., U.S. Government securities) equal in value to its obligations in
respect of reverse repurchase agreements. Reverse repurchase agreements are
considered borrowings by the Fund and, in accordance with legal requirements,
the Fund will maintain an asset coverage (including the proceeds) of at least
300% with respect to all reverse repurchase agreements. Reverse repurchase
agreements may not exceed 10% of the Fund's total assets. For the fiscal
period ended October 31, 1995, the Fund did not enter into any reverse
repurchase agreements.
When-Issued and Delayed Delivery Securities and Forward Commitments. As
discussed in the Prospectus, from time to time, in the ordinary course of
business, the Fund may purchase securities on a when-issued or delayed
delivery basis and may purchase or sell securities on a forward commitment
basis. When such transactions are negotiated, the price is fixed at the time
of the commitment, but delivery and payment can take place a month or more
after the date of the commitment. The securities so purchased are subject to
market fluctuation and no interest accrues to the purchaser during this
period. While the Fund will only purchase securities on a when-issued,
delayed delivery or forward commitment basis with the intention of acquiring
the securities, the Fund may sell the securities before the settlement date,
if it is deemed advisable. At the time the Fund makes the commitment to
purchase securities on a when-issued or delayed delivery basis, the Fund will
record the transaction and thereafter reflect the value, each day, of such
security in determining the net asset value of the Fund. At the time of
delivery of the securities, the value may be more or less than the purchase
price. The Fund will also establish a segregated account with the Fund's
custodian bank in which it will continuously maintain cash or U.S. Government
securities or other high grade debt portfolio securities equal in value to
commitments of such when-issued or delayed delivery securities; subject to
the requirement, the Fund may purchase securities on such basis without
limit. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued or delayed delivery basis may
increase the volatility of the Fund's net asset value. The Fund's management
and the 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. For
the fiscal year ended October 31, 1995, the Fund's investments in securities
on a when-issued, delayed delivery or forward commitment basis did not exceed
5% of the Fund's total assets.
17
<PAGE>
When, As and If Issued Securities. As discussed in the Prospectus, the
Fund may purchase securities on a "when, as and if issued" basis under which
the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization, leveraged
buyout or debt restructuring. The commitment for the purchase of any such
security will not be recognized in the portfolio of the Fund until the
Investment Manager determines that issuance of the security is probable. At
such time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At such time, the
Fund will also establish a segregated account with its custodian bank in
which it will continuously maintain cash or U.S. Government securities or
other high grade debt portfolio securities equal in value to recognized
commitments for such securities. Settlement of the trade will occur within
five business days of the occurrence of the subsequent event. The value of
the Fund's commitments to purchase the securities of any one issuer, together
with the value of all securities of such issuer owned by the Fund, may not
exceed 5% of the value of the Fund's total assets at the time the initial
commitment to purchase such securities is made (see "Investment
Restrictions"). Subject to the foregoing restrictions, the Fund may purchase
securities on such basis without limit. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value. The Fund's
management and the Trustees do not believe that the net asset value of the
Fund will be adversely affected by its purchase of securities on such basis.
The Fund may also sell securities on a "when, as and if issued" basis
provided that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Fund at the time of the
sale. For the fiscal year ended October 31, 1995 the Fund did not purchase
any securities on a when, as and if issued basis.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to notice provisions described below), and are
at all times secured by cash or appropriate high-grade debt obligations,
which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Fund
continues to receive the income on the loaned securities while at the same
time earning interest or a portion of the interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations.
The Fund will not lend its portfolio securities if such loans are not
permitted by the laws or regulations of any state in which its shares are
qualified for sale and will not lend more than 25% of the value of its total
assets. A loan may be terminated by the borrower on one business day's
notice, or by the Fund on two business days' notice. If the borrower fails to
deliver the loaned securities within two days after receipt of notice, the
Fund could use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. As with
any extensions of credit, there are risks of delay in recovery and in some
cases even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities
will be made only 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 it portfolio securities will be monitored on an
ongoing basis by the Fund's management pursuant to procedures adopted and
reviewed, on an ongoing basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned
securities, to be delivered within one day after notice, to permit the
exercise of such rights if the matters involved would have a material effect
on the Fund's investment in such loaned securities. The Fund will pay
reasonable finder's, administrative and custodial fees in connection with a
loan of its securities. The Fund has not to date nor does it presently intend
to lend any of its portfolio securities in the foreseeable future.
Common Stocks. As stated in the Prospectus, consistent with the Fund's
investment objectives, the Fund will invest in common stocks only in certain
circumstances. First, the Fund may purchase common stock which is included in
a unit with fixed-income securities purchased by the Fund. Second,
18
<PAGE>
the Fund may acquire common stock when fixed-income securities owned by the
Fund are converted by the issuer into common stock. Third, the Fund may
exercise warrants attached to fixed-income securities purchased by the Fund.
Finally, the Fund may purchase the common stock of companies involved in
takeovers or recapitalizations where the issuer or a controlling stockholder
has offered, or pursuant to a "going private" transaction is effecting, a
transaction involving the issuance of newly issued fixed-income securities to
holders of such common stock. Purchasing the common stock directly in the
last circumstance enables the Fund to acquire the fixed-income securities
directly from the issuer at face value, thereby eliminating the payment of a
third-party dealer mark-up. The maximum percentage of the Fund's total assets
which may be invested in common stocks at any one time is 20%.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its
foreign currency exchange transaction either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large, commercial and investment
banks) and their customers. Such forward contracts will be entered into only
with United States banks and their foreign branches or foreign banks whose
assets total $1 billion or more. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades.
When the Fund's Investment Manager believes that the currency of a
particular foreign country may experience a substantial movement against the
U.S. dollar, it may enter into a forward contract to purchase or sell, for a
fixed amount of dollars or other currency, the amount of foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. The Fund will also not enter into such
forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall
diversification strategies. However, the management of the Fund believes that
it is important to have the flexibility to enter into such forward contracts
when it determines that the best interests of the Fund will be served. The
Fund's custodian bank will place cash, U.S. Government securities or other
appropriate liquid high grade debt securities in a segregated account of the
Fund in an amount equal to the value of the Fund's total assets committed to
the consummation of forward contracts entered into under the circumstances
set forth above. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account
on a daily basis so that the value of the account will equal the amount of
the Fund's commitments with respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Fund of a foreign currency, the Fund may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date,
the same amount of the foreign currency. It is impossible to forecast the
market value of portfolio securities at the expiration of the contract.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency on the spot market (and bear the expense of such purchase) if the
market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency. Conversely, it may be necessary to
sell on the spot market some of the foreign currency received upon the sale
of the portfolio securities if its market value exceeds the amount of foreign
currency the Fund is obligated to deliver.
19
<PAGE>
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase
of the foreign currency, the Fund will realize a gain to the extent the price
of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer
a loss to the extent the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell or purchase an amount of the relevant foreign
currency equal to some or all of the principal value of the security.
At times when the Fund has written a call or put option on a fixed-income
security or the currency in which it is denominated, it may wish to enter
into a forward contract to purchase or sell the foreign currency in which the
security is denominated. A forward contract would, for example, hedge the
risk of the security on which a call currency option has been written
declining in value to a greater extent than the value of the premium received
for the option. The Fund will maintain with its Custodian at all times, cash,
U.S. Government securities or other appropriate high grade debt obligations
in a segregated account equal in value to all forward contract obligations
and option contract obligations entered into in hedge situations such as
this.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize
a profit based on the spread between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and
purchase options of the same series to effect closing transactions, and may
hedge against potential changes in the market value of its investments (or
anticipated investments) by purchasing put and call options on portfolio (or
eligible portfolio) securities (and the currencies in which they are
denominated) and engaging in transactions involving futures contracts and
options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and on
various foreign currencies are listed on several U.S. and foreign securities
exchanges and are written in over-the-counter transactions ("OTC Options").
Listed options are issued or guaranteed by the exchange on which they trade
or by a clearing corporation such as the Options Clearing Corporation
("OCC"). Ownership of a listed call option gives the Fund the right to buy
from the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency covered by the option at the stated exercise
price (the price per unit of the underlying security or currency) by filing
an exercise notice prior to the expiration date of the option. The writer
(seller) of the option would then have the obligation to sell, to the OCC (in
the U.S.) or other clearing corporation or exchange, the underlying security
or currency at that exercise price prior to the expiration date of the
option, regardless of its then current market price. Ownership of a listed
put option would give the Fund the right to sell the underlying security or
currency to the OCC (in the U.S.) or other clearing corporation or exchange
at the stated exercise price. Upon notice of exercise of the put option, the
writer of the option would have the obligation to purchase the underlying
security or currency from the OCC (in the U.S.) or other clearing corporation
or exchange at the exercise price.
20
<PAGE>
Options on Treasury Bonds and Notes. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not
continue indefinitely to introduce options with new expirations to replace
expiring options on particular issues. Instead, the expirations introduced at
the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each issue of
bonds or notes will thus be phased out as new options are listed on more
recent issues, and options representing a full range of expirations will not
ordinarily be available for every issue on which options are traded.
Options on Treasury Bills. Because a deliverable Treasury bill changes
from week to week, writers of Treasury bill calls cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding
the underlying security. However, if the Fund holds a long position in
Treasury bills with a principal amount of the securities deliverable upon
exercise of the option, the position may be hedged from a risk standpoint by
the writing of a call option. For as long as the call option is outstanding,
the Fund will hold the Treasury bills in a segregated account with its
Custodian, so that they will be treated as being covered.
Options on GNMA Certificates. Currently, options on GNMA Certificates are
only traded over-the- counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, the Fund,
as a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy
its delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Fund will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA
Certificates in the cash market in order to maintain its cover. A GNMA
Certificate held by the Fund to cover an option position in any but the
nearest expiration month may cease to represent cover for the option in the
event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time, as such decline
may increase the prepayments made on other mortgage pools. If this should
occur, the Fund will no longer be covered, and the Fund will either enter
into a closing purchase transaction or replace such Certificate with a
Certificate which represents cover. When the Fund closes out its position or
replaces such Certificate, it may realize an unanticipated loss and incur
transaction costs.
Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the
portfolio securities involved. As a result, the Fund would be enabled to sell
the foreign currency for a fixed amount of U.S. dollars, thereby "locking in"
the dollar value of the portfolio securities (less the amount of the premiums
paid for the options). Conversely, the Fund may purchase call options on
foreign currencies in which securities it anticipates purchasing are
denominated to secure a set U.S. dollar price for such securities and protect
against a decline in the value of the U.S. dollar against such foreign
currency. The Fund may also purchase call and put options to close out
written options positions.
The Fund may also write call options on foreign currency to protect
against potential declines in its portfolio securities which are denominated
in foreign currencies. If the U.S. dollar value of the portfolio securities
falls as a result of a decline in the exchange rate between the foreign
currency in which it is denominated and the U.S. dollar, then a loss to the
Fund occasioned by such value decline would be ameliorated by receipt of the
premium on the option sold. At the same time, however, the Fund gives up the
benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio
securities falls below the price of the premium received. The Fund may also
write options to close out long call option positions. A put option on a
foreign currency would be written by the Fund for the same reason it would
purchase a call option, namely, to hedge against an increase in the U.S.
dollar value of a foreign security which the Fund anticipates purchasing.
Here, the receipt of the premium would offset, to the extent of the size of
the premium, any increased cost to the Fund resulting from an increase
21
<PAGE>
in the U.S. dollar value of the foreign security. However, the Fund could not
benefit from any decline in the cost of the foreign security which is greater
than the price of the premium received. The Fund may also write options to
close out long put and call option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. Although the Fund will not
purchase or write such options unless and until, in the opinion of the
Investment Manager, the market for them has developed sufficiently to ensure
that the risks in connection with such options are not greater than the risks
in connection with the underlying currency, there can be no assurance that a
liquid secondary market will exist for a particular option at any specific
time. In addition, options on foreign currencies are affected by all of those
factors which influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and have no relationship to the investment merits of a foreign
security, including foreign securities held in a "hedged" investment
portfolio. Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved
in the use of foreign currency options, investors may be disadvantaged by
having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that
are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying markets
that are not reflected in the options market.
OTC Options. Exchange-listed options are issued by the OCC (in the U.S.)
or other clearing corporation or exchange which assures that all transactions
in such options are properly executed. OTC options are purchased from or sold
(written) to dealers or financial institutions which have entered into direct
agreements with the Fund. With OTC options, such variables as expiration
date, exercise price and premium will be agreed upon between the Fund and the
transacting dealer, without the intermediation of a third party such as the
OCC. If the transacting dealer fails to make or take delivery of the
securities or amount of foreign currency underlying an option it has written,
in accordance with the terms of that option, the Fund would lose the premium
paid for the option as well as any anticipated benefit of the transaction.
The Fund will engage in OTC option transactions only with member banks of the
Federal Reserve System or primary dealers in U.S. Government securities or
with affiliates of such banks or dealers which have capital of at least $50
million or whose obligations are guaranteed by an entity having capital of at
least $50 million.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities and the currencies in which they are denominated,
without limit, in order to aid in achieving its investment objectives.
Generally, a call option is "covered" if the Fund owns, or has the right to
acquire, without additional cash consideration (or for additional cash
consideration held for the Fund by its Custodian in a segregated account) the
underlying security (currency) subject to the option except that in the case
of call options on U.S. Treasury bills, the Fund might own U.S. Treasury
bills of a different series from those underlying the call option, but with a
principal amount and value corresponding to the exercise price and a maturity
date no later than that of the security (currency) deliverable under the call
option. A call option is also covered if the Fund holds a call on the same
security as the underlying security (currency) of the written option, where
the exercise price of the call used for coverage is equal to or less than the
exercise price of the call written or greater than the exercise price of the
call written if the mark to market difference is maintained by the Fund in
cash, U.S. Government securities or other high grade debt obligations which
the Fund holds in a segregated account maintained with its Custodian.
22
<PAGE>
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these
premiums may better enable the Fund to earn a higher level of current income
than it would earn from holding the underlying securities (currencies) alone.
Moreover, the premium received will offset a portion of the potential loss
incurred by the Fund if the securities (currencies) underlying the option are
ultimately sold (exchanged) by the Fund at a loss. Furthermore, a premium
received on a call written on a foreign currency will ameliorate any
potential loss of value on the portfolio security due to a decline in the
value of the currency. However, during the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security (or the exchange rate of the currency in which it is
denominated) increase, but has retained the risk of loss should the price of
the underlying security (or the exchange rate of the currency in which it is
denominated) decline. The premium received will fluctuate with varying
economic market conditions. If the market value of the portfolio securities
(or the currencies in which they are denominated) upon which call options
have been written increases, the Fund may receive a lower total return from
the portion of its portfolio upon which calls have been written than it would
have had such calls not been written.
As regards listed options and certain OTC options, during the option
period, the Fund may be required, at any time, to deliver the underlying
security (currency) against payment of the exercise price on any calls it has
written (exercise of certain listed and OTC options may be limited to
specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a
closing purchase transaction. A closing purchase transaction is accomplished
by purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option, to prevent an underlying security (currency)
from being called, to permit the sale of an underlying security (or the
exchange of the underlying currency) or to enable the Fund to write another
call option on the underlying security (currency) with either a different
exercise price or expiration date or both. The Fund may realize a net gain or
loss from a closing purchase transaction depending upon whether the amount of
the premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be
offset in whole or in part or exceeded by a decline in the market value of
the underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised,
the Fund realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the
underlying security (currency) and the proceeds of the sale of the security
(currency) plus the premium received on the option less the commission paid.
Options written by the Fund will normally have expiration dates of up to
eighteen months from the date written. The exercise price of a call option
may be below, equal to or above the current market value of the underlying
security at the time the option is written. See "Risks of Options and Futures
Transactions," below.
Covered Put Writing. As stated in the Prospectus, as a writer of a covered
put option, the Fund incurs an obligation to buy the security underlying the
option from the purchaser of the put, at the option's exercise price at any
time during the option period, at the purchaser's election (certain listed
and OTC put options written by the Fund will be exercisable by the purchaser
on a specific date). A put is "covered" if, at all times, the Fund maintains,
in a segregated account maintained on its behalf at the Fund's Custodian,
cash, U.S. Government securities or other high grade obligations in an amount
equal to at least the exercise price of the option, at all times during the
option period. Similarly, a short put position could be covered by the Fund
by its purchase of a put option on the same security (currency) as the
underlying security of the written option, where the exercise price of the
purchased option is equal to or
23
<PAGE>
more than the exercise price of the put written or less than the exercise
price of the put written if the marked to market difference is maintained by
the Fund in cash, U.S. Government securities or other high grade debt
obligations which the Fund holds in a segregated account maintained at its
Custodian. In writing puts, the Fund assumes the risk of loss should the
market value of the underlying security (currency) decline below the exercise
price of the option (any loss being decreased by the receipt of the premium
on the option written). In the case of listed options, during the option
period, the Fund may be required, at any time, to make payment of the
exercise price against delivery of the underlying security (currency). The
operation of and limitations on covered put options in other respects are
substantially identical to those of call options.
The Fund will write put options for three purposes: (1) to receive the
income derived from the premiums paid by purchasers; (2) when the Investment
Manager wishes to purchase the security (or a security denominated in the
currency underlying the option) underlying the option at a price lower than
its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought; and (3) to close
out a long put option position. The potential gain on a covered put option is
limited to the premium received on the option (less the commissions paid on
the transaction) while the potential loss equals the differences between the
exercise price of the option and the current market price of the underlying
securities (currencies) when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
Purchasing Call and Put Options. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund
may purchase a call option in order to close out a covered call position (see
"Covered Call Writing" above), to protect against an increase in price of a
security it anticipates purchasing or, in the case of a call option on
foreign currency, to hedge against an adverse exchange rate move of the
currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The
purchase of the call option to effect a closing transaction on a call written
over-the-counter may be listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the
same terms as the written option. If purchased over-the-counter, the option
would generally be acquired from the dealer or financial institution which
purchased the call written by the Fund.
The Fund may purchase put options on securities (currencies) which it
holds in its portfolio to protect itself against a decline in the value of
the security and to close out written put option positions. If the value of
the underlying security (currency) were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option,
the Fund would incur no additional loss. In addition, the Fund may sell a put
option which it has previously purchased prior to the sale of the securities
(currencies) underlying such option. Such a sale would result in a net gain
or loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid on the put option which is
sold. And such gain or loss could be offset in whole or in part by a change
in the market value of the underlying security (currency). If a put option
purchased by the Fund expired without being sold or exercised, the premium
would be lost.
Risks of Options Transactions. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security (or the value of its denominated currency) increase,
but has retained the risk of loss should the price of the underlying security
(or the value of its denominated currency) decline. The writer has no control
over the time when it may be required to fulfill its obligation as a writer
of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If the covered call
option writer is unable to effect a closing purchase transaction or to
purchase an offsetting OTC option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered
call option writer may not be able to sell an underlying security at a time
when it might otherwise be advantageous to do so. A secured put option
24
<PAGE>
writer who is unable to effect a closing purchase transaction or to purchase
an offsetting OTC option would continue to bear the risk of decline in the
market price of the underlying security until the option expires or is
exercised. In addition, a secured put writer would be unable to utilize the
amount held in cash or U.S. Government or other high grade short-term
obligations securities as security for the put option for other investment
purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on Option
Exchanges. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out
by entering into a closing purchase transaction with the purchasing dealer.
However, the Fund may be able to purchase an offsetting option which does not
close out its position as a writer but constitutes an asset of equal value to
the obligation under the option written. If the Fund is not able to either
enter into a closing purchase transaction or purchase an offsetting position,
it will be required to maintain the securities subject to the call, or the
collateral underlying the put, even though it might not be advantageous to do
so, until a closing transaction can be entered into (or the option is
exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes
or series of options or underlying securities; (iv) interruption of the
normal operations on an Exchange; (v) inadequacy of the facilities of an
Exchange or the Options Clearing Corporation ("OCC") to handle current
trading volume; or (vi) a decision by one or more Exchanges to discontinue
the trading of options (or a particular class or series of options), in which
event the secondary market on that Exchange (or in that class or series of
options) would cease to exist, although outstanding options on that Exchange
that had been issued by the OCC as a result of trades on that Exchange would
generally continue to be exercisable in accordance with their terms.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur
a loss of all or part of its margin deposits with the broker. Similarly, in
the event of the bankruptcy of the writer of an OTC option purchased by the
Fund, the Fund could experience a loss of all or part of the value of the
option. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Fund's management.
Each of the Exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract
(whether or nor covered) which may be written by a single investor, whether
acting alone or in concert with others (regardless of whether such options
are written on the same or different Exchanges or are held or written on one
or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict
the number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying market that cannot be
reflected in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification
as a regulated investment company and the Fund's intention to qualify as such
(see "Dividends, Distributions and Taxes" in the Prospectus).
Futures Contracts and Options On Futures. The Fund may invest in financial
futures contracts ("futures contracts") and related options thereon. These
futures contracts and related options thereon will be used only as a hedge
against anticipated interest rate changes. A futures contract sale creates an
obligation by the Fund, as seller, to deliver the specific type of instrument
called for in the contract at a specified future time for a specified price.
A futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of the specific type of financial instrument at a
specified future time
25
<PAGE>
at a specified price. The specific securities delivered or taken,
respectively, at settlement date, would not be determined until or near that
date. The determination would be in accordance with the rules of the exchange
on which the futures contract sale or purchase was effected.
Although the terms of futures contracts specify actual delivery or receipt
of securities, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the securities.
Closing out of a futures contract is usually effected by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale
is effected by the Fund entering into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument and same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is immediately paid the difference and thus realizes a
gain. If the offsetting purchase price exceeds the sale price, the Fund pays
the difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Fund entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain, and if the offsetting sale price is less than the purchase
price, the Fund realizes a loss.
Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder
to decide on or before a future date whether to enter into such a contract.
If the holder decides not to enter into the contract, the premium paid for
the contract is lost. Since the price of the option is fixed at the point of
sale, there are no daily payments of cash to reflect the change in the value
of the underlying contract, as discussed below for futures contracts. The
value of the option does change and is reflected in the net asset value of
the Fund.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects futures contracts and options thereon. The initial
margin requirements vary according to the type of the underlying security. In
addition, due to current industry practice, daily variations in gains and
losses on open contracts are required to be reflected in cash in the form of
variation margin payments. The Fund may be required to make additional margin
payments during the term of the contract.
Financial futures contracts are traded in an auction environment on the
floors of several Exchanges--principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each Exchange
guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the Exchange membership
which is also responsible for handling daily accounting of deposits or
withdrawals of margin.
Interest Rate Futures Contracts. As stated in the Prospectus, the Fund may
purchase and sell interest rate, currency, and index futures contracts
("futures contracts"), that are traded on U.S. and foreign commodity
exchanges, on such underlying securities as U.S. Treasury bonds, notes and
bills and/or any foreign government fixed-income security ("interest rate"
futures), on various currencies ("currency futures") and on such indexes of
U.S. and foreign securities as may exist or come into being ("index"
futures).
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise and
concomitantly, the price of certain of its portfolio securities fall, the
Fund may sell an interest rate futures contract. If declining interest rates
are anticipated, the Fund may purchase an interest rate futures contract to
protect against a potential increase in the price of securities the Fund
intends to purchase. Subsequently, appropriate securities may be purchased by
the Fund in an orderly fashion; as securities are purchased, corresponding
futures positions would be terminated by offsetting sales of contracts.
The Fund will purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that
the prices of securities held by the Fund may fall, the Fund may sell an
index futures contract. Conversely, if the Fund wishes to hedge against
anticipated price rises in those securities which the Fund intends to
purchase, the Fund may purchase an index futures contract.
26
<PAGE>
The Fund will purchase or sell currency futures on currencies in which its
portfolio securities (or anticipated portfolio securities) are denominated
for the purposes of hedging against anticipated changes in currency exchange
rates. The Fund will enter into currency futures contracts for the same
reasons as set forth above for entering into forward foreign currency
contracts; namely, to "lock-in" the value of a security purchased or sold in
a given currency vis-a-vis a different currency or to hedge against an
adverse currency exchange rate movement of a portfolio security's (or
anticipated portfolio security's) denominated currency vis-a-vis a different
currency.
In addition to the above, interest rate, index and currency futures will
be bought or sold in order to close out a short or long position maintained
by the Fund in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the
offsetting purchase price exceeds the sale price, the seller would pay the
difference and would realize a loss. Similarly, a futures contract purchase
is closed out by effecting a futures contract sale for the same aggregate
amount of the specific type of security (currency) and the same delivery
date. If the offsetting sale price exceeds the purchase price, the purchaser
would realize a gain, whereas if the purchase price exceeds the offsetting
sale price, the purchaser would realize a loss. There is no assurance that
the Fund will be able to enter into a closing transaction.
When the Fund enters into an interest rate futures contract, it is
initially required to deposit with the Fund's Custodian, in a segregated
account in the name of the broker performing the transaction, an "initial
margin" of cash or U.S. Government securities or other high grade short-term
obligations equal to approximately 2% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts
trade and may, from time to time, change. (In addition, brokers may establish
margin deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a brokers' client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper
termination of the futures contract. The margin deposits made are marked to
market daily and the Fund may be required to make subsequent deposits of cash
or U.S. Government securities called "variation margin", with the Fund's
futures contract clearing broker, which are reflective of price fluctuations
in the futures contract. Currently, interest rate futures contracts can be
purchased on debt securities such as U.S. Treasury Bills and Bonds, U.S.
Treasury Notes with Maturities between 6 1/2 and 10 years, GNMA Certificates
and Bank Certificates of Deposit.
Additionally, 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.
Currency Futures. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for
a set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and
under the same circumstances as forward foreign currency exchange contracts.
The Investment Manager will assess such factors as cost spreads, liquidity
and transaction costs in determining whether to utilize futures contracts or
forward contracts in its foreign currency transactions and hedging strategy.
Currently, currency futures exist for, among other foreign currencies, the
Japanese yen, West German marks, Canadian dollars, British pounds, Swiss
francs and European currency unit.
Purchasers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally.
In addition, there are risks associated with foreign currency
27
<PAGE>
futures contracts and their use as a hedging device similar to those
associated with options on foreign currencies described above. Further,
settlement of a foreign currency futures contract must occur within the
country issuing the underlying currency. Thus, the Fund must accept or make
delivery of the underlying foreign currency in accordance with any U.S. or
foreign restrictions or regulations regarding the maintenance of foreign
banking arrangements by U.S. residents and may be required to pay any fees,
taxes or charges associated with such delivery which are assessed in the
issuing country.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To reduce
this risk, the Fund will not purchase or write options on foreign currency
futures contracts unless and until, in the Investment Manager's opinion, the
market for such options has developed sufficiently that the risks in
connection with such options are not greater than the risks in connection
with transactions in the underlying foreign currency futures contracts.
Index Futures Contracts. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future
time. An index futures contract purchase would create an obligation by the
Fund, as purchaser, to take delivery of cash at a specified future time.
Futures contracts on indexes do not require the physical delivery of
securities, but provide for a final cash settlement on the expiration date
which reflects accumulated profits and losses credited or debited to each
party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in
the form of variation margin payments. The Fund may be required to make
additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund and the Fund realizes a loss or gain.
Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the term of the option.
Upon exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option is accompanied by delivery
of the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract at
the time of exercise exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of
a futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
Investment Manager wished to protect against an increase in interest rates
and the resulting negative impact on the value of a portion of its
fixed-income portfolio, it might write a call option on an interest rate
futures contract, the underlying security of which correlates with the
portion of the portfolio the Investment Manager seeks to hedge. Any premiums
received in the writing of options on futures contracts may, of course,
provide a further hedge against losses resulting from price declines in
portions of the Fund's portfolio.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin
28
<PAGE>
plus the amount paid for premiums for unexpired options on futures contracts
exceeds 5% of the value of the Fund's total assets, after taking into account
unrealized gains and unrealized losses on such contracts it has entered into,
provided, however, that in the case of an option that is in-the-money (the
exercise price of the call (put) option is less (more) than the market price
of the underlying security) at the time of purchase, the in-the-money amount
may be excluded in calculating the 5%. However, there is no overall
limitation on the percentage of the Fund's assets which may be subject to a
hedge position. In addition, in accordance with the regulations of the
Commodity Futures Trading Commission ("CFTC") under which the Fund is
exempted from registration as a commodity pool operator, the Fund may only
enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes
its regulations so that the Fund would be permitted to write options on
futures contracts for purposes other than hedging the Fund's investments
without CFTC registration, the Fund may engage in such transactions for those
purposes. Except as described above, there are no other limitations on the
use of futures and options thereon by the Fund.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
Risks of Transactions in Futures Contracts and Related Options. As stated
in the Prospectus, the Fund may sell a futures contract to protect against
the decline in the value of securities (or the currency in which they are
denominated) held by the Fund. However, it is possible that the futures
market may advance and the value of securities (or the currency in which they
are denominated) held in the portfolio of the Fund may decline. If this
occurred, the Fund would lose money on the futures contract and also
experience a decline in value of its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over time
the value of a diversified portfolio will tend to move in the same direction
as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities (currencies) decreases, then
the Fund may determine not to invest in the securities as planned and will
realize a loss on the futures contract that is not offset by a reduction in
the price of the securities.
In order to assure that the Fund is entering into transactions in futures
contracts for hedging purposes as defined by the Commodity Futures Trading
Commission either: 1) a substantial majority (i.e., approximately 75%) of all
anticipatory hedge transactions (transactions in which the Fund does not own
at the time of the transaction, but expects to acquire, the securities
underlying the relevant futures contract) involving the purchase of futures
contracts will be completed by the purchase of securities which are the
subject of the hedge or 2) the underlying value of all long positions in
futures contracts will not exceed the total value of a) all short-term debt
obligations held by the Fund; b) cash held by the Fund; c) cash proceeds due
to the Fund on investments within thirty days; d) the margin deposited on the
contracts; and e) any unrealized appreciation in the value of the contracts.
If the Fund has sold a call option on a futures contract, it will cover
this position by holding, in a segregated account maintained at its
Custodian, cash, U.S. Government securities or other high grade debt
obligations equal in value (when added to any initial or variation margin on
deposit) to the market value of the securities (currencies) underlying the
futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities (currencies) underlying the futures
contract, or by holding a call option permitting the Fund to purchase the
same contract at a price no higher than the price at which the short position
was established.
In addition, if the Fund holds a long position in a futures contract it
will hold cash, U.S. Government securities or other 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 as or higher than the price of the contract held by
the Fund.
29
<PAGE>
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments
underlying interest rate futures contracts it holds at a time when it is
disadvantageous to do so. The inability to close out options and futures
positions could also have an adverse impact on the Fund's ability to
effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on
foreign commodities exchanges may have greater price volatility than their
U.S. counterparts. Furthermore, foreign commodities exchanges may be less
regulated and under less governmental scrutiny than U.S. exchanges. Brokerage
commissions, clearing costs and other transaction costs may be higher on
foreign exchanges. Greater margin requirements may limit the Fund's ability
to enter into certain commodity transactions on foreign exchanges. Moreover,
differences in clearance and delivery requirements on foreign exchanges may
occasion delays in the settlement of the Fund's transactions effected on
foreign exchanges.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through
the broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC
option purchased by the Fund, the Fund could experience a loss of all or part
of the value of the option. Transactions are entered into by the Fund only
with brokers or financial institutions deemed creditworthy by the Investment
Manager.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities (and the
currencies in which they are denominated) is that the prices of securities
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities (and the currencies in which they are
denominated). Another such risk is that prices of interest rate futures
contracts may not move in tandem with the changes in prevailing interest
rates against which the Fund seeks a hedge. A correlation may also be
distorted by the fact that the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or security
price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of
the securities (currencies) which are the subject of the hedge. If
participants in the futures market elect to close out their contracts through
offsetting transactions rather than meet margin deposit requirements,
distortions in the normal relationship between the debt securities or
currency markets and futures markets could result. Price distortions could
also result if investors in futures contracts opt to make or take delivery of
underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due
to the fact that, from the point of view of speculators, the deposit
requirements in the futures markets are less onerous than margin requirements
in the cash market, increased participation by speculators in the futures
market could cause temporary price distortions. Due to the possibility of
price distortions in the futures market and because of the imperfect
correlation between movements in the prices of securities and movements in
the prices of futures contracts, a correct forecast of interest rate trends
may still not result in a successful hedging transaction.
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
30
<PAGE>
to be required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures
contracts are traded may compel or prevent the Fund from closing out a
contract which may result in reduced gain or increased loss to the Fund. The
absence of a liquid market in futures contracts might cause the Fund to make
or take delivery of the underlying securities (currencies) at a time when it
may be disadvantageous to do so.
The extent to which the Fund may enter into transactions involving futures
contracts and options thereon may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the
Fund's intention to qualify as such (see "Dividends, Distributions and Taxes"
in the Prospectus).
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to the Fund notwithstanding that the purchase or sale of a futures contract
would not result in a loss, as in the instance where there is no movement in
the prices of the futures contract or underlying securities (currencies).
The Investment Manager has substantial experience in the use of the
investment techniques described above under the heading "Options and Futures
Transactions," which techniques require skills different from those needed to
select the portfolio securities underlying various options and futures
contracts.
PORTFOLIO TURNOVER
The Fund may sell portfolio securities without regard to the length of
time they have been held whenever such sale will, in the Investment Manager's
opinion, strengthen the Fund's position and contribute to its investment
objective. As a result, the Fund's portfolio turnover rate may exceed 100%. A
100% turnover rate would occur, for example, if 100% of the securities held
in the Fund's portfolio (excluding all securities whose maturities at
acquisition were one year or less) were sold and replaced within one year.
During the fiscal years ended October 31, 1993, October 31, 1994 and October
31, 1995, the Fund's portfolio turnover rates were 117%, 60% and 87%,
respectively.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at
a meeting of shareholders, if the holders of 50% of the outstanding shares of
the Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein, although the
Fund may purchase securities of issuers which engage in real estate
operations and securities secured by real estate or interests therein.
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 repurchase or reverse repurchase
31
<PAGE>
agreement; (b) purchasing any securities on a when-issued or delayed
delivery basis; (c) purchasing or selling futures contracts, forward
foreign exchange contracts or options; (d) borrowing money in accordance
with restrictions described above; or (e) lending portfolio securities.
5. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objectives and policies; (b) by investment
in repurchase or reverse repurchase agreements; or (c) by lending its
portfolio securities.
6. Engage in the underwriting of securities, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
7. Invest for the purpose of exercising control or management of any
other issuer.
8. Purchase or sell commodities or commodities contracts except that
the Fund may purchase or write interest rate, currency and stock and bond
index futures contracts and related options thereon.
9. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings. (For the purpose of this restriction,
collateral arrangements with respect to the writing of options and
collateral arrangements with respect to initial or variation margin for
futures are not deemed to be pledges of assets.)
10. Purchase securities on margin (but the Fund may obtain short-term
loans as are necessary for the clearance of transactions). The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the
purchase of a security on margin.
11. Invest in securities of any company if, to the knowledge of the
Fund, any officer or trustee of the Fund or of the Investment Manager owns
more than 1/2 of 1% of the outstanding securities of such company, and
such officers and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such company; and
12. Invest more than 5% of its net assets in warrants (valued at the
lower of cost or market), including not more than 2% of such assets which
are not listed on the New York or American Stock Exchange. However,
warrants acquired by the Fund in units or attached to other securities may
be deemed to be without value.
13. Make short sales of securities.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered
a violation of any of the foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -----------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. The Fund expects that the primary
market for the securities in which it intends to invest will generally be the
over-the-counter market. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a profit to the dealer. The Fund expects that securities
will be purchased at times in underwritten offerings where the price includes
a fixed amount of compensation, generally referred to as the underwriter's
concession or discount. Options and futures transactions will usually be
effected through a broker and a commission will be charged. On occasion, the
Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid. During the fiscal
years ended October 31, 1993 and October 31, 1994, the Fund did not pay any
brokerage commissions and during the fiscal year ended October 31, 1995, the
Fund paid $85,553 in brokerage commissions.
32
<PAGE>
The Investment Manager currently serves as investment manager to a number
of clients, including other investment companies, and may in the future act
as investment manager or adviser to others. It is the practice of the
Investment Manager to cause purchase and sale transactions to be allocated
among the Fund and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Fund and other client
accounts, the main factors considered are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange,
the Fund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment
Manager from obtaining a high quality of brokerage and research services. In
seeking to determine the reasonableness of brokerage commissions paid in any
transaction, the Investment Manager relies upon its experience and knowledge
regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on
such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision
and regulation of foreign securities exchanges and brokers than in the United
States.
In seeking to implement the Fund's policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment
Manager believes provide the most favorable prices and are capable of
providing efficient executions. If the Investment Manager believes such
prices and executions are obtainable from more than one broker or dealer, it
may give consideration to placing portfolio transactions with those brokers
and dealers who also furnish research and other services to the Fund or the
Investment Manager. Such services may include, but are not limited to, any
one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or
evaluations of portfolio securities. The Fund will not purchase at a higher
price or sell at a lower price in connection with transactions effected with
a dealer, acting as principal, who furnishes research services to the Fund
than would be the case if no weight were given by the Fund to the dealer's
furnishing of such services. During the fiscal year ended October 31, 1995,
the Fund did not direct the payment of any brokerage commissions because of
research services provided.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of
research or services otherwise performed by the Investment Manager and
thereby reduce its expenses, it is of indeterminable value and the management
fee paid to the Investment Manager is not reduced by any amount that may be
attributable to the value of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund
may effect principal transactions in certain money market instruments with
DWR. The Fund will limit its transactions with DWR to U.S. Government and
Government Agency Securities, Bank Money Instruments (i.e., Certificates of
Deposit and Bankers' Acceptances) and Commercial Paper. Such transactions
will be effected with DWR only when the price available from DWR is better
than that available from other dealers.
33
<PAGE>
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR. In order for DWR to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration
received by DWR must be reasonable and fair compared to the commissions, fees
or other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on an
exchange during a comparable period of time. This standard would allow DWR to
receive no more than the remuneration which would be expected to be received
by an unaffiliated broker in a commensurate arm's-length transaction.
Furthermore, the Trustees of the Fund, including a majority of the Trustees
who are not "interested" persons of the Fund, as defined in the Act, have
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to DWR are consistent with the
foregoing standard. During the fiscal year ended October 31, 1995 the Fund
did not pay any brokerage commissions to DWR.
THE DISTRIBUTOR
- -----------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed
exclusively 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, the current Distribution Agreement
appointing the Distributor as exclusive distributor of the Fund's shares and
providing for the Distributor to bear distribution expenses not borne by the
Fund. The current Distribution Agreement is substantially identical to the
Fund's previous distribution agreements. The Distribution Agreements took
effect on June 30, 1993 upon the spin-off by Sears, Roebuck and Co. of its
remaining shares of DWDC. By its terms, the Distribution Agreement had an
initial term ending April 30, 1994 and will remain in effect from year to
year thereafter if approved by the Board. At their meeting held on April 20,
1995, the Trustees, including all of the Independent Trustees, approved the
continuation of the Distribution Agreement until April 30, 1996.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
account executives. The Distributor also pays certain expenses in connection
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto to
prospective shareholders. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund bears the costs of registering the Fund and its shares
under federal and state securities laws. The Fund and the Distributor have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment
or mistake of law or for any act or omission or for any losses sustained by
the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan") pursuant to which the Fund pays the Distributor
compensation accrued daily and payable monthly at the annual rate of 0.85% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's
shares since the inception of the Fund (not including reinvestment of
dividends or distributions), less the average daily aggregate net asset value
of the Fund's shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived, or (b) the
Fund's average daily net assets. The Distributor also receives the proceeds
of contingent deferred sales charges imposed on
34
<PAGE>
certain redemptions of shares, which are separate and apart from payments
made pursuant to the Plan. (see "Redemptions and Repurchases--Contingent
Deferred Sales Charge" in the Prospectus). The Distributor has informed the
Fund and it and/or DWR received approximately $1,025,982, $726,000 and
$152,000 in contingent deferred sales charges for the fiscal years ended
October 31, 1995, October 31, 1994 and October 31, 1993, respectively.
The Distributor has informed the Fund that a portion of the fees payable
by the Fund each year pursuant to the Plan equal to 0.20% 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). Such portion of the fee is a payment made
for personal service and/or the maintenance of shareholder accounts. The
remaining portion of the Plan fees payable by the Fund is characterized as an
"asset-based sales charge" as such is defined by the aforementioned Rules of
Fair Practice.
Under its terms, the Plan has an initial term ending April 30, 1992, and
provides that it will remain in effect from year to year thereafter, provided
such continuance is approved annually by a vote of the Trustees, including a
majority of the Trustees who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in
the operation of the Plan (the "Independent 12b-1 Trustees"). The Plan was
initially adopted on January 23, 1992 at a meeting of the Trustees called for
the purpose of voting on such Plan. In determining to approve the Plan, the
Trustees of the Fund, including each of the Independent 12b-1 Trustees,
concluded that the Plan would be in the best interest of the Fund and would
have a reasonable likelihood of benefiting the Fund and its shareholders. The
Plan was approved by DWR, as the then sole shareholder of the Fund, on
February 25, 1992 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on January 12, 1993.
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 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 or other selected
broker-dealers (or direct that the Fund pay such entities directly). The
Distributor is also authorized to retain part of such fee as compensation for
its own distribution-related expenses. At their meeting held on April 28,
1993, the Trustees, including a majority of the Independent 12b-1 Trustees,
also approved certain technical amendments to the Plan in connection with
recent amendments adopted by the National Association of Securities Dealers,
Inc. to its Rules of Fair Practice. At their meeting held on October 26,
1995, the Trustees of the Fund, including all of the Independent 12b-1
Trustees, approved an amendment to the Plan to permit payments to be made
under the Plan with respect to certain distribution expenses incurred in
connection with the distribution of shares, including personal services to
shareholders with respect to holdings of such shares, of an investment
company whose assets are acquired by the Fund in a tax-free reorganization.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method, shares of the Fund
are sold without a sales load being deducted at the time of purchase, so that
the full amount of an investor's purchase payment will be invested in shares
without any deduction for sales charges. Shares of the Fund may be subject to
a contingent deferred sales charge, payable to the Distributor, if redeemed
during the six years after their purchase. DWR compensates its account
executives by paying them, from its own funds, commissions for the sale of
the Fund's shares, currently a gross sales credit of up to 4% of the amount
sold and an annual residual commission of up to .20 of 1% of the current
value (not including reinvested dividends or distributions) of the amount
sold. The gross sales credit is a charge which reflects commissions paid by
DWR to its account executives and DWR's Fund associated distribution-related
expenses, including sales compensation, and overhead. The distribution fee
that the Distributor receives from the Fund under the Plan, in effect,
offsets distribution expenses incurred under the Plan on behalf of the Fund's
opportunity costs,
35
<PAGE>
such as the gross sales credit and an assumed interest charge thereon
("carrying charge"). In the Distributor's reporting of the distribution
expenses to the Fund, such assumed interest (computed at the "broker's call
rate") is calculated on the gross sales credit as it is reduced by amounts
received by the Distributor under the Plan and any contingent deferred sales
charge received by the Distributor upon redemption of shares of the Fund. No
other interest charge is included as a distribution expense in the
Distributor's calculation of its distribution costs for this purpose. The
broker's call rate is the interest rate charged to securities brokers on
loans secured by exchange-listed securities.
The Fund accrued $3,986,348 to the Distributor and DWR, pursuant to the
Plan, for the fiscal year ended October 31, 1995. This is an accrual at an
annual rate of 0.85% of the average daily net assets of the Fund and was
calculated pursuant to clause (b) of the compensation formula under the Plan.
The Fund paid 100% of the $3,986,348 accrued under the Plan for the fiscal
year ended October 31, 1995, to the Distributor and DWR. The Distributor and
DWR estimate that they have spent, pursuant to the Plan, $19,664,122 on
behalf of the Fund since the inception of the Plan. It is estimated that this
amount was spent in approximately the following ways: (i) 6.71%
($1,320,749)--advertising and promotional expenses; (ii) 0.75%
($148,063)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 92.54% ($18,195,310)--other expenses, including the
gross sales credit and the carrying charge, of which 4.49% ($817,382)
represents carrying charges, 38.41% ($6,987,665) represents commission
credits to DWR branch offices for payments of commissions to account
executives and 57.10% ($10,390,263) represents overhead and other branch
office distribution-related expenses. The term "overhead and other branch
office distribution-related expenses" represents (a) the expenses of
operating DWR's branch offices in connection with the sale of Fund shares,
including lease costs, the salaries and employee benefits of operations and
sales support personnel, utility costs, communications costs and the costs of
stationery and supplies; (b) the costs of client sales seminars; (d) travel
expenses of mutual fund sales coordinators to promote the sale of Fund
shares; and (d) other expenses relating to branch promotion of Fund share
sales.
At any given time, the expenses in distributing shares of the Fund which
may be more or less than the total of (i) the payments made by the Fund
pursuant to the Plan and (ii) the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares. The Distributor has
advised the Fund that such excess amount, including the carrying charge
designed to approximate the opportunity costs incurred by DWR which arise
from it having advanced monies without having received the amount of any
sales charges imposed at the time of sale of the Fund's shares, totalled
$10,053,611 at October 31, 1995. Because there is no requirement under the
Plan that the Distributor be reimbursed for all its expenses or any
requirement that the Plan be continued from year to year, this excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made
to the Distributor under the Plan, and the proceeds of contingent deferred
sales charges paid by investors upon redemption of shares, if for any reason
the Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. Any cumulative expenses incurred, but not yet
recovered through distribution fees or contingent deferred sales charges, may
or may not be recovered through future distribution fees or contingent
deferred sales charges.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor, InterCapital, DWR or certain of their employees may be
deemed to have such an interest as a result of benefits derived from the
successful operation of the Plan or as a result of receiving a portion of the
amounts expended thereunder by the Fund.
Under its terms, the Plan continued until April 30, 1992 and provides that
it will remain in effect from year to year thereafter, provided such
continuance is approved annually by a vote of the Trustees in the manner
described above. The most recent continuance of the Plan for one year, until
April 30, 1996, was approved by the Trustees of the Fund, including a
majority of the Independent 12b-1 Trustees, at a meeting held on April 20,
1995. Prior to approving the continuation of the Plan, the Trustees requested
and received from the Distributor and reviewed all the information which they
deemed necessary to arrive at an informed determination. In making their
determination to continue the Plan, the Trustees
36
<PAGE>
considered: (1) the Fund's experience under the Plan and whether such
experience indicates that the Plan is operating as anticipated; (2) the
benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan; and (3) what services had been provided and were continuing
to be provided under the Plan to the Fund and its shareholders. Based upon
their review, the Trustees of the Fund, including each of the Independent
12b-1 Trustees, determined that continuation of the Plan would be in the best
interest of the Fund and would have a reasonable likelihood of continuing to
benefit the Fund and its shareholders. In the Trustees' quarterly review of
the Plan, they will consider its continued appropriateness and the level of
compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of
the Fund, and all material amendments to the Plan must also be approved by
the Trustees in the manner described above. The Plan may be terminated at any
time, without payment of any penalty, by vote of a majority of the
Independent 12b-1 Trustees or by a vote of a majority of the outstanding
voting securities of the Fund (as defined in the Act) on not more than thirty
days' written notice to any other party to the Plan. The Plan will
automatically terminate in the event of its assignment (as defined in the
Act). So long as the Plan is in effect, the election and nomination of
Independent 12b-1 Trustees shall be committed to the discretion of the
Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term securities with remaining
maturities of sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Listed options on debt securities 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 on debt
securities and all options on equity securities 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 at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day the New York Stock Exchange is open,
by taking the value of all the assets of the Fund, subtracting all
liabilities, dividing by the number of shares outstanding and adjusting the
result 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.
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, maintained by the Fund's
Transfer Agent, Dean Witter Trust Company (the "Transfer Agent"). This is an
open account in which shares owned by the investor are credited by the
Transfer Agent in lieu of issuance of a share certificate. If a share
certficate is desired, it must be requested in writing for each transaction.
Certificates are issued only for full shares and may be redeposited in the
account at any time. There is no charge to the investor for issuance of a
certificate. Whenever a transaction takes place in the Shareholder Investment
Account, the shareholder will be mailed a confirmation of the transaction
from the Fund or from DWR or other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the Fund,
37
<PAGE>
unless the shareholder requests that they be paid in cash. Each purchase of
shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor.
Such dividends and distributions will be paid, at the net asset value per
share, in shares of the Fund (or in cash if the shareholder so requests) as
of the close of business on the record date. At any time an investor may
request the Transfer Agent, in writing, to have subsequent dividends and/or
capital gains distributions paid to him or her in cash rather than shares. To
assure sufficient time to process the change, such request should be received
by the Transfer Agent at least five business days prior to the record date of
the dividend or distribution. In the case of recently purchased shares for
which registration instructions have not been received on the record date,
cash payments will be made to DWR or other selected broker-dealer, and will
be forwarded to the shareholder, upon the receipt of proper instructions.
Targeted Dividends. (Service Mark) In states where it is legally
permissible, shareholders may also have all income dividends and capital
gains distributions automatically invested in shares of an open-end Dean
Witter Fund other than Dean Witter Diversified Income Trust. Such investment
will be made as described above for automatic investment in shares of the
Fund, at the net asset value per share of the selected Dean Witter Fund as of
the close of business on the payment date of the dividend or distribution and
will begin to earn dividends, if any, in the selected Dean Witter Fund the
next business day. To participate in the Targeted Dividends program,
shareholders should contact their DWR or other selected broker- dealer
account executive or the Transfer Agent. Shareholders of the Fund must be
shareholders of the Dean Witter Fund targeted to receive investments from
dividends at the time they enter the Targeted Dividends program. Investors
should review the prospectus of the targeted Dean Witter Fund before entering
the program.
EasyInvest. (Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund. Shares purchased through EasyInvest will be
added to the shareholder's existing account at the net asset value calculated
the same business day the transfer of funds is effected. For further
information or to subscribe to EasyInvest, shareholders should contact their
DWR or other selected broker-dealer account executive or the Transfer Agent.
Investment of Distributions Received in Cash. Any shareholder who receives
a cash payment representing a dividend or distribution may invest such
dividend or distribution at net asset value, without the imposition of a
contingent deferred sales charge upon redemption, by returning the check or
the proceeds to the Transfer Agent within thirty days after the payment date.
If the shareholder returns the proceeds of a dividend or distribution, such
funds must be accompanied by a signed statement indicating that the proceeds
constitute a dividend or distribution to be invested. Such investment will be
made at the net asset value per share next determined after receipt of the
check or the proceeds by the Transfer Agent.
Direct Investments through Transfer Agent. 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 Diversified 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 determined
after receipt of the check or purchase payment by the Transfer Agent. The
shares so purchased will be credited to the investor's account.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan ("Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount,
not less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable contingent deferred sales charge will be
imposed on shares redeemed under the Withdrawal Plan (see "Redemptions and
Repurchases--Contingent Deferred Sales Charge"). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed
from his or her account so that the proceeds (net of any applicable
contingent deferred sales charge) to the shareholder will be the designated
monthly or quarterly amount.
38
<PAGE>
Dividends and capital gains distributions on shares held under the
Systematic Withdrawal Plan will be invested in additional full and fractional
shares at net asset value (without a sales charge). Shares will be credited
to an open account for the investor by the Transfer Agent; no share
certificates will be issued. A shareholder is entitled to a share certificate
upon written request to the Transfer Agent, although in that event the
shareholder's Systematic Withdrawal Plan will be terminated.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment designated in the application. The
shares will be redeemed at their net asset value determined, at the
shareholder's option, on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent or amounts credited to a
shareholder's DWR or other selected broker-dealer brokerage account, within
five business days after the date of redemption. The Withdrawal Plan may be
terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continously exceed net
investment income and net capital gains, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the contingent deferred sales charge
applicable to the redemption of shares purchased during the preceding six
years (see "Redemption and Repurchases--Contingent Deferred Sales Charge").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the
account must send complete written instructions to the Transfer Agent to
enroll in the Withdrawal Plan. The shareholder's signature on such
instructions must be guaranteed by an eligible guarantor acceptable to the
Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her account executive or by written
notification to the Transfer Agent. In addition, the party and/or the address
to which checks are mailed may be changed by written notification to the
Transfer Agent, with signature guarantees required in the manner described
above. The shareholder may also terminate the Withdrawal Plan at any time by
written notice to the Transfer Agent. In the event of such termination, the
account will be continued as a regular shareholder investment account. 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.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of the Fund may
exchange their shares for shares of other Dean Witter Funds sold with a
contingent deferred sales charge ("CDSC funds"), and for shares of Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced Income Fund,
Dean Witter Balanced Growth Fund, Dean Witter Intermediate Term U.S. Treasury
Trust and five Dean Witter Funds which are money market funds (the foregoing
eleven non-CDSC funds are hereinafter referred to as the "Exchange Funds").
Exchanges may be made after the shares of the Fund acquired by purchase (not
by exchange or dividend reinvestment) have been held for thirty days. There
is no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment. An exchange will be treated for federal income tax purposes the
same as a repurchase or redemption of shares, on which the shareholder may
realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
39
<PAGE>
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
As described below, and in the Prospectus under the captions "Exchange
Privilege" and "Contingent Deferred Sales Charge", a contingent deferred
sales charge ("CDSC") may be imposed upon a redemption, depending on a number
of factors, including the number of years from the time of purchase until the
time of redemption or exchange ("holding period"). When shares of the Fund or
any other CDSC fund are exchanged for shares of an Exchange Fund, the
exchange is executed at no charge to the shareholder, without the imposition
of the CDSC at the time of the exchange. During the period of time the
shareholder remains in the Exchange Fund (calculated from the last day of the
month in which the Exchange Fund shares were acquired), the holding period or
"year since purchase payment made" is frozen. When shares are redeemed out of
the Exchange Fund, they will be subject to a CDSC which would be based upon
the period of time the shareholder held shares in a CDSC fund. However, in
the case of shares exchanged into an Exchange Fund on or after April 23,
1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount
equal to the Exchange Fund 12b-1 distribution fees incurred on or after that
date which are attributable to those shares. Shareholders acquiring shares of
an Exchange Fund pursuant to this exchange privilege may exchange those
shares back into a CDSC fund from the Exchange Fund, with no CDSC being
imposed on such exchange. The holding period previously frozen when shares
were first exchanged for shares of the Exchange Fund resumes on the last day
of the month in which shares of a CDSC fund are reacquired. A CDSC is imposed
only upon an ultimate redemption, based upon the time (calculated as
described above) the shareholder was invested in a CDSC fund.
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("FESC funds"), but
shares of the Fund, however acquired, 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 CDSC upon their
redemption.
When shares initially purchased in a CDSC fund are exchanged for shares of
another CDSC fund or for shares of an Exchange Fund, the date of purchase of
the shares of the fund exchanged into, for purposes of the CDSC upon
redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments
between funds for purposes of the CDSC, the amount which represents the
current net asset value of shares at the time of the exchange which were (i)
purchased more than three or six years (depending on the CDSC schedule
applicable to the shares) prior to the exchange, (ii) originally acquired
through reinvestment of dividends or distributions and (iii) acquired in
exchange for shares of FESC funds, or for shares of other Dean Witter Funds
for which shares of FESC funds have been exchanged (all such shares called
"Free Shares"), will be exchanged first. Shares of Dean Witter American Value
Fund acquired prior to April 30, 1984, shares of Dean Witter Dividend Growth
Securities Inc. and Dean Witter Natural Resource Development Securities Inc.
acquired prior to July 2, 1984, and shares of Dean Witter Strategist Fund
acquired prior to November 8, 1989 are also considered Free Shares and will
be the first Free Shares to be exchanged. After an exchange, all dividends
earned on shares in an Exchange Fund will be considered Free Shares. If the
exchanged amount exceeds the value of such Free Shares, an exchange is made,
on a block-by-block basis, of non-Free Shares held for the longest period of
time (except that if shares held for identical periods of time but subject to
different CDSC schedules are held in the same Exchange Privilege Account, the
shares of that block that are subject to a lower CDSC rate will be exchanged
prior to the shares of that block that are subject to a higher CDSC rate).
Shares equal to any appreciation in the value of non-Free Shares exchanged
will be treated as Free Shares, and the amount of the purchase payments for
the non-Free Shares of the fund exchanged into will be equal to the lesser of
(a) the purchase payments for, or (b) the current net asset value of, the
exchanged non-Free Shares. If an exchange between funds would result in
exchange of only part of a particular block of non-Free Shares, then shares
equal to any appreciation in the value of the block (up to the amount of the
exchange) will be treated as Free Shares and exchanged first, and the
purchase payment for that block
40
<PAGE>
will be allocated on a pro rata basis between the non-Free Shares of that
block to be retained and the non-Free Shares to be exchanged. The prorated
amount of such purchase payment attributable to the retained non-Free Shares
will remain as the purchase payment for such shares, and the amount of
purchase payment for the exchanged non-Free Shares will be equal to the
lesser of (a) the prorated amount of the purchase payment for, or (b) the
current net asset value of, those exchanged non-Free Shares. Based upon the
procedures described in the CDSC fund Prospectus under the caption
"Contingent Deferred Sales Charge", any applicable CDSC will be imposed upon
the ultimate redemption of shares of any fund, regardless of the number of
exchanges since those shares were originally purchased.
With respect to the repurchase of shares of the Fund, the application of
proceeds to the purchase of new shares in the Fund or any other of the funds
and the general administration of the Exchange Privilege, the Transfer Agent
acts as agent for the Distributor and for the shareholder's selected broker-
dealer, if any, in the performance of such functions. With respect to
exchanges, redemptions or repurchases, the Transfer Agent shall be liable for
its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
the shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000
for Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income
Trust, Dean Witter California Tax-Free Daily Income Trust, and Dean Witter
New York Municipal Money Market Trust, although those funds may, at their
discretion, accept initial investments of as low as $1,000. The minimum
initial investment for Dean Witter Short-Term U.S. Treasury Trust is $10,000
although that Fund, in its discretion, may accept initial purchases 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 the Exchange Funds pursuant to this Exchange Privilege, and
provided further that the Exchange Privilege may be terminated or materially
revised at times (a) when the New York Stock Exchange is closed for other
than customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to
whether the conditions prescribed in (b) or (c) exist), or (e), if the Fund
would be unable to invest amounts effectively in accordance with its
investment objective(s), policies and restrictions.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. An exchange will be treated for federal income tax purposes
the same as a repurchase or redemption of shares, on which the
41
<PAGE>
shareholder may realize a capital gain or loss. However, the ability to
deduct capital losses on an exchange may be limited in situations where there
is an exchange of shares within ninety days after the shares are purchased.
The Exchange Privilege is only available in states where an exchange may
legally be made.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of the Fund can be
redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds may be reduced by the amount of
any applicable contingent deferred sales charges (see below). If shares are
held in a shareholder's account without a share certificate, a written
request for redemption to the Fund's Transfer Agent at P.O. Box 983, Jersey
City, NJ 07303 is required. If certificates are held by the shareholder, the
shares may be redeemed by surrendering the certificates with a written
request for redemption. The share certificate, or an accompanying stock
power, and the request for redemption, must be signed by the shareholder or
shareholders exactly as the shares are registered. Each request for
redemption, whether or not accompanied by a share certificate, must be sent
to the Fund's Transfer Agent, which will redeem the shares at their net asset
value next computed (see "Purchase of Fund Shares" in the Prospectus) after
it receives the request, and certificate, if any, in good order. Any
redemption request received after such computation will be redeemed at the
next determined net asset value. The term "good order" means that the share
certificate, if any, and request for redemption are properly signed,
accompanied by any documentation required by the Transfer Agent, and bear
signature guarantees when required by the Fund or the Transfer Agent. If
redemption is requested by a corporation, partnership, trust or fiduciary,
the Transfer Agent may require that written evidence of authority acceptable
to the Transfer Agent be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other
than the record owner, or if the proceeds are to be paid to a corporation
(other than the Distributor or a selected broker-dealer for the account of
the shareholder), partnership, trust or fiduciary, or sent to the shareholder
at an address other than the registered address, signatures must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A stock
power may be obtained from any dealer or commercial bank. The Fund may change
the signature guarantee requirements from time to time upon notice to
shareholders, which may be by means of a new prospectus.
Contingent Deferred Sales Charge. As stated in the Prospectus, a
contingent deferred sales charge ("CDSC") will be imposed on any redemption
by an investor if after such redemption the current value of the investor's
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Fund shares during the preceding six years.
However, no CDSC will be imposed to the extent that the net asset value of
the shares redeemed does not exceed: (a) the current net asset value of
shares purchased more than six years prior to the redemption, plus (b) the
current net asset value of shares purchased through reinvestment of dividends
or distributions of the Fund or another Dean Witter Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) the current net asset value of
shares acquired in exchange for (i) shares of Dean Witter front-end sales
charge funds, or (ii) shares of other Dean Witter Funds for which shares of
front-end sales charge funds have been exchanged (see "Shareholder
Services--Exchange Privilege"), plus (d) increases in the net asset value of
the investor's shares above the total amount of payments for the purchase of
Fund shares made during the preceding six years. The CDSC will be paid to the
Distributor.
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares
within the last six years will be redeemed first. In the event the redemption
amount exceeds such increase in value, the next portion of the amount
redeemed will be the amount which represents the net asset value of the
investor's shares purchased more than six years prior to the
42
<PAGE>
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter funds for
which shares of front-end sales charge funds have been exchanged. A portion
of the amount redeemed which exceeds an amount which represents both such
increase in value and the value of shares purchased more than six years prior
to the redemption and/or shares purchased through reinvestment of dividends
or distributions and/or shares acquired in the above-described exchanges will
be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Fund shares until the time of
redemption of such shares. For purposes of determining the number of years
from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last
day of the month. The following table sets forth the rates of the CDSC:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- -------------------------- -----------------------
<S> <C>
First ..................... 5.0%
Second .................... 4.0%
Third ..................... 3.0%
Fourth .................... 2.0%
Fifth ..................... 2.0%
Sixth ..................... 1.0%
Seventh and thereafter ... None
</TABLE>
In determining the rate of the CDSC it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year period. This will result in any such CDSC being
imposed at the lowest possible rate. Accordingly, shareholders may redeem,
without incurring any CDSC, amounts equal to any net increase in the value of
their shares above the amount of their purchase payments made within the past
six years and amounts equal to the current value of shares purchased more
than six years prior to the redemption and shares purchased through
reinvestment of dividends or distributions or acquired in exchange for shares
of Dean Witter front-end sales charge funds, or for shares of other Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged. The CDSC will be imposed, in accordance with the table shown
above, on any redemptions within six years of purchase which are in excess of
these amounts and which redemptions are not (a) requested within one year of
death or initial determination of disability of a shareholder, or (b) made
pursuant to certain taxable distributions from retirement plans or retirement
accounts, as described in the Prospectus.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares presented for repurchase or redemption will be
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. The term good order means
that the share certificate, if any, and request for redemption are properly
signed, accompanied by any documentation required by the Transfer Agent, and
bear signature guarantees when required by the Fund or the Transfer Agent.
Such payment may be postponed or the right of redemption suspended at times
(a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c)
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
(d) during any other period when the Securities and Exchange Commission by
order so permits; provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist. If the shares to be redeemed have recently
been purchased by check (including a 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
43
<PAGE>
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.
Transfers of Shares. In the event a shareholder requests a transfer of
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the contingent deferred sales charge or free of such charge
(and with regard to the length of time shares subject to the charge have been
held), any transfer involving less than all of the shares in an account will
be made on a pro-rata basis (that is, by transferring shares in the same
proportion that the transferred shares bear to the total shares in the
account immediately prior to the transfer). The transferred shares will
continue to be subject to any applicable contingent deferred sales charge as
if they had not been so transferred.
Reinstatement Privilege. As 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 thirty days after the date
of the redemption or repurchase, reinstate any portion or all of the proceeds
of such redemption or repurchase in shares of the Fund at net asset value
(without sales charge) next determined after a reinstatement request,
together with the proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and
reinstatement is made in shares of the Fund, some or all of the loss,
depending on the amount reinstated, will not be allowed as a deduction for
federal income tax purposes but will be applied to adjust the cost basis of
the shares acquired upon reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment. If any such gains are retained, the Fund will pay
federal income tax thereon, and will notify shareholders that, following an
election by the Fund, the shareholders will be required to include such
undistributed gains in 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.
Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the
Fund for more than twelve months. Gains or losses on the sale of securities
held for twelve months or less will be generally short-term gains or losses.
At October 31, 1994, the Fund had net capital loss carryovers of
approximately $3,103,000 which will be available through October 31, 2002 to
offset future capital gains to the extent provided by regulations. To the
extent that these carryover losses are used to offset future capital gains,
it is probable that the gains so offset will not be distributed to
shareholders.
The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code (the
"Code"). If so qualified, the Fund will not be subject to federal income tax
on its net investment income and capital gains, if any, realized during any
fiscal year in which it distributes such income and capital gains to its
shareholders. In addition, the Fund intends to distribute to its shareholders
each calendar year a sufficient amount of ordinary income and capital gains
to avoid the imposition of a 4% excise tax. Shareholders will normally have
to pay federal income taxes, and any state and/or local income taxes, on the
dividends and distributions they receive from the Fund. Such dividends and
distributions, to the extent that they are derived from net investment income
or short-term capital gains, are taxable to the shareholder as ordinary
income regardless of whether the shareholder receives such payments in
additional shares or in cash. Any dividends declared in the last quarter of
any year which are paid in the following year prior to February 1 will be
deemed received by the shareholder in the prior year.
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
44
<PAGE>
exact amount of the dividend or capital gains distribution. Furthermore,
capital gains distributions and dividends are subject to federal income
taxes. If the net asset value of the shares should be reduced below a
shareholder's cost as a result of the payment of dividends or the
distribution of realized net long-term capital gains, such payment or
distribution would be in part a return of the shareholder's investment to the
extent of such reduction below the shareholder's cost, but nonetheless would
be fully taxable. Therefore, an investor should consider the tax implications
of purchasing Fund shares immediately prior to a dividend or distribution
record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains during
the six-month period.
Dividends, interest and capital gains received by the Fund may give rise
to withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits
or deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% of the Fund's total
assets at the close of its fiscal year consist of securities of foreign
corporations, the Fund would be eligible and would determine whether or not
to file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their respective pro
rata portions of such withholding taxes in their United States income tax
returns as gross income, treat such respective pro rata portions as taxes
paid by them, and deduct such respective pro rata portions in computing their
taxable income or, alternatively, use them as foreign tax credits against
their United States income taxes. If the Fund makes such election, it will
report annually to its shareholders the amount per share of such withholding.
Special Rules for Certain Foreign Currency Transactions. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in
stock, securities or foreign currencies are currently considered to be
qualifying income for purposes of determining whether the Fund qualifies as a
regulated investment company. It is currently unclear, however, who will be
treated as the issuer of certain foreign currency instruments or how foreign
currency options, futures, or forward foreign currency contracts will be
valued for purposes of the regulated investment company diversification
requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from forward
contracts, from futures contracts, and from options will be treated as
ordinary income or loss under Code Section 988. Also, certain foreign
exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the
amount of the Fund's net capital gain. Additionally, if Code Section 988
losses exceed other investment company taxable income during a taxable year,
the Fund would not be able to make any ordinary dividend distributions.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as long-term capital gains and the portion eligible for
the dividends received deduction. To avoid being subject to a 31% federal
backup withholding tax on taxable dividends, capital gains distributions and
the proceeds of redemptions and repurchases, shareholders' taxpayer
identification numbers must be furnished and certified as to their accuracy.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
45
<PAGE>
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, 1995, the Fund's yield, calculated pursuant to this formula, was 7.98%.
The Fund's "average annual total return" represents an annualization of
the Fund's total return over a particular period and is computed by finding
the annual percentage rate which will result in the ending redeemable value
of a hypothetical $1,000 investment made at the beginning of a one, five or
ten year period, or for the period from the date of commencement of the
Fund's operations, if shorter than any of the foregoing. The ending
redeemable value is reduced by any contingent deferred sales charge at the
end of the one, five, or ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are
reinvested. The formula for computing the average annual total return
involves a percentage obtained by dividing the ending redeemable value by the
amount of the initial investment, taking a root of the quotient (where the
root is equivalent to the number of years in the period) and subtracting 1
from the result. The average annual total return of the Fund for the fiscal
year ended October 31, 1995 and for the period April 9, 1992 (commencement of
operations) through October 31, 1995 was 5.76% and 6.13%, 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 or total return figures. Such calculations may or may not reflect
the deduction of the contingent deferred sales charge which, if reflected,
would reduce the performance quoted. For example, the average annual total
return of the Fund may be calculated in the manner described above, but
without deduction for any applicable contingent deferred sales charge. Based
on this calculation, the average annual total return of the Fund for the
fiscal year ended October 31, 1995 and for the period April 9, 1992 through
October 31, 1995 was 10.76% and 6.59%, respectively.
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without
reduction for any sales charge) by the initial $1,000 investment and
subtracting 1 from the result. Based upon the foregoing calculations, the
Fund's total return for the fiscal year ended October 31, 1995 and for the
period April 9, 1992 through October 31, 1995 was 10.76% and 25.51%,
respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000, and $100,000 in shares of the Fund by adding 1 to the
Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
10,000, $50,000, and $100,000, as the case may be. Investments of $10,000,
$50,000 or $100,000 in the Fund at inception would have grown to $12,551,
$62,755, and $125,510, respectively at October 31, 1995.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent
organizations.
46
<PAGE>
DESCRIPTION OF SHARES OF THE FUND
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share held. All of the Trustees, except for Messrs. Bozic, Purcell and
Schroeder, have been elected by the shareholders of the Fund at a Special
Meeting of Shareholders held on January 12,1993. Messrs. Bozic, Purcell and
Schroeder were elected by the other Trustees of the Fund on April 8, 1994.
The Trustees themselves have the power to alter the number and the terms of
office of the Trustees, and they may at any time lengthen their own terms or
make their terms of unlimited duration and appoint their own successors,
provided that always at least a majority of the Trustees has been elected by
the shareholders of the Fund. Under certain circumstances the Trustees may be
removed by action of the Trustees. The shareholders also have the right under
certain circumstances to remove the Trustees in accordance with the
provisions of Section 16(c) of the Investment Company Act of 1940. The voting
rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect
any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). However, the Trustees have
not authorized any such additional series or classes of shares.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to a shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise
from his or its own bad faith, willful misfeasance, gross negligence, or
reckless disregard of his duties. It also provides that all third persons
shall look solely to the Fund'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.
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, 90 Washington Street, New York, New York 10286 is
the Custodian of the Fund's assets as described in groupings 2 and 3 in the
Prospectus. The Chase Manhattan Bank, One Chase Plaza, New York, New York
10005 is the Custodian of the Fund's assets as described in grouping 1 in the
Prospectus. As Custodian, The Chase Manhattan Bank has contracted with
various foreign banks and depositaries to hold portfolio securities of
non-U.S. issuers on behalf of the Fund. Any Fund cash balances with either
Custodian in excess of $100,000 are unprotected by Federal deposit insurance.
Such amounts 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 Trust's shares and
Dividend Disbursing Agent for payment of dividends and distributions on Trust
shares and Agent for shareholders under various investment plans described
herein. Dean Witter Trust Company is an affiliate of Dean Witter InterCapital
Inc., the Fund's Investment Manager, and Dean Witter Distributors Inc., the
Fund's Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean
Witter Trust Company's responsibilities include maintaining shareholder
accounts, including providing subaccounting and recordkeeping services for
certain retirement accounts; disbursing cash dividends and reinvesting
dividends; processing account registration 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.
47
<PAGE>
INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund.
The independent accountants are responsible for auditing the annual financial
statements of the Fund.
REPORTS TO SHAREHOLDERS
- -----------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report,
containing financial statements audited by independent accountants, will be
sent to shareholders each year.
The Fund's fiscal year ends on October 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The Financial Statements of the Fund for the fiscal year ended October 31,
1995 included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the Information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
48
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------- ---------------------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
GOVERNMENT & CORPORATE BONDS (95.1%)
AUSTRALIA (1.6%)
Government Obligations
Au$ 7,600 New South Wales Treasury Corp. (g) ............................. 8.50 % 03/01/96 $ 5,787,569
3,700 Queensland Treasury Corp. (g) .................................. 8.00 05/14/97 2,820,436
-----------
TOTAL AUSTRALIA ....................................................................... 8,608,005
-----------
CANADA (4.0%)
Government Obligations
Ca$ 5,730 Canada Treasury Bond (g) ....................................... 10.25 03/01/96 4,322,886
5,100 Canada Treasury Bond (g) ....................................... 9.25 05/01/96 3,854,810
14,930 Canada Treasury Bond (g) ....................................... 9.25 10/01/96 11,412,612
2,100 Ontario Province (g) ........................................... 10.00 09/30/96 1,599,002
-----------
TOTAL CANADA .......................................................................... 21,189,310
-----------
DENMARK (4.4%)
Government Obligations
DKr 85,000 Denmark Treasury Note (g) ...................................... 9.00 11/15/96 16,065,934
41,150 Denmark Treasury Note (g) ...................................... 9.00 11/15/98 8,056,658
-----------
TOTAL DENMARK ......................................................................... 24,122,592
-----------
GERMANY (4.9%)
Finance (0.8%)
DEM 6,000 Deutsche Finance BV ............................................ 6.25 04/08/97 4,380,959
-----------
Government Obligation (4.1%)
30,000 Bundes Obligation (g) .......................................... 8.375 01/20/97 22,363,055
-----------
TOTAL GERMANY ......................................................................... 26,744,014
-----------
ITALY (3.2%)
Government Obligation
ITL 27,785M Italy Treasury Bond (g) ........................................ 10.50 04/15/98 17,305,337
-----------
NEW ZEALAND (4.6%)
Government Obligations
NZ$ 10,200 New Zealand Treasury Bond (g) .................................. 9.00 11/15/96 6,799,844
9,500 New Zealand Treasury Bond (g) .................................. 10.00 07/15/97 6,504,503
17,115 New Zealand Treasury Bond (g) .................................. 8.00 07/15/98 11,468,375
-----------
TOTAL NEW ZEALAND ..................................................................... 24,772,722
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------- ---------------------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
SPAIN (3.1%)
Government Obligations
ESP 1,060M Spain Treasury Bond (g) ........................................ 7.30 % 07/30/97 $ 8,335,712
1,016M Spain Treasury Bond (g) ........................................ 11.45 08/30/98 8,570,391
-----------
TOTAL SPAIN ......................................................................... 16,906,103
-----------
SWEDEN (4.9%)
Government Obligation
SEK 172,300 Sweden Treasury Bond ........................................... 10.75 01/23/97 26,552,895
-----------
UNITED STATES (64.4%)
Aerospace (0.8%)
$ 4,750 Sabreliner Corp. (Series B) .................................... 12.50 04/15/03 4,465,000
-----------
Airlines (1.5%)
9,000 GPA Delaware, Inc. ............................................. 8.75 12/15/98 8,055,000
-----------
Automotive (0.8%)
3,500 Am General Corp. ............................................... 12.875 05/01/02 3,500,000
2,000 Envirotest Systems, Inc. ....................................... 9.625 04/01/03 1,240,000
-----------
4,740,000
-----------
Cable & Telecommunications (3.9%)
4,342 Adelphia Communications Corp. (Series B) ....................... 9.50 + 02/15/04 3,604,070
7,400 AT&T Capital Corp. ............................................. 15.00 05/05/97 8,322,005
11,500 In-Flight Phone Corp. (Units)++ - 144A** 14.00 ++ 05/15/02 5,175,000
4,000 Paxson Communications - 144A** ................................. 11.625 10/01/02 3,930,000
-----------
21,031,075
-----------
Computer Equipment (1.7%)
3,000 IBM Credit Corp. ............................................... 15.00 06/13/96 3,160,920
6,050 Unisys Corp. ................................................... 13.50 07/01/97 6,155,875
-----------
9,316,795
-----------
Consumer Products (0.5%)
2,500 J.B. Williams Holdings, Inc. ................................... 12.00 03/01/04 2,525,000
-----------
Containers (0.8%)
8,000 Ivex Holdings Corp. (Series B) ................................. 13.25 ++ 03/15/05 4,540,000
-----------
Electrical & Alarm Systems (0.8%)
5,000 Mosler, Inc. ................................................... 11.00 04/15/03 4,150,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------- ---------------------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Entertainment/Gaming & Lodging (3.7%)
$ 3,500 Fitzgeralds Gaming Corp. - 144A** .............................. 14.25 *% 03/15/96 $ 2,800,000
4,000 GNF Corporation (Series B) ..................................... 10.625 04/01/03 3,510,000
3,500 Motels of America, Inc. (Series B) ............................. 12.00 04/15/04 3,526,250
2,250 Santa Fe Hotel Inc. ............................................ 11.00 12/15/00 1,620,000
2,500 Six Flags Theme Parks Corp. - 144A** ........................... 12.25 ++ 06/15/05 1,968,750
14,291 Spectravision, Inc. (c) ........................................ 11.65 12/01/02 1,411,236
3,000 Trump Castle Funding, Inc. ..................................... 11.75 11/15/03 2,415,000
3,000 Trump Taj Mahal (Series A) ..................................... 11.35 11/15/99 2,565,000
-----------
19,816,236
-----------
Foods & Beverages (4.3%)
7,400 Envirodyne Industries, Inc. .................................... 10.25 12/01/01 5,772,000
3,000 PepsiCo Inc. ................................................... 15.00 06/14/96 3,160,500
3,000 SC International Services, Inc. ................................ 13.00 10/01/05 3,060,000
7,500 Seven Up/RC Bottling Co. Southern California, Inc. (d) ......... 11.50 08/01/99 3,293,835
16,750 Specialty Foods Acquisition Corp. (Series B) ................... 13.00 ++ 08/15/05 7,956,250
-----------
23,242,585
-----------
Manufacturing (2.0%)
5,000 Alpine Group, Inc. - 144A** .................................... 12.25 07/15/03 4,762,500
2,000 Berry Plastics Corp. ........................................... 12.25 04/15/04 2,110,000
4,000 Uniroyal Technology Corp. ...................................... 11.75 06/01/03 3,800,000
------------
10,672,500
-----------
Manufacturing - Diversified (2.5%)
3,000 Foamex L.P. .................................................... 11.875 10/01/04 3,030,000
4,000 Interlake Corp. ................................................ 12.125 03/01/02 3,780,000
2,500 J.B. Poindexter & Co., Inc. .................................... 12.50 05/15/04 2,337,500
7,000 Jordan Industries, Inc. ........................................ 11.75 ++ 08/01/05 4,235,000
-----------
13,382,500
-----------
Oil & Gas (1.2%)
4,000 Deeptech International, Inc. ................................... 12.00 12/15/00 3,520,000
3,500 Empire Gas Corp. ............................................... 7.00 07/15/04 2,975,000
-----------
6,495,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------- ---------------------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Publishing (2.1%)
$ 6,000 Affiliated Newspapers Investments, Inc. ........................ 13.25 ++% 07/01/06 $ 3,480,000
3,800 BFP Holdings, Inc. (Series B) .................................. 13.50 ++ 04/15/04 3,002,000
2,500 Garden State Newspapers, Inc. .................................. 12.00 07/01/04 2,506,250
4,000 United States Banknote Corp. (Series B) ........................ 11.625 08/01/02 2,600,000
-----------
11,588,250
-----------
Restaurants (3.6%)
3,950 American Restaurant Group ...................................... 12.00 09/15/98 2,923,000
6,000 American Restaurant Group Holdings, Inc. ....................... 14.00 ++ 12/15/05 2,805,000
5,000 Carrols Corp. .................................................. 11.50 08/15/03 5,012,500
10,950 Flagstar Corp. ................................................. 11.25 11/01/04 7,884,000
1,000 Starbucks Corp. (Conv.) ........................................ 4.25 11/01/02 1,002,500
-----------
19,627,000
-----------
Retail (0.8%)
2,330 Cort Furniture Rental Corp. .................................... 12.00 09/01/00 2,458,150
2,000 County Seat Stores Co. ......................................... 12.00 10/01/02 1,800,000
-----------
4,258,150
-----------
Textiles - Apparel Manufacturers (1.3%)
6,083 JPS Textile Group, Inc. ........................................ 10.85 06/01/99 5,535,184
2,000 U.S. Leather, Inc. ............................................. 10.25 07/31/03 1,640,000
-----------
7,175,184
-----------
U.S. Government & Agencies Obligations (32.1%)
4,649 Federal Home Loan Mortgage 10/01/24-
Corp (0.9%) .................................................. 8.00 05/01/25 4,760,377
-----------
Federal National Mortgage Assoc. (22.1%)
11,000 Principal Strip ................................................. 0.00 12/20/01-
02/01/05 8,017,030
20,972 ................................................................. 6.50 10/01/08-
02/01/24 20,613,063
24,272 ................................................................. 7.00 08/01/08-
06/01/24 24,100,578
5,000 ................................................................. 7.00 *** 4,953,125
17,996 ................................................................. 7.50 02/01/22-
07/01/25 18,170,553
5,000 ................................................................. 7.50 *** 5,048,438
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------- ---------------------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
$10,661 ................................................................ 8.00% 09/01/01-
06/01/22 $ 10,909,448
26,979 ................................................................ 8.50 07/01/17-
05/01/25 27,932,159
------------
119,744,394
------------
Government National Mortgage Assoc. (7.2%)
4,841 ................................................................ 6.50 11/20/23-
02/20/24 4,680,739
3,851 ................................................................ 7.00 12/15/22-
03/15/24 3,820,846
15,915 ................................................................ 7.50 04/15/22-
07/20/25 16,069,421
9,266 ................................................................ 8.00 01/15/22-
10/15/24 9,526,951
4,752 ................................................................ 8.50 08/15/22-
12/15/24 4,943,746
------------
39,041,703
------------
U.S. Treasury Notes (1.2%) (g)
1,000 ................................................................ 4.75 09/30/98 974,219
2,000 ................................................................ 4.75 10/31/98 1,946,563
2,000 ................................................................ 6.25 08/31/00 2,033,750
2,000 ................................................................ 5.75 10/31/00 1,994,375
------------
6,948,907
------------
U.S. Treasury Strip (0.7%) (g)
4,000 ................................................................ 0.00 05/15/97 3,673,143
------------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS .......................................... 174,168,524
------------
TOTAL UNITED STATES ................................................................... 349,248,799
------------
TOTAL GOVERNMENT & CORPORATE BONDS
(Identified Cost $523,727,000) ........................................................ 515,449,777
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------------------------------------------------------------------------------- --------------
<S> <C> <C>
COMMON STOCKS (a) (1.8%)
Building & Construction (0.8%)
128,500 USG Corp. (b) .......................................................................... $ 3,742,562
-----------
Consumer Products (0.1%)
37,700 Thermoscan, Inc. (Class B) - 144A** .................................................... 597,922
-----------
Entertainment/Gaming & Lodging (0.0%)
2,000 Motels of America, Inc. - 144A** ....................................................... 176,000
-----------
Foods & Beverages (0.1%)
198,750 Specialty Foods Acquisition Corp. - 144A** ............................................. 596,250
-----------
Manufacturing - Diversified (0.5%)
353,500 Interlake Corp. ........................................................................ 707,000
125,000 Thermadyne Holdings Corp. (b) .......................................................... 2,125,000
-----------
2,832,000
-----------
Publishing (0.2%)
6,000 Affiliated Newspapers Investments, Inc. (Class B) ...................................... 180,000
30,400 BFP Holdings, Inc. (Class D) - 144A** .................................................. 1,124,800
-----------
1,304,800
-----------
Restaurants (0.0%)
6,000 American Restaurant Group Holdings, Inc. - 144A** ...................................... 90,000
-----------
Retail (0.1%)
7,333 Finlay Enterprises Inc. (Class A) ...................................................... 100,829
101,000 Thrifty Payless Holdings, Inc. (Class C) ............................................... 416,625
-----------
517,454
-----------
TOTAL COMMON STOCKS
(Identified Cost $7,657,545) ........................................................... 9,856,988
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
SHARES DATE VALUE
- ---------- -------------------------------------------------------------------------- ------------- --------------
<S> <C> <C> <C>
WARRANTS (a) (0.1%)
Aerospace (0.0%)
1,000 Sabreliner Corp. (Restricted) - 144A** ................................... 04/15/03 $ 10,000
-----------
Containers (0.0%)
2,000 Crown Packaging Holdings, Ltd. (Canada) - 144A** ......................... 11/01/03 110,000
-----------
Entertainment/Gaming & Lodging (0.0%)
9,500 Fitzgeralds Gaming Corp. - 144A** ........................................ 03/15/99 95,000
-----------
Manufacturing (0.0%)
3,500 BPC Holdings Corp. ....................................................... 04/15/04 43,750
40,000 Uniroyal Technology Corp. ................................................ 06/01/03 100,000
-----------
143,750
-----------
Oil & Gas (0.0%)
3,450 Empire Gas Corp. ......................................................... 07/15/04 34,500
-----------
Retail (0.1%)
2,000 County Seat Holdings Co. ................................................. 10/15/98 45,000
109,890 New Cort Holdings Corp. .................................................. 09/01/98 219,780
-----------
264,780
-----------
Retail - Food Chains (0.0%)
16,278 Grand Union Co. (Series 1) (b) ........................................... 06/16/00 16,278
32,558 Grand Union Co. (Series 2) (b) ........................................... 06/16/00 16,279
-----------
32,557
-----------
TOTAL WARRANTS
(Identified Cost $417,808) ............................................................ 690,587
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------- ---------------------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (4.4%)
IRELAND (1.2%)
Government Obligation
IEP 4,187 Irish Exchequer Note (e) ....................................... 7.36 % 01/05/96 6,707,507
-----------
TIME DEPOSITS (f) (1.4%)
ITALY (0.8%)
Banking - International
ITL 5,433M Bank of New York ............................................... 10.375 11/03/95 3,417,211
1,276M Bankers Trust .................................................. 10.50 11/03/95 802,750
-----------
TOTAL ITALY ........................................................................ 4,219,961
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------- ---------------------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
SWEDEN (0.6%)
Banking - International
SEK 19,898 Bankers Trust .................................................. 8.50 % 11/03/95 $ 3,002,754
------------
TOTAL TIME DEPOSITS ................................................................ 7,222,715
------------
UNITED STATES (1.8%)
U.S. GOVERNMENT AGENCY (1.1%)
$ 5,900 Student Loan Marketing Association (e) ......................... 5.82 11/01/95 5,900,000
------------
REPURCHASE AGREEMENT (0.7%)
4,105 The Bank of New York (dated 10/31/95; proceeds $4,105,578;
collateralized by $4,697,518 Federal National Mortgage
Assoc. 7.50% due 04/25/19 valued at $4,386,512)
(Identified Cost $4,104,915)..................................... 5.8125 11/01/95 4,104,915
------------
TOTAL UNITED STATES ................................................................ 10,004,915
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $23,305,716) ...................................................... 23,935,137
------------
TOTAL INVESTMENTS
(Identified Cost $555,108,069) (h) ...................................... 101.4% 549,932,489
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS .......................... (1.4) (7,388,796)
----- ------------
NET ASSETS .............................................................. 100.0% $542,543,693
===== ============
</TABLE>
- ------------
M In millions.
* Adjustable rate. Rate shown is the rate in effect at October 31, 1995.
** Resale is restricted to qualified institutional investors.
*** Security purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date; the actual principal
amount and maturity date will be determined upon settlement.
++ Consists of one or more class of securities traded together as a unit;
generally
bonds with attached stocks/warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at
a future
specified date.
(a) Non-income producing security.
(b) Acquired through exchange offer.
(c) Non-income producing security, issuer in bankruptcy.
(d) Non-income producing security, issuer in default.
(e) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield. The
money market equivalent yield for the Irish Exchequer Note does not
reflect the effect of exchange rates.
(f) Subject to withdrawal restrictions until maturity.
(g) Some or all of these securities are segregated in connection with open
forward foreign currency contracts and securities purchased on a
forward commitment basis.
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
(h) The aggregate cost for federal income tax purposes is $555,406,174; the
aggregate gross unrealized appreciation is $16,639,031 and the
aggregate gross unrealized depreciation is $22,112,716, resulting in
net unrealized depreciation of $5,473,685.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1995:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION/
TO DELIVER FOR DATE (DEPRECIATION)
- -------------- ------------- ---------- ---------------
<S> <C> <C> <C>
CAD 10,000,000 $ 7,340,527 11/07/95 $ (102,550)
CAD 14,000,000 $10,218,978 11/27/95 (209,047)
DEM 34,500,000 $23,955,006 11/24/95 (459,023)
DEM 17,141,320 $11,630,696 05/29/96 (523,110)
DEM 3,550,000 $ 2,531,194 06/14/96 23,662
DEM 3,770,000 $ 2,688,057 06/14/96 22,111
DEM 22,070,000 $14,933,351 09/11/96 (720,907)
---------------
Net unrealized depreciation .......... $(1,968,864)
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $555,108,069) ...................................... $549,932,489
Cash (including $1,041,582 in foreign currency) ...................... 3,090,858
Unrealized appreciation on open forward foreign currency contracts .. 45,773
Receivable for:
Interest ........................................................... 13,268,294
Investments sold ................................................... 3,627,891
Compensated forward foreign currency contracts ..................... 1,926,935
Shares of beneficial interest sold ................................. 1,497,495
Foreign withholding taxes reclaimed ................................ 176,339
Deferred organizational expenses ..................................... 43,421
Prepaid expenses ..................................................... 16,464
--------------
TOTAL ASSETS ....................................................... 573,625,959
--------------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts .. 2,014,637
Payable for:
Investments purchased .............................................. 23,173,636
Compensated forward foreign currency contracts ..................... 4,194,384
Dividends to shareholders .......................................... 624,807
Plan of distribution fee ........................................... 400,663
Shares of beneficial interest repurchased .......................... 316,256
Investment management fee .......................................... 188,547
Accrued expenses ..................................................... 169,336
--------------
TOTAL LIABILITIES .................................................. 31,082,266
--------------
NET ASSETS:
Paid-in-capital ...................................................... 554,996,010
Net unrealized depreciation .......................................... (7,001,870)
Accumulated undistributed net investment income ...................... 3,816,429
Accumulated net realized loss ........................................ (9,266,876)
--------------
NET ASSETS ........................................................ $542,543,693
==============
NET ASSET VALUE PER SHARE,
56,403,092 shares outstanding (unlimited shares authorized of $.01
par value) .......................................................... $ 9.62
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME (net of $84,313 foreign withholding tax) ........... $45,680,948
-------------
EXPENSES
Plan of distribution fee ............................................ 3,986,348
Investment management fee ........................................... 1,875,972
Transfer agent fees and expenses .................................... 320,255
Custodian fees ...................................................... 264,505
Registration fees ................................................... 99,308
Professional fees ................................................... 82,363
Shareholder reports and notices ..................................... 67,456
Organizational expenses ............................................. 30,186
Trustees' fees and expenses ......................................... 24,096
Other ............................................................... 13,018
-------------
TOTAL EXPENSES .................................................... 6,763,507
-------------
NET INVESTMENT INCOME ............................................. 38,917,441
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ....................................................... 1,692,051
Foreign exchange transactions ..................................... (8,346,086)
-------------
TOTAL LOSS ........................................................ (6,654,035)
-------------
Net change in unrealized depreciation on:
Investments ....................................................... 15,637,492
Translation of forward foreign currency contracts, other assets
and liabilities denominated in foreign currencies ................. (12,571)
-------------
TOTAL APPRECIATION ................................................ 15,624,921
-------------
NET GAIN .......................................................... 8,970,886
-------------
NET INCREASE ........................................................ $47,888,327
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
- -------------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 38,917,441 $ 24,862,000
Net realized loss ................................. (6,654,035) (7,411,360)
Net change in unrealized depreciation ............. 15,624,921 (22,174,645)
-------------- ----------------
NET INCREASE (DECREASE) ......................... 47,888,327 (4,724,005)
-------------- ----------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ............................. (35,658,766) (20,310,107)
Net realized gain ................................. -- (281,210)
Paid-in-capital ................................... -- (3,939,838)
-------------- ----------------
TOTAL ........................................... (35,658,766) (24,531,155)
--------------- ----------------
Net increase from transactions in shares of
beneficial interest .............................. 123,275,734 269,156,860
-------------- ----------------
TOTAL INCREASE .................................. 135,505,295 239,901,700
NET ASSETS:
Beginning of period ............................... 407,038,398 167,136,698
-------------- ----------------
END OF PERIOD
(including undistributed net investment income
of $3,816,429 and $998,743, respectively) ...... $542,543,693 $407,038,398
============== ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Diversified Income Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund was organized as a
Massachusetts business trust on December 20, 1991 and commenced operations on
April 9, 1992.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (2) when market
quotations are not readily available, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Trustees (valuation of debt
securities for which market quotations are not readily available may be based
upon current market prices of securities which are comparable in coupon,
rating and maturity or an appropriate matrix utilizing similar factors); (3)
certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service utilizes a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio
securities valued by such pricing service; and (4) short-term debt securities
having a maturity date of more than sixty days at time of purchase are valued
on a mark-to-market basis until sixty days prior to maturity and thereafter
at amortized cost based on their value on the 61st day. Short-term debt
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Discounts are accreted over the life of the respective securities.
Interest income is accrued daily.
C. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value
of investment securities, other assets and liabilities and forward contracts
are translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the exchange
rates prevailing on the respective dates of such transactions. The resultant
exchange gains and losses are included in the Statement of Operations as
realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss
SEE NOTES TO FINANCIAL STATEMENTS
61
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
are included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes
in the market prices of the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized gain/loss on foreign exchange
transactions. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.
E. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
F. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
G. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Fund in the amount of
approximately $151,000 which have been fully reimbursed. Such expenses have
been deferred and are being amortized on the straight-line method over a
period not to exceed five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays a management
fee, accrued daily and payable monthly, by applying the annual rate of 0.40%
to the net assets of the Fund determined as of the close of each business
day.
SEE NOTES TO FINANCIAL STATEMENTS
62
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act
pursuant to which the Fund pays the Distributor compensation, accrued daily
and payable monthly, at an annual rate of 0.85% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's shares since the inception
of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or
(b) the Fund's average daily net assets. Amounts paid under the Plan are paid
to the Distributor to compensate it for the services provided and the
expenses borne by it and others in the distribution of the Fund's shares,
including the payment of commissions for sales of the Fund's shares and
incentive compensation to, and expenses of, account executives of Dean Witter
Reynolds Inc., an affiliate of the Investment Manager and Distributor, and
other employees and selected broker-dealers, who engage in or support
distribution of the Fund's shares or who service shareholder accounts,
including overhead and telephone expenses, printing and distribution of
prospectuses and reports used in connection with the offering of the Fund's
shares to other than current shareholders and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may be compensated under the Plan for its opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered may be recovered through future distribution fees from
the Fund and contingent deferred sales charges from the Fund's shareholders.
The Distributor has informed the Fund that for the year ended October 31,
1995, it received approximately $1,026,000 in contingent deferred sales
charges from certain redemptions of the Fund's shares. The Fund's
shareholders pay such charges which are not an expense of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS
63
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended October 31, 1995 were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- ---------------
<S> <C> <C>
Corporate Bonds .......................... $182,730,323 $140,009,322
Foreign Government Bonds ................. 232,912,308 180,505,501
U.S. Government and Agencies Obligations 91,636,094 58,230,151
</TABLE>
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At October 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $35,000.
The Fund has an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the year
ended October 31, 1995 included in Trustees' fees and expenses in the
Statement of Operations amounted to $7,393. At October 31, 1995, the Fund had
an accrued pension liability of $16,578 which is included in accrued expenses
in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sold ........................................ 21,219,776 $201,648,052 36,245,110 $358,205,287
Reinvestment of dividends and distributions 1,592,451 15,089,111 1,119,356 10,865,837
------------- -------------- -------------- --------------
22,812,227 216,737,163 37,364,466 369,071,124
Repurchased ................................. (9,852,773) (93,461,429) (10,300,421) (99,914,264)
------------- -------------- -------------- --------------
Net increase ................................ 12,959,454 $123,275,734 27,064,045 $269,156,860
============= ============== ============== ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At October 31, 1995, the Fund had a net capital loss carryover of
approximately $6,701,000 of which $3,024,000 will be available through
October 31, 2002 and $3,677,000 will be available through October 31, 2003 to
offset future capital gains to the extent provided by regulations.
SEE NOTES TO FINANCIAL STATEMENTS
64
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
As of October 31, 1995, the Fund had temporary book/tax differences primarily
attributable to the mark-to-market of open forward foreign currency exchange
contracts and compensated forward foreign currency exchange contracts and
permanent book/tax differences primarily attributable to foreign currency
losses. To reflect reclassifications arising from permanent book/tax
differences for the year ended October 31, 1995, paid-in-capital was charged
$76,727, undistributed net investment income was charged $440,989 and
accumulated net realized loss was credited $517,716.
7. PURPOSE OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated
portfolio transactions or to manage its foreign currency exposure or to sell,
for a fixed amount of U.S. dollars or other currency, the amount of foreign
currency approximating the value of some or all of its holdings denominated
in such foreign currency or an amount of foreign currency other than the
currency in which the securities to be hedged are denominated approximating
the value of some or all of its holdings to be hedged. Additionally, when the
Investment Manager anticipates purchasing securities at some time in the
future, the Fund may enter into a forward contract to purchase an amount of
currency equal to some or all the value of the anticipated purchase for a
fixed amount of U.S. dollars or other currency.
To hedge against adverse interest rate, foreign currency and market risks,
the Fund may enter into written options on interest rate futures and interest
rate futures contracts ("derivative investments").
At October 31, 1995, there were no outstanding forward contracts other than
those used to manage foreign currency exposure associated with some of the
Fund's foreign currency denominated holdings.
These derivative instruments involve elements of market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The Fund bears
the risk of an unfavorable change in the foreign exchange rates underlying
the forward contracts. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the
terms of their contracts.
SEE NOTES TO FINANCIAL STATEMENTS
65
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31 APRIL 9, 1992*
---------------------------------- THROUGH
1995 1994 1993 OCTOBER 31, 1992
- --------------------------------------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 9.37 $10.20 $10.01 $10.00
---------- ---------- ---------- ----------------
Net investment income .................. 0.77 0.74 0.77 0.37
Net realized and unrealized gain (loss) 0.20 (0.80) 0.20 --
---------- ---------- ---------- ----------------
Total from investment operations ...... 0.97 (0.06) 0.97 0.37
---------- ---------- ---------- ----------------
Less dividends and distributions from:
Net investment income ................. (0.72) (0.64) (0.73) (0.36)
Net realized gain ..................... -- (0.01) (0.05) --
Paid-in-capital ....................... -- (0.12) -- --
---------- ---------- ---------- ----------------
Total dividends and distributions ..... (0.72) (0.77) (0.78) (0.36)
---------- ---------- ---------- ----------------
Net asset value, end of period ......... $ 9.62 $ 9.37 $10.20 $10.01
========== ========== ========== ================
TOTAL INVESTMENT RETURN+ ............... 10.76% (0.69)% 10.00% 3.73%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 1.44% 1.51% 1.58%(4) 0.85%(2)(3)
Net investment income .................. 8.30% 7.91% 7.92%(4) 7.86%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $542,544 $407,038 $167,137 $55,297
Portfolio turnover rate ................ 87% 60% 117% 37%(1)
</TABLE>
- ------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 2.08% and 6.63%, respectively.
(4) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above expense and net
investment income ratios would have been 1.66% and 7.84%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
66
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER DIVERSIFIED INCOME TRUST
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Dean Witter
Diversified Income Trust (the "Fund") at October 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the three years in the period then ended and for the period April 9, 1992
(commencement of operations) through October 31, 1992, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at October
31, 1995 by correspondence with the custodians and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 12, 1995
67
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial statements and schedules, included
in Prospectus (Part A): Page in
Prospectus
----------
Financial highlights for the period April 9, 1992
through October 31, 1992 and for the fiscal years
ended October 31, 1993, 1994 and 1995................ 4
(2) Financial statements included in the Statement of
Additional Information (Part B): Page in
SAI
-------
Portfolio of Investments at October 31, 1995.......... 49
Statement of assets and liabilities at
October 31, 1995...................................... 58
Statement of operations for the year ended
October 31, 1995...................................... 59
Statement of changes in net assets for the
years ended October 31, 1994 and 1995................. 60
Notes to Financial Statements......................... 61
Financial highlights for the period April 9, 1992
through October 31, 1992 and for the fiscal years
ended October 31, 1993, 1994 and 1995................. 66
(3) Financial statements included in Part C:
None
(b) Exhibits:
1. -- Declaration of Trust of the Registrant*
2. -- Amended and Restated By-laws of the Registrant.
8. -- Form of Custodian Agreement between Registrant and
The Bank of New York.*
9. -- Form of Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services Company Inc.
11. -- Consent of Independent Accountants
15. -- Amended and Restated Plan of Distribution pursuant
to Rule 12b-1.
16. -- Schedule for Computation of Performance Quotations
27. -- Financial Data Schedule
*Previously filed; re-filed vua EDGAR with this Amendment to the
Registration Amendment
Item 25. Persons Controlled by or Under Common Control With Registrant.
None
Item 26. Number of Holders of Securities.
(1) (2)
Number of Record Holders
Title of Class at December 29, 1995
-------------- ------------------------
Shares of Beneficial Interest 26,834
Item 27. Indemnification.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
2
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 28. Business and Other Connections of Investment Adviser.
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment adviser. The following information is given
regarding officers of Dean Witter InterCapital Inc. InterCapital is a wholly-
owned subsidiary of Dean Witter, Discover & Co. The principal address of the
Dean Witter Funds is Two World Trade Center, New York, New York 10048.
The term "Dean Witter Funds" used below refers to the following
registered investment companies:
3
APITAL PRINTING SYSTEMS]
Closed-End Investment Companies
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
Open-end Investment Companies:
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
4
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Premier Income Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter U.S. Government Money Market Trust
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Balanced Growth Fund
(51) Dean Witter Balanced Income Fund
(52) Dean Witter Hawaii Municipal Trust
(53) Dean Witter Capital Appreciation Fund
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
The term "TCW/DW Funds" refers to the following registered investment companies:
Open-End Investment Companies
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
5
Closed-End Investment Companies
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- -------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean
Witter Services Company Inc. ("DWSC"); Chairman
and Director of Dean Witter Trust Company
("DWTC"); Chairman, Director or Trustee, President
and Chief Executive Officer of the Dean Witter
Funds and Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Formerly Executive
Vice President and Director of Dean Witter,
Discover & Co. ("DWDC"); Director and/or officer
of various DWDC subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of DWDC and DWR; Director of DWSC and
Distributors; Director or Trustee of the Dean
Witter Funds; Director and/or officer of various
DWDC subsidiaries.
Richard M. DeMartini Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Capital;
Director of DWR, DWSC, Distributors and DWTC;
Trustee of the TCW/DW Funds; Member (since
January, 1993) and Chairman (since January,
1995) of the Board of Directors of NASDAQ.
James F. Higgins Executive Vice President of DWDC; President and Director
Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial
Executive Vice Officer of DWDC, DWR, DWSC and Distributors;
President, Chief Director of DWR, DWSC and Distributors.
Financial Officer and
Director
6
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- -------------------------------------------------
Christine A. Edwards Executive Vice President, Secretary and General
Director Counsel of DWDC and DWR; Executive Vice President,
Secretary and Chief Legal Officer of Distributors;
Director of DWR, DWSC and Distributors.
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
David A. Hughey Executive Vice President and Chief Administrative
Executive Vice Officer of DWSC, Distributors and DWTC; Director
President and Chief of DWTC; Vice President of the Dean Witter Funds
Administrative Officer and the TCW/DW Funds.
Edmund C. Puckhaber Director of DWTC; Vice President of the Dean
Executive Vice Witter Funds.
President
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Sheldon Curtis Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
General Counsel and President, Assistant General Counsel and Assistant
Secretary Secretary of Distributors; Senior Vice President
and Secretary of DWTC; Vice President, Secretary
and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone
Senior Vice President Senior Vice President of DWSC, Distributors
and DWTC; Vice President of the Dean Witter Funds
and the TCW/DW Funds.
7
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- -------------------------------------------------
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Joseph J. McAlinden
Senior Vice President Vice President of the Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
8
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- -------------------------------------------------
Barry Fink First Vice President and Assistant Secretary of
First Vice President DWSC; Assistant Secretary of the Dean Witter
and Assistant Secretary Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
Robert Zimmerman
First Vice President
Joan Allman
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Douglas Brown
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Dwight Doolan
Vice President
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
9
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- -------------------------------------------------
Peter W. Gurman
Vice President
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of Dean Witter Mid-Cap Growth Fund.
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
Stanley Kapica
Vice President
Michael Knox Vice President of Dean Witter Convertible
Vice President Securities Trust.
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
10
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- ----------------- -------------------------------------------------
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Hugh Rose
Vice President
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Rafael Scolari
Vice President Vice President of Prime Income Trust
Jayne M. Stevlingson
Vice President Vice President of various Dean Witter Funds.
Kathleen Stromberg
Vice President Vice President of various Dean Witter Funds.
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
Marianne Zalys
Vice President
Item 29. Principal Underwriters
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
11
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Federal Securities Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Premier Income Trust
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Balanced Growth Fund
(49) Dean Witter Balanced Income Fund
(50) Dean Witter Hawaii Municipal Trust
(51) Dean Witter Variable Investment Series
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U.S. Treasury Trust
(54) Dean Witter Information Fund
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
12
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of Distributors
is Two World Trade Center, New York, New York 10048. None of the following
persons has any position or office with the Registrant.
Positions and
Office with
Name Distributors
- ---- -------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. Management Services
Registrant is not a party to any such management-related service
contract.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
yh:divers\partc.95
13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York on the 25th day of January, 1996.
DEAN WITTER DIVERSIFIED INCOME TRUST
By /s/ Sheldon Curtis
---------------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 4 has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 01/25/96
---------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 01/25/96
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/Sheldon Curtis 01/25/96
---------------------------
Sheldon Curtis
Attorney-in-Fact
Michael Bozic Paul Kolton
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
Manuel H. Johnson
By /s/David M. Butowsky 01/25/96
-------------------------
David M. Butowsky
Attorney-in-Fact
EXHIBIT INDEX
1. -- Declaration of Trust of the Registrant*
2. -- Amended and Restated By-laws of the Registrant.
8. -- Form of Custodian Agreement between Registrant and
The Bank of New York.*
9. -- Form of Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services
Company Inc.
11. -- Consent of Independent Accountants
15. -- Amended and Restated Plan of Distribution pursuant
to Rule 12b-1.
16. -- Schedule for Computation of Performance Quotations
27. -- Financial Data Schedule
* Previously filed; re-filed via EDGAR with this Amendment
to the Registration Statement.
yh\divers\exhibit.95
<PAGE>
Exhibit 1
DEAN WITTER
DIVERSIFIED INCOME TRUST
TWO WORLD TRADE CENTER
NEW YORK, NY 10048
DECLARATION OF TRUST
DATED: DECEMBER 18, 1991
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I -- Name and Definitions ................................................ 2
Section 1.1 Name ........................................................... 2
Section 1.2 Definitions .................................................... 2
ARTICLE II -- Trustees ........................................................... 3
Section 2.1 Number of Trustees ............................................. 3
Section 2.2 Election and Term .............................................. 3
Section 2.3 Resignation and Removal ........................................ 3
Section 2.4 Vacancies ...................................................... 3
Section 2.5 Delegation of Power to Other Trustees .......................... 4
ARTICLE III -- Powers of Trustees ................................................ 4
Section 3.1 General ........................................................ 4
Section 3.2 Investments .................................................... 4
Section 3.3 Legal Title .................................................... 5
Section 3.4 Issuance and Repurchase of Securities .......................... 5
Section 3.5 Borrowing Money; Lending Trust Assets .......................... 5
Section 3.6 Delegation; Committees ......................................... 5
Section 3.7 Collection and Payment ......................................... 5
Section 3.8 Expenses ....................................................... 5
Section 3.9 Manner of Acting; By-Laws ...................................... 5
Section 3.10 Miscellaneous Powers ........................................... 5
Section 3.11 Principal Transactions ......................................... 6
Section 3.12 Litigation ..................................................... 6
ARTICLE IV -- Investment Adviser, Distributor, Custodian and Transfer Agent....... 6
Section 4.1 Investment Adviser ............................................. 6
Section 4.2 Administrative Services ........................................ 7
Section 4.3 Distributor .................................................... 7
Section 4.4 Transfer Agent ................................................. 7
Section 4.5 Custodian ...................................................... 7
Section 4.6 Parties to Contract ............................................ 7
ARTICLE V -- Limitations of Liability of Shareholders, Trustees and Others ....... 7
Section 5.1 No Personal Liability of Shareholders, Trustees, etc. ......... 7
Section 5.2 Non-Liability of Trustees, etc. ................................ 8
Section 5.3 Indemnification ................................................ 8
Section 5.4 No Bond Required of Trustees ................................... 8
Section 5.5 No Duty of Investigation; Notice in Trust Instruments, etc. ... 8
Section 5.6 Reliance on Experts, etc. ...................................... 9
ARTICLE VI -- Shares of Beneficial Interest....................................... 9
Section 6.1 Beneficial Interest ............................................ 9
Section 6.2 Rights of Shareholders ......................................... 9
Section 6.3 Trust Only ..................................................... 9
Section 6.4 Issuance of Shares ............................................. 9
Section 6.5 Register of Shares ............................................. 10
1
<PAGE>
PAGE
--------
Section 6.6 Transfer of Shares ............................................. 10
Section 6.7 Notices ........................................................ 10
Section 6.8 Voting Powers .................................................. 10
Section 6.9 Series or Classes of Shares .................................... 11
ARTICLE VII -- Redemptions........................................................ 13
Section 7.1 Redemptions .................................................... 13
Section 7.2 Redemption at the Option of the Trust .......................... 13
Section 7.3 Effect of Suspension of Determination of Net Asset Value ...... 13
Section 7.4 Suspension of Right of Redemption .............................. 13
ARTICLE VIII -- Determination of Net Asset Value, Net Income and Distributions.... 14
Section 8.1 Net Asset Value ................................................ 14
Section 8.2 Distributions to Shareholders .................................. 14
Section 8.3 Determination of Net Income .................................... 14
Section 8.4 Power to Modify Foregoing Procedures ........................... 14
ARTICLE IX -- Duration; Termination of Trust; Amendment; Mergers, etc. .......... 15
Section 9.1 Duration ....................................................... 15
Section 9.2 Termination of Trust or a Series ............................... 15
Section 9.3 Amendment Procedure ............................................ 15
Section 9.4 Merger, Consolidation and Sale of Assets ....................... 16
Section 9.5 Incorporation .................................................. 16
ARTICLE X -- Reports to Shareholders ............................................. 16
ARTICLE XI -- Miscellaneous ...................................................... 17
Section 11.1 Filing ......................................................... 17
Section 11.2 Resident Agent ................................................. 17
Section 11.3 Governing Law .................................................. 17
Section 11.4 Counterparts ................................................... 17
Section 11.5 Reliance by Third Parties ...................................... 17
Section 11.6 Provisions in Conflict with Law or Regulations ................. 17
Section 11.7 Use of the Name "Dean Witter" .................................. 17
Section 11.8 Principal Place of Business .................................... 18
SIGNATURE PAGE ................................................................... 19
</TABLE>
2
<PAGE>
DECLARATION OF TRUST
OF
DEAN WITTER DIVERSIFIED INCOME TRUST
Dated: December 18, 1991
THE DECLARATION OF TRUST of Dean Witter Diversified Income Trust is made
the 18th day of December, 1991 by the parties signatory hereto, as trustees
(such persons, so long as they shall continue in office in accordance with
the terms of this Declaration of Trust, and all other persons who at the time
in question have been duly elected or appointed as trustees in accordance
with the provisions of this Declaration of Trust and are then in office,
being hereinafter called the "Trustees").
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under the laws of
Massachusetts for the investment and reinvestment of funds contributed
thereto; and
WHEREAS, it is provided that the beneficial interest in the trust assets
be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust,
all money and property contributed to the trust fund to manage and dispose of
the same for the benefit of the holders from time to time of the shares of
beneficial interest issued hereunder and subject to the provisions hereof, to
wit:
1
<PAGE>
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is the "Dean
Witter Diversified Income Trust," and so far as may be practicable the
Trustees shall conduct the Trust's activities, execute all documents and sue
or be sued under that name, which name (and the word "Trust" wherever herein
used) shall refer to the Trustees as Trustees, and not as individuals, or
personally, and shall not refer to the officers, agents, employees or
Shareholders of the Trust. Should the Trustees determine that the use of such
name is not advisable, they may use such other name for the Trust as they
deem proper and the Trust may hold its property and conduct its activities
under such other name.
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "By-Laws" means the By-Laws referred to in Section 3.9 hereof, as
from time to time amended.
(b) the terms "Commission," "Affiliated Person" and "Interested
Person," have the meanings given them in the 1940 Act.
(c) "Declaration" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "Declaration,"
"hereof," "herein" and "hereunder" shall be deemed to refer to this
Declaration rather than the article or section in which such words appear.
(d) "Distributor" means the party, other than the Trust, to a contract
described in Section 4.3 hereof.
(e) "Fundamental Policies" shall mean the investment policies and
restrictions set forth in the Prospectus and Statement of Additional
Information and designated as fundamental policies therein.
(f) "Investment Adviser" means any party, other than the Trust, to a
contract described in Section 4.1 hereof.
(g) "Majority Shareholder Vote" means the vote of the holders of a
majority of Shares, which shall consist of: (i) a majority of Shares
represented in person or by proxy and entitled to vote at a meeting of
Shareholders at which a quorum, as determined in accordance with the
By-Laws, is present; (ii) a majority of Shares issued and outstanding and
entitled to vote when action is taken by written consent of Shareholders;
and (iii) a "majority of the outstanding voting securities," as the phrase
is defined in the 1940 Act, when any action is required by the 1940 Act by
such majority as so defined.
(h) "1940 Act" means the Investment Company Act of 1940 and the rules
and regulations thereunder as amended from time to time.
(i) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
(j) "Prospectus" means the Prospectus and Statement of Additional
Information constituting parts of the Registration Statement of the Trust
under the Securities Act of 1933 as such Prospectus and Statement of
Additional Information may be amended or supplemented and filed with the
Commission from time to time.
(k) "Series" means one of the separately managed components of the
Trust (or, if the Trust shall have only one such component, then that one)
as set forth in Section 6.1 hereof or as may be established and designated
from time to time by the Trustees pursuant to that section.
(l) "Shareholder" means a record owner of outstanding Shares.
(m) "Shares" means the units of interest into which the beneficial
interest in the Trust shall be divided from time to time, including the
shares of any and all series or classes which may be established by the
Trustees, and includes fractions of Shares as well as whole Shares.
2
<PAGE>
(n) "Transfer Agent" means the party, other than the Trust, to the
contract described in Section 4.4 hereof.
(o) "Trust" means the Dean Witter Diversified Income Trust.
(p) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of
the Trust or the Trustees.
(q) "Trustees" means the persons who have signed the Declaration, so
long as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly elected or
appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1. Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by
a majority of the Trustees, provided, however, that the number of Trustees
shall in no event be less than three (3) nor more than fifteen (15).
Section 2.2. Election and Term. The Trustees shall be elected by a
Majority Shareholder Vote at the first meeting of Shareholders following the
public offering of Shares of the Trust. The Trustees shall have the power to
set and alter the terms of office of the Trustees, and they may at any time
lengthen or lessen their own terms or make their terms of unlimited duration,
subject to the resignation and removal provisions of Section 2.3 hereof.
Subject to Section 16(a) of the 1940 Act, the Trustees may elect their own
successors and may, pursuant to Section 2.4 hereof, appoint Trustees to fill
vacancies. The Trustees shall adopt By-Laws not inconsistent with this
Declaration or any provision of law to provide for election of Trustees by
Shareholders at such time or times as the Trustees shall determine to be
necessary or advisable.
Section 2.3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall
be effective upon such delivery, or at a later date according to the terms of
the instrument. Any of the Trustees may be removed (provided the aggregate
number of Trustees after such removal shall not be less than the number
required by Section 2.1 hereof) by the action of two-thirds of the remaining
Trustees or by the action of the Shareholders of record of not less than
two-thirds of the Shares outstanding (for purposes of determining the
circumstances and procedures under which such removal by the Shareholders may
take place, the provisions of Section 16(c) of the 1940 Act shall be
applicable to the same extent as if the Trust were subject to the provisions
of that Section). Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property held in
the name of the resigning or removed Trustee. Upon the incapacity or death of
any Trustee, his legal representative shall execute and deliver on his behalf
such documents as the remaining Trustees shall require as provided in the
preceding sentence.
Section 2.4. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy existing by reason of an
increase in the number of Trustees, subject to the provisions of Section
16(a) of the 1940 Act, the remaining Trustees or, prior to the public
offering of Shares of the Trust, if only one Trustee shall then remain in
office, the remaining Trustee, shall fill such vacancy by the appointment of
such other person as they or he, in their or his discretion, shall see fit,
made by a written instrument signed by a majority of the remaining Trustees
or by the remaining Trustee, as the case may be. Any such appointment shall
not become effective, however, until the person named in the written
instrument of appointment shall have accepted in writing such appointment and
agreed in writing to be
3
<PAGE>
bound by the terms of the Declaration. An appointment of a Trustee may be
made in anticipation of a vacancy to occur at a later date by reason of
retirement, resignation or increase in the number of Trustees, provided that
such appointment shall not become effective prior to such retirement,
resignation or increase in the number of Trustees. Whenever a vacancy in the
number of Trustees shall occur, until such vacancy is filled as provided in
this Section 2.4, the Trustees in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the
duties imposed upon the Trustees by the Declaration. A written instrument
certifying the existence of such vacancy signed by a majority of the Trustees
shall be conclusive evidence of the existence of such vacancy.
Section 2.5. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees; provided that in no
case shall less than two (2) Trustees personally exercise the powers granted
to the Trustees under the Declaration except as herein otherwise expressly
provided.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the
same extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by the Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its
branches and maintain offices both within and without the Commonwealth of
Massachusetts, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities
wheresoever in the world they may be located as they deem necessary, proper
or desirable in order to promote the interests of the Trust although such
things are not herein specifically mentioned. Any determination as to what is
in the interests of the Trust made by the Trustees in good faith shall be
conclusive. In construing the provisions of the Declaration, the presumption
shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2. Investments. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of negotiable or nonnegotiable
instruments, obligations, evidences of indebtedness, certificates of
deposit or indebtedness, commercial paper, repurchase agreements, reverse
repurchase agreements, options, commodities, commodity futures contracts
and related options, currencies, currency futures and forward contracts,
and other securities, investment contracts and other instruments of any
kind, including, without limitation, those issued, guaranteed or sponsored
by any and all Persons including, without limitation, states, territories
and possessions of the United States, the District of Columbia and any of
the political subdivisions, agencies or instrumentalities thereof, and by
the United States Government or its agencies or instrumentalities, foreign
or international instrumentalities, or by any bank or savings institution,
or by any corporation or organization organized under the laws of the
United States or of any state, territory or possession thereof, and of
corporations or organizations organized under foreign laws, or in "when
issued" contracts for any such securities, or retain Trust assets in cash
and from time to time change the investments of the assets of the Trust;
and to exercise any and all rights, powers and privileges of ownership or
interest in respect of any and all such investments of every kind and
description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more
persons, firms, associations or corporations to exercise any of said
rights, powers and privileges in respect of any of said instruments; and
the Trustees shall be deemed to have the foregoing powers with respect to
any additional securities in which the Trust may invest should the
Fundamental Policies be amended.
4
<PAGE>
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust, nor shall the Trustees be limited by
any law limiting the investments which may be made by fiduciaries.
Section 3.3. Legal Title. Legal title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name
of one or more of the Trustees, or in the name of the Trust, or in the name
of any other Person as nominee, on such terms as the Trustees may determine,
provided that the interest of the Trust therein is appropriately protected.
The right, title and interest of the Trustees in the Trust Property shall
vest automatically in each Person who may hereafter become a Trustee. Upon
the resignation, removal or death of a Trustee he shall automatically cease
to have any right, title or interest in any of the Trust Property, and the
right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed
and delivered.
Section 3.4. Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares
and, subject to the provisions set forth in Articles VII, VIII and IX and
Section 6.9 hereof, to apply to any such repurchase, redemption, retirement,
cancellation or acquisition of Shares any funds or property of the Trust,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of the Commonwealth of Massachusetts governing business
corporations.
Section 3.5. Borrowing Money; Lending Trust Assets. Subject to the
Fundamental Policies, the Trustee shall have power to borrow money or
otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the Trust, to endorse,
guarantee, or undertake the performance of any obligation, contract or
engagement of any other Person and to lend Trust assets.
Section 3.6. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of
the Trust and the Trust Property, to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Trustees or otherwise as the Trustees may deem
expedient.
Section 3.7. Collection and Payment. Subject to Section 6.9 hereof, the
Trustees shall have power to collect all property due to the Trust; to pay
all claims, including taxes, against the Trust Property; to prosecute,
defend, compromise or abandon any claims relating to the Trust Property; to
foreclose any security interest securing any obligations, by virtue of which
any property is owed to the Trust; and to enter into releases, agreements and
other instruments.
Section 3.8. Expenses. Subject to Section 6.9 hereof, the Trustees shall
have the power to incur and pay any expenses which in the opinion of the
Trustees are necessary or incidental to carry out any of the purposes of the
Declaration, and to pay reasonable compensation from the funds of the Trust
to themselves as Trustees. The Trustees shall fix the compensation of all
officers, employees and Trustees.
Section 3.9. Manner of Acting; By-Laws. Except as otherwise provided
herein or in the By-Laws or by any provision of law, any action to be taken
by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting held by
means of a conference telephone circuit or similar communications equipment
by means of which all persons participating in the meeting can hear each
other, or by written consents of all the Trustees. The Trustees may adopt
By-Laws not inconsistent with this Declaration to provide for the conduct of
the business of the Trust and may amend or repeal such By-Laws to the extent
such power is not reserved to the Shareholders.
Section 3.10. Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable
for the transaction of the business of the Trust or any Series thereof; (b)
enter into joint ventures, partnerships and any other combinations or
associations; (c) remove Trustees or fill vacancies in or add to their
number, elect and remove such
5
<PAGE>
officers and appoint and terminate such agents or employees as they consider
appropriate, and appoint from their own number, and terminate, any one or
more committees which may exercise some or all of the power and authority of
the Trustees as the Trustees may determine; (d) purchase, and pay for out of
Trust Property or the property of the appropriate Series of the Trust,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted to be taken by any
such Person in such capacity, whether or not constituting negligence, or
whether or not the Trust would have the power to indemnify such Person
against such liability; (e) establish pension, profit-sharing, Share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by
law, indemnify any person with whom the Trust or any Series thereof has
dealings, including any Investment Adviser, Distributor, Transfer Agent and
selected dealers, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine
and change the fiscal year of the Trust or any Series thereof and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust but
the absence of such seal shall not impair the validity of any instrument
executed on behalf of the Trust.
Section 3.11. Principal Transactions. Except in transactions permitted by
the 1940 Act or any rule or regulation thereunder, or any order of exemption
issued by the Commission, or effected to implement the provisions of any
agreement to which the Trust is a party, the Trustees shall not, on behalf of
the Trust, buy any securities (other than Shares) from or sell any securities
(other than Shares) to, or lend any assets of the Trust or any Series thereof
to, any Trustee or officer of the Trust or any firm of which any such Trustee
or officer is a member acting as principal, or have any such dealings with
any Investment Adviser, Distributor or Transfer Agent or with any Affiliated
Person of such Person; but the Trust or any Series thereof may employ any
such Person, or firm or company in which such Person is an Interested Person,
as broker, legal counsel, registrar, transfer agent, dividend disbursing
agent or custodian upon customary terms.
Section 3.12. Litigation. The Trustees shall have the power to engage in
and to prosecute, defend, compromise, abandon, or adjust, by arbitration, or
otherwise, any actions, suits, proceedings, disputes, claims, and demands
relating to the Trust, and out of the assets of the Trust or any Series
thereof to pay or to satisfy any debts, claims or expenses incurred in
connection therewith, including those of litigation, and such power shall
include without limitation the power of the Trustees or any appropriate
committee thereof, in the exercise of their or its good faith business
judgment, to dismiss any action, suit, proceeding, dispute, claim, or demand,
derivative or otherwise, brought by any person, including a Shareholder in
its own name or the name of the Trust, whether or not the Trust or any of the
Trustees may be named individually therein or the subject matter arises by
reason of business for or on behalf of the Trust.
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, CUSTODIAN AND TRANSFER AGENT
Section 4.1. Investment Adviser. Subject to approval by a Majority
Shareholder Vote, the Trustees may in their discretion from time to time
enter into one or more investment advisory or management contracts or, if the
Trustees establish multiple Series, separate investment advisory or
management contracts with respect to one or more Series whereby the other
party or parties to any such contracts shall undertake to furnish the Trust
or such Series such management, investment advisory, administration,
accounting, legal, statistical and research facilities and services,
promotional or marketing activities, and such other facilities and services,
if any, as the Trustees shall from time to time consider desirable and all
upon such terms and conditions as the Trustees may in their discretion
determine. Notwithstanding any provisions of the Declaration, the Trustees
may authorize the Investment Advisers, or any of them, under any such
contracts (subject to such general or specific instructions as the Trustees
may from time to time adopt) to effect purchases, sales, loans or exchanges
of portfolio securities and other investments of the Trust on behalf of the
Trustees or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations
6
<PAGE>
of such Investment Advisers, or any of them (and all without further action
by the Trustees). Any such purchases, sales, loans and exchanges shall be
deemed to have been authorized by all of the Trustees. The Trustees may, in
their sole discretion, call a meeting of Shareholders in order to submit to a
vote of Shareholders at such meeting the approval or continuance of any such
investment advisory or management contract. If the Shareholders of any one or
more of the Series of the Trust should fail to approve any such investment
advisory or management contract, the Investment Adviser may nonetheless serve
as Investment Adviser with respect to any Series whose Shareholders approve
such contract.
Section 4.2. Administrative Services. The Trustees may in their discretion
from time to time contract for administrative personnel and services whereby
the other party shall agree to provide the Trustees or the Trust
administrative personnel and services to operate the Trust on a daily or
other basis, on such terms and conditions as the Trustees may in their
discretion determine. Such services may be provided by one or more persons or
entities.
Section 4.3. Distributor. The Trustees may in their discretion from time
to time enter into one or more contracts, providing for the sale of Shares to
net the Trust or the applicable Series of the Trust not less than the net
asset value per Share (as described in Article VIII hereof) and pursuant to
which the Trust may either agree to sell the Shares to the other parties to
the contracts, or any of them, or appoint any such other party its sales
agent for such Shares. In either case, any such contract shall be on such
terms and conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Article IV, including, without
limitation, the provision for the repurchase or sale of shares of the Trust
by such other party as principal or as agent of the Trust.
Section 4.4. Transfer Agent. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such
terms and conditions as the Trustees may in their discretion determine not
inconsistent with the Declaration. Such services may be provided by one or
more Persons.
Section 4.5. Custodian. The Trustees may appoint or otherwise engage one
or more banks or trust companies, each having an aggregate capital, surplus
and undivided profits (as shown in its last published report) of at least
five million dollars ($5,000,000) to serve as Custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in the By-Laws of the Trust.
Section 4.6. Parties to Contract. Any contract of the character described
in Sections 4.1, 4.2, 4.3, 4.4 or 4.5 of this Article IV and any other
contract may be entered into with any Person, although one or more of the
Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such
contract shall be invalidated or rendered voidable by reason of the existence
of any such relationship; nor shall any Person holding such relationship be
liable merely by reason of such relationship for any loss or expense to the
Trust under or by reason of said contract or accountable for any profit
realized directly or indirectly therefrom, provided that the contract when
entered into was not inconsistent with the provisions of this Article IV. The
same Person may be the other party to any contracts entered into pursuant to
Sections 4.1, 4.2, 4.3, 4.4 or 4.5 above or otherwise, and any individual may
be financially interested or otherwise affiliated with Persons who are
parties to any or all of the contracts mentioned in this Section 4.6.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1. No Personal Liability of Shareholders, Trustees, etc. No
Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs
of the Trust. No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever to any Person, other than the
Trust or its Shareholders, in connection with the Trust Property or the
affairs of the Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard for his duty to such
Person; and all such Persons shall look solely
7
<PAGE>
to the Trust Property, or to the Property of one or more specific Series of
the Trust if the claim arises from the conduct of such Trustee, officer,
employee or agent with respect to only such Series, for satisfaction of
claims of any nature arising in connection with the affairs of the Trust. If
any Shareholder, Trustee, officer, employee or agent, as such, of the Trust
is made a party to any suit or proceeding to enforce any such liability, he
shall not, on account thereof, be held to any personal liability. The Trust
shall indemnify out of the property of the Trust and hold each Shareholder
harmless from and against all claims and liabilities, to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability; provided that, in the event the Trust shall consist of more than
one Series, Shareholders of a particular Series who are faced with claims or
liabilities solely by reason of their status as Shareholders of that Series
shall be limited to the assets of that Series for recovery of such loss and
related expenses. The rights accruing to a Shareholder under this Section 5.1
shall not exclude any other right to which such Shareholder may be lawfully
entitled, nor shall anything herein contained restrict the right of the Trust
to indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein.
Section 5.2. Non-Liability of Trustees, etc. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or to
any Shareholder, Trustee, officer, employee, or agent thereof for any action
or failure to act (including without limitation the failure to compel in any
way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties.
Section 5.3. Indemnification. (a) The Trustees shall provide for
indemnification by the Trust, or by one or more Series thereof if the claim
arises from his or her conduct with respect to only such Series, of any
person who is, or has been, a Trustee, officer, employee or agent of the
Trust against all liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in which
he becomes involved as a party or otherwise by virtue of his being or having
been a Trustee, officer, employee or agent and against amounts paid or
incurred by him in the settlement thereof, in such manner as the Trustees may
provide from time to time in the By-Laws.
(b) The words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, or other,
including appeals), actual or threatened; and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and other
liabilities.
Section 5.4. No Bond Required of Trustees. No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder.
Section 5.5. No Duty of Investigation; Notice in Trust Instruments,
etc. No purchaser, lender, transfer agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust or a Series thereof
shall be bound to make any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer, employee or agent
or be liable for the application of money or property paid, loaned or
delivered to or on the order of the Trustees or of said officer, employee or
agent. Every obligation, contract, instrument, certificate, Share, other
security of the Trust or a Series thereof or undertaking, and every other act
or thing whatsoever executed in connection with the Trust shall be
conclusively presumed to have been executed or done by the executors thereof
only in their capacity as officers, employees or agents of the Trust or a
Series thereof. Every written obligation, contract, instrument, certificate,
Share, other security of the Trust or undertaking made or issued by the
Trustees shall recite that the same is executed or made by them not
individually, but as Trustees under the Declaration, and that the obligations
of the Trust or a Series thereof under any such instrument are not binding
upon any of the Trustees or Shareholders, individually, but bind only the
Trust Estate (or, in the event the Trust shall consist of more than one
Series, in the case of any such obligation which relates to a specific
Series, only the Series which is a party thereto), and may contain any
further recital which they or he may deem appropriate, but the omission of
such recital shall not affect the validity of such obligation, contract
instrument, certificate, Share, security or undertaking and shall not operate
to bind the Trustees or Shareholders individually. The Trustees shall at all
times maintain insurance for the
8
<PAGE>
protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to
cover possible tort liability, and such other insurance as the Trustees in
their sole judgment shall deem advisable.
Section 5.6. Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to
act resulting from reliance in good faith upon the books of account or other
records of the Trust, upon an opinion of counsel, or upon reports made to the
Trust by any of its officers or employees or by any Investment Adviser,
Distributor, Transfer Agent, selected dealers, accountants, appraisers or
other experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or
expert may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest of
$.01 par value. The number of such shares of beneficial interest authorized
hereunder is unlimited. The Trustees shall have the authority to establish
and designate one or more Series or classes of shares. Each share of any
Series shall represent an equal proportionate share in the assets of that
Series with each other Share in that Series. The Trustees may divide or
combine the shares of any Series into a greater or lesser number of shares in
that Series without thereby changing the proportionate interests in the
assets of that Series. Subject to the provisions of Section 6.9 hereof, the
Trustees may also authorize the creation of additional series of shares (the
proceeds of which may be invested in separate, independently managed
portfolios) and additional classes of shares within any series. All Shares
issued hereunder including, without limitation, Shares issued in connection
with a dividend in Shares or a split in Shares, shall be fully paid and
nonassessable.
Section 6.2. Rights of Shareholders. The ownership of the Trust Property
of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by
their Shares, and they shall have no right to call for any partition or
division of any property, profits, rights or interests of the Trust nor can
they be called upon to assume any losses of the Trust or suffer an assessment
of any kind by virtue of their ownership of Shares. The Shares shall be
personal property giving only the rights in the Declaration specifically set
forth. The Shares shall not entitle the holder to preference, preemptive,
appraisal, conversion or exchange rights, except as the Trustees may
determine with respect to any series of Shares.
Section 6.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and
each Shareholder from time to time. It is not the intention of the Trustees
to create a general partnership, limited partnership, joint stock
association, corporation, bailment or any form of legal relationship other
than a trust. Nothing in the Declaration shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members
of a joint stock association.
Section 6.4 Issuance of Shares. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares of any
Series, in addition to the then issued and outstanding Shares and Shares held
in the treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times and on such
terms as the Trustees may deem best, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection
with the assumption of liabilities) and businesses. In connection with any
issuance of Shares, the Trustees may issue fractional Shares. The Trustees
may from time to time divide or combine the Shares of any Series into a
greater or lesser number without thereby changing the proportionate
beneficial interests in that Series. Contributions to the Trust may be
accepted for, and Shares shall be redeemed as, whole Shares and/or fractions
of a Share as described in the Prospectus.
9
<PAGE>
Section 6.5. Register of Shares. A register shall be kept in respect of
each Series at the principal office of the Trust or at an office of the
Transfer Agent which shall contain the names and addresses of the
Shareholders and the number of Shares of each Series held by them
respectively and a record of all transfers thereof. Such register may be in
written form or any other form capable of being converted into written form
within a reasonable time for visual inspection. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled
to receive dividends or distributions or otherwise to exercise or enjoy the
rights of Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein or
in the By-Laws provided, until he has given his address to the Transfer Agent
or such other officer or agent of the Trustees as shall keep the said
register for entry thereon. It is not contemplated that certificates will be
issued for the Shares; however, the Trustees, in their discretion, may
authorize the issuance of Share certificates and promulgate appropriate rules
and regulations as to their use.
Section 6.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder or by his agent thereunto duly
authorized in writing, upon delivery to the Trustees or the Transfer Agent of
a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery the transfer shall be recorded
on the register of the Trust. Until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes
hereunder and neither the Trustees nor any Transfer Agent or registrar nor
any officer, employee or agent of the Trust shall be affected by any notice
of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the
Transfer Agent, but until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder
and neither the Trustees nor any Transfer Agent or registrar nor any officer
or agent of the Trust shall be affected by any notice of such death,
bankruptcy or incompetence, or other operation of law, except as may
otherwise be provided by the laws of the Commonwealth of Massachusetts.
Section 6.7. Notices. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his
last known address as recorded on the register of the Trust. Annual reports
and proxy statements need not be sent to a shareholder if: (i) an annual
report and proxy statement for two consecutive annual meetings, or (ii) all,
and at least two, checks (if sent by first class mail) in payment of
dividends or interest and shares during a twelve month period have been
mailed to such shareholder's address and have been returned undelivered.
However, delivery of such annual reports and proxy statements shall resume
once a Shareholder's current address is determined.
Section 6.8. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Section 2.2 hereof, (ii) for
the removal of Trustees as provided in Section 2.3 hereof, (iii) with respect
to any investment advisory or management contract as provided in Section 4.1,
(iv) with respect to termination of the Trust as provided in Section 9.2, (v)
with respect to any amendment of the Declaration to the extent and as
provided in Section 9.3, (vi) with respect to any merger, consolidation or
sale of assets as provided in Section 9.4, (vii) with respect to
incorporation of the Trust to the extent and as provided in Section 9.5,
(viii) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should
or should not be brought or maintained derivatively or as a class action on
behalf of the Trust or the Shareholders (provided that Shareholders of a
Series are not entitled to vote in connection with the bringing of a
derivative or class action with respect to any matter which only affects
another Series or its Shareholders), (ix) with respect to any plan adopted
pursuant to Rule 12b-1 (or any successor rule) under the 1940 Act and (x)
with respect to such additional matters relating to the Trust as may be
required by law, the Declaration, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state, or as and
when the Trustees may consider necessary or desirable. Each whole Share shall
be entitled to one vote as to any matter on which it is entitled to vote and
each
10
<PAGE>
fractional Share shall be entitled to a proportionate fractional vote, except
that Shares held in the treasury of the Trust as of the record date, as
determined in accordance with the By-Laws, shall not be voted. On any matter
submitted to a vote of Shareholders, all Shares shall be voted by individual
Series except (1) when required by the 1940 Act, Shares shall be voted in the
aggregate and not by individual Series; and (2) when the Trustees have
determined that the matter affects only the interests of one or more Series,
then only the Shareholders of such Series shall be entitled to vote thereon.
The Trustees may, in conjunction with the establishment of any further Series
or any classes of Shares, establish conditions under which the several series
or classes of Shares shall have separate voting rights or no voting rights.
There shall be no cumulative voting in the election of Trustees. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required by law, the Declaration or the By-Laws to be taken by
Shareholders. The By-Laws may include further provisions for Shareholders'
votes and meetings and related matters.
Section 6.9. Series or Classes of Shares. The following provisions are
applicable regarding the Series of Shares of the Trust established in Section
6.1 hereof and shall be applicable if the Trustees shall establish additional
Series or shall divide the shares of any Series into two or more classes,
also as provided in Section 6.1 hereof, and all provisions relating to the
Trust shall apply equally to each Series thereof except as the context
requires:
(a) The number of authorized shares and the number of shares of each
Series or of each class that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued shares or any shares
previously issued and reacquired of any Series or class into one or more
Series or one or more classes that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or
some other Series or class), reissue for such consideration and on such
terms as they may determine, or cancel any shares of any Series or any
class reacquired by the Trust at their discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust
Property shall be governed by Section 3.2 of this Declaration with respect
to any one or more Series which represents the interests in the assets of
the Trust immediately prior to the establishment of any additional Series
and the power of the Trustees to invest and reinvest assets applicable to
any other Series shall be as set forth in the instrument of the Trustees
establishing such series which is hereinafter described.
(c) All consideration received by the Trust for the issue or sale of
shares of a particular Series or class together with all assets in which
such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that Series or class for all purposes,
subject only to the rights of creditors, and shall be so recorded upon the
books of account of the Trust. In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which
are not readily identifiable as belonging to any particular Series or
class, the Trustees shall allocate them among any one or more of the
Series or classes established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and
binding upon the shareholders of all Series or classes for all purposes.
No holder of Shares of any Series shall have any claim on or right to any
assets allocated or belonging to any other Series.
(d) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust in respect of that Series and all
expenses, costs, charges and reserves attributable to that Series. All
expenses and liabilities incurred or arising in connection with a
particular Series, or in connection with the management thereof, shall be
payable solely out of the assets of that Series and creditors of a
particular Series shall be entitled to look solely to the property of such
Series for satisfaction of their claims. Any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem
11
<PAGE>
fair and equitable. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and binding upon
the holders of all Series for all purposes. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to determine
which items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and binding
upon the shareholders.
(e) The power of the Trustees to pay dividends and make distributions
shall be governed by Section 8.2 of this Declaration with respect to any
one or more Series or classes which represents the interests in the assets
of the Trust immediately prior to the establishment of any additional
Series or classes. With respect to any other Series or class, dividends
and distributions on shares of a particular Series or class may be paid
with such frequency as the Trustees may determine, which may be daily or
otherwise, pursuant to a standing resolution or resolutions adopted only
once or with such frequency as the Trustees may determine, to the holders
of shares of that Series or class, from such of the income and capital
gains, accrued or realized, from the assets belonging to that Series or
class, as the Trustees may determine, after providing for actual and
accrued liabilities belonging to that Series or class. All dividends and
distributions on shares of a particular Series or class shall be
distributed pro rata to the holders of that Series or class in proportion
to the number of shares of that Series or class held by such holders at
the date and time of record established for the payment of such dividends
or distributions.
(f) The Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, including voting and
dividend rights, of each class and Series of Shares.
(g) Subject to compliance with the requirements of the 1940 Act, the
Trustees shall have the authority to provide that the holders of Shares of
any Series or class shall have the right to convert or exchange said
Shares into Shares of one or more Series of Shares in accordance with such
requirements and procedures as may be established by the Trustees.
(h) The establishment and designation of any Series or class of shares
in addition to those established in Section 6.1 hereof shall be effective
upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights,
preferences, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of such Series or
class, or as otherwise provided in such instrument. At any time that there
are no shares outstanding of any particular Series or class previously
established and designated, the Trustees may by an instrument executed by
a majority of their number abolish that Series or class and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration.
(i) Shareholders of a Series shall not be entitled to participate in a
derivative or class action with respect to any matter which only affects
another Series or its Shareholders.
(j) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a
Series shall be entitled to receive his pro rata share of distributions of
income and capital gains made with respect to such Series. In the event of
the liquidation of a particular Series, the Shareholders of that Series
which has been established and designated and which is being liquidated
shall be entitled to receive, when and as declared by the Trustees, the
excess of the assets belonging to that Series over the liabilities
belonging to that Series. The holders of Shares of any Series shall not be
entitled hereby to any distribution upon liquidation of any other Series.
The assets so distributable to the Shareholders of any Series shall be
distributed among such Shareholders in proportion to the number of Shares
of that Series held by them and recorded on the books of the Trust. The
liquidation of any particular Series in which there are Shares then
outstanding may be authorized by an instrument in writing, without a
meeting, signed by a majority of the Trustees then in office, subject to
the approval of a majority of the outstanding voting securities of that
Series, as that phrase is defined in the 1940 Act.
12
<PAGE>
ARTICLE VII
REDEMPTIONS
Section 7.1. Redemptions. Each Shareholder of a particular Series shall
have the right at such times as may be permitted by the Trust to require the
Trust to redeem all or any part of his Shares of that Series, upon and
subject to the terms and conditions provided in this Article VII. The Trust
shall, upon application of any Shareholder or pursuant to authorization from
any Shareholder, redeem or repurchase from such Shareholder outstanding
shares for an amount per share determined by the Trustees in accordance with
any applicable laws and regulations; provided that (a) such amount per share
shall not exceed the cash equivalent of the proportionate interest of each
share or of any class or Series of shares in the assets of the Trust at the
time of the redemption or repurchase and (b) if so authorized by the
Trustees, the Trust may, at any time and from time to time charge fees for
effecting such redemption or repurchase, at such rates as the Trustees may
establish, as and to the extent permitted under the 1940 Act and the rules
and regulations promulgated thereunder, and may, at any time and from time to
time, pursuant to such Act and such rules and regulations, suspend such right
of redemption. The procedures for effecting and suspending redemption shall
be as set forth in the Prospectus from time to time. Payment will be made in
such manner as described in the Prospectus.
Section 7.2. Redemption at the Option of the Trust. Each Share of the
Trust or any Series of the Trust shall be subject to redemption at the option
of the Trust at the redemption price which would be applicable if such Share
were then being redeemed by the Shareholder pursuant to Section 7.1: (i) at
any time, if the Trustees determine in their sole discretion that failure to
so redeem may have materially adverse consequences to the holders of the
Shares of the Trust or of any Series, or (ii) upon such other conditions with
respect to maintenance of Shareholder accounts of a minimum amount as may
from time to time be determined by the Trustees and set forth in the then
current Prospectus of the Trust. Upon such redemption the holders of the
Shares so redeemed shall have no further right with respect thereto other
than to receive payment of such redemption price.
Section 7.3. Effect of Suspension of Determination of Net Asset Value. If,
pursuant to Section 7.4 hereof, the Trustees shall declare a suspension of
the determination of net asset value with respect to Shares of the Trust or
of any Series thereof, the rights of Shareholders (including those who shall
have applied for redemption pursuant to Section 7.1 hereof but who shall not
yet have received payment) to have Shares redeemed and paid for by the Trust
or a Series thereof shall be suspended until the termination of such
suspension is declared. Any record holder who shall have his redemption right
so suspended may, during the period of such suspension, by appropriate
written notice of revocation at the office or agency where application was
made, revoke any application for redemption not honored and withdraw any
certificates on deposit. The redemption price of Shares for which redemption
applications have not been revoked shall be the net asset value of such
Shares next determined as set forth in Section 8.1 after the termination of
such suspension, and payment shall be made within seven (7) days after the
date upon which the application was made plus the period after such
application during which the determination of net asset value was suspended.
Section 7.4. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New
York Stock Exchange is closed other than customary weekend and holiday
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which
disposal by the Trust or a Series thereof of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Trust or a
Series thereof fairly to determine the value of its net assets, or (iv)
during any other period when the Commission may for the protection of
security holders of the Trust by order permit suspension of the rights of
redemption or postponement of the date of payment or redemption; provided
that applicable rules and regulations of the Commission shall govern as to
whether the conditions prescribed in (ii), (iii) or (iv) exist. Such
suspension shall take effect at such time as the Trust shall specify but not
later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of
redemption or payment on redemption until the Trust shall declare the
suspension at an end, except that
13
<PAGE>
the suspension shall terminate in any event on the first day on which said
stock exchange shall have reopened or the period specified in (ii) or (iii)
shall have expired (as to which in the absence of an official ruling by the
Commission, the determination of the Trust shall be conclusive). In the case
of a suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 8.1. Net Asset Value. The net asset value of each outstanding
Share of each Series of the Trust shall be determined on such days and at
such time or times as the Trustees may determine. The method of determination
of net asset value shall be determined by the Trustees and shall be as set
forth in the Prospectus. The power and duty to make the daily calculations
may be delegated by the Trustees to any Investment Adviser, the Custodian,
the Transfer Agent or such other person as the Trustees by resolution may
determine. The Trustees may suspend the daily determination of net asset
value to the extent permitted by the 1940 Act.
Section 8.2. Distributions to Shareholders. The Trustees shall from time
to time distribute ratably among the Shareholders of the Trust or of any
Series such proportion of the net income, earnings, profits, gains, surplus
(including paid-in surplus), capital, or assets of the Trust or of such
Series held by the Trustees as they may deem proper. Such distribution may be
made in cash or property (including without limitation any type of
obligations of the Trust or of such Series or any assets thereof), and the
Trustees may distribute ratably among the Shareholders of the Trust or of
that Series additional Shares issuable hereunder in such manner, at such
times, and on such terms as the Trustees may deem proper. Such distributions
may be among the Shareholders of record (determined in accordance with the
Prospectus) of the Trust or of such Series at the time of declaring a
distribution or among the Shareholders of record of the Trust or of such
Series at such later date as the Trustees shall determine. The Trustees may
always retain from the net income, earnings, profits or gains of the Trust or
of such Series such amount as they may deem necessary to pay the debts or
expenses of the Trust or of such Series or to meet obligations of the Trust
or of such Series, or as they may deem desirable to use in the conduct of its
affairs or to retain for future requirements or extensions of the business.
The Trustees may adopt and offer to Shareholders of the Trust or of any
Series such dividend reinvestment plans, cash dividend payout plans or
related plans as the Trustees deem appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
Section 8.3. Determination of Net Income. The Trustees shall have the
power to determine the net income of any Series of the Trust and from time to
time to distribute such net income ratably among the Shareholders as
dividends in cash or additional Shares of such Series issuable hereunder. The
determination of net income and the resultant declaration of dividends shall
be as set forth in the Prospectus. The Trustees shall have full discretion to
determine whether any cash or property received by any Series of the Trust
shall be treated as income or as principal and whether any item of expense
shall be charged to the income or the principal account, and their
determination made in good faith shall be conclusive upon the Shareholders.
In the case of stock dividends received, the Trustees shall have full
discretion to determine, in the light of the particular circumstances, how
much, if any, of the value thereof shall be treated as income, the balance,
if any, to be treated as principal.
Section 8.4. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the Shares or net income, or the declaration and
payment of dividends and distributions, as they may deem necessary or
desirable to enable the
14
<PAGE>
Trust to comply with any provision of the 1940 Act, or any rule or regulation
thereunder, including any rule or regulation adopted pursuant to Section 22
of the 1940 Act by the Commission or any securities association registered
under the Securities Exchange Act of 1934, or any order of exemption issued
by said Commission, all as in effect now or hereafter amended or modified.
Without limiting the generality of the foregoing, the Trustees may establish
classes or additional Series of Shares in accordance with Section 6.9.
ARTICLE IX
DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.
Section 9.1. Duration. The Trust shall continue without limitation of time
but subject to the provisions of this Article IX.
Section 9.2. Termination of Trust. (a) The Trust or any Series may be
terminated (i) by the affirmative vote of the holders of not less than
two-thirds of the Shares outstanding and entitled to vote at any meeting of
Shareholders of the Trust or the appropriate Series thereof, (ii) by an
instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than two-thirds of such
Shares of the Trust or the appropriate Series thereof, or by such other vote
as may be established by the Trustees with respect to any class or Series of
Shares, or (iii) with respect to a Series as provided in Section 6.9(h). Upon
the termination of the Trust or the Series:
(i) The Trust or the Series shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
the Series and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust or
the Series, collect its assets, sell, convey, assign, exchange, transfer
or otherwise dispose of all or any part of the remaining Trust Property or
Trust Property allocated or belonging to such Series to one or more
persons at public or private sale for consideration which may consist in
whole or in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and to do all other acts appropriate to
liquidate its business; provided that any sale, conveyance, assignment,
exchange, transfer or other disposition of all or substantially all the
Trust Property or Trust Property allocated or belonging to such Series
shall require Shareholder approval in accordance with Section 9.4 hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or Trust Property allocated or
belonging to such Series, in cash or in kind or partly each, among the
Shareholders of the Trust according to their respective rights.
Section 9.3. Amendment Procedure. (a) This Declaration may be amended by a
Majority Shareholder Vote, at a meeting of Shareholders, or by written
consent without a meeting. The Trustees may also amend this Declaration
without the vote or consent of Shareholders (i) to change the name of the
Trust or any Series or classes of Shares, (ii) to supply any omission, or
cure, correct or supplement any ambiguous, defective or inconsistent
provision hereof, (iii) if they deem it necessary to conform this Declaration
to the requirements of applicable federal or state laws or regulations or the
requirements of the Internal Revenue Code, or to eliminate or reduce any
federal, state or local taxes which are or may be payable by the Trust or the
Shareholders, but the Trustees shall not be liable for failing to do so, or
(iv) for any other purpose which does not adversely affect the rights of any
Shareholder with respect to which the amendment is or purports to be
applicable.
(b) No amendment may be made under this Section 9.3 which would change any
rights with respect to any Shares of the Trust or of any Series of the Trust
by reducing the amount payable thereon upon liquidation of the Trust or of
such Series of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or consent of the holders of
two-thirds of the Shares of the Trust
15
<PAGE>
or of such Series outstanding and entitled to vote, or by such other vote as
may be established by the Trustees with respect to any Series or class of
Shares. Nothing contained in this Declaration shall permit the amendment of
this Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the Secretary
or any Assistant Secretary of the Trust, setting forth an amendment and
reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid or a copy of the Declaration, as amended, and executed by a
majority of the Trustees or certified by the Secretary or any Assistant
Secretary of the Trust, shall be conclusive evidence of such amendment when
lodged among the records of the Trust. Unless such amendment or such
certificate sets forth some later time for the effectiveness of such
amendment, such amendment shall be effective when lodged among the records of
the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by
the affirmative vote of a majority of the Trustees or by an instrument signed
by a majority of the Trustees.
Section 9.4. Merger, Consolidation and Sale of Assets. The Trust or any
Series thereof may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all
or substantially all of the Trust Property or Trust Property allocated or
belonging to such Series, including its good will, upon such terms and
conditions and for such consideration when and as authorized, at any meeting
of Shareholders called for the purpose, by the affirmative vote of the
holders of not less than two-thirds of the Shares of the Trust or such Series
outstanding and entitled to vote, or by an instrument or instruments in
writing without a meeting, consented to by the holders of not less than
two-thirds of such Shares, or by such other vote as may be established by the
Trustees with respect to any series or class of Shares; provided, however,
that, if such merger, consolidation, sale, lease or exchange is recommended
by the Trustees, a Majority Shareholder Vote shall be sufficient
authorization; and any such merger, consolidation, sale, lease or exchange
shall be deemed for all purposes to have been accomplished under and pursuant
to the laws of the Commonwealth of Massachusetts.
Section 9.5. Incorporation. With approval of a Majority Shareholder Vote,
or by such other vote as may be established by the Trustees with respect to
any Series or class of Shares, the Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other
organization to take over all of the Trust Property or the Trust Property
allocated or belonging to such Series or to carry on any business in which
the Trust shall directly or indirectly have any interest, and to sell, convey
and transfer the Trust Property or the Trust Property allocated or belonging
to such Series to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise,
and to lend money to, subscribe for the shares or securities of, and enter
into any contracts with any such corporation, trust, partnership, association
or organization in which the Trust or such Series holds or is about to
acquire shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to
the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organization or entities.
ARTICLE X
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit or cause the officers of
the Trust to submit to the Shareholders a written financial report of each
Series of the Trust, including financial statements which shall at least
annually be certified by independent public accountants.
16
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.1. Filing. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and
in such other places as may be required under the laws of Massachusetts and
may also be filed or recorded in such other places as the Trustees deem
appropriate. Each amendment so filed shall be accompanied by a certificate
signed and acknowledged by a Trustee or by the Secretary or any Assistant
Secretary of the Trust stating that such action was duly taken in a manner
provided herein. A restated Declaration, integrating into a single instrument
all of the provisions of the Declaration which are then in effect and
operative, may be executed from time to time by a majority of the Trustees
and shall, upon filing with the Secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
Section 11.2. Resident Agent. The Prentice-Hall Corporation System, Inc.,
84 State Street, Boston, Massachusetts 02109 is the resident agent of the
Trust in the Commonwealth of Massachusetts.
Section 11.3. Governing Law. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof and the rights of all parties and the validity and construction
of every provision hereof shall be subject to and construed according to the
laws of said State.
Section 11.4. Counterparts. The Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument,
which shall be sufficiently evidenced by any such original counterpart.
Section 11.5. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, appears to be a
Trustee hereunder, or Secretary or Assistant Secretary of the Trust,
certifying to: (a) the number or identity of Trustees or Shareholders, (b)
the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Shareholders, (d) the
fact that the number of Trustees or Shareholders present at any meeting or
executing any written instrument satisfies the requirements of this
Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with
the Trustees and their successors.
Section 11.6. Provisions in Conflict with Law or Regulations. (a) The
provisions of the Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of
the Internal Revenue Code or with other applicable laws and regulations, the
conflicting provisions shall be deemed superseded by such law or regulation
to the extent necessary to eliminate such conflict; provided, however, that
such determination shall not affect any of the remaining provisions of the
Declaration or render invalid or improper any action taken or omitted prior
to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
pertain only to such provision in such jurisdiction and shall not in any
manner affect such provision in any other jurisdiction or any other provision
of the Declaration in any jurisdiction.
Section 11.7. Use of the name "Dean Witter." Dean Witter Reynolds Inc.
("DWR") has consented to the use by the Trust of the identifying name "Dean
Witter," which is a property right of DWR. The Trust will only use the name
"Dean Witter" as a component of its name and for no other purpose, and will
not purport to grant to any third party the right to use the name "Dean
Witter" for any purpose. DWR, or any corporate affiliate of the parent of
DWR, may use or grant to others the right to use the name "Dean Witter", or
any combination or abbreviation thereof, as all or a portion of a corporate
or business name or for any commercial purpose, including a grant of such
right to any other investment company. At the
17
<PAGE>
request of DWR or its parent, the Trust will take such action as may be
required to provide its consent to the use by DWR or its parent, or any
corporate affiliate of DWR's parent, or by any person to whom DWR or its
parent or an affiliate of DWR's parent shall have granted the right to the
use, of the name "Dean Witter", or any combination or abbreviation thereof.
Upon the termination of any investment advisory or investment management
agreement into which DWR and the Trust may enter, the Trust shall, upon
request by DWR or its parent, cease to use the name "Dean Witter" as a
component of its name, and shall not use the name, or any combination or
abbreviation thereof, as a part of its name or for any other commercial
purpose, and shall cause its officers, trustees and shareholders to take any
and all actions which DWR or its parent may request to effect the foregoing
and to reconvey to DWR or its parent any and all rights to such name.
Section 11.8. Principal Place of Business. The principal place of business
of the Trust shall be Two World Trade Center, New York, New York 10048, or
such other location as the Trustees may designate from time to time.
18
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Declaration of
Trust this 18th day of December, 1991.
/s/ Charles A. Fiumefreddo /s/ Andrew J. Melton, Jr.
- ------------------------------------ ---------------------------------
Charles A. Fiumefreddo, as Andrew J. Melton, Jr., as
Trustee and not individually Trustee and not individually
Two World Trade Center Five World Trade Center
New York, New York 10048 New York, New York 10048
/s/ Sheldon Curtis
- ------------------------------------
Sheldon Curtis, as Trustee
and not individually
Two World Trade Center
New York, New York 10048
STATE OF NEW YORK
} : ss.:
COUNTY OF NEW YORK
On this 18th day of December 1991, ANDREW J. MELTON, JR., CHARLES A.
FIUMEFREDDO and SHELDON CURTIS, known to me and known to be the individuals
described in and who executed the foregoing instrument, personally appeared
before me and they severally acknowledged the foregoing instrument to be
their free act and deed.
/s/ Barry Fink
---------------------------------
Notary Public
BARRY FINK
Notary Public, State of New York
No. 41-4711960
Qualified in Suffolk County
Certificate filed in New York County
Commission Expires Dec. 31, 1992
My commission expires: December 31, 1992
19
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this 2nd
day of December, 1991.
/s/ Joseph F. Mazzella
---------------------------------
Joseph F. Mazzella, as Trustee
and not individually
101 Federal Street
Boston, MA 02110
COMMONWEALTH OF MASSACHUSETTS
Suffolk, SS. Boston, MA
December 20, 1991
Then personally appeared the above-named Joseph F. Mazzella who
acknowledged the foregoing instrument to be his free act and deed.
before me.
/s/ Sheila M. McLay
---------------------------------
Notary Public
My commission expires: May 31, 1996
20
<PAGE>
Exhibit 2
BY-LAWS
OF
DEAN WITTER DIVERSIFIED INCOME TRUST
(AMENDED AND RESTATED AS OF JANUARY 25, 1995)
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Distributor", "Investment
Adviser", "Majority Shareholder Vote", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property", and "Trustees" have the
respective meanings given them in the Declaration of Trust of Dean Witter
Diversified Income Trust dated December 20, 1991.
ARTICLE II
OFFICES
SECTION 2.1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be
in the City of Boston, County of Suffolk.
SECTION 2.2. Other Offices. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or
the business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. Place of Meetings. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. Meetings. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the
provisions of Section 16(a) of the 1940 Act, for that purpose. Meetings of
Shareholders shall also be called by the Secretary upon the written request
of the holders of Shares entitled to vote not less than twenty-five percent
(25% ) of all the votes entitled to be cast at such meeting, except to the
extent otherwise required by Section 16(c) of the 1940 Act, as made
applicable to the Trust by the provisions of Section 2.3 of the Declaration.
Such request shall state the purpose or purposes of such meeting and the
matters proposed to be acted on thereat. Except to the extent otherwise
required by Section 16(c) of the 1940 Act, as made applicable to the Trust by
the provisions of Section 2.3 of the Declaration, the Secretary shall inform
such Shareholders of the reasonable estimated cost of preparing and mailing
such notice of the meeting, and upon payment to the Trust of such costs, the
Secretary shall give notice stating the purpose or purposes of the meeting to
all entitled to vote at such meeting. No meeting need be called upon the
request of the holders of Shares entitled to cast less than a majority of all
votes entitled to be cast at such meeting, to consider any matter which is
substantially the same as a matter voted upon at any meeting of Shareholders
held during the preceding twelve months.
SECTION 3.3. Notice of Meetings. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes
thereof, shall be given by the Secretary not less than ten (10) nor more than
ninety (90) days before such meeting to each Shareholder entitled to vote at
such meeting. Such notice shall be deemed to be given when deposited in the
United States mail, postage prepaid, directed to the Shareholder at his
address as it appears on the records of the Trust.
<PAGE>
SECTION 3.4. Quorum and Adjournment of Meetings. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy,
shall be requisite and shall constitute a quorum for the transaction of
business. In the absence of a quorum, the Shareholders present or represented
by proxy and entitled to vote thereat shall have power to adjourn the meeting
from time to time. Any adjourned meeting may be held as adjourned without
further notice. At any adjourned meeting at which a quorum shall be present,
any business may be transacted as if the meeting had been held as originally
called.
SECTION 3.5. Voting Rights, Proxies. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his
duly authorized attorney-in-fact, for each Share of beneficial interest of
the Trust and for the fractional portion of one vote for each fractional
Share entitled to vote so registered in his name on the records of the Trust
on the date fixed as the record date for the determination of Shareholders
entitled to vote at such meeting. No proxy shall be valid after eleven months
from its date, unless otherwise provided in the proxy. At all meetings of
Shareholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting. Pursuant to a resolution of a majority of the Trustees, proxies may
be solicited in the name of one or more Trustees or Officers of the Trust.
SECTION 3.6. Vote Required. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority
Shareholder Vote.
SECTION 3.7. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election
of the meeting. In case any person appointed as Inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies,
shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results,
and do such other acts as may be proper to conduct the election or vote with
fairness to all Shareholders. On request of the chairman of the meeting, or
of any Shareholder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them
and shall execute a certificate of any facts found by them.
SECTION 3.8. Inspection of Books and Records. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under the Corporations and Associations Law of
the State of Maryland.
SECTION 3.9. Action by Shareholders Without Meeting. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting
of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 4.1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall
be called by the President or the Secretary upon the written request of any
two (2) Trustees.
2
<PAGE>
SECTION 4.2. Notice of Special Meetings. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage prepaid,
directed to the Trustee at his address as it appears on the records of the
Trust. Subject to the provisions of the 1940 Act, notice or waiver of notice
need not specify the purpose of any special meeting.
SECTION 4.3. Telephone Meetings. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such
committee, as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. Quorum, Voting and Adjournment of Meetings. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act
of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall have been
obtained.
SECTION 4.5. Action by Trustees Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of the Trustees may be taken without a meeting if a consent in
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.
SECTION 4.6. Expenses and Fees. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of
said persons shall receive for services rendered as a Trustee of the Trust
such compensation as may be fixed by the Trustees. Nothing herein contained
shall be construed to preclude any Trustee from serving the Trust in any
other capacity and receiving compensation therefor.
SECTION 4.7. Execution of Instruments and Documents and Signing of Checks
and Other Obligations and Transfers. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all
checks, notes, drafts and other obligations for the payment of money by the
Trust shall be signed, and all transfer of securities standing in the name of
the Trust shall be executed, by the Chairman, the President, any Vice
President or the Treasurer or by any one or more officers or agents of the
Trust as shall be designated for that purpose by vote of the Trustees;
notwithstanding the above, nothing in this Section 4.7 shall be deemed to
preclude the electronic authorization, by designated persons, of the Trust's
Custodian (as described herein in Section 9.1) to transfer assets of the
Trust, as provided for herein in Section 9.1.
SECTION 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement, actually
and reasonably incurred by him in connection with the action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
3
<PAGE>
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or on behalf of the Trust to obtain a judgment or decree in its
favor by reason of the fact that he is or was a Trustee, officer, employee,
or agent of the Trust. The indemnification shall be against expenses,
including attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust; except that no indemnification shall be
made in respect of any claim, issue, or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Trust, except to the extent that the court in which the
action or suit was brought, or a court of equity in the county in which the
Trust has its principal office, determines upon application that, despite the
adjudication of liability but in view of all circumstances of the case, the
person is fairly and reasonably entitled to indemnity for those expenses
which the court shall deem proper, provided such Trustee, officer, employee
or agent is not adjudged to be liable by reason of his willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) or (b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists
of Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person
shall be entitled to indemnification for any liability, whether or not
there is an adjudication of liability, arising by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duties
as described in Section 17(h) and (i) of the Investment Company Act of
1940 ("disabling conduct"). A person shall be deemed not liable by reason
of disabling conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in Section 2(a)(19) of
the Investment Company Act of 1940, nor parties to the action, suit
or proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit
or proceeding may be paid by the Trust in advance of the final disposition
thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the
Trustee, officer, employee or agent of the Trust to repay the advance if
it is not ultimately determined that such person is entitled to be
indemnified by the Trust; and
4
<PAGE>
(3) either, (i) such person provides a security for his
undertaking, or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately
will be found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to a person
who has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. Executive and Other Committees. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the
Trustees of the Trust and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Trust. In the absence of
any member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in
place of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in
any other capacity and which shall have advisory functions with respect to
the investments of the Trust but which shall have no power to determine that
any security or other investment shall be purchased, sold or otherwise
disposed of by the Trust. The number of persons constituting any such
advisory committee shall be determined from time to time by the Trustees. The
members of any such advisory committee may receive compensation for their
services and may be allowed such fees and expenses for the attendance at
meetings as the Trustees may from time to time determine to be appropriate.
5
<PAGE>
SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Trustees appointed pursuant to Section
5.1 of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. Executive Officers. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more
than one capacity. The executive officers of the Trust shall be elected
annually by the Trustees and each executive officer so elected shall hold
office until his successor is elected and has qualified.
SECTION 6.2. Other Officers and Agents. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the President the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.
SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any
officer or agent of the Trust may be removed by the Trustees whenever, in
their judgment, the best interests of the Trust will be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed.
SECTION 6.4. Compensation of Officers. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the President to
the extent provided by the Trustees with respect to officers appointed by the
President.
SECTION 6.5. Power and Duties. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
SECTION 6.6. The Chairman. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees, shall be a signatory on all Annual and
Semi-Annual Reports as may be sent to shareholders, and he shall perform such
other duties as the Trustees may from time to time prescribe.
SECTION 6.7. The President. (a) The President shall be the chief executive
officer of the Trust; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the
Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by
the Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President,
and he or they shall perform such other duties as the Trustees or the
President may from time to time prescribe.
6
<PAGE>
SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the President.
SECTION 6.10. The Secretary. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or
by the signature of an Assistant Secretary.
SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
SECTION 6.12. The Treasurer. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and
he shall render to the Trustees and the President, whenever any of them
require it, an account of his transactions as Treasurer and of the financial
condition of the Trust; and he shall perform such other duties as the
Trustees, or the President, may from time to time prescribe.
SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order
determined by the Trustees or the President, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers
as the Trustees, or the President, may from time to time prescribe.
SECTION 6.14. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from
time to time determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary
from the computation thereof on the records of the Trust, the Trustees shall
have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the
Trust to avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. Certificates of Shares. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of
7
<PAGE>
the Trust by the President, or a Vice President, and countersigned by the
Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option,
determine not to issue a certificate or certificates to evidence Shares owned
of record by any Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Trust, such certificate or certificates
shall, nevertheless, be adopted by the Trust and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures shall appear therein had not ceased
to be such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. Lost, Stolen, Destroyed and Mutilated Certificates. The
Trustees may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Trust alleged to
have been lost, stolen or destroyed, upon satisfactory proof of such loss,
theft, or destruction; and the Trustees may, in their discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal
representative, to give to the Trust and to such Registrar, Transfer Agent
and/or Transfer Clerk as may be authorized or required to countersign such
new certificate or certificates, a bond in such sum and of such type as they
may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be against them or any of them on
account of or in connection with the alleged loss, theft or destruction of
any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. Appointment and Duties. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at
least five million dollars ($5,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the
Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it
as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery
of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.
8
<PAGE>
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting of
shareholders, Trustees or committee, as the case may be, in person, shall be
deemed equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Location of Books and Records. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2. Record Date. The Trustees may fix in advance a date as the
record date for the purpose of determining Shareholders entitled to notice
of, or to vote at, any meeting of Shareholders, or Shareholders entitled to
receive payment of any dividend or the allotment of any rights, or in order
to make a determination of Shareholders for any other proper purpose. Such
date, in any case, shall be not more than ninety (90) days, and in case of a
meeting of Shareholders not less than ten (10) days, prior to the date on
which particular action requiring such determination of Shareholders is to be
taken. In lieu of fixing a record date the Trustees may provide that the
transfer books shall be closed for a stated period but not to exceed, in any
case, twenty (20) days. If the transfer books are closed for the purpose of
determining Shareholders entitled to notice of a vote at a meeting of
Shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting.
SECTION 11.3. Seal. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from
time to time provide. The seal of the Trust may be affixed to any document,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation under Massachusetts law.
SECTION 11.4. Fiscal Year. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. Orders for Payment of Money. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement
between the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
9
<PAGE>
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees;
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration, or these By-Laws, a vote of the Shareholders. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration, and any
apparent inconsistency shall be construed in favor of the related provisions
in the Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Dean Witter Diversified Income
Trust, dated December 20, 1991, a copy of which is on file in the office of
the Secretary of the Commonwealth of Massachusetts, provides that the name
Dean Witter Diversified Income Trust refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally;
and no Trustee, Shareholder, officer, employee or agent of Dean Witter
Diversified Income Trust shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said Dean
Witter Diversified Income Trust, but the Trust Estate only shall be liable.
10
Exhibit 8
CUSTODY AGREEMENT
Agreement made as of this day of April 8, 1992,
between DEAN WITTER DIVERSIFIED INCOME TRUST, a
Massachusetts business trust organized and existing under the laws
of the Commonwealth of Massachusetts, having its principal
office and place of business at 2 World Trade Center, New
York, New York 10048 (hereinafter called the "Fund"), and
THE BANK OF NEW YORK, a New York corporation authorized to do
a banking business, having its principal office and place
of business at 48 Wall Street, New York, New York 10286
(hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises
hereinafter set forth, the Fund and the Custodian agree as
follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, shall have the following meanings:
1. "Agreement" shall mean this Custody Agreement and all
Appendices and Certifications described in the Exhibits
delivered in connection herewith.
2. "Authorized Person" shall mean any person, whether
or not such person is an Officer or employee of the Fund, duly
authorized by the Board of Trustees of the Fund to give Oral
Instructions and Written Instructions on behalf of the Fund
and listed in the Certificate annexed hereto as Appendix A or
such other Certificate as may be received by the Custodian
from time to time, provided that each person who is designated
in any such Certificate as an "Officer of DWTC" shall be an
Authorized Person only for purposes of Articles XII and XIII
hereof.
3. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and
federal agency securities, its successor or successors and its
nominee or nominees.
4. "Call Option" shall mean an exchange traded option
with respect to Securities other than Index, Futures
Contracts, and Futures Contract Options entitling the holder,
upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the
specified underlying instruments, currency, or Securities.
5. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this
Agreement to be given to the Custodian which is actually
received (irrespective of constructive receipt) by the
Custodian and signed on behalf of the Fund by any two Offic-
ers. The term Certificate shall also include instructions by
the Fund to the Custodian communicated by a Terminal Link.
6. "Clearing Member" shall mean a registered
broker-dealer which is a clearing member under the rules of
O.C.C. and a member of a national securities exchange
qualified to act as a custodian for an investment company, or
any broker-dealer reasonably believed by the Custodian to be
such a clearing member.
7. "Collateral Account" shall mean a segregated account
so denominated which is specifically allocated to a Series and
pledged to the Custodian as security for, and in consideration
of, the Custodian's issuance of any Put Option guarantee let-
ter or similar document described in paragraph 8 of Article V
herein.
8. "Covered Call Option" shall mean an exchange traded
option entitling the holder, upon timely exercise and payment
of the exercise price, as specified therein, to purchase from
the writer thereof the specified underlying instruments, cur-
rency, or Securities (excluding Futures Contracts) which are
owned by the writer thereof.
9. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and
Exchange Commission, its successor or successors and its
nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, specifically identi-
fied in a certified copy of a resolution of the Fund's Board
of Trustees specifically approving deposits therein by the
Custodian.
10. "Financial Futures Contract" shall mean the firm
commitment to buy or sell financial instruments on a U.S. com-
modities exchange or board of trade at a specified future time
at an agreed upon price.
11. "Futures Contract" shall mean a Financial Futures
Contract and/or Index Futures Contracts.
- 2 -
12. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
13. "Investment Company Act of 1940" shall mean the
Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
14. "Index Futures Contract" shall mean a bilateral
agreement pursuant to which the parties agree to take or make
delivery of an amount of cash equal to a specified dollar
amount times the difference between the value of a particular
index at the close of the last business day of the contract
and the price at which the futures contract is originally
struck.
15. "Index Option" shall mean an exchange traded option
entitling the holder, upon timely exercise, to receive an
amount of cash determined by reference to the difference
between the exercise price and the value of the index on the
date of exercise.
16. "Margin Account" shall mean a segregated account in
the name of a broker, dealer, futures commission merchant, or
a Clearing Member, or in the name of the Fund for the benefit
of a broker, dealer, futures commission merchant, or Clearing
Member, or otherwise, in accordance with an agreement between
the Fund, the Custodian and a broker, dealer, futures commis-
sion merchant or a Clearing Member (a "Margin Account Agree-
ment"), separate and distinct from the custody account, in
which certain Securities and/or money of the Fund shall be
deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time
determine. Securities held in the Book-Entry System or a
Depository shall be deemed to have been deposited in, or
withdrawn from, a Margin Account upon the Custodian's effect-
ing an appropriate entry in its books and records.
17. "Money Market Security" shall mean all instruments
and obligations commonly known as a money market instruments,
where the purchase and sale of such securities normally
requires settlement in federal funds on the same day as such
purchase or sale, including, without limitation, certain
Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and/or principal by the government
of the United States or agencies or instrumentalities thereof,
any tax, bond or revenue anticipation note issued by any state
or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase
agreements with respect to Securities and bank time deposits.
18. "O.C.C." shall mean the Options Clearing Corpora-
tion, a clearing agency registered under Section 17A of the
- 3 -
Securities Exchange Act of 1934, its successor or successors,
and its nominee or nominees.
19. "Officers" shall mean the President, any Vice
President, the Secretary, the Clerk, the Treasurer, the
Controller, any Assistant Secretary, any Assistant Clerk, any
Assistant Treasurer, and any other person or persons, whether
or not any such other person is an officer or employee of the
Fund, but in each case only if duly authorized by the Board of
Trustees of the Fund to execute any Certificate, instruction,
notice or other instrument on behalf of the Fund and listed in
the Certificate annexed hereto as Appendix B or such other
Certificate as may be received by the Custodian from time to
time; provided that each person who is designated in any such
Certificate as holding the position of "Officer of DWTC" shall
be an Officer only for purposes of Articles XII and XIII
hereof.
20. "Option" shall mean a Call Option, Covered Call Op-
tion, Index Option and/or a Put Option.
21. "Oral Instructions" shall mean verbal instructions
actually received (irrespective of constructive receipt) by
the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized
Person.
22. "Put Option" shall mean an exchange traded option
with respect to instruments, currency, or Securities other
than Index Options, Futures Contracts, and Futures Contract
Options entitling the holder, upon timely exercise and tender
of the specified underlying instruments, currency, or Securi-
ties, to sell such instruments, currency, or Securities to the
writer thereof for the exercise price.
23. "Reverse Repurchase Agreement" shall mean an agree-
ment pursuant to which the Fund sells Securities and agrees to
repurchase such Securities at a described or specified date
and price.
24. "Security" shall be deemed to include, without
limitation, Money Market Securities, Call Options, Put Op-
tions, Index Options, Index Futures Contracts, Index Futures
Contract Options, Financial Futures Contracts, Financial
Futures Contract Options, Reverse Repurchase Agreements, over
the counter options on Securities, common stocks and other
securities having characteristics similar to common stocks,
preferred stocks, debt obligations issued by state or
municipal governments and by public authorities, (including,
without limitation, general obligation bonds, revenue bonds,
industrial bonds and industrial development bonds), bonds,
debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments
representing rights to receive, purchase, sell or subscribe
- 4 -
for the same, or evidencing or representing any other rights
or interest therein, or rights to any property or assets.
25. "Senior Security Account" shall mean an account
maintained and specifically allocated to a Series under the
terms of this Agreement as a segregated account, by recorda-
tion or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund specifically al-
located to such Series shall be deposited and withdrawn from
time to time in accordance with Certificates received by the
Custodian in connection with such transactions as the Fund may
from time to time determine.
26. "Series" shall mean the various portfolios, if any,
of the Fund as described from time to time in the current and
effective prospectus for the Fund, except that if the Fund
does not have more than one portfolio, "Series" shall mean the
Fund or be ignored where a requirement would be imposed on the
Fund or the Custodian which is unnecessary if there is only
one portfolio.
27. "Shares" shall mean the shares of beneficial inter-
est of the Fund and its Series.
28. "Terminal Link" shall mean an electronic data
transmission link between the Fund and the Custodian requiring
in connection with each use of the Terminal Link the use of an
authorization code provided by the Custodian and at least two
access codes established by the Fund, provided, that the Fund
shall have delivered to the Custodian a Certificate
substantially in the form of Appendix C.
29. "Transfer Agent" shall mean Dean Witter Trust
Company, a New Jersey limited purpose trust company, its suc-
cessors and assigns.
30. "Transfer Agent Account" shall mean any account in
the name of the Transfer Agent maintained with The Bank of New
York pursuant to a Cash Management and Related Services Agree-
ment between The Bank of New York and the Transfer Agent.
31. "Written Instructions" shall mean written communica-
tions actually received (irrespective of constructive receipt)
by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized
Person by telex or any other such system whereby the receiver
of such communications is able to verify by codes or otherwise
with a reasonable degree of certainty the identity of the
sender of such communication.
- 5 -
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the
Custodian as custodian of the Securities and moneys at any
time owned by the Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as
hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to
be delivered to the Custodian all Securities and all moneys
owned by it, at any time during the period of this Agreement,
and shall specify with respect to such Securities and money
the Series to which the same are specifically allocated, and
the Custodian shall not be responsible for any Securities or
money not so delivered. The Custodian shall physically
segregate, keep and maintain the Securities of the Series
separate and apart from each other Series and from other as-
sets held by the Custodian. Except as otherwise expressly
provided in this Agreement, the Custodian will not be
responsible for any Securities and moneys not actually
received by it, unless the Custodian has been negligent or has
engaged in willful misconduct with respect thereto. The
Custodian will be entitled to reverse any credits of money
made on the Fund's behalf where such credits have been previ-
ously made and moneys are not finally collected, unless the
Custodian has been negligent or has engaged in willful
misconduct with respect thereto. The Fund shall deliver to the
Custodian a certified resolution of the Board of Trustees of
the Fund, substantially in the form of Exhibit A hereto, ap-
proving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry
System all Securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated and
to utilize the Book-Entry System to the extent possible in
connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities and deliveries and
returns of Securities collateral. Prior to a deposit of
Securities specifically allocated to a Series in any
Depository, the Fund shall deliver to the Custodian a certi-
fied resolution of the Board of Trustees of the Fund,
substantially in the form of Exhibit B hereto, approving,
- 6 -
authorizing and instructing the Custodian on a continuous and
ongoing basis until instructed to the contrary by a
Certificate to deposit in such Depository all Securities
specifically allocated to such Series eligible for deposit
therein, and to utilize such Depository to the extent possible
with respect to such Securities in connection with its
performance hereunder, including, without limitation, in con-
nection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of Securities
collateral. Securities and moneys deposited in either the
Book-Entry System or a Depository will be represented in ac-
counts which include only assets held by the Custodian for
customers, including, but not limited to, accounts in which
the Custodian acts in a fiduciary or representative capacity
and will be specifically allocated on the Custodian's books to
the separate account for the applicable Series. Prior to the
Custodian's accepting, utilizing and acting with respect to
Clearing Member confirmations for Options and transactions in
Options for a Series as provided in this Agreement, the
Custodian shall have received a certified resolution of the
Fund's Board of Trustees, substantially in the form of Exhibit
C hereto, approving, authorizing and instructing the Custodian
on a continuous and on-going basis, until instructed to the
contrary by a Certificate, to accept, utilize and act in ac-
cordance with such confirmations as provided in this Agreement
with respect to such Series. All securities are to be held or
disposed of by the Custodian for, and subject at all times to
the instructions of, the Fund pursuant to the terms of this
Agreement. The Custodian shall have no power or authority to
assign, hypothecate, pledge or otherwise dispose of any
Securities except as provided by the terms of this Agreement,
and shall have the sole power to release and deliver Securi-
ties held pursuant to this Agreement.
2. The Custodian shall establish and maintain separate
accounts, in the name of each Series, and shall credit to the
separate account for each Series all moneys received by it for
the account of the Fund with respect to such Series. Such
moneys will be held in such manner and account as the Fund and
the Custodian shall agree upon in writing from time to time.
Money credited to a separate account for a Series shall be
subject only to drafts, orders, or charges of the Custodian
pursuant to this Agreement and shall be disbursed by the
Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Resolutions of the Fund's Board of
Trustees certified by an Officer and by the Secretary or As-
sistant Secretary of the Fund setting forth the name and ad-
dress of the person to whom the payment is to be made, the
Series account from which payment is to be made, the purpose
for which payment is to be made, and declaring such purpose to
be a proper corporate purpose; provided, however, that amounts
- 7 -
representing dividends or distributions with respect to
Shares shall be paid only to the Transfer Agent Account;
(c) In payment of the fees and in reimbursement of
the expenses and liabilities of the Custodian attributable to
such Series and authorized by this Agreement; or
(d) Pursuant to Certificates to pay interest,
taxes, management fees or operating expenses (including,
without limitation thereto, Board of Trustees' fees and
expenses, and fees for legal accounting and auditing
services), which Certificates set forth the name and address
of the person to whom payment is to be made, state the purpose
of such payment and designate the Series for whose account the
payment is to be made.
3. Promptly after the close of business on each day,
the Custodian shall furnish the Fund with confirmations and a
summary, on a per Series basis, of all transfers to or from
the account of the Fund for a Series, either hereunder or with
any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are
transferred to the account of the Fund for a Series but held
in a Depository, the Custodian shall upon such transfer also
by book-entry or otherwise identify such Securities as
belonging to such Series in a fungible bulk of Securities
registered in the name of the Custodian (or its nominee) or
shown on the Custodian's account on the books of the
Book-Entry System or the Depository. At least monthly and
from time to time, the Custodian shall furnish the Fund with a
detailed statement, on a per Series basis, of the Securities
and moneys held under this Agreement for the Fund.
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the
Custodian hereunder, which are issued or issuable only in
bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that
form; all other Securities held hereunder may be registered in
the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from
time to time determine, or in the name of the Book-Entry
System or a Depository or their successor or successors, or
their nominee or nominees. The Fund agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to
hold or deliver in proper form for transfer, or to register in
the name of its registered nominee or in the name of the
Book-Entry System or a Depository any Securities which it may
hold hereunder and which may from time to time be registered
in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not
held in the Book-Entry System or in a Depository in a separate
account in the name of such Series physically segregated at
all times from those of any other person or persons.
- 8 -
5. Except as otherwise provided in this Agreement and
unless otherwise instructed to the contrary by a Certificate,
the Custodian by itself, or through the use of the Book-Entry
System or a Depository with respect to Securities held
hereunder and therein deposited, shall with respect to all
Securities held for the Fund hereunder in accordance with
preceding paragraph 4:
(a) Promptly collect all income and dividends due
or payable;
(b) Promptly give notice to the Fund and promptly
present for payment and collect the amount of money or other
consideration payable upon such Securities which are called,
but only if either (i) the Custodian receives a written notice
of such call, or (ii) notice of such call appears in one or
more of the publications listed in Appendix D annexed hereto,
which may be amended at any time by the Custodian without the
prior consent of the Fund, provided the Custodian gives prior
notice of such amendment to the Fund;
(c) Promptly present for payment and collect for
the Fund's account the amount payable upon all Securities
which mature;
(d) Promptly surrender Securities in temporary form
in exchange for definitive Securities;
(e) Promptly execute, as custodian, any necessary
declarations or certificates of ownership under the Federal
Income Tax Laws or the laws or regulations of any other taxing
authority now or hereafter in effect;
(f) Hold directly, or through the Book-Entry System
or the Depository with respect to Securities therein
deposited, for the account of a Series, all rights and similar
securities issued with respect to any Securities held by the
Custodian for such Series hereunder; and
(g) Promptly deliver to the Fund all notices, prox-
ies, proxy soliciting materials, consents and other written
information (including, without limitation, notices of tender
offers and exchange offers, pendency of calls, maturities of
Securities and expiration of rights) relating to Securities
held pursuant to this Agreement which are actually received by
the Custodian, such proxies and other similar materials to be
executed by the registered holder (if Securities are
registered otherwise than in the name of the Fund), but
without indicating the manner in which proxies or consents are
to be voted.
- 9 -
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry
System or the Depository, shall:
(a) Promptly execute and deliver to such persons as
may be designated in such Certificate proxies, consents,
authorizations, and any other instruments whereby the author-
ity of the Fund as owner of any Securities held hereunder for
the Series specified in such Certificate may be exercised;
(b) Promptly deliver any Securities held hereunder
for the Series specified in such Certificate in exchange for
other Securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the
exercise of any right, warrant or conversion privilege and
receive and hold hereunder specifically allocated to such
Series any cash or other Securities received in exchange;
(c) Promptly deliver any Securities held hereunder
for the Series specified in such Certificate to any protective
committee, reorganization committee or other person in connec-
tion with the reorganization, refinancing, merger, consolida-
tion, recapitalization or sale of assets of any corporation,
and receive and hold hereunder specifically allocated to such
Series in exchange therefor such certificates of deposit,
interim receipts or other instruments or documents as may be
issued to it to evidence such delivery or such Securities as
may be issued upon such delivery; and
(d) Promptly present for payment and collect the
amount payable upon Securities which may be called as
specified in the Certificate.
7. Notwithstanding any provision elsewhere contained
herein, the Custodian shall not be required to obtain posses-
sion of any instrument or certificate representing any Futures
Contract, any Option, or any Futures Contract Option until
after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments
or certificates are available. The Fund shall deliver to the
Custodian such a Certificate no later than the business day
preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall
comply with Section 17(f) of the Investment Company Act of
1940 in connection with the purchase, sale, settlement, clos-
ing out or writing of Futures Contracts, Options, or Futures
Contract Options by making payments or deliveries specified in
Certificates in connection with any such purchase, sale,
writing, settlement or closing out upon its receipt from a
broker, dealer, or futures commission merchant of a statement
or confirmation reasonably believed by the Custodian to be in
the form customarily used by brokers, dealers, or future
- 10 -
commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be,
confirming that such Security is held by such broker, dealer
or futures commission merchant, in book-entry form or
otherwise, in the name of the Custodian (or any nominee of the
Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from
the Margin Account and payments with respect to Securities to
which a Margin Account relates, shall be made in accordance
with the terms and conditions of the Margin Account
Agreement. Whenever any such instruments or certificates are
available, the Custodian shall, notwithstanding any provision
in this Agreement to the contrary, make payment for any
Futures Contract, Option, or Futures Contract Option for which
such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or
such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such
certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or
certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the
provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each execution of a purchase of
Securities by the Fund, other than a purchase of an Option, a
Futures Contract, or a Futures Contract Option, the Fund shall
deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each purchase of Money
Market Securities, a Certificate, Oral Instructions or Writ-
ten Instructions, specifying with respect to each such
purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the
title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d)
the date of purchase and settlement; (e) the purchase price
per unit; (f) the total amount payable upon such purchase; (g)
the name of the person from whom or the broker through whom
the purchase was made, and the name of the clearing broker, if
any; and (h) the name of the broker to whom payment is to be
made. The Custodian shall, upon receipt of such Securities
purchased by or for the Fund, pay to the broker specified in
- 11 -
the Certificate out of the moneys held for the account of such
Series the total amount payable upon such purchase, provided
that the same conforms to the total amount payable as set
forth in such Certificate, Oral Instructions or Written
Instructions.
2. Promptly after each execution of a sale of Securi-
ties by the Fund, other than a sale of any Option, Futures
Contract, Futures Contract Option, or any Reverse Repurchase
Agreement, the Fund shall deliver such to the Custodian (i)
with respect to each sale of Securities which are not Money
Market Securities, a Certificate, and (ii) with respect to
each sale of Money Market Securities, a Certificate, Oral
Instructions or Written Instructions, specifying with respect
to each such sale: (a) the Series to which such Securities
were specifically allocated; (b) the name of the issuer and
the title of the Security; (c) the number of shares or
principal amount sold, and accrued interest, if any; (d) the
date of sale and settlement; (e) the sale price per unit; (f)
the total amount payable to the Fund upon such sale; (g) the
name of the broker through whom or the person to whom the sale
was made, and the name of the clearing broker, if any; and (h)
the name of the broker to whom the Securities are to be
delivered. On the settlement date, the Custodian shall
deliver the Securities specifically allocated to such Series
to the broker in accordance with generally accepted street
practices and as specified in the Certificate upon receipt of
the total amount payable to the Fund upon such sale, provided
that the same conforms to the total amount payable as set
forth in such Certificate, Oral Instructions or Written
Instructions.
ARTICLE V
OPTIONS
1. Promptly after each execution of a purchase of any
Option by the Fund other than a closing purchase transaction
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to each Option purchased: (a) the Series to
which such Option is specifically allocated; (b) the type of
Option (put or call); (c) the instrument, currency, or
Security underlying such Option and the number of Options, or
the name of the in the case of an Index Option, the index to
which such Option relates and the number of Index Options
purchased; (d) the expiration date; (e) the exercise price;
(f) the dates of purchase and settlement; (g) the total amount
payable by the Fund in connection with such purchase; and (h)
the name of the Clearing Member through whom such Option was
purchased. The Custodian shall pay, upon receipt of a Clear-
ing Member's statement confirming the purchase of such Option
held by such Clearing Member for the account of the Custodian
(or any duly appointed and registered nominee of the
- 12 -
Custodian) as custodian for the Fund, out of moneys held for
the account of the Series to which such Option is to be
specifically allocated, the total amount payable upon such
purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount pay-
able as set forth in such Certificate.
2. Promptly after the execution of a sale of any Option
purchased by the Fund, other than a closing sale transaction,
pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to each such
sale: (a) the Series to which such Option was specifically
allocated; (b) the type of Option (put or call); (c) the
instrument, currency, or Security underlying such Option and
the number of Options, or the name of the issuer and the title
and number of shares subject to such Option or, in the case of
a Index Option, the index to which such Option relates and the
number of Index Options sold; (d) the date of sale; (e) the
sale price; (f) the date of settlement; (g) the total amount
payable to the Fund upon such sale; and (h) the name of the
Clearing Member through whom the sale was made. The Custodian
shall consent to the delivery of the Option sold by the Clear-
ing Member which previously supplied the confirmation
described in preceding paragraph 1 of this Article with
respect to such Option against payment to the Custodian of the
total amount payable to the Fund, provided that the same
conforms to the total amount payable as set forth in such
Certificate.
3. Promptly after the exercise by the Fund of any Call
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to such Call Option: (a) the Series to which
such Call Option was specifically allocated; (b) the name of
the issuer and the title and number of shares subject to the
Call Option; (c) the expiration date; (d) the date of exercise
and settlement; (e) the exercise price per share; (f) the
total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call
Option was exercised. The Custodian shall, upon receipt of
the Securities underlying the Call Option which was exercised,
pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total
amount payable to the Clearing Member through whom the Call
Option was exercised, provided that the same conforms to the
total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to such Put Option: (a) the Series to which
such Put Option was specifically allocated; (b) the name of
the issuer and the title and number of shares subject to the
Put Option; (c) the expiration date; (d) the date of exercise
- 13 -
and settlement; (e) the exercise price per share; (f) the
total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Op-
tion was exercised. The Custodian shall, upon receipt of the
amount payable upon the exercise of the Put Option, deliver or
direct a Depository to deliver the Securities specifically
allocated to such Series, provided the same conforms to the
amount payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Index
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to such Index Option: (a) the Series to which
such Index Option was specifically allocated; (b) the type of
Index Option (put or call); (c) the number of Options being
exercised; (d) the index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the total amount
to be received by the Fund in connection with such exercise;
and (h) the Clearing Member from whom such payment is to be
received.
6. Whenever the Fund writes a Covered Call Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Covered Call Option: (a) the
Series for which such Covered Call Option was written; (b) the
name of the issuer and the title and number of shares for
which the Covered Call Option was written and which underlie
the same; (c) the expiration date; (d) the exercise price; (e)
the premium to be received by the Fund; (f) the date such
Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received.
The Custodian shall deliver or cause to be delivered, in
exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs
prevailing among Clearing Members dealing in Covered Call Op-
tions and shall impose, or direct a Depository to impose, upon
the underlying Securities specified in the Certificate
specifically allocated to such Series such restrictions as may
be required by such receipts. Notwithstanding the foregoing,
the Custodian has the right, upon prior written notification
to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not
deposited with a Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate instructing the Custodian to deliver, or to direct
the Depository to deliver, the Securities subject to such
Covered Call Option and specifying: (a) the Series for which
such Covered Call Option was written; (b) the name of the is-
suer and the title and number of shares subject to the Covered
Call Option; (c) the Clearing Member to whom the underlying
- 14 -
Securities are to be delivered; and (d) the total amount pay-
able to the Fund upon such delivery. Upon the return and/or
cancellation of any receipts delivered pursuant to paragraph 6
of this Article, the Custodian shall deliver, or direct a
Depository to deliver, the underlying Securities as specified
in the Certificate against payment of the amount to be
received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing with respect to such Put Option: (a) the Series for which
such Put Option was written; (b) the name of the issuer and
the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Put Option is written; (g) the name of
the Clearing Member through whom the premium is to be received
and to whom a Put Option guarantee letter is to be delivered;
(h) the amount of cash, and/or the amount and kind of Securi-
ties, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; and
(i) the amount of cash and/or the amount and kind of Securi-
ties specifically allocated to such Series to be deposited
into the Collateral Account for such Series. The Custodian
shall, after making the deposits into the Collateral Account
specified in the Certificate, issue a Put Option guarantee
letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member
specified in the Certificate against receipt of the premium
specified in said Certificate. Notwithstanding the foregoing,
the Custodian shall be under no obligation to issue any Put
Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and
described in the preceding paragraph is exercised, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing: (a) the Series to which such Put Option was written; (b)
the name of the issuer and title and number of shares subject
to the Put Option; (c) the Clearing Member from whom the
underlying Securities are to be received; (d) the total amount
payable by the Fund upon such delivery; (e) the amount of cash
and/or the amount and kind of Securities specifically al-
located to such Series to be withdrawn from the Collateral
Account for such Series and (f) the amount of cash and/or the
amount and kind of Securities, specifically allocated to such
Series, if any, to be withdrawn from the Senior Security Ac-
count. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian
in connection with such Put Option, the Custodian shall pay
out of the moneys held for the account of the Series to which
such Put Option was specifically allocated the total amount
payable to the Clearing Member specified in the Certificate as
set forth in such Certificate, against delivery of such
- 15 -
Securities, and shall make the withdrawals specified in such
Certificate.
10. Whenever the Fund writes an Index Option, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing with respect to such Index Option: (a) the Series for
which such Index Option was written; (b) whether such Index
Option is a put or a call; (c) the number of options written;
(d) the index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the Clearing Member through
whom such Option was written; (h) the premium to be received
by the Fund; (i) the amount of cash and/or the amount and kind
of Securities, if any, specifically allocated to such Series
to be deposited in the Senior Security Account for such
Series; (j) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to
be deposited in the Collateral Account for such Series; and
(k) the amount of cash and/or the amount and kind of Securi-
ties, if any, specifically allocated to such Series to be
deposited in a Margin Account, and the name in which such ac-
count is to be or has been established. The Custodian shall,
upon receipt of the premium specified in the Certificate, make
the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such
receipts, if any, which the Custodian has specifically agreed
to issue, which are in accordance with the customs prevailing
among Clearing Members in Index Options and make the deposits
into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the
Certificate.
11. Whenever an Index Option written by the Fund and
described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to such Index Option: (a)
the Series for which such Index Option was written; (b) such
information as may be necessary to identify the Index Option
being exercised; (c) the Clearing Member through whom such
Index Option is being exercised; (d) the total amount payable
upon such exercise, and whether such amount is to be paid by
or to the Fund; (e) the amount of cash and/or amount and kind
of Securities, if any, to be withdrawn from the Margin
Account; and (f) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Senior Security
Account for such Series; and the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from
the Collateral Account for such Series. Upon the return
and/or cancellation of the receipt, if any, delivered pursuant
to the preceding paragraph of this Article, the Custodian
shall pay out of the moneys held for the account of the Series
to which such Stock Index Option was specifically allocated to
the Clearing Member specified in the Certificate the total
amount payable, if any, as specified therein.
- 16 -
12. Promptly after the execution of a purchase or sale
by the Fund of any Option identical to a previously written
Option described in paragraphs, 6, 8 or 10 of this Article in
a transaction expressly designated as a "Closing Purchase
Transaction" or a "Closing Sale Transaction", the Fund shall
promptly deliver to the Custodian a Certificate specifying
with respect to the Option being purchased: (a) that the
transaction is a Closing Purchase Transaction or a Closing
Sale Transaction; (b) the Series for which the Option was
written; (c) the instrument, currency, or Security subject to
the Option, or, in the case of an Index Option, the index to
which such Option relates and the number of Options held; (d)
the exercise price; (e) the premium to be paid by or the
amount to be paid to the Fund; (f) the expiration date; (g)
the type of Option (put or call); (h) the date of such
purchase or sale; (i) the name of the Clearing Member to whom
the premium is to be paid or from whom the amount is to be
received; and (j) the amount of cash and/or the amount and
kind of Securities, if any, to be withdrawn from the
Collateral Account, a specified Margin Account, or the Senior
Security Account for such Series. Upon the Custodian's
payment of the premium or receipt of the amount, as the case
may be, specified in the Certificate and the return and/or
cancellation of any receipt issued pursuant to paragraphs 6, 8
or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction or the
Closing Sale Transaction, the Custodian shall remove, or
direct a Depository to remove, the previously imposed
restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a
Closing Purchase Transaction with respect to any Option
purchased or written by the Fund and described in this
Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3
Article III herein, and upon the return and/or cancellation of
any receipts issued by the Custodian, shall make such
withdrawals from the Collateral Account, and the Margin Ac-
count and/or the Senior Security Account as may be specified
in a Certificate received in connection with such expiration,
exercise, or consummation.
14. Securities acquired by the Fund through the exercise
of an Option described in this Article shall be subject to
Article IV hereof.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures
Contract, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Futures Contract,
- 17 -
(or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is
being entered; (b) the category of Futures Contract (the name
of the underlying index or financial instrument); (c) the
number of identical Futures Contracts entered into; (d) the
delivery or settlement date of the Futures Contract(s); (e)
the date the Futures Contract(s) was (were) entered into and
the maturity date; (f) whether the Fund is buying (going long)
or selling (going short) such Futures Contract(s); (g) the
amount of cash and/or the amount and kind of Securities, if
any, to be deposited in the Senior Security Account for such
Series; (h) the name of the broker, dealer, or futures commis-
sion merchant through whom the Futures Contract was entered
into; and (i) the amount of fee or commission, if any, to be
paid and the name of the broker, dealer, or futures commission
merchant to whom such amount is to be paid. The Custodian
shall make the deposits, if any, to the Margin Account in ac-
cordance with the terms and conditions of the Margin Account
Agreement. The Custodian shall make payment out of the moneys
specifically allocated to such Series of the fee or commis-
sion, if any, specified in the Certificate and deposit in the
Senior Security Account for such Series the amount of cash
and/or the amount and kind of Securities specified in said
Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or
futures commission merchant with respect to an outstanding
Futures Contract shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agree-
ment.
(b) Any variation margin payment or similar payment
from a broker, dealer, or futures commission merchant to the
Fund with respect to an outstanding Futures Contract shall be
received and dealt with by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian
hereunder is retained by the Fund until delivery or settlement
is made on such Futures Contract, the Fund shall deliver to
the Custodian prior to the delivery or settlement date a
Certificate specifying: (a) the Futures Contract and the
Series to which the same relates; (b) with respect to an Index
Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract,
the Securities and/or amount of cash to be delivered or
received; (c) the broker, dealer, or futures commission
merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be
withdrawn from the Senior Security Account for such Series.
The Custodian shall make the payment or delivery specified in
the Certificate, and delete such Futures Contract from the
- 18 -
statements delivered to the Fund pursuant to paragraph 3 of
Article III herein.
4. Whenever the Fund shall enter into a Futures
Contract to offset a Futures Contract held by the Custodian
hereunder, the Fund shall deliver to the Custodian a
Certificate specifying: (a) the items of information required
in a Certificate described in paragraph 1 of this Article, and
(b) the Futures Contract being offset. The Custodian shall
make payment out of the money specifically allocated to such
Series of the fee or commission, if any, specified in the
Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3
of Article III herein, and make such withdrawals from the
Senior Security Account for such Series as may be specified in
such Certificate. The withdrawals, if any, to be made from
the Margin Account shall be made by the Custodian in ac-
cordance with the terms and conditions of the Margin Account
Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the execution of a purchase of any
Futures Contract Option by the Fund, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series to which such Option
is specifically allocated; (b) the type of Futures Contract
Option (put or call); (c) the type of Futures Contract and
such other information as may be necessary to identify the
Futures Contract underlying the Futures Contract Option
purchased; (d) the expiration date; (e) the exercise price;
(f) the dates of purchase and settlement; (g) the amount of
premium to be paid by the Fund upon such purchase; (h) the
name of the broker or futures commission merchant through whom
such option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made.
The Custodian shall pay out of the moneys specifically al-
located to such Series the total amount to be paid upon such
purchase to the broker or futures commissions merchant through
whom the purchase was made, provided that the same conforms to
the amount set forth in such Certificate.
2. Promptly after the execution of a sale of any
Futures Contract Option purchased by the Fund pursuant to
paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to each such sale: (a)
Series to which such Futures Contract Option was specifically
allocated; (b) the type of Future Contract Option (put or
call); (c) the type of Futures Contract and such other
- 19 -
information as may be necessary to identify the Futures
Contract underlying the Futures Contract Option; (d) the date
of sale; (e) the sale price; (f) the date of settlement; (g)
the total amount payable to the Fund upon such sale; and (h)
the name of the broker of futures commission merchant through
whom the sale was made. The Custodian shall consent to the
cancellation of the Futures Contract Option being closed
against payment to the Custodian of the total amount payable
to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the
Fund pursuant to paragraph 1 is exercised by the Fund, the
Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Op-
tion was specifically allocated; (b) the particular Futures
Contract Option (put or call) being exercised; (c) the type of
Futures Contract underlying the Futures Contract Option; (d)
the date of exercise; (e) the name of the broker or futures
commission merchant through whom the Futures Contract Option
is exercised; (f) the net total amount, if any, payable by the
Fund; (g) the amount, if any, to be received by the Fund; and
(h) the amount of cash and/or the amount and kind of Securi-
ties to be deposited in the Senior Security Account for such
Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments
of money, if any, and the deposits of Securities, if any, into
the Senior Security Account as specified in the Certificate.
The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option,
the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a)
the Series for which such Futures Contract Option was written;
(b) the type of Futures Contract Option (put or call); (c) the
type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the expiration date; (e) the
exercise price; (f) the premium to be received by the Fund;
(g) the name of the broker or futures commission merchant
through whom the premium is to be received; and (h) the amount
of cash and/or the amount and kind of Securities, if any, to
be deposited in the Senior Security Account for such Series.
The Custodian shall, upon receipt of the premium specified in
the Certificate, make out of the moneys and Securities
specifically allocated to such Series the deposits into the
Senior Security Account, if any, as specified in the
Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
- 20 -
5. Whenever a Futures Contract Option written by the
Fund which is a call is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the
Series to which such Futures Contract Option was specifically
allocated; (b) the particular Futures Contract Option
exercised; (c) the type of Futures Contract underlying the
Futures Contract Option; (d) the name of the broker or futures
commission merchant through whom such Futures Contract Option
was exercised; (e) the net total amount, if any, payable to
the Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise; and (g) the amount of
cash and/or the amount and kind of Securities to be deposited
in the Senior Security Account for such Series. The Custodian
shall, upon its receipt of the net total amount payable to the
Fund, if any, specified in such Certificate make the payments,
if any, and the deposits, if any, into the Senior Security
Account as specified in the Certificate. The deposits, if any,
to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
6. Whenever a Futures Contract Option which is written
by the Fund and which is a put is exercised, the Fund shall
promptly deliver to the Custodian a Certificate specifying:
(a) the Series to which such Option was specifically al-
located; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying such Futures
Contract Option; (d) the name of the broker or futures commis-
sion merchant through whom such Futures Contract Option is
exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise; and (g) the amount and
kind of Securities and/or cash to be withdrawn from or
deposited in, the Senior Security Account for such Series, if
any. The Custodian shall, upon its receipt of the net total
amount payable to the Fund, if any, specified in the
Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any,
and the deposits, if any, into the Senior Security Account as
specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
7. Promptly after the execution by the Fund of a
purchase of any Futures Contract Option identical to a previ-
ously written Futures Contract Option described in this
Article in order to liquidate its position as a writer of such
Futures Contract Option, the Fund shall deliver to the
Custodian a Certificate specifying with respect to the Futures
Contract Option being purchased: (a) the Series to which such
Option is specifically allocated; (b) that the transaction is
a closing transaction; (c) the type of Future Contract and
such other information as may be necessary to identify the
- 21 -
Futures Contract underlying the Futures Option Contract; (d)
the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the name of the broker or futures
commission merchant to whom the premium is to be paid; and (h)
the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for
such Series. The Custodian shall effect the withdrawals from
the Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall
be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures Contract Op-
tion written or purchased by the Fund and described in this
Article, the Custodian shall (a) delete such Futures Contract
Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdraw-
als from and/or in the case of an exercise such deposits into
the Senior Security Account as may be specified in a
Certificate. The deposits to and/or withdrawals from the
Margin Account, if any, shall be made by the Custodian in ac-
cordance with the terms and conditions of the Margin Account
Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this
Article shall be subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after the execution of any short sales of
Securities by any Series of the Fund, the Fund shall deliver
to the Custodian a Certificate specifying: (a) the Series for
which such short sale was made; (b) the name of the issuer and
the title of the Security; (c) the number of shares or
principal amount sold, and accrued interest or dividends, if
any; (d) the dates of the sale and settlement; (e) the sale
price per unit; (f) the total amount credited to the Fund upon
such sale, if any, (g) the amount of cash and/or the amount
and kind of Securities, if any, which are to be deposited in a
Margin Account and the name in which such Margin Account has
been or is to be established; (h) the amount of cash and/or
the amount and kind of Securities, if any, to be deposited in
a Senior Security Account, and (i) the name of the broker
through whom such short sale was made. The Custodian shall
upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon
such sale, if any, as specified in the Certificate is held by
- 22 -
such broker for the account of the Custodian (or any nominee
of the Custodian) as custodian of the Fund, issue a receipt or
make the deposits into the Margin Account and the Senior
Security Account specified in the Certificate.
2. Promptly after the execution of a purchase to
close-out any short sale of Securities, the Fund shall
promptly deliver to the Custodian a Certificate specifying
with respect to each such closing out: (a) the Series for
which such transaction is being made; (b) the name of the is-
suer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if
any, required to effect such closing-out to be delivered to
the broker; (d) the dates of closing-out and settlement; (e)
the purchase price per unit; (f) the net total amount payable
to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of
cash and the amount and kind of Securities to be withdrawn, if
any, from the Margin Account; (i) the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account; and (j) the name of the
broker through whom the Fund is effecting such closing-out.
The Custodian shall, upon receipt of the net total amount pay-
able to the Fund upon such closing-out, and the return and/ or
cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of
the moneys held for the account of the Fund to the broker the
net total amount payable to the broker, and make the withdraw-
als from the Margin Account and the Senior Security Account,
as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the
Custodian hereunder, the Fund shall deliver to the Custodian a
Certificate, or in the event such Reverse Repurchase Agreement
is a Money Market Security, a Certificate, Oral Instructions,
or Written Instructions specifying: (a) the Series for which
the Reverse Repurchase Agreement is entered; (b) the total
amount payable to the Fund in connection with such Reverse
Repurchase Agreement and specifically allocated to such
Series; (c) the broker, dealer, or financial institution with
whom the Reverse Repurchase Agreement is entered; (d) the
amount and kind of Securities to be delivered by the Fund to
such broker, dealer, or financial institution; (e) the date of
such Reverse Repurchase Agreement; and (f) the amount of cash
and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Senior Security
Account for such Series in connection with such Reverse
Repurchase Agreement. The Custodian shall, upon receipt of
- 23 -
the total amount payable to the Fund specified in the
Certificate, Oral Instructions, or Written Instructions make
the delivery to the broker, dealer, or financial institution
and the deposits, if any, to the Senior Security Account,
specified in such Certificate, Oral Instructions, or Written
Instructions.
2. Upon the termination of a Reverse Repurchase Agree-
ment described in preceding paragraph 1 of this Article, the
Fund shall promptly deliver a Certificate or, in the event
such Reverse Repurchase Agreement is a Money Market Security,
a Certificate, Oral Instructions, or Written Instructions to
the Custodian specifying: (a) the Reverse Repurchase Agreement
being terminated and the Series for which same was entered;
(b) the total amount payable by the Fund in connection with
such termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series
in connection with such termination; (d) the date of termina-
tion; (e) the name of the broker, dealer, or financial
institution with whom the Reverse Repurchase Agreement is to
be terminated; and (f) the amount of cash and/or the amount
and kind of Securities to be withdrawn from the Senior Securi-
ties Account for such Series. The Custodian shall, upon
receipt of the amount and kind of Securities to be received by
the Fund specified in the Certificate, Oral Instructions, or
Written Instructions, make the payment to the broker, dealer,
or financial institution and the withdrawals, if any, from the
Senior Security Account, specified in such Certificate, Oral
Instructions, or Written Instructions.
3. The Certificates, Oral Instructions, or Written
Instructions described in paragraphs 1 and 2 of this Article
may with respect to any particular Reverse Repurchase Agree-
ment be combined and delivered to the Custodian at the time of
entering into such Reverse Repurchase Agreement.
ARTICLE X
LOANS OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities
specifically allocated to a Series held by the Custodian
hereunder, the Fund shall deliver or cause to be delivered to
the Custodian a Certificate specifying with respect to each
such loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the
title of the Securities, (c) the number of shares or the
principal amount loaned, (d) the date of loan and delivery,
(e) the total amount to be delivered to the Custodian against
the loan of the Securities, including the amount of cash col-
lateral and the premium, if any, separately identified, and
(f) the name of the broker, dealer, or financial institution
- 24 -
to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial
institution to which the loan was made upon receipt of the
total amount designated in the Certificate as to be delivered
against the loan of Securities. The Custodian may accept pay-
ment in connection with a delivery otherwise than through the
Book-Entry System or a Depository only in the form of a certi-
fied or bank cashier's check payable to the order of the Fund
or the Custodian drawn on New York Clearing House funds.
2. In connection with each termination of a loan of
Securities by the Fund, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with
respect to each such loan termination and return of Securi-
ties: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the
title of the Securities to be returned, (c) the number of
shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the
Custodian (including the cash collateral for such Securities
minus any offsetting credits as described in said
Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be
returned. The Custodian shall receive all Securities returned
from the broker, dealer, or financial institution to which
such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the
total amount payable upon such return of Securities as set
forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall establish a Senior Security Ac-
count and from time to time make such deposits thereto, or
withdrawals therefrom, as specified in a Certificate. Such
Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such
Series to be deposited in, or withdrawn from, such Senior
Security Account for such Series. In the event that the Fund
fails to specify in a Certificate the Series, the name of the
issuer, the title and the number of shares or the principal
amount of any particular Securities to be deposited by the
Custodian into, or withdrawn from, a Senior Securities Ac-
count, the Custodian shall be under no obligation to make any
such deposit or withdrawal and shall promptly notify the Fund
that no such deposit has been made.
- 25 -
2. The Custodian shall make deliveries or payments from
a Margin Account to the broker, dealer, futures commission
merchant or Clearing Member in whose name, or for whose
benefit, the account was established as specified in the
Margin Account Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any
Margin Account shall be dealt with in accordance with the
terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and
security interest in and to any property at any time held by
the Custodian in any Collateral Account described herein. In
accordance with applicable law the Custodian may enforce its
lien and realize on any such property whenever the Custodian
has made payment or delivery pursuant to any Put Option
guarantee letter or similar document or any receipt issued
hereunder by the Custodian. In the event the Custodian should
realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee
letter or similar document or any receipt, such deficiency
shall be a debt owed the Custodian by the Fund within the
scope of Article XIV herein.
5. On each business day the Custodian shall furnish the
Fund with a statement with respect to each Margin Account in
which money or Securities are held specifying as of the close
of business on the previous business day: (a) the name of the
Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker,
dealer, or futures commission merchant specified in the name
of a Margin Account a copy of the statement furnished the Fund
with respect to such Margin Account.
6. The Custodian shall establish a Collateral Account
and from time to time shall make such deposits thereto as may
be specified in a Certificate. Promptly after the close of
business on each business day in which cash and/or Securities
are maintained in a Collateral Account for any Series, the
Custodian shall furnish the Fund with a statement with respect
to such Collateral Account specifying the amount of cash
and/or the amount and kind of Securities held therein. No
later than the close of business next succeeding the delivery
to the Fund of such statement, the Fund shall furnish to the
Custodian a Certificate or Written Instructions specifying the
then market value of the Securities described in such state-
ment. In the event such then market value is indicated to be
less than the Custodian's obligation with respect to any
outstanding Put Option guarantee letter or similar document,
- 26 -
the Fund shall promptly specify in a Certificate the ad-
ditional cash and/or Securities to be deposited in such Col-
lateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of
the resolution of the Board of Trustees of the Fund, certified
by the Secretary, the Clerk, any Assistant Secretary or any
Assistant Clerk, either (i) setting forth with respect to the
Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall
be determined, the amount payable per Share of such Series to
the shareholders of record as of that date and the total
amount payable to the Dividend Agent and any sub-dividend
agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein
and the declaration of dividends and distributions thereon
the Custodian to rely on Oral Instructions, Written Instruc-
tions, or a Certificate setting forth the date of the declara-
tion of such dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per Share of
such Series to the shareholders of record as of that date and
the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution,
Oral Instructions, Written Instructions, or Certificate, as
the case may be, the Custodian shall pay to the Transfer Agent
Account out of the moneys held for the account of the Series
specified therein the total amount payable to the Dividend
Agent and any sub-dividend agent or co-dividend agent of the
Fund with respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall
deliver or cause to be delivered, to the Custodian a
Certificate duly specifying:
(a) The Series, the number of Shares sold, trade
date, and price; and
- 27 -
(b) The amount of money to be received by the
Custodian for the sale of such Shares and specifically al-
located to the separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent,
the Custodian shall credit such money to the separate account
in the name of the Series for which such money was received.
3. Upon issuance of any Shares of any Series the
Custodian shall pay, out of the money held for the account of
such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund
desires the Custodian to make payment out of the money held by
the Custodian hereunder in connection with a redemption of any
Shares, it shall furnish, or cause to be furnished, to the
Custodian a Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt of an advice from an Authorized Person
setting forth the Series and number of Shares received by the
Transfer Agent for redemption and that such Shares are in
good form for redemption, the Custodian shall make payment to
the Transfer Agent Account out of the moneys held in the
separate account in the name of the Series the total amount
specified in the Certificate issued pursuant to the foregoing
paragraph 4 of this Article.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion
advance funds on behalf of any Series which results in an
overdraft because the moneys held by the Custodian in the
separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities
specifically allocated to such Series, as set forth in a
Certificate, Oral Instructions, or Written Instructions or
which results in an overdraft in the separate account of such
Series for some other reason, or if the Fund is for any other
reason indebted to the Custodian with respect to a Series,
(except a borrowing for investment or for temporary or
emergency purposes using Securities as collateral pursuant to
a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness
shall be deemed to be a loan made by the Custodian to the Fund
- 28 -
for such Series payable on demand and shall bear interest from
the date incurred at a rate per annum (based on a 360-day year
for the actual number of days involved) equal to the Federal
Funds Rate plus 1/2%, such rate to be adjusted on the effec-
tive date of any change in such Federal Funds Rate but in no
event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien
and security interest in the aggregate amount of such
overdrafts and indebtedness as may from time to time exist in
and to any property specifically allocated to such Series at
any time held by it for the benefit of such Series or in which
the Fund may have an interest which is then in the Custodian's
possession or control or in possession or control of any third
party acting in the Custodian's behalf. The Fund authorizes
the Custodian, in its sole discretion, at any time to charge
any such overdraft or indebtedness together with interest due
thereon against any money balance of account standing to such
Series' credit on the Custodian's books. In addition, the
Fund hereby covenants that on each Business Day on which
either it intends to enter a Reverse Repurchase Agreement and/
or otherwise borrow from a third party, or which next succeeds
a Business Day on which at the close of business the Fund had
outstanding a Reverse Repurchase Agreement or such a borrow-
ing, it shall prior to 9 a.m., New York City time, advise the
Custodian, in writing, of each such borrowing, shall specify
the Series to which the same relates, and shall not incur any
indebtedness, including pursuant to any Reverse Repurchase
Agreement, not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian
by any bank (including, if the borrowing is pursuant to a
separate agreement, the Custodian) from which it borrows money
for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for
such borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount
of collateral. The Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such
borrowing: (a) the Series to which such borrowing relates; (b)
the name of the bank, (c) the amount and terms of the borrow-
ing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other
loan agreement, (d) the time and date, if known, on which the
loan is to be entered into, (e) the date on which the loan
becomes due and payable, (f) the total amount payable to the
Fund on the borrowing date, (g) the market value of Securities
to be delivered as collateral for such loan, including the
name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (h) a
statement specifying whether such loan is for investment
purposes or for temporary or emergency purposes and that such
loan is in conformance with the Investment Company Act of 1940
and the Fund's prospectus. The Custodian shall deliver on the
- 29 -
borrowing date specified in a Certificate the specified col-
lateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may,
at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory
note or loan agreement. The Custodian shall deliver such
Securities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described
in this paragraph. The Fund shall cause all Securities
released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the
event that the Fund fails to specify in a Certificate the
Series, the name of the issuer, the title and number of shares
or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, to any such bank,
the Custodian shall not be under any obligation to deliver any
Securities.
ARTICLE XV
CONCERNING THE CUSTODIAN
1. The Custodian shall use reasonable care in the
performance of its duties hereunder, and, except as
hereinafter provided, neither the Custodian nor its nominee
shall be liable for any loss or damage, including counsel
fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agree-
ment, except for any such loss or damage arising out of its
own negligence, bad faith, or willful misconduct or that of
its officers, employees, or agents. The Custodian may, with
respect to questions of law arising hereunder or under any
Margin Account Agreement, apply for and obtain the advice and
opinion of counsel to the Fund, at the expense of the Fund,
or of its own counsel, at its own expense, and shall be fully
protected with respect to anything done or omitted by it in
good faith in conformity with such advice or opinion. The
Custodian shall be liable to the Fund for any loss or damage
resulting from the use of the Book-Entry System or any
Depository arising by reason of any negligence or willful
misconduct on the part of the Custodian or any of its
employees or agents.
2. Notwithstanding the foregoing, the Custodian shall
be under no obligation to inquire into, and shall not be li-
able for:
- 30 -
(a) The validity (but not the authenticity) of the
issue of any Securities purchased, sold, or written by or for
the Fund, the legality of the purchase, sale or writing
thereof, or the propriety of the amount paid or received
therefor, as specified in a Certificate, Oral Instructions, or
Written Instructions;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid
therefor, as specified in a Certificate;
(c) The legality of the declaration or payment of
any dividend by the Fund, as specified in a resolution,
Certificate, Oral Instructions, or Written Instructions;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securi-
ties, nor shall the Custodian be under any duty or obligation
to see to it that the cash collateral delivered to it by a
broker, dealer, or financial institution or held by it at any
time as a result of such loan of portfolio Securities of the
Fund is adequate collateral for the Fund against any loss it
might sustain as a result of such loan, except that this sub-
paragraph shall not excuse any liability the Custodian may
have for failing to act in accordance with Article X hereof or
any Certificate, Oral Instructions, or Written Instructions
given in accordance with this Agreement. The Custodian
specifically, but not by way of limitation, shall not be under
any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for
the Fund is sufficient collateral for the Fund, but such duty
or obligation shall be the sole responsibility of the Fund.
In addition, the Custodian shall be under no duty or obliga-
tion to see that any broker, dealer or financial institution
to which portfolio Securities of the Fund are lent pursuant to
Article X of this Agreement makes payment to it of any
dividends or interest which are payable to or for the account
of the Fund during the period of such loan or at the termina-
tion of such loan, provided, however, that the Custodian shall
promptly notify the Fund in the event that such dividends or
interest are not paid and received when due; or
(f) The sufficiency or value of any amounts of
money and/or Securities held in any Margin Account, Senior
Security Account or Collateral Account in connection with
transactions by the Fund, except that this sub-paragraph shall
not excuse any liability the Custodian may have for failing to
establish, maintain, make deposits to or withdrawals from such
accounts in accordance with this Agreement. In addition, the
Custodian shall be under no duty or obligation to see that any
broker, dealer, futures commission merchant or Clearing Member
makes payment to the Fund of any variation margin payment or
- 31 -
similar payment which the Fund may be entitled to receive from
such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from
any broker, dealer, futures commission merchant or Clearing
Member is the amount the Fund is entitled to receive, or to
notify the Fund of the Custodian's receipt or non-receipt of
any such payment.
3. The Custodian shall not be liable for, or considered
to be the Custodian of, any money, whether or not represented
by any check, draft, or other instrument for the payment of
money, received by it on behalf of the Fund until the
Custodian actually receives such money directly or by the
final crediting of the account representing the Fund's inter-
est at the Book-Entry System or the Depository.
4. With respect to Securities held in a Depository,
except as otherwise provided in paragraph 5(b) of Article III
hereof, the Custodian shall have no responsibility and shall
not be liable for ascertaining or acting upon any calls,
conversions, exchange offers, tenders, interest rate changes
or similar matters relating to such Securities, unless the
Custodian shall have actually received timely notice from the
Depository in which such Securities are held. In no event
shall the Custodian have any responsibility or liability for
the failure of a Depository to collect, or for the late col-
lection or late crediting by a Depository of any amount pay-
able upon Securities deposited in a Depository which may
mature or be redeemed, retired, called or otherwise become
payable. However, upon receipt of a Certificate from the Fund
of an overdue amount on Securities held in a Depository the
Custodian shall make a claim against the Depository on behalf
of the Fund, except that the Custodian shall not be under any
obligation to appear in, prosecute or defend any action suit
or proceeding in respect to any Securities held by a
Depository which in its opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all
expense and liability be furnished as often as may be
required, or alternatively, the Fund shall be subrogated to
the rights of the Custodian with respect to such claim against
the Depository should it so request in a Certificate. This
paragraph shall not, however, excuse any failure by the
Custodian to act in accordance with a Certificate, Oral
Instructions, or Written Instructions given in accordance with
this Agreement.
5. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount due to
the Fund from the Transfer Agent of the Fund nor to take any
action to effect payment or distribution by the Transfer Agent
of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
- 32 -
6. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount if the
Securities upon which such amount is payable are in default,
or if payment is refused after the Custodian has timely and
properly, in accordance with this Agreement, made due demand
or presentation, unless and until (i) it shall be directed to
take such action by a Certificate and (ii) it shall be assured
to its satisfaction of reimbursement of its costs and expenses
in connection with any such action, but the Custodian shall
have such a duty if the Securities were not in default on the
payable date and the Custodian failed to timely and properly
make such demand for payment and such failure is the reason
for the non-receipt of payment.
7. The Custodian may appoint one or more banking
institutions as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to,
banking institutions located in foreign countries, of
Securities and moneys at any time owned by the Fund, upon such
terms and conditions as may be approved in a Certificate or
contained in an agreement executed by the Custodian, the Fund
and the appointed institution.
8. The Custodian agrees to indemnify the Fund against
and save the Fund harmless from all liability, claims, losses
and demands whatsoever, including attorney's fees, howsoever
arising or incurred because of the negligence, bad faith or
willful misconduct of any Sub-Custodian of the Securities and
moneys owned by the Fund, provided such Sub-Custodian is a
banking institution located in a foreign country and appointed
by the Custodian pursuant to paragraph 7 of this Article.
9. The Custodian shall not be under any duty or obliga-
tion (a) to ascertain whether any Securities at any time
delivered to, or held by it, for the account of the Fund and
specifically allocated to a Series are such as properly may be
held by the Fund or such Series under the provisions of its
then current prospectus, or (b) to ascertain whether any
transactions by the Fund, whether or not involving the
Custodian, are such transactions as may properly be engaged in
by the Fund.
10. The Custodian shall be entitled to receive and the
Fund agrees to pay to the Custodian all reasonable
out-of-pocket expenses and such compensation as may be agreed
upon from time to time between the Custodian and the Fund.
The Custodian may charge such compensation, and any such
expenses with respect to a Series incurred by the Custodian in
the performance of its duties under this Agreement against any
money specifically allocated to such Series. The Custodian
shall also be entitled to charge against any money held by it
for the account of a Series the amount of any loss, damage,
liability or expense, including counsel fees, for which it
- 33 -
shall be entitled to reimbursement under the provisions of
this Agreement attributable to, or arising out of, its serving
as Custodian for such Series. The expenses for which the
Custodian shall be entitled to reimbursement hereunder shall
include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred
in settling outside of New York City transactions involving
the purchase and sale of Securities of the Fund.
Notwithstanding the foregoing or anything else contained in
this Agreement to the contrary, the Custodian shall, prior to
effecting any charge for compensation, expenses, or any
overdraft or indebtedness or interest thereon, submit an
invoice therefor to the Fund.
11. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing, Oral
Instructions, or Written Instructions received by the
Custodian and reasonably believed by the Custodian to be
genuine. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming Oral Instructions
or Written Instructions in such manner so that such
Certificate or facsimile thereof is received by the Custodian,
whether by hand delivery, telecopier or other similar device,
or otherwise, by the close of business of the same day that
such Oral Instructions or Written Instructions are given to
the Custodian. The Fund agrees that the fact that such
confirming instructions are not received by the Custodian
shall in no way affect the validity of the transactions or
enforceability of the transactions thereby authorized by the
Fund. The Fund agrees that the Custodian shall incur no li-
ability to the Fund in acting upon Oral Instructions or Writ-
ten Instructions given to the Custodian hereunder concerning
such transactions provided such instructions reasonably appear
to have been received from an Authorized Person.
12. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian
and reasonably believed by the Custodian to be given in ac-
cordance with the terms and conditions of any Margin Account
Agreement. Without limiting the generality of the foregoing,
the Custodian shall be under no duty to inquire into, and
shall not be liable for, the accuracy of any statements or
representations contained in any such instrument or other
notice including, without limitation, any specification of any
amount to be paid to a broker, dealer, futures commission
merchant or Clearing Member. This paragraph shall not excuse
any failure by the Custodian to have acted in accordance with
any Margin Agreement it has executed or any Certificate, Oral
Instructions, or Written Instructions given in accordance with
this Agreement.
13. The books and records pertaining to the Fund, as
described in Appendix E hereto, which are in the possession of
the Custodian shall be the property of the Fund. Such books
- 34 -
and records shall be prepared and maintained by the Custodian
as required by the Investment Company Act of 1940, as amended,
and other applicable securities laws and rules and regula-
tions. The Fund, or the Fund's authorized representatives,
shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's
authorized representative, and the Fund shall reimburse the
Custodian its expenses of providing such copies. Upon reason-
able request of the Fund, the Custodian shall provide in hard
copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by
the Custodian on a computer disc, or are similarly maintained,
and the Fund shall reimburse the Custodian for its expenses of
providing such hard copy or micro-film.
14. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting
control of the Book-Entry System, each Depository or O.C.C.,
and with such reports on its own systems of internal account-
ing control as the Fund may reasonably request from time to
time.
15. The Custodian shall furnish upon request annually to
the Fund a letter prepared by the Custodian's accountants with
respect to the Custodian's internal systems and controls in
the form generally provided by the Custodian to other invest-
ment companies for which the Custodian acts as custodian.
16. The Fund agrees to indemnify the Custodian against
and save the Custodian harmless from all liability, claims,
losses and demands whatsoever, including attorney's fees,
howsoever arising out of, or related to, the Custodian's
performance of its obligations under this Agreement, except
for any such liability, claim, loss and demand arising out of
the Custodian's own negligence, bad faith, or willful
misconduct or that of its officers, employees, or agents.
17. Subject to the foregoing provisions of this Agree-
ment, the Custodian shall deliver and receive Securities, and
receipts with respect to such Securities, and shall make and
receive payments only in accordance with the customs prevail-
ing from time to time among brokers or dealers in such Securi-
ties and, except as may otherwise be provided by this
Agreement or as may be in accordance with such customs, shall
make payment for Securities only against delivery thereof and
deliveries of Securities only against payment therefor.
18. The Custodian shall have no duties or
responsibilities whatsoever except such duties and
responsibilities as are specifically set forth in this Agree-
ment, and no covenant or obligation shall be implied in this
Agreement against the Custodian.
- 35 -
ARTICLE XVI
TERMINATION
1. Except as provided in paragraph 3 of this Article,
this Agreement shall continue until terminated by either the
Custodian giving to the Fund, or the Fund giving to the
Custodian, a notice in writing specifying the date of such
termination, which date shall be not less than 60 days after
the date of the giving of such notice. In the event such
notice or a notice pursuant to paragraph 3 of this Article is
given by the Fund, it shall be accompanied by a copy of a
resolution of the Board of Trustees of the Fund, certified by
an Officer and the Secretary or an Assistant Secretary of the
Fund, electing to terminate this Agreement and designating a
successor custodian or custodians, each of which shall be
eligible to serve as a custodian for the securities of a
management investment company under the Investment Company Act
of 1940. In the event such notice is given by the Custodian,
the Fund shall, on or before the termination date, deliver to
the Custodian a copy of a resolution of the Board of Trustees
of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, designating a
successor custodian or custodians. In the absence of such
designation by the Fund, the Custodian may designate a
successor custodian which shall be a bank or trust company
having not less than $2,000,000 aggregate capital, surplus and
undivided profits. Upon the date set forth in such notice
this Agreement shall terminate, and the Custodian shall upon
receipt of a notice of acceptance by the successor custodian
on that date deliver directly to the successor custodian all
Securities and moneys then owned by the Fund and held by it as
Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall
then be entitled.
2. If a successor custodian is not designated by the
Fund or the Custodian in accordance with the preceding
paragraph, the Fund shall upon the date specified in the
notice of termination of this Agreement and upon the delivery
by the Custodian of all Securities (other than Securities held
in the Book-Entry System which cannot be delivered to the
Fund) and moneys then owned by the Fund be deemed to be its
own custodian and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement,
other than the duty with respect to Securities held in the
Book Entry System which cannot be delivered to the Fund to
hold such Securities hereunder in accordance with this Agree-
ment.
3. Notwithstanding the foregoing, the Fund may
terminate this Agreement upon the date specified in a written
- 36 -
notice in the event of the "Bankruptcy" of The Bank of New
York. As used in this sub-paragraph, the term "Bankruptcy"
shall mean The Bank of New York's making a general assignment,
arrangement or composition with or for the benefit of its
creditors, or instituting or having instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or
the entry of a order for relief under any applicable
bankruptcy law or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors'
rights, or if a petition is presented for the winding up or
liquidation of the party or a resolution is passed for its
winding up or liquidation, or it seeks, or becomes subject to,
the appointment of an administrator, receiver, trustee,
custodian or other similar official for it or for all or
substantially all of its assets or its taking any action in
furtherance or, or indicating its consent to approval of, or
acquiescence in, any of the foregoing.
ARTICLE XVII
TERMINAL LINK
1. At no time and under no circumstances shall the Fund
be obligated to have or utilize the Terminal Link, and the
provisions of this Article shall apply if, but only if, the
Fund in its sole and absolute discretion elects to utilize the
Terminal Link to transmit Certificates to and to receive
notices from the Custodian.
2. The parties hereto shall utilize the Terminal Link
only for the purpose of the Fund providing Certificates to the
Custodian and the Custodian providing notices to the Fund and
only after the Fund and the Custodian shall have established
access codes and internal safekeeping procedures to safeguard
and protect the confidentiality and availability of such
access codes. Each use of the Terminal Link by the Fund shall
constitute a representation and warranty that at least two
such access codes have been utilized and that such procedures
have been established.
3. Each party shall obtain and maintain at its own cost
and expense all equipment and services, including, but not
limited to communications services, necessary for it to
utilize the Terminal Link, and the other party shall not be
responsible for the reliability or availability of any such
equipment or services, except that the Custodian shall not pay
any communications costs of any line leased by the Fund, even
if such line is also used by the Custodian.
4. The Fund acknowledges that any data bases made
available as part of, or through the Terminal and any
proprietary data, software, processes, information and
documentation (other than any such which are or become part of
- 37 -
the public domain or are legally required to be made available
to the public) (collectively, the "Information"), are the
exclusive and confidential property of the Custodian. The
Fund shall, and shall cause others to which it discloses the
Information, to keep the Information confidential by using the
same care and discretion it uses with respect to its own
confidential property and trade secrets, and shall neither
make nor permit any disclosure without the express prior writ-
ten consent of the Custodian.
5. Upon termination of this Agreement for any reason,
each Fund shall return to the Custodian any and all copies of
the Information which are in the Fund's possession or under
its control, or which the Fund distributed to third parties.
The provisions of this Article shall not affect the copyright
status of any of the Information which may be copyrighted and
shall apply to all Information whether or not copyrighted.
6. The Custodian reserves the right to modify the
Terminal Link from time to time without notice to the Fund,
except that the Custodian shall give the Fund notice not less
than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund
agrees not to modify or attempt to modify the Terminal Link
without the Bank's prior written consent. The Fund
acknowledges that the Terminal Link is the property of the
Custodian and, accordingly, the Fund agrees that any
modifications to the Terminal Link, whether by the Fund or the
Custodian and whether with or without the Custodian's consent,
shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and sup-
pliers it utilizes or the Fund utilizes in connection with the
Terminal Link makes any warranties or representations, express
or implied, in fact or in law, including but not limited to
warranties of merchantability and fitness for a particular
purpose.
8. Each party will, and will cause its officers and
employees to, treat the user and authorization codes,
passwords and authentication keys applicable to Terminal Link
with extreme care. Each party hereby irrevocably authorizes
the other to act in accordance with and rely on Certificates
and notices received by it through the Terminal Link. Each
party acknowledges that it is its responsibility to assure
that only its authorized persons use the Terminal Link on its
behalf, and that a party shall not be responsible nor liable
for use of the Terminal Link on its behalf of the other party
by unauthorized persons except that the other party shall be
liable for such use thereof by unauthorized persons who have
obtained access thereto as a result of the bad faith or
willful misconduct of such party or any of its officers or
employees.
- 38 -
9. Notwithstanding anything else in this Agreement to
the contrary, neither party shall have any liability to the
other for any losses, damages, injuries, claims, costs or
expenses arising as a result of a delay, omission or error in
the transmission of a Certificate or notice by use of the
Terminal Link except for money damages for those suffered as
the result of the negligence, bad faith or willfull misconduct
of such party or its officers, employees or agents in an
amount not exceeding for any incident $100,000, provided,
however, that a party shall have no liability under this
Section 9 if the other party fails to comply with the
provisions of Section 11.
10. Without limiting the generality of the foregoing, it
is hereby agreed that in no event shall either party or any
manufacturer or supplier of its computer equipment, software
or services relating to the Terminal Link be responsible for
any special, indirect, incidental or consequential damages
which the other party may incur or experience by reason of its
use of the Terminal Link even if such party, manufacturer or
supplier has been advised of the possibility of such damages,
nor with respect to the use of the Terminal Link shall either
party or any such manufacturer or supplier be liable for acts
of God, or with respect to the following to the extent beyond
such person's reasonable control: machine or computer
breakdown or malfunction, interruption or malfunction of
communication facilities, labor difficulties or any other
similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors,
omissions or interruptions in, or delay or unavailability of,
the Terminal Link as promptly as practicable, and in any event
within 24 hours after the earliest of (i) discovery thereof,
(ii) the business day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case
of any error, the date of actual receipt of the earliest
notice which reflects such error, it being agreed that
discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the
Custodian learns of any errors, omissions or interruption in,
or delay or unavailability of, the Terminal Link.
12. Each party shall, as soon as practicable after its
receipt of a Certificate or of any notice transmitted by the
Terminal Link, verify to the other party by use of the
Terminal Link its receipt of such Certificate or notice, and
in the absence of such verification a party to whom a
Certificate or notice is sent shall not be liable for any
failure to act in accordance with such Certificate or notice,
and the sending party may not claim that such Certificate or
notice was received by the other.
- 39 -
ARTICLE XVIII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed
by two of the present Officers of the Fund under its seal,
setting forth the names and the signatures of the present
Authorized Persons. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event that
any such present Authorized Person ceases to be an Authorized
Person or in the event that other or additional Authorized
Persons are elected or appointed. Until such new Certificate
shall be received, the Custodian shall be entitled to rely and
to act upon Oral Instructions, Written Instructions, or
signatures of the present Authorized Persons as set forth in
the last delivered Certificate to the extent provided by this
Agreement.
2. Annexed hereto as Appendix B is a Certificate signed
by two of the present Officers of the Fund under its seal,
setting forth the names and the signatures of the present Of-
ficers of the Fund. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event any
such present Officer ceases to be an Officer of the Fund, or
in the event that other or additional Officers are elected or
appointed. Until such new Certificate shall be received, the
Custodian shall be entitled to rely and to act upon the
signatures of the Officers as set forth in the last delivered
Certificate to the extent provided by this Agreement.
3. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the
Custodian, other than any Certificate or Written Instructions,
shall be sufficiently given if addressed to the Custodian and
mailed or delivered to it at its offices at 90 Washington
Street, New York, New York 10286, or at such other place as
the Custodian may from time to time designate in writing.
4. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the
Fund shall be sufficiently given if addressed to the Fund and
mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund
may from time to time designate in writing.
5. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties
with the same formality as this Agreement and approved by a
resolution of the Board of Trustees of the Fund, except that
Appendices A and B may be amended unilaterally by the Fund
without such an approving resolution.
- 40 -
6. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of the
Custodian, or by the Custodian or The Bank of New York without
the written consent of the Fund, authorized or approved by a
resolution of the Fund's Board of Trustees. For purposes of
this paragraph, no merger, consolidation, or amalgamation of
the Custodian, The Bank of New York, or the Fund shall be
deemed to constitute an assignment of this Agreement.
7. This Agreement shall be construed in accordance with
the laws of the State of New York without giving effect to
conflict of laws principles thereof. Each party hereby
consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any
dispute arising hereunder and hereby waives its right to trial
by jury.
8. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but such counterparts shall, together, constitute only one
instrument.
9. A copy of the Declaration of Trust of the Fund is on
file with the Secretary of The Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on
behalf of the Board of Trustees of the Fund as Trustees and
not individually and that the obligations of this instrument
are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property
of the Fund; provided, however, that the Declaration of Trust
of the Fund provides that the assets of a particular Series of
the Fund shall under no circumstances be charged with li-
abilities attributable to any other Series of the Fund and
that all persons extending credit to, or contracting with or
having any claim against a particular Series of the Fund shall
look only to the assets of that particular Series for payment
of such credit, contract or claim.
- 41 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers,
thereunto duly authorized and their respective seals to be
hereunto affixed, as of the day and year first above written.
Dean Witter Diversified Income Trust
_______________________________________
[SEAL] By: Sheldon Curtis
_______________________
Attest:
_______________________
THE BANK OF NEW YORK
[SEAL] By:
_______________________
Attest:
__________________________
- 42 -
APPENDIX A
I, Charles A. Fiumefreddo, President and I,
Sheldon Curtis, Secretary of Dean Witter Diversified Income
Trust, a Massachusetts business trust (the "Fund"), do
hereby certify that:
The following individuals have been duly authorized by
the Board of Trustees of the Fund in conformity with the
Fund's Declaration of Trust and By-Laws to give Oral Instruc-
tions and Written Instructions on behalf of the Fund, except
that those persons designated as being an "Officer of DWTC"
shall be an Authorized Person only for purposes of Articles
XII and XIII. The signatures set forth opposite their
respective names are their true and correct signatures:
Name Position Signature
_____________________ ________________ _________________
Charles A. Fiumefreddo Officer of Fund On File
Sheldon Curtis Officer of Fund "
David A. Hughey Officer of Fund "
John W. Vander Vliet Officer of Fund "
Edmund C. Puckhaber Officer of Fund "
Peter M. Avelar Officer of Fund "
Rajesh K. Gupta Officer of Fund "
Vinh Q. Tran Officer of Fund "
Thomas F. Caloia Officer of Fund "
Marilyn K. Cranney Officer of Fund "
Barry Fink Officer of Fund "
Lawrence S. Lafer Officer of Fund "
Lou Anne D. McInnis Officer of Fund "
Ruth Rossi Officer of Fund "
Stuart Smith Officer of InterCapital "
Jonathan R. Page Officer of InterCapital "
Howard Schloss Officer of InterCapital "
June Ewers Officer of InterCapital "
Susanne Stager Officer of InterCapital "
Virginia Connors Officer of InterCapital "
Barbara Toich Officer of InterCapital "
Mina Gitsevich Officer of InterCapital "
Joan Hamilton Officer of InterCapital "
Lester Lay Accounting Manager "
John Eglentowicz Officer of DWTC "
Cyril L. Hunt Officer of DWTC "
Eleanor R. Langevin Officer of DWTC "
Louis A. Rivera Officer of DWTC "
Peter Urciuoli Officer of DWTC "
APPENDIX B
I, Charles A. Fiumefreddo, President and I,
Sheldon Curtis, Secretary of Dean Witter Diversified Income
Trust, a Massachusetts business trust (the "Fund"), do
hereby certify that:
The following individuals for whom a position other than
"Officer of DWTC" is specified serve in the following posi-
tions with the Fund and each has been duly elected or ap-
pointed by the Board of Trustees of the Fund to each such
position and qualified therefor in conformity with the Fund's
Declaration of Trust and By-Laws. With respect to the
following individuals for whom a position of "Officer of DWTC"
is specified, each such individual has been designated by a
resolution of the Board of Trustees of the Fund to be an
Officer for purposes of the Fund's Custody Agreement with The
Bank of New York, but only for purposes of Articles XII and
XIII thereof and a certified copy of such resolution is
attached hereto. The signatures of each individual below set
forth opposite their respective names are their true and
correct signatures:
Name Position Signature
____________________ ___________________ _________________
See Appendix A
APPENDIX C
The undersigned, Sheldon Curtis hereby certifies that he
or she is the duly elected and acting Secretary of Dean
Witter Diversified Income Trust (the "Fund"), further
certifies that the following resolutions were adopted by the
Board of Trustees of the Fund at a meeting duly held on
January 23, 199 , at which a quorum at all times present and that
such resolutions have not been modified or rescinded and are in
full force and effect as of the date hereof.
RESOLVED, that The Bank New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the
Fund dated as of April 8, 1992 (the "Custody Agree-
ment") is authorized and instructed on a continuous and ongo-
ing basis to act in accordance with, and to rely on instruc-
tions by the Fund to the Custodian communicated by a Terminal
Link as defined in the Custody Agreement.
RESOLVED, that the Fund shall establish access codes and
grant use of such access codes only to officers of the Fund as
defined in the Custody Agreement, and shall establish internal
safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes.
RESOLVED, that Officers of the Fund as defined in the
Custody Agreement shall, following the establishment of such
access codes and such internal safekeeping procedures, advise
the Custodian that the same have been established by deliver-
ing a Certificate, as defined in the Custody Agreement, and
the Custodian shall be entitled to rely upon such advice.
IN WITNESS WHEREOF, I hereunto set my hand in the seal of
DEAN WITTER Diversified Income Trust, as of the 8th day of
April, 1992.
______________________
APPENDIX D
I, Richard P. Lando, an Assistant Vice President with
THE BANK OF NEW YORK do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
APPENDIX E
The following books and records pertaining to Fund shall
be prepared and maintained by the Custodian and shall be the
property of the Fund:
EXHIBIT A
CERTIFICATION
The undersigned, Sheldon Curtis, hereby certifies that
he or she is the duly elected and acting Secretary of Dean
Witter Diversified Income Trust, a Massachusetts business trust
(the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting
duly held on January 23, 1992, at which a quorum was at all
times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of April 8, 1992, (the
"Custody Agreement") is authorized and instructed on a
continuous and ongoing basis to deposit in the Book-Entry
System, as defined in the Custody Agreement, all securi-
ties eligible for deposit therein, regardless of the
Series to which the same are specifically allocated, and
to utilize the Book-Entry System to the extent possible
in connection with its performance thereunder, including,
without limitation, in connection with settlements of
purchases and sales of securities, loans of securities,
and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Dean Witter Diversified Income Trust, as of the 8th day of
April, 1992.
________________________________
[SEAL]
EXHIBIT B
CERTIFICATION
The undersigned, Sheldon Curtis, hereby certifies
that he or she is the duly elected and acting Secretary of
Dean Witter Diversified Income Trust, a Massachusetts business trust
(the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting
duly held on January 23, 1992, at which a quorum was at all
times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 199 , (the
"Custody Agreement") is authorized and instructed on a
continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agree-
ment, to the contrary to deposit in The Depository Trust
Company ("DTC"), as a "Depository" as defined in the
Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are
specifically allocated, and to utilize DTC to the extent
possible in connection with its performance thereunder,
including, without limitation, in connection with
settlements of purchases and sales of securities, loans
of securities, and deliveries and returns of securities
collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Dean Witter Diversified Income Trust, as of the 8th day of
April, 1992.
________________________________
[SEAL]
EXHIBIT B-1
CERTIFICATION
The undersigned, Sheldon Curtis, hereby certifies
that he or she is the duly elected and acting Secretary of
Dean Witter Diversified Income Trust, a Massachusetts business trust
(the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting
duly held on January 23, 1992, at which a quorum was at all
times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of April 8, 1992 (the
"Custody Agreement") is authorized and instructed on a
continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agree-
ment, to the contrary to deposit in the Participants
Trust Company as a Depository, as defined in the Custody
Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are
specifically allocated, and to utilize the Participants
Trust Company to the extent possible in connection with
its performance thereunder, including, without limita-
tion, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries
and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Dean Witter Diversified Income Trust, as of the 8th day of
April, 1992.
___________________________________
[SEAL]
EXHIBIT C
CERTIFICATION
The undersigned, Sheldon Curtis, hereby certifies
that he or she is the duly elected and acting Secretary of
Dean Witter Diversified Income Trust, a Massachusetts business trust
(the "Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting
duly held on January 23, 1992, at which a quorum was at all
times present and that such resolution has not been modified
or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of April 8, 1992, (the
"Custody Agreement") is authorized and instructed on a
continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agree-
ment, to the contrary, to accept, utilize and act with
respect to Clearing Member confirmations for Options and
transaction in Options, regardless of the Series to which
the same are specifically allocated, as such terms are
defined in the Custody Agreement, as provided in the
Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Dean Witter Diversified Income Trust, as of the 8th day of
April, 1992.
______________________________________
[SEAL]
<PAGE>
Exhibit 9
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a Delaware
corporation (herein referred to as "DWS").
WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement")
with certain investment companies as set forth on Schedule A (each such
investment company being herein referred to as a "Fund" and, collectively, as
the "Funds") pursuant to which InterCapital is to perform, or supervise the
performance of, among other services, administrative services for the Funds
(and, in the case of Funds with multiple portfolios, the Series or Portfolios
of the Funds (such Series and Portfolio being herein individually referred to
as "a Series" and, collectively, as "the Series"));
WHEREAS, InterCapital desires to retain DWS to perform the administrative
services as described below; and
WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DWS agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, DWS
shall (i) administer the Fund's business affairs and supervise the overall
day-to-day operations of the Fund (other than rendering investment advice);
(ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts
and other records required under the Investment Company Act of 1940, as
amended (the "Act"), the notification to the Fund and InterCapital of
available funds for investment, the reconciliation of account information and
balances among the Fund's custodian, transfer agent and dividend disbursing
agent and InterCapital, and the calculation of the net asset value of the
Fund's shares; (iii) provide the Fund with the services of persons competent
to perform such supervisory, administrative and clerical functions as are
necessary to provide effective operation of the Fund; (iv) oversee the
performance of administrative and professional services rendered to the Fund
by others, including its custodian, transfer agent and dividend disbursing
agent, as well as accounting, auditing and other services; (v) provide the
Fund with adequate general office space and facilities; (vi) assist in the
preparation and the printing of the periodic updating of the Fund's
registration statement and prospectus (and, in the case of an open-end Fund,
the statement of additional information), tax returns, proxy statements, and
reports to its shareholders and the Securities and Exchange Commission; and
(vii) monitor the compliance of the Fund's investment policies and
restrictions.
In the event that InterCapital enters into an Investment Management
Agreement with another investment company, and wishes to retain DWS to
perform administrative services hereunder, it shall notify DWS in writing. If
DWS is willing to render such services, it shall notify InterCapital in
writing, whereupon such other Fund shall become a Fund as defined herein.
2. DWS shall, at its own expense, maintain such staff and employ or retain
such personnel and consult with such other persons as it shall from time to
time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of DWS shall be deemed to include officers
of DWS and persons employed or otherwise retained by DWS (including officers
and employees of InterCapital, with the consent of InterCapital) to furnish
services, statistical and other factual data, information with respect to
technical and scientific developments, and such other information, advice and
assistance as DWS may desire. DWS shall maintain each Fund's records and
books of account (other than those maintained by the Fund's transfer agent,
registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, DWS
shall surrender to InterCapital or to the Fund such of the books and records
so requested.
3. InterCapital will, from time to time, furnish or otherwise make
available to DWS such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as DWS may
reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation
or request of the Board of Directors/Trustees of the Fund.
1
<PAGE>
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or weekly (in the case of
a closed-end Fund) by applying the annual rate or rates set forth on Schedule
B to the net assets of each Fund. Except as hereinafter set forth, (i) in the
case of an open-end Fund, compensation under this Agreement shall be
calculated by applying 1/365th of the annual rate or rates to the Fund's or
the Series' daily net assets determined as of the close of business on that
day or the last previous business day and (ii) in the case of a closed-end
Fund, compensation under this Agreement shall be calculated by applying the
annual rate or rates to the Fund's average weekly net assets determined as of
the close of the last business day of each week. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before
the last day of a month, compensation for that part of the month this
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fees as set forth on Schedule B. Subject to the provisions
of paragraph 5 hereof, payment of DWS' compensation for the preceding month
shall be made as promptly as possible after completion of the computations
contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to InterCapital pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof
imposed by state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, or, in the case of
InterCapital Income Securities Inc. or Dean Witter Variable Investment Series
or any Series thereof, the expense limitation specified in the Fund's
Investment Management Agreement, the fee payable hereunder shall be reduced
on a pro rata basis in the same proportion as the fee payable by the Fund
under the Investment Management Agreement is reduced.
6. DWS shall bear the cost of rendering the administrative services to be
performed by it under this Agreement, and shall, at its own expense, pay the
compensation of the officers and employees, if any, of the Fund employed by
DWS, and such clerical help and bookkeeping services as DWS shall reasonably
require in performing its duties hereunder.
7. DWS will use its best efforts in the performance of administrative
activitives on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, DWS shall not be liable to the Fund or any of its
investors for any error of judgment or mistake of law or for any act or
omission by DWS or for any losses sustained by the Fund or its investors. It
is understood that, subject to the terms and conditions of the Investment
Management Agreement between each Fund and InterCapital, InterCapital shall
retain ultimate responsibility for all services to be performed hereunder by
DWS. DWS shall indemnify InterCapital and hold it harmless from any liability
that InterCapital may incur arising out of any act or failure to act by DWS
in carrying out its responsibilities hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person
controlling, controlled by or under common control with DWS, and that DWS and
any person controlling, controlled by or under common control with DWS may
have an interest in the Fund. It is also understood that DWS and any
affiliated persons thereof or any persons controlling, controlled by or under
common control with DWS have and may have advisory, management,
administration service or other contracts with other organizations and
persons, and may have other interests and businesses, and further may
purchase, sell or trade any securities or commodities for their own accounts
or for the account of others for whom they may be acting.
9. This Agreement shall continue until April 30, 1995, and thereafter
shall continue automatically for successive periods of one year unless
terminated by either party by written notice delivered to the other party
within 30 days of the expiration of the then-existing period. Notwithstanding
the foregoing, this Agreement may be terminated at any time, by either party
on 30 days' written notice delivered to the other party. In the event that
the Investment Management Agreement between any Fund and InterCapital is
terminated, this Agreement will automatically terminate with respect to such
Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
2
<PAGE>
11. This Agreement may be assigned by either party with the written
consent of the other party.
12. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By: .........................
Attest:
...........................................
DEAN WITTER SERVICES COMPANY INC.
By: .............................
Attest:
..........................................
3
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
AT APRIL 17, 1995
<TABLE>
<CAPTION>
<S> <C>
OPEN-END FUNDS
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter American Value Fund
6. Dean Witter Balanced Growth Fund
7. Dean Witter Balanced Income Fund
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter California Tax-Free Income Fund
10. Dean Witter Capital Growth Securities
11. Dean Witter Convertible Securities Trust
12. Dean Witter Developing Growth Securities Trust
13. Dean Witter Diversified Income Trust
14. Dean Witter Dividend Growth Securities Inc.
15. Dean Witter European Growth Fund Inc.
16. Dean Witter Federal Securities Trust
17. Dean Witter Global Asset Allocation Fund
18. Dean Witter Global Dividend Growth Securities
19. Dean Witter Global Short-Term Income Fund Inc.
20. Dean Witter Global Utilities Fund
21. Dean Witter Health Sciences Trust
22. Dean Witter High Income Securities
23. Dean Witter High Yield Securities Inc.
24. Dean Witter Intermediate Income Securities
25. Dean Witter International Small Cap Fund
26. Dean Witter Limited Term Municipal Trust
27. Dean Witter Liquid Asset Fund Inc.
28. Dean Witter Managed Assets Trust
29. Dean Witter Mid-Cap Growth Fund
30. Dean Witter Multi-State Municipal Series Trust
31. Dean Witter National Municipal Trust
32. Dean Witter Natural Resource Development Securities Inc.
33. Dean Witter New York Municipal Money Market Trust
34. Dean Witter New York Tax-Free Income Fund
35. Dean Witter Pacific Growth Fund Inc.
36. Dean Witter Precious Metals and Minerals Trust
37. Dean Witter Premier Income Trust
38. Dean Witter Retirement Series
39. Dean Witter Select Dimensions Series
40. Dean Witter Select Municipal Reinvestment Fund
41. Dean Witter Short-Term Bond Fund
42. Dean Witter Short-Term U.S. Treasury Trust
43. Dean Witter Strategist Fund
44. Dean Witter Tax-Exempt Securities Trust
45. Dean Witter Tax-Free Daily Income Trust
46. Dean Witter U.S. Government Money Market Trust
47. Dean Witter U.S. Government Securities Trust
48. Dean Witter Utilities Fund
49. Dean Witter Value-Added Market Series
50. Dean Witter Variable Investment Series
51. Dean Witter World Wide Income Trust
52. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
53. High Income Advantage Trust
54. High Income Advantage Trust II
55. High Income Advantage Trust III
56. InterCapital Income Securities Inc.
57. Dean Witter Government Income Trust
58. InterCapital Insured Municipal Bond Trust
59. InterCapital Insured Municipal Trust
60. InterCapital Insured Municipal Income Trust
61. InterCapital California Insured Municipal Income Trust
62. InterCapital Insured Municipal Securities
63. InterCapital Insured California Municipal Securities
64. InterCapital Quality Municipal Investment Trust
65. InterCapital Quality Municipal Income Trust
66. InterCapital Quality Municipal Securities
67. InterCapital California Quality Municipal Securities
68. InterCapital New York Quality Municipal Securities
</TABLE>
4
<PAGE>
SCHEDULE B
DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES--APRIL 17, 1995
Monthly compensation calculated daily by applying the following annual
rates to a fund's net assets:
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
<S> <C>
Dean Witter Balanced Income Fund 0.60% to the net assets.
Dean Witter California Tax-Free 0.055% of the portion of daily net assets not
Income Fund exceeding $500 million; 0.0525% of the portion
exceeding $500 million but not exceeding $750
million; 0.050% of the portion exceeding $750
million but not exceeding $1 billion; and 0.0475%
of the portion of the daily net assets exceeding
$1 billion.
Dean Witter Convertible 0.060% of the portion of the daily net assets
Securities Securities Trust not exceeding $750 million; .055% of the portion
of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.050% of the portion
of the daily net assets of the exceeding $1 billion
but not exceeding $1.5 billion; 0.0475% of the
portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.045% of
the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; and
0.0425% of the portion of the daily net assets
exceeding $3 billion.
Dean Witter Diversified 0.040% of the net assets.
Income Trust
Dean Witter Federal Securities 0.055% of the portion of the daily net assets
Trust not exceeding $1 billion; 0.0525% of the portion
of the daily net assets exceeding $1 billion but
not exceeding $1.5 billion; 0.050% of the portion
of the daily net assets exceeding $1.5 billion
but not exceeding $2 billion; 0.0475% of the
portion of the daily net assets exceeding $2
billion but not exceeding $2.5 billion; 0.045%
of the portion of daily net assets exceeding $2.5
billion but not exceeding $5 billion; 0.0425%
of the portion of the daily net assets exceeding
$5 billion but not exceeding $7.5 billion; 0.040%
of the portion of the daily net assets exceeding
$7.5 billion but not exceeding $10 billion;
0.0375% of the portion of the daily net assets
exceeding $10 billion but not exceeding $12.5
billion; and 0.035% of the portion of the daily
net assets exceeding $12.5 billion.
Dean Witter Global Short-Term 0.055% of the portion of the daily net assets
Income Fund not exceeding $500 million; and 0.050% of the
portion of the daily net assets exceeding $500
million.
Dean Witter High Income 0.050% to the net assets.
Securities
Dean Witter High Yield 0.050% of the portion of the daily net assets
Securities Inc. not exceeding $500 million; 0.0425% of the portion
of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.0375% of the
portion of
</TABLE>
B-1
<TABLE>
<CAPTION>
<S> <C>
the daily net assets exceeding $750
million but not exceeding $1 billion;
0.035% of the portion of the daily net
assets exceeding $1 billion but not
exceeding $2 billion; 0.0325% of the
portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; and 0.030%
of the portion of daily net assets exceeding $3 billion.
Dean Witter Intermediate 0.060% of the portion of the daily net assets
Income Securities not exceeding $500 million; 0.050% of the portion
of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.040% of the
portion of the daily net assets exceeding $750
million but not exceeding $1 billion; and 0.030%
of the portion of the daily net assets exceeding
$1 billion.
Dean Witter Limited Term 0.050% to the net assets.
Municipal Trust
Dean Witter Multi-State Municipal 0.035% to the net assets.
Series Trust (10)
Dean Witter National 0.035% to the net assets.
Municipal Trust
Dean Witter New York Tax-Free 0.055% to the net assets not exceeding $500 million
Income Fund and 0.0525% of the net assets exceeding $500
million.
Dean Witter Premier 0.050% to the net assets.
Income Trust
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities
Trust
Dean Witter Select Dimensions 0.65% to the net assets.
Series-North American
Government Securities
Portfolio
Dean Witter Short-Term 0.070% to the net assets.
Bond Fund
Dean Witter Short-Term U.S. 0.035% to the net assets.
Treasury Trust
Dean Witter Tax-Exempt 0.050% of the portion of the daily net assets
Securities Trust not exceeding $500 million; 0.0425% of the portion
of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750
million but not exceeding $1 billion; and 0.035%
of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.25 billion; .0325%
of the portion of the daily net assets exceeding
$1.25 billion.
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dean Witter U.S. Government 0.050% of the portion of such daily net assets
Securities Trust not exceeding $1 billion; 0.0475% of the portion
of such daily net assets exceeding $1 billion
but not exceeding $1.5 billion; 0.045% of the
portion of such daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.0425%
of the portion of such daily net assets exceeding
$2 billion but not exceeding $2.5 billion; 0.040%
of that portion of such daily net assets exceeding
$2.5 billion but not exceeding $5 billion; 0.0375%
of that portion of such daily net assets exceeding
$5 billion but not exceeding $7.5 billion; 0.035%
of that portion of such daily net assets exceeding
$7.5 billion but not exceeding $10 billion;
0.0325% of that portion of such daily net assets
exceeding $10 billion but not exceeding $12.5
billion; and 0.030% of that portion of such daily
net assets exceeding $12.5 billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-High Yield
Dean Witter Variable Investment 0.050% to the net assets.
Series-Quality Income
Dean Witter World Wide Income 0.075% of the daily net assets up to $250 million;
Trust 0.060% of the portion of the daily net assets
exceeding $250 million but not exceeding $500
million; 0.050% of the portion of the daily net
assets of the exceeding $500 million but not
exceeding $750 milliion; 0.040% of the portion
of the daily net assets exceeding $750 million
but not exceeding $1 billion; and 0.030% of the
daily net assets exceeding $1 billion.
Dean Witter Select Municipal 0.050% to the net assets.
Reinvestment Fund
EQUITY FUNDS
Dean Witter American Value 0.0625% of the portion of the daily net assets
Fund not exceeding $250 million and 0.050% of the
portion of the daily net assets exceeding $250
million.
Dean Witter Balanced 0.60% to the net assets.
Growth Fund
Dean Witter Capital Growth 0.065% to the portion of daily net assets not
Securities exceeding $500 million; 0.055% of the portion
exceeding $500 million but not exceeding $1
billion; 0.050% of the portion exceeding $1
billion but not exceeding $1.5 billion; and
0.0475% of the net assets exceeding $1.5 billion.
Dean Witter Developing Growth 0.050 of the portion of daily net assets not
Securities Trust exceeding $500 million; and 0.0475% of the portion
of daily net assets exceeding $500 million.
Dean Witter Dividend Growth 0.0625% of the portion of the daily net assets
Securities Inc. not exceeding $250 million; 0.050% of the portion
exceeding $250 million but not exceeding $1
billion; 0.0475% of the portion of daily net assets
exceeding $1 billion but not exceeding $2 billion;
0.045% of the portion of daily net assets exceeding
$2 billion but not exceeding $3 billion; 0.0425%
of the portion of daily net assets exceeding $3
billion but not exceeding $4 billion; 0.040% of
the portion of daily net assets exceeding $4
billion but not exceeding $5 billion; 0.0375%
of the portion of the daily net assets exceeding
$5 billion but not exceeding $6 billion; 0.035%
of the portion of the daily net assets exceeding
$6 billion but not exceeding $8 billion; and
0.0325% of the portion of the daily net assets
exceeding $8 billion.
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dean Witter European Growth 0.060% of the portion of daily net assets not
Fund Inc. exceeding $500 million; and 0.057% of the portion
of daily net assets exceeding $500 million.
Dean Witter Global Asset 1.0% to the net assets.
Allocation Fund
Dean Witter Global Dividend 0.075% to the net assets.
Growth Securities
Dean Witter Global Utilities Fund 0.065% to the net assets.
Dean Witter Health Sciences Trust 0.10% to the net assets.
Dean Witter International 0.075% to the net assets.
Small Cap Fund
Dean Witter Managed Assets Trust 0.060% to the daily net assets not exceeding $500
million and 0.055% to the daily net assets
exceeding $500 million.
Dean Witter Mid-Cap Growth Fund 0.75% to the net assets.
Dean Witter Natural Resource 0.0625% of the portion of the daily net assets
Development Securities Inc. not exceeding $250 million and 0.050% of the
portion of the daily net assets exceeding $250
million.
Dean Witter Pacific Growth 0.060% of the portion of daily net assets not
Fund Inc. exceeding $1 billion; and 0.057% of the portion
of daily net assets exceeding $1 billion.
Dean Witter Precious Metals 0.080% to the net assets.
and Minerals Trust
Dean Witter Retirement Series 0.085% to the net assets.
American Value
Dean Witter Retirement Series 0.085% to the net assets.
Capital Growth
Dean Witter Retirement Series 0.075% to the net assets.
Dividend Growth
Dean Witter Retirement Series 0.10% to the net assets.
Global Equity
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income Securities
Dean Witter Retirement Series 0.050% to the net assets.
Liquid Asset
Dean Witter Retirement Series 0.085% to the net assets.
Strategist
Dean Witter Retirement Series 0.050% to the net assets.
U.S. Government Money Market
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities
Dean Witter Retirement Series 0.075% to the net assets.
Utilities
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dean Witter Retirement Series 0.050% to the net assets.
Value Added
Dean Witter Select Dimensions
Series-
American Value Portfolio 0.625% to the net assets.
Balanced Portfolio 0.75% to the net assets.
Core Equity Portfolio 0.85% to the net assets.
Developing Growth Portfolio 0.50% to the net assets.
Diversified Income Portfolio 0.40% to the net assets.
Dividend Growth Portfolio 0.625% to the net assets.
Emerging Markets Portfolio 1.25% to the net assets.
Global Equity Portfolio 1.0% to the net assets.
Utilities Portfolio 0.65% to the net assets.
Value-Added Market Portfolio 0.50% to the net assets.
Dean Witter Strategist Fund 0.060% of the portion of daily net assets not
exceeding $500 million; 0.055% of the portion
of the daily net assets exceeding $500 million
but not exceeding $1 billion; and 0.050% of the
portion of the daily net assets exceeding $1
billion.
Dean Witter Utilities Fund 0.065% of the portion of daily net assets not
exceeding $500 million; 0.055% of the portion
exceeding $500 million but not exceeding $1
billion; 0.0525% of the portion exceeding $1
billion but not exceeding $1.5 billion; 0.050%
of the portion exceeding $1.5 billion but not
exceeding $2.5 billion; 0.0475% of the portion
exceeding $2.5 billion but not exceeding $3.5
billion; 0.045% of the portion of the daily net
assets exceeding $3.5 but not exceeding $5
billion; and 0.0425% of the portion of daily net
assets exceeding $5 billion.
Dean Witter Value-Added Market 0.050% of the portion of daily net assets not
Series exceeding $500 million; and 0.45% of the portion
of daily net assets exceeding $500 million.
Dean Witter Variable Investment 0.065% to the net assets.
Series-Capital Growth
Dean Witter Variable Investment 0.0625% of the portion of daily net assets not
Series-Dividend Growth exceeding $500 million; and 0.050% of the portion
of daily net assets exceeding $500 million.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Equity
Dean Witter Variable Investment 0.060% to the net assets.
Series-European Growth
Dean Witter Variable Investment 0.050% to the net assets.
Series-Managed
Dean Witter Variable Investment 0.065% of the portion of daily net assets exceeding
Series-Utilities $500 million and 0.055% of the portion of daily
net assets exceeding $500 million.
Dean Witter World Wide 0.055% of the portion of daily net assets not
Investment Trust exceeding $500 million; and 0.05225% of the
portion of daily net assets exceeding $500
million.
</TABLE>
B-5
<PAGE>
MONEY MARKET FUNDS
<TABLE>
<CAPTION>
<S> <C>
Active Assets Account (4) 0.050% of the portion of the daily net assets
not exceeding $500 million; 0.0425% of the portion
of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750
million but not exceeding $1 billion; 0.035% of
the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030%
of the portion of the daily net assets exceeding
$2 billion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and
0.025% of the portion of the daily net assets
exceeding $3 billion.
Dean Witter California Tax-Free 0.050% of the portion of the daily net assets
Daily Income Trust not exceeding $500 million; 0.0425% of the portion
of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750
million but not exceeding $1 billion; 0.035% of
the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030%
of the portion of the daily net assets exceeding
$2 billion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and
0.025% of the portion of the daily net assets
exceeding $3 billion.
Dean Witter Liquid Asset 0.050% of the portion of the daily net assets
Fund Inc. not exceeding $500 million; 0.0425% of the portion
of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750
million but not exceeding $1 billion; 0.035% of
the portion of the daily net assets exceeding
$1 billion but not exceeding $1.35 billion;
0.0325% of the portion of the daily net assets
exceeding $1.35 billion but not exceeding $1.75
billion; 0.030% of the portion of the daily net
assets exceeding $1.75 billion but not exceeding
$2.15 billion; 0.0275% of the portion of the daily
net assets exceeding $2.15 billion but not
exceeding $2.5 billion; 0.025% of the portion
of the daily net assets exceeding $2.5 billion
but not exceeding $15 billion; 0.0249% of the
portion of the daily net assets exceeding $15
billion but not exceeding $17.5 billion; and
0.0248% of the portion of the daily net assets
exceeding $17.5 billion.
Dean Witter New York Municipal 0.050% of the portion of the daily net assets
Money Market Trust not exceeding $500 million; 0.0425% of the portion
of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750
million but not exceeding $1 billion; 0.035% of
the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030%
of the portion of the daily net assets exceeding
$2 billion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and
0.025% of the portion of the daily net assets
exceeding $3 billion.
Dean Witter Retirement Series 0.050% of the net assets.
Liquid Assets
Dean Witter Retirement Series 0.050% of the net assets.
U.S. Government Money Market
Dean Witter Select Dimensions 0.50% to the net assets.
Series-
Money Market Portfolio
Dean Witter Tax-Free Daily 0.050% of the portion of the daily net assets
Income Trust not exceeding $500 million; 0.0425% of the portion
of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750
million but not exceeding $1 billion; 0.035% of
the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030%
of the portion of the daily net assets exceeding
$2 billion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and
0.025% of the portion of the daily net assets
exceeding $3 billion.
Dean Witter U.S. Government 0.050% of the portion of the daily net assets
Money Market Trust not exceeding $500 million; 0.0425% of the portion
of the daily net assets exceeding $500 million
but not exceeding $750 million; 0.0375% of the
portion of the daily net assets exceeding $750
million but not exceeding $1 billion; 0.035% of
the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.0325%
of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030%
of the portion of the daily net assets exceeding
$2 billion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and
0.025% of the portion of the daily net assets
exceeding $3 billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Money Market
Monthly compensation calculated weekly by applying the following annual rates
to the weekly net assets.
CLOSED-END FUNDS
Dean Witter Government Income 0.060% to the average weekly net assets.
Trust
High Income Advantage Trust 0.075% of the portion of the average weekly net
assets not exceeding $250 million; 0.060% of the
portion of average weekly net assets exceeding
$250 million and not exceeding $500 million;
0.050% of the portion of average weekly net assets
exceeding $500 million and not exceeding $750
million; 0.040% of the portion of average weekly
net assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the portion
of average weekly net assets exceeding $1 billion.
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
High Income Advantage Trust II 0.075% of the portion of the average weekly net
assets not exceeding $250 million; 0.060% of the
portion of average weekly net assets exceeding
$250 million and not exceeding $500 million;
0.050% of the portion of average weekly net assets
exceeding $500 million and not exceeding $750
million; 0.040% of the portion of average weekly
net assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the portion
of average weekly net assets exceeding $1 billion.
High Income Advantage Trust III 0.075% of the portion of the average weekly net
assets not exceeding $250 million; 0.060% of the
portion of average weekly net assets exceeding
$250 million and not exceeding $500 million;
0.050% of the portion of average weekly net assets
exceeding $500 million and not exceeding $750
million; 0.040% of the portion of the average
weekly net assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the portion
of average weekly net assets exceeding $1 billion.
InterCapital Income Securities 0.050% to the average weekly net assets.
Inc.
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Bond Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital California Insured 0.035% to the average weekly net assets.
Municipal Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Investment Trust
InterCapital New York Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Securities
InterCapital California Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Securities
InterCapital Insured California 0.035% to the average weekly net assets.
Municipal Securities
</TABLE>
B-8
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
December 12,1995, relating to the financial statements and financial highlights
of Dean Witter Diversified Income Trust, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Financial Highlights" in such
Prospectus and to the references to us under the headings "Independent
Accountants" and "Experts" in such Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
January 22, 1996
Exhibit 15
AMENDED AND RESTATED PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
OF
DEAN WITTER DIVERSIFIED INCOME TRUST
Whereas, Dean Witter Diversified Income Trust (the "Fund") is
engaged in business as an open-end management investment company
and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
Whereas, April 28, 1993, the Fund most recently amended and
restated a Plan of Distribution pursuant to Rule 12b-1 under the
Act which had initially been adopted on April 8, 1992, and the
Trustees then determined that there was a reasonable likelihood
that adoption of the Plan of Distribution, as then amended and
restated, would benefit the Fund and its shareholders; and
Whereas, the Trustees believe that continuation of said Plan
of Distribution, as amended and restated herein, is reasonably
likely to continue to benefit the Fund and its shareholders; and
Whereas, on April 8, 1992, the Fund and Dean Witter Reynolds
Inc. ("DWR") entered into a Distribution Agreement pursuant to
which the Fund employed DWR as distributor of the Fund's shares;
and
Whereas, on January 4, 1993, the Fund and DWR substituted
Dean Witter Distributors Inc. (the "Distributor") in the place of
DWR as distributor of the Fund's shares; and
Whereas, the Fund, DWR and the Distributor intend that DWR
will continue to promote the sale of Fund shares and provide
personal services to Fund shareholders with respect to their
holdings of Fund shares; and
Whereas, the Fund and the Distributor entered into a separate
Distribution Agreement dated as of June 30, 1993, pursuant to
which the Fund has employed the Distributor in such capacity
during the continuous offering of shares of the Fund.
Now, Therefore, the Fund hereby amends the Plan of
Distribution previously adopted and amended and restated, and the
Distributor hereby agrees to the terms of said Plan of
Distribution (the "Plan"), as amended herein, in accordance with
Rule 12b-1 under the Act on the following terms and conditions:
1. The Fund shall pay to the Distributor, as the
distributor of securities of which the Fund is the issuer,
compensation for distribution of its shares at the rate of the
lesser of (i) 0.85% per annum of the average daily aggregate sales
of the shares of the Fund since its inception (not including
reinvestment of dividends and capital gains distributions from the
Fund) less the average daily aggregate net asset value of the
shares of the Fund redeemed since the Fund's inception upon which
a contingent deferred sales charge has been imposed or upon which
such charge has been waived, or (ii) 0.85% per annum of the Fund's
average daily net assets. Such compensation shall be calculated
and accrued daily and paid monthly or at such other intervals as
the Trustees shall determine. The Distributor may direct that all
or any part of the amounts receivable by it under this Plan be
paid directly to DWR, its affiliates or other broker-dealers who
provide distribution and shareholder services. All payments made
hereunder pursuant to the Plan shall be in accordance with the
terms and limitations of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1 of this Plan shall
be paid for services of the Distributor, DWR, its affiliates and
other broker-dealers it may select in connection with the
distribution of the Fund's shares, including personal services to
shareholders with respect to their holdings of Fund shares, and
may be spent by the Distributor, DWR, its affiliates and such
broker-dealers on any activities or expenses related to the
distribution of the Fund's shares or services to shareholders,
including, but not limited to: compensation to, and expenses of,
account executives or other employees of the Distributor, DWR, its
affiliates or other broker-dealers; overhead and other branch
office distribution-related expenses and telephone expenses of
persons who engage in or support distribution of shares or who
provide personal services to shareholders; printing of
prospectuses and reports for other than existing shareholders;
preparation, printing and distribution of sales literature and
advertising materials and opportunity costs in incurring the
foregoing expenses (which may be calculated as a carrying charge
on the excess of the distribution expenses incurred by the
Distributor, DWR, its affiliates or other broker-dealers over
distribution revenues received by them, such excess being
hereinafter referred to as "carryover expenses"). The overhead and
other branch office distribution-related expenses referred to in
this paragraph 2 may include: (a) the expenses of operating the
branch offices of the Distributor or other broker-dealers,
including DWR, in connection
1
with the sale of Fund shares, including lease costs, the
salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of
stationery and supplies; (b) the costs of client sales seminars;
(c) travel expenses of mutual fund sales coordinators to promote
the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund sales. Payments may also be made with respect to
distribution expenses incurred in connection with the distribution
of shares, including personal services to shareholders with
respect to holdings of such shares, of an investment company whose
assets are acquired by the Fund in a tax-free reorganization,
provided that carryover expenses as a percentage of Fund assets
will not be materially increased thereby.
3. This Plan, as amended and restated, shall not take
effect until it has been approved, together with any related
agreements, by votes of a majority of the Board of Trustees of the
Fund and of the Trustees who are not "interested persons" of the
Fund (as defined in the Act) and have no direct or indirect
financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Trustees"), cast in person at a
meeting (or meetings) called for the purpose of voting on this
Plan and such related agreements.
4. This Plan shall continue in effect until April 30,
1996, and from year to year thereafter, provided such continuance
is specifically approved at least annually in the manner provided
for approval of this Plan in paragraph 3 hereof.
5. The Distributor shall provide to the Trustees of the
Fund and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made. In this regard, the Trustees shall request
the Distributor to specify such items of expenses as the Trustees
deem appropriate. The Trustees shall consider such items as they
deem relevant in making the determinations required by paragraph 4
hereof.
6. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees, or by vote of a majority of
the outstanding voting securities of the Fund. In the event of any
such termination or in the event of nonrenewal, the Fund shall
have no obligation to pay expenses which have been incurred by the
Distributor, DWR, its affiliates or other broker-dealers in excess
of payments made by the Fund pursuant to this Plan. However, this
shall not preclude consideration by the Trustees of the manner in
which such excess expenses shall be treated.
7. This Plan may not be amended to increase materially
the amount the Fund may spend for distribution provided in
paragraph 1 hereof unless such amendment is approved by a vote of
at least a majority (as defined in the Act) of the outstanding
voting securities of the Fund, and no material amendment to the
Plan shall be made unless approved in the manner provided for
approval in paragraph 3 hereof.
8. While this Plan is in effect, the selection and
nomination of Trustees who are not interested persons (as defined
in the Act) of the Fund shall be committed to the discretion of
the Trustees who are not interested persons.
9. The Fund shall preserve copies of this Plan and any
related agreements and all reports made pursuant to paragraph 5
hereof, for a period of not less than six years from the date of
this Plan, any such agreement or any such report, as the case may
be, the first two years in an easily accessible place.
10. The Declaration of Trust establishing Dean Witter
Diversified Income Trust, dated December 20, 1991, a copy of
which, together with all amendments thereto (the "Declaration"),
is on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name Dean Witter Diversified
Income Trust refers to the Trustees under the Declaration
collectively as Trustees but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of Dean Witter
Diversified Income Trust shall be held to any personal liability,
nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise, in
connection with the affairs of said Dean Witter Diversified Income
Trust, but the Trust Estate only shall be liable.
2
In Witness Whereof, the Fund, the Distributor and DWR have
executed this amended and restated Plan of Distribution as of the
day and year set forth below in New York, New York.
Date: April 8, 1992
As amended on January 4, 1993,
April 28, 1993 and October 26, 1995
Dean Witter Diversified Income Trust
By
- ------------------------------------
Attest:
- ------------------------------------
Dean Witter Distributors Inc.
By
- ------------------------------------
Attest:
- ------------------------------------
Dean Witter Reynolds Inc.
By
- ------------------------------------
Attest:
- ------------------------------------
Exhibit 16
<PAGE>
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
DW DIVERSIFIED INCOME TRUST
30 day Yield as of 10/31/95
6
YIELD = 2{[((a-b)/c * d) + 1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the
period
6
YIELD = 2{[((4,181,561.37-700,893.27)/55,740,905.845*9.54)+1] -1}
= 7.984209%
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DIVERSIFIED INCOME TRUST
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL TOTAL RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF AGGREGATE NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-95 TOTAL RETURN YEARS - n TOTAL RETURN - T
- ------------ ----------- ------------ ---------- -----------------
<S> <C> <C> <C> <C>
31-Oct-94 $1,057.60 5.76% 1.00 5.76%
09-Apr-92 $1,235.80 23.58% 3.56 6.13%
</TABLE>
(B) AVERAGE ANNUAL TOTAL RETURNS WITHOUT DEDUCTION FOR APPLICABLE
SALES CHARGE (NON STANDARD COMPUTATIONS)
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL TOTAL RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-95 RETURN - TR YEARS - n TOTAL RETURN - t
- ------------ ----------- ----------- --------- ----------------
<S> <C> <C> <C> <C>
31-Oct-94 $1,107.60 10.76% 1.00 10.76%
09-Apr-92 $1,255.10 25.51% 3.56 6.59%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
$10,000 TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
09-Apr-92 25.51 $12,551 $62,755 $125,510
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 555,108,069
<INVESTMENTS-AT-VALUE> 549,932,489
<RECEIVABLES> 20,496,954
<ASSETS-OTHER> 3,196,516
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 573,625,959
<PAYABLE-FOR-SECURITIES> 23,173,636
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,908,630
<TOTAL-LIABILITIES> 31,082,266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 554,996,010
<SHARES-COMMON-STOCK> 56,403,092
<SHARES-COMMON-PRIOR> 43,443,638
<ACCUMULATED-NII-CURRENT> 3,816,429
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,266,876)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7,001,870)
<NET-ASSETS> 542,543,693
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 45,680,948
<OTHER-INCOME> 0
<EXPENSES-NET> 6,763,507
<NET-INVESTMENT-INCOME> 38,917,441
<REALIZED-GAINS-CURRENT> (6,654,035)
<APPREC-INCREASE-CURRENT> 15,624,921
<NET-CHANGE-FROM-OPS> 47,888,327
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (35,658,766)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,219,776
<NUMBER-OF-SHARES-REDEEMED> (9,852,773)
<SHARES-REINVESTED> 1,592,451
<NET-CHANGE-IN-ASSETS> 135,505,295
<ACCUMULATED-NII-PRIOR> 998,743
<ACCUMULATED-GAINS-PRIOR> (3,130,557)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,875,972
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,763,507
<AVERAGE-NET-ASSETS> 468,992,858
<PER-SHARE-NAV-BEGIN> 9.37
<PER-SHARE-NII> .77
<PER-SHARE-GAIN-APPREC> .20
<PER-SHARE-DIVIDEND> (.72)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.62
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
