<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998
REGISTRATION NOS.: 33-46049
811-6572
===============================================================================
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. 6 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
AMENDMENT NO. 7 [X]
---------
TCW/DW NORTH AMERICAN GOVERNMENT 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
BARRY FINK, 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 effective date of the registration statement.
---------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
X immediately upon filing pursuant to paragraph (b)
-----
on (date) pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a)
-----
on (date) pursuant to paragraph (a) of rule 485.
-----
---------
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
===============================================================================
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT 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. .......... Performance Information
4. .......... Investment Objective and Policies; The Fund and its
Management; Cover Page; Investment Restrictions;
Prospectus Summary
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;
Repurchases and Redemptions
8. .......... Repurchases and Redemptions; Shareholder
Services
9. .......... Litigation
</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; Custodian and Transfer
Agent; Independent Accountants
17. .......... Portfolio Transactions and Brokerage
18. .......... Description of Shares
19. .......... Repurchases and Redemptions; Shareholder Services
20. .......... Dividends, Distributions and Taxes
21. .......... The Distributor
22. .......... Performance Information
23. .......... Experts; Statement of Assets and Liabilities
</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
JANUARY 30, 1998
TCW/DW North American Government Income Trust (the "Fund") is an open-end,
non-diversified management investment company whose investment objective is
to earn a high level of current income while maintaining relatively low
volatility of principal. The Fund seeks to achieve its investment objective
by investing primarily in investment grade fixed-income securities issued or
guaranteed by the U.S., Canadian or Mexican governments, or their
subdivisions, or agencies or instrumentalities of any of the foregoing.
Shares of the Fund are not issued, insured or guaranteed, as to value or
yield, by the U.S. or any othergovernment.
Shares of the Fund are sold and redeemed at net asset value. The Fund pays a
distribution fee of up to 0.75% of its average daily net assets in accordance
with a Plan of Distribution pursuant to Rule 12b-1 under the Investment
Company Act of 1940.
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated January 30, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
TCW/DW NORTH AMERICAN
GOVERNMENT INCOME TRUST
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
TABLE OF CONTENTS
Prospectus Summary/ 2
Summary of Fund Expenses/ 4
Financial Highlights/ 5
The Fund and its Management/ 6
Investment Objective and Policies/ 7
Risk Considerations/ 13
Investment Restrictions/ 20
Purchase of Fund Shares/ 21
Shareholder Services/ 23
Repurchases and Redemptions/ 25
Dividends, Distributions and Taxes/ 26
Performance Information/ 27
Additional Information/ 28
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Dean Witter Distributors Inc.
Distributor
<PAGE>
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------------------------------------
THE The Fund is organized as a Massachusetts business trust, and is an
FUND open-end, non-diversified management investment company investing
primarily in investment grade fixed-income securities issued or
guaranteed by the U.S., Canadian or Mexican governments or their
subdivisions, or the agencies or instrumentalities of any of the
foregoing.
- ---------------------------------------------------------------------------------------
SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page 28).
- ---------------------------------------------------------------------------------------
OFFERING The price of the shares offered by this Prospectus is determined
PRICE once daily as of 4:00 p.m., New York time, on each day that the
New York Stock Exchange is open, and is equal to the net asset
value per share (see page 21).
- ---------------------------------------------------------------------------------------
MINIMUM The minimum initial investment is $1,000 ($100 if the account is
PURCHASE opened through EasyInvest (Service Mark) ); minimum subsequent
investment is $100 (see page 21).
- ---------------------------------------------------------------------------------------
INVESTMENT The investment objective of the Fund is to earn a high level of
OBJECTIVE current income while maintaining relatively low volatility of
principal.
- ---------------------------------------------------------------------------------------
MANAGER Dean Witter Services Company Inc. (the "Manager"), a wholly-owned
subsidiary of Dean Witter InterCapital Inc. ("InterCapital"), is
the Fund's manager. The Manager also serves as Manager to thirteen
other investment companies which are advised by TCW Funds
Management, Inc. (the "TCW/DW Funds"). The Manager and
InterCapital serve in various investment management, advisory,
management and administrative capacities to a total of 103
investment companies and other portfolios with assets of
approximately $102.9 billion at December 31, 1997.
- ---------------------------------------------------------------------------------------
ADVISER TCW Funds Management, Inc. (the "Adviser") is the Fund's
investment adviser. In addition to the Fund, the Adviser serves as
investment adviser to thirteen other TCW/DW Funds. As of December
31, 1997, the Adviser and its affiliates had approximately $50
billion under management or committed to management in various
fiduciary or advisory capacities, primarily from institutional
investors.
- ---------------------------------------------------------------------------------------
MANAGEMENT AND The Manager receives a monthly fee at the annual rate of 0.39% of
ADVISORY daily net assets, scaled down on assets over $3 billion. The
FEES Adviser receives a monthly fee at an annual rate of 0.26% of daily
net assets, scaled down on assets over $3 billion (see page 6).
- ---------------------------------------------------------------------------------------
DIVIDENDS AND Dividends are declared and paid monthly. Capital gains
CAPITAL GAINS distributions, if any, are paid at least once a year or are
DISTRIBUTIONS retained for reinvestment by the Fund. Dividends and any capital
gains distributions are automatically invested in additional
shares at net asset value unless the shareholder elects to receive
cash (see page 26).
- -----------------------------------------------------------------------------
</TABLE>
2
<PAGE>
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
DISTRIBUTOR AND The Fund is authorized to reimburse Dean Witter Distributors Inc., the Fund's Distributor, for specific
PLAN OF expenses incurred in promoting the distribution of the Fund's shares, including personal services to
DISTRIBUTION shareholders and maintenance of shareholder accounts, in accordance with a Plan of Distribution pursuant to
Rule 12b-1 under the Investment Company Act of 1940. Reimbursement may in no event exceed an amount equal to
payments at an annual rate of 0.75% of the average daily net assets of the Fund (see page 22).
- --------------------------------------------------------------------------------------------------------------------------
REDEMPTION Shares are redeemable by the shareholder at net asset value. An account may be involuntarily redeemed if
the total value of the account is less than $100 or, if the account was opened through EasyInvest (Service
Mark), if after twelve months the shareholder has invested less than $1,000 in the account (see page 25).
- --------------------------------------------------------------------------------------------------------------------------
SPECIAL The net asset value of the Fund's shares will fluctuate with changes in the market value of its portfolio
RISK securities. A decline in prevailing interest rates will generally increase the value of fixed-income
CONSIDERATIONS securities, while an increase in rates usually reduces the value of those securities. The Fund's yield also
will vary based on the yield of the Fund's portfolio securities. The Fund may invest in mortgage-backed
securities issued in the United States and Canada; these securities have different characteristics than
traditional debt securities, primarily in that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time. Certain derivative mortgage-backed securities
in which the Fund invests are extremely sensitive to changes in interest rates and in prepayment rates on the
underlying mortgage assets, and as a result may be highly volatile (see page 13). The Canadian mortgage-backed
securities market is of recent origin and is less well developed and less liquid than the U.S. market. The Fund
may invest a significant portion of its assets in securities issued and guaranteed by the governments of Canada
and Mexico. It should be recognized that the Canadian and Mexican debt securities in which the Fund will
invest pose different and greater risks than those customarily associated with U.S. debt securities, including
(i) the risks associated with international investments generally, such as fluctuations in foreign currency
exchange rates, (ii) the risks of investing in Canada and Mexico, which have smaller, less liquid debt markets,
such as limited liquidity, price volatility, custodial and settlement issues, and (iii) specific risks
associated with the Mexican economy, including high levels of inflation, large amounts of debt and political and
social uncertainties (see page 14). The Fund is a non-diversified investment company and, as such, is not
subject to the diversification requirements of the Investment Company Act of 1940. As a result, a relatively
high percentage of the Fund's assets may be invested in a limited number of issuers. However, the Fund intends
to continue to qualify as a regulated investment company under the federal income tax laws and, as such,
is subject to the diversification requirements of the Internal Revenue Code (see page 15). In addition,
the Fund may utilize certain investment techniques, including forward foreign currency exchange contracts,
options and futures, and the speculative technique known as leverage through the use of reverse repurchase
agreements and dollar rolls, which entail additional risks (see pages 13-20).
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
3
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The expenses and fees set forth in the table are for
the fiscal year ended October 31, 1997.
Shareholder Transaction Expenses
- --------------------------------
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases................ None
Maximum Sales Charge Imposed on Reinvested Dividends .... None
Deferred Sales Charge.................................... None
Redemption Fees.......................................... None
Exchange Fee............................................. None
</TABLE>
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Management and Advisory Fees .............................. 0.65%
12b-1 Fees*................................................ 0.73%
Other Expenses............................................. 0.27%
Total Fund Operating
Expenses.................................................. 1.65%
</TABLE>
- ------------
* A portion of the 12b-1 fee equal to 0.25% of the Fund's average daily net
assets is characterized as a service fee within the meaning of National
Association of Securities Dealers ("NASD") guidelines (see "Purchase of Fund
Shares").
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Example 1 year 3 years 5 years 10 years
--------- ---------- ----------- ----------- ------------
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: $17 $52 $90 $195
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE MORE OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management" and "Purchase of Fund Shares--Plan of
Distribution" in this Prospectus.
Long-term shareholders of the Fund may pay more in distribution fees than
the economic equivalent of the maximum front-end sales charges permitted by
the NASD.
4
<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 ratios and per share data should be read in
conjunction with the financial statements, notes thereto and the unqualified
report of independent accountants, which are contained in the Statement of
Additional Information. Further information about the performance of the Fund
is contained in the Fund's Annual Report to Shareholders, which may be
obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31, JULY 31, 1992*
----------------------------------------------- THROUGH
1997 1996 1995 1994 1993 OCTOBER 31, 1992
-------- -------- -------- --------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 8.39 $ 8.33 $ 8.89 $10.11 $ 9.96 $10.00
-------- -------- -------- --------- -------- ----------------
Net investment income................... 0.44 0.47 0.69 0.68 0.77 0.18
Net realized and unrealized gain
(loss)................................. 0.19 0.04 (0.59) (1.18) 0.14 (0.05)
-------- -------- -------- --------- -------- ----------------
Total from investment operations ....... 0.63 0.51 0.10 (0.50) 0.91 0.13
-------- -------- -------- --------- -------- ----------------
Less dividends and distributions from:
Net investment income.................. (0.43) (0.45) -- (0.47) (0.76) (0.17)
Net capital gain....................... -- -- -- (0.02) -- --
Paid-in-capital........................ -- -- (0.66) (0.23) -- --
-------- -------- -------- --------- -------- ----------------
Total dividends and distributions ...... (0.43) (0.45) (0.66) (0.72) (0.76) (0.17)
-------- -------- -------- --------- -------- ----------------
Net asset value, end of period.......... $ 8.59 $ 8.39 $ 8.33 $ 8.89 $10.11 $ 9.96
======== ======== ======== ========= ======== ================
TOTAL INVESTMENT RETURN+ ............... 7.80% 6.38% 1.61% (5.06)% 9.35% 1.28%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 1.65% 1.64% 1.59% 1.52% 1.54% 1.80%(2)
Net investment income................... 5.18% 5.71% 8.28% 6.85% 7.78% 8.36%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions . $212 $351 $658 $1,360 $2,986 $762
Portfolio turnover rate................. -- 13% 44% 27% 77% 2%(1)
</TABLE>
- ------------
* Commencement of operations.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
5
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
TCW/DW North American Government Income Trust (the "Fund") is an open-end,
non-diversified management investment company. The Fund is a trust of the
type commonly known as a "Massachusetts business trust" and was organized
under the laws of Massachusetts on February 19, 1992.
Dean Witter Services Company Inc. (the "Manager"), whose address is Two
World Trade Center, New York, New York 10048, is the Fund's Manager. The
Manager is a wholly-owned subsidiary of Dean Witter InterCapital Inc.
("InterCapital"). InterCapital is a wholly-owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co., a preeminent global financial services
firm that maintains leading market positions in each of its three primary
businesses--securities, asset management and credit services.
The Manager acts as manager to thirteen other TCW/DW Funds. The Manager
and InterCapital act in various investment management, advisory, management
and administrative capacities to a total of 103 investment companies,
twenty-nine of which are listed on the New York Stock Exchange, with combined
assets of approximately $98.9 billion as of December 31, 1997. InterCapital
also manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $4 billion at such date.
The Fund has retained the Manager to manage its business affairs,
supervise its overall day-to-day operations (other than providing investment
advice) and provide all administrative services.
TCW Funds Management, Inc. (the "Adviser"), whose address is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017, is the Fund's
investment adviser. The Adviser was organized in 1987 as a wholly-owned
subsidiary of The TCW Group, Inc. ("TCW"), whose subsidiaries, including
Trust Company of the West and TCW Asset Management Company, provide a variety
of trust, investment management and investment advisory services. Robert A.
Day, who is Chairman of the Board of Directors of TCW, may be deemed to be a
control person of the Adviser by virtue of the aggregate ownership of Mr. Day
and his family of more than 25% of the outstanding voting stock of TCW. The
Adviser serves as investment adviser to thirteen other TCW/DW Funds in
addition to the Fund. As of December 31, 1997, the Adviser and its affiliated
companies had approximately $50 billion under man-agement or committed to
management, primarily from institutional investors.
The Fund has retained the Adviser to invest the Fund's assets.
The Fund's Trustees review the various services provided by the Manager
and the Adviser 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 Manager, the Fund pays the
Manager monthly compensation calculated daily by applying the annual rate of
0.39% to the Fund's net assets up to $3 billion, scaled down to 0.36% on
assets over $3 billion. As compensation for its investment advisory services,
the Fund pays the Adviser monthly compensation calculated daily by applying
an annual rate of 0.26% to the Fund's net assets up to $3 billion, scaled
down to 0.24% on assets over $3 billion. For the fiscal year ended October
31, 1997, the Fund accrued total compensation to the Manager and the Adviser
amounting to 0.39% and 0.26%, respectively, of the Fund's average daily net
assets. During that period, the Fund's total expenses amounted to 1.65% of
the Fund's average daily net assets.
6
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is to earn a high level of current
income while maintaining relatively low volatility of principal. This
objective is fundamental and may not be changed without shareholder approval.
There is no assurance that the objective will be achieved.
The Fund seeks to achieve its investment objective by investing under
normal circumstances at least 65% of its total assets in investment grade
fixed-income securities issued or guaranteed by the U.S., Canadian or Mexican
governments or their subdivisions, or the agencies or instrumentalities of
any of the foregoing ("Government Securities"). In the case of the United
States and Canada, a substantial portion of such investments will be fixed
rate and adjustable rate mortgage-backed securities, including collateralized
mortgage obligations ("Mortgage-Backed Securities"). The term investment
grade consists of fixed-income securities rated Baa or higher by Moody's
Investors Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's
Corporation ("S&P") or, if not rated, determined to be of comparable quality
by the Adviser. Investments in securities rated either Baa by Moody's or BBB
by S&P may have speculative characteristics and, therefore, changes in
economic conditions or other circumstances are more likely to weaken their
capacity to make principal and interest payments than would be the case with
investments in securities with higher credit ratings. If a fixed-income
security held by the Fund is rated BBB or Baa and is subsequently downgraded
by a rating agency, the Fund will retain such security in its portfolio until
the Adviser determines that it is practicable to sell the security without
undue market or tax consequences to the Fund. In the event that such
downgraded securities constitute 5% or more of the Fund's total assets, the
Adviser will seek to sell immediately sufficient securities to reduce the
total to below 5%. A description of fixed-income security ratings is
contained in the Appendix to the Statement of Additional Information.
The Fund may invest up to 35% of its total assets in securities which are
not Government Securities, including corporate debt securities and securities
backed by other assets, such as automobile or credit card receivables and
home equity loans ("Asset-Backed Securities"), and money market instruments,
which are short-term (maturities of up to thirteen months) fixed-income
securities, issued by private institutions. Such securities (except for
Eurodollar certificates of deposit) must be issued by U.S., Canadian or
Mexican issuers and (except for money market instruments) must be rated at
least Aa by Moody's or AA by S&P or, if not rated, determined to be of
comparable quality by the Adviser.
The Fund expects that under normal circumstances the market value dollar
weighted average life (or period until the next reset date) of the Fund's
portfolio securities will be no greater than three years. In addition, the
Fund will purchase only Mexican Government Securities with remaining
maturities of one year or less. The Fund seeks to achieve relatively low
volatility by investing in a portfolio of securities which the Adviser
believes will, in the aggregate, be resistant to significant fluctuations in
market value. Although the values of fixed-income securities generally
increase during periods of declining interest rates and decrease during
periods of increasing interest rates, the extent of these fluctuations has
historically generally been smaller for short term securities than for
securities with longer maturities. Conversely, the yield available on shorter
term securities has also historically been lower on average than those
available from longer term securities.
Under normal circumstances the Fund will invest at least 50% of its total
assets in U.S. Government Securities. The Fund will invest no more than 25%
of its total assets in Canadian Government Securities and no more than 25% of
its total assets in Mexican Government Securities. Subject to the foregoing
guidelines, the Adviser will invest the Fund's assets, and allocate its
investments from time to time among U.S., Canadian and Mexican Government
Securities, based on its analysis of market conditions and changes in general
economic conditions in the United States, Canada and Mexico. In such
analysis, the Adviser will consider various factors, including its
expectations
7
<PAGE>
regarding interest rate changes and changes in currency exchange rates among
the U.S. dollar, the Canadian dollar and the Mexican peso, as well as general
market, economic and political factors, to attempt to take advantage of
favorable investment opportunities in each country.
Money market instruments in which the Fund may invest are securities
issued or guaranteed by the U.S. Government (Treasury bills, notes and bonds,
including zero coupon securities); obligations of banks subject to regulation
by the U.S. Government and having total assets of $1 billion or more;
Eurodollar certificates of deposit; obligations of savings banks and savings
and loan associations having total assets of $1 billion or more; fully
insured certificates of deposit; and commercial paper rated within the two
highest grades by Moody's or S&P or, if not rated, issued by a company having
an outstanding debt issue rated AAA by S&P or Aaa by Moody's.
In an effort to increase investment return or to hedge the Fund's
portfolio, the Fund may engage in various investment techniques, including
reverse repurchase agreements, dollar rolls, purchasing and selling call and
put options, entering into futures contracts and related options, purchasing
securities on a when-issued, delayed delivery or forward commitment basis and
lending portfolio securities (see "Other Investment Policies" below).
There may be periods during which, in the opinion of the Adviser, market
conditions warrant reduction of some or all of the Fund's securities
holdings. During such periods, the Fund may adopt a temporary "defensive"
posture in which greater than 35% of its total assets are invested in U.S.
money market instruments or cash.
GOVERNMENT SECURITIES
The Fund will invest at least 65% of its total assets in Government
Securities. Government Securities are securities issued or guaranteed by the
governments of the United States, Canada or Mexico, their political
subdivisions and agencies and instrumentalities of any of the foregoing. Such
securities may include U.S. Treasury securities, U.S. Mortgage-Backed
Securities, the sovereign debt of Canada or any of its Provinces, Canadian
Mortgage-Backed Securities, and the sovereign debt of Mexico or any of its
government agencies.
A portion of the Government Securities purchased by the Fund may be zero
coupon securities. Such securities are purchased at a discount from their
face amount, giving the purchaser the right to receive their full value at
maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at
a constant rate eliminates the risk of receiving lower yields upon
reinvestment of interest if prevailing interest rates decline, the owner of a
zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise. For this reason, zero coupon securities are subject to
substantially greater price fluctuations during periods of changing
prevailing interest rates than are comparable securities which pay interest
on a current basis.
The zero coupon securities in which the Fund may invest are primarily
Canadian Government Securities with remaining maturities of two years or less
issued by Canadian provinces. Such securities generally are currently readily
available only in the form of zero coupon securities.
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. However,
the Fund will invest in zero coupon securities only when the Adviser believes
that there will be cash in the Fund's portfolio representing return of
principal on portfolio securities of the Fund at least equal to the imputed
income on the zero coupon securities. The Adviser believes that a limited use
of zero coupon securities in the Fund's portfolio may enable the Fund to
increase the income available to shareholders (as a result of the yield
premium often obtainable on such securities) without significantly increasing
the volatility of the Fund's net asset value, although there is no assurance
this can be achieved.
8
<PAGE>
The Fund intends to limit its use of zero coupon securities (other than
Treasury bills with one year or less to maturity) to 10% of its total assets.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities include: (i) U.S. Treasury obligations, all of which are
backed by the full faith and credit of the United States and which differ
only in their interest rates, maturities and times of issuance: 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); and (ii) obligations issued or guaranteed by U.S. Government
agencies or instrumentalities, including government guaranteed
Mortgage-Backed Securities, some of which are backed by the full faith and
credit of the U.S. Treasury (e.g., Government National Mortgage Association
direct pass-through certificates), some of which are supported by the right
of the issuer to borrow from the U.S. Government (e.g., obligations of
Federal Home Loan Banks), and some of which are backed only by the credit of
the issuer itself (e.g., obligations of the Student Loan Marketing
Association). The U.S. Government may also guarantee other debt obligations
of special purpose borrowers.
CANADIAN GOVERNMENT SECURITIES
Canadian Government Securities include securities issued or guaranteed by
the Government of Canada, the Government of a Province of Canada or their
agencies and Crown corporations. These securities may be denominated or
payable in U.S. dollars or Canadian dollars.
The Bank of Canada, acting on behalf of the federal government, is
responsible for the distribution of Government of Canada Treasury bills and
federal bond issues. The Bank of Canada holds weekly auctions of Treasury
bills (maturities of one year or less) and offers new issues of federal bonds
through investment dealers and banks. An offering of Government of Canada
bonds frequently consists of several different issues with various maturity
dates, representing different segments of the yield curve and generally
having maturities ranging from three to 25 years. The Bank of Canada usually
purchases a previously announced amount of each offering of bonds.
Mortgage-Backed Securities issued pursuant to the program established under
the National Housing Act of Canada are also Canadian Government Securities
because they benefit from a guarantee by the Canada Mortgage and Housing
Corporation, but are not distributed by the Bank of Canada.
All Canadian Provinces have outstanding bond issues and several Provinces
also guarantee bond issues of Provincial authorities, agencies and provincial
Crown corporations. Spreads in the marketplace are determined by various
factors, including the relative supply and the rating assigned by the rating
agencies. Most Provinces also issue treasury bills.
Many municipalities and municipal financial authorities in Canada raise
funds through the bond market in order to finance capital expenditures.
Unlike U.S. municipal securities, which have special tax status, Canadian
municipal securities have the same tax status as other Canadian Government
Securities and trade similarly to such securities. The Canadian municipal
market may be less liquid than the Provincial bond market.
The Fund will only invest in Canadian Government Securities which are
rated at least A by Moody's or S&P, or, if not rated, are determined to be of
comparable quality by the Adviser.
MEXICAN GOVERNMENT SECURITIES
Mexican Government Securities include those securities which are issued or
guaranteed by the Mexican Treasury or by Mexican government agencies or
instrumentalities. These securities may be denominated and payable in Mexican
pesos or U.S. dollars.
The debt market in Mexico began to develop rapidly after the promulgation
of the Securities Market Law in 1975. Since 1975, the government has
authorized a range of Mexican government issued debt securities, all of which
are traded on the Mexican Stock Exchange: (i) Cetes--peso-denominated
discount debt securities having maturities of two years or
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less sold through auctions regulated by Banco de Mexico; (ii)
Bondes--peso-denominated long-term development bonds sold through auctions
regulated by Banco de Mexico; (iii) Ajustabonos--peso-denominated bonds with
a fixed coupon rate on a variable face amount which is adjusted in proportion
to fluctuations in the Mexican consumer price index; and (iv) Nafinsa
Pagares--peso denominated promissory notes, with maturities approximating
those of Cetes, issued by the Nacional Financiera (Nafinsa), an agency of the
Mexican government.
In addition, a variety of other special purpose bonds are issued by the
Mexican federal government or its agencies, such as development bonds, bank
indemnity bonds and urban renovation bonds, as well as bank development bonds
and industrial development bonds.
The Fund will only invest in Mexican Government Securities which are rated
at least Baa by Moody's or BBB by S&P or, if not rated, are determined to be
of comparable quality by the Adviser.
MORTGAGE-BACKED SECURITIES
Mortgage-Backed Securities are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans secured by real property. The term Mortgage-Backed Securities as used
herein includes adjustable rate mortgage securities and derivative mortgage
products such as collateralized mortgage obligations, stripped
Mortgage-Backed Securities and other products described below.
U.S. MORTGAGE-BACKED SECURITIES
There are currently three basic types of U.S. Mortgage-Backed Securities:
(i) those issued or guaranteed by the United States Government or one of its
agencies or instrumentalities, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC") (securities issued by
GNMA, but not those issued by FNMA or FHLMC, are backed by the "full faith
and credit" of the United States); (ii) those issued by private issuers that
represent an interest in or are collateralized by Mortgage-Backed Securities
issued or guaranteed by the United States Government or one of its agencies
or instrumentalities; and (iii) those issued by private issuers that
represent an interest in or are collateralized by whole mortgage loans or
Mortgage-Backed Securities without a government guarantee but usually having
some form of private credit enhancement. The latter category of
Mortgage-Backed Securities are not considered Government Securities for
purposes of this Prospectus.
The 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. Each of GNMA, FNMA and FHLMC
guarantee timely distribution of interest to certificate holders. GNMA and
FNMA also guarantee timely distribution of scheduled principal payments.
FHLMC generally guarantees only the ultimate collection of principal of the
underlying mortgage loans.
The Fund may also invest in adjustable rate mortgage securities, which are
pass-through mortgage securities collateralized by mortgages with adjustable
rather than fixed rates.
Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. The Fund may invest in collateralized mortgage obligations or
"CMOs." 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 is collectively
hereinafter referred to as
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"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. The Fund may
invest without limitation in CMOs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on
a monthly, quarterly or semiannual basis. Certain CMOs may have variable or
floating interest rates and others may be stripped (securities which provide
only the principal or interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of a CMO series in a number of different ways.
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, which may include inverse floaters and Stripped
Mortgage-Backed Securities as described below, may be 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 may invest up to 10% of its total assets in inverse floaters.
Inverse floaters constitute a class of CMOs with a coupon rate that moves
inversely to a designated index, such as the LIBOR (London Inter-Bank Offered
Rate) Index. Inverse floaters have coupon rates that typically change at a
multiple of the changes of the relevant index rate. Any rise in the index
rate (as a consequence of an increase in interest rates) causes a drop in the
coupon rate of an inverse floater while any drop in the index rate causes an
increase in the coupon of an inverse floater. In addition, like most other
fixed-income securities, the value of inverse floaters will decrease as
interest rates increase. Inverse floaters exhibit greater price volatility
than the majority of mortgage pass-through securities or CMOs. In addition,
some inverse floaters exhibit extreme sensitivity to changes in prepayments.
As a result, the yield to maturity of an inverse floater is sensitive not
only to changes in interest rates but also to changes in prepayment rates on
the related underlying Mortgage Assets. The Adviser believes that,
notwithstanding the fact that inverse floaters exhibit price volatility, the
use of inverse floaters as a component of the Fund's overall portfolio, in
light of the Fund's anticipated portfolio composition in the aggregate, is
compatible with the Fund's objective to earn a high level of current income
while maintaining relatively low volatility of principal.
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The Fund also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating
the stated maturity date or final distribution date of each class, which, as
with other CMO structures, must be retired by its stated maturity date or
final distribution date but may be retired earlier. PAC Bonds generally
require payments of a specified amount of principal on each payment date. PAC
Bonds always are parallel pay CMOs with the required principal payment on
such securities having the highest priority after interest has been paid to
all classes.
Stripped Mortgage-Backed Securities. Stripped Mortgage-Backed Securities
are derivative multiclass mortgage securities. Stripped Mortgage-Backed
Securities may be issued by agencies or instrumentalities of the United
States Government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.
Stripped Mortgage-Backed Securities usually are structured with two
classes that receive different proportions of the interest and principal
distribution on a pool of Mortgage Assets. A common type of Stripped
Mortgage-Backed Securities will have one class receiving some of the interest
and most of the principal from the Mortgage Assets, while the other class
will receive most of the interest and the remainder of the principal. In the
most extreme case, one class will receive all of the interest (the
interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). PO classes generate income
through the accretion of the deep discount at which such securities are
purchased, and, while PO classes do not receive periodic payments of
interest, they receive monthly payments associated with scheduled
amortization and principal prepayment from the Mortgage Assets underlying the
PO class. The yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
Mortgage Assets, and a rapid rate of principal payments may have a material
adverse effect on the Fund's yield to maturity. If the underlying Mortgage
Assets experience greater than anticipated prepayments of principal, the Fund
may fail to fully recoup its initial investment in these securities even if
the securities are rated Aaa by Moody's or AAA by S&P.
The Fund may purchase Stripped Mortgage-Backed Securities for income, or
for hedging purposes to protect the Fund's portfolio against interest rate
fluctuations. For example, since an IO class will tend to increase in value
as interest rates rise, it may be utilized to hedge against a decrease in
value of other fixed-income securities in a rising interest rate environment.
The Fund's management understands that the staff of the Securities and
Exchange Commission considers privately issued Stripped Mortgage-Backed
Securities representing interest only or principal only components of U.S.
Government or other debt securities to be illiquid securities. The Fund will
treat such securities as illiquid so long as the staff maintains such
position. Stripped Mortgage-Backed Securities issued by the U.S. Government
or its agencies, and which are backed by fixed-rate mortgages, will be
treated as liquid provided they are so determined by, or under procedures
approved by, the Board of Trustees. The Fund may not invest more than 15% of
its net assets in illiquid securities.
CANADIAN MORTGAGE-BACKED SECURITIES
Canadian Mortgage-Backed Securities may be issued in several ways, the
most common of which is a modified pass-through vehicle issued pursuant to
the program established under the National Housing Act of Canada.
Certificates issued pursuant to this program have some structural
similarities to GNMA securities and benefit from the guarantee of the Canada
Mortgage and Housing Corporation, a federal Crown corporation that is (except
for certain limited purposes) an agent of the Government of Canada.
Canadian private issuers such as banks and trust companies also issue
Mortgage-Backed Securities backed by private insurance or other forms of
credit support. Such Mortgage-Backed Securities are not considered Government
Securities for purposes of this Prospectus.
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While most Canadian Mortgage-Backed Securities are subject to voluntary
prepayments, some pools are not subject to such prepayments and thus have
yield characteristics similar to bonds.
As the Canadian Mortgage-Backed Securities market was only recently
established, it is less well developed and less liquid than its U.S.
counterpart.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in
the market value of the Fund's portfolio securities. The market value of the
Fund's portfolio securities will increase or decrease due to a variety of
economic, market and political factors which cannot be predicted, in
particular movements in interest rates and, with respect to foreign
currencies, currency exchange rates. A decline in prevailing interest rates
generally increases the value of fixed-income securities, while an increase
in rates usually reduces the value of those securities. (The Fund's yield
also will vary based on the yield of the Fund's portfolio securities.)
Mortgage-Backed Securities. Mortgage-Backed Securities have certain
different characteristics than traditional debt securities. Among the major
differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be
prepaid at any time. As a result, if the Fund purchases such a security at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Alternatively, if the Fund
purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments will reduce, yield to
maturity. The Fund may invest a portion of its assets in derivative
Mortgage-Backed Securities such as Stripped Mortgage-Backed Securities which
are highly sensitive to changes in prepayment and interest rates. The Adviser
seeks to manage these risks (and potential benefits) by investing in a
variety of such securities.
Mortgage-Backed Securities, like all fixed income securities, generally
decrease in value as a result of increases in interest rates. In addition,
although generally the value of fixed-income securities increases during
periods of falling interest rates and, as stated above, decreases during
periods of rising interest rates, as a result of prepayments and other
factors, this is not always the case with respect to Mortgage-Backed
Securities.
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.
Mortgage-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.
The Fund may invest in mortgage derivative securities, such as CMOs, the
average life of which is determined using mathematical models that
incorporate prepayment assumptions and other factors that involve estimates
of future economic and market conditions. These estimates may vary from
actual future results, particularly during periods of extreme market
volatility. In addition, under certain market conditions, such as those that
developed in 1994, the average weighted life of mortgage derivative
securities may not accurately reflect the price volatility of such
securities. For example, in periods of supply and demand imbalances in the
market for such securities and/or in periods of sharp interest rate
movements, the prices of mortgage derivative securities may fluctuate to a
greater extent than would be expected from interest rate movements alone.
The Fund's investments in mortgage derivative securities also subject the
Fund to extension risk. Extension risk is the possibility that rising
interest rates may cause prepayments to occur at a slower than
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expected rate. This particular risk may effectively change a security which
was considered short or intermediate-term at the time of purchase into a
long-term security. Long-term securities generally fluctuate more widely in
response to changes in interest rates than short or intermediate-term
securities.
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 in CMOs issued by private entities only if the CMOs are rated at
least AA by S&P or Aa 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. In
addition, as stated above, inverse floaters, a class of CMOs in which the
Fund may invest up to 10% of its net assets, exhibit greater price volatility
than the majority of CMOs.
CURRENCY RISKS
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 among the currencies of the
United States, Canada and Mexico will affect the value of the Fund's
investments. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Fund's assets denominated in
that currency and thereby impact upon the Fund's total return on such assets.
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.
RISKS OF INTERNATIONAL INVESTING
Investments in foreign securities will 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 securities are not subject to the regulatory
requirements of U.S. securities and, as such, there may be less publicly
available information about such securities. Moreover, issuers of foreign
securities are not subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to issuers of U.S.
securities.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures on foreign
markets may occasion delays in settlements of Fund trades effected in such
markets. Inability to dispose of portfolio securities due to settlement
delays could result in losses to the Fund due to subsequent declines in value
of such securities and the inability of the Fund to make intended security
purchases due to settlement problems could result in a failure of the Fund to
make potentially advantageous investments.
Canada. The Canadian debt securities market is significantly smaller than
the U.S. debt securities market. In particular, the Canadian Mortgage-Backed
Securities market is of recent origin, and, although continued growth is
anticipated, is less well developed and less liquid than its U.S.
counterpart.
Mexico. Because the Fund intends to invest in Mexican debt instruments,
investors in the Fund
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should be aware of certain special considerations associated with investing
in debt obligations of the Mexican government.
The Mexican government has exercised and continues to exercise a
significant influence over many aspects of the private sector in Mexico.
Mexican government actions concerning the economy could have a significant
effect on market conditions and prices and yields of Mexican debt
obligations, including those in which the Fund invests. Mexico is currently a
major debtor nation (among developing countries) to commercial banks and
foreign governments.
The value of the Fund's portfolio investments may be affected by changes
in oil prices, interest rates, taxation and other political or economic
developments in Mexico, including recent rates of inflation which have
exceeded the rates of inflation in the U.S. and Canada. The Fund can provide
no assurance that future developments in the Mexican economy will not impair
its investment flexibility, operations or ability to achieve its investment
objective.
In September, 1982, Mexico imposed foreign exchange controls and
maintained a dual foreign exchange rate system, with a "controlled" rate and
a "free market" rate. Under economic policy initiatives implemented since
December, 1987, the Mexican government introduced a schedule of gradual
devaluation of the controlled rate which initially amounted to an average
depreciation of the Mexican peso against the U.S. dollar of one Mexican peso
per day. The extended initiatives included an adjustment in the scheduled
devaluation rate of the Mexican peso against the U.S. dollar. The Fund's net
asset value and its computation and distribution of income to its
shareholders will be adversely affected by continued reductions in the value
of the Mexican peso relative to the U.S. dollar because all Fund assets must
be converted to U.S. dollars prior to any distributions to shareholders. On
December 22, 1994, the Mexican government determined to allow the Mexican
peso to trade freely against the U.S. dollar rather than within a controlled
band, which action resulted in a significant devaluation of the Mexican peso
against the U.S. dollar.
Non-Diversified Status. The Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940, as amended (the
"Act"), and as such is not limited by the Act in the proportion of its assets
that it may invest in the obligations of a single issuer. However, the Fund
intends to conduct its operations so as to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. See "Dividends,
Distributions and Taxes." In order to qualify, among other requirements, the
Fund will limit its investments so that at the close of each quarter of the
taxable year, (i) not more than 25% of the market value of the Fund's total
assets will be invested in the securities of a single issuer (other than U.S.
Government Securities) and, (ii) with respect to 50% of the market value of
its total assets not more than 5% will be invested in the securities of a
single issuer (other than U.S. Government Securities) and the Fund will not
own more than 10% of the outstanding voting securities of a single issuer. To
the extent that a relatively high percentage of the Fund's assets may be
invested in the obligations of a limited number of issuers, the Fund's
portfolio securities may be more susceptible to any single economic,
political or regulatory occurrence than the portfolio securities of a
diversified investment company. The limitations described in this paragraph
are not fundamental policies and may be revised to the extent applicable
Federal income tax requirements are revised.
Debt securities which are issued or guaranteed by an agency or
instrumentality of the United States, including certificates issued by GNMA,
are treated like U.S. Government Securities for purposes of the
diversification tests. However, securities issued or guaranteed by foreign
governments, their political subdivisions, agencies and instrumentalities,
including Canadian NHA Mortgage-Backed Securities, are not treated like U.S.
Government Securities for purposes of the diversification tests described in
the preceding paragraph, but instead are subject to these tests in the same
manner as the securities of non-governmental issuers. In this regard,
securities issued or guaranteed by a foreign government, its political
subdivisions, agencies or instrumentalities may in certain circumstances be
treated as issued by a single issuer for purposes of these diversification
tests. Thus, in order to meet the diversification tests and thereby maintain
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its status as a regulated investment company, the Fund will be required to
diversify its portfolio of Canadian Government Securities and Mexican
Government Securities in a manner which would not be necessary if the Fund
limited its investments to U.S. Government Securities.
Year 2000. The management services provided to the Fund by the Manager,
the investment advisory services provided to the Fund by the Adviser and
the services provided to shareholders by the Distributor and the Transfer
Agent depend on the smooth functioning of their computer systems. Many
computer software systems in use today cannot recognize the year 2000, but
revert to 1900 or some other date, due to the manner in which dates were
encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Manager,
the Adviser, the Distributor and the Transfer Agent have been actively working
on necessary changes to their own computer systems to prepare for the year
2000 and expect that their systems will be adapted before that date, but
there can be no assurance that they will be successful, or that interaction
with other non-complying computer systems will not impair their services at
that time.
The risks of other investment techniques which may be utilized by the
Fund, including options and futures transactions, are described under "Other
Investment Policies," below.
OTHER INVESTMENT POLICIES
Asset-Backed Securities. The Fund may invest in Asset-Backed Securities.
Asset-Backed Securities represent the securitization techniques used to
develop Mortgage-Backed Securities 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.
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, including the bankruptcy 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
for repossessed collateral may not always be sufficient to support payments
on these securities.
New instruments and variations of existing Mortgage-Backed Securities and
Asset-Backed Securities continue to be developed. The Fund, following
revision to this Prospectus, may invest in any such instruments or variations
as may be developed, to the extent consistent with its investment objective
and policies and applicable regulatory requirements.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the Fund of debt securities, from a
selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying
security at a specified price and at a fixed time in the future, usually not
more than seven days from the date of purchase.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed
to minimize such risks. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions whose financial condition will be continually monitored by the
Adviser 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. In the event of a
default or
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bankruptcy by a selling financial institution, the Fund will seek
to liquidate such collateral. However, the exercising of the Fund's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
It is the current policy of the Fund not to invest in repurchase agreements
that do not mature within seven days if any such investment, together with
any other illiquid assets held by the Fund, amounts to more than 15% of its
net assets.
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. 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. 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 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. 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.
Private Placements. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible
for resale pursuant to Rule 144A 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
Securites Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Adviser, 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 Funds net assets. However, investing in Rule
144A securities could have the effect of increasing the level of Fund
illiquidity to the extent that the Fund, at a particular point in time, may
be unable to find qualified institutional buyers interested in purchasing
such securities.
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. The securities so purchased or sold
are subject to market fluctuation and no interest or dividends accrue to the
purchaser prior to the settlement date. 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.
At the time of delivery of the securities, the value may be more or less than
the purchase or sale price. An increase in the percentage of the Fund's
assets committed to the
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purchase of securities on a when issued, delayed delivery or forward
commitment basis may increase the volatility of the Fund's net asset
value. The Fund will establish a segregated account with its custodian
bank in which it will maintain cash, U.S. Government securities or
other liquid portfolio securities equal in value to its obligations in
respect of when-issued or delayed delivery securities and forward
commitments. The Fund's ability to enter into such transactions is not
otherwise limited, but the Fund expects that under normal circumstances no
more than 15% of the Fund's total assets will be so invested.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value. The
Fund may also sell securities on a "when, as and if issued" basis provided
that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Fund at the time of sale.
FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS
The Fund may engage in transactions in forward foreign currency exchange
contracts. A forward foreign currency exchange contract ("forward contract")
involves an obligation to purchase or sell a currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by
the parties, at a price set at the time of the contract.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also limit the
opportunity for gain if the value of the hedged currency should rise.
Moreover, it may not be possible for the Fund to hedge against a devaluation
that is so generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it anticipates.
The Fund may enter into forward contracts under various circumstances.
When the Fund enters into a contract for the purchase or sale of a security
denominated in either the Canadian dollar or Mexican peso ("foreign
currency"), it may, for example, desire to "lock in" the price of the
security in U.S. dollars, Canadian dollars or Mexican pesos. At other times,
when, for example, the Adviser believes that the Canadian dollar or the
Mexican peso may suffer a substantial decline against the U.S. dollar, the
Fund may enter into a forward contract to sell, for a fixed amount of dollars
or pesos, the amount of foreign currency approximating the value of some or
all of the Fund's portfolio securities (or securities which the Fund has
purchased for its portfolio) denominated in such foreign currency.
If the Fund enters into forward contract transactions, and the currency in
which the Fund's portfolio securities (or anticipated portfolio securities)
are denominated rises in value with respect to the currency which is being
purchased (or sold), then the Fund will have realized fewer gains than had
the Fund not entered into the forward contracts. Moreover, the precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible, since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The Fund is not required to
enter into such transactions with regard to its foreign currency-denominated
securities and will not do so unless deemed appropriate by the Adviser.
Currently, only a limited market exists for certain hedging transactions in
future foreign exchange rates. This may limit the Fund's ability to
effectively hedge its investments in Mexico.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may engage in transactions involving options on securities and
currencies and futures contracts on securities, currencies and indexes, each
as described below.
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Options. The Fund may purchase and sell (write) call and put options on
U.S. Treasury notes, bonds and bills and on the Canadian dollar or Mexican
peso which are or may in the future be listed on several U.S. and foreign
securities exchanges or 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. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the
Fund. The Fund is permitted to write covered call options on portfolio
securities and the U.S. dollar, the Canadian dollar and the Mexican peso,
without limit, in order to aid it in achieving its investment objective. The
Fund may also write covered put options; however, the aggregate value of the
obligations underlying the puts determined as of the date the options are
sold will not exceed 50% of the Fund's net assets.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options to
close out a 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.
Futures Contracts. The Fund may purchase and sell futures contracts that
are currently traded, or may in the future be traded, on U.S. and foreign
commodity exchanges on such underlying fixed-income securities as U.S.
Treasury bonds, notes, and bills and/or any Canadian or Mexican government
fixed-income security ("interest rate" futures), on the Canadian or Mexican
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 also 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.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any
such futures, options or products as may be developed, to the extent
consistent with its investment objective and applicable regulatory
requirements.
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 may 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.
Participation in the options or futures markets involves investment risks
and transaction costs to which the Fund would not be subject absent the use
of these strategies. If the Adviser's prediction of movements in the
direction of the securities, currency or interest rate markets are
inaccurate, the adverse consequences to the Fund (e.g., a reduction in the
Fund's net asset value or a reduction in the amount of income available for
distribution) may leave the Fund in a
19
<PAGE>
worse position than if such strategies were not used. Risks inherent in the
use of options, futures contracts and options on futures contracts include
(a) dependence on the Adviser's ability to predict correctly movements in
the direction of interest rates, as well as securities and/or currency
markets; (b) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities
or currencies being hedged; (c) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities;
(d) the possible absence of a liquid secondary market for any particular
instrument at any time; and (e) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by the Adviser with a view to
achieving the Fund's investment objective. Philip A. Barach, James M.
Goldberg, Jeffrey E. Gundlach and Frederick H. Horton, Managing Directors of
the Adviser, are the Fund's primary portfolio managers, and, with the
exception of Mr. Horton, have been so since the Fund's inception. Mr. Horton
has been a primary portfolio manager since December, 1994. Messrs. Barach,
Gundlach and Goldberg have each been portfolio managers with affiliates of
TCW for over five years. Mr. Horton has been a portfolio manager with
affiliates of TCW since October, 1993. From June 1991--September, 1993, he
was Senior Portfolio Manager for Dewey Square Investors.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Adviser will rely on information from various sources,
including research, analysis and appraisals of brokers and dealers, including
Dean Witter Reynolds Inc. ("DWR"), Morgan Stanley & Co. Incorporated and
other brokers and dealers that are affiliates of the Manager, and others
regarding economic developments and interest rate trends; and the Adviser's
own analysis of factors it deems relevant.
Brokerage commissions are not normally charged on the purchase or sale of
U.S., Canadian or Mexican Government Securities, but such transactions
generally involve costs in the form of spreads between bid and asked prices.
Orders for transactions in portfolio securities are placed for the Fund with
a number of brokers and dealers, which may include DWR, Morgan Stanley & Co.
Incorporated and other brokers and dealers that are affiliates of the
Manager. In addition, the Fund may incur brokerage commissions on
transactions conducted through DWR, Morgan Stanley & Co. Incorporated and
other brokers and dealers that are affiliates of the Manager. Under normal
circumstances it is not anticipated that the portfolio trading will result in
the Fund's portfolio turnover rate exceeding 100% in any one year.
Except as specifically noted, all investment policies and practices
discussed in this Prospectus are not fundamental policies of the Fund and, as
such, may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act.
The Fund may not:
1. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry, except that the Fund will concentrate in
Mortgage-Backed Securities (unless it has adopted a temporary "defensive"
posture). This restriction does not apply to obligations issued or
guaranteed by the United States Government or 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
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<PAGE>
shall not apply to Mortgage-Backed Securities or Asset-Backed Securities
or to any obligation of the United States Government, its agencies or
instrumentalities.
3. Purchase or sell commodities or commodities contracts except that the
Fund may purchase and sell financial futures contracts and related options
thereon.
In addition, as a non-fundamental policy, the Fund may not, as to 75% of
its total assets, purchase more than 10% of the voting securities of any
issuer.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered
a violation of any of the foregoing restrictions.
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 Manager, shares of
the Fund are distributed by the Distributor and offered by DWR and others
(which may include TCW Brokerage Services, an affiliate of the Adviser) which
have entered into selected dealer agreements with the Distributor ("Selected
Broker-Dealers"). The principal executive office of the Distributor is
located at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000 and subsequent purchases of $100 or
more may be made by sending a check, payable to TCW/DW North American
Government Income Trust, directly to Dean Witter Trust FSB (the "Transfer
Agent") at P.O. Box 1040, Jersey City, NJ 07303, or by contacting an account
executive of DWR or another Selected Broker-Dealer. The minimum initial
purchase in the case of investments through EasyInvest (Service Mark), an
automatic purchase plan (see "Shareholder Services"), is $100, provided that
the schedule of automatic investments will result in investments totalling at
least $1,000 within the first twelve months. The minimum initial purchase in
the case of an "Education IRA" is $500, if the Distributor has reason to
believe that additional investments will increase the investment in the
account to $1,000 within three years. In the case of investments pursuant to
(i) Systematic Payroll Deduction Plans (including Individual Retirement
Plans), (ii) the InterCapital mutual fund asset allocation program and (iii)
fee-based programs approved by the Distributor, pursuant to which
participants pay an asset based fee for services in the nature of investment
advisory or administrative services, the Fund, in its discretion, may accept
investments without regard to any minimum amounts which would otherwise be
required, provided, in the case of Systematic Payroll Deduction Plans, that
the Distributor has reason to believe that additional investments will
increase the investment in all accounts under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless a request is made
by the shareholder in writing to the Transfer Agent. The offering price will
be the net asset value per share next determined following receipt of an
order (see "Determination of Net Asset Value" below).
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment generally is due on or before
the third business day (settlement date) after the order is placed with the
Distributor. Since DWR and other Selected Broker-Dealers forward investors'
funds on settlement date, they may benefit from the temporary use of the
funds where 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.
Sales personnel of a Selected Broker-Dealer are compensated for shares of
the Fund sold by them by the Distributor or any of its affiliates and/or the
Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive
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<PAGE>
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 order.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes
prior to 4:00 p.m., at such earlier time), on each day that the New York
Stock Exchange is open by taking the value of all assets of the Fund,
subtracting all its liabilities, dividing by the number of shares outstanding
and adjusting to the nearest cent. The net asset value per share will not be
determined on Good Friday and on such other federal and non-federal holidays
as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
stock exchange is valued at its latest sale price on that exchange; if there
were no sales that day, the security is valued at the latest bid price (in
cases where a security is traded on more than one exchange, the security is
valued on the exchange designated as the primary market pursuant to
procedures adopted by the Trustees); and (2) all other portfolio securities
for which over-the-counter market quotations are readily available are valued
at the latest bid price prior to the time of valuation. When market
quotations are not readily available, including circumstances under which it
is determined by the Adviser that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Fund's Trustees (valuation of securities for which
market quotations are not readily available may also be based upon current
market prices of securities which are comparable in coupon, rating and
maturity or an appropriate matrix utilizing similar factors). 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.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon
as the evaluation model parameters, and/or research and 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.
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.
PLAN OF DISTRIBUTION
The Fund has entered into a Plan of Distribution pursuant to Rule 12b-1
under the Act with the Distributor whereby the expenses of certain activities
and services, including personal services to shareholders and maintenance of
shareholder accounts, in connection with the distribution of the Fund's
shares are reimbursed. The principal activities and services which may be
provided by DWR, its affiliates or any other Selected Broker-Dealer under the
Plan include: (1) compensation to, and expenses of, account executives and
others, including overhead and telephone expenses; (2) sales incentives and
bonuses to sales representatives and to marketing personnel in connection
with promoting sales of the Fund's shares; (3) expenses incurred in
connection with promoting sales of the Fund's shares; (4) preparing and
distributing sales literature; and (5) providing advertising and promotional
activities, including direct mail solicitation and television, radio,
newspaper, magazine and other media advertisements. Reimbursements for these
services will be made in monthly payments by the Fund, which will in no event
exceed an amount equal to a payment at the annual rate of 0.75% of the Fund's
average daily net assets. A portion of the amount payable pursuant to the
Plan, which may not exceed 0.25% of the Fund's
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<PAGE>
average daily net assets, is characterized as a service fee within NASD
guidelines. The service fee is a payment made for personal service and/or the
maintenance of shareholder accounts. Expenses incurred pursuant to the Plan
in any fiscal year in excess of 0.75% of the Fund's average daily net assets
will not be reimbursed by the Fund through payments accrued in any subsequent
fiscal year. The Fund accrued $1,978,311 to the Distributor pursuant to the
Plan for the fiscal year ended October 31, 1997. This is an accrual at the
annual rate of 0.73% of the Fund's average daily net assets.
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
TCW/DW Fund), unless the shareholder requests that they be paid in cash.
Investment of Distributions Received in Cash. Any shareholder who receives
a cash payment representing a dividend or capital gains distribution may
invest such dividend or distribution at the net asset value next determined
after receipt by the Transfer Agent by returning the check or the proceeds to
the Transfer Agent within thirty days after the payment date.
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 or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund (see "Purchase of Fund Shares" and "Repurchases and Redemptions --
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 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. Only shareholders
having accounts in which no share certificates have been issued will be
permitted to enroll in the Withdrawal Plan.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
Tax Sheltered Retirement Plans. Retirement plans are available for use by
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
An "Exchange Privilege," that is, the privilege of exchanging shares of
certain Funds for shares of the Fund, exists whereby shares of TCW/DW Funds
that are multiple class funds ("TCW/DW Multi-Class Funds") may be exchanged
for shares of the Fund and for shares of five money market funds for which
InterCapital serves as investment manager: Dean Witter Liquid Asset Fund
Inc., Dean Witter U.S. Government Money Market Trust, Dean Witter Tax-Free
Daily Income Trust, Dean Witter California Tax Free Daily Income Trust and
Dean Witter New York Municipal Money Market Trust (the foregoing six funds,
including the Fund, are hereinafter collectively referred to as "Exchange
Funds"). Shares of the Exchange Funds received in an exchange for shares of a
TCW/DW Multi-Class Fund may be redeemed and exchanged only for shares of the
corresponding Class of a TCW/DW Multi-Class Fund or for shares of one of the
other Exchange Funds.
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<PAGE>
An exchange to the Fund is on the basis of the next calculated net asset
value per share of the Fund after the exchange order is received. When
exchanging into a money market fund shares of the TCW/DW Multi-Class Fund are
redeemed at their next calculated net asset value and exchanged for shares of
the money market fund at their net asset value determined the following
business day. Ultimately, any applicable contingent deferred sales charge
("CDSC") will have to be paid upon redemption of shares originally purchased
from a Class of a TCW/DW Multi-Class Fund that imposes a CDSC. During the
period of time the shares originally purchased from a Class of a TCW/DW
Multi-Class Fund that imposes a CDSC remain in the Exchange Fund, the holding
period (for the purpose of determining the rate of CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a TCW/DW Multi-Class Fund,
the holding period previously frozen when the first exchange was made resumes
on the last day of the month in which shares of a TCW/DW Multi-Class Fund are
reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of a TCW/DW Multi-Class Fund. In
the case of shares 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 (see "Purchase
of Fund Shares--Plan of Distribution" in the respective Exchange Fund
prospectus for a description of Exchange Fund 12b-1 distribution fees).
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.
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Manager to be abusive and contrary to the best interests of the
Fund's other shareholders and, at the 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, each of the other TCW/DW Funds and each of the
money market funds may in their discretion limit or otherwise restrict the
number of times this Exchange Privilege may be exercised by any investor. Any
such restriction will be made by the Fund on a prospective basis only, upon
notice to the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any other TCW/DW Funds
or money market funds for which shares of the Fund may be exchanged, upon
such notice as may be required by applicable regulatory agencies.
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions
on exchange of shares pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
of each Class of shares and any other conditions imposed by each fund. In the
case of any shareholder holding a share ceritificate or certificates, no
exchanges may be made until all applicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are
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<PAGE>
part of the account information, shareholders may initiate an exchange of
shares of the Fund for shares of any of the Funds for which the Exchange
Privilege is available by contacting their DWR or other Selected Broker-Dealer
account executive (no Exchange Privilege Authorization Form is required).
Other shareholders (and those shareholders who are clients of DWR or another
Selected Broker-Dealer but who wish to make exchanges directly by writing
or telephoning the Transfer Agent) must complete and forward to the Transfer
Agent an Exchange Privilege Authorization Form, copies of which may be
obtained from the Transfer Agent, to initiate an exchange. If the
Authorization Form is used, exchanges may be made in writing or by contacting
the Transfer Agent at (800) 869-NEWS (toll-free). The Fund will employ
reasonable procedures to confirm that exchange instructions communicated
over the telephone are genuine. Such procedures may include requiring
various forms of personal identification such as name, mailing address,
social security or other tax identification number and DWR or other Selected
Broker-Dealer account number (if any). Telephone instructions may also be
recorded. If such procedures are not employed, the Fund may be liable for
any losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the
experience in the past with other funds managed by the Manager.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REPURCHASES AND REDEMPTIONS
- -----------------------------------------------------------------------------
Repurchases. DWR and other Selected Broker-Dealers are authorized to
repurchase, as agent for the Fund, 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 determined (see "Purchase of
Fund Shares--Determination of Net Asset Value") after such repurchase order
is received by DWR or the other Selected Broker-Dealer. The offers by DWR and
other Selected Broker-Dealers to repurchase shares from shareholders may be
suspended by them at any time. In that event, shareholders may redeem their
shares through the Fund's Transfer Agent as set forth below under
"Redemptions."
Redemptions. Shares of the Fund can be redeemed for cash at any time at
net asset value per share next determined. If shares are held in a
shareholder's account at the Transfer Agent without a share certificate, a
written request for redemption must be sent to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303. 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 determined as described under "Purchase of Fund
Shares--Determination of Net Asset Value" after it receives the request, and
certificate, if any, in good order. Any redemption request received after
such determination 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
25
<PAGE>
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. With regard
to shares of the Fund acquired pursuant to the Exchange Privilege, any
applicable contingent deferred sales charge will be imposed upon the
redemption of such shares (see "Purchase of Fund Shares--Exchange Privilege").
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 DWR or another 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 revised prospectus.
Payment for Shares Repurchased or Redeemed. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
account executive regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the redemption or
repurchase, reinstate any portion or all of the proceeds of such redemption
or repurchase in shares of the Fund at net asset value next determined after
a reinstatement request, together with the proceeds, is received by the
Transfer Agent.
Involuntary Redemption. The Fund reserves the right to redeem, on sixty
days' notice and at net asset value, the shares of any shareholder (other
than shares held in an Individual Retirement Account or Custodial Account
under Section 403(b)(7) of the Internal Revenue Code) whose shares have a
value of less than $100 as a result of redemptions or repurchases, or such
lesser amount as may be fixed by the Trustees or, in the case of an account
opened through EasyInvest, if after twelve months the shareholder has
invested less than $1,000 in the account. However, before the Fund redeems
such shares and sends the proceeds to the shareholder, it will notify the
shareholder that the value of the shares is less than the applicable amount
and allow the shareholder 60 days to make an additional investment in an
amount which will increase the value of the account to at least the
applicable amount before the redemption is processed.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund intends to pay monthly income
dividends and to distribute net capital gains, if any, at least once each
year. The Fund may, however, determine either to distribute or to retain all
or part of any long-term capital gains in any year for reinvestment.
The Fund may, at times, make payments from sources other than net
investment income, net realized short-term capital gains and net realized
long-term capital gains. Payments from such sources would, in effect,
represent a return of a portion of each
26
<PAGE>
shareholder's investment. All, or a portion, of such payments would not be
taxable to shareholders.
Any dividends declared in the last quarter of any calendar year which are
paid in the following calendar year prior to February 1 will be deemed, for
tax purposes, to have been received by the shareholder in the prior calendar
year.
All dividends and any capital gains distributions will be paid in
additional Fund shares and automatically credited to the shareholder's
account without issuance of a share certificate unless the shareholder
requests in writing that all dividends and/or distributions be paid in cash.
(See "Shareholder Services--Automatic Investment of Dividends and
Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise 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.
Shareholders who are required to pay taxes on their income will normally
have to pay federal income taxes, and any applicable state and/or local
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from
net investment income and net short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. Any dividends
declared in the last quarter of any calendar year which are paid in the
following calendar year prior to February 1, will be deemed, for tax
purposes, to have been received by the shareholder in the prior calendar
year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. It is not anticipated that any
portion of the Fund's distributions will be eligible for the dividends
received deduction to corporate shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes. Shareholders will also be notified of their proportionate share of
long-term capital gains distributions that are eligible for a reduced rate of
tax under the Taxpayer Relief Act of 1997.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished
and certified as to their accuracy. Shareholders who are not citizens or
residents of, or entities organized in, the United States may be subject to
withholding taxes of up to 30% on certain payments received from the Fund.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and has made the appropriate election with the Internal Revenue Service, the
Fund will report annually to its shareholders the amount per share of such
taxes, to enable shareholders to claim United States foreign tax credits or
deductions with respect to such taxes. In the absence of such an election,
the Fund would deduct foreign tax in computing the amount of its
distributable income.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject
to state and local taxes; therefore, each shareholder is advised to consult
his or her own tax adviser.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return
of the Fund are based on historical earnings and yield of the Fund is
computed by dividing the net investment income of the Fund over a 30-day
period by an average value (using the average number of shares entitled to
receive dividends and the net asset value
27
<PAGE>
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 yield of the Fund.
The "average annual total return" of the Fund refers to a figure
reflecting the average annualized percentage increase (or decrease) in the
value of an initial investment in the Fund of $1,000 over one, five and ten
years or the life of the Fund, if less than any of the foregoing. Average
annual total return reflects all income earned by the Fund, any appreciation
or depreciation of the assets of the Fund, 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, 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.).
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
indemnification and reimbursement of expenses out of the Fund's property for
any shareholder held personally liable for the obligations of the Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be
unable to meet its obligations. Given the above limitations on shareholder
personal liability, and the nature of the Fund's assets and operations, the
possibility of the Fund being unable to meet its obligations is remote and
thus, in the opinion of Massachusetts counsel to the Fund, the risk to Fund
shareholders of personal liability is remote.
Code of Ethics. The Adviser is subject to a Code of Ethics with respect to
investment transactions in which the Adviser's officers, directors and
certain other persons have a beneficial interest to avoid any actual or
potential conflict or abuse of their fiduciary position. The Code of Ethics,
as it pertains to the TCW/DW Funds, contains several restrictions and
procedures designed to eliminate conflicts of interest including: (a)
pre-clearance of personal investment transactions to ensure that personal
transactions by employees are not being conducted at the same time as the
Adviser's clients; (b) quarterly reporting of personal securities
transactions; (c) a prohibition against personally acquiring securities in an
initial public offering, entering into uncovered short sales and writing
uncovered options; (d) a seven day "black-out period" prior or subsequent to
a TCW/DW Fund transaction during which portfolio managers are prohibited from
making certain transactions in securities which are being purchased or sold
by a TCW/DW Fund; (e) a prohibition, with respect to certain investment
personnel, from profiting in the purchase and
28
<PAGE>
sale, or sale and purchase, of the same (or equivalent) securities within 60
calendar days; and (f) a prohibition against acquiring any security which is
subject to firm wide or, if applicable, a department restriction of the
Adviser. The Code of Ethics provides that exemptive relief may be given from
certain of its requirements, upon application. The Adviser's Code of Ethics
complies with regulatory requirements and, insofar as it relates to persons
associated with registered investment companies, the 1994 Report of the
Advisory Group on Personal Investing of the Investment Company Institute.
Litigation. Several class action lawsuits, which have been consolidated,
were instituted in 1995 in the United States District Court, in New York,
against the Fund, some of its Trustees and officers, its underwriter and
distributor, the Adviser, the Manager, and other defendants, by certain
shareholders of the Fund. The consolidated amended complaint asserts claims
under the Securities Act of 1933 and generally alleges that the defendants
made inadequate and misleading disclosures in the prospectuses for the Fund,
in particular as such disclosures relate to the nature and risks of the Fund's
investments in mortgage-backed securities and Mexican securities. The
plaintiffs also challenge certain fees paid by the Fund as excessive. Damages
are sought in an unspecified amount. All defendants moved to dismiss the
consolidated amended complaint, and on May 8, 1996 the motions to dismiss
were denied. The defendants moved for reargument and on August 28, 1996 the
Court issued a second opinion which granted the motion to dismiss in part. On
December 4, 1996, the defendants filed a renewed motion to dismiss which was
denied by the Court on November 20, 1997. The Court has also certified a
plaintiff class pursuant to the Federal Rules of Civil Procedure. The Adviser
and the Manager believe that the litigation will not have a material adverse
effect on their ability to perform under their respective agreements with the
Fund or a material adverse effect on the Fund and its shareholders.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
29
<PAGE>
TCW/DW
North American TCW/DW
Government Income Trust NORTH AMERICAN
Two World Trade Center GOVERNMENT
New York, New York 10048 INCOME TRUST
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
Philip A. Barach
Vice President
James M. Goldberg
Vice President
Jeffrey E. Gundlach
Vice President
Frederick H. Horton
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS PROSPECTUS
Price Waterhouse LLP JANUARY 30, 1998
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
<PAGE>
TCW/DW
NORTH AMERICAN
GOVERNMENT INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 30, 1998
- -----------------------------------------------------------------------------
TCW/DW North American Government Income Trust (the "Fund") is an open-end,
non-diversified management investment company, whose investment objective is
to earn a high level of current income while maintaining relatively low
volatility of principal. The Fund seeks to achieve its investment objective
by investing primarily in investment grade securities issued or guaranteed by
the U.S. Government, Canada or Mexico, or their subdivisions, or the agencies
or instrumentalities of any of the foregoing. See "Investment Practices and
Policies."
A Prospectus for the Fund dated January 30, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below
or from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean
Witter Reynolds Inc., at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the
Prospectus.
TCW/DW North American Government Income Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management.......... 3
Trustees and Officers................ 6
Investment Practices and Policies ... 12
Investment Restrictions.............. 26
Portfolio Transactions and
Brokerage........................... 27
The Distributor...................... 28
Shareholder Services................. 31
Repurchases and Redemptions.......... 35
Dividends, Distributions and Taxes .. 35
Performance Information.............. 38
Description of Shares................ 39
Custodian and Transfer Agent......... 39
Independent Accountants.............. 39
Reports to Shareholders.............. 40
Legal Counsel........................ 40
Experts.............................. 40
Registration Statement............... 40
Financial Statements--October 31,
1997................................ 41
Report of Independent Accountants ... 52
Appendix............................. 53
</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 February 19, 1992. The Fund is one of the TCW/DW Funds,
which currently consist, in addition to the Fund, of TCW/DW Core Equity
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 Mid-Cap Equity
Trust, TCW/DW Global Telecom Trust, TCW/DW Strategic Income Trust, TCW/DW
Term Trust 2002, TCW/DW Term Trust 2003, TCW/DW Term Trust 2000, TCW/DW
Emerging Markets Opportunities Trust and TCW/DW Total Return Trust.
THE MANAGER
Dean Witter Services Company Inc. (the "Manager"), a Delaware corporation,
whose address is Two World Trade Center, New York, New York 10048, is the
Fund's Manager. The Manager is a wholly-owned subsidiary of Dean Witter
InterCapital Inc. ("InterCapital"), a Delaware corporation. InterCapital is a
wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
("MSDWD"), a Delaware corporation. In an internal reorganization which took
place in January, 1993, InterCapital assumed the investment advisory,
management and administrative activities previously performed by the
InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a broker-dealer
affiliate of the Manager. (As hereinafter used in this Statement of
Additional Information, the term "InterCapital" refers 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 Manager and Adviser (see
below), subject to review by the Fund's Board of Trustees. Information as to
these Trustees and Officers is contained under the caption "Trustees and
Officers."
Pursuant to a management agreement (the "Management Agreement") with the
Manager, the Fund has retained the Manager to manage the Fund's business
affairs, supervise the overall day-to-day operations of the Fund (other than
rendering investment advice) and provide all administrative services to the
Fund. Under the terms of the Management Agreement, the Manager also maintains
certain of the Fund's books and records and furnishes, at its own expense,
such office space, facilities, equipment, supplies, clerical help and
bookkeeping and legal services as the Fund may reasonably require in the
conduct of its business, including the preparation of prospectuses,
statements of additional information, proxy statements and reports required
to be filed with federal and state securities commissions (except insofar as
the participation or assistance of independent accountants and attorneys is,
in the opinion of the Manager, necessary or desirable). In addition, the
Manager pays the salaries of all personnel, including officers of the Fund,
who are employees of the Manager. The Manager also bears the cost of the
Fund's telephone service, heat, light, power and other utilities.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the following annual rates
to the Fund's daily net assets determined as of the close of each business
day: 0.39% of the portion of daily net assets not exceeding $3 billion; and
0.36% of the portion of daily net assets exceeding $3 billion. While the fee
payable under the Management Agreement may be higher than that paid by other
investment companies for similar services, the Board of Trustees determined
that the total fees payable under the Management Agreement and the Advisory
Agreement (as defined below) are reasonable in relation to the scope and
quality of services to be provided thereunder. In this regard, in evaluating
the Management Agreement, the Board of Trustees recognized that the Manager
and the Adviser had, pursuant to an agreement described under the section
entitled "The Adviser," agreed to a division as between themselves of the
total fees necessary for the management of the business affairs of and the
furnishing of investment advice to the Fund. Accordingly, in reviewing the
Management Agreement and Advisory Agreement, the Board viewed as most
significant the question as to whether the total fees payable under the
Management and Advisory Agreements were in the aggregate reasonable in
relation to the services to be provided thereunder. For the fiscal years
ended October 31, 1995, 1996 and 1997, the Fund accrued to the Manager, total
compensation of $3,166,169, $1,912,210 and $1,052,959, respectively.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Manager is not liable to the Fund or any of its
investors for any act or omission by the Manager or for any losses sustained
by the Fund or its investors. The Management Agreement in no way restricts
the Manager from acting as manager to others.
3
<PAGE>
InterCapital paid the organizational expenses of the Fund incurred prior
to the offering of the Fund's shares. The Fund has reimbursed the Manager for
$200,000 of such expenses, in accordance with the terms of the Underwriting
Agreement between the Fund and DWR. The Fund has deferred and is amortizing
the reimbursed expenses on the straight line method over a period not to
exceed five years from the date of commencement of the Fund's operations.
The Management Agreement was initially approved by the Trustees on June 4,
1994 and became effective on April 17, 1995. The Management Agreement
replaced a prior management agreement in effect between the Fund and the
Manager, which in turn had replaced a management agreement between the Fund
and InterCapital, the parent company of the Manager. (That management
agreement in turn had replaced, on June 30, 1993 upon the spin-off by Sears,
Roebuck and Co. of its remaining shares of DWDC, an earlier substantially
identical management agreement (originally with DWR, and assumed by
InterCapital effective January, 1993) which was approved by the Trustees on
October 30, 1992.) The nature and scope of services provided to the Fund, and
the formula to determine fees paid by the Fund under the Management
Agreement, are identical to those of the Fund's previous management
agreements. The Management Agreement may be terminated at any time, without
penalty, on thirty days' notice by the Trustees of the Fund.
Under its terms, the Management Agreement had an initial term ending April
30, 1995, and will continue in effect from year to year thereafter, provided
continuance of the Agreement is approved at least annually by the Trustees of
the Fund, including the vote of a majority of the Independent Trustees who
are not parties to the Management or Advisory Agreement or "interested
persons" (as defined in the Investment Company Act of 1940, as amended (the
"Act")) of any such party (the "Independent Trustees"). Continuation of the
Management Agreement until April 30, 1997 was approved by the Trustees,
including a majority of the Independent Trustees, at a meeting held on April
17, 1996.
THE ADVISER
TCW Funds Management, Inc. (the "Adviser"), a California corporation, is a
wholly-owned subsidiary of The TCW Group, Inc. ("TCW"), whose subsidiaries,
including Trust Company of the West and TCW Asset Management Company, provide
a variety of trust, investment management and investment advisory services.
As of December 31, 1997, the Adviser and its affiliates had approximately $50
billion under management or committed to management. Trust Company of the
West and its affiliates have managed securities portfolios for institutional
investors since 1971. The Adviser is headquartered at 865 South Figueroa
Street, Suite 1800, Los Angeles, California 90017 and is registered as an
investment adviser under the Investment Advisers Act of 1940. In addition to
the Fund, the Adviser currently serves as investment adviser to thirteen
other TCW/DW Funds: TCW/DW Core Equity Trust, TCW/DW Latin American Growth
Fund, TCW/DW Term Trust 2002, TCW/DW Income and Growth Fund, TCW/DW Term
Trust 2003, TCW/DW Small Cap Growth Fund, TCW/DW Balanced Fund, TCW/DW Term
Trust 2000, TCW/DW Emerging Markets Opportunities Trust, TCW/DW Mid-Cap
Equity Trust, TCW/DW Global Telecom Trust, TCW/DW Total Return Trust and
TCW/DW Strategic Income Trust. The Adviser also serves as investment adviser
to TCW Convertible Securities Fund, Inc., a closed-end investment company
listed on the New York Stock Exchange, and to The TCW Galileo Funds, Inc., an
open-end investment company, and acts as adviser or sub-adviser to other
investment companies.
Robert A. Day, who is Chairman of the Board of Directors of TCW, may be
deemed to be a control person of the Adviser by virtue of the aggregate
ownership of Mr. Day and his family of more than 25% of the outstanding
voting stock of TCW.
Pursuant to an investment advisory agreement (the "Advisory Agreement")
with the Adviser, the Fund has retained the Adviser to invest the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. The Adviser 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. In addition, the
Adviser pays the salaries of all personnel, including officers of the Fund,
who are employees of the Adviser.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Adviser, the Fund pays the Adviser
monthly compensation calculated daily by applying the following annual rates
to the Fund's daily net assets determined as of the close of each business
day: 0.26% of the portion of daily
4
<PAGE>
net assets not exceeding $3 billion; and 0.24% of the portion of daily net
assets exceeding $3 billion. For the fiscal years ended October 31, 1995,
1996 and 1997, the Fund accrued to the Adviser total compensation under the
Advisory Agreement of $2,110,779, $1,274,806 and $701,973, respectively.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Adviser is not liable to the Fund or any of its
investors for any act or omission by the Adviser or for any losses sustained
by the Fund or its investors. The Advisory Agreement in no way restricts the
Adviser from acting as investment adviser to others.
The Advisory Agreement was initially approved by the Trustees on May 1,
1992 and by DWR, as then sole shareholder, on May 11, 1992. The Advisory
Agreement may be terminated at any time, without penalty, on thirty days'
notice by the Trustees of the Fund, by the holders of a majority, as defined
in the Act, of the outstanding shares of the Fund, or by the Adviser. The
Agreement will automatically terminate in the event of its assignment (as
defined in the Act).
Under its terms, the Advisory Agreement had an initial term ending April
30, 1994, and provides that it will continue from year to year thereafter,
provided continuance of the Agreement is approved at least annually by the
vote of the holders of a majority, as defined in the Act, of the outstanding
shares of the Fund, or by the Trustees of the Fund; provided that in either
event such continuance is approved annually by the vote of a majority of the
Independent Trustees of the Fund, which vote must be cast in person at a
meeting called for the purpose of voting on such approval. Continuation of
the Advisory Agreement until April 30, 1998 was approved by the Trustees,
including a majority of the Independent Trustees, at a meeting called for
that purpose on April 24, 1997.
Expenses not expressly assumed by the Manager under the Management
Agreement, by the Adviser under the Advisory Agreement or by the Distributor
of the Fund's shares Dean Witter Distributors Inc. ("Distributors" or the
"Distributor") (see "The Distributor"), will be paid by the Fund. Such
expenses include, but are not limited to: expenses of the
Plan of Distribution pursuant to Rule 12b-1 (see "The Distributor"); charges
and expenses of any registrar; custodian, stock transfer and dividend
disbursing agent; brokerage commissions and securities transaction costs;
taxes; engraving and printing of share certificates; registration costs of
the Fund and its shares under federal and state securities laws; the cost and
expense of printing, including typesetting, and distributing Prospectuses and
Statements of Additional Information of the Fund and supplements thereto to
the Fund's shareholders; all expenses of shareholders' and trustees' meetings
and of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of trustees or members of any advisory
board or committee who are not employees of the Manager or Adviser or any
corporate affiliate of either; 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 Manager or the Adviser (not including compensation or expenses of
attorneys who are employees of the Manager or the Adviser) and independent
accountants; membership dues of industry associations; interest on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and trustees) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification relating thereto); and all other
costs of the Fund's operation.
The Fund has acknowledged that each of DWR and TCW owns its own name,
initials and logo. The Fund has agreed to change its name at the request of
either the Manager or the Adviser, if the Management Agreement between the
Manager and the Fund or the Advisory Agreement between the Adviser and the
Fund is terminated.
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
the Manager or the Adviser, and the affiliated companies of either, and with
the 14 TCW/DW Funds and with the 84 investment companies of which
InterCapital serves as investment manager or as investment adviser (the "Dean
Witter Funds"), are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------------------------------------------- ------------------------------------------------------------------
<S> <C>
John C. Argue (66) Of Counsel, Argue Pearson Harbison & Myers (law firm); Director, Avery
Trustee Dennison Corporation (manufacturer of self-adhesive products and office
c/o Argue Pearson Harbison & Myers supplies) and CalMat Company (producer of aggregates, asphalt and ready
801 South Flower Street mixed concrete); Chairman, The Rose Hills Foundation (charitable
Los Angeles, California foundation); advisory director, LAACO Ltd. (owner and operator of private
clubs and real estate); director or trustee of various business and
not-for-profit corporations; Director, Coast Savings Financial Inc.
and Coast Federal Bank (a subsidiary of Coast Savings Financial Inc.);
Director, TCW Galileo Funds, Inc.; Director, TCW Convertible Securities
Fund, Inc.; Director, Apex Mortgage Capital, Inc. (a real estate investment
trust); Trustee, University of Southern California, Occidental College
and Pomona College; Trustee of the TCW/DW Funds.
Richard M. DeMartini* (45) President and Chief Operating Officer of Dean Witter Capital, a division
Trustee of DWR; Director of DWR, the Manager, InterCapital, Distributors and
Two World Trade Center Dean Witter Trust FSB ("DWT"); formerly Vice Chairman of the Board of
New York, New York the National Association of Securities Dealers Inc.; formerly Chairman
of the Board of Nasdaq Market, Inc.
Charles A. Fiumefreddo* (64) Chairman, Chief Executive Officer and Director of the Manager, InterCapital
Chairman of the Board, Chief and Distributors; Executive Vice President and Director of DWR; Chairman
Executive Officer and Trustee of the Board, Chief Executive Officer and Trustee of the TCW/DW Funds;
Two World Trade Center Chairman of the Board, Director or Trustee, President and Chief Executive
New York, New York Officer of the Dean Witter Funds; Chairman and Director of DWT; Director
and/or officer of various MSDWD subsidiaries; formerly Executive Vice
President and Director of Dean Witter, Discover & Co. (until February,
1993).
John R. Haire (72) Chairman of the Audit Committee and Chairman of the Committee of Independent
Trustee Trustees and Trustee of the TCW/DW Funds; Chairman of the Audit Committee
Two World Trade Center and Chairman of the Committee of Independent Directors or Trustees and
New York, New York Director or Trustee of each of the Dean Witter Funds; formerly President,
Council for Aid to Education (1978-1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an Investment Adviser (1964-1978).
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------------------------------------------- ------------------------------------------------------------------
Dr. Manuel H. Johnson (48) Senior Partner, Johnson Smick International, Inc., a consulting firm;
Trustee Co-Chairman and a founder of the Group of Seven Council (G7C), an
c/o Johnson Smick International, Inc. international economic commission; Director of NASDAQ (since June, 1995);
1133 Connecticut Avenue, N.W. Chairman and Trustee of the Financial Accounting Foundation (oversight
Washington, D.C. organization for the Financial Accounting Standards Board); Director
of Greenwich Capital Markets, Inc. (broker-dealer); formerly Vice Chairman
of the Board of Governors of the Federal Reserve System (1986-1990)
and Assistant Secretary of the U.S. Treasury (1982-1986); Trustee of
the TCW/DW Funds; Director or Trustee of the Dean Witter Funds.
Thomas E. Larkin, Jr.* (58) Executive Vice President and Director, The TCW Group, Inc.; President
President and Trustee and Director of Trust Company of the West; Vice Chairman and Director
865 South Figueroa Street of TCW Asset Management Company; Chairman of the Adviser; President
Los Angeles, California and Director of TCW Galileo Funds, Inc.; Senior Vice President of TCW
Convertible Securities Fund, Inc.; Member of the Board of Trustees of
the University of Notre Dame; Director of Orthopaedic Hospital of Los
Angeles; President and Trustee of the TCW/DW Funds.
Michael E. Nugent (61) General Partner, Triumph Capital, L.P., a private investment partnership;
Trustee formerly Vice President, Bankers Trust Company and BT Capital Corporation
c/o Triumph Capital, L.P. (1984-1988); Director of various business organizations; Trustee of
237 Park Avenue the TCW/DW Funds; Director or Trustee of the Dean Witter Funds; Director
New York, New York of various business organizations.
John L. Schroeder (67) Retired; Director or Trustee of the Dean Witter Funds; Trustee of the
Trustee TCW/DW Funds; Director of Citizens Utilities Company; formerly Executive
c/o Gordon Altman Butowsky Weitzen Vice President and Chief Investment Officer of the Home Insurance Company
Shalov & Wein (1991-1995).
Counsel to the Independent Trustees
114 West 47th Street
New York, New York
Marc I. Stern* (53) President and Director, The TCW Group, Inc.; President and Director
Trustee of the Adviser; Vice Chairman and Director of TCW Asset Management Company;
865 South Figueroa Street Executive Vice President and Director of Trust Company of the West;
Los Angeles, California Chairman and Director of the TCW Galileo Funds, Inc.; Trustee of the
TCW/DW Funds; Chairman of TCW Americas Development, Inc.; Chairman of
TCW Asia, Limited; Chairman of TCW London International, Limited (since
March, 1993); Chairman, Apex Mortgage Capital, Inc. (a real estate
investment trust); formerly President and Director of SunAmerica, Inc.
(financial services company); Director of Qualcomm, Incorporated
(wireless communications); director or trustee of various not-for-profit
organizations.
7
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ---------------------------------------------------- ------------------------------------------------------------------
Barry Fink (43) Senior Vice President (since March, 1997) and Secretary and General
Vice President, Secretary Counsel (since February, 1997) of InterCapital and the Manager; Senior
and General Counsel Vice President (since March, 1997) and Assistant Secretary and Assistant
Two World Trade Center General Counsel (since February, 1997) of Distributors; Assistant
New York, New York Secretary of DWR (since August, 1996); Vice President, Secretary and
General Counsel of the Dean Witter Funds and the TCW/DW Funds (since
February, 1997); previously First Vice President (June, 1993-February,
1997), Vice President (until June, 1993) and Assistant Secretary and
Assistant General Counsel of InterCapital and the Manager and Assistant
Secretary of the Dean Witter Funds and the TCW/DW Funds.
Philip A. Barach (45) Group Managing Director of the Adviser, Trust Company of the West and
Vice President TCW Asset Management Company; Vice President of various TCW/DW Funds.
865 South Figueroa Street
Los Angeles, California
James M. Goldberg (51) Managing Director of the Adviser; Managing Director and Chairman of
Vice President the Fixed Income Policy Committee of Trust Company of the West and TCW
865 South Figueroa Street Asset Management Company; Vice President of various TCW/DW Funds.
Los Angeles, California
Jeffrey E. Gundlach (38) Group Managing Director of the Adviser, Trust Company of the West and
Vice President TCW Asset Management Company; Vice President of various TCW/DW Funds.
865 South Figueroa Street
Los Angeles, California
Frederick H. Horton (39) Managing Director of the Adviser, Trust Company of the West and TCW
Vice President Asset Management Company (since October, 1993); previously Senior
865 South Figueroa Street Portfolio Manager for Dewey Square Investors (June, 1991-September,
Los Angeles, California 1993).
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of the Manager and
Treasurer InterCapital and Treasurer of the TCW/DW Funds and the Dean Witter Funds;
Two World Trade Center Assistant Treasurer of Distributors.
New York, New York
</TABLE>
- ---------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer of
the Manager and InterCapital, Executive Vice President of Distributors and
DWT and Director of DWT, Mitchell M. Merin, President and Chief Strategic
Officer of InterCapital and DWSC, Executive Vice President of Distributors
and DWT and Director of DWT, Executive Vice President and Director of DWR and
Director of SPS Transaction Services, Inc. and various other MSDWD
subsidiaries and Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC, Distributors and DWT and Director of DWT are Vice Presidents of the
Fund. Marilyn K. Cranney, First Vice President and Assistant General Counsel
of the Manager and InterCapital, and Lou Anne D. McInnis, Ruth Rossi and
Carsten Otto, Vice Presidents and Assistant General Counsels of the Manager
and InterCapital, and Frank Bruttomesso and Todd Lebo, Staff Attorneys with
InterCapital, are Assistant Secretaries of the Fund.
8
<PAGE>
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same
individuals also serve as trustees for all of the TCW/DW Funds. As of the
date of this Statement of Additional Information, there are a total of 14
TCW/DW Funds. As of December 31, 1997, the TCW/DW Funds had total net assets
of approximately $4.4 billion and approximately a quarter of a million
shareholders.
Five Trustees (56% of the total number) have no affiliation or business
connection with TCW Funds Management, Inc. or Dean Witter Services Company
Inc. or any of their affiliated persons and do not own any stock or other
securities issued by MSDWD or TCW, the parent companies of Dean Witter
Services Company Inc. and TCW Funds Management, Inc., respectively. These are
the "disinterested" or "independent" Trustees. The other four Trustees (the
"management Trustees") are affiliated with either Dean Witter Services
Company Inc. or TCW. Four of the five independent Trustees are also
Independent Trustees of the Dean Witter Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The TCW/DW Funds seek as Independent Trustees
individuals of distinction and experience in business and finance, government
service or academia; these are people whose advice and counsel are in demand
by others and for whom there is often competition. To accept a position on
the Funds' Boards, such individuals may reject other attractive assignments
because the Funds make substantial demands on their time. Indeed, by serving
on the Funds' Boards, certain Trustees who would otherwise be qualified and
in demand to serve on bank boards would be prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee
and the Committee of the Independent Trustees. Three of them also serve as
members of the Derivatives Committee. During the calendar year ended December
31, 1997, the three Committees held a combined total of sixteen meetings. The
Committees hold some meetings at the offices of the Manager or Adviser and
some outside those offices. Management Trustees or officers do not attend
these meetings unless they are invited for purposes of furnishing information
or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading
among Funds in the same complex; and approving fidelity bond and related
insurance coverage and allocations, as well as other matters that arise from
time to time. The Independent Trustees are required to select and nominate
individuals to fill any Independent Trustee vacancy on the Board of any Fund
that has a Rule 12b-1 plan of distribution. Each of the open-end TCW/DW Funds
has such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing
engagement; approving professional services provided by the independent
accountants and other accounting firms prior to the performance of such
services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting
Committee meeting minutes to the full Board.
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committees maintains an office in the Funds'
headquarters in New York. He is responsible for keeping abreast of regulatory
and industry developments and the Funds' operations and management. He
screens and/or prepares written materials and identifies critical issues for
the Independent Trustees to consider, develops agendas for Committee
meetings, determines the type and amount of information that the Committees
will need to form a judgment on various issues, and arranges to have that
information
9
<PAGE>
furnished to Committee members. He also arranges for the services of
independent experts and consults with them in advance of meetings to help
refine reports and to focus on critical issues. Members of the Committees
believe that the person who serves as Chairman of both Committees and guides
their efforts is pivotal to the effective functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Adviser and the Manager and other
service providers. In effect, the Chairman of the Committees serves as a
combination of chief executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the TCW/DW Funds and as Chairman of the Committee of the
Independent Trustees and the Audit Committee and Independent Director or
Trustee of the Dean Witter Funds. The current Committee Chairman has had more
than 35 years experience as a senior executive in the investment company
industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL TCW/DW
FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the TCW/DW 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 TCW/DW Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $2,225 plus a per
meeting fee of $200 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 and pays the Chairman of the
Committee of the Independent Trustees an additional annual fee of $1,200). If
a Board meeting and a Committee meeting, or more than one Committee meeting,
take place on a single day, the Trustees are paid a single meeting fee by the
Fund. The Fund also reimburses such Trustees for travel and other
out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by
the Manager or the Adviser or an affiliated company of either receive no
compensation or expense reimbursement from the Fund. The Trustees of the
TCW/DW Funds do not have retirement or deferred compensation plans.
10
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended October 31, 1997.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME OF COMPENSATION
INDEPENDENT TRUSTEE FROM THE FUND
- ------------------- ---------------
<S> <C>
John C. Argue.............. $5,225
John R. Haire.............. 7,575
Dr. Manuel H. Johnson ..... 5,425
Michael E. Nugent.......... 5,625
John L. Schroeder.......... 5,625
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for
services to the 14 TCW/DW Funds and, in the case of Messrs. Haire, Johnson,
Nugent and Schroeder, the 84 Dean Witter Funds that were in operation at
December 31, 1997, and, in the case of Mr. Argue, TCW Galileo Funds, Inc. and
TCW Convertible Securities Fund, Inc. With respect to Messrs. Haire, Johnson,
Nugent and Schroeder, the Dean Witter Funds are included solely because of a
limited exchange privilege between various TCW/DW Funds and five Dean Witter
Money Market Funds. With respect to Mr. Argue, TCW Galileo Funds, Inc. and
TCW Convertible Securities Fund, Inc. are included solely because the Fund's
Adviser, TCW Funds Management, Inc., also serves as Adviser to those
investment companies.
CASH COMPENSATION FROM FUND GROUPS
<TABLE>
<CAPTION>
TOTAL CASH
FOR SERVICES AS COMPENSATION
CHAIRMAN OF FOR SERVICE AS FOR SERVICES TO
COMMITTEES OF CHAIRMAN OF 84 DEAN WITTER
FOR SERVICE AS FOR SERVICE AS INDEPENDENT COMMITTEES OF FUNDS, 14 TCW/
TRUSTEE AND FOR SERVICE DIRECTOR OF TRUSTEES INDEPENDENT DW FUNDS, TCW
COMMITTEE AS DIRECTOR OR TCW GALILEO AND AUDIT DIRECTORS/ GALILEO FUNDS,
MEMBER TRUSTEE AND FUNDS INC. AND COMMITTEES TRUSTEES INC. AND TCW
OF 14 COMMITTEE MEMBER TCW CONVERTIBLE OF 14 AND AUDIT CONVERTIBLE
NAME OF TCW/DW OF 84 DEAN WITTER SECURITIES TCW/DW COMMITTEES OF 84 SECURITIES
INDEPENDENT TRUSTEE FUNDS FUNDS FUND, INC. FUNDS DEAN WITTER FUNDS FUND, INC.
- ------------------- ------------- ----------------- ---------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John C. Argue.............. $71,125 -- $43,250 -- -- $114,375
John R. Haire.............. 73,725 $149,702 -- $25,350 $157,463 406,240
Dr. Manuel H. Johnson ..... 71,125 145,702 -- -- -- 216,827
Michael E. Nugent.......... 73,725 149,702 -- -- -- 223,427
John L. Schroeder.......... 73,725 149,702 -- -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Dean
Witter Funds have adopted a retirement program under which an Independent
Trustee who retires after serving for at least five years (or such lesser
period as may be determined by the Board) as an Independent Director or
Trustee of any Dean Witter Fund that has adopted the retirement program (each
such Fund referred to as an "Adopting Fund" and each such Trustee referred to
as an "Eligible Trustee") is entitled to retirement payments upon reaching
the eligible retirement age (normally, after attaining age 72). Annual
payments are based upon length of service. Currently, upon retirement, each
Eligible Trustee is entitled to receive from the Adopting Fund, commencing as
of his or her retirement date and continuing for the remainder of his or her
life, an annual retirement benefit (the "Regular Benefit") equal to 25.0% of
his or her Eligible Compensation plus 0.4166666% of such Eligible
Compensation for each full month of service as an Independent Director or
Trustee of any Adopting Fund in excess of five years up to a maximum of 50.0%
after ten years of service. The foregoing percentages may be changed by the
Board.(1) "Eligible Compensation" is one-fifth of the total compensation
earned by such Eligible Trustee for service to the Adopting
- ------------
(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.
11
<PAGE>
Fund in the five year period prior to the date of the Eligible Trustee's
retirement. Benefits under the retirement program are not secured or funded
by the Adopting Funds.
The following table illustrates the retirement benefits accrued to Messrs.
Haire, Johnson, Nugent and Schroeder by the 57 Dean Witter Funds for the year
ended December 31, 1997, and the estimated retirement benefits for Messrs.
Haire, Johnson, Nugent and Schroeder, to commence upon their retirement, from
the 57 Dean Witter Funds as of December 31, 1997.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
CREDITED YEARS ESTIMATED RETIREMENT BENEFITS ESTIMATED ANNUAL BENEFITS
OF SERVICE AT PERCENTAGE OF ACCRUED AS EXPENSES UPON RETIREMENT
NAME OF RETIREMENT ELIGIBLE BY ALL ADOPTING FROM ALL ADOPTING
INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- ------------------- -------------- --------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
John R. Haire.............. 10 50.0% $(19,823)(3) $127,897
Dr. Manuel H. Johnson ..... 10 50.0 12,832 47,025
Michael E. Nugent.......... 10 50.0 22,546 47,025
John L. Schroeder.......... 8 41.7 39,350 39,504
</TABLE>
- ---------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until June 1, 1998.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
Mexican Sovereign Debt. Sovereign Debt differs from debt obligations
issued by private entities in that usually remedies from defaults must be
pursued in the courts of the defaulting party. Legal recourse is therefore
somewhat diminished. Political conditions, in terms of a country or agency's
willingness to meet the terms of its debt obligations, is of considerable
significance. Also, there can be no assurance that the holders of commercial
bank debt may not contest payments to the holders of Sovereign Debt in the
event of default under commercial bank loan agreements.
Sovereign Debt generally offers high yields, reflecting not only perceived
credit risk, but also the need to compete with other local investments in
domestic financial markets. Mexico is among the largest debtors to commercial
banks and foreign governments. A foreign debtor's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves,
the availability of sufficient foreign exchange on the date a payment is due,
the relative size of the debt service burden to the economy as a whole, the
foreign debtor's policy towards the International Monetary Fund and the
political constraints to which a sovereign debtor may be subject. Mexico may
also be dependent on expected disbursements from foreign governments,
multilateral agencies and others abroad to reduce principal and interest
arrearages on their debt. The commitment on the part of these governments
agencies and others to make such disbursements may be conditioned on its
implementation of economic reforms and/or economic performance and the timely
service of its obligations. Failure to implement such reforms, achieve such
levels of economic performance or repay principal or interest when due, may
result in the cancellation of such third parties' commitments to lend funds
to Mexico, which may further impair its ability or willingness to service its
debts.
The ability of the Mexican government to make timely payments on its
Sovereign Debt is likely to be influenced strongly by its balance of trade
and its access to trade and other international credits. In addition, the
occurrence of political, social or diplomatic changes could adversely affect
the Fund's investments. Mexico is faced with social and political issues and
has experienced high rates of inflation in recent years. Among other effects,
high inflation and internal debt service requirements may adversely affect
the cost and availability of future domestic sovereign borrowing to finance
governmental programs, and may have other adverse social, political and
economic
12
<PAGE>
consequences. Political changes or a deterioration of Mexico's domestic
economy or balance of trade may affect its willingness to service its
Sovereign Debt. While the Adviser intends to invest the Fund's portfolio in a
manner that will minimize the exposure to the risks of Sovereign Debt
(specifically by limiting the Fund's investments to investment grade
securities with maturities of one year or less), there can be no assurance
that adverse political changes will not cause the Fund to suffer a loss of
all or a portion of interest and/or principal on any of its holdings.
MONEY MARKET SECURITIES
As stated in the Prospectus, the money market instruments which the Fund
may purchase include U.S. Government securities, bank obligations, Eurodollar
certificates of deposit, obligations of savings institutions, fully insured
certificates of deposit and commercial paper. Such securities include:
U.S. Government Securities. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as
the Federal Home Loan Bank), including Treasury bills, notes and bonds;
Bank Obligations. Obligations (including certificates of deposit, bankers'
acceptances, commercial paper (see below) and other debt obligations) of
banks subject to regulation by the U.S. Government and having total assets of
$1 billion or more, and instruments secured by such obligations, not
including obligations of foreign branches of domestic banks except as
permitted below;
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1
billion or more (investments in Eurodollar certificates may be affected by
changes in currency rates or exchange control regulations, or changes in
governmental administration or economic or monetary policy in the United
States and abroad);
Obligations of Savings Institutions. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more (investments in savings institutions above $100,000 in principal amount
are not protected by federal deposit insurance);
Fully Insured Certificates of Deposit. Certificates of deposit of banks
and savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is insured by the Bank Insurance Fund or
the Savings Association Insurance Fund (each of which is administered by the
Federal Deposit Insurance Corporation), limited to $100,000 principal amount
per certificate and to 15% or less of the Fund's total assets in all such
obligations and in all illiquid assets, in the aggregate;
Commercial Paper. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation or Moody's Investors Service, Inc. or, if not
rated, issued by a company having an outstanding debt issue rated at least
AAA by Standard & Poor's or Aaa by Moody's.
MORTGAGE-BACKED SECURITIES
As stated in the Prospectus, the Fund may invest a portion of its assets
in securities that directly or indirectly represent a participation in, or
are secured by and payable from, mortgage loans secured by real property
("Mortgage-Backed Securities"). The Fund will invest in mortgage pass-through
securities representing participation interests in pools of residential
mortgage loans originated by United States governmental or private lenders
and guaranteed, to the extent provided in such securities, by the United
States Government or one of its agencies or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment
of interest in fixed amounts (usually semi-annually) 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.
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.
13
<PAGE>
Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities are issued by originators of and investors in mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. These
securities usually are backed by a pool of conventional fixed rate or
adjustable rate mortgage loans. Since private mortgage pass-through
securities typically are not guaranteed by a governmental entity, such
securities generally are structured with one or more types of credit
enhancement.
Adjustable Rate Mortgage Securities. As stated in the Prospectus, 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, twenty-four, thirty-six or longer
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.
Types of Credit Enhancement. Mortgage-Backed Securities are often backed
by a pool of assets representing the obligations of a number of different
parties. To lessen the effect of failures by obligors on underlying assets to
make payments, those securities may contain elements of credit support, which
fall into two categories: (i) liquidity protection and (ii) protection
against losses resulting from ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting from default ensures ultimate payment of
the obligations on at least a portion of the assets in the pool. This
protection may be provided through guarantees, insurance policies or letters
of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided for each issue is generally
based on historical information regarding the level of credit risk associated
with the underlying assets. Delinquencies or losses in excess of those
anticipated could adversely affect the return on an investment in a security.
In addition, any circumstance adversely affecting the ability of third
parties, such as insurance companies, to satisfy any of their obligations
with respect to any Mortgage-Backed Securities, such as a diminishment of
their creditworthiness, could affect the rating, and thus the value, of the
securities. The Fund will not pay any fees for credit support, although the
existence of credit support may increase the price of a security.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contracts ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial and investment
banks) and their customers. Such forward contracts will only be entered into
with United States banks and their foreign branches or foreign banks whose
assets total $1 billion or more. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades.
The Fund 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 either the Canadian dollar or Mexican peso ("foreign
currency"), it may, for example, desire to "lock in" the price of the
security in U.S. dollars, Canadian dollars or
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Mexican pesos. 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 Adviser believes that the Canadian
dollar or Mexican peso 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 U.S. dollars, the amount of that
currency approximating the value of some or all of the Fund's portfolio
securities (or securities which the Fund has purchased for its portfolio)
denominated in such foreign currency.
In addition, when the Adviser 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,
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.
Finally, 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," below).
The Fund will not enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of Canadian dollars or Mexican pesos
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. The Fund's custodian bank will place cash, U.S.
Government securities or other appropriate liquid portfolio 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 the Canadian dollar or Mexican
peso 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 the Canadian
dollar or Mexican peso, 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 Canadian dollar or
Mexican peso by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount
of the Canadian dollar or Mexican peso. 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 Canadian
dollars or Mexican pesos 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 Canadian dollars or Mexican
pesos. Conversely, it may be necessary to sell on the spot market some of the
Canadian dollars or Mexican pesos received upon the sale of the portfolio
securities if its market value exceeds the amount of Canadian dollars or
Mexican pesos the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of Canadian
dollars or Mexican pesos 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 the Canadian dollar or Mexican
peso, 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.
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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 liquid portfolio securities
in a segregated account equal in value to all forward contract obligations
and option contract obligations entered into in hedge situations such as
this.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of Canadian dollars and Mexican pesos
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.
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").
OPTIONS AND FUTURES TRANSACTIONS
As discussed in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and covered put options on eligible
portfolio securities and purchase options of the same series to effect
closing transactions, and may hedge against potential changes in the market
value of its investments (or anticipated investments) by purchasing put and
call options on portfolio (or eligible portfolio) securities (and the
currencies in which they are denominated) and engaging in transactions
involving futures contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and on
various foreign currencies are listed on several U.S. and foreign securities
exchanges and are written in over-the-counter transactions ("OTC Options").
Listed options are issued or guaranteed by the exchange on which they trade
or by a clearing corporation such as the Options Clearing Corporation
("OCC"). Ownership of a listed call option gives the Fund the right to buy
from the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency covered by the option at the stated exercise
price (the price per unit of the underlying security or currency) by filing
an exercise notice prior to the expiration date of the option. The writer
(seller) of the option would then have the obligation to sell, to the OCC (in
the U.S.) or other clearing corporation or exchange, the underlying security
or currency at that exercise price prior to the expiration date of the
option, regardless of its then current market price. Ownership of a listed
put option would give the Fund the right to sell the underlying security or
currency to the OCC (in the U.S.) or other clearing corporation or exchange
at the stated exercise price. Upon notice of exercise of the put option, the
writer of the option would have the obligation to purchase the underlying
security or currency from the OCC (in the U.S.) or other clearing corporation
or exchange at the exercise price.
Options on Treasury Bonds and Notes. Because trading interest in options
written on Treasury bonds and notes tends to center on the most recently
auctioned issues, the exchanges on which such securities trade will not
continue indefinitely to introduce options with new expirations to replace
expiring options on particular issues. Instead, the expirations introduced at
the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each issue of
bonds or notes will thus be phased out as new options are listed on more
recent issues, and options representing a full range of expirations will not
ordinarily be available for every issue on which options are traded.
Options on Treasury Bills. Because a deliverable Treasury bill changes
from week to week, writers of Treasury bill calls cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding
the underlying security. However, if the Fund holds a long position in
Treasury bills with a principal amount of the
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securities deliverable upon exercise of the option, the position may be
hedged from a risk standpoint by the writing of a call option. For so long as
the call option is outstanding, the Fund will hold the Treasury bills in a
segregated account with its Custodian, so that they will be treated as being
covered.
Options on GNMA Certificates. Currently, options on GNMA Certificates are
only traded over-the-counter. Since the remaining principal balance of GNMA
Certificates declines each month as a result of mortgage payments, the Fund,
as a writer of a GNMA call holding GNMA Certificates as "cover" to satisfy
its delivery obligation in the event of exercise, may find that the GNMA
Certificates it holds no longer have a sufficient remaining principal balance
for this purpose. Should this occur, the Fund will purchase additional GNMA
Certificates from the same pool (if obtainable) or replacement GNMA
Certificates in the cash market in order to maintain its cover. A GNMA
Certificate held by the Fund to cover an option position in any but the
nearest expiration month may cease to represent cover for the option in the
event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time, as such decline
may increase the prepayments made on other mortgage pools. If this should
occur, the Fund will no longer be covered, and the Fund will either enter
into a closing purchase transaction or replace such Certificate with a
Certificate which represents cover. When the Fund closes out its position or
replaces such Certificate, it may realize an unanticipated loss and incur
transaction costs.
Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the
portfolio securities involved. As a result, the Fund would be enabled to sell
the foreign currency for a fixed amount of U.S. dollars, thereby "locking in"
the dollar value of the portfolio securities (less the amount of the premiums
paid for the options). Conversely, the Fund may purchase call options on
foreign currencies in which securities it anticipates purchasing are
denominated to secure a set U.S. dollar price for such securities and protect
against a decline in the value of the U.S. dollar against such foreign
currency. The Fund may also purchase call and put options to close out
written option positions.
The Fund may also write call options on foreign currency to protect
against potential declines in its portfolio securities which are denominated
in foreign currencies. If the U.S. dollar value of the portfolio securities
falls as a result of a decline in the exchange rate between the foreign
currency in which it is denominated and the U.S. dollar, then a loss to the
Fund occasioned by such value decline would be ameliorated by receipt of the
premium on the option sold. At the same time, however, the Fund gives up the
benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio
securities falls below the price of the premium received. The Fund may also
write options to close out long call option positions. A put option on a
foreign currency would be written by the Fund for the same reason it would
purchase a call option, namely, to hedge against an increase in the U.S.
dollar value of a foreign security which the Fund anticipates purchasing.
Here, the receipt of the premium would offset, to the extent of the size of
the premium, any increased cost to the Fund resulting from an increase in the
U.S. dollar value of the foreign security. However, the Fund could not
benefit from any decline in the cost of the foreign security which is greater
than the price of the premium received. The Fund may also write options to
close out long put and call option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. Although the Fund will not
purchase or write such options unless and until, in the opinion of the
Adviser, 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
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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. As stated in the Prospectus, the Fund is permitted
to write covered call options on portfolio securities and on the U.S. Dollar
and foreign currencies in which they are denominated, without limit, in order
to aid in achieving its investment objectives. Generally, a call option is
"covered" if the Fund owns, or has the right to acquire, without additional
cash consideration (or for additional cash consideration held for the Fund by
its Custodian in a segregated account) the underlying security (currency)
subject to the option except that in the case of call options on U.S.
Treasury Bills, the Fund might own U.S. Treasury Bills of a different series
from those underlying the call option, but with a principal amount and value
corresponding to the exercise price and a maturity date no later than that of
the security (currency) deliverable under the call option. A call option is
also covered if the Fund holds a call on the same security as the underlying
security (currency) of the written option, where the exercise price of the
call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the
mark to market difference is maintained by the Fund in cash, U.S. Government
securities or other liquid portfolio securities which the Fund holds in a
segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these
premiums may better enable the Fund to earn a higher level of current income
than it would earn from holding the underlying securities (currencies) alone.
Moreover, 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
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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 Transactions in
Futures Contracts and Related Options," below.
Covered Put Writing. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period,
at the purchaser's election (certain listed and OTC put options written by
the Fund will be exercisable by the purchaser only on a specific date). A put
is "covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
Securities or other liquid portfolio securities in an amount equal to at
least the exercise price of the option, at all times during the option
period. Similarly, a short put position could be covered by the Fund by its
purchase of a put option on the same security (currency) as the underlying
security of the written option, where the exercise price of the purchased
option is equal to or more than the exercise price of the put written or less
than the exercise price of the put written if the marked to market difference
is maintained by the Fund in cash, U.S. Government Securities or other liquid
portfolio securities which the Fund holds in a segregated account maintained
at its Custodian. In writing puts, the Fund assumes the risk of loss should
the market value of the underlying security (currency) decline below the
exercise price of the option (any loss being decreased by the receipt of the
premium on the option written). In the case of listed options, during the
option period, the Fund may be required, at any time, to make payment of the
exercise price against delivery of the underlying security (currency). The
operation of and limitations on covered put options in other respects are
substantially identical to those of call options.
The Fund will write put options for three purposes: (1) to receive the
income derived from the premiums paid by purchasers; (2) when the Adviser
wishes to purchase the security (or a security denominated in the currency
underlying the option) underlying the option at a price lower than its
current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought; and (3) to close
out a long put option position. The potential gain on a covered put option is
limited to the premium received on the option (less the commissions paid on
the transaction) while the potential loss equals the differences between the
exercise price of the option and the current market price of the underlying
securities (currencies) when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
Purchasing Call and Put Options. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase a call option in order to close out a
covered call position (see "Covered Call Writing" above), to protect against
an increase in price of a security it anticipates purchasing or, in the case
of a call option on foreign currency, to hedge against an adverse exchange
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rate move of the currency in which the security it anticipates purchasing is
denominated vis-a-vis the currency in which the exercise price is
denominated. The purchase of the call option to effect a closing transaction
on a call written over-the-counter may be a listed or an OTC option. In
either case, the call purchased is likely to be on the same securities
(currencies) and have the same terms as the written option. If purchased
over-the-counter, the option would generally be acquired from the dealer or
financial institution which purchased the call written by the Fund.
The Fund may purchase put options on securities (currencies) which it
holds in its portfolio to protect itself against a decline in the value of
the security and to close out written put option positions. If the value of
the underlying security (currency) were to fall below the exercise price of
the put purchased in an amount greater than the premium paid for the option,
the Fund would incur no additional loss. In addition, the Fund may sell a put
option which it has previously purchased prior to the sale of the securities
(currencies) underlying such option. Such a sale would result in a net gain
or loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid on the put option which is
sold. And such gain or loss could be offset in whole or in part by a change
in the market value of the underlying security (currency). If a put option
purchased by the Fund expired without being sold or exercised, the premium
would be lost.
Risks of Options Transactions. 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 a covered call
option writer is unable to effect a closing purchase transaction or to
purchase an offsetting OTC option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered
call option writer may not be able to sell an underlying security at a time
when it might otherwise be advantageous to do so. A secured put option writer
who is unable to effect a closing purchase transaction or to purchase an
offsetting OTC option would continue to bear the risk of decline in the
market price of the underlying security until the option expires or is
exercised. In addition, a secured put writer would be unable to utilize the
amount held in cash or U.S. Government or other liquid portfolio 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 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
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and/or incur a loss of all or part of its margin deposits with the broker.
Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with
brokers or financial institutions deemed creditworthy by the Fund's
management.
Each of the Exchanges has established limitations governing the maximum
number of options on the same underlying security or futures contract
(whether or not covered) which may be written by a single investor, whether
acting alone or in concert with others (regardless of whether such options
are written on the same or different Exchanges or are held or written on one
or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict
the number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
The extent to which the Fund may enter into transactions involving options
may be limited by the Internal Revenue Code's requirements for qualification
as a regulated investment company and the Fund's intention to qualify as such
(see "Dividends, Distributions and Taxes").
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 Adviser 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 Adviser anticipates that the prices
of securities held by the Fund may fall, the Fund may sell an index futures
contract. Conversely, if the Fund wishes to hedge against anticipated price
rises in those securities which the Fund intends to purchase, the Fund may
purchase an index futures contract.
The Fund will purchase or sell currency futures on currencies in which its
portfolio securities (or anticipated portfolio securities) are denominated
for the purposes of hedging against anticipated changes in currency exchange
rates. The Fund will enter into currency futures contracts for the same
reasons as set forth above for entering into forward foreign currency
contracts; namely, to "lock-in" the value of a security purchased or sold in
a given currency vis-a-vis a different currency or to hedge against an
adverse currency exchange rate movement of a portfolio security's (or
anticipated portfolio security's) denominated currency vis-a-vis a different
currency.
In addition to the above, interest rate, index and currency futures will
be bought or sold in order to close out a short or long position maintained
by the Fund in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. A futures contract
sale is closed out by effecting a futures contract purchase for the same
aggregate amount of the specific type of security (currency) and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the
offsetting purchase price exceeds the sale price, the seller would pay the
difference and would realize a loss. Similarly, a futures contract purchase
is closed out by effecting a futures contract sale for the same aggregate
amount of the specific type of security (currency) and the same delivery
date. If the offsetting sale price exceeds the purchase price, the purchaser
would realize a gain, whereas if the purchase price exceeds the offsetting
sale price, the purchaser would realize a loss. There is no assurance that
the Fund will be able to enter into a closing transaction.
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<PAGE>
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or
other liquid portfolio securities equal to approximately 2% of the contract
amount. Initial margin requirements are established by the Exchanges on which
futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required
by the Exchanges.
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.
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 Adviser 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,
Canadian dollars.
Purchasers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally.
In addition, there are risks associated with foreign currency futures
contracts and their use as a hedging device similar to those associated with
options on foreign currencies described above. Further, settlement of a
foreign currency futures contract must occur within the country issuing the
underlying currency. Thus, the Fund must accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign
restrictions or regulations regarding the maintenance of foreign banking
arrangements by U.S. residents and may be required to pay any fees, taxes or
charges associated with such delivery which are assessed in the issuing
country.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To reduce
this risk, the Fund will not purchase or write options on foreign currency
futures contracts unless and until, in the Adviser'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. In addition, due to
current industry practice, daily variations in gains and losses on open
contracts are required to be reflected in cash in the form of variation
margin payments. The Fund may be required to make additional margin payments
during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund and the Fund realizes a loss or gain.
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<PAGE>
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
Adviser 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 Adviser seeks to hedge. Any premiums received in the writing of options
on futures contracts may, of course, provide a further hedge against losses
resulting from price declines in portions of the Fund's portfolio.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets, after taking into account unrealized gains
and unrealized losses on such contracts it has entered into, provided,
however, that in the case of an option that is in-the-money (the exercise
price of the call (put) option is less (more) than the market price of the
underlying security) at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. However, there is no overall limitation on
the percentage of the Fund's assets which may be subject to a hedge position.
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.
If the Fund has sold a call option on a futures contract, it will cover
this position by holding, in a segregated account maintained at its
Custodian, cash, U.S. Government Securities or other liquid portfolio
securities equal in value (when added to any initial or variation margin on
deposit) to the market value of the securities (currencies) underlying the
futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities (currencies) underlying the futures
contract, or by holding a call option permitting the Fund to purchase the
same contract at a price no higher than the price at which the short position
was established.
In addition, if the Fund holds a long position in a futures contract it
will hold cash, U.S. Government Securities or other liquid portfolio
securities equal to the purchase price of the contract (less the amount of
initial or variation margin on deposit) in a segregated account maintained
for the Fund by its Custodian. Alternatively, the Fund could cover its long
position by purchasing a put option on the same futures contract with an
exercise price as high or higher than the price of the contract held by the
Fund.
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<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 Adviser.
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.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be
possible to close out a futures position, and in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments
of variation margin. In addition, limitations imposed by an exchange or board
of trade on which futures contracts are traded may compel or prevent the Fund
from closing out a contract which may result in reduced gain or increased
loss to the Fund. The absence of a liquid market in futures contracts might
cause the Fund to make or take delivery of the underlying securities
(currencies) at a time when it may be disadvantageous to do so.
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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").
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).
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
As stated in the Prospectus, the Fund may also use reverse repurchase
agreements and dollar rolls as part of its investment strategy. Reverse
repurchase agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement,
while it will be able to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost
of obtaining the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells securities
for delivery in the current month and simultaneously contracts to repurchase
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
portfolio securities equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls.
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
money market instruments, which are maintained in a segregated account
pursuant to applicable regulations and that are equal to at least the market
value, determined daily, of the loaned securities. The advantage of such
loans is that the Fund continues to receive the income on the loaned
securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations.
The Fund will not lend its portfolio securities if such loans are not
permitted by the laws or regulations of any state in which its shares are
qualified for sale and will not lend more than 25% of the value of its total
assets. A loan may be terminated by the borrower on one business day's
notice, or by the Fund on two business days' notice. If the borrower fails to
deliver the loaned securities within two days after receipt of notice, the
Fund could use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. As with
any extensions of credit, there are risks of delay in recovery and in some
cases even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities
will only be made to firms deemed by the Fund's management to be creditworthy
and when the income which can be earned from such loans justifies the
attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price
during the loan period would inure to the Fund. The creditworthiness of firms
to which the Fund lends its portfolio securities will be monitored on an
ongoing basis by the Adviser 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.
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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 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 or sold are subject to
market fluctuation and no interest or dividends accrue to the purchaser prior
to the settlement date. 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 or sell securities on a when-issued, delayed delivery
or forward commitment basis, the Fund will record the transaction and
thereafter reflect the value, each day, of such security purchased or, if a
sale, the proceeds to be received, in determining its net asset value. At the
time of delivery of the securities, the value may be more or less than the
purchase or sale price. The Fund will also establish a segregated account
with the Fund's custodian bank in which it will continuously maintain cash or
U.S. Government Securities or other liquid portfolio securities equal in
value to commitments to purchase securities on a when-issued, delayed
delivery or forward commitment basis; subject to this requirement, the Fund
may purchase securities on such basis without limit. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
when-issued or delayed delivery basis may increase the volatility of the
Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES
The Fund may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a
subsequent event, such as approval of a merger, corporate reorganization,
leveraged buyout or debt restructuring. The commitment for the purchase of
any such security will not be recognized in the portfolio of the Fund until
the Adviser determines that issuance of the security is probable. At such
time, the Fund will record the transaction and, in determining its net asset
value, will reflect the value of the security daily. At such time, the Fund
will also establish a segregated account with its custodian bank in which it
will continuously maintain cash or U.S. Government securities or other liquid
portfolio securities equal in value to recognized commitments for such
securities. Settlement of the trade will occur within five business days of
the occurrence of the subsequent event. Once a segregated account has been
established, if the anticipated event does not occur and the securities are
not issued the Fund will have lost an investment opportunity. The Fund may
purchase securities on such basis without limit. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
"when, as and if issued" basis may increase the volatility of its net asset
value. The Fund may also sell securities on a "when, as and if issued" basis
provided that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Fund at the time of the
sale.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate generally will
not 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.
INVESTMENT RESTRICTIONS
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In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at
a meeting of shareholders, if the holders of 50% of the outstanding shares of
the Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
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<PAGE>
2. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in
the securities of companies which operate, invest in, or sponsor such
programs.
3. Borrow money, except that the Fund (i) may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed), and (ii) may engage in reverse repurchase agreements and
dollar rolls.
4. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(3). For the purpose of this restriction, collateral arrangements with
respect to initial or variation margin for futures are not deemed to be
pledges of assets.
5. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; (c) purchasing or selling any
financial futures contracts or options thereon; (d) borrowing money in
accordance with restrictions described above; or (e) lending portfolio
securities.
6. Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
7. Make short sales of securities.
8. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts is not considered the purchase of a security on margin.
9. 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.
10. Invest for the purpose of exercising control or management of any
other issuer.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered
a violation of any of the foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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Subject to the general supervision of the Trustees, the Adviser 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. 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. In addition, securities may 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. Futures transactions will usually be effected through a broker
and a commission will be charged. On occasion, the Fund may also purchase
certain money market instruments directly from an issuer, in which case no
commissions or discounts are paid. During the fiscal years ended October 31,
1995, 1996 and 1997, the Fund paid no brokerage commissions.
The Adviser currently serves as investment adviser to a number of clients,
including other investment companies, and may in the future act as investment
adviser to others. It is the practice of the Adviser 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.
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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 Adviser from
obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any
transaction, the Adviser 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.
In seeking to implement the Fund's policies, the Adviser effects
transactions with those brokers and dealers who the Adviser believes provide
the most favorable prices and are capable of providing efficient executions.
If the Adviser 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 Adviser. Such services may include, but are
not limited to, any one or more of the following: reports on industries and
companies, economic analyses and review of business conditions, portfolio
strategy, analytic computer software, account performance services, computer
terminals and various trading and/or quotation equipment. They also include
advice from broker-dealers as to the value of securities, availability of
securities, availability of buyers, and availability of sellers. In addition,
they include recommendations as to purchase and sale of individual securities
and timing of such transactions. 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.
The information and services received by the Adviser from brokers and
dealers may be of benefit to the Adviser 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 Adviser and thereby reduce its expenses, it is of
indeterminable value and the advisory fee paid to the Adviser is not reduced
by any amount that may be attributable to the value of such services.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR, Morgan Stanley & Co. Incorporated and other
affiliated brokers and dealers. In order for an affiliated broker or dealer
to effect any portfolio transactions for the Fund, the commissions, fees or
other remuneration received by the affiliated broker or dealer must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. This standard would allow the affiliated broker or dealer to
receive no more than the remuneration which would be expected to be received
by an unaffiliated broker in a commensurate arm's-length transaction.
Furthermore, the Board of Trustees of the Fund, including a majority of the
Trustees who are not "interested" persons of the Fund, as defined in the Act,
have adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to an affiliated broker or
dealer are consistent with the foregoing standard. During the fiscal years
ended October 31, 1995, 1996 and 1997, the Fund paid no brokerage commissions
to DWR. During the period June 1, 1997 through October 31, 1997, the Fund
paid no brokerage commissions to Morgan Stanley & Co. Incorporated (Morgan
Stanley & Co. Incorporated became an affiliate of the Fund on June 1, 1997).
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered
into a selected dealer agreement with DWR, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into selected dealer agreements with other selected broker-dealers (including
TCW Brokerage Services, an affiliate of the Adviser). The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDWD. The current
Distribution Agreement appointing the Distributor exclusive distributor of
the Fund's shares and providing for the Distributor to bear distribution
expenses not borne by the Fund was approved by the Board of Trustees,
including all of the
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Independent Trustees, on April 24, 1997. The current Distribution Agreement
is substantively identical to the Fund's previous distribution agreements.
The current Distribution Agreement took effect on May 31, 1997 upon the
consummation of the merger of Dean Witter, Discover & Co. with Morgan Stanley
Group Inc. and is substantially identical to the Fund's prior distribution
agreements except for its dates of effectiveness and termination. By its
terms, the Distribution Agreement has an initial term ending April 30, 1998,
and provides that it will remain in effect from year to year thereafter if
approved by the Trustees.
The Distributor bears all expenses it or any selected dealer may incur in
providing services under the Distribution Agreement. Such expenses include
the payment of commissions for sales of the Fund's shares and incentive
compensation to account executives. The Distributor also pays certain
expenses in connection with the distribution of the Fund's shares, including
the costs of preparing, printing and distributing advertising or promotional
materials, and the costs of printing and distributing prospectuses and
supplements thereto used in connection with the offering and sale of the
Fund's shares. The Fund bears the costs of initial typesetting, printing and
distribution of prospectuses and supplements thereto to shareholders. The
Fund also bears the costs of registering the Fund and its shares under
federal and state securities laws. The Fund and the Distributor have agreed
to indemnify each other against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses its best efforts in rendering services to the
Fund, but in the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations, the Distributor is not liable to
the Fund or any of its shareholders for any error of judgment or mistake of
law or for any act or omission or for any losses sustained by the Fund or its
shareholders.
PLAN OF DISTRIBUTION
As discussed in the Prospectus, the Fund has entered into a Plan of
Distribution pursuant to Rule 12b-1 under the Act with the Distributor
whereby the expenses of certain activities in connection with the
distribution of shares of the Fund are reimbursed. The Plan was initially
approved by the Trustees of the Fund on May 1, 1992 and by DWR, the then sole
shareholder of the Fund, on May 11, 1992. The vote of the Trustees included a
majority of the Trustees who are not and were not at the time of their votes
interested persons of the Fund and who have and had at the time of their
votes no direct or indirect financial interest in the operation of the Plan
(the "Independent 12b-1 Trustees"), cast in person at a meeting called for
the purpose of voting on such Plan. In determining to approve the Plan, the
Trustees, including the Independent 12b-1 Trustees, concluded that, in their
judgment, there is a reasonable likelihood that the Plan will benefit the
Fund and its shareholders.
The Plan provides that the Distributor will bear the expense of all
promotional and distribution related activities on behalf of the Fund, except
for expenses that the Trustees determine to reimburse, as described below.
The following activities and services may be provided by the Distributor and
DWR or any other selected broker-dealer under the Plan: (1) compensation to
and expenses of account executives and other employees of DWR and other
selected dealers, including overhead and telephone expenses; (2) sales
incentives and bonuses to sales representatives and to marketing personnel in
connection with promoting sales of the Fund's shares; (3) expenses incurred
in connection with promoting sales of the Fund's shares; (4) preparing and
distributing sales literature; and (5) providing advertising and promotional
activities, including direct mail solicitation and television, radio,
newspaper, magazine and other media advertisements.
The Fund is authorized to reimburse specific expenses incurred or to be
incurred in promoting the distribution of the Fund's shares and in servicing
shareholder accounts. Reimbursement is made through payments at the end of
each month. The amount of each monthly payment may in no event exceed an
amount equal to a payment at the annual rate of 0.75 of 1% of the Fund's
average daily net assets during the month. No interest or other financing
charges, if any, incurred on any distribution expenses will be reimbursable
under the Plan. In the case of all expenses other than expenses representing
a residual to account executives, such amounts shall be determined at the
beginning of each calendar quarter by the Trustees, including a majority of
the Independent 12b-1 Trustees. Expenses representing a residual to account
executives may be reimbursed without prior determination. In the event that
the Distributor proposes that monies shall be reimbursed for other than such
expenses, then in making quarterly determinations of the amounts that may be
expended by the Fund, the Distributor will provide and the Trustees will
review a quarterly budget of projected distribution expenses to be
29
<PAGE>
incurred on behalf of the Fund, together with a report explaining the
purposes and anticipated benefits of incurring such expenses. The Trustees
will determine which particular expenses, and the portions thereof, that may
be borne by the Fund, and in making such a determination shall consider the
scope of the Distributor's commitment to promoting the distribution of the
Fund's shares.
The Distributor has informed the Fund that a portion of the fees payable
by the Fund each year pursuant to the Plan equal to 0.25% of the Fund's
average daily net assets is characterized as a "service fee" under the Rules
of the Association of the National Association of Securities Dealers (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 defined in the aforementioned Rules of the
Association.
DWR's account executives are credited with an annual residual commission,
currently a gross residual of up to 0.75% of the current value of the
respective accounts for which they are the account executives or dealers of
record. The residual is a charge which reflects residual commissions paid by
DWR to its account executives and expenses of DWR and its affiliates
associated with the servicing of shareholders' accounts, including the
expenses of operating branch offices in connection with the servicing of
shareholders' accounts, which expenses include lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies and other
expenses relating to branch office servicing of shareholder accounts. The
portion of the annual residual commission allocated to servicing of
shareholder accounts does not exceed 0.25% of the average annual net asset
value of shares of accounts for which he or she is account executive of
record.
Under the Plan, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment
or mistake of law or for any act or omission or for any losses sustained by
the Fund or its shareholders.
The Fund accrued $1,978,311 to the Distributor, pursuant to the Plan, for
the fiscal year ended October 31, 1997. This amount represents an annual rate
of 0.73 of 1% of the Fund's average daily net assets for the fiscal period.
Based upon the total amounts spent by the Distributor during the period, it
is estimated that the amount paid by the Fund to the Distributor for
distribution was spent in approximately the following ways: (i)
advertising--$-0-; (ii) printing and mailing prospectuses to other than
current shareholders--$-0-; (iii) compensation to underwriters--$-0-; (iv)
compensation to dealers--$-0-; (v) compensation to sales personnel--$-0-; and
(vi) other, which includes payments to DWR for expenses substantially all of
which relate to compensation of sales personnel (including compensation for
servicing shareholder accounts and associated overhead expenses)--$1,978,311.
The Plan remained in effect until April 30, 1993, and under its terms will
continue from year to year thereafter, provided such continuance is approved
annually by a vote of the Trustees, including a majority of the Independent
12b-1 Trustees. At their meeting held April 24, 1997, the Trustees, including
a majority of the Independent 12b-1 Trustees, approved the continuance of the
Plan until April 30, 1998. Any amendment to increase materially the maximum
amount authorized to be spent under the Plan must be approved by the
shareholders of the Fund, and all material amendments to the Plan must be
approved by the Trustees in the manner described above. At their meeting held
on July 23, 1997, the Trustees of the Fund, including all of the Independent
12b-1 Trustees, approved amendments to the Plan to change the provisions
regarding quarterly budgets. The Plan may be terminated at any time, without
payment of any penalty, by vote of a majority of the Independent Trustees or
by a vote of the holders of a majority of the outstanding voting securities
of the Fund (as defined in the Act) on not more than thirty days' written
notice to any other party to the Plan. So long as the Plan is in effect, the
selection or nomination of the Independent Trustees is committed to the
discretion of the Independent 12b-1 Trustees.
Under the Plan, the Distributor provides the Fund, for review by the
Trustees, and the Trustees review, promptly after the end of each calendar
quarter, a written report regarding the distribution expenses incurred on
behalf of the Fund during such calendar quarter, which report includes (1) an
itemization of the types of expenses and the purposes therefor; (2) the
amounts of such expenses; and (3) a description of the benefits derived by
the Fund. In the Trustees' quarterly review of the Plan they consider its
continued appropriateness and the level of compensation provided therein.
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<PAGE>
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 DWR, the Distributor, the Manager or InterCapital or certain of its
employees may be deemed to have such an interest as a result of benefits
derived from the successful operation of the Plan or as a result of receiving
a portion of the amounts expended thereunder by the Fund.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term debt securities with remaining
maturities of sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Listed options are valued at the latest sale price on the exchange
on which they are listed unless no sales of such options have taken place
that day, in which case they will be valued at the mean between their latest
bid and asked prices. Unlisted options are valued at the mean between their
latest bid and asked prices. Futures are valued at the latest sale price on
the commodities exchange on which they trade unless the Trustees determine
that such price does not reflect their market value, in which case they will
be valued at their fair value as determined by the Trustees. All other
securities and other assets are valued at their fair value as determined in
good faith under procedures established by and under the supervision of the
Trustees.
As discussed in the Prospectus, 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; Reverend
Dr. Martin Luther King, Jr. Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day and Christmas Day.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Shareholder Investment Account. Upon purchase of shares of the Fund, a
Shareholder Investment Account is opened for the investor on the books of the
Fund, maintained by Dean Witter Trust Company (the "Transfer Agent"), in full
and fractional shares of the Fund (rounded to the nearest 1/100 of a share).
This is an open account in which shares owned by the investor are credited by
the Transfer Agent in lieu of issuance of a share certificate. If a share
certificate is desired, it must be requested in writing for each transaction.
Certificates are issued only for full shares and may be redeposited in the
account at any time. There is no charge to the investor for issuance of a
certificate. No certificates will be issued for fractional shares or to
shareholders who have elected the Systematic Withdrawal Plan for withdrawing
cash from their accounts. Whenever a shareholder instituted transaction takes
place in the Shareholder Investment Account, the shareholder will be mailed a
confirmation of the transaction from the Fund or from DWR or another selected
broker-dealer.
Automatic Investment of Dividends and Distributions. All dividends and
capital gains distributions are automatically paid in full and fractional
shares of the Fund, unless the shareholder requests that they be paid in
cash. Each purchase of shares of the Fund is made upon the condition that the
Transfer Agent is thereby automatically appointed as agent of the investor to
receive all dividends and capital gains distributions on shares owned by the
investor. Such dividends and distributions will be paid in shares of the Fund
(or in cash if the shareholder so requests) at the net asset value per share
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 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 (5) business days prior to the record date for
which it commences to take effect. In case of recently purchased shares for
which registration instructions have not been received on the record date,
cash payments will be made to DWR or other selected broker-dealer, and will
be forwarded to the shareholder, upon the receipt of proper instructions. It
has been and remains the Fund's policy and practice that, if checks for
dividends or distributions paid in cash remain uncashed, no interest will
accrue on amounts represented by such uncashed checks.
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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 or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected. Shares of Dean Witter money
market funds redeemed in connection with EasyInvest are redeemed on the
business day preceding the transfer of funds. For further information or to
subscribe to EasyInvest, shareholders should contact their DWR or other
selected broker-dealer account executive or the Transfer Agent.
Investment of Distributions Received in Cash. As discussed in the
Prospectus, any shareholder who receives a cash payment representing a
dividend or capital gains distribution may invest such dividend or
distribution at net asset value (without sales charge) by returning the check
or the proceeds to the Transfer Agent within 30 days after the payment date.
If the shareholder returns the proceeds of a dividend or distribution, such
funds must be accompanied by a signed statement indicating that the proceeds
constitute a dividend or distribution to be invested. Such investment will be
made at the net asset value per share next determined after receipt of the
check or the proceeds by the Transfer Agent.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
a shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to TCW/DW North
American Government Income Trust, directly to the Transfer Agent. Such
amounts will be applied to the purchase of Fund shares at the net asset value
per share next computed after receipt of the check or purchase payment by the
Transfer Agent. The shares so purchased will be credited to the investor's
account.
Targeted Dividends (Service Mark). In states where it is legally
permissible to do so, shareholders may also have all income dividends and
capital gains distributions automatically invested in shares of an open-end
TCW/DW Fund other than TCW/DW North American Government 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 TCW/DW 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 TCW/DW 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 TCW/DW Fund targeted to receive investments from
dividends at the time they enter the Targeted Dividends program. Investors
should review the prospectus of the targeted TCW/DW Fund before entering the
program.
Systematic Withdrawal Plan. As discussed in the Prospectus, a withdrawal
plan is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The plan provides for monthly or quarterly (March, June, September and
December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. The 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.
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.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes.
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
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<PAGE>
shares will be redeemed at their net asset value determined, at the
shareholder's option, on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent within five business days after
the date of redemption. The Withdrawal Plan may be terminated at any time by
the Fund.
A shareholder, may, at any time change the amount and interval of
withdrawal payments and the address to which checks are mailed by written
notification to the Transfer Agent. The shareholder's signature on such
notification 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). The shareholder may also terminate the Systematic 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 Shareholder Investment
Account. The shareholder may also redeem all or part of the shares held in
the Systematic Withdrawal Plan account (see "Repurchases and Redemptions" in
the Prospectus) at any time.
EXCHANGE PRIVILEGE
As discussed in the Prospectus under the caption "Exchange Privilege," an
Exchange Privilege exists whereby investors who have purchased shares of any
of the TCW/DW Funds that are multiple class funds ("TCW/DW Multi-Class
Funds") will be permitted, after the shares of the fund acquired by purchase
(not by exchange or dividend reinvestment) have been held for thirty days, to
redeem all or part of their shares in that fund, have the proceeds invested
in shares of the Fund and in shares of five money market funds for which
InterCapital serves as investment manager: Dean Witter Liquid Asset Fund
Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter California
Tax-Free Daily Income Trust, Dean Witter New York Municipal Money Market
Trust, or Dean Witter U.S. Government Money Market Trust (these six funds,
including the Fund, are hereinafter collectively referred to as "Exchange
Funds"). There is no waiting period for exchanges of shares acquired by
exchange or dividend reinvestment. Shares of the Exchange Funds received in
an exchange for shares of a TCW/DW Multi-Class Fund may be redeemed or
exchanged only for shares of the corresponding Class of a TCW/DW Multi-Class
Fund or for shares of one of the other Exchange Funds. Ultimately, any
applicable contingent deferred sales charge ("CDSC") will have to be paid
upon redemption of shares originally purchased from a Class of a TCW/DW
Multi-Class Fund that imposes a CDSC. An exchange will be treated for federal
income tax purposes the same as a repurchase or redemption of shares, on
which the shareholder may realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to
the contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit
should not be endorsed.)
When shares of a TCW/DW Multi-Class Fund are exchanged for shares of an
Exchange Fund, the exchange is executed at no charge to the shareholder,
without the imposition of the CDSC at the time of the exchange. During the
period of time the shareholder remains in the Exchange Fund, (calculated from
the last day of the month in which the 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
TCW/DW Multi-Class Fund. However, in the case of shares exchanged into an
Exchange Fund, upon redemption of shares which results in a CDSC being
imposed, a credit (not to exceed the amount of the CDSC) will be given in an
amount equal to the Exchange Fund 12b-1 distribution fees which are
attributable to those shares. Shareholders acquiring shares of an Exchange
Fund pursuant to this exchange privilege may exchange those shares back into
a TCW/DW Multi-Class 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 TCW/DW Multi-Class Fund are reacquired. Thus, a
CDSC is imposed only upon an ultimate redemption, based upon the time
(calculated as described above) the shareholder was invested in a TCW/DW
Multi-Class Fund.
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When shares initially purchased in a TCW/DW Multi-Class Fund are exchanged
for shares of a TCW/DW Multi-Class Fund or shares of an Exchange Fund, the
date of purchase of the shares of the fund exchanged into, for purposes of
the CDSC upon redemption, will be the last day of the month in which the
shares being exchanged were originally purchased. In allocating the purchase
payments between funds for purposes of the CDSC, the amount which represents
the current net asset value of shares at the time of the exchange which were
(i) purchased more than one, three or six years (depending on the CDSC
applicable to the shares) prior to the exchange and (ii) originally acquired
through reinvestment of dividends or distributions (all such shares called
"Free Shares"), will be exchanged first. After an exchange, all dividends
earned on shares in the 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. Shares equal to any appreciation in the value of non-Free Shares
exchanged will be treated as Free Shares, and the amount of the purchase
payments for the non-Free Shares of the fund exchanged into will be equal to
the lesser of (a) the purchase payments for, or (b) the current net asset
value of, the exchanged non-Free Shares. If an exchange between funds would
result in exchange of only part of a particular block of non-Free Shares,
then shares equal to any appreciation in the value of the block (up to the
amount of the exchange) will be treated as Free Shares and exchanged first,
and the purchase payment for that block will be allocated on a pro-rata basis
between the non-Free Shares of that block to be retained and the non-Free
Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase
payment for such shares, and the amount of purchase payment for the exchanged
non-Free Shares will be equal to the lesser of (a) the prorated amount of the
purchase payment for, or (b) the current net asset value of those exchanged
non-Free Shares. Based upon the procedures described in the TCW/DW
Multi-Class Fund Prospectus under the caption "Purchase of Fund Shares," any
applicable CDSC will be imposed upon the ultimate redemption of shares of any
fund, regardless of the number of exchanges since those shares were
originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the Exchange Privilege,
the Transfer Agent acts as agent for the Distributor and for the
shareholder's selected broker-dealer, if any, in the performance of such
functions. 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.
Shares of the Fund acquired pursuant to the Exchange Privilege will be
held by the Fund's Transfer Agent in an Exchange Privilege account distinct
from any account of the same shareholder who may have acquired shares of the
Fund directly. A shareholder of the Fund will not be permitted to make
additional investments in such Exchange Privilege account, except through the
exchange of additional shares of the fund in which the shareholder had
initially invested, and the proceeds of any shares redeemed from such
Exchange Privilege account may not thereafter be placed back into that
Exchange Privilege account, except by utilizing the Reinstatement Privilege
(see "Repurchases and Redemptions--Reinstatement Privilege"). If such a
shareholder desires to make any additional investments in the Fund, a
separate account will be maintained for receipt of such investments. The Fund
will have additional costs for account maintenance if a shareholder has more
than one account with the Fund.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Dean Witter Liquid
Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
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
the Exchange Privilege account of each Class for Dean Witter U.S. Government
Money Market Trust and all TCW/DW Funds is $1,000.) Upon exchange into a
money market fund, the shares of that fund will be held in a special Exchange
34
<PAGE>
Privilege Account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of money market funds, including the check
writing feature, will not be available for funds held in that account.
The Fund, each of the other TCW/DW Funds and each of the money market
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 any of the TCW/DW Funds
or the money market funds, upon such notice as may be required by applicable
regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of
the Exchange Funds pursuant to 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.
For further information regarding the Fund's Exchange Privilege,
shareholders should contact their DWR or other selected broker-dealer account
executive or the Transfer Agent.
REPURCHASES AND REDEMPTIONS
- -----------------------------------------------------------------------------
Payment for Shares Repurchased or Redeemed. As discussed in the
Prospectus, payment for shares presented for repurchase or redemption will be
ordinarily made by check within seven days after receipt by the Transfer
Agent of the certificate and/or written request in good order. Such payment
may be postponed or the right of redemption suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund to fairly 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 and the check has not yet cleared, payment of redemption proceeds
may be delayed until the check has cleared. It has been and remains the
Fund's policy and practice that, if checks for dividends or distributions
paid in cash remain uncashed, no interest will accrue on amounts represented
by such uncashed checks.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
The Fund intends to continue to qualify and elect to be treated as a
regulated investment company for each taxable year under the Internal Revenue
Code of 1986, as amended (the "Code"). To so qualify, the Fund must meet
certain requirements as to the nature of its income and the nature of its
assets.
As a regulated investment company, the Fund will not be subject to United
States federal income tax on its income that it distributes to its
shareholders, provided that an amount equal to at least 90% of its investment
company taxable income (i.e., 90% of its taxable income minus the excess, if
any, of its net realized long-term capital gains over its net realized
short-term capital losses including any capital loss carryovers), plus or
minus certain other adjustments as specified in section 852 of the Code) for
the taxable year is distributed, but will be subject to tax at regular
corporate rates on any income or gains that it does not distribute.
Furthermore, the Fund will be subject to a United States corporate income tax
with respect to such distributed amounts in any year that it fails to qualify
as a regulated investment company or fails to meet this distribution
requirement.
Gains or losses on the Fund's transactions in certain listed options on
securities and on futures and options on futures traded on U.S. exchanges
generally are treated as 60% long-term gain or loss and 40% short-term gain
or loss. When the Fund engages in options and futures transactions, various
tax regulations applicable to the Fund may have the effect of causing the
Fund to recognize a gain or loss for tax purposes before that gain or loss is
35
<PAGE>
realized, or to defer recognition of a realized loss for tax purposes.
Recognition, for tax purposes, of an unrealized loss may result in a lesser
amount of the Fund's realized net gains being available for distribution.
As a regulated investment company, the Fund is subject to the requirement
that less than 30% of its gross income be derived from the sale of certain
investments held for less than three months. This requirement may limit the
Fund's ability to engage in options and futures transactions and to engage in
a large number of short-term transactions.
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 expects to
designate such retained amounts as undistributed capital gains in a notice to
its shareholders who (a) will be required to include in income for United
States federal income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b) will be entitled to
credit their proportionate shares of the 35% tax paid by the Fund on the
undistributed amount against their United States federal income tax
liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax
basis, for United States federal income tax purposes, in their shares by an
amount equal to 65% of the amount of undistributed capital gains included in
the shareholder's income.
The Code imposes a 4% nondeductible excise tax on the Fund to the extent
the Fund does not distribute by the end of any calendar year at least 98% of
its net investment income for that year and 98% of the net amount of its
capital gains (both long-and short-term) for the one-year period ending, as a
general rule, on October 31 of that year. For this purpose, however, any
income or gain retained by the Fund that is subject to corporate income tax
will be considered to have been distributed by year-end. The Fund anticipates
that it will pay such dividends and will make such distributions as are
necessary in order to avoid the application of this 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.
Treasury intends to issue regulations to permit shareholders to take into
account their proportionate share of the Fund's capital gains distributions
that will be subject to a reduced rate under the Taxpayer Relief Act of 1997.
The Taxpayer Relief Act reduced the maximum tax on long-term capital gains
from 28% to 20%; however, it also lengthened the required holding period to
obtain this lower rate from more than 12 months to more than 18 months. These
lower rates do not apply to collectibles and certain other assets.
Additionally, the maximum capital gain rate for assets that are held more
than 5 years and that are acquired after December 31, 2000 is 18%.
The Fund may invest in securities having original issue discount which may
generate income in excess of the cash received by the Fund. Consequently, the
Fund may be required to borrow or to liquidate securities in order to make
distributions.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value
of the shareholder's stock in that company by the exact amount of the
dividend or capital gains distribution. Furthermore, capital gains
distributions and dividends are subject to federal income taxes. If the net
asset value of the shares should be reduced below a shareholder's cost as a
result of the payment of dividends or the distribution of realized net
long-term capital gains, such payment or distribution would be in part a
return of the shareholder's investment to the extent of such reduction below
the shareholder's cost, but nonetheless would be fully taxable. Therefore, an
investor should consider the tax implications of purchasing Fund shares
immediately prior to a distribution record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains during
the six-month period.
Dividends, interest and capital gains received by the Fund may give rise
to withholding and other taxes imposed by foreign countries. Tax treaties
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
36
<PAGE>
shareholders of the Fund will be required to include their respective pro
rata portions of such withholding taxes in their United States income tax
returns as gross income, treat such respective pro rata portions as taxes
paid by them, and deduct such respective pro rata portions in computing their
taxable income or, alternatively, use them as foreign tax credits against
their United States income taxes. The Fund will report annually to its
shareholders the amount per share of such withholding. The Taxpayer Relief
Act of 1997 mandates a holding period requirement for claiming a foreign tax
credit with respect to dividends. The foreign tax credit normally available
with respect to a dividend from a corporation (or a Fund that has made an
election under Section 853), is disallowed if the shareholder has not held
the stock for, in general, 16 days in the case of common stock (46 days in
the case of preferred stock) during the 30-day (90-day) period beginning 15
days (46 days) before the ex-date of the dividend with respect to which the
foreign tax is paid. The holding period requirement applies to shareholders
of the Fund as well as the Fund itself.
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. The Fund may request a private letter
ruling from the Internal Revenue Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from forward
contracts, from futures contracts that are not "regulated futures contracts",
and from unlisted options will be treated as ordinary income or loss under
Code Section 988. Also, certain foreign exchange gains or losses derived with
respect to foreign fixed-income securities are also subject to Section 988
treatment. In general, therefore, Code Section 988 gains or losses will
increase or decrease the amount of the Fund's investment company taxable
income available to be distributed to shareholders as ordinary income, rather
than increasing or decreasing the amount of the Fund's net capital gain.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund may not be able to make any
ordinary dividend distributions and distributions paid during the year may be
characterized for tax purposes as a return of capital.
Exchange control regulations may restrict repatriations of investment
income and capital or the proceeds of securities sales by foreign investors
such as the Fund and may limit the Fund's ability to pay sufficient dividends
and to make sufficient distributions to satisfy the 90% and excise tax
distribution requirements.
The Fund's transactions, if any, in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) may be subject to special provisions of the Code that,
among other things, may affect the character of gains and losses realized by
the Fund (i.e., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Fund and defer Fund losses. These
rules could therefore affect the character, amount and timing of
distributions to shareholders. These rules also (a) could require the Fund to
mark-to-market certain types of the positions in its portfolio (i.e., treat
them as they were closed out) and (b) may cause the Fund to recognize income
without receiving cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for avoiding
income and excise taxes.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of
certain technical tax provisions applying to such companies could result in
the imposition of federal income tax with respect to such investments at the
Fund level which could not be eliminated by distributions to shareholders.
The Taxpayer Relief Act of 1997 establishes a mark-to-market regime which
allows taxpayers investing in PFICs to avoid most, if not all of the
difficulties posed by the PFIC rules. In any event, it is not anticipated
that any taxes on the Fund with respect to investments in PFIC's would be
significant.
Distributions in excess of the Fund's current and accumulated earnings and
profits will, as to each shareholder, be treated as a tax-free return of
capital, to the extent of a shareholder's basis in his shares of the Fund,
and as a capital gain thereafter (if the shareholder held his or her shares
of the Fund as capital assets).
37
<PAGE>
Shareholders receiving dividends or distributions in the form of
additional Fund shares should be treated for United States federal income tax
purposes as receiving a distribution in an amount equal to the amount of
money that the shareholders receiving cash dividends or distributions will
receive, and should have a cost basis in the shares received equal to such
amount.
Any loss realized on the redemption by a shareholder of his shares will be
disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains
distributions in the Fund, within a period (of 61 days) beginning 30 days
before and ending 30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be increased to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of a Fund
share held by the shareholder for six months or less will be treated for
United States income tax purposes as a long-term capital loss to the extent
of any distributions or deemed distributions of long-term capital gains
received by the shareholder with respect to such share.
Distributions may also be subject to state, local and foreign taxes
depending on each shareholder's particular situation.
The foregoing discussion is a general summary of certain of the current
Federal income tax laws regarding the Fund and investors. The discussion does
not purport to deal with all of the Federal income tax consequences
applicable to the Fund, or to all categories of investors, some of which may
be subject to special rules. Investors should consult their own tax advisors
regarding the tax consequences to them of investments in shares.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature.
Yield is calculated for any 30-day period as follows: the amount of interest
and/or dividend income for each security in the Fund's portfolio is
determined in accordance with regulatory requirements; the total for the
entire portfolio constitutes the Fund's gross income for the period. Expenses
accrued during the period are subtracted to arrive at "net investment
income." The resulting amount is divided by the product of the net asset
value per share on the last day of the period multiplied by the average
number of Fund shares outstanding during the period that were entitled to
dividends. This amount is added to 1 and raised to the sixth power. 1 is then
subtracted from the result and the difference is multiplied by 2 to arrive at
the annualized yield. The Fund's yield for the 30-day period ended October
31, 1997 was 5.43%.
The Fund's "average annual total return" represents an annualization of
the Fund's total return over a particular period and is computed by finding
the annual percentage rate which will result in the ending redeemable value
of a hypothetical $1,000 investment made at the beginning of a one, five or
ten year period, or for the period from the date of commencement of the
Fund's operations, if shorter than any of the foregoing. For the purpose of
this calculation, it is assumed that all dividends and distributions are
reinvested. The formula for computing the average annual total return
involves a percentage obtained by dividing the ending redeemable value by the
amount of the initial investment, taking a root of the quotient (where the
root is equivalent to the number of years in the period) and subtracting 1
from the result. The average annual total returns for the Fund for the 1 and
5 year periods ended October 31, 1997 and for the period from July 31, 1992
(commencement of operations) through October 31, 1997, were 7.80%, 3.88% and
3.95%, respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or
other types of total return figures. 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 by the initial $1,000 investment and subtracting 1
from the result. The Fund's total returns for the 1 and 5 year periods ended
October 31, 1997 and for the period from July 31, 1992 through October 31,
1997, were 7.80%, 20.98% and 22.53%, 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 and multiplying by $10,000, $50,000 or $100,000, as
the case may be. Investments of $10,000, $50,000 and $100,000 in the Fund at
inception would have grown to $12,253, $61,265 and $122,530, respectively, at
October 31, 1997.
38
<PAGE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent
organizations.
DESCRIPTION OF SHARES
- -----------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share held. The Trustees have been elected by DWR as the then sole
shareholder of the Fund on May 11, 1992, or, in the case of Messrs. Schroeder
and Stern, by the other Trustees of the Fund on April 20, 1995. 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 to
remove the Trustees following a meeting called for that purpose requested in
writing by the record holders of not less than ten percent of the Fund's
outstanding shares. 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). The Trustees have not
presently authorized any such additional series or classes of shares.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his own
bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties. It also provides that all third persons shall look solely to the
Fund's property for satisfaction of claims arising in connection with the
affairs of the Fund. With the exceptions stated, the Declaration of Trust
provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liabilities in connection with the affairs of the
Fund.
The 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. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Dean Witter Trust FSB, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and
Dividend Disbursing Agent for payment of dividends and distributions on Fund
shares and Agent for shareholders under various investment plans described
herein. Dean Witter Trust FSB is an affiliate of Dean Witter Services Company
Inc., the Fund's Manager, and Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter
Trust FSB's responsibilities include maintaining shareholder accounts,
disbursing cash dividends and reinvesting dividends, processing account
registration changes, handling purchase and redemption transactions, mailing
prospectuses and reports, mailing and tabulating proxies, processing share
certificate transactions, and maintaining shareholder records and lists. For
these services Dean Witter Trust FSB receives a per shareholder account fee.
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.
39
<PAGE>
REPORTS TO SHAREHOLDERS
- -----------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report
containing financial statements audited by independent accountants will be
sent to shareholders each year.
The Fund's fiscal year ends on October 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The financial statements of the Fund included in this Statement of
Additional Information and incorporated by reference in the Prospectus have
been so included and incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
REGISTRATION STATEMENT
- -----------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
40
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (48.8%)
$8,223 Federal Home Loan Mortgage Corp. ARM ............................ 7.884% 08/01/23 $8,606,707
6,029 Federal Home Loan Mortgage Corp. ARM ............................ 7.961 03/01/25 6,306,627
8,899 Federal Home Loan Mortgage Corp. PC GOLD ........................ 6.00 11/01/00-
12/01/00 8,787,415
6,848 Federal Home Loan Mortgage Corp. PC GOLD ........................ 7.00 02/01/98 6,945,960
1,259 Federal National Mortgage Assoc. ................................ 9.50 06/01/20 1,327,910
7,772 Government National Mortgage Assoc. II ARM ...................... 6.875 10/20/24-
12/20/24 7,991,868
31,528 Government National Mortgage Assoc. II ARM ...................... 7.125 08/20/22 32,514,994
29,935 Government National Mortgage Assoc. II ARM ...................... 7.375 06/20/22-
06/20/25 30,915,072
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -------------
(Identified Cost $101,424,921) ....................................................... 103,396,553
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS (46.6%)
U.S. GOVERNMENT AGENCIES (39.1%)
23 Federal Home Loan Mortgage Corp. 1370 K (PAC I/O) ............... 1,089.16 09/15/22 660,169
8,205 Federal Home Loan Mortgage Corp. 1504 A (PAC) ................... 7.00 07/15/22 8,404,224
2,257 Federal Home Loan Mortgage Corp. 1508 Q ......................... 7.50 + 05/15/23 1,933,930
11,120 Federal Home Loan Mortgage Corp. 1560 A (PAC) ................... 6.50 02/15/23 10,961,552
6,789 Federal Home Loan Mortgage Corp. G 15 P ......................... 6.50 08/25/20 6,746,838
22,265 Federal Home Loan Mortgage Corp. G 21 M ......................... 6.50 10/25/23 21,822,047
7,856 Federal National Mortgage Assoc. 1993-163 A ..................... 7.00 03/25/23 7,900,752
9,017 Federal National Mortgage Assoc. 1993-165 SE .................... 7.543+ 09/25/23 7,995,740
16,940 Federal National Mortgage Assoc. 1993-167 M (PAC) ............... 6.00 09/25/23 16,616,415
-------------
TOTAL U.S. GOVERNMENT AGENCIES (Identified Cost $84,638,282) .... 83,041,667
-------------
PRIVATE ISSUES (7.5%)
874 Citicorp Mortgage Securities, Inc. 1991-1 ...................... 8.50 03/25/06 854,675
12,232 CountryWide Funding Corp. 1993-7 AS3 (TAC) ...................... 8.662+ 11/25/23 9,517,893
2,890 General Electric Capital Mortgage Services, Inc. 1992-11 M ...... 8.00 09/25/22 2,955,376
2,721 Resolution Trust Corp. 1991-6 C1 ................................ 9.00 09/25/28 2,611,702
-------------
TOTAL PRIVATE ISSUES (Identified Cost $19,439,984) .................................... 15,939,646
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Identified Cost $104,078,266) ....................................................... $98,981,313
-------------
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1997, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (4.4%)
COMMERCIAL PAPER (a)(3.7%)
$7,800 BP America, Inc. (Amortized Cost $7,797,543) .................... 5.67% 11/03/97 $7,797,543
REPURCHASE AGREEMENT (0.7%)
1,535 The Bank of New York (dated 10/31/97; proceeds $1,536,188) (b)
(Identified Cost $1,535,484) ................................... 5.50 11/03/97 1,535,484
-------------
TOTAL SHORT-TERM INVESTMENTS (Identified Cost $9,333,027) ............................. 9,333,027
-------------
TOTAL INVESTMENTS (Identified Cost $214,836,214)(c) ........................ 99.8% 211,710,893
OTHER ASSETS IN EXCESS OF LIABILITIES ...................................... 0.2 328,842
----- -------------
NET ASSETS ................................................................. 100.0% $212,039,735
===== =============
</TABLE>
- ------------
ARM Adjustable rate mortgage.
I/O Interest-only securities.
PAC Planned Amortization Class.
PC Participation Certificate.
TAC Targeted Amortization Class.
+ Inverse floater: interest rate moves inversely to a designated
index, such as LIBOR (London Inter-Bank Offered Rate) or COFI (Cost
of Funds Index), typically at a multiple of the changes of the
relevant index rate.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $1,536,978 Federal National Mortgage Assoc. 6.60%
due 09/20/02 valued at $1,566,194.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$2,858,987 and the aggregate gross unrealized depreciation is
$5,984,308, resulting in net unrealized depreciation of $3,125,321.
SEE NOTES TO FINANCIAL STATEMENTS
42
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $214,836,214).......... $ 211,710,893
Receivable for:
Interest................................ 1,209,408
Principal paydowns...................... 663,193
Shares of beneficial interest sold ..... 98,697
Prepaid expenses......................... 40,059
---------------
TOTAL ASSETS........................... 213,722,250
---------------
LIABILITIES:
Payable for:
Shares of beneficial interest
repurchased............................ 1,230,284
Plan of distribution fee................ 138,344
Dividends to shareholders............... 89,056
Management fee.......................... 71,939
Investment advisory fee................. 47,959
Accrued expenses......................... 104,933
Contingencies (Note 10).................. --
---------------
TOTAL LIABILITIES...................... 1,682,515
---------------
NET ASSETS............................. $ 212,039,735
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................... $ 445,268,361
Net unrealized depreciation.............. (3,125,321)
Accumulated undistributed net investment
income.................................. 391,193
Accumulated net realized loss............ (230,494,498)
---------------
NET ASSETS............................. $ 212,039,735
===============
NET ASSET VALUE PER SHARE,
24,679,449 shares outstanding
(unlimited shares authorized of $.01
par value).............................. $8.59
=====
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME....................... $18,423,552
-------------
EXPENSES
Plan of distribution fee.............. 1,978,311
Management fee........................ 1,052,959
Investment advisory fee............... 701,973
Transfer agent fees and expenses ..... 371,370
Professional fees..................... 147,017
Registration fees..................... 44,216
Shareholder reports and notices ...... 42,085
Trustees' fees and expenses........... 33,413
Organizational expenses............... 30,208
Other................................. 40,263
-------------
TOTAL EXPENSES...................... 4,441,815
-------------
NET INVESTMENT INCOME............... 13,981,737
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss..................... (2,132,540)
Net change in unrealized
depreciation......................... 6,751,649
-------------
NET GAIN............................ 4,619,109
-------------
NET INCREASE.......................... $18,600,846
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 13,981,737 $ 27,987,343
Net realized loss...................................... (2,132,540) (14,716,492)
Net change in unrealized appreciation.................. 6,751,649 13,910,483
---------------- ----------------
NET INCREASE......................................... 18,600,846 27,181,334
Dividends from net investment income................... (13,827,194) (26,893,174)
Net decrease from transactions in shares of beneficial
interest.............................................. (143,263,528) (308,065,887)
---------------- ----------------
NET DECREASE......................................... (138,489,876) (307,777,727)
NET ASSETS:
Beginning of period.................................... 350,529,611 658,307,338
---------------- ----------------
END OF PERIOD
(Including undistributed net investment income of
$391,193 and $236,650, respectively)................. $ 212,039,735 $ 350,529,611
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
TCW/DW North American Government Income Trust (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
non-diversified, open-end management investment company. The Fund's
investment objective is to earn a high level of income while maintaining
relatively low volatility of principal. The Fund was organized as a
Massachusetts business trust on February 19, 1992 and commenced operations on
July 31, 1992.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
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, including circumstances under which it
is determined by TCW Funds Management, Inc. (the "Adviser") that sale or bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees (valuation
of debt securities for which market quotations are not readily available may
be based upon current market prices of securities which are comparable in
coupon, rating and maturity or an appropriate matrix utilizing similar
factors); and (3) 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. The Fund amortizes premiums and accretes discounts based on the
respective life of the 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 foreign
currency contracts are translated at the exchange rates prevailing at the end
of the period; and (2) purchases, sales, income and expenses are translated
at the exchange rates prevailing on the respective dates of such
transactions. The resultant exchange gains and losses are included in the
45
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
Statement of Operations as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. Federal income tax regulations,
certain foreign exchange gains/losses included in realized and unrealized
gain/loss are included in or are a reduction of ordinary income for federal
income tax purposes. The Fund does not isolate that portion of the results of
operations arising as a result of changes in the foreign exchange rates from
the changes in the market prices of the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized foreign currency gain or loss. The Fund
records realized gains or losses on delivery of the currency or at the time
the forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery.
E. DOLLAR ROLLS -- The Fund may enter into dollar rolls in which the Fund
sells securities for delivery and simultaneously contracts to repurchase
substantially similar securities at the current sales price on a specified
future date. The difference between the current sales price and the lower
forward price for the future purchase (often referred to as the "drop") is
amortized over the life of the dollar roll.
F. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend 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.
46
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
H. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc., an affiliate of
Dean Witter Services Company Inc. (the "Manager"), paid the organizational
expenses of the Fund in the amount of approximately $200,000 and was
reimbursed for the full amount thereof. Such expenses have been deferred and
were fully amortized as of July 30, 1997.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management
fee, accrued daily and payable monthly, by applying the following annual
rates to the net assets of the Fund determined as of the close of each
business day: 0.39% to the portion of daily net assets not exceeding $3
billion and 0.36% to the portion of daily net assets exceeding $3 billion.
Under the terms of the Agreement, the 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 Manager. The Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement with the Adviser, the Fund pays
an advisory fee, calculated daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the
close of each business day: 0.26% to the portion of average daily net assets
not exceeding $3 billion and 0.24% to the portion of average daily net assets
exceeding $3 billion.
Under the terms of the Agreement, the Fund has retained the Adviser to invest
the Fund's assets, including placing orders for the purchase and sale of
portfolio securities. The Adviser 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. In addition, the
Adviser pays the salaries of all personnel, including officers of the Fund,
who are employees of the Adviser.
4. PLAN OF DISTRIBUTION
Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the
Manager, is the distributor of the Fund's shares and, in accordance with a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act,
finances certain expenses in connection with the distribution of shares of
the Fund.
47
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Fund, except for expenses
that the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor, Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Distributor and Investment
Manager, its affiliates or any other selected broker-dealer under the Plan:
(1) compensation to, and expenses of, account executives of DWR and others,
including overhead and telephone expenses; (2) sales incentives and bonuses
to sales representatives and to marketing personnel in connection with
promoting sales of the Fund's shares; (3) expenses incurred in connection
with promoting sales of the Fund's shares; (4) preparing and distributing
sales literature; and (5) providing advertising and promotional activities,
including direct mail solicitation and television, radio, newspaper, magazine
and other media advertisements.
The Fund is authorized to reimburse the Distributor for specific expenses the
Distributor incurs or plans to incur in promoting the distribution of the
Fund's shares. The amount of each monthly reimbursement payment may in no
event exceed an amount equal to a payment at the annual rate of 0.75% of the
Fund's average daily net assets during the month. Expenses incurred pursuant
to the Plan in any fiscal year in excess of 0.75% of the Fund's average daily
net assets will not be reimbursed by the Fund through payments accrued in any
subsequent fiscal year. For the year ended October 31, 1997, the distribution
fee was accrued at the annual rate of 0.73%.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The proceeds from sales/prepayments of portfolio securities, excluding
short-term investments, for the year ended October 31, 1997 were as follows:
<TABLE>
<CAPTION>
SALES/
PREPAYMENTS
--------------
<S> <C>
U.S. Government Agencies .... $124,400,112
Private Issue CMOs .......... 1,743,128
</TABLE>
Dean Witter Trust FSB, an affiliate of the Manager and Distributor, is the
Fund's transfer agent. At October 31, 1997, the Fund had transfer agent fees
and expenses payable of approximately $8,300.
48
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold ..................... 2,792,480 $ 23,503,988 4,379,571 $ 36,607,829
Reinvestment of
dividends................ 1,223,673 10,240,883 2,403,699 19,895,478
Repurchased .............. (21,098,837) (177,008,399) (44,094,721) (364,569,194)
-------------- -------------- -------------- ---------------
Net decrease.............. (17,082,684) $(143,263,528) (37,311,451) $(308,065,887)
============== ============== ============== ===============
</TABLE>
7. FEDERAL INCOME TAX STATUS
At October 31, 1997, the Fund had an approximate net capital loss carryover
of $230,494,000, which may be used to offset future capital gains to the
extent provided by regulations, which is available through October 31 of the
following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- ----------------------------------------
2002 2003 2004 2005
- --------- ---------- --------- -------
<S> <C> <C> <C>
$53,086 $160,560 $14,716 $2,132
========= ========== ========= =======
</TABLE>
8. REVERSE REPURCHASE AND DOLLAR ROLL AGREEMENTS
Reverse repurchase and dollar roll agreements involve the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase or dollar roll agreement files for
bankruptcy or becomes insolvent, the Fund's use of proceeds of the agreement
may be restricted pending a determination by the other party, its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the
securities.
Reverse repurchase agreements are collateralized by Fund securities with a
market value in excess of the Fund's obligation under the contract.
9. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated
portfolio transactions or to manage foreign currency exposure associated with
foreign currency denominated securities.
49
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1997, continued
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their
contracts.
At October 31, 1997, there were no outstanding forward contracts.
10. LITIGATION
Several class action lawsuits, which have been consolidated for pretrial
purposes, were instituted in 1995 in the United States District Court, in New
York, against the Fund, some of its Trustees and officers, its underwriter
and distributor, the Adviser, the Manager, and other defendants, by certain
shareholders of the Fund. The consolidated amended complaint asserts claims
under the Securities Act of 1933 and generally alleges that the defendants
made inadequate and misleading disclosures in the prospectuses for the Fund,
in particular as such disclosures relate to the nature and risks of the
Fund's investments in mortgage-backed securities and Mexican securities. The
plaintiffs also challenge certain fees paid by the Fund as excessive. Damages
are sought in an unspecified amount. All defendants have moved to dismiss the
consolidated amended complaint, and on May 8, 1996 the motions to dismiss
were denied. The defendants moved for reargument and on August 28, 1996 the
Court issued a second opinion which granted the motion to dismiss in part. On
December 4, 1996 the defendants filed a renewed motion to dismiss which was
denied by the Court on November 20, 1997. The Court has also certified a
plaintiff class pursuant to the Federal Rules of Civil Procedure.
The ultimate outcome of these matters is not presently determinable, and no
provision has been made in the Fund's financial statements for the effect, if
any, of such matters.
50
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT 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 JULY 31, 1992*
------------------------------------------------ THROUGH
1997 1996 1995 1994 1993 OCTOBER 31, 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 8.39 $ 8.33 $ 8.89 $10.11 $ 9.96 $10.00
-------- -------- -------- --------- -------- ----------------
Net investment income ................... 0.44 0.47 0.69 0.68 0.77 0.18
Net realized and unrealized gain (loss) 0.19 0.04 (0.59) (1.18) 0.14 (0.05)
-------- -------- -------- --------- -------- ----------------
Total from investment operations ....... 0.63 0.51 0.10 (0.50) 0.91 0.13
-------- -------- -------- --------- -------- ----------------
Less dividends and distributions from:
Net investment income .................. (0.43) (0.45) -- (0.47) (0.76) (0.17)
Net capital gain ....................... -- -- -- (0.02) -- --
Paid-in-capital ........................ -- -- (0.66) (0.23) -- --
-------- -------- -------- --------- -------- ----------------
Total dividends and distributions ...... (0.43) (0.45) (0.66) (0.72) (0.76) (0.17)
-------- -------- -------- --------- -------- ----------------
Net asset value, end of period .......... $ 8.59 $ 8.39 $ 8.33 $ 8.89 $10.11 $ 9.96
======== ======== ======== ========= ======== ================
TOTAL INVESTMENT RETURN+ ................ 7.80% 6.38% 1.61% (5.06)% 9.35% 1.28%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.65% 1.64% 1.59% 1.52% 1.54% 1.80%(2)
Net investment income ................... 5.18% 5.71% 8.28% 6.85% 7.78% 8.36%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions . $212 $351 $658 $1,360 $2,986 $762
Portfolio turnover rate ................. -- 13% 44% 27% 77% 2%(1)
</TABLE>
- ------------
* Commencement of operations.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW NORTH AMERICAN GOVERNMENT 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 TCW/DW North
American Government Income Trust (the "Fund") at October 31, 1997, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended and for the
period July 31, 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, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 17, 1997
52
<PAGE>
APPENDIX
- -----------------------------------------------------------------------------
RATINGS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
Aaa Fixed-income securities 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 Fixed Income securities 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 fixed-income securities. They
are rated lower than the best fixed-income securities 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 Fixed-income securities 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 Fixed-income securities 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 fixed-income securities lack outstanding
investment characteristics and in fact have speculative
characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered
investment grade.
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 fixed-income security 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")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security 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.
53
<PAGE>
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.
AAA Fixed-income securities rated AAA have the highest rating assigned
by Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA Fixed-income securities rated AA have a very strong capacity to pay
interest and repay principal and differs from the highest-rated
issues only in small degree.
A Fixed-income securities rated A have 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 fixed-income securities in higher-rated
categories.
BBB Fixed-income securities rated BBB are 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 fixed-income
securities in this category than for fixed-income securities in
higher-rated categories.
Fixed-income securities rated AAA, AA, A and BBB are considered
investment grade.
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.
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. 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.
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.
54
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT 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 July 31, 1992
(commencement of operations) through October 31, 1992
and for the years ended October 31, 1993, 1994, 1995, 1996
and 1997...................................................... 5
(2) Financial statements included in the Statement of
Additional Information (Part B):
Page in
SAI
---
Portfolio of Investments at October 31, 1997 ................. 41
Statement of Assets and Liabilities at October 31, 1997....... 43
Statement of Operations for the year ended October 31, 1997... 43
Statement of Changes in Net Assets for the fiscal years
ended October 31, 1996 and October 31, 1997................... 44
Notes to Financial Statements................................. 45
Financial Highlights for the period July 31, 1992 through
October 31, 1992 and for the years ended October 31, 1993,
1994, 1995, 1996 and 1997..................................... 51
(3) Financial Statements included in Part C:
None.
<PAGE>
(b) Exhibits:
Exhibit
Number Description
- ------ -----------
2. - By-Laws of the Registrant, Amended and Restated as of
October 23, 1997
6. - Form of Distribution Agreement between the Registrant and
Dean Witter Distributors Inc.
8. - Form of Transfer Agency and Services Agreement between Registrant
and Dean Witter Trust Company
11. - Consent of Independent Accounts
15. - Form of Amended and Restated Plan of Distribution pursuant
to Rule 12b-1
16. - Schedules for Computation of Performance Quotations
27. - Financial Data Schedule
- --------------
All other exhibits were previously filed via EDGAR and are hereby incorporated
by reference
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 31, 1997
-------------- ---------------------
Shares of Beneficial Interest 19,496
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
2
<PAGE>
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 Management or either Co-Advisory Agreements,
none of the Manager, the Advisers or 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.
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 Manager, Registrant's Trustees,
and other registered investment management companies managed by the 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.
The TCW Funds Management, Inc. ("TCW") is a 100% owned subsidiary of
The TCW Group, Inc., a Nevada corporation. TCW presently serves as investment
adviser to: (1) TCW Funds, Inc., a diversified open-end management investment
company, (2) TCW Convertible Securities Fund, Inc., a diversified closed-end
management investment company; (3) TCW/DW Core Equity Trust, an open-end,
non-diversified management company, (4) TCW/DW North American Government Income
Trust, an open-end, non-diversified management company, (5) TCW/DW Income and
Growth Fund, an open-end, non-diversified management company, (6) TCW/DW Latin
American Growth Fund, an open-end, non-diversified management company, (7)
TCW/DW Small Cap Growth Fund, an open-end non-diversified management company,
(8) TCW/DW Term Trust 2000, a closed-end, diversified management company, (9)
TCW/DW Term Trust 2002, a closed-end diversified management company, (10)
TCW/DW Term Trust 2003, a closed-end diversified management company, (11)
TCW/DW Balanced Fund, an open-end, diversified management company, (12) TCW/DW
Emerging Markets Opportunities Trust, an open-end, non-diversified management
company, (13) TCW/DW Total Return Trust, an open-end non-diversified management
investment company, (14) TCW/DW Mid-Cap Equity Trust, an open-end,
3
<PAGE>
diversified management investment company, (15) TCW/DW Global Telecom Trust, an
open-end diversified management investment company and (16) TCW/DW Strategic
Income Trust, an open-end diversified management investment company. TCW also
serves as investment adviser or sub-adviser to other investment companies,
including foreign investment companies. The list required by this Item 28 of
the officers and directors of TCW together with information as to any other
business, profession, vocation or employment of a substantive nature engaged in
by TCW and such officers and directors during the past two years, is
incorporated by reference to Form ADV (File No. 801-29075) filed by TCW
pursuant to the Investment Advisers Act.
Item 29. Principal Underwriters.
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware corporation,
is the principal underwriter of the Registrant. Distributors is also the
principal underwriter of the following investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Natural Resource Development Securities Inc.
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Global Utilities Fund
(15) Dean Witter Federal Securities Trust
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter World Wide Income Trust
(23) Dean Witter Utilities Fund
(24) Dean Witter Strategist Fund
(25) Dean Witter New York Municipal Money Market Trust
(26) Dean Witter Intermediate Income Securities
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Developing Growth Securities Trust
(29) Dean Witter Precious Metals and Minerals Trust
(30) Dean Witter Pacific Growth Fund Inc.
(31) Dean Witter Multi-State Municipal Series Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter Health Sciences Trust
(35) Dean Witter Global Dividend Growth Securities
4
<PAGE>
(36) Dean Witter American Value Fund
(37) Dean Witter U.S. Government Money Market Trust
(38) Dean Witter Global Short-Term Income Fund Inc.
(39) Dean Witter Variable Investment Series
(40) Dean Witter Value-Added Market Series
(41) Dean Witter Short-Term Bond Fund
(42) Dean Witter International SmallCap Fund
(43) Dean Witter Hawaii Municipal Trust
(44) Dean Witter Balanced Growth Fund
(45) Dean Witter Balanced Income Fund
(46) Dean Witter Intermediate Term U.S. Treasury Trust
(47) Dean Witter Global Asset Allocation Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Capital Appreciation Fund
(50) Dean Witter Information Fund
(51) Dean Witter Japan Fund
(52) Dean Witter Income Builder Fund
(53) Dean Witter Special Value Fund
(54) Dean Witter Financial Services Trust
(55) Dean Witter Market Leader Trust
(56) Dean Witter S&P 500 Index Fund
(57) Dean Witter Fund of Funds
(58) Morgan Stanley Dean Witter Competitive Edge Fund
(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
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
(a) The following information is given regarding directors and officers of Dean
Witter Distributors Inc. ("Distributors"). The principal address of
Distributors is Two World Trade Center, New York, New York 10048.
5
<PAGE>
POSITION AND OFFICE WITH DISTRIBUTORS
NAME AND THE REGISTRANT
- ---- -------------------------------------
Charles A. Fiumefreddo Chairman, Chief Executive Officer and
Director of Distributors and Chairman,
Chief Executive Officer and Trustee of
the Registrant.
Philip J. Purcell Director of Distributors.
Richard M. DeMartini Director of Distributors and Trustee of
the Registrant.
James F. Higgins Director of Distributors.
Thomas C. Schneider Executive Vice President, Chief
Financial Officer and Director of
Distributors.
Christine A. Edwards Executive Vice President, Secretary,
Chief Legal Officer and Director of
Distributors.
Robert Scanlan Executive Vice President of Distributors
and Vice President of the Registrant.
Mitchell M. Merin Executive Vice President of Distributors
and Vice President Of the Registrant.
Robert S. Giambrone Senior Vice President of Distributors
and Vice President of the Registrant.
Barry Fink Senior Vice President, Assistant General
Counsel and Assistant Secretary of
Distributors and Vice President,
Secretary and General Counsel of the
Registrant.
Frederick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance Officer
of Distributors.
Michael T. Gregg Vice President and Assistant Secretary
of Distributors.
Samuel Wolcott III Vice President of Distributors.
Thomas F. Caloia Assistant Treasurer of Distributors and
Treasurer of the Registrant.
Michael Interrante Assistant Treasurer of Distributors.
<PAGE>
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 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 30th day of January, 1998.
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
By /s/ Barry Fink
----------------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 6 has been signed below by the following persons
in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 01/30/98
--------------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 01/30/98
--------------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Richard M. DeMartini
Thomas E. Larkin, Jr.
Marc I. Stern
By /s/ Barry Fink 01/30/98
--------------------------------
Barry Fink
Attorney-in-Fact
John C. Argue
John R. Haire
Manuel H. Johnson
Michael E. Nugent
John L. Schroeder
By /s/ David M. Butowsky 01/30/98
--------------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
EXHIBIT INDEX
2. - By-Laws of the Registrant, Amended and Restated as of October 23, 1997
6. - Form of Distribution Agreement between the Registrant and Dean Witter
Distributors Inc.
8. - Form of Transfer Agency and Services Agreement between Registrant and
Dean Witter Trust Company
11. - Consent of Independent Accounts
15. - Form of Amended and Restated Plan of Distribution pursuant to Rule
12b-1
16. - Schedules for Computation of Performance Quotations
27. - Financial Data Schedule
<PAGE>
BY-LAWS
OF
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
AMENDED AND RESTATED AS OF OCTOBER 23, 1997
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 TCW/DW North
American Government Income Trust dated February 19, 1992.
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, otherwise
required by Section 16(c) of the 1940 Act and to the extent required by the
corporate or, 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.
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
<PAGE>
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 the
power to adjourn the meeting from time to time. The Shareholders present in
person or represented by proxy at any meeting and entitled to vote thereat
also shall have the power to adjourn the meeting from time to time if the
vote required to approve or reject any proposal described in the original
notice of such meeting is not obtained (with proxies being voted for or
against adjournment consistent with the votes for and against the proposal
for which the required vote has not been obtained). The affirmative vote of
the holders of a majority of the Shares then present in person or represented
by proxy shall be required to adjourn any meeting. Any adjourned meeting may
be reconvened without further notice or change in record date. At any
reconvened meeting at which a quorum shall be present, any business may be
transacted that might have been transacted at the meeting 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.
SECTION 3.10. Presence at Meetings. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
2
<PAGE>
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 Chairman and shall
be called by the Chairman or the Secretary upon the written request of any
two (2) Trustees.
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
3
<PAGE>
(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.
(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--
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(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
(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.
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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.
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 Chairman 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 Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.
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. (a) The Chairman shall be the chief executive
officer of the Trust; he shall preside at all meetings of the Shareholders
and of the Trustees; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the
Trustees are
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carried into effect, and, in connection therewith, shall be authorized to
delegate to the President or to one or more Vice Presidents such of his
powers and duties at such times and in such manner as he may deem advisable;
he 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.
(b) In the absence of the Chairman, the Board shall determine who shall
preside at all meetings of the shareholders and the Board of Trustees.
SECTION 6.7. The President. The President shall perform such duties as the
Board of Trustees and the Chairman 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 Chairman, 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
Chairman may from time to time prescribe.
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 Chairman.
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
Chairman, 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 Chairman, 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
Chairman 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 Chairman, 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 Chairman, 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 Chairman, 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 Chairman, 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.
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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 the
Trust by the Chairman, 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;
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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.
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 the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii)
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. The
record date, in any case, shall not be more than one hundred eighty (180)
days, and in the case of a meeting of Shareholders not less than ten (10)
days, prior to the date on which such meeting is to be held or the date on
which such other particular action requiring determination of Shareholders is
to be taken, as the case may be. In the case of a meeting of Shareholders,
the meeting date set forth in the notice to Shareholders accompanying the
proxy statement shall be the date used for purposes of calculating the 180
day or 10 day period, and any adjourned meeting may be reconvened without a
change in record date. 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 the 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.
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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.
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 TCW/DW North American Government
Income Trust, dated February 19, 1992, a copy of which is on file in the
office of the Secretary of the Commonwealth of Massachusetts, provides that
the name TCW/DW North American Government 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 TCW/DW
North American Government 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 TCW/DW North American Government Income Trust, but the Trust
Estate only shall be liable.
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TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 31st day of May, 1997 between TCW/DW North
American Government Income Trust, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (the "Fund" or "Trust"),
and Dean Witter Distributors Inc., a Delaware corporation (the
"Distributor");
W I T N E S S E T H:
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a non-diversified open-end investment company
and it is in the interest of the Fund to offer its shares for sale
continuously, and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Fund's transferable
shares of beneficial interest, of $.01 par value ("Shares"), in order to
promote the growth of the Fund and facilitate the distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Appointment of the Distributor. (a) The Fund hereby appoints
the Distributor as the principal underwriter of the Fund to sell Shares to
the public on the terms set forth in this Agreement and the Fund's prospectus
and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund, during the term of this Agreement, shall sell Shares to
the Distributor upon the terms and conditions set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from the Fund and to sell Shares as principal to investors, and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate
of the Distributor, upon the terms described herein and in the Fund's
prospectus (the "Prospectus") and statement of additional information
included in the Fund's registration statement (the "Registration Statement")
most recently filed from time to time with the Securities and Exchange
Commission (the "SEC") and effective under the Securities Act of 1933, as
amended (the "1933 Act"), and 1940 Act or as said Prospectus may be otherwise
amended or supplemented and filed with the SEC pursuant to Rule 497 under the
1933 Act.
SECTION 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive principal underwriter and distributor of the Trust, except that the
exclusive rights granted to the Distributor to sell the Shares shall not
apply to Shares issued by the Fund: (i) in connection with the merger or
consolidation of any other investment company or personal holding company
with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any such company
by the Fund; or (ii) pursuant to reinvestment of dividends or capital gains
distributions; or (iii) pursuant to the reinstatement privilege afforded
redeeming shareholders.
SECTION 3. Purchase of Shares from the Trust. (a) The Distributor shall
have the right to buy from the Trust the Shares needed, but not more than the
Shares needed (except for clerical errors in transmission), to fill
unconditional orders for Shares placed with the Distributor by investors and
securities dealers. The price which the Distributor shall pay for the Shares
so purchased from the Fund shall be the net asset value, determined as set
forth in the Prospectus, used in determining the public offering price on
which such orders were based.
(b) The shares are to be resold by the Distributor at the public offering
price, as set forth in the Prospectus to investors, or to securities dealers
of its choice, including DWR, who have entered into selected dealer
agreements with the Distributor pursuant to Section 7 ("Selected Dealers").
(c) The Fund shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(d) hereof. The Fund shall also have the right
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to suspend the sale of the Shares if trading on the New York Stock Exchange
shall have been suspended, if a banking moratorium shall have been declared
by federal or New York authorities, or if there shall have been some other
extraordinary event which, in the judgment of the Fund, makes it
impracticable to sell the Shares.
(d) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept
orders for the purchase of Shares. The Distributor will confirm orders upon
their receipt, and the Fund (or its agent) upon receipt of payment therefor
and instructions will deliver share certificates for such Shares or a
statement confirming the issuance of Shares. Payment shall be made to the
Fund in New York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the Fund (or its
agent).
(e) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct the Trust's transfer agent to receive instructions
directly from the Selected Dealer on behalf of the Distributor as to
registration of Shares in the names of investors and to confirm issuance of
the Shares to such investors. The Distributor is also authorized to instruct
the transfer agent to receive payment directly from the Selected Dealer on
behalf of the Distributor, for prompt transmittal to the Trust's custodian,
of the purchase price of the Shares. In such event the Distributor shall
obtain from the Selected Dealer and maintain a record of such registration
instructions and payments.
SECTION 4. Repurchase or Redemption of Shares. (a) Any of the outstanding
Shares may be tendered for redemption at any time, and the Fund agrees to
redeem the Shares so tendered in accordance with the applicable provisions
set forth in the Prospectus. The price to be paid to redeem the Shares shall
be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth
below.
Upon any redemption of Shares the Fund shall pay the total amount of the
redemption price in accordance with applicable provisions of the Prospectus
in New York Clearing House funds, or in portfolio securities in event of
redemptions in kind, on or before the seventh day subsequent to its having
received the notice of redemption in proper form.
(b) The Distributor is authorized, as agent for the Fund, to repurchase
Shares, represented by a share certificate which is delivered to any office
of the Distributor in accordance with applicable provisions set forth in the
Prospectus. The Distributor shall promptly transmit to the transfer agent of
the Fund for redemption all Shares so delivered. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's
transfer agent in connection with all such repurchases.
(c) The Distributor is authorized, as agent for the Fund, to repurchase
Shares held in a shareholder's account with the Fund for which no share
certificate has been issued, upon the telephonic or telegraphic request of
the shareholder, or at the discretion of the Distributor. The Distributor
shall promptly transmit to the transfer agent of the Fund, for redemption,
all such orders for repurchase of shares. Payment for shares repurchased may
be made by the Fund to the Distributor for the account of the shareholder.
The Distributor shall be responsible for the accuracy of instructions
transmitted to the Fund's transfer agent in connection with all such
repurchases.
(d) Redemption of Shares or payment by the Fund may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or during any other period when the Securities and Exchange
Commission, by order, so permits.
(e) With respect to Shares tendered for redemption or repurchase by any
Selected Dealer on behalf of its customers, the Distributor is authorized to
instruct the transfer agent of the Trust to accept orders for redemption or
repurchase directly from the Selected Dealer on behalf of the Distributor and
to instruct the Trust to transmit payments for such redemptions and
repurchases directly to the Selected
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Dealer on behalf of the Distributor for the account of the shareholder. The
Distributor shall obtain from the Selected Dealer, and shall maintain, a
record of such orders. The Distributor is further authorized to obtain from
the Trust; and shall maintain, a record of payments made directly to the
Selected Dealer on behalf of the Distributor.
SECTION 5. Duties of the Fund. (a) The Fund shall furnish to the
Distributor copies of all information, financial statements and other papers
which the Distributor may reasonably request for use in connection with the
distribution of the Shares, including one certified copy, upon request by the
Distributor, of all financial statements prepared by the Fund and examined by
independent accountants. The Fund shall, at the expense of the Distributor,
make available to the Distributor such number of copies of the Prospectus as
the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of Shares as investors may
reasonably be expected to purchase.
(c) The Fund shall use its best efforts to pay the filing fees for an
appropriate number of the Shares for sale under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by the Fund at
any time in its discretion. As provided in Section 8(c) hereof, such filing
fees shall be borne by the Fund. The Distributor shall furnish any
information and other material relating to its affairs and activities as may
be required by the Fund in connection with the sale of its Shares in any
state.
(d) The Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of annual and
interim reports of the Fund.
SECTION 6. Duties of the Distributor. (a) The Distributor shall sell
shares of the Trust through DWR and may sell shares through other securities
dealers and its own Account Executives, if any, and shall devote reasonable
time and effort to promote sales of the Shares, but shall not be obligated to
sell any specific number of Shares. The services of the Distributor hereunder
are not exclusive and it is understood that the Distributor may act as
principal underwriter for other registered investment companies, so long as
the performance of its obligations hereunder is not impaired thereby. It is
also understood that Selected Dealers, including DWR, may also sell shares
for other registered investment companies.
(b) Neither the Distributor nor any Selected Dealer shall give any
information or make any representations, other than those contained in the
Registration Statement or related Prospectus and any sales literature
specifically approved by the Fund.
(c) The Distributor agrees that it will comply with the terms and
limitations of the Rules of the Association of the National Association of
Securities Dealers, Inc. ("NASD").
SECTION 7. Selected Dealers Agreements. (a) The Distributor shall have the
right to enter into selected dealers agreements with Selected Dealers for the
sale of Shares. In making agreements with Selected Dealers, the Distributor
shall act only as principal and not as agent for the Fund. Shares sold to
Selected Dealers shall be for resale by such dealers only at the public
offering price set forth in the Prospectus.
(b) Within the United States, the Distributor shall offer and sell Shares
only to such Selected Dealers as are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by the
Fund, for the confirmation of sales of Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers
on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the NASD, as such requirements
may from time to time exist.
SECTION 8. Payment of Expenses. (a) The Distributor shall bear all
expenses incurred by it in connection with its duties and activities under
this Agreement including the payment to Selected Dealers
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of any sales commissions, service fees, and other expenses for sales of the
Trust's shares (except such expenses as are specifically undertaken herein by
the Trust) incurred or paid by Selected Dealers, including DWR. The
Distributor shall bear the costs and expenses of preparing, printing and
distributing any supplementary sales literature used by the Distributor or
furnished by it for use by Selected Dealers in connection with the offering
of the Shares for sale. Any expenses of advertising incurred in connection
with such offering will also be the obligation of the Distributor. It is
understood and agreed that, so long as the Fund's Plan of Distribution
pursuant to Rule 12b-1 (the "Rule 12b-1 Plan") continues in effect, any
expenses incurred by the Distributor hereunder may be paid in accordance with
the terms of such Rule 12b-1 Plan.
(b) The Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of legal counsel including counsel to the Trustees of the
Fund who are not interested persons (as defined in the 1940 Act) of the Fund
or the Distributor, and independent accountants, in connection with the
preparation and filing of any required Registration Statements and
Prospectuses and all amendments and supplements thereto, and the expense of
preparing, printing, mailing and otherwise distributing prospectuses and
statements of additional information, annual or interim reports or proxy
materials to shareholders.
(c) The Fund shall pay the filing fees of the Shares for sale, and, if
necessary or advisable in connection therewith, bear the cost and expense of
qualifying the Fund as a broker or dealer, in such states of the United
States or other jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 5(c) hereof and the cost and expenses payable
to each such state for continuing to offer Shares therein until the Fund
decides to discontinue selling Shares pursuant to Section 5(c) hereof.
SECTION 9. Indemnification. (a) The Fund shall indemnify and hold harmless
the Distributor and each person, if any, who controls the Distributor against
any loss, liability, claim, damage or expense (including the reasonable cost
of investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith) arising
by reason of any person acquiring any Shares, which may be based upon the
1933 Act, or on any other statute or at common law, on the ground that the
Registration Statement or related Prospectus and Statements of Additional
Information, as from time to time amended and supplemented, or the annual or
interim reports to shareholders of the Fund, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and in
conformity with, information furnished to the Fund in connection therewith by
or on behalf of the Distributor; provided, however, that in no case (i) is
the indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect the Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless
disregard of its obligations and duties under this Agreement; or (ii) is the
Fund to be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against the Distributor or any such
controlling persons, unless the Distributor or any such controlling persons,
as the case may be, shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this paragraph. The Fund will be entitled to participate at its
own expense in the defense, or, if it so elects, to assume the defense, of
any suit brought to enforce any such liability, but if the Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it
and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but,
in case the Fund does not elect to assume the defense of any such suit, it
will reimburse the Distributor
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or such controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them. The
Fund shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or trustees in
connection with the issuance or sale of the Shares.
(b) (i) The Distributor shall indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only
with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by or on behalf
of the Distributor for use in connection with the Registration Statement or
related Prospectus and Statement of Additional Information, as from time to
time amended, or the annual or interim reports to shareholders.
(ii) The Distributor shall indemnify and hold harmless the Trust and the
Trust's transfer agent, individually and in its capacity as the Trust's
transfer agent, from and against any claims, damages and liabilities which
arise as a result of actions taken pursuant to instructions from, or on
behalf of, the Distributor to: (1) redeem all or a part of shareholder
accounts in the Trust pursuant to Section 4 hereof and pay the proceeds to,
or as directed by, the Distributor for the account of each shareholder whose
Shares are so redeemed; and (2) register Shares in the names of investors,
confirm the issuance thereof and receive payment therefor pursuant to Section
3(e).
(iii) In case any action shall be brought against the Fund or any person
so indemnified by this subsection 9(b) in respect of which indemnity may be
sought against the Distributor, the Distributor shall have the rights and
duties given to the Fund, and the Fund and each person so indemnified shall
have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.
(c) If the indemnification provided for in this Section 9 is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages, liabilities or expenses
(or actions in respect thereof) referred to herein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Fund on the one hand and the
Distributor on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Fund on the one hand and the Distributor on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Fund on the one hand and the Distributor on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Fund bear to the total
compensation received by the Distributor, in each case as set forth in the
Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Fund or the Distributor and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Fund and the Distributor agree that
it would not be just and equitable if contribution were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to above
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
claim. Notwithstanding the provisions of this subsection (c), the Distributor
shall not be required to contribute any amount in excess of the amount by
which the total price at which the Shares distributed by it to the public
were offered to the public exceeds the amount of any damages which it has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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<PAGE>
SECTION 10. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until April 30, 1998, and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Board of
Trustees of the Fund, or by the vote of a majority of the outstanding voting
securities of the Fund, cast in person or by proxy, and (ii) a majority of
those Trustees who are not parties to this Agreement or interested persons of
any such party and who have no direct or indirect financial interest in this
Agreement or in the operation of the Fund's Rule 12b-1 Plan or in any
agreement related thereto, cast in person at a meeting called for the purpose
of voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Trustees of the Fund, by a majority of the Trustees of the
Fund who are not interested persons of the Fund and who have no direct or
indirect financial interest in this Agreement, or by vote of a majority of
the outstanding voting securities of the Fund, or by the Distributor, on
sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 11. Amendments of this Agreement. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Trustees of the Fund, or by the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Trustees of the Fund who
are not parties to this Agreement or interested persons of any such party and
who have no direct or indirect financial interest in this Agreement or in any
Agreement related to the Fund's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act, cast in person at a meeting called for the purpose of
voting on such approval.
SECTION 12. Governing Law. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the
1940 Act. To the extent the applicable law of the State of New York, or any
of the provisions herein, conflict with the applicable provisions of the 1940
Act, the latter shall control.
SECTION 13. Personal Liability. The Declaration of the Trust establishing
TCW/DW North American Government Income Trust, dated February 19, 1992, 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 TCW/DW North American Government 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 TCW/DW North American Government 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 TCW/DW North American Government Income Trust, but the Trust
Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first written in New York, New York.
TCW/DW NORTH AMERICAN GOVERNMENT
INCOME TRUST
By: /s/
..............................
DEAN WITTER DISTRIBUTORS INC.
By: /s/
..............................
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AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
WITH
DEAN WITTER TRUST FSB
<PAGE>
TABLE OF CONTENTS
PAGE
----
Article 1 Terms of Appointment............................... 1
Article 2 Fees and Expenses.................................. 2
Article 3 Representations and Warranties of DWTFSB .......... 3
Article 4 Representations and Warranties of the Fund ........ 3
Article 5 Duty of Care and Indemnification................... 3
Article 6 Documents and Covenants of the Fund and DWTFSB .... 4
Article 7 Duration and Termination of Agreement.............. 5
Article 8 Assignment ........................................ 5
Article 9 Affiliations....................................... 6
Article 10 Amendment.......................................... 6
Article 11 Applicable Law..................................... 6
Article 12 Miscellaneous...................................... 6
Article 13 Merger of Agreement................................ 7
Article 14 Personal Liability................................. 7
i
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AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 23rd day of October, 1997 by
and between each of the Funds listed on the signature pages hereof, each of
such Funds acting severally on its own behalf and not jointly with any of
such other Funds (each such Fund hereinafter referred to as the "Fund"), each
such Fund having its principal office and place of business at Two World
Trade Center, New York, New York, 10048, and DEAN WITTER TRUST FSB
("DWTFSB"), a federally chartered savings bank, having its principal office
and place of business at Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311.
WHEREAS, the Fund desires to appoint DWTFSB as its transfer agent,
dividend disbursing agent and shareholder servicing agent and DWTFSB desires
to accept such appointment;
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of DWTFSB
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints DWTFSB to act as, and DWTFSB agrees to act
as, the transfer agent for each series and class of shares of the Fund,
whether now or hereafter authorized or issued ("Shares"), dividend disbursing
agent and shareholder servicing agent in connection with any accumulation,
open-account or similar plans provided to the holders of such Shares
("Shareholders") and set out in the currently effective prospectus and
statement of additional information ("prospectus") of the Fund, including
without limitation any periodic investment plan or periodic withdrawal
program.
1.2 DWTFSB agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and DWTFSB, DWTFSB shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to the
custodian of the assets of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and issue certificates therefor or hold such Shares in book form
in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the
Custodian;
(iv) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over or cause to
be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may
be reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain pursuant
to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934
Act") a record of the total number of Shares of the Fund which are
authorized, based upon data provided to it by the Fund, and issued and
outstanding. DWTFSB shall also provide to the Fund on a regular basis
the total number of Shares that are authorized, issued and outstanding
and shall notify the Fund in case any proposed issue of Shares by the
Fund would result in an overissue. In case any issue of Shares
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<PAGE>
would result in an overissue, DWTFSB shall refuse to issue such Shares
and shall not countersign and issue any certificates requested for
such Shares. When recording the issuance of Shares, DWTFSB shall have
no obligation to take cognizance of any Blue Sky laws relating to the
issue of sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a), DWTFSB shall:
(i) perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, shareholder servicing agent
in connection with dividend reinvestment, accumulation, open-account or
similar plans (including without limitation any periodic investment plan
or periodic withdrawal program), including but not limited to,
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, receiving and tabulating proxies, mailing
shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts,
preparing and filing appropriate forms required with respect to
dividends and distributions by federal tax authorities for all
Shareholders, preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and
other confirmable transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders and providing Shareholder
account information;
(ii) open any and all bank accounts which may be necessary or
appropriate in order to provide the foregoing services; and
(iii) provide a system that will enable the Fund to monitor the
total number of Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall:
(i) identify to DWTFSB in writing those transactions and assets to
be treated as exempt from Blue Sky reporting for each State; and
(ii) verify the inclusion on the system prior to activation of each
State in which Fund shares may be sold and thereafter monitor the daily
purchases and sales for shareholders in each State. The responsibility
of DWTFSB for the Fund's status under the securities laws of any State
or other jurisdiction is limited to the inclusion on the system of each
State as to which the Fund has informed DWTFSB that shares may be sold
in compliance with state securities laws and the reporting of purchases
and sales in each such State to the Fund as provided above and as agreed
from time to time by the Fund and DWTFSB.
(d) DWTFSB shall provide such additional services and functions not
specifically described herein as may be mutually agreed between DWTFSB and
the Fund. Procedures applicable to such services may be established from
time to time by agreement between the Fund and DWTFSB.
Article 2 Fees and Expenses
2.1 For performance by DWTFSB pursuant to this Agreement, each Fund agrees
to pay DWTFSB an annual maintenance fee for each Shareholder account and
certain transactional fees, if applicable, as set out in the respective fee
schedule attached hereto as Schedule A. Such fees and out-of-pocket expenses
and advances identified under Section 2.2 below may be changed from time to
time subject to mutual written agreement between the Fund and DWTFSB.
2.2 In addition to the fees paid under Section 2.1 above, the Fund agrees
to reimburse DWTFSB for out of pocket expenses in connection with the
services rendered by DWTFSB hereunder. In addition, any other expenses
incurred by DWTFSB at the request or with the consent of the Fund will be
reimbursed by the Fund.
2.3 The Fund agrees to pay all fees and reimbursable expenses within a
reasonable period of time following the mailing of the respective billing
notice. Postage for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to DWTFSB by the Fund
upon request prior to the mailing date of such materials.
2
<PAGE>
Article 3 Representations and Warranties of DWTFSB
DWTFSB represents and warrants to the Fund that:
3.1 It is a federally chartered savings bank whose principal office is in
New Jersey.
3.2 It is and will remain registered with the U.S. Securities and Exchange
Commission ("SEC") as a Transfer Agent pursuant to the requirements of
Section 17A of the 1934 Act.
3.3 It is empowered under applicable laws and by its charter and By-Laws
to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to DWTFSB that:
4.1 It is a corporation duly organized and existing and in good standing
under the laws of Delaware or Maryland or a trust duly organized and existing
and in good standing under the laws of Massachusetts, as the case may be.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation or Declaration of Trust, as the case may be, and under its
By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings necessary to authorize it to enter into and
perform this Agreement have been taken.
4.4 It is an investment company registered with the SEC under the
Investment Company Act of 1940, as amended (the "1940 Act").
4.5 A registration statement under the Securities Act of 1933 (the "1933
Act") is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
Article 5 Duty of Care and Indemnification
5.1 DWTFSB shall not be responsible for, and the Fund shall indemnify and
hold DWTFSB harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of DWTFSB or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith, negligence
or willful misconduct or which arise out of breach of any representation or
warranty of the Fund hereunder.
(c) The reliance on or use by DWTFSB or its agents or subcontractors of
information, records and documents which (i) are received by DWTFSB or its
agents or subcontractors and furnished to it by or on behalf of the Fund,
and (ii) have been prepared and/or maintained by the Fund or any other
person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by DWTFSB or its agents or
subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities or Blue Sky
laws of any State or other jurisdiction that notice of
3
<PAGE>
offering of such Shares in such State or other jurisdiction or in
violation of any stop order or other determination or ruling by any
federal agency or any State or other jurisdiction with respect to the
offer or sale of such Shares in such State or other jurisdiction.
5.2 DWTFSB shall indemnify and hold the Fund harmless from or against any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to any action or failure or omission
to act by DWTFSB as a result of the lack of good faith, negligence or willful
misconduct of DWTFSB, its officers, employees or agents.
5.3 At any time, DWTFSB may apply to any officer of the Fund for
instructions, and may consult with legal counsel to the Fund, with respect to
any matter arising in connection with the services to be performed by DWTFSB
under this Agreement, and DWTFSB and its agents or subcontractors shall not
be liable and shall be indemnified by the Fund for any action taken or
omitted by it in reliance upon such instructions or upon the opinion of such
counsel. DWTFSB, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Fund, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records
or documents provided to DWTFSB or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized by
the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. DWTFSB,
its agents and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the
proper manual or facsimile signature of the officers of the Fund, and the
proper countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
5.4 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to
the other for any damages resulting from such failure to perform or otherwise
from such causes.
5.5 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
5.6 In order that the indemnification provisions contained in this Article
5 shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The
party who may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such claim. The
party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify
it except with the other party's prior written consent.
Article 6 Documents and Covenants of the Fund and DWTFSB
6.1 The Fund shall promptly furnish to DWTFSB the following, unless
previously furnished to Dean Witter Trust Company, the prior transfer agent
of the Fund:
(a) If a corporation:
(i) A certified copy of the resolution of the Board of Directors of
the Fund authorizing the appointment of DWTFSB and the execution and
delivery of this Agreement;
(ii) A certified copy of the Articles of Incorporation and By-Laws
of the Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Directors
designating persons authorized to give instructions on behalf of the
Fund and signature cards bearing the signature of any officer of the
Fund or any other person authorized to sign written instructions on
behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund in the
form approved by the Board of Directors, with a certificate of the
Secretary of the Fund as to such approval;
4
<PAGE>
(b) If a business trust:
(i) A certified copy of the resolution of the Board of Trustees of
the Fund authorizing the appointment of DWTFSB and the execution and
delivery of this Agreement;
(ii) A certified copy of the Declaration of Trust and By-Laws of the
Fund and all amendments thereto;
(iii) Certified copies of each vote of the Board of Trustees
designating persons authorized to give instructions on behalf of the
Fund and signature cards bearing the signature of any officer of the
Fund or any other person authorized to sign written instructions on
behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund in the
form approved by the Board of Trustees, with a certificate of the
Secretary of the Fund as to such approval;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the
1933 Act or the 1940 Act;
(d) All account application forms or other documents relating to
Shareholder accounts and/or relating to any plan, program or service offered
or to be offered by the Fund; and
(e) Such other certificates, documents or opinions as DWTFSB deems to be
appropriate or necessary for the proper performance of its duties.
6.2 DWTFSB hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of Share
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
6.3 DWTFSB shall prepare and keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable and as
required by applicable laws and regulations. To the extent required by
Section 31 of the 1940 Act, and the rules and regulations thereunder, DWTFSB
agrees that all such records prepared or maintained by DWTFSB relating to the
services performed by DWTFSB hereunder are the property of the Fund and will
be preserved, maintained and made available in accordance with such Section
31 of the 1940 Act, and the rules and regulations thereunder, and will be
surrendered promptly to the Fund on and in accordance with its request.
6.4 DWTFSB and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential and shall not be voluntarily disclosed to any other
person except as may be required by law or with the prior consent of DWTFSB
and the Fund.
6.5 In case of any request or demands for the inspection of the
Shareholder records of the Fund, DWTFSB will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. DWTFSB reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be
held liable for the failure to exhibit the Shareholder records to such
person.
Article 7 Duration and Termination of Agreement
7.1 This Agreement shall remain in full force and effect until August 1,
2000 and from year-to-year thereafter unless terminated by either party as
provided in Section 7.2 hereof.
7.2 This Agreement may be terminated by the Fund on 60 days written
notice, and by DWTFSB on 90 days written notice, to the other party without
payment of any penalty.
7.3 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and other materials will be
borne by the Fund. Additionally, DWTFSB reserves the right to charge for any
other reasonable fees and expenses associated with such termination.
Article 8 Assignment
8.1 Except as provided in Section 8.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
5
<PAGE>
8.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
8.3 DWTFSB may, in its sole discretion and without further consent by the
Fund, subcontract, in whole or in part, for the performance of its
obligations and duties hereunder with any person or entity including but not
limited to companies which are affiliated with DWTFSB; provided, however,
that such person or entity has and maintains the qualifications, if any,
required to perform such obligations and duties, and that DWTFSB shall be as
fully responsible to the Fund for the acts and omissions of any agent or
subcontractor as it is for its own acts or omissions under this Agreement.
Article 9 Affiliations
9.1 DWTFSB may now or hereafter, without the consent of or notice to the
Fund, function as transfer agent and/or shareholder servicing agent for any
other investment company registered with the SEC under the 1940 Act and for
any other issuer, including without limitation any investment company whose
adviser, administrator, sponsor or principal underwriter is or may become
affiliated with Morgan Stanley, Dean Witter, Discover & Co. or any of its
direct or indirect subsidiaries or affiliates.
9.2 It is understood and agreed that the Directors or Trustees (as the
case may be), officers, employees, agents and shareholders of the Fund, and
the directors, officers, employees, agents and shareholders of the Fund's
investment adviser and/or distributor, are or may be interested in DWTFSB as
directors, officers, employees, agents and shareholders or otherwise, and
that the directors, officers, employees, agents and shareholders of DWTFSB
may be interested in the Fund as Directors or Trustees (as the case may be),
officers, employees, agents and shareholders or otherwise, or in the
investment adviser and/or distributor as directors, officers, employees,
agents, shareholders or otherwise.
Article 10 Amendment
10.1 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Board of Directors or the Board of Trustees (as the case may be) of the Fund.
Article 11 Applicable Law
11.1 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of New York.
Article 12 Miscellaneous
12.1 In the event that one or more additional investment companies managed
or administered by Dean Witter InterCapital Inc. or any of its affiliates
("Additional Funds") desires to retain DWTFSB to act as transfer agent,
dividend disbursing agent and/or shareholder servicing agent, and DWTFSB
desires to render such services, such services shall be provided pursuant to
a letter agreement, substantially in the form of Exhibit A hereto, between
DWTFSB and each Additional Fund.
12.2 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to DWTFSB an affidavit of loss or non-receipt by the
holder of Shares with respect to which a certificate has been lost or
destroyed, supported by an appropriate bond satisfactory to DWTFSB and the
Fund issued by a surety company satisfactory to DWTFSB, except that DWTFSB
may accept an affidavit of loss and indemnity agreement executed by the
registered holder (or legal representative) without surety in such form as
DWTFSB deems appropriate indemnifying DWTFSB and the Fund for the issuance of
a replacement certificate, in cases where the alleged loss is in the amount
of $1,000 or less.
12.3 In the event that any check or other order for payment of money on
the account of any Shareholder or new investor is returned unpaid for any
reason, DWTFSB will (a) give prompt notification to the Fund's distributor
("Distributor") (or to the Fund if the Fund acts as its own distributor) of
such non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as DWTFSB may, in its sole discretion,
deem appropriate or as the Fund and, if applicable, the Distributor may
instruct DWTFSB.
6
<PAGE>
12.4 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to DWTFSB shall be
sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To the Fund:
[Name of Fund]
Two World Trade Center
New York, New York 10048
Attention: General Counsel
To DWTFSB:
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attention: President
Article 13 Merger of Agreement
13.1 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
Article 14 Personal Liability
14.1 In the case of a Fund organized as a Massachusetts business trust, a
copy of the Declaration of Trust of the Fund is on file with the Secretary of
The Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however,
that the Declaration of Trust of the Fund provides that the assets of a
particular Series of the Fund shall under no circumstances be charged with
liabilities attributable to any other Series of the Fund and that all persons
extending credit to, or contracting with or having any claim against, a
particular Series of the Fund shall look only to the assets of that
particular Series for payment of such credit, contract or claim.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Agreement to be executed in their names and on their behalf by and
through their duly authorized officers, as of the day and year first above
written.
DEAN WITTER FUNDS
MONEY MARKET FUNDS
1. Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Dean Witter U.S. Government Money Market Trust
4. Active Assets Government Securities Trust
5. Dean Witter Tax-Free Daily Income Trust
6. Active Assets Tax-Free Trust
7. Dean Witter California Tax-Free Daily Income Trust
8. Dean Witter New York Municipal Money Market Trust
9. Active Assets California Tax-Free Trust
EQUITY FUNDS
10. Dean Witter American Value Fund
11. Dean Witter Mid-Cap Growth Fund
7
<PAGE>
12. Dean Witter Dividend Growth Securities Inc.
13. Dean Witter Capital Growth Securities
14. Dean Witter Global Dividend Growth Securities
15. Dean Witter Income Builder Fund
16. Dean Witter Natural Resource Development Securities Inc.
17. Dean Witter Precious Metals and Minerals Trust
18. Dean Witter Developing Growth Securities Trust
19. Dean Witter Health Sciences Trust
20. Dean Witter Capital Appreciation Fund
21. Dean Witter Information Fund
22. Dean Witter Value-Added Market Series
23. Dean Witter World Wide Investment Trust
24. Dean Witter European Growth Fund Inc.
25. Dean Witter Pacific Growth Fund Inc.
26. Dean Witter International SmallCap Fund
27. Dean Witter Japan Fund
28. Dean Witter Utilities Fund
29. Dean Witter Global Utilities Fund
30. Dean Witter Special Value Fund
31. Dean Witter Financial Services Trust
32. Dean Witter Market Leader Trust
33. Dean Witter Managers' Select Fund
34. Dean Witter Fund of Funds
35. Dean Witter S&P 500 Index Fund
BALANCED FUNDS
36. Dean Witter Balanced Growth Fund
37. Dean Witter Balanced Income Trust
ASSET ALLOCATION FUNDS
38. Dean Witter Strategist Fund
39. Dean Witter Global Asset Allocation Fund
FIXED INCOME FUNDS
40. Dean Witter High Yield Securities Inc.
41. Dean Witter High Income Securities
42. Dean Witter Convertible Securities Trust
43. Dean Witter Intermediate Income Securities
44. Dean Witter Short-Term Bond Fund
45. Dean Witter World Wide Income Trust
46. Dean Witter Global Short-Term Income Fund Inc.
47. Dean Witter Diversified Income Trust
48. Dean Witter U.S. Government Securities Trust
49. Dean Witter Federal Securities Trust
50. Dean Witter Short-Term U.S. Treasury Trust
51. Dean Witter Intermediate Term U.S. Treasury Trust
52. Dean Witter Tax-Exempt Securities Trust
53. Dean Witter National Municipal Trust
55. Dean Witter Limited Term Municipal Trust
55. Dean Witter California Tax-Free Income Fund
56. Dean Witter New York Tax-Free Income Fund
57. Dean Witter Hawaii Municipal Trust
58. Dean Witter Multi-State Municipal Series Trust
59. Dean Witter Select Municipal Reinvestment Fund
8
<PAGE>
SPECIAL PURPOSE FUNDS
60. Dean Witter Retirement Series
61. Dean Witter Variable Investment Series
62. Dean Witter Select Dimensions Investment Series
TCW/DW FUNDS
63. TCW/DW Core Equity Trust
64. TCW/DW North American Government Income Trust
65. TCW/DW Latin American Growth Fund
66. TCW/DW Income and Growth Fund
67. TCW/DW Small Cap Growth Fund
68. TCW/DW Balanced Fund
69. TCW/DW Total Return Trust
70. TCW/DW Global Telecom Trust
71. TCW/DW Strategic Income Trust
72. TCW/DW Mid-Cap Equity Trust
By:
--------------------------
Barry Fink
Vice President and
General Counsel
ATTEST:
- -----------------------------
Assistant Secretary
DEAN WITTER TRUST FSB
By:
--------------------------
John Van Heuvelen
President
ATTEST:
- -----------------------------
Executive Vice President
9
<PAGE>
EXHIBIT A
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, (insert name of investment company) a (Massachusetts
business trust/Maryland corporation) (the "Fund"), desires to employ and
appoint Dean Witter Trust FSB ("DWTFSB") to act as transfer agent for each
series and class of shares of the Fund, whether now or hereafter authorized
or issued ("Shares"), dividend disbursing agent and shareholder servicing
agent, registrar and agent in connection with any accumulation, open-account
or similar plan provided to the holders of Shares, including without
limitation any periodic investment plan or periodic withdrawal plan.
The Fund hereby agrees that, in consideration for the payment by the Fund
to DWTFSB of fees as set out in the fee schedule attached hereto as Schedule
A, DWTFSB shall provide such services to the Fund pursuant to the terms and
conditions set forth in the Transfer Agency and Service Agreement annexed
hereto, as if the Fund was a signatory thereto.
Please indicate DWTFSB's acceptance of employment and appointment by the
Fund in the capacities set forth above by so indicating in the space provided
below.
Very truly yours,
(name of fund)
By:
----------------------------------
Barry Fink
Vice President and General Counsel
ACCEPTED AND AGREED TO:
DEAN WITTER TRUST FSB
By:
--------------------------
Its:
------------------------
Date:
------------------------
10
<PAGE>
SCHEDULE A
Fund: TCW/DW North American Government Income Trust
Fees: (1) Annual maintenance fee of $13.20 per shareholder account, payable
monthly.
(2) A fee equal to 1/12 of the fee set forth in (1) above, for
providing Forms 1099 for accounts closed during the year, payable
following the end of the calendar year.
(3) Out-of-pocket expenses in accordance with Section 2.2 of the
Agreement.
(4) Fees for additional services not set forth in this Agreement
shall be as negotiated between the parties.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
December 17, 1997, relating to the financial statements and financial
highlights of TCW/DW North American Government 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 the Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
January 29, 1998
<PAGE>
AMENDED AND RESTATED PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
OF
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
WHEREAS, TCW/DW North American Government Income Trust (the "Fund") is
engaged in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"Act"); and
WHEREAS, on April 28, 1993, the Fund most recently amended and restated a
Plan and Agreement of Distribution pursuant to Rule 12b-1 under the Act which
had initially been adopted on June 2, 1992, and the Trustees then determined
that there was a reasonable likelihood that 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, the Agreement incorporated in said initial Plan and Agreement of
Distribution was entered into by the Fund with Dean Witter Reynolds Inc.
("DWR"); 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 have entered into a separate
Distribution Agreement dated as of May 31, 1997, pursuant to which the Fund
has employed the Distributor in such capacity during the continuous offering
of shares of the Fund.
NOW, THEREFORE, the Fund hereby amends and restates the Plan of
Distribution previously adopted and amended and restated, and the Distributor
hereby agrees to the terms of said Plan of Distribution (the "Plan"), as
amended and restated herein, in accordance with Rule 12b-1 under the Act on
the following terms and conditions:
1. The Fund is hereby authorized to utilize its assets to finance certain
activities in connection with the distribution of its shares.
2. Subject to the supervision of the Trustees and the terms of the
Distribution Agreement, the Distributor is authorized to promote the
distribution of the Fund's shares and to provide related services through
DWR, its affiliates or other broker-dealers it may select, and its own
Registered Representatives. The Distributor, DWR, its affiliates and said
broker-dealers shall be reimbursed, directly or through the Distributor, as
it may direct, as provided in paragraph 4 hereof for their services and
expenses, which may include one or more of the following: (1) compensation
to, and expenses of, account executives and other employees, including
overhead and telephone expenses; (2) sales incentives and bonuses to sales
representatives of the Distributor, DWR, its affiliates and other
broker-dealers, and to marketing personnel in connection with promoting sales
of shares of the Fund; (3) expenses incurred in connection with promoting
sales of shares of the Fund; (4) preparing and distributing sales literature;
and (5) providing advertising and promotional activities, including direct
mail solicitation and television, radio, newspaper, magazine and other media
advertisements.
3. The Distributor hereby undertakes to directly bear all costs of
rendering the services to be performed by it under this Plan and under the
Distribution Agreement, except for those specific expenses that the Trustees
determine to reimburse as hereinafter set forth.
4. The Fund is hereby authorized to reimburse the Distributor, DWR, its
affiliates and other broker-dealers for incremental distribution expenses
incurred by them specifically on behalf of the Fund. Reimbursement will be
made through payments at the end of each month. The amount of each monthly
payment may in no event exceed an amount equal to a payment at the annual
rate of 0.75 of 1% of the Fund's average net assets during the month. In the
case of all expenses other than expenses representing
<PAGE>
a residual to account executives, such amounts shall be determined at the
beginning of each calendar quarter by the Trustees, including a majority of
the Trustees who are not "interested persons" of the Fund, as defined in the
Act. Expenses representing a residual to account executives may be reimbursed
without prior determination. In the event that the Distributor proposes that
monies shall be reimbursed for other than such expenses, then in making the
quarterly determinations of the amounts that may be expended by the Fund, the
Distributor shall provide, and the Trustees shall review, a quarterly budget
of projected incremental distribution expenses to be incurred by the
Distributor, DWR, its affiliates or other broker-dealers on behalf of the
Fund, together with a report explaining the purposes and anticipated benefits
of incurring such expenses. The Trustees shall determine the particular
expenses, and the portion thereof, that may be borne by the Fund, and in
making such determination shall consider the scope of the Distributor's
commitment to promoting the distribution of the shares of the Fund directly
or through DWR, its affiliates or other broker-dealers. All payments made
hereunder pursuant to the Plan shall be in accordance with the Rules of the
Association of the National Association of Securities Dealers, Inc.
5. The Distributor may direct that all or any part of the amounts
receivable by it under this Plan be paid directly to DWR, its affiliates or
other broker-dealers.
6. If, as of the end of any calendar year, the actual expenses incurred by
the Distributor, DWR, its affiliates and other broker-dealers on behalf of
the Fund (including accrued expenses and amounts reserved for incentive
compensation and bonuses) are less than the amount of payments made by the
Fund pursuant to this Plan, the Distributor shall promptly make appropriate
reimbursement to the Fund. If, however, as of the end of any calendar year,
the actual expenses of the Distributor, DWR, its affiliates and other
broker-dealers are greater than the amount of payments made by the Fund
pursuant to this Plan, the Fund will not reimburse the Distributor, DWR, its
affiliates or other broker-dealers for such expenses through payments accrued
pursuant to this Plan in the subsequent calendar year.
7. The Distributor shall provide to the Trustees of the Fund and the
Trustees shall review, promptly after the end of each calendar quarter, a
written report regarding the incremental distribution expenses incurred by
the Distributor, DWR, its affiliates or other broker-dealers on behalf of the
Fund during such calendar quarter, which report shall include: (1) an
itemization of the types of expenses and the purposes therefor; (2) the
amounts of such expenses; and (3) a description of the benefits derived by
the Fund.
8. This Plan, as amended and restated, shall become effective upon
approval by a vote of the Trustees of the Fund, and of the Trustees who are
not "interested persons" of the Fund, as defined in the Act, and who have no
direct or indirect financial interest in the operation of this Plan, cast in
person at a meeting called for the purpose of voting on this Plan.
9. This Plan shall continue in effect until April 30, 1998 and from year
to year thereafter, provided such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph
8 hereof. This Plan may not be amended to increase materially the amount to
be spent for the services described herein unless such amendment is approved
by a vote of at least a majority of the outstanding voting securities of the
Fund, as defined in the Act, and no material amendment to this Plan shall be
made unless approved in the manner provided for approval in paragraph 8
hereof.
10. This Plan may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Trustees who are not "interested
persons" of the Fund, as defined in the Act, and who have no direct or
indirect financial interest in the operation of this Plan or by a vote of a
majority of the outstanding voting securities of the Fund, as defined in the
Act, on no more than thirty days' written notice to any other party to this
Plan.
11. While this Plan is in effect, the selection and nomination of Trustees
who are not interested persons of the Fund shall be committed to the
discretion of the Trustees who are not interested persons.
12. The Fund shall preserve copies of this Plan and all reports made
pursuant to paragraph 7 hereof, for a period of not less than six years from
the date of this Plan, as amended and restated herein, or any such report, as
the case may be, the first two years in an easily accessible place.
13. This Plan shall be construed in accordance with the laws of the State
of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflicts with the applicable provisions of the Act, the latter shall
control.
2
<PAGE>
14. The Declaration of Trust establishing TCW/DW North American Government
Income Trust, dated February 19, 1992, 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 TCW/DW
North American Government 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 TCW/DW North
American Government 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
TCW/DW North American Government Income Trust, but the Trust Estate only
shall be liable.
IN WITNESS WHEREOF, the Fund, the Distributor and DWR have executed this
Plan of Distribution, as amended and restated, as of the day and year set
forth below in New York, New York.
Date: June 2, 1992 TCW/DW NORTH AMERICAN GOVERNMENT
As amended on January 4, 1993, INCOME TRUST
April 28, 1993 and July 23, 1997
By: /s/
...............................
Attest:
/s/ DEAN WITTER DISTRIBUTORS INC.
.............................
By: /s/
...............................
Attest:
/s/ DEAN WITTER REYNOLDS INC.
.............................
By: /s/
...............................
Attest:
/s/
.............................
3
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
TCW/DW NORTH AMERICAN GOVERNMENT INCOME TRUST
(A) AVERAGE ANNUAL TOTAL RETURNS (NO LOAD FUND)
(B) TOTAL RETURN (NO LOAD FUND)
_
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-Oct-97 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
31-Oct-96 $1,078.00 7.80% 1.00 7.80%
31-Oct-92 $1,209.80 20.98% 5.00 3.88%
31-Jul-92 $1,225.30 22.53% 5.25 3.95%
(C) GROWTH OF $10,000
(D) GROWTH OF $50,000
(E) 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 (C) GROWTH OF (D) GROWTH OF (E) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT - G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- ---------------------- -----------------------
<C> <C> <C> <C> <C>
31-Jul-92 22.53 $12,253 $61,265 $122,530
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 214,836,214
<INVESTMENTS-AT-VALUE> 211,710,893
<RECEIVABLES> 1,971,298
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 40,059
<TOTAL-ASSETS> 213,722,250
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,682,515
<TOTAL-LIABILITIES> 1,682,515
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 445,268,361
<SHARES-COMMON-STOCK> 24,679,449
<SHARES-COMMON-PRIOR> 41,762,133
<ACCUMULATED-NII-CURRENT> 391,193
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (230,494,498)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,125,321)
<NET-ASSETS> 212,039,735
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,423,552
<OTHER-INCOME> 0
<EXPENSES-NET> 4,441,815
<NET-INVESTMENT-INCOME> 13,981,737
<REALIZED-GAINS-CURRENT> (2,132,540)
<APPREC-INCREASE-CURRENT> 6,751,649
<NET-CHANGE-FROM-OPS> 18,600,846
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,827,194)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,792,480
<NUMBER-OF-SHARES-REDEEMED> (21,098,837)
<SHARES-REINVESTED> 1,223,673
<NET-CHANGE-IN-ASSETS> (138,489,876)
<ACCUMULATED-NII-PRIOR> 236,650
<ACCUMULATED-GAINS-PRIOR> (228,361,958)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,754,932
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,441,815
<AVERAGE-NET-ASSETS> 269,989,542
<PER-SHARE-NAV-BEGIN> 8.39
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> (0.43)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.59
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
