AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1994
SECURITIES ACT FILE NO. 33-50663
INVESTMENT COMPANY ACT FILE NO. 811-07109
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 (X)
PRE-EFFECTIVE AMENDMENT NO. 1 (X)
Post-EFFECTIVE AMENDMENT NO. ( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 (X)
AMENDMENT NO. 1 (X)
------------
INTERCAPITAL INSURED MUNICIPAL SECURITIES
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
FRANK P. BRUNO, ESQ. CHRISTINE A. EDWARDS, ESQ. DAVID M. BUTOWSKY, ESQ.
BROWN & WOOD TWO WORLD TRADE CENTER GORDON ALTMAN BUTOWSKY
ONE WORLD TRADE CENTER NEW YORK, NEW YORK 10048 WEITZEN SHALOV & WEIN
NEW YORK, NEW YORK 10048 114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement
------------
<TABLE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
==================================================================================================================================
<CAPTION>
AMOUNT PROPOSED MAXIMUM PORPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) FEE (2)(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of
Beneficial Interest,
$.01 par value............... 8,050,000 Shares $15.00 $120,750,000 $37,734.38
==================================================================================================================================
<FN>
(1) Includes 1,050,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FUTURE AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<TABLE>
INTERCAPITAL INSURED MUNICIPAL SECURITIES
FORM N-2
CROSS REFERENCE SHEET
<CAPTION>
PARTS A AND B
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ------------------ --------------------------------------------
<S> <C>
1. Outside Front Cover Page.......................... Cover Page
2. Inside Front and Outside Back Cover Pages......... Cover Page; Underwriting
3. Fee Table and Synopsis............................ Prospectus Summary; Summary of Fund
Expenses
4. Financial Highlights.............................. Not Applicable
5. Plan of Distribution.............................. Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders.............................. Not Applicable
7. Use of Proceeds................................... Use of Proceeds; Investment Objective and
Policies
8. General Description of Registrant................. The Trust and its Management; Description of
Shares
9. Management........................................ Trustees and Officers; The Trust and its Management;
Investment Management Agreement;
Investment Objective and Policies;
Investment Practices; Investment Restrictions;
Portfolio Transactions and Brokerage;
Custodian, Dividend Disbursing Agent and
Transfer Agent.
10. Capital Stock, Long-Term Debt, and Other
Securities........................................ Description of Shares; Taxation
11. Defaults and Arrears on Senior Securities......... Not Applicable
12. Pending Legal Proceedings......................... Not Applicable
13. Table of Contents of Statement of Additional
Information....................................... Not Applicable
14. Cover Page........................................ Not Applicable
15. Table of Contents................................. Not Applicable
16. General Information and History................... Not Applicable
17. Investment Objectives and Policies................ Investment Objective and Policies; Other Investment Policies;
Investment Restrictions
18. Management........................................ The Trust and its Management; Trustees and Officers;
Investment Management Agreement;
19. Control Persons and Principal Holders of
Securities........................................ The Trust and its Management; Investment
Management Agreement
20. Investment Advisory and Other Services............ Investment Management Agreement; Custodian, Dividend Disbursing
Agent and Transfer Agent
21. Brokerage Allocations and Other Practices......... Portfolio Transactions and Brokerage
22. Tax Status........................................ Taxation
23. Financial Statements.............................. Statement of Assets and Liabilities
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.
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
Dated January 7, 1994
7,000,000 COMMON SHARES OF BENEFICIAL INTEREST
INTERCAPITAL INSURED MUNICIPAL SECURITIES
------------
InterCapital Insured Municipal Securities (the "Trust") is a newly organized,
closed-end diversified management investment company which seeks to provide
current income exempt from federal income tax. The Trust will seek to achieve
its investment objective by investing primarily in a diversified portfolio of
tax-exempt Municipal Obligations which are covered by insurance guarantees with
respect to timely payment of principal and interest thereon. The Trust will
also invest in Municipal Obligations which are backed by an escrow or trust
account containing sufficient U.S. Government securities or U.S. Government
agency securities to ensure timely payment of principal and interest thereon.
Certain Municipal Obligations in which the Trust may invest without limit may
be subject to the individual alternative minimum tax. See "Investment Objective
and Policies." No assurance can be given that the Trust's investment objective
will be achieved.
------------
Within approximately six months of the completion of the offering of the Common
Shares of Beneficial Interest (the "Common Shares") described herein, and
subject to market conditions, the Trust currently intends to offer an
additional class of beneficial interest with preference rights (the "Preferred
Shares"). The timing of a Preferred Shares offering and the terms of the
Preferred Shares will be determined by the Trust's Board of Trustees. It is
anticipated that the dividends on the Preferred Shares will be based on short-
term or medium-term rates and that the proceeds of the Preferred Shares
offering will be generally invested in long-term Municipal Obligations which
typically have higher yields than short-term or medium-term obligations. The
issuance of the Preferred Shares will result in the financial leveraging of the
Common Shares. This two-class, leveraged capital structure will enable the
Trust to pay a potentially higher yield on the Common Shares as compared with
securities of investment companies with an investment objective similar to that
of the Trust but without an additional class of preferred shares similar to
those anticipated with respect to the Preferred Shares to be issued by the
Trust. Investors should note that there are special risks associated with the
leveraging of the Common Shares. See "Special Leverage Considerations" and
"Description of Shares."
------------
The address of the Trust is Two World Trade Center, New York, New York 10048,
and its telephone number is (212) 392-1600. The Prospectus sets forth the
information investors should know before investing in the Trust. Investors are
advised to read this Prospectus and retain it for future reference.
------------
The Trust's Common Shares have been approved for listing on the New York Stock
Exchange under the symbol "IMS." Prior to this offering, there has been no
public market for the Trust's Common Shares. Shares of closed-end investment
companies frequently trade at a discount from their net asset value. The risk
of loss may be greater for initial investors expecting to sell their shares in
a relatively short period after completion of the public offering. See
"Prospectus Summary--Special Risk Considerations."
------------
The minimum purchase in this offering is 100 shares ($1,500).
------------
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 COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Price to Sales Proceeds to
Public Load (1) the Trust (2)
- -------------------------------------------------------------------------------
Per Common Share $15.00 $ $
Total (3) $105,000,000 $ $
===============================================================================
(1) The Trust and the Investment Manager have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deduction of offering expenses and organization costs payable by
the Trust from the proceeds of this offering, estimated at $ .
Organization costs (estimated at $ ) will be amortized over five years
and charged as an expense against the income of the Trust. Offering
expenses (estimated at $ ) will be reflected as a reduction of the
initial net assets of the Trust at the closing of this offering. See
"Statement of Assets and Liabilities at February , 1994."
(3) The Trust has granted the several Underwriters a 45-day option to purchase
up to an additional 1,050,000 Common Shares to cover over-allotments, if
any. If all such Common Shares are purchased, the total price to public,
underwriting discounts and commissions and proceeds to the Trust will be
$120,750,000, $ and $ , respectively. See "Underwriting."
------------
The Common Shares are offered by the several Underwriters named herein, when,
as and if delivered to and accepted by them, subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of the Common Shares will be made in New York City on or
about February , 1994.
------------
DEAN WITTER DISTRIBUTORS INC.
February , 1994
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRUST OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
TABLE OF CONTENTS
-PAGE-
----
Prospectus Summary............................................... 3
Summary of Trust Expenses........................................ 9
The Trust and its Management..................................... 10
Use of Proceeds.................................................. 11
Investment Objective and Policies................................ 12
Special Leverage Considerations.................................. 19
Investment Practices............................................. 22
Investment Restrictions.......................................... 27
Trustees and Officers............................................ 29
Investment Management Agreement.................................. 33
Portfolio Transactions and Brokerage............................. 34
Determination of Net Asset Value................................. 35
Dividends and Distributions; Dividend Reinvestment Plan.......... 36
Taxation......................................................... 38
Description of Shares............................................ 42
Share Repurchases and Tenders.................................... 46
Custodian, Dividend Disbursing Agent and Transfer Agent.......... 48
Underwriting..................................................... 49
Reports to Shareholders.......................................... 50
Legal Opinions and Experts....................................... 51
Further Information.............................................. 51
Report of Independent Accountants................................ 52
Statement of Assets and Liabilities at February , 1994......... 53
Appendix A....................................................... A-1
Appendix B....................................................... B-1
Appendix C....................................................... C-1
Appendix D....................................................... D-1
Appendix E....................................................... E-1
Appendix F....................................................... F-1
UNTIL MARCH , 1994 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE TRUST'S
COMMON SHARES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
===============================================================================
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to
the more detailed information included elsewhere in this Prospectus.
THE TRUST.................. InterCapital Insured Municipal Securities (the
"Trust") is a newly organized, closed-end
diversified management investment company
investing primarily in tax-exempt Municipal
Obligations. See "The Trust and its Management."
THE OFFERING.............. The Trust is offering 7,000,000 common shares of
beneficial interest (the "Common Shares"), of
$.01 par value, at an offering price of $15.00
per share, through a group of Underwriters (the
"Underwriters") represented by Dean Witter
Distributors Inc. The Underwriters have been
granted an option to purchase up to 1,050,000
additional Common Shares to cover over-
allotments. See "Underwriting." The minimum
purchase is 100 shares ($1,500).
INVESTMENT OBJECTIVE...... The investment objective of the Trust is to
provide current income exempt from federal income
tax. The Trust will seek to achieve its
investment objective by investing, under normal
circumstances, at least 80% of its net assets in
a diversified portfolio of Municipal Obligations
which are covered by insurance guarantees with
respect to timely payment of principal and
interest thereon. The Trust may also invest in
Municipal Obligations which are backed by an
escrow or trust account containing sufficient
U.S. Government securities or U.S. Government
agency securities to ensure timely payment of
principal and interest thereon. Municipal
Obligations backed by an escrow or trust account
will not constitute more than 20% of the Trust's
net assets. Municipal Obligations consist of
Municipal Bonds, Municipal Notes and Municipal
Commercial Paper, as well as lease obligations.
There can be no assurance that the Trust's
investment objective will be achieved. See
"Investment Objective and Policies."
INSURANCE............... Each insured Municipal Obligation held by the
Trust will either be (i) covered by a separate
insurance policy applicable to a specific
security, whether obtained by the issuer of the
security or by a third party at the time of
original issuance ("Original Issue Insurance") or
by the Trust or a third party subsequent to the
time of original issuance ("Secondary Market
Insurance") or (ii) covered by a master municipal
obligation guaranty insurance policy purchased by
the Trust ("Portfolio Insurance"). While the
Trust may obtain one or more policies of
Portfolio Insurance, the Trust, depending on the
availability of such policies on terms favorable
to the Trust, may determine not to obtain such
policies and to emphasize investments in
Municipal Obligations insured under Original
Issue Insurance or Secondary Market Insurance.
Original Issue Insurance, Secondary Market
Insurance and Portfolio Insurance do not
guarantee either the payment of principal of and
interest on Municipal Obligations on an
accelerated basis in the event of a default
thereunder, or the market value of the Common
Shares or the market value of the Trust's
Municipal Obligations. Municipal Obligations
insured under Original Issue Insurance or
Secondary Market Insurance are insured for the
remain-
===============================================================================
3
===============================================================================
ing term of the security, whereas Municipal
Obligations insured under Portfolio Insurance
remain insured only so long as they are held by
the Trust. Portfolio Insurance is intended to
reduce financial risk but the cost thereof and
compliance with any investment restrictions
imposed under the policy will reduce the yield to
shareholders of the Trust. The Trust's
investments in insured Municipal Obligations will
only consist of Municipal Obligations, covered by
Original Issue Insurance or Secondary Market
Insurance, that are themselves assigned a rating
of "Aaa" by Moody's Investors Service Inc.
("Moody's") or "AAA" by Standard & Poor's
Corporation ("S&P") by virtue of the claims-
paying ability of the insurers. The Trust will
only obtain policies of Portfolio Insurance
issued by insurers whose claims-paying ability is
rated "Aaa" by Moody's or "AAA" by S&P. See
"Investment Objective and Policies--Description
of Bond Insurance."
PROPOSED OFFERING OF
PREFERRED SHARES.......... The Trust currently intends to offer an
additional class of shares of beneficial interest
with preference rights (the "Preferred Shares")
within approximately six months of the completion
of this offering of Common Shares. The exact
timing of the Preferred Shares offering and the
terms of the Preferred Shares will be determined
by the Trust's Board of Trustees, subject to a
determination by the Trust's Board of Trustees
that the issuance of Preferred Shares is likely
to achieve the benefits to the holders of the
Common Shares (the "Common Shareholders")
described in this Prospectus and subject to then
prevailing market conditions. It is anticipated
that the dividends on the Preferred Shares will
be based on short-term or medium-term rates and
that the proceeds of the Preferred Shares
offering generally will be invested in long-term
Municipal Obligations which typically have higher
yields than short-term or medium-term
obligations. The issuance and ongoing expenses of
the Preferred Shares will be borne by the Trust
and will reduce the net asset value of the Common
Shares.
Under the asset coverage requirements of the
Investment Company Act of 1940, as amended (the
"Act"), the value of the Trust's total assets,
less all liabilities and indebtedness of the
Trust, must at least be equal, immediately after
such issuance of Preferred Shares, to 200% of the
aggregate liquidation value of the Preferred
Shares. If the Preferred Shares are issued, their
liquidation value is expected to equal their
aggregate original purchase price plus any
accrued and unpaid dividends thereon. The Trust
will seek a rating of the Preferred Shares from
two nationally recognized rating organizations,
and therefore asset coverage provisions in
addition to those required by the Act may be
imposed in connection with the issuance of such
ratings.
Once the Preferred Shares are issued, Common
Shareholders will receive all net income of the
Trust, if any, remaining after payment of
dividends on the Preferred Shares and generally
will be entitled to their pro rata share of any
net realized capital gains to the extent such
capital gains are not necessary to satisfy the
dividend, redemption or liquidation preferences
of the Preferred Shares. Upon any liquidation of
the Trust, the holders of the Preferred
===============================================================================
4
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Shares will be entitled to receive liquidating
distributions equal to their liquidation value
before any distribution is made to the holders of
Common Shares. Until the Preferred Shares are
issued, the special leverage considerations
described herein will not apply. See "Special
Leverage Considerations," "Description of Shares"
and "Taxation."
RISKS OF LEVERAGE.......... The issuance of the Preferred Shares will result
in the financial leveraging of the Common Shares,
which is a speculative technique. Such leveraging
involves certain risks, including higher
volatility of the net asset value and possibly
the market value of the Common Shares. As long as
the Trust is able to invest the proceeds of the
Preferred Shares offering in securities that
provide a higher net return than the then current
dividend rate of the Preferred Shares after
taking into account the expenses of the Preferred
Shares offering, the ongoing expenses of the
Preferred Shares and the Trust's operating
expenses, the effect of leverage will be to cause
Common Shareholders to realize a higher current
rate of return than if the Trust were not
leveraged. However, if the current dividend rate
on the Preferred Shares were to approach the net
return on the Trust's investment portfolio after
expenses, the benefit of leverage to Common
Shareholders would be reduced, and if the current
dividend rate on the Preferred Shares were to
exceed the net return on the Trust's portfolio,
the Trust's leveraged capital structure would
result in a lower rate of return to the Common
Shareholders than if the Trust had an unleveraged
capital structure. Similarly, since, to the full
extent permitted under applicable law, most net
capital gains, if any, realized by the Trust
generally are expected to be payable to Common
Shareholders, if net capital gains are realized,
the effect of leverage will be to increase the
amount of such gains distributed to Common
Shareholders. However, since any decline in the
net asset value of the Trust's investment
portfolio is borne entirely by Common
Shareholders, the effect of leverage in a
declining market would be to cause a greater
decline in the net asset value of Common Shares
than if the Trust were not leveraged, which would
likely be reflected in a greater decline in the
market price for the Common Shares. Thus, a rise
in interest rates will likely result in two
separate adverse effects on the Common
Shareholders: first, a decrease in the Trust's
net asset value and, second (as a result of
increased rates payable to Preferred
Shareholders), lower income available for
distribution to the Common Shareholders.
Reflecting the foregoing, leverage creates risks
for Common Shareholders, including the likelihood
of greater volatility of the net asset value and
possibly the market value of the Common Shares,
and the risk that fluctuations in the short-term
or medium- term dividend rates of the Preferred
Shares may affect the income available for
distribution to Common Shareholders. See "Special
Leverage Considerations."
INVESTMENT MANAGER......... Dean Witter InterCapital Inc. (the "Investment
Manager" or "InterCapital") is the Investment
Manager of the Trust. InterCapital is a wholly-
owned subsidiary of Dean Witter, Discover & Co.
("DWDC"), a balanced financial services
organization providing a broad range of
nationally marketed credit and investment
products. In an internal reorganization which
took place in January
===============================================================================
5
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1993, the Investment Manager assumed the
investment advisory, management and
administrative activities previously performed by
the InterCapital Division of Dean Witter Reynolds
Inc. ("DWR"), an affiliate of the Investment
Manager. As part of that reorganization, the
investment company share distribution activities
previously performed by DWR were assumed by Dean
Witter Distributors Inc., a wholly-owned
subsidiary of DWDC and an affiliate of DWR and
InterCapital. The Investment Manager has over
twenty years of experience managing investment
companies. InterCapital, and its wholly-owned
subsidiary, Dean Witter Services Company Inc.,
act as investment manager, manager, investment
adviser, sub-adviser, administrator or sub-
administrator to a total of seventy-nine
investment companies, twenty-six of which are
listed on the New York Stock Exchange, with
combined assets of approximately $70.7 billion at
November 30, 1993, including approximately $12.2
billion in tax-exempt securities. See "The Trust
and its Management" and "Investment Management
Agreement."
MANAGEMENT FEE........... The Trust will pay the Investment Manager a
monthly fee at the annual rate of 0.35% of the
Trust's average weekly net assets. See
"Investment Management Agreement."
DISTRIBUTIONS............. Prior to any issuance of the Preferred Shares,
the Trust's policy will be to make monthly
distributions to Common Shareholders of
substantially all net investment income of the
Trust. Initial distributions to Common
Shareholders are expected to be declared within
approximately 60 days and paid within
approximately 90 days from the completion of this
offering. Net capital gains, if any, will be
distributed at least annually to the extent such
net capital gains are not necessary to satisfy
the dividend, redemption or liquidation
preferences of the Preferred Shares. From and
after the issuance of the Preferred Shares,
monthly distributions to Common Shareholders will
consist of substantially all net investment
income of the Trust, if any, remaining after the
payment of the dividends on the Preferred Shares.
For tax purposes, the Trust is currently required
to allocate net tax-exempt interest, net capital
gains and other taxable income, if any, between
the Common Shares and the Preferred Shares in
proportion to total distributions paid to each
class for the year in which such net tax-exempt
interest, net capital gains or other taxable
income is realized. The Preferred Shares may
provide for additional dividend payments to
compensate the holders thereof for any assumed
tax detriment resulting from certain required
allocations to them of ordinary income and/or
capital gains. Each Common Shareholder of record
may elect to have all dividends and distributions
automatically reinvested in Common Shares
purchased in the open market at the prevailing
market price pursuant to a dividend reinvestment
plan. See "Dividends and Distributions; Dividend
Reinvestment Plan" and "Taxation."
During any annual period when the Trust's net
investment income and undistributed net capital
gains are insufficient to pay the dividends due
on the Preferred Shares, the Trust would be
precluded from paying dividends on the Common
Shares until such dividends on the Preferred
Shares have been
===============================================================================
6
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paid or provided for. In addition, under the Act
the Trust is not permitted to declare any cash
dividend or other distribution on its Common
Shares unless, at the time of such declaration
and after deducting the amount of such dividend,
the Trust is in compliance with the 200% asset
coverage requirements of the Act, and any more
stringent asset coverage requirements which may
be imposed in connection with the Trust's
obtaining a rating of the Preferred Shares. Such
prohibition on the payment of dividends or
distributions might impair the ability of the
Trust to maintain its qualification, for federal
income tax purposes, as a regulated investment
company. The Trust intends, however, to the
extent possible, and may be required in
connection with the Trust's obtaining a rating of
the Preferred Shares, to purchase or redeem
Preferred Shares from time to time to maintain
compliance with such asset coverage requirements.
See "Special Leverage Considerations," "Dividends
and Distributions; Dividend Reinvestment Plan"
and "Taxation."
SHARE REPURCHASES AND
TENDERS................. The Trustees may authorize the Trust to
repurchase the Common Shares in the open market
or to tender for the Common Shares at net asset
value. The Trustees have presently determined to
consider, on an annual basis, the making of a
tender offer for the Common Shares of the Trust.
Asset coverage requirements in connection with
the issuance of the Preferred Shares may limit or
prevent the Trust from repurchasing and/or
tendering for Common Shares. See "Share
Repurchases and Tenders."
LISTING.................... The Trust's Common Shares have been approved for
listing on the New York Stock Exchange under the
symbol "IMS."
CUSTODIAN.................. The Bank of New York will serve as Custodian of
the Trust's assets. See "Custodian, Dividend
Disbursing Agent and Transfer Agent."
SPECIAL RISK
CONSIDERATIONS........... The Trust has no operating history. In connection
with the management of its portfolio, the Trust
may engage in certain futures and options
transactions for hedging purposes and may
purchase or sell options on portfolio securities
to achieve additional return or to hedge its
portfolio. The Trust may also enter into
repurchase agreements. These investment practices
may involve special risks. In addition, the Trust
may borrow money for emergency purposes or for
repurchase of its shares provided that
immediately after such borrowing the amount
borrowed does not exceed 33 1/3% of the value of
its total assets (including the amount borrowed)
less its liabilities (not including any
borrowings but including the fair market value at
the time of computation of any other senior
securities then outstanding, including the
Preferred Shares). The use of borrowed funds for
other than emergency purposes involves the
speculative factor known as "leverage." The
foregoing may involve risks greater than those
assumed by other investment companies which do
not engage in such techniques or transactions.
See "Investment Objective and Policies" and
"Investment Practices."
The Trust may invest without limit in certain
Municipal Obligations which may be subject to the
individual alternative minimum tax. Additionally,
the Trust
===============================================================================
7
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may invest without limit in private activity
bonds or industrial development bonds, the
interest on which is not federally tax-exempt to
"substantial users" or "related persons."
Therefore, the Trust may not be a suitable
investment for such investors. See "Taxation."
The Trust reserves the right to invest 25% or
more of its total assets in certain types of
Municipal Obligations. See "Investment
Restrictions." A discussion of the risks
associated with investment in such obligations is
set forth in Appendix C.
Although the Investment Manager expects that
substantially all of the Trust's investments will
be in securities for which an established resale
market exists, there is no overall limitation on
the percentage of illiquid securities which may
be held by the Trust and as such substantially
all of the Trust's assets may be invested in
illiquid securities.
The value of the Trust's portfolio securities,
and therefore the Trust's net asset value per
share, will increase or decrease due to various
factors, principally changes in prevailing
interest rates and the ability of the issuers of
the Trust's portfolio securities to pay interest
and principal on such obligations. Net asset
value generally increases when interest rates
decline, and decreases when interest rates rise,
although this is not always the case. See
"Determination of Net Asset Value."
Shares of closed-end investment companies
frequently trade at a discount to net asset
value, especially shortly after the completion of
the public offering. This characteristic of
shares of closed-end funds is a risk separate and
distinct from the risk that a fund's net asset
value will decrease. It should be noted, however,
that in some cases, shares of closed-end funds
may trade at a premium to net asset value. The
Trust cannot predict whether its own Common
Shares will trade at, below, or above net asset
value. The Trust is designed primarily as a long-
term investment and not as a trading vehicle.
The Common Shareholders will elect ten Trustees
at the first annual meeting of Common
Shareholders unless any Preferred Shares are
outstanding at the time, in which event the
shareholders (Common Shareholders and Preferred
Shareholders voting as a single class) will elect
eight Trustees and the Preferred Shareholders,
voting as a separate class, will elect two
Trustees. If at any time dividends on the
Preferred Shares are unpaid in an amount equal to
two full years' dividends thereon, the holders of
all outstanding Preferred Shares, voting as a
separate class, will be entitled to elect a
majority of the Trustees until all dividends in
arrears have been paid or otherwise provided for.
See "Description of Shares."
The Trust's Declaration of Trust includes anti-
takeover provisions, including a staggered vote
for Trustees, and the requirement for an 80%
shareholder vote for certain mergers, share
issuances and asset acquisitions, that are
intended to have the effect of limiting the
ability of other entities or persons to acquire
control of the Trust. See "Description of
Shares."
===============================================================================
8
SUMMARY OF TRUST EXPENSES
===============================================================================
The following table illustrates all expenses and fees that a
shareholder of the Trust will incur. The expenses and fees set forth in the
table are for the year ending October 31, 1994.
Shareholder Transaction Expenses
Sales Load (as a Percentage of Offering Price)...................... %
Dividend Reinvestment Plan.......................................... None
Annual Expenses
(as a Percentage of Net Assets Attributable to the Common Shares)
Management Fees*.................................................... 0.35%
Other Expenses*..................................................... %
Total Annual Expenses**............................................. %
* "Management Fees" as shown above are for the fiscal year of the
Trust ending October 31, 1994. "Other Expenses" as shown above is based upon
estimated amounts of expenses of the Trust for its fiscal period ending
October 31, 1994.
** The expenses set forth in this table do not include expenses
associated with the Preferred Shares since the costs associated with the
Preferred Shares could not be determined at the date of the Prospectus. See
"Special Leverage Considerations."
EXAMPLE 1 year 3 years 5 years 10 years
- ------- ------ ------ ------ -------
You would pay the following expenses
on a $1,000 investment, assuming a
5% annual return:................... $ $ $ $
- ------------
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE TRUST MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding
the various costs and expenses that an investor in the Trust will bear directly
or indirectly. For a more complete description of these costs and expenses, see
the cover page of this Prospectus and "Use of Proceeds" and "Investment
Management Agreement."
9
THE TRUST AND ITS MANAGEMENT
===============================================================================
InterCapital Insured Municipal Securities (the "Trust") is a newly
organized, closed-end diversified management investment company whose
investment objective is to provide current income which is exempt from federal
income tax. The Trust will seek to achieve its investment objective by
investing primarily in a diversified portfolio of Municipal Obligations which
are covered by insurance guarantees as to timely payment of principal and
interest thereon. The Trust may also invest in Municipal Obligations which are
backed by an escrow or trust account containing sufficient U.S. Government
securities or U.S. Government agency securities to ensure timely payment of
principal and interest thereon. There can be no assurance that the Trust's
investment objective will be achieved.
The Trust is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on October 14, 1993. As a newly organized entity, the Trust has
no operating history. The Trust's principal office is located at Two World
Trade Center, New York, New York 10048.
The Trust's Declaration of Trust authorizes the issuance of both Common
Shares and Preferred Shares. The Trust currently intends to offer Preferred
Shares within approximately six months of the completion of this offering of
Common Shares. It is anticipated that the dividends on the Preferred Shares
will be based on short-term or medium-term rates and that the proceeds of the
Preferred Shares offering will be generally invested in long-term Municipal
Obligations, which typically have higher yields than short-term or medium-term
obligations. The effect of this two-class, leveraged capital structure will be
to provide Common Shareholders an opportunity to realize a higher level of tax-
free income than would be provided by an investment company having a similar
investment portfolio and an unleveraged capital structure. However, this
leveraged capital structure will also create greater risks for Common
Shareholders, including higher volatility of the net asset value and possibly
the market value of the Common Shares. See "Special Leverage Considerations."
The issuance and ongoing expenses of the Preferred Shares will be borne by the
Trust and will reduce the net asset value of the Common Shares. The timing and
other terms of the offering of the Preferred Shares and the terms of the
Preferred Shares will be determined by the Trustees of the Trust, subject to
then prevailing market conditions and also subject to a determination by the
Trustees that the issuance of Preferred Shares is likely to achieve the
benefits to the Common Shareholders described in this Prospectus. In the event
that, in the opinion of the Trustees, prevailing economic or market conditions
make issuance of the Preferred Shares inadvisable, the Trustees have agreed in
such case to permit the Trust to continue indefinitely as an unleveraged
entity.
Investment in shares of the Trust is designed to offer several
benefits. The Trust offers investors the opportunity to receive income
substantially exempt from federal income taxes by investing in a professionally
managed portfolio of Municipal Obligations. The Trust also relieves the
investor of the burdensome administrative details involved in managing a
portfolio of Municipal Obligations. These benefits are at least partially
offset by the expenses involved in operating an investment company. Such
expenses primarily consist of the fee of the Investment Manager and the
operational costs of the Trust.
The Trust has been organized as a closed-end investment company.
Closed-end investment companies differ from open-end investment companies
(commonly referred to as "mutual funds") in that closed-end investment
companies have a permanent capital base and do not redeem their shares, whereas
open-end investment companies issue securities redeemable at net asset value at
any time at the option of the shareholder and typically engage in a continuous
offering of their shares. Accordingly, open-end companies are subject to
periodic asset in-flows and out-flows that can complicate portfolio management.
Closed-end investment companies do not face the prospect of having to liquidate
portfolio holdings in the event of net redemptions or having to maintain cash
positions to meet potential redemptions. The Trust, however, will be required
to maintain cash sufficient to meet dividend payments on the Preferred Shares.
Shares of closed-end investment companies frequently trade at a discount to net
10
asset value. This characteristic of shares of closed-end funds is a risk
separate and distinct from the risk that the fund's net asset value will
decrease. The Trust cannot predict whether its own Common Shares will trade at,
below, or above net asset value. The Trust is designed primarily as a long-term
investment and not as a trading vehicle.
Dean Witter InterCapital Inc., whose address is Two World Trade Center,
New York, New York 10048, is the Trust's Investment Manager (the "Investment
Manager" or "InterCapital"), pursuant to an Investment Management Agreement
with the Trust. See "Investment Management Agreement." InterCapital is a
wholly-owned subsidiary of Dean Witter, Discover & Co. ("DWDC"), a balanced
financial services organization providing a broad range of nationally marketed
credit and investment products.
InterCapital, and its wholly-owned subsidiary, Dean Witter Services
Company Inc., act as investment manager, manager, investment adviser, sub-
adviser, administrator or sub-administrator to a total of seventy-nine
investment companies (the "Dean Witter Funds"), twenty-six of which are listed
on the New York Stock Exchange, and other portfolios, with combined total
assets of approximately $70.7 billion, including $12.2 billion of tax-exempt
securities, at November 30, 1993. The Investment Manager has over twenty years
of experience managing investment companies and currently advises or
administers assets for more than three million investor accounts. In an
internal reorganization which took place in January, 1993, the Investment
Manager assumed the investment advisory, management and administrative
activities formerly performed by the InterCapital Division of Dean Witter
Reynolds Inc. ("DWR"), and affiliate of the Investment Manager. As part of the
January, 1993 reorganization, the investment company underwriting activities
previously performed by DWR were assumed by Dean Witter Distributors Inc., a
wholly-owned subsidiary of DWDC and an affiliate of DWR and InterCapital. DWR
is a major securities broker-dealer and investment banker and is a member of
the New York Stock Exchange, the American Stock Exchange, the Chicago Board of
Options Exchange and other principal regional stock exchanges. DWR maintains
its offices at Two World Trade Center, New York, New York 10048.
USE OF PROCEEDS
===============================================================================
The net proceeds of the offering will be approximately $ ($
if the Underwriters exercise their over-allotment option in full) after payment
of the sales load and organization and offering expenses. A portion of the
organization and offering expenses have been advanced by the Trust's Investment
Manager.
Organization expenses relating to the Trust incurred and to be incurred
by the Investment Manager will be reimbursed by the Trust. Such expenses,
estimated at $ , will be deferred and amortized on the straight-line method
by the Trust against operations over a period not to exceed sixty months from
the commencement of operations of the Trust. Costs relating to the public
offering of its Common Shares, estimated to be $ , will be paid from the
proceeds of the offering and charged to capital at the time of issuance of such
shares.
The net proceeds of the offering will be invested in accordance with
the Trust's investment objective and policies. Investment of the net proceeds
will take place during a period which is not expected to exceed six months from
commencement of operations. Additionally, it may take up to six months after
the completion of the offering of the Preferred Shares before the proceeds of
that offering are invested in long-term Municipal Obligations. Pending their
respective investment, the proceeds of both offerings will be invested in high
quality Municipal Obligations or high quality short-term tax-exempt money
market instruments, if available, or otherwise in high quality taxable money
market instruments, in any case as described below under "Investment Objective
and Policies."
In order for the benefits of leverage to be realized by Common
Shareholders, the proceeds of the Preferred Shares offering must be invested in
Municipal Obligations that provide a higher net return than the then current
dividend rate paid on the Preferred Shares.
11
INVESTMENT OBJECTIVE AND POLICIES
===============================================================================
The investment objective of the Trust is to provide current income
which is exempt from federal income tax. Under normal circumstances, the Trust
will invest at least 80% of its net assets in Municipal Obligations which are
covered by insurance guaranteeing the timely payment of principal and interest
thereon. The Trust may also invest in Municipal Obligations which are backed by
an escrow or trust account containing sufficient U.S. Government securities or
U.S. Government agency securities backed by the full faith and credit of the
United States to ensure timely payment of principal and interest thereon
("escrow secured obligations"). Escrow secured obligations, "temporary
investments" and options and futures, all as described below, will not
constitute more than 20% of the Trust's net assets. Additionally, escrow
secured obligations will not constitute any part of the 80% of Municipal
Obligations covered by insurance referred to above. "Municipal Obligations"
consist of Municipal Bonds, Municipal Notes and Municipal Commercial Paper, as
well as lease obligations, including such instruments purchased on a when-
issued or delayed delivery basis. See "Investment Practices." Certain Municipal
Obligations in which the Trust may invest without limit may subject certain
investors to the alternative minimum tax and therefore a substantial portion of
the income produced by the Trust may be taxable for such investors under the
alternative minimum tax. The Trust, therefore, may not ordinarily be a suitable
investment for investors who are subject to the alternative minimum tax. The
suitability of the Trust for these investors will depend upon a comparison of
the after-tax yield likely to be provided from the Trust to comparable tax-
exempt investments not subject to such tax and also to comparable fully taxable
investments in light of each such investor's tax position. See "Taxation."
Each insured Municipal Obligation held by the Trust will either be (i)
covered by an insurance policy applicable to a specific security, whether
obtained by the issuer of the security or a third party at the time of original
issuance ("Original Issue Insurance") or by the Trust or a third party
subsequent to the time of original issuance ("Secondary Market Insurance") or
(ii) covered by a master municipal insurance policy purchased by the Trust
("Portfolio Insurance"). While the Trust may obtain one or more policies of
Portfolio Insurance, the Trust, depending on the availability of such policies
on terms favorable to the Trust, may determine not to obtain such policies and
to emphasize investments in Municipal Obligations insured under Original Issue
Insurance or Secondary Market Insurance. In any event, the Trust will only
obtain policies of Portfolio Insurance issued by insurers whose claims-paying
ability is rated "Aaa" by Moody's Investors Service, Inc. ("Moody's") or "AAA"
by Standard & Poor's Corporation ("S&P"). The Trust's investments in insured
obligations (as described below) will only consist of Municipal Obligations
covered by Original Issue Insurance or Secondary Market Insurance that are
themselves assigned a rating of "Aaa" or "AAA," as the case may be, by virtue
of the claims-paying ability of the insurer. Such Municipal Obligations would
generally be assigned a lower rating if the rating were based primarily upon
the credit characteristics of the issuer without regard to the insurance
feature. By way of contrast, the ratings, if any, assigned to Municipal
Obligations insured under Portfolio Insurance will be based primarily upon the
credit characteristics of the issuers without regard to the insurance feature,
and will generally carry a rating that is below "Aaa" or "AAA." In the hands of
the Trust, however, a Municipal Obligation backed by Portfolio Insurance will
effectively be of the same quality as a Municipal Obligation issued by an
issuer of comparable credit characteristics that is backed by Original Issue
Insurance or Secondary Market Insurance.
The Trust's policy of investing in Municipal Obligations insured by
insurers whose claims-paying ability is rated "Aaa" or "AAA" will apply only at
the time of the purchase of a security, and the Trust will not be required to
dispose of securities in the event Moody's or S&P, as the case may be,
downgrades its
12
assessment of the claims-paying ability of a particular insurer or the credit
characteristics of a particular issuer. In this connection, it should be noted
that in the event Moody's or S&P or both should downgrade its assessment of the
claims-paying ability of a particular insurer, it could also be expected to
downgrade the ratings assigned to Municipal Obligations insured under Original
Issue Insurance or Secondary Market Insurance issued by such insurer, and
Municipal Obligations insured under Portfolio Insurance issued by such insurer
would also be of reduced quality in the hands of the Trust. Moody's and S&P
continually assess the claims-paying ability of insurers and the credit
characteristics of issuers, and there can be no assurance that they will not
downgrade their assessments subsequent to the time the Trust purchases
securities. See "Description of Bond Insurance" below.
In addition to insured Municipal Obligations, the Trust may invest in
escrow secured obligations that are entitled to the benefit of an escrow or
trust account which contains securities issued or guaranteed by the U.S.
Government or U.S. Government agencies and backed by the full faith and credit
of the United States sufficient in amount to ensure the payment of interest and
principal on the original interest payment and maturity dates. Such escrow
secured obligations are normally regarded as having the credit characteristics
of the underlying U.S. Government or U.S. Government agency securities. Such
escrow secured obligations will generally not be insured.
The Trust intends to emphasize investments in Municipal Obligations
with long-term maturities because such long-term obligations generally produce
higher income than short-term obligations although such longer-term obligations
are more susceptible to market fluctuations resulting from changes in interest
rates than shorter-term obligations. The average weighted maturity of the
Trust's portfolio under normal circumstances is expected to be in excess of 20
years, but the average maturity, as well as the emphasis on longer-term
obligations, may vary depending upon market conditions.
The Trust may invest any percentage of its net assets in "temporary
investments" for defensive purposes (e.g., investments made during times where
temporary imbalances of supply and demand or other temporary dislocations in
the Municipal Obligations market adversely affect the price at which Municipal
Bonds, Notes and Commercial Paper are available) and in order to keep cash on
hand fully invested. Temporary investments are short-term, high quality,
generally uninsured securities which may be either tax-exempt or taxable. The
Trust will invest only in temporary investments which are certificates of
deposit of U.S. domestic banks, including foreign branches of domestic banks,
with assets of $1 billion or more; bankers' acceptances; time deposits; U.S.
Government securities; or debt securities rated within the highest grade by
Moody's or S&P (MIG 1 or SP-1 respectively for Municipal Notes and P-1 or A-1
respectively for Municipal Commercial Paper) or, if not rated, are of
comparable quality as determined by the Investment Manager, and which mature
within one year from the date of purchase. See Appendix A for a general
description of Moody's and S&P's ratings of securities in such categories.
Temporary investments of the Trust may also include repurchase agreements (see
below).
The foregoing percentage and rating limitations apply at the time of
acquisition of a security based on the last previous determination of the
Trust's net asset value. Any subsequent change in any rating by a rating
service or change in percentages resulting from market fluctuations or other
changes in the Trust's total assets will not require elimination of any
security from the Trust's portfolio.
Except as otherwise noted, the foregoing investment objective and
policies are fundamental policies of the Trust and may not be changed without
the approval of a majority of the outstanding voting securities of the Trust
(Common Shares and Preferred Shares voting together as a single class and
Preferred Shares voting as a separate class), as defined in the Act. Such a
majority is defined as the lesser of (i) 67% or more of the Trust's shares
present at a meeting of shareholders, if the holders of more than 50% of the
outstanding shares of the Trust are present or represented by proxy, or (ii)
more than 50% of the outstanding shares of the Trust.
13
DESCRIPTION OF MUNICIPAL OBLIGATIONS
"Municipal Bonds" and "Municipal Notes" are debt obligations of states,
cities, counties, municipalities and state and local governmental agencies
which generally have maturities, at the time of their issuance, of either one
year or more (Bonds) or from six months to three years (Notes). "Municipal
Commercial Paper," as presently constituted, although issued under programs
having a final maturity of more than one year, is generally short-term paper
subject to periodic rate changes and maturities of less than one year selected
at the holder's option. Municipal Obligations in which the Trust primarily will
invest bear interest that, in the respective opinions of bond counsel to the
issuers at the time of original issuance of such obligations, is not includible
in the gross income of the holders thereof for federal income tax purposes. See
"Taxation."
Municipal Bonds are issued to raise funds for various public purposes,
including the construction of such public facilities as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets, electric
systems, solid waste disposal and water and sewer works. Other public purposes
for which Municipal Bonds may be issued include the refinancing of outstanding
obligations, the obtaining of funds for general operating expenses and for
loans to other public institutions and facilities. In addition, certain private
activity bonds, industrial development bonds and pollution control bonds may be
included within the term Municipal Bonds if the interest paid thereon, in the
opinion of bond counsel to the issuer, qualifies as not includible in the gross
income of the holders thereof for federal income tax purposes. The principal
types of Municipal Notes currently being issued include tax anticipation notes,
bond anticipation notes and revenue anticipation notes, although there are
other types of Municipal Notes in which the Trust may invest. Notes sold in
anticipation of collection of taxes, a bond sale or receipt of other revenues
are usually general obligations of the issuing state, municipality or agency.
Municipal Commercial Paper is likely to be used to meet seasonal working
capital needs of an issuer or interim construction financing and to be paid
from general revenues of the issuer or refinanced with long-term debt.
Municipal Commercial Paper may be backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or other institutions.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds, notes or commercial paper. General obligation
bonds, notes or commercial paper are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Issuers of general obligation bonds, notes or commercial paper include states,
counties, cities, towns and other governmental units. Revenue bonds, notes or
commercial paper are payable from the revenues derived from a particular
facility or class of facilities or, in some cases, from other specific revenue
sources. Revenue bonds, notes or commercial paper are issued for a wide variety
of purposes, including the financing of electric, gas, water and sewer systems
and other public utilities; industrial development and pollution control
facilities; single and multi-family housing units; public buildings and
facilities; air and marine ports; transportation facilities such as toll roads,
bridges and tunnels; and health and educational facilities such as hospitals
and dormitories. They rely primarily on user fees to pay debt service, although
the principal revenue source may be supplemented by additional security
features which are intended to enhance the creditworthiness of the issuer's
obligations. In some cases, particularly revenue bonds issued to finance
housing and public buildings, a direct or implied "moral obligation" of a
governmental unit may be pledged to the payment of debt service. In other
cases, a special tax or other charge may augment user fees. Municipal bonds may
also be classified as "tax allocation" bonds, which are payable from tax
increment revenues, that is, from collected property taxes in the project area
allocable to the increase in the assessed valuation of land, improvements, and
personal and public utility property due to the project. There are, of course,
variations in the security of Municipal Bonds, Notes and Commercial Paper, both
within a particular classification and between classifications, depending on
numerous factors.
14
Also included within the general category of Municipal Obligations are
participations in lease obligations or installment purchase contract
obligations (hereinafter collectively called "lease obligations") of municipal
authorities or entities. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, a lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in any year unless money is appropriated for such
purpose for such year. In addition to the "non-appropriation" risk, these
securities represent a relatively new type of financing that has not yet
developed the depth of marketability associated with more conventional
Municipal Obligations and therefore certain lease obligations may be considered
to be illiquid securities. Although "non-appropriation" lease obligations are
secured by the leased property, disposition of the property in the event of
default and foreclosure might prove difficult. The Trust will seek to minimize
these risks by only investing in those "non-appropriation" lease obligations
where (1) the nature of the leased equipment or property is such that its
ownership or use is essential to a governmental function of the municipality,
(2) the lease payments will commence amortization of principal at an early date
resulting in an average life of seven years or less for the lease obligation,
(3) appropriate covenants will be obtained from the municipal obligor
prohibiting the substitution or purchase of similar equipment if lease payments
are not appropriated, (4) the investment is of a size that will be attractive
to institutional investors, and (5) the underlying leased equipment has
elements of portability or use that enhance its marketability in the event
foreclosure on the underlying equipment is ever required. The Trust may also
purchase "certificates of participation," which are securities issued by a
particular municipality or municipal authority to evidence a proportionate
interest in base rental or lease payments relating to a specific project to be
made by a municipality, agency or authority. The risks and characteristics of
investments in certificates of participation are similar to the risks and
characteristics of lease obligations discussed above.
Although the Investment Manager expects that substantially all of the
Trust's investments will be in securities for which an established resale
market exists, there is no overall limitation on the percentage of illiquid
securities which may be held by the Trust and as such substantially all of the
Trust's assets may be invested in illiquid securities.
The yields on Municipal Obligations are dependent on a variety of
factors, including the condition of the general money market and the tax-exempt
market, changes in federal and state income taxes, the size of a particular
offering, the maturity of the obligation and the rating of the issue. The
ratings of Moody's and S&P represent their opinions as to the quality of the
securities which they undertake to rate. It should be emphasized, however, that
ratings are general and are not absolute standards of quality. Consequently,
Municipal Obligations with the same maturity, coupon and rating may have
different yields while obligations of the same maturity and coupon with
different ratings may have the same yield. The market value of the Trust's
portfolio securities, and therefore the Trust's net asset value per share, will
vary with changes in prevailing interest rate levels and as a result of
changing evaluations of the ability of issuers of the Trust's portfolio
securities to meet interest and principal payments on a timely basis.
Generally, a rise in interest rates will result in a decrease in the Trust's
net asset value per share, while a drop in interest rates will result in an
increase in the Trust's net asset value per share, although this is not always
the case.
Securities of issuers of Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Reform Act of 1978. In addition,
the obligations of such issuers may become subject to the laws enacted in the
future by
15
Congress, state legislatures or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of
such obligations or upon the ability of municipalities to levy taxes. There is
also the possibility that, as a result of legislation or other conditions, the
power or ability of any one or more issuers to pay, when due, the principal of
and interest on its, or their, Municipal Obligations may be materially
affected.
The Internal Revenue Code of 1986, as amended, limits the types and
volume of bonds qualifying for the federal income tax exemption on interest
with the result that in recent years the volume of new issues of Municipal
Obligations has declined substantially. As a result, this legislation, and
legislation which may be enacted in the future, may affect the availability of
Municipal Obligations for investment by the Trust.
Prior to the time it offers the Preferred Shares, the Trust will apply
for ratings on such shares from one or more nationally recognized rating
agencies. Obtaining one or more ratings for the Preferred Shares may enhance
the marketability of the Preferred Shares and thereby reduce the dividend rate
on the Preferred Shares from that which the Trust would be required to pay if
the Preferred Shares were not rated. If the Trust issues Preferred Shares and
seeks to obtain a rating of the Preferred Shares, the rating service issuing
such rating may, as a condition thereof, impose restrictions on the types or on
the amounts of certain categories of municipal securities in which the Trust
may invest. The Trust cannot predict what, if any, restrictions may be imposed
by such rating service in connection with its rating of the Preferred Shares.
As set forth in investment restriction 3 under "Investment Restrictions," the
Trust reserves the right to invest 25% or more of its total assets in any of
the following types of Municipal Obligations provided that the percentage of
the Trust's total assets in private activity bonds in any one category does not
exceed 25% of the Trust's total assets: health facility obligations, housing
obligations, single family mortgage revenue bonds, industrial revenue
obligations (including pollution control obligations), electric utility
obligations, airport facility revenue obligations, water and sewer obligations,
university and college revenue obligations, bridge authority and toll road
obligations and resource recovery obligations. A discussion of the risks
associated with investment in such obligations is set forth in Appendix C.
DESCRIPTION OF BOND INSURANCE
Each insured Municipal Obligation in which the Trust will invest will
be covered by Original Issue Insurance, Secondary Market Insurance or Portfolio
Insurance. While the Trust may obtain one or more policies of Portfolio
Insurance, the Trust, depending on the availability of such policies on terms
favorable to the Trust, may determine not to obtain such policies and to
emphasize investment in Municipal Obligations insured under Original Issue
Insurance or Secondary Market Insurance. In any event, the Trust will only
obtain policies of Portfolio Insurance issued by insurers whose claims-paying
ability is rated "Aaa" by Moody's or "AAA" by S&P. See Appendix D for a brief
description of S&P's and Moody's insurance claims-paying ability ratings.
Currently, the following insurance companies which issue municipal obligation
insurance satisfy the foregoing requirement: AMBAC Indemnity Corporation,
Financial Guaranty Insurance Company, Financial Security Assurance and
Municipal Bond Investors Assurance Corporation. There is no limitation on the
percentage of the Trust's assets that may be invested in Municipal Obligations
insured by any given insurer.
Original Issue Insurance. Original Issue Insurance is purchased with
respect to a particular issue of Municipal Obligations by the issuer thereof or
a third party in conjunction with the original issuance of such Municipal
Obligations. Under such insurance, the insurer unconditionally guarantees to
the holder of the Municipal Obligation the timely payment of principal and
interest on such obligation when and as such payments shall become due but
shall not be paid by the issuer, except that in the event of any acceleration
of the due date of the principal by reason of mandatory or optional redemption
(other than acceleration by reason of a mandatory sinking fund payment),
default or otherwise, the payments guaranteed may be made in such amount and at
such times as payments of principal would have been due
16
had there not been such acceleration. The insurer is responsible for such
payments less any amounts received by the holder from any trustee for the
Municipal Obligation's issuer or from any other source in connection with such
obligations. Original Issue Insurance does not guarantee payment on an
accelerated basis, the payment of any redemption premium (except with respect
to certain premium payments in the case of certain small issue industrial
development and pollution control Municipal Obligations), the value of the
shares of the Trust or the market value of Municipal Obligations, or payments
of any tender purchase price upon the tender of the Municipal Obligations.
Original Issue Insurance also does not insure against nonpayment of principal
of or interest on Municipal Obligations resulting from the insolvency,
negligence or any other act or omission of the Trustee or other paying agent
for such obligations.
In the event that interest on or principal of a Municipal Obligation
covered by insurance is due for payment but is unpaid by reason of nonpayment
by the issuer thereof, the applicable insurer will make payments to its fiscal
agent (the "Fiscal Agent") equal to such unpaid amounts of principal and
interest not later than one business day after the insurer has been notified
that such nonpayment has occurred (but not earlier than the date such payment
is due). The Fiscal Agent will disburse to the Trust the amount of principal
and interest which is then due for payment but is unpaid upon receipt by the
Fiscal Agent of (i) evidence of the Trust's right to receive payment of such
principal and interest and (ii) evidence, including any appropriate instruments
of assignment, that all of the rights to payment of such principal or interest
then due for payment shall thereupon vest in the insurer. Upon payment by the
insurer of any principal or interest payments with respect to any Municipal
Obligations, the insurer shall succeed to the rights of the Trust with respect
to such payment.
Original Issue Insurance remains in effect as long as the Municipal
Obligations covered thereby remain outstanding and the insurer remains in
business, regardless of whether the Trust ultimately disposes of such Municipal
Obligations. Consequently, Original Issue Insurance may be considered to
represent an element of market value with respect to the Municipal Obligations
so insured, but the exact effect, if any, of this insurance on such market
value cannot be estimated.
Secondary Market Insurance. Subsequent to the time of original issuance
of a Municipal Obligation, the Trust or a third party may, upon the payment of
a single premium, purchase insurance on such Municipal Obligation. Secondary
Market Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance and, as is the case with Original Issue Insurance,
Secondary Market Insurance remains in effect as long as the Municipal
Obligations covered thereby remain outstanding and the insurer remains in
business, regardless of whether the Trust ultimately disposes of such Municipal
Obligations.
One of the purposes of acquiring Secondary Market Insurance with
respect to a particular Municipal Obligation would be to enable the Trust to
enhance the value of such Municipal Obligation. The Trust, for example, might
seek to purchase a particular Municipal Obligation and obtain Secondary Market
Insurance with respect thereto if, in the opinion of the Investment Manager,
the market value of such Municipal Obligation, as insured, would exceed the
current value of the Municipal Obligation without insurance plus the cost of
the Secondary Market Insurance. Similarly, if the Trust owns but wishes to sell
a Municipal Obligation that is then covered by Portfolio Insurance, the Trust
might seek to obtain Secondary Market Insurance with respect thereto if, in the
opinion of the Investment Manager, the net proceeds of a sale by the Trust of
such obligation, as insured, would exceed the current value of such obligation
plus the cost of the Secondary Market Insurance. All premiums respecting
Municipal Obligations covered by Original Issue Insurance or Secondary Market
Insurance are paid in advance by the issuer, the Trust or other party obtaining
the insurance.
Portfolio Insurance. The Trust may obtain, but has no obligation to
obtain, one or more policies of Portfolio Insurance, each of which would
guarantee the payment of principal and interest on specified eligible Municipal
Obligations purchased by the Trust. Except as described below, Portfolio
Insurance
17
generally provides the same type of coverage as is provided by Original Issue
Insurance. Municipal Obligations insured under one Portfolio Insurance policy
would generally not be insured under any other policy purchased by the Trust. A
Municipal Obligation is eligible for coverage under a policy if it meets
certain requirements of the insurer. Portfolio Insurance is intended to reduce
financial risk, but the cost thereof and compliance with investment
restrictions imposed under the policy will reduce the yield to shareholders of
the Trust.
If a Municipal Obligation is already covered by Original Issue
Insurance or Secondary Market Insurance, then such Municipal Obligation is not
required to be additionally insured under any policy of Portfolio Insurance
that the Trust may purchase.
Portfolio Insurance policies are effective only as to Municipal
Obligations owned by and held by the Trust, and do not cover Municipal
Obligations for which the contract for purchase fails. A "when-issued"
Municipal Obligation will be covered under a Portfolio Insurance policy upon
the purchase date of the issue of such "when-issued" Municipal Obligation.
In determining whether to insure Municipal Obligations held by the
Trust, an insurer will apply its own standards, which correspond generally to
the standards it has established for determining the insurability of new issues
of Municipal Obligations. See "Original Issue Insurance" above.
Each Portfolio Insurance policy will be noncancellable by the insurer
and will remain in effect so long as the Trust exists, the Municipal
Obligations covered by the policy continue to be held by the Trust and the
Trust pays the premiums for the policy. The Trust will generally reserve the
right to terminate each policy upon written notice to an insurer if it
determines that the cost of such policy is not reasonable in relation to the
value of the insurance to the Trust.
Each Portfolio Insurance policy shall terminate as to any Municipal
Obligation that has been redeemed from or sold by the Trust on the date of such
redemption or the settlement date of such sale, and an insurer shall not have
any liability under a policy as to any such Municipal Obligation thereafter,
except that if the date of such redemption or the settlement date of such sale
occurs after a record date and before the related payment date with respect to
any such Municipal Obligation, the policy will terminate as to such Municipal
Obligation on the business day immediately following such payment date. Each
policy will terminate as to all Municipal Obligations covered thereby on the
date on which the last of the covered Municipal Obligations mature, are
redeemed or are sold by the Trust.
One or more policies of Portfolio Insurance may provide the Trust,
pursuant to an irrevocable commitment of the insurer, with the option to
exercise the right to obtain permanent insurance ("Permanent Insurance") with
respect to a Municipal Obligation that is to be sold by the Trust. The Trust
would exercise the right to obtain Permanent Insurance upon payment of a
single, predetermined insurance premium payable from the proceeds of the sale
of such Municipal Obligation. It is expected that the Trust will exercise the
right to obtain Permanent Insurance for a Municipal Obligation only if upon
such exercise, in the opinion of the Investment Manager, the net proceeds from
the sale by the Trust of such obligation, as insured, would exceed the proceeds
from the sale of such obligation without insurance.
The Permanent Insurance premium with respect to each such obligation is
determined based upon the insurability of each such obligation as of the date
of purchase by the Trust and will not be increased or decreased for any change
in the creditworthiness of such obligation unless such obligation is in default
as to payment of principal or interest, or both. In such event, the Permanent
Insurance premium shall be subject to an increase predetermined at the date of
purchase by the Trust.
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The Trust generally intends to retain any insured securities covered by
Portfolio Insurance that are in default or in significant risk of default and
to place a value on the insurance, which ordinarily will be the difference
between the market value of the defaulted security and the market value of
similar securities of minimum investment grade (i.e., rated "BBB" by S&P or
"Baa" by Moody's) that are not in default. In certain circumstances, however,
the Investment Manager may determine that an alternative value for the
insurance, such as the difference between the market value of the defaulted
security and either its par value or the market value of securities of a
similar nature that are not in default or in significant risk of default, is
more appropriate. To the extent that the Trust holds such defaulted securities,
it may be limited in its ability to manage its investment portfolio and to
purchase other Municipal Obligations. Except as described above with respect to
securities covered by Portfolio Insurance that are in default or subject to
significant risk of default, the Trust will not place any value on the
insurance in valuing the Municipal Obligations that it holds.
Because each Portfolio Insurance policy will terminate as to Municipal
Obligations sold by the Trust on the date of sale, in which event the insurer
will be liable only for those payments of principal and interest that are then
due and owing (unless Permanent Insurance is obtained by the Trust), the
provision for this insurance will not enhance the marketability of securities
held by the Trust, whether or not the securities are in default or in
significant risk of default. On the other hand, since Original Issue Insurance
and Secondary Market Insurance will remain in effect as long as Municipal
Obligations covered thereby are outstanding, such insurance may enhance the
marketability of such securities, even when such securities are in default or
in significant risk of default, but the exact effect, if any, on marketability
cannot be estimated. Accordingly, the Trust may determine to retain or,
alternatively, to sell Municipal Obligations covered by Original Issue
Insurance or Secondary Market Insurance that are in default or in significant
risk of default.
Premiums for a Portfolio Insurance policy are generally paid by the
Trust monthly, and are adjusted for purchases and sales of Municipal
Obligations covered by the policy during the month. The yield on the Trust's
portfolio is reduced to the extent of the insurance premiums paid by the Trust
which, in turn, will depend upon the characteristics of the covered Municipal
Obligations held by the Trust. In the event the Trust were to purchase
Secondary Market Insurance with respect to any Municipal Obligation then
covered by a Portfolio Insurance policy, the coverage and the obligation of the
Trust to pay monthly premiums under such policy would cease with such purchase.
SPECIAL LEVERAGE CONSIDERATIONS
===============================================================================
EFFECTS OF LEVERAGE
The Trust currently intends to offer Preferred Shares within
approximately six months of the completion of this offering of Common Shares.
The timing and other terms of the offering of the Preferred Shares will be
determined by the Trustees of the Trust, subject to then prevailing market
conditions and subject to a determination by the Trustees that the issuance of
Preferred Shares is likely to achieve the benefits to the Common Shareholders
described in this Prospectus. It is anticipated that the dividends on the
Preferred Shares will be based on short-term or medium-term rates and that the
proceeds of the Preferred Shares offering will be generally invested in long-
term Municipal Obligations which typically have higher yields than short-term
or medium-term obligations. The issuance and ongoing expenses of the Preferred
Shares will be borne by the Trust and will reduce the net asset value of the
Common Shares.
The issuance of the Preferred Shares will result in the financial
leveraging of the Common Shares, which is a speculative technique. This two-
class, leveraged capital structure of the Trust would enable the Trust to pay a
potentially higher yield on the Common Shares as compared with securities of
investment companies with an investment objective similar to that of the Trust
but with an unleveraged capital structure.
19
RISKS OF LEVERAGE
Investors should note, however, that there are risks associated with
issuing Preferred Shares to increase the yield on the Common Shares, including
higher volatility of the net asset value and possibly the market value of the
Common Shares, and that fluctuations in the dividend rates on the Preferred
Shares, which will be based on short-term or medium-term rates, may affect the
yield to the Common Shareholders.
As long as the Trust is able to realize a higher net return on its
investment portfolio than the then current dividend rate of the Preferred
Shares, after taking into account the offering costs of the Preferred Shares,
the ongoing expenses of the Preferred Shares and the Trust's operating
expenses, the effect of the leverage provided by the Preferred Shares will be
to cause the Common Shareholders to realize a higher current rate of return
than if the Trust were not so leveraged. Similarly, if net capital gains are
realized by the Trust, the effect of leverage will be to increase the amount of
such gains distributed to the Common Shareholders. On the other hand, short-
term, medium-term and long-term interest rates change from time to time as does
their relationship to each other (i.e., the slope of the yield curve) depending
upon such factors as supply and demand forces, monetary and tax policies and
investor expectations. Changes in such factors could cause the relationship
between short-term, medium-term and long-term rates to change (i.e., to flatten
or to invert the slope of the yield curve) so that short-term and medium-term
rates may substantially increase relative to the rates of long-term obligations
in which the Trust may be invested. To the extent that the then current
dividend rate on the Preferred Shares approaches the net return on the Trust's
investment portfolio, the benefit of leverage to the Common Shareholders will
be reduced, and if the then current dividend rate on the Preferred Shares were
to exceed the net return on the Trust's portfolio, the Trust's leveraged
capital structure would result in a lower rate of return to the Common
Shareholders than if the Trust were not so structured. Similarly, since any
decline in the net asset value of the Trust's investments will be borne
entirely by the Common Shareholders, the effect of leverage in a declining
market would result in a greater decrease in net asset value to the Common
Shareholders than if the Trust were not so leveraged. Any such decrease would
likely be reflected in a decline in the market price for Common Shares. Thus, a
rise in interest rates will likely result in two separate adverse economic
effects on Common Shareholders: first, a decrease in the Trust's net asset
value and, second (as a result of increased rates payable to Preferred
Shareholders), lower income available for distribution to the Common
Shareholders.
If the Trust's current investment income were not sufficient to meet
dividend requirements on the Preferred Shares, the Trust might have to
liquidate certain of its investments, thereby reducing the net asset value
attributable to the Trust's Common Shares. Such liquidations may also cause the
Trust to realize gains on securities held for less than three months. Because
of the limitation of 30% on the portion of the Trust's gross income that may be
derived from the sale or disposition of securities held less than three months
(in order to retain the Trust's status as a regulated investment company under
the Internal Revenue Code of 1986, as amended), such gains would limit the
ability of the Trust to sell other securities held for less than three months
that the Trust may wish to sell in the ordinary course of its portfolio
management and thus may adversely affect the Trust's yield.
The Trust is currently required to allocate net capital gains and other
taxable income, if any, between the Common Shares and the Preferred Shares in
proportion to total distributions paid to each class for the year in which such
net capital gains or other taxable income is realized. To the extent net
capital gains are allocated to the Preferred Shares for tax purposes, there
would likely be an increase in the dividends payable to Preferred Shareholders
as a result of the increase in tax liability to them resulting from such
allocation. However, the negative impact on Common Shareholders of such
increased dividends to Preferred Shareholders may be offset in whole or in part
by the allocation to the Common
20
Shares of a greater share of the Trust's tax-exempt income, likely resulting in
a lower tax liability for Common Shareholders than if all of the Trust's net
capital gains or other taxable income had been allocated to the Common Shares.
To the extent any such increase in dividend payments to Preferred Shareholders
is not entirely offset by a reduction in the tax liability of Common
Shareholders, the advantage of the Trust's leveraged structure to Common
Shareholders will be reduced. See "Taxation."
Until the Preferred Shares are issued, the Trust's capital structure
will not be leveraged, and the special leverage considerations described in
this Prospectus will not apply. There can be no assurance that the Preferred
Shares will be issued.
MANAGEMENT OF INVESTMENT PORTFOLIO AND CAPITAL STRUCTURE
In the event of an increase in short-term or medium-term rates or other
changes in market conditions, to the extent that the Trust's leveraged capital
structure could adversely affect Common Shareholders as noted above, or in
anticipation of such increase or changes, the Trust may attempt to shorten the
average maturity of its investment portfolio, which would tend to offset
partially the negative impact of such structure on the Common Shareholders. The
Trust may also attempt to reduce the degree to which its capital structure is
leveraged by redeeming or otherwise purchasing all or a portion of the
outstanding Preferred Shares. If market conditions subsequently warrant
"releveraging" of the Trust's capital structure, the Trust may, subject to the
provisions of Section 18 of the Act, sell shares of an additional series of
beneficial interest with preference rights, previously unissued Preferred
Shares or Preferred Shares that the Trust previously issued but later
repurchased.
Under the Act, the Trust is not permitted to issue Preferred Shares
unless immediately after such issuance the value of the Trust's total assets,
less all liabilities and indebtedness of the Trust, is at least 200% of the
liquidation value of the outstanding Preferred Shares. The liquidation value of
the Preferred Shares is expected to equal their aggregate original purchase
price plus any accrued and unpaid dividends thereon. It is anticipated that
immediately after the completion of any offering of the Preferred Shares, the
Trust's asset coverage ratio will be at least 280%. See "Description of
Shares." In addition, the Trust is not permitted to declare any cash dividend
or other distribution on its Common Shares unless, at the time of such
declaration, the Trust meets such 200% asset coverage requirement (determined
after deducting the amount of such dividend or distribution). Such prohibition
on the payment of dividends or other distributions might impair the ability of
the Trust to maintain its qualification for federal income tax purposes as a
regulated investment company. The Trust intends, however, to the extent
possible, to purchase or redeem Preferred Shares from time to time to maintain
such asset coverage of the Preferred Shares of at least 200%. See "Taxation."
In addition to the requirements of the Act, the Trust may be required to comply
with other asset coverage requirements as a condition of the Trust's obtaining
a rating on the Preferred Shares from a nationally recognized rating service.
To qualify for federal income taxation as a regulated investment
company, the Trust must distribute in each fiscal year an amount at least equal
to the sum of 90% of its net taxable investment income and net short-term
capital gains plus 90% of net income from tax-exempt obligations. To the extent
dividends on the Preferred Shares constitute less than the amount of such
required distribution, the remainder must be distributed to the holders of the
Common Shares. In addition, the Trust would generally have to distribute 100%
of its net taxable investment income and net short-term and long-term capital
gains in order to eliminate tax liability of the Trust. In the event that the
Trust is precluded from making distributions on the Common Shares because of
any applicable asset coverage requirements, the terms of the Preferred Shares
may provide that any amounts so precluded from being distributed, but required
to be distributed in order for the Trust to meet the distribution requirements
for federal tax purposes (or to otherwise avoid tax liability of the Trust),
will be paid to the holders of the Preferred Shares as a special dividend,
which dividend would be expected to decrease the amount such holders would be
entitled to receive upon redemption or liquidation of the Preferred Shares.
21
INVESTMENT PRACTICES
===============================================================================
The following investment practices apply to the portfolio investments
of the Trust and may be changed by the Trustees of the Trust without
shareholder approval, following written notice to the shareholders. Such
practices may be restricted or limited following the issuance of the Preferred
Shares as a condition of the Trust's obtaining a rating on the Preferred
Shares.
Futures Contracts and Options Thereon. The Trust may purchase and sell
financial futures contracts ("futures contracts") and may purchase and write
put and call options on such futures contracts only for the purpose of hedging
its portfolio (or anticipated portfolio) securities against changes in
prevailing interest rates.
If the Investment Manager anticipates that interest rates may rise, the
Trust may sell a futures contract to protect against the potential decline in
the value of the securities held by the Trust. If declining interest rates are
anticipated, the Trust may purchase a futures contract to protect against a
potential increase in the price of securities the Trust intends to purchase.
As a futures contract purchaser, the Trust incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Trust incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The specific securities taken or delivered at the settlement date would not be
determined until or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was effected. Although the terms of futures contracts specify actual delivery
or receipt of securities, in most instances the contracts are closed out before
the settlement date without the making or taking of delivery of the securities.
Closing out a futures contract is effected by entering into an offsetting
purchase or sale transaction.
Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is lost. Since the value of the option is fixed at the point of sale, there are
no daily payments of cash to reflect the change in the value of the underlying
contract as there are by a purchaser or seller of a futures contract. The value
of the option does change and is reflected in the net asset value of the Trust.
The Trust may not purchase and sell futures contracts or purchase
related options thereon if, immediately thereafter, the amount committed to
initial margin plus the amount paid for premiums for unexpired options on
futures contracts for other than bona fide hedging purposes exceeds 5% of the
value of the Trust's total assets.
Special Risk Considerations Relating to Futures and Options Thereon.
Certain risks are inherent in the Trust's use of futures contracts and options
on futures. One such risk arises because the correlation between movements in
the price of futures contracts or options on futures and movements in the price
of the securities hedged or used for cover will not be perfect. Another risk is
that the price of futures contracts or options on futures may not move
inversely with changes in interest rates. The risk of imperfect correlations
may be increased by the fact that the Trust may invest in futures contracts on
taxable securities and there is no guarantee that the prices of taxable
securities will move in a similar manner to the prices of tax-exempt
securities.
22
The Trust's ability to establish and close out positions in futures
contracts and options on futures contracts will be subject to the development
and maintenance of a liquid secondary market. Although the Trust generally will
purchase only those futures contracts and options thereon for which there
appears to be a liquid market, there is no assurance that a liquid market on an
exchange will exist for any particular futures contract or option or at any
particular time.
Successful use of futures contracts and options thereon by the Trust is
subject to the ability of the Investment Manager to predict correctly movements
in the direction of interest rates and other factors affecting markets for
securities. These skills are different from those needed to select portfolio
securities. If the Investment Manager's expectations are not met, the Trust
would be in a worse position than if a hedging strategy had not been pursued.
For example, if the Trust has hedged against the possibility of an increase in
interest rates which would adversely affect the price of securities in its
portfolio and the price of such securities increases instead, the Trust will
lose part or all of the benefit of the increased value of its securities
because it will have offsetting losses in its futures positions.
Certain federal income tax requirements may limit the Trust's ability
to engage in options and futures. Gains from transactions in options and
futures contracts distributed to shareholders will be taxable as ordinary
income or, in certain circumstances, as long-term gains to shareholders.
For a further discussion of the use, risks and costs of futures
contracts and options thereon, see Appendix B.
Municipal Bond Index Futures. The Trust may purchase and sell municipal
bond index futures contracts for hedging purposes. The Trust's strategies in
employing such contracts will be similar to that discussed above with respect
to financial futures and options thereon. A municipal bond index is a method of
reflecting in a single number the market value of many different municipal
bonds and is designed to be representative of the municipal bond market
generally. The index fluctuates in response to changes in the market values of
the bonds included within the index. Unlike futures contracts on particular
financial instruments, transactions in futures on a municipal bond index will
be settled in cash, if held until the close of trading in the contract.
However, like any other futures contract, a position in the contract may be
closed out by purchase or sale of an offsetting contract for the same delivery
month prior to expiration of the contract.
Options on Debt Securities. The Trust may purchase or sell (write)
options on debt securities as a means of achieving additional return or hedging
the value of the Trust's portfolio. The Trust will only write covered call or
covered put options, or buy call or put options, which are listed on national
securities exchanges. The Trust may not write covered options in an amount
exceeding 20% of the value of its total assets. The Trust will not purchase
options if, as a result, the aggregate cost of all outstanding options exceeds
10% of the Trust's total assets.
A call option is a contract that gives the holder of the option the
right to buy from the writer (seller) of the call option, in return for a
premium paid, the security underlying the option at a specified exercise price
at any time during the term of the option. The writer of the call option has
the obligation upon exercise of the option to deliver the underlying security
upon payment of the exercise price during the option period. A put option is a
contract that gives the holder of the option, in return for a premium paid, the
right to sell to the writer (seller) the underlying security at a specified
price during the term of the option. The writer of the put option, who receives
the premium, has the obligation to buy the underlying security upon exercise,
at the exercise price during the option period.
23
If the Trust has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. There can be no
assurance that either a closing purchase or sale transaction can be effected
when the Trust so desires.
An option position may be closed out only on an exchange which provides
a secondary market for an option of the same series. Although the Trust will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market
on an exchange will exist for any particular option.
New options and futures contracts and other financial products and
various combinations thereof continue to be developed. The Trust may invest in
any such options, futures and products as may be developed to the extent
consistent with its investment objective and the regulatory requirements
applicable to investment companies.
For further discussion of the use, risks and costs of options trading,
see Appendix B.
Variable Rate Obligations. The interest rates payable on certain
Municipal Obligations are not fixed and may fluctuate based upon changes in
market rates or indices, such as a tax-exempt money market or bank prime index.
Municipal Obligations of this type are called "variable rate" obligations. The
interest rate payable on a variable rate obligation is adjusted either at
predesignated periodic intervals or whenever there is a change in the market
rate of interest or index on which the interest rate payable is based. There is
no limit on the percentage of the Trust's assets which may be invested in
variable rate obligations.
When-Issued and Delayed Delivery Securities. The Trust may purchase
tax-exempt securities on a when-issued or delayed delivery basis; i.e.,
delivery and payment can take place a month or more after the date of the
transaction. The securities so purchased are subject to market fluctuation
during this period and no interest accrues to the purchaser prior to the date
of settlement. At the time the Trust makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction and thereafter reflect the value, each day, of such security in
determining the net asset value of the Trust. At the time of delivery of the
securities, the value may be more or less than the purchase price. Since the
Trust is dependent on the party issuing the when-issued or delayed delivery
security to complete the transaction, failure by the other party to deliver the
securities as arranged would result in the Trust losing an investment
opportunity. The Trust will also establish a segregated account with its
custodian bank in which it will maintain cash or high grade tax-exempt debt
obligations equal in value to commitments for such when-issued or delayed
delivery securities; subject to this requirement, the Trust may purchase
securities on such basis without limit. An increase in the percentage of the
Trust's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Trust's net asset
value. The Investment Manager and the Trustees do not believe that the Trust's
net asset value or income will be adversely affected by its purchase of
securities on such basis.
Repurchase Agreements. When cash may be available for only a few days,
it may be invested by the Trust in repurchase agreements until such time as it
may otherwise be invested or used for payments of obligations of the Trust.
These agreements, which may be viewed as a type of secured lending by the
Trust, typically involve the acquisition by the Trust of debt securities from a
selling financial institution
24
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Trust will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral"), which is
held by the Trust's Custodian, at a specified price and at a fixed time in the
future, usually not more than seven days from the date of purchase. The Trust
will accrue interest from the institution until the time when the repurchase is
to occur. Although such date is deemed by the Trust to be the maturity date of
a repurchase agreement, the maturities of securities subject to repurchase
agreements are not subject to any limits and may exceed one year. While
repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Trust will follow 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. In addition, the value
of the collateral underlying the repurchase agreement will always be at least
equal to the repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Trust will seek to liquidate such collateral.
However, the exercising of the Trust'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 Trust could suffer a loss. In addition, to the extent that the
Trust's security interest in the collateral may not be properly perfected, the
Trust could suffer a loss up to the entire amount of the collateral. It is the
current policy of the Trust not to invest in repurchase agreements that do not
mature within seven days if any such investment amounts to more than 10% of its
total assets.
Borrowing. The Trust may borrow money from a bank for temporary or
emergency purposes or for the repurchase of its shares provided that
immediately after such borrowing the amount borrowed does not exceed 33 1/3% of
the value of its total assets (including the amount borrowed) less its
liabilities (not including any borrowings but including the fair market value
at the time of computation of any other senior securities then outstanding,
including the Preferred Shares). If, due to market fluctuations or other
reasons, the value of the Trust's assets falls below the foregoing required
coverage requirement, the Trust, within three business days, will reduce its
bank debt to the extent necessary to comply with such requirement. To achieve
such reduction, it is possible that the Trust may be required to sell portfolio
securities at a time when it may be disadvantageous to do so. After the
issuance of Preferred Shares, any borrowing by the Trust would be subject to
further restrictions as a result of asset coverage requirements imposed by the
Act or by any rating service as a condition of its rating of the Preferred
Shares.
Borrowings other than for temporary or emergency purposes would involve
additional risk to the Trust, since the interest expense may be greater than
the income from or appreciation of the securities carried by the borrowing.
Investment activity will continue while the borrowing is outstanding. The
purchase of additional securities while any borrowing is outstanding involves
the speculative factor known as "leverage," and will result in increased
volatility of the Trust's net asset value. The increased volatility resulting
from the use of such borrowings could have a negative effect on the Trust's net
asset value greater than would be the case with other funds having similar
objectives and policies but which do not utilize such borrowings.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Trust may lend its portfolio securities to brokers, dealers
and financial institutions, provided that such loans are callable at any time
by the Trust (subject to notice provisions described below), and are at all
times secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least 102%
of the market value, determined daily, of the loaned
25
securities. The advantage of such loans is that the Trust 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 Trust 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 10% of the value of its total
assets.
A loan may be terminated by the borrower on one business day's notice,
or by the Trust on four business days' notice. If the borrower fails to deliver
the loaned securities within four days after receipt of notice, the Trust could
use the collateral to replace the securities while holding the borrower liable
for any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Trust'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 Trust. Any gain or loss in the market price during the loan period would
inure to the Trust. The creditworthiness of firms to which the Trust lends its
portfolio securities will be monitored on an ongoing basis by the Investment
Manager pursuant to procedures adopted and reviewed, on an ongoing basis, by
the Trustees of the Trust.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Trust 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
Trust's investment in such loaned securities. The Trust will pay reasonable
finder's, administrative and custodial fees in connection with a loan of its
securities.
Private Placements. The Trust may invest up to 15% of its total assets
in obligations customarily sold to institutional investors in private
transactions for which only a limited market may exist at the time of purchase.
This type of limited private offering is frequently utilized with respect to
smaller issues of Municipal Obligations or when issuers wish to restrict the
number of holders to reduce issuance costs and to permit maximum flexibility in
structuring the transactions and to facilitate the prompt issuance of the
securities. Although such securities are not restricted securities unless they
contain restrictions on resale, due to the limited market for such issues, the
Trust may be unable to dispose of such securities promptly at reasonable
prices. See "Determination of Net Asset Value."
Restricted Securities. The Trust may invest up to 15% of its total
assets in securities subject to contractual restrictions on resale. Contractual
limitations on the resale of such securities have an adverse effect on their
marketability and may prevent the Trust from disposing of them promptly.
Portfolio Management and Turnover Rate. The Trust's portfolio will be
managed by its Investment Manager with a view to achieving its investment
objective. Securities are purchased and sold principally in response to the
Investment Manager's current evaluation of an issuer's ability to meet its debt
obligations in the future, and the Investment Manager's current assessment of
future changes in the levels of interest rates on tax-exempt securities of
varying coupon rates and maturities. The Trust may engage in short-term trading
consistent with its investment objective. Securities may be sold in
anticipation of a market decline (a rise in interest rates) or purchased in
anticipation of a market rise (a decline in interest rates). In addition, a
security may be sold and another security of comparable quality purchased at
approximately the same time to take advantage of what the Investment Manager
believes to be a temporary disparity in the normal yield relationship between
the two securities. These yield disparities may occur for reasons not directly
related to the investment quality of particular issues or the general move-
26
ment of interest rates, such as changes in the overall demand for, or supply
of, various types of tax-exempt securities. In general, purchases and sales may
also be made to restructure the portfolio in terms of average maturity,
quality, coupon yield, or diversification for any one or more of the following
purposes: (a) to increase income, (b) to improve portfolio quality, (c) to
minimize capital depreciation, (d) to realize gains or losses, or for such
other reasons as the Investment Manager deems relevant in light of economic and
market conditions. Fluctuation in the supply of Municipal Obligations at an
acceptable price may affect the Trust's ability to achieve its investment
objective.
Securities purchased by the Trust generally are sold by dealers acting
as principal for their own accounts. The Trust may incur brokerage commissions
on transactions conducted through DWR.
While it is not possible to predict turnover rates with any certainty,
at present it is anticipated that the Trust's portfolio turnover rate, under
normal circumstances, after the Trust's portfolio is invested in accordance
with its investment objective, will not exceed 100%. The Trust will incur
transaction costs commensurate with its portfolio turnover rate. Additionally,
see "Taxation" for a discussion of the tax policy of the Trust and see
"Portfolio Transactions and Brokerage" for a more extensive discussion of the
Trust's portfolio brokerage policies.
The portfolio manager of the Trust is Mr. James F. Willison and as such
he will be primarily responsible for the day-to-day management of the Trust's
portfolio. For a more detailed discussion of Mr. Willison's business experience
during the past five years, see "Trustees and Officers."
INVESTMENT RESTRICTIONS
===============================================================================
The investment restrictions listed below have been adopted by the Trust
as fundamental policies which may not be changed without the vote of a
majority, as defined in the Act, of the outstanding voting securities of the
Trust (Common Shares and Preferred Shares voting together as a single class and
Preferred Shares voting as a separate class). For purposes of the restrictions:
(a) an "issuer" of a security is the entity whose assets and revenues are
committed to the payment of interest and principal on that particular security;
(b) a "taxable security" is any security the interest on which is subject to
federal income tax (which does not include "private activity bonds" subject to
the alternative minimum tax discussed under "Taxation"); and (c) all percentage
limitations apply immediately after a purchase or initial investment, and any
subsequent change in any applicable percentage resulting from market
fluctuations or other changes in the amount of total or net assets does not
require elimination of any security from the portfolio.
The Trust may not:
1. As to 75% of its total assets, invest more than 5% of the value of
its total assets in the securities of any one issuer. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities or to the investment of 25% of the Trust's total assets.
2. Purchase more than 10% of all outstanding taxable debt securities of
any one issuer (other than obligations issued, or guaranteed as to principal
and interest, by the U.S. Government, its agencies or instrumentalities).
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry; provided, however, that such limitations shall not
be applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities. In addition, the Trust
reserves the right to invest 25% or more of its assets in any of the following
types of Municipal Obligations, provided that the percentage of the Trust's
total assets in private activity bonds in any one category does not exceed 25%
of the Trust's total assets: health facility obligations, housing obligations,
single family mortgage revenue
27
bonds, industrial revenue obligations (including pollution control
obligations), electric utility obligations, airport facility revenue
obligations, water and sewer obligations, university and college revenue
obligations, bridge authority and toll road obligations and resource recovery
obligations. A discussion of certain risks associated with investing in such
obligations is set forth in Appendix C.
4. Invest more than 5% of the value of its total assets in taxable
securities of issuers having a record, together with predecessors, of less than
three years of continuous operation. This restriction shall not apply to any
obligation of the United States Government, its agencies or instrumentalities.
5. Invest in common stock.
6. Invest in securities of any issuer, other than securities of the
Trust, if, to the knowledge of the Trust, any officer or trustee of the Trust
or any officer or director of the Investment Manager owns more than 1/2 of 1%
of the outstanding securities of such issuer, and such officers, trustees and
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer.
7. Purchase or sell real estate or interests therein, although it may
purchase securities secured by real estate or interests therein. This shall not
prohibit the Trust from purchasing, holding and selling real estate acquired as
a result of the ownership of such securities.
8. Purchase or sell commodities except that the Trust may purchase or
sell financial futures contracts and related options thereon.
9. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs.
10. Write, purchase or sell puts, calls, or combinations thereof,
except for options on futures contracts or options on debt securities.
11. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or, by purchase in the open market of securities of closed-end
investment companies where no underwriter's or dealer's commission or profit,
other than customary broker's commissions, is involved and only if immediately
thereafter not more than (i) 5% of the Trust's total assets, taken at market
value, would be invested in any one such company and (ii) 10% of the Trust's
total assets, taken at market value, would be invested in such securities.
12. Borrow money, except that the Trust may borrow from a bank for
temporary or emergency purposes or for repurchase of its shares provided that
immediately after such borrowing the amount borrowed does not exceed 33 1/3% of
the value of its total assets (including the amount borrowed) less its
liabilities (not including any borrowings but including the fair market value
at the time of computation of any other senior securities which are outstanding
at the time, including the Preferred Shares).
13. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in Restriction 12.
However, for the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect to
initial margin for futures are not deemed to be pledges of assets.
14. Issue senior securities as defined in the Act, other than preferred
shares of beneficial interest (in accordance with the terms of the Act), except
insofar as the Trust 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; (d) borrowing money in accordance with
restrictions described above; or (e) lending portfolio securities.
28
15. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Trust may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements (provided
that no more than 10% of the Trust's total assets will be invested in
repurchase agreements that do not mature within seven days); and (c) by lending
its portfolio securities (provided that the Trust may not lend its portfolio
securities in excess of 10% of its total assets).
16. Make short sales of securities.
17. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities.
18. Engage in the underwriting of securities, except insofar as the
Trust may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
19. Invest for the purpose of exercising control or management of any
other issuer.
TRUSTEES AND OFFICERS
===============================================================================
The Trustees and Executive Officers of the Trust and their principal
occupations for at least the last five years and their affiliations, if any,
with InterCapital and with the Dean Witter Funds and with the investment
companies to which TCW Funds Management, Inc. serves as investment adviser and
Dean Witter Services Company Inc. serves as manager (the "TCW/DW Funds") are
set forth below, with those Trustees who are "interested persons" of the Trust
(as defined in the Act) indicated by an asterisk.
PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS;
NAME, POSITION WITH THE TRUST AFFILIATIONS WITH INTERCAPITAL
AND ADDRESS AND THE DEAN WITTER FUNDS
- ----------------------------- ---------------------------------------------
Jack F. Bennett
Trustee
141 Taconic Road
Greenwich, Connecticut Retired; Director or Trustee of the Dean Witter
Funds; formerly Senior Vice President and
Director of Exxon Corporation (1975-January,
1989) and Under Secretary of the U.S. Treasury
for Monetary Affairs (1974-1975); director of
Philips Electronics N.V., Tandem Computers Inc.
and Massachusetts Mutual Life Insurance Co.;
Director or trustee of various not-for-profit and
business organizations.
Charles A. Fiumefreddo*
Chairman of the Board,
President, Chief Executive
Officer and Trustee
Two World Trade Center
New York, New York Chairman, Chief Executive Officer and Director of
InterCapital and Dean Witter Distributors Inc.;
Executive Vice President and Director of DWR;
Chairman, Director or Trustee, President and
Chief Executive Officer of the Dean Witter Funds;
Chairman, Chief Executive Officer and Trustee of
the TCW/DW Funds; Chairman and Chief Executive
Officer of Dean Witter Services Company Inc.;
Chairman and Director of Dean Witter Trust
Company; Director and/or officer of various DWDC
subsidiaries; formerly Executive Vice President
and Director of DWDC (until February, 1993).
29
PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS;
NAME, POSITION WITH THE TRUST AFFILIATIONS WITH INTERCAPITAL
AND ADDRESS AND THE DEAN WITTER FUNDS
- ----------------------------- ---------------------------------------------
Edwin J. Garn
Trustee
2000 Eagle Gate Tower
Salt Lake City, Utah Director or Trustee of the Dean Witter Funds;
formerly United States Senator (R-Utah) (1974-
1992) and Chairman, Senate Banking Committee
(1980-1986); formerly Mayor of Salt Lake City,
Utah (1971-1974); formerly Astronaut, Space
Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Chemical Corporation (since
January, 1993); member of the board of various
civic and charitable organizations.
John R. Haire
Trustee
439 East 51st Street
New York, New York Chairman of the Audit Committee and Chairman of
the Committee of the Independent Directors or
Trustees and Director or Trustee of the Dean
Witter Funds; Trustee of the TCW/DW Funds;
formerly President, Council for Aid to Education
(1978-October, 1989), Chairman and Chief
Executive Officer of Anchor Corporation, an
Investment Adviser (1964-1978); Director of
Washington National Corporation (insurance) and
Bowne & Co., Inc. (printing).
Dr. John E. Jeuck
Trustee
70 East Cedar Street
Chicago, Illinois Retired; Director or Trustee of the Dean Witter
Funds; formerly Robert Law professor of Business
Administration, Graduate School of Business,
University of Chicago (until July, 1989);
Business consultant.
Dr. Manuel H. Johnson
Trustee
7521 Old Dominion Drive
MacLean, Virginia Senior Partner, Johnson Smick International,
Inc., a consulting firm; Koch Professor of
International Economics and Director of the
Center for Global Market Studies at George Mason
University (since September, 1990); Director or
Trustee of the Dean Witter Funds; Trustee of the
TCW/DW Funds; Co-Chairman and a founder of the
Group of Seven Council (G7C), an international
economic commission (since September, 1990);
Director of Greenwich Capital Markets, Inc.
(broker-dealer); formerly Vice Chairman of the
Board of Governors of the Federal Reserve System
(February, 1986-August, 1990) and Assistant
Secretary of the U.S. Treasury (1982-1986).
30
PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS;
NAME, POSITION WITH THE TRUST AFFILIATIONS WITH INTERCAPITAL
AND ADDRESS AND THE DEAN WITTER FUNDS
- ----------------------------- ---------------------------------------------
Paul Kolton
Trustee
Nine Hunting Ridge Road
Stamford, Connecticut Director or Trustee of the Dean Witter Funds;
Chairman of the Audit Committee and Chairman of
the Committee of the Independent Trustees and
Trustee of the TCW/DW Funds; formerly Chairman of
the Financial Accounting Standards Advisory
Council and Chairman and Chief Executive Officer
of the American Stock Exchange; Director of UCC
Investors Holding Inc. (Uniroyal Chemical Company
Inc.); Director or trustee of various not-for-
profit organizations.
Michael E. Nugent
Trustee
237 Park Avenue
New York, New York General Partner, Triumph Capital, L.P., a private
investment partnership (since April, 1988);
Director or Trustee of the Dean Witter Funds;
Trustee of the TCW/DW Funds; formerly Vice
President, Bankers Trust Company and BT Capital
Corporation (September, 1984-March, 1988);
Director of various business organizations.
Albert T. Sommers
Trustee
845 Third Avenue
New York, New York Senior Fellow and Economic Counselor (formerly
Senior Vice President and Chief Economist) of the
Conference Board, a non-profit business research
organization; President, Albert T. Sommers, Inc.,
an economic consulting firm; Director or Trustee
of the Dean Witter Funds; formerly Chairman,
Price Advisory Committee of the Council on Wage
and Price Stability (December, 1979-December,
1980); Economic Adviser, The Ford Foundation;
Director of Grow Group, Inc. (chemicals), MSI,
Inc. (medical services) and Westbridge Capital
Inc. (insurance).
Edward R. Telling*
Trustee
Sears Tower
Chicago, Illinois Retired; Director or Trustee of the Dean Witter
Funds; formerly Chairman of the Board of
Directors and Chief Executive Officer (until
December, 1985) and President (from January,
1981-March, 1982 and from February, 1984-August,
1984) of Sears, Roebuck and Co.; formerly
Director of Sears Roebuck and Co.
Sheldon Curtis
Vice President, Secretary
and General Counsel
Two World Trade Center
New York, New York Senior Vice President, Secretary and General
Counsel of InterCapital; Senior Vice President,
Secretary and General Counsel of Dean Witter
Services Company Inc.; Assistant Secretary and
Assistant General Counsel of Dean Witter
Distributors Inc.; Senior Vice President and
Secretary of DWTC (since October, 1989);
Assistant Secretary of DWR and DWDC and Vice
President, Secretary and General Counsel of the
Dean Witter Funds and the TCW/DW Funds.
31
PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS;
NAME, POSITION WITH THE TRUST AFFILIATIONS WITH INTERCAPITAL
AND ADDRESS AND THE DEAN WITTER FUNDS
- ----------------------------- ---------------------------------------------
James F. Willison
Vice President
Two World Trade Center
New York, New York Senior Vice President of InterCapital; Vice
President of various Dean Witter Funds.
Thomas F. Caloia
Treasurer
Two World Trade Center
New York, New York First Vice President (since May, 1991) of
InterCapital and Treasurer of the Dean Witter
Funds; Treasurer of the TCW/DW Funds; First Vice
President and Assistant Treasurer of Dean Witter
Services Company Inc.; previously Vice President
of InterCapital.
- ------------
* Denotes Trustees who are "interested persons" of the Trust, as defined in the
1940 Act.
In addition, Robert M. Scanlan, President and Chief Operating Officer
of InterCapital, and David A. Hughey and Edmund C. Puckhaber, Executive Vice
Presidents of InterCapital, are Vice Presidents of the Trust and Peter M.
Avelar and Jonathan Page, Senior Vice Presidents of InterCapital, and Katherine
H. Stromberg and Joseph Arcieri, Vice Presidents of InterCapital, are Vice
Presidents of the Trust, and Barry Fink, First Vice President and Assistant
General Counsel of InterCapital, and Marilyn K. Cranney, Lawrence S. Lafer, Lou
Anne D. McInnis and Ruth Rossi, Vice Presidents and Assistant General Counsels
of InterCapital, are Assistant Secretaries of the Trust.
All Trustees will be subject to election by the shareholders at the
first meeting of shareholders. Thereafter, the Board of Trustees of the Trust
will be divided into three classes, each class having a term of three years.
The term of office of one class will expire each year. The Common Shareholders
will have the right, voting as a class, to elect ten Trustees of the Trust at
the next annual meeting of Common Shareholders unless any Preferred Shares are
outstanding at the time, in which event the Trust's shareholders (Common
Shareholders and Preferred Shareholders voting together as a single class) will
have the right to elect eight Trustees and the Preferred Shareholders, voting
as a separate class, will have the right to elect two Trustees. See
"Description of Shares."
The Trust pays each Trustee who is not an employee or a retired
employee of the Investment Manager or an affiliated company, an annual fee of
$1,200 plus $50 for each meeting of the Board of Trustees, the Audit Committee
or the Committee of the Independent Trustees attended by the Trustee in person
(the Trust pays the Chairman of the Audit Committee an annual fee of $1,000 and
pays the Chairman of the Committee of the Independent Trustees an additional
annual fee of $2,400, in each case inclusive of the Committee meeting fee). The
Trust 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 Trust who are employed by the Investment Manager or an
affiliated company, or are retired from such employment, receive no
compensation or expense reimbursement from the Trust.
32
INVESTMENT MANAGEMENT AGREEMENT
===============================================================================
The Trust has retained Dean Witter InterCapital Inc. (the "Investment
Manager" or "InterCapital"), to provide administrative services, manage its
business affairs and manage the Trust's assets, including the placing of orders
for the purchase and sale of portfolio securities, pursuant to an Investment
Management Agreement (the "Agreement").
The Investment Manager obtains and evaluates such information and
advice relating to the economy, securities markets, and specific securities as
it considers necessary or useful to continuously manage the assets of the Trust
in a manner consistent with its investment objective and policies. The Trust's
Board of Trustees reviews the various services provided by the Investment
Manager to ensure that the Trust's general investment policies and programs are
being properly carried out and that administrative services are being provided
to the Trust in a satisfactory manner.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Trust
may reasonably require in the conduct of its business, including the
preparation of proxy statements and reports required to be filed with federal
and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Investment Manager, necessary or desirable). In addition, the Investment
Manager pays the salaries of all personnel, including officers of the Trust,
who are employees of the Investment Manager. The Investment Manager also bears
the cost of telephone service, heat, light, power and other utilities provided
to the Trust. InterCapital has retained Dean Witter Services Company Inc., a
wholly-owned subsidiary of InterCapital, to perform the aforementioned
administrative services for the Trust.
Expenses not expressly assumed by the Investment Manager under the
Agreement will be paid by the Trust. The expenses borne by the Trust include,
but are not limited to: charges and expenses of any registrar, custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes; engraving
and printing of share certificates; registration costs of the Trust and its
shares under federal and state securities laws; the cost of issuing and the
ongoing expenses of the Preferred Shares; all expenses of shareholders' and
Trustees' meetings and of preparing, printing and mailing proxy statements and
reports to shareholders; fees and travel expenses of Trustees or members of any
advisory board or committee who are not employees or retired employees of the
Investment Manager or any corporate affiliate of either; all expenses incident
to any dividend or distribution program; charges and expenses of any outside
service used for pricing of the Trust's portfolio securities; fees and expenses
of legal counsel, including counsel to the Trustees who are not interested
persons of the Trust or of the Investment Manager (not including compensation
or expenses of attorneys who are employees of the Investment Manager) and
independent accountants; membership dues of industry associations; interest on
Trust borrowings; fees and expenses incident to the listing of the Trust's
shares on any stock exchange; postage; insurance premiums on property or
personnel (including officers and Trustees) of the Trust 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 Trust's operation.
As full compensation for the services furnished to the Trust, the Trust
pays the Investment Manager monthly compensation calculated weekly by applying
the annual rate of 0.35% to the Trust's average weekly net assets. For the
purposes of calculating the management fee, the liquidation preference of any
Preferred Shares issued by the Trust will not be deducted from the Trust's
total assets.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Trust or any
33
of its shareholders for any act or omission by the Investment Manager or for
any losses sustained by the Trust or its shareholders. The Agreement in no way
restricts the Investment Manager from acting as investment manager or adviser
to others.
The Agreement was initially approved by the Trustees on December 2,
1993, and by Dean Witter InterCapital Inc. as the sole shareholder on
February , 1994. The Agreement may be terminated at any time, without penalty,
on thirty days' notice by the Trustees of the Trust, by the holders of a
majority, as defined in the Act, of the outstanding shares of the Trust (Common
Shares and Preferred Shares voting together as a single class), or by the
Investment Manager. The Agreement will automatically terminate in the event of
its assignment (as defined in the Act).
Under its terms, the Agreement will continue in effect until April 30,
1995, and 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 voting securities of the Trust (Common
Shares and Preferred Shares voting together as a single class), or by the
Trustees of the Trust; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Trust who
are not parties to the Agreement or "interested persons" (as defined in the
Act) of any such party (the "Independent Trustees"), which vote must be cast in
person at a meeting called for the purpose of voting on such approval.
PORTFOLIO TRANSACTIONS AND BROKERAGE
===============================================================================
Subject to the general supervision of the Board of Trustees, the
Investment Manager is responsible for decisions to buy and sell securities and
futures contracts for the Trust, the selection of brokers and dealers to effect
the transactions, and the negotiation of brokerage commissions, if any. The
Trust expects that the primary market for the securities in which it intends to
invest will generally be the over-the-counter market. Securities are generally
traded in the over-the-counter market on a "net" basis with dealers acting as
principal for their own accounts without charging a stated commission, although
the price of the security usually includes a profit to the dealer. Options and
futures transactions will usually be effected through a broker and a commission
will be charged. The Trust also expects that securities will be purchased at
times in underwritten offerings, where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or
discount. On occasion, the Trust may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid.
The Investment Manager currently serves as investment manager to a
number of clients and may in the future act as investment manager or adviser to
others. It is the practice of the Investment Manager to cause purchase and sale
transactions to be allocated among the Trust and other investment companies or
other accounts whose assets it manages or advises in such manner as it deems
equitable. This allocation could adversely affect the size or price of the
position purchased or sold. In making such allocations among the Trust 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 Trust and other client accounts.
The policy of the Trust regarding purchases and sales of securities and
futures contracts for its portfolio is that primary consideration will be given
to obtaining the most favorable prices and efficient execution of transactions.
In seeking to implement the Trust's policies, the Investment Manager will
effect transactions with those brokers and dealers who the Investment Manager
believes provide the most
34
favorable prices and who are capable of providing efficient executions. If the
Investment Manager believes such price and execution are obtainable from more
than one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Trust or the Investment Manager. Such services may include, but
are not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investment; wire services; and appraisals
or evaluations of portfolio securities. The Trust 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 Trust, than
would be the case if no weight were given by the Trust to the dealer's
furnishing of such services.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager and its
affiliates in the management of other accounts and may not in all cases benefit
the Trust directly. While the receipt of such information and services is
useful in varying degrees and would generally reduce the amount of research or
services otherwise performed by the Investment Manager and thus reduce its
expenses, it is of indeterminable value and the advisory fee paid to the
Investment Manager is not reduced by any amount that may be attributable to the
value of such services.
Pursuant to an order of the Securities and Exchange Commission, the
Trust may effect principal transactions in certain money market instruments
with DWR. The Trust will limit its transactions with DWR to U.S. Government and
Government agency securities, bank money instruments (i.e., certificates of
deposit and bankers' acceptances) and commercial paper (not including tax-
exempt municipal paper). Such transactions will be effected with DWR only when
the price available from DWR is better than that available from other dealers.
Consistent with the policy described above, brokerage transactions in
securities and futures contracts listed on exchanges or admitted to unlisted
trading privileges may be effected through DWR. In order for DWR to effect
portfolio transactions for the Trust, the commissions, fees or other
remuneration received by DWR must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow DWR to receive no more than the remuneration which would be expected to
be received by an unaffiliated broker in a commensurate arm's-length
transaction. Furthermore, the Trustees of the Trust, including a majority of
the independent Trustees, have adopted procedures which are reasonably designed
to provide that any commissions, fees or other remuneration paid to DWR are
consistent with the foregoing standard.
Section 11(a) of the Securities Exchange Act of 1934 which generally
prohibits members of United States national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts which
they manage, permits such exchange members to execute such securities
transactions on an exchange only if the affiliate or account expressly
consents. To the extent Section 11(a) would apply to DWR acting as a broker for
the Trust in any of its portfolio transactions executed on any such securities
exchange of which DWR is a member, appropriate written consents have been
given.
DETERMINATION OF NET ASSET VALUE
===============================================================================
The net asset value per share of the Trust's Common Shares will be
determined as of 4:00 p.m., New York time, on the last day of each week on
which the New York Stock Exchange is open for trading by taking the value of
all assets of the Trust, subtracting its liabilities (including for these
purposes the liquidation value of the Preferred Shares), dividing by the number
of Common Shares outstanding and adjusting to the nearest cent.
35
In the calculation of the Trust's net asset value: (1) a portfolio
security listed or traded on the New York or American Stock Exchange is valued
at its last sale price on that exchange (if there were no sales that day, the
security is valued at the closing bid price); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest bid price; and (3) when market quotations are not
readily available, portfolio securities are valued at their fair value as
determined in good faith under procedures established by and under the general
supervision of the Trust's Board of Trustees (valuation of 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).
Portfolio securities for which market quotations are not readily
available (other than short-term debt securities and futures and options) are
valued for the Trust by an outside independent pricing service approved by the
Board of Trustees. The pricing service has informed the Trust that in valuing
the Trust's portfolio securities it uses both a computerized grid matrix of
tax-exempt securities and evaluations by its staff, in each case based on
information concerning market transactions and quotations from dealers which
reflect the bid side of the market each day. The Trust's portfolio securities
are thus valued by reference to a combination of transactions and quotations
for the same or other securities believed to be comparable in quality, coupon,
maturity, type of issue, call provisions, trading characteristics and other
features deemed to be relevant. The Trustees believe that timely and reliable
market quotations are generally not readily available to the Trust for purposes
of valuing tax-exempt securities and that the valuations supplied by the
pricing service, using the procedures outlined above and subject to periodic
review, are more likely to approximate the fair value of such securities. The
Investment Manager will periodically review and evaluate the procedures,
methods and quality of services provided by the pricing service then being used
by the Trust and may, from time to time, recommend to the Trustees the use of
other pricing services or discontinuance of the use of any pricing service in
whole or in part. The Trustees may determine to approve such recommendation or
to make other provisions for pricing of the Trust's portfolio securities.
Short-term taxable debt securities with remaining maturities of 60 days
or less at time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' fair value, in which case these
securities will be valued at their market value as determined by the Trustees.
Other short-term taxable debt securities will be valued on a marked-to-market
basis until such time as they reach a remaining maturity of 60 days, whereupon
they will be valued at amortized cost using their value on the 61st day unless
the Trustees determine such does not reflect the securities' fair value, in
which case the 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
as of the close of the commodities exchange on which they trade unless the
Trustees determine that such price does not reflect their fair value, in which
case they will be valued at their fair market 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.
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT PLAN
===============================================================================
It is the Trust's present policy, which may be changed by the Board of
Trustees, to pay monthly dividends to Common Shareholders from net investment
income of the Trust. Initial distributions to Com-
36
mon Shareholders are expected to be declared within approximately 60 days and
paid within approximately 90 days from the completion of this offering. From
and after the issuance of the Preferred Shares, monthly distributions to Common
Shareholders will consist of substantially all net investment income of the
Trust, if any, remaining after the payment of dividends on the Preferred
Shares. Net investment income of the Trust consists of all interest income
accrued on portfolio assets less all expenses of the Trust. Expenses of the
Trust are accrued each day. The Trust will distribute all of its net realized
long-term and short-term capital gains, if any, at least once per year to the
extent not necessary to pay dividends on or meet the liquidation preference of
the Preferred Shares, but it may make such distributions on a more frequent
basis to comply with the distribution requirements of the Tax Reform Act of
1986, as amended, in all events in a manner consistent with such Act.
For tax purposes, the Trust is currently required to allocate net tax-
exempt interest, net capital gains and other taxable income, if any, between
the Common Shares and the Preferred Shares in proportion to total distributions
paid to each class for the year in which such net capital gains or other
taxable income is realized. See "Taxation." For information relating to the
impact of the issuance of the Preferred Shares on the distributions made by the
Trust to Common Shareholders, see "Special Leverage Considerations--Risks of
Leverage."
While there are any Preferred Shares outstanding, the Trust may not
declare any cash dividend or other distribution on its Common Shares unless at
the time of such declaration, (1) all accrued Preferred Share dividends have
been paid and (2) the net asset value of the Trust's portfolio (determined
after deducting the amount of such dividend or other distribution) is at least
200% (or possibly in excess thereof if required by a rating service as a
condition of obtaining a rating on the Preferred Shares) of the liquidation
value of the outstanding Preferred Shares (expected to equal the original
purchase price per share plus any accrued and unpaid dividends thereon). This
limitation on the Trust's ability to make distributions on its Common Shares
could under certain circumstances impair the ability of the Trust to maintain
its qualification for taxation as a regulated investment company. The Trust
intends, however, to the extent possible, to purchase or redeem Preferred
Shares from time to time to maintain such asset coverage requirements and may
pay special dividends to the holders of such Preferred Shares in certain
circumstances in connection with any such impairment of the Trust's status as a
regulated investment company. See "Taxation."
All persons becoming registered holders of Common Shares of the Trust
(other than brokers and nominees of banks or other financial institutions) may
elect to have all dividends and capital gains distributions automatically
reinvested in additional Common Shares pursuant to the Trust's Dividend
Reinvestment Plan (the "Plan"), and will be deemed to have appointed Dean
Witter Trust Company (the "Transfer Agent") as their Plan agent to act on their
behalf under the Plan. All distributions under the Plan will automatically be
reinvested in Common Shares of the Trust in full and fractional Shares as
described below. Shareholders who do not participate in the Plan will receive
all distributions in cash paid by check mailed directly to the shareholder of
record by the Transfer Agent as dividend disbursing agent.
DETAILS OF THE PLAN
Whenever the Trust declares a dividend or other distribution, it will
pay the amount thereof in cash to the Transfer Agent on behalf of Common
Shareholders participating in the Plan, which the Transfer Agent must use to
buy Common Shares in the open market for the participants' accounts. Market
price for the purpose of the Plan will be the market price of the Common Shares
on a national securities exchange, or in the event that the Common Shares are
not listed on a securities exchange at the time, market price will be the asked
price, or the mean of the asked prices if more than one is available, of the
Common Shares in the over-the-counter market.
37
Common Shareholders may terminate their participation in the Plan at
any time and elect to receive distributions in cash by notifying the Transfer
Agent in writing. Such notification must be received prior to the record date
of any distribution. There will be no charge or other penalty for such
termination.
The Transfer Agent will maintain the Common Shareholder's account, hold
the certificates representing the additional Common Shares acquired through the
Plan in safekeeping and furnish the Common Shareholder with written
confirmation of all transactions in the account, including information needed
for personal and tax records. The Transfer Agent will vote shares in the Common
Shareholder's account in accordance with any proxy the Common Shareholder gives
the Trust for Common Shares held of record by him or her. On termination of the
account, a certificate for full shares in the account, plus a check for the
market value of any fractional interest, will be sent to the Common
Shareholder.
Brokers and nominees of banks and financial institutions are advised to
contact the Transfer Agent to determine whether the beneficial holders of
Common Shares held in their names may participate in the Plan.
The automatic reinvestment of dividends and distributions will not
relieve participants of any income tax that may be payable on such dividends or
distributions. See "Taxation" for a discussion of the taxation of dividends and
distributions and for a discussion of certain possible tax consequences of the
Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan. There
is no service charge to participants in the Plan; however, the Trust reserves
the right to amend the Plan to include a service charge payable by the
participants to the Transfer Agent to cover its expenses in administering the
Plan. Each participant will pay a pro rata share of brokerage commissions
incurred with respect to the Transfer Agent's open market purchases in
connection with the reinvestment of dividends or capital gains distributions.
All correspondence concerning the Plan should be directed to Dean Witter Trust
Company, Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311.
TAXATION
===============================================================================
Because the Trust intends to distribute all of its net investment
income and capital gains to shareholders and intends to otherwise comply with
all the provisions of Subchapter M of the Internal Revenue Code of 1986 (the
"Code"), it is not expected that the Trust will be required to pay any federal
income tax on such income and capital gains.
The Trust currently intends to qualify to pay "exempt-interest
dividends" to its shareholders by maintaining, as of the close of each quarter
of its taxable year, at least 50% of the value of its total assets in
securities exempt from federal income tax. If the Trust satisfies such
requirement, distributions from net investment income to shareholders will be
excludable from gross income for federal income tax purposes to the extent
properly designated as exempt-interest dividends and to the extent net
investment income is derived from tax-exempt securities. Exempt-interest
dividends are included, however, in determining what portion, if any, of a
person's Social Security and railroad retirement benefits are subject to
federal income tax. As discussed below, such dividends may also be subject to
the alternative minimum tax. Interest on indebtedness incurred by shareholders
to purchase or carry shares of an investment company paying exempt-interest
dividends, such as the Trust, will not be deductible by the investor for
federal income tax purposes to the extent attributable to exempt-interest
dividends.
The Internal Revenue Service ("IRS") currently requires a regulated
investment company that has two or more classes of shares to allocate
proportionate amounts of each type of the Trust's income for the year to each
class of shares based upon the percentage of total dividends distributed to
each class
38
for the taxable year. So long as the IRS maintains this position, the Trust
intends to allocate net tax-exempt interest, net capital gains and other
taxable income, if any, between the Common Shares and the Preferred Shares in
proportion to the total dividends paid to each class with respect to the
taxable year. To the extent permitted under applicable law, the Trust reserves
the right to make special allocations of income within a class, consistent with
the objectives of the Trust. When capital gain or other taxable income is
allocated to holders of preferred stock pursuant to the allocation rules
described above, the terms of the preferred stock may require the Trust to make
an additional distribution to or otherwise compensate such holders for the tax
liability resulting from such allocation.
Dividends on the Common or any Preferred Shares, to the extent payable
from tax-exempt income earned on the Trust's investments, will be exempt from
Federal income tax in the hands of holders of such shares, subject to the
possible application of the alternative minimum tax. Shareholders will normally
be subject to federal income tax on dividends paid from interest income derived
from taxable securities and gains, if any, and on distributions derived from an
excess of net short-term capital gains over long-term capital losses. No part
of the distributions to shareholders will qualify for the dividends received
deduction for corporations. Taxable long-term or short-term capital gains may
be generated by the sale of portfolio securities and by transactions in options
and futures contracts engaged in by the Trust. Distributions of long-term
capital gains, if any, are taxable as long-term capital gains, regardless of
how long the shareholder has held the Trust shares and regardless of whether
the distribution is received in additional shares or in cash. Under the Revenue
Reconciliation Act of 1993, all or a portion of the Trust's gain from the sale
or redemption of tax-exempt obligations purchased at a market discount will be
treated as ordinary income rather than capital gain. This rule may increase the
amount of ordinary income dividends received by shareholders. For federal
income tax purposes, a capital gain distribution with respect to shares held
for six months or less, however, will cause any loss on a subsequent sale or
exchange of such shares to be treated as long-term capital loss to the extent
of such long-term capital gain distribution. In addition, with respect to a
shareholder who receives exempt-interest dividends on shares held for less than
six months (unless regulations provide for a shorter period), any loss on the
sale or exchange of such shares will, to the extent of the amount of such
exempt-interest dividends, be disallowed. If the Trust pays a dividend in
January which was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, then such
dividend or distribution will be treated for tax purposes as being paid by the
Trust and received by its shareholders on December 31 of the year in which such
dividend was declared.
Taxpayers who may have alternative minimum tax liability should note
that interest received on certain otherwise tax-exempt securities will increase
alternative minimum taxable income and, as a result, may increase or create
alternative minimum tax liability for such taxpayers. This alternative minimum
tax applies to interest received on "private activity bonds" (in general, bonds
that benefit non-governmental entities) issued after August 7, 1986 which,
although tax-exempt, are used for purposes other than those generally performed
by governmental units (e.g., bonds used for commercial or housing purposes).
Income received on such bonds is classified as a "tax preference item," under
the alternative minimum tax, for both individual and corporate investors. The
Trust may invest without limit in such "private activity bonds" with the result
that a substantial portion of the exempt-interest dividends paid by the Trust
may be an item of tax preference to shareholders subject to the alternative
minimum tax. The Trust will report to shareholders the portion of its dividends
declared during the year which is a tax preference item for alternative minimum
tax purposes, as well as the overall percentage of dividend distributions which
constitutes exempt-interest dividends. Individual taxpayers are generally
subject to the alternative minimum tax if their "regular tax" liability is less
than their alternative minimum tax liability (which is based on graduated rates
of 26% and 28%) on their "alternative minimum taxable income" reduced by an
exemption amount ranging from $0 to $45,000 depending upon the taxpayer's
income and filing status. Alter-
39
native minimum taxable income is generally equal to taxable income with certain
adjustments and increased by certain "tax preference items" which may include a
portion of the Trust's dividends as described above. In addition, the Code
further provides that corporations are subject to an alternative minimum tax
based, in part, on 75% of any excess of "adjusted current earnings" over
taxable income as adjusted for other tax preferences. Because an exempt-
interest dividend paid by the Trust will be included in computing adjusted
current earnings, a corporate shareholder may therefore be required to pay an
increased alternative minimum tax as the result of receiving exempt-interest
dividends paid by the Trust.
The Code requires each regulated investment company to pay a
nondeductible 4% excise tax to the extent the company does not distribute
during each calendar year 98% of its ordinary income, determined on a calendar
year basis, and 98% of its capital gains, determined in general on an October
31 year end, plus certain undistributed amounts from previous years. The
required distributions, however, are based only on the taxable income of a
regulated investment company. The excise tax, therefore, will generally not
apply to the tax-exempt income of a regulated investment company such as the
Trust that pays exempt-interest dividends. The Trust anticipates that it will
make sufficient timely distributions to avoid imposition of the excise tax.
The Code provides that every person required to file a tax return must
include on such return the amount of exempt-interest dividends received from
the Trust during the taxable year.
The Superfund Amendments and Reauthorization Act of 1986 (the
"Superfund Act") imposes a deductible tax on a corporation's alternative
minimum taxable income (computed without regard to the alternative minimum tax
net operating loss deduction) at a rate of $12 per $10,000 (0.12%) of
alternative minimum taxable income in excess of $2,000,000. The tax is imposed
for taxable years beginning after December 31, 1986 and before January 1, 1996.
The tax is imposed even if the corporation is not required to pay an
alternative minimum tax because the corporation's regular income tax liability
exceeds its minimum tax liability. Exempt-interest dividends paid by the Trust
that create alternative minimum tax preferences for corporate shareholders
under the Code (as described above) may be subject to the tax.
If at any time when Preferred Shares are outstanding, the Trust does
not meet applicable asset coverage requirements, the Trust will be required to
suspend distributions to holders of Common Shares until the asset coverage is
restored. See "Dividends and Distributions." Any such suspension may prevent
the Trust from qualifying for favorable treatment as a regulated investment
company since one of the requirements for such favorable treatment is that an
amount at least equal to the sum of 90% of its investment company taxable
income (which includes any net short-term capital gains) plus 90% of its net
tax-exempt interest income must be distributed to shareholders. If the Trust
were not able to make such distributions, it would not be able to pay exempt-
interest dividends to shareholders. Upon failure to meet applicable asset
coverage requirements, the Trust may redeem Preferred Shares in order to meet
such requirements. Alternatively, the Trust may pay special dividends to the
Preferred Shareholders (which would decrease the amount such holders would be
entitled to receive upon redemption or liquidation of the Preferred Shares).
As noted above, the Trust must distribute annually an amount at least
equal to the sum of 90% of its investment company taxable income plus 90% of
its net tax-exempt interest income. A distribution will be counted for this
purpose, and for purposes of computing taxable income, only if it qualifies for
the dividends-paid deduction under the Code. Some types of preferred shares
that the Trust currently contemplates issuing may raise an issue whether
distributions on such preferred shares are "preferential" under the Code and
therefore not eligible for the dividends-paid deduction. The Trust intends to
rely on the advice of its counsel and may seek a private letter ruling from the
IRS on the issues raised by issuance of
40
those types of preferred shares. Moreover, the Trust intends to issue preferred
shares that counsel advises will not result in the payment of a preferential
dividend. If the Trust ultimately relies solely on a legal opinion when it
issues such preferred shares, there is no assurance that the IRS would agree
that dividends on the preferred shares are not preferential. If the IRS
successfully disallowed the dividends-paid deduction on the preferred shares,
the Trust could be disqualified as a regulated investment company. In this
case, dividends on the Common Shares would not be exempt from Federal income
tax. Additionally, the Trust may be subject to the alternative minimum tax.
The tax treatment of listed put and call options written or purchased
by the Trust on debt securities and on certain futures contracts and options
thereon entered into by the Trust will be governed by Section 1256 of the Code.
Absent a tax election to the contrary, each such position held by the Trust
will be marked-to-market (i.e., treated as if it were sold for fair market
value) on the last business day of each taxable year of the Trust, and all gain
or loss associated with transactions in such positions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss.
Positions of the Trust which consist of at least one debt security and at least
one option or futures contract which substantially diminishes the Trust's risk
of loss with respect to such debt security could be treated as "mixed
straddles" which are subject to the straddle rules of Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of debt securities and conversion of short-term capital losses into
long-term capital losses. Certain tax elections exist for mixed straddles which
reduce or eliminate the operation of the straddle rules. Furthermore, as a
regulated investment company, the Trust is subject to the requirement that less
than 30% of its gross income be derived from the sale or other disposition of
securities held for less than three months. This requirement may limit the
Trust's ability to engage in options and futures transactions. The Trust will
monitor its transactions in options and futures contracts and may make certain
tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Trust as a regulated investment company under
Subchapter M of the Code. Such tax elections may result in an increase in
distributions of ordinary income (relative to long-term capital gain) to
shareholders.
Because the Trust may invest without limit in private activity bonds,
or industrial development bonds, the interest on which is not federally tax-
exempt to persons who are "substantial users" of the facilities financed by
such bonds or "related persons" of such "substantial users," the Trust may not
be an appropriate investment for shareholders who are considered either a
"substantial user" or a "related person." Such persons should consult their tax
advisers before investing in the Trust.
Under certain provisions of the Code, shareholders may be subject to a
31% withholding on reportable dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a taxpayer identification number is
not on file with the Trust or who, to the Trust's knowledge, have furnished an
incorrect number. When establishing an account, an investor must certify under
penalty of perjury that such number is correct and that such investor is not
subject to backup withholding.
Dividends paid by the Trust from its ordinary income and distributions
of the Trust's net short-term capital gains paid to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law.
The exemption of interest income for federal income tax purposes does
not necessarily result in exemption under the income or other tax laws of any
state or local taxing authority. Thus, shareholders of the Trust may be subject
to state and local taxes on exempt-interest dividends.
Shareholders should consult their tax advisers as to the applicability
of the above to their own tax situation.
41
DESCRIPTION OF SHARES
===============================================================================
GENERAL
The Declaration of Trust provides that the Trustees of the Trust may
authorize separate classes of shares of beneficial interest, and the Trustees
have authorized the issuance of the Common Shares and the Preferred Shares.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and provides for
indemnification and reimbursement of expenses out of the Trust's property for
any shareholder held personally liable for the obligations of the Trust. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations. Given the nature of the Trust's assets and operations,
the possibility of the Trust being unable to meet its obligations is remote
and, in the opinion of Massachusetts counsel to the Trust, the risk to Trust
shareholders is remote.
The Declaration of Trust further provides that obligations of the Trust
are not binding upon the Trustees individually but only upon the property of
the Trust and that the Trustees will not be liable for errors of judgment or
mistakes of fact or law, but nothing in the Declaration of Trust protects a
Trustee against any liability 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.
The Trust may be terminated (i) by the affirmative vote of the holders
of not less than 80% of each of the Common Shares and the Preferred Shares
outstanding and entitled to vote, voting as separate classes or (ii) by an
instrument signed by a majority of the Trustees and consented to by the holders
of not less than two-thirds, of each of the Trust's Common Shares and Preferred
Shares. Upon termination of the Trust, the Trustees will wind up the affairs of
the Trust, the Trust's business will be liquidated and the Trust's net assets,
after liquidating distributions to which they are entitled are made to the
Preferred Shareholders, will be distributed to the Trust's Common Shareholders
on a pro rata basis. If not so terminated, the Trust will continue
indefinitely.
COMMON SHARES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional Common Shares of Beneficial Interest,
of $.01 par value. Share certificates will be issued upon request to the holder
of record of Trust Common Shares. So long as any Preferred Shares are
outstanding, Common Shareholders will not be entitled to receive any net income
of or other distributions from the Trust unless all accrued dividends on the
Preferred Shares have been paid, and unless asset coverage (as defined in the
Act) with respect to the Preferred Shares would be at least 200% after giving
effect to such distributions. See "Preferred Shares" below.
The Trust's Declaration of Trust permits the Trustees to divide or
combine the Common Shares into a greater or lesser number of shares without
thereby changing the proportionate beneficial interests in the Trust. Each
Common Share represents an equal proportionate interest in the Trust with each
other Common Share. Other offerings of its Common Shares, if made, will require
approval of the Trust's Board of Trustees. Any additional offering will be
subject to the requirements of the Act that Common
42
Shares may not be sold at a price below the then current net asset value,
exclusive of underwriting discounts and commissions, except, among other
things, in connection with an offering to existing Common Shareholders or with
the consent of the holders of a majority of the outstanding Common Shares of
the Trust.
Pursuant to the Declaration of Trust, the Trust will hold annual
meetings of shareholders. Common Shareholders are entitled to one vote for each
Common Share held and to vote in the election of Trus-
tees, subject to certain voting rights of the Preferred Shareholders, and on
other matters submitted to meetings of shareholders. No material amendment may
be made to the Trust's Declaration of Trust without the affirmative vote of a
majority or greater of its shareholders (majority of each of the Common Shares
and the Preferred Shares voting as separate classes). Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right under certain circumstances to remove the
Trustees. Common Shares have no pre-emptive or conversion rights. Common Shares
when issued are fully paid and non-assessable.
PREFERRED SHARES
The Trust's Declaration of Trust authorizes the issuance of up to
1,000,000 Preferred Shares having a par value of $.01 per share in one or more
series, with rights as determined by the Board of Trustees, by action of the
Board of Trustees without the approval of the Common Shareholders. Common
Shareholders have no pre-emptive right to purchase any Preferred Shares that
might be issued.
The Trust's Board of Trustees has indicated its present intention to
authorize an offering of Preferred Shares within approximately six months of
the completion of the offering of Common Shares, subject to market conditions
and to the Board's continuing to believe that leveraging the Trust's capital
structure through the issuance of Preferred Shares is likely to achieve the
benefits to the Common Shareholders described in this Prospectus. There can be
no assurance that the Preferred Shares will be issued. In addition, if required
by an agency rating the Preferred Shares or if the Board of Trustees determines
it to be in the best interests of the Common Shareholders, more restrictive
provisions may be imposed than required by the Act. Such provisions may include
entitling holders of the Preferred Shares to elect a majority of the Trust's
Board of Trustees if payments on the Preferred Shares are unpaid in an amount
less than the amount specified in the Act.
Under the requirements of the Act, the Trust must, immediately after
the issuance of the Preferred Shares, have an "asset coverage" of at least
200%. With respect to the Preferred Shares, asset coverage means the ratio
which the value of the total assets of the Trust, less all liability and
indebtedness not represented by senior securities (as defined in the Act),
bears to the aggregate amount of senior securities representing indebtedness of
the Trust, if any, plus the aggregate liquidation preference of the Preferred
Shares. The liquidation value of the Preferred Shares is expected to equal
their aggregate original purchase price plus any accrued and unpaid dividends
thereon. It is anticipated that immediately after the completion of any
offering of the Preferred Shares, the Trust's asset coverage ratio will be at
least 280%. The terms of the Preferred Shares, including the dividend rate,
voting rights, liquidation preference and redemption provisions, will be
determined by the Board of Trustees (subject to applicable law and the Trust's
Declaration of Trust) if and when it authorizes the Preferred Shares offering.
However, the Board has stated that the terms of the initial series of Preferred
Shares would likely provide for the periodic redetermination of the dividend
rate at relatively short intervals through an auction or remarketing procedure.
If issued, the dividend rate and the issue price of the Preferred Shares will
reflect the tax status of the distributions to the holders of the Preferred
Shares. As an example, the Preferred Shares may provide for additional dividend
payments to compensate the holders thereof for any
43
assumed tax detriment resulting from certain required allocations to them of
ordinary income and/or capital gains. The Board has also indicated that the
liquidation preference, voting rights and redemption provisions of the
Preferred Shares will likely be as stated below.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Trust, the holders of Preferred
Shares will be entitled to receive a preferential liquidating distribution
(expected to equal the original purchase price per share plus accrued and
unpaid dividends, whether or not earned or declared) before any distribution of
assets is made to holders of Common Shares. After payment of the full amount of
the liquidating distribution to which they are entitled, the Preferred
Shareholders will not be entitled to any further participation in any
distribution of assets by the Trust. A consolidation or merger of the Trust
with or into any other corporation or corporations or a sale of all or
substantially all of the assets of the Trust will not be deemed to be a
liquidation, dissolution or winding up of the Trust.
Voting Rights. Except as indicated above and as set forth below under
"Anti-Takeover Provisions," or except as expressly required by applicable law
or expressly set forth in the designation of rights and preferences with
respect to the Preferred Shares, the Preferred Shareholders will have no
separate voting rights. When Preferred Shareholders are entitled to vote, each
holder shall be entitled to cast one vote per Preferred Share (except as may
otherwise be required by provisions of the Act).
All Trustees will be subject to election by the shareholders at the
first meeting of shareholders. Thereafter, the Board of Trustees of the Trust
will be divided into three classes, each class having a term of three years.
The term of office of one class will expire each year. At the first annual
meeting after issuance of the Preferred Shares, the Trust's shareholders
(Common Shareholders and Preferred Shareholders voting together as a single
class) will have the right to elect eight Trustees and the Preferred
Shareholders, voting as a separate class, will have the right to elect two
Trustees. Under the Act, if at any time dividends on the Trust's Preferred
Shares are unpaid in an amount equal to two full years' dividends thereon, the
holders of all outstanding Preferred Shares, voting as a class, will be
entitled to elect a majority of the Trust's Trustees until all dividends in
arrears have been paid or otherwise provided for.
The affirmative vote of the holders of a majority of the outstanding
Preferred Shares, voting as a separate class, will be required to amend, alter
or repeal any of the preferences, rights or powers of holders of Preferred
Shares so as to affect materially and adversely such preferences, rights, or
powers, or increase or decrease the number of Preferred Shares authorized to be
issued. Unless a higher percentage is provided for under "Anti-Takeover
Provisions" in the Declaration of Trust, the affirmative vote of the holders of
a majority of the outstanding Preferred Shares, voting as a class, will be
required to approve any plan of reorganization adversely affecting such shares
or any action requiring a vote of security holders under Section 13(a) of the
Act including, among other things, changes in the Trust's investment objective
or changes in the investment restrictions described above under "Investment
Restrictions."
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
to be effected, all outstanding Preferred Shares shall have been redeemed or
shall no longer be deemed to be outstanding.
Redemption, Purchase and Sale of Preferred Shares by the Trust. The
terms of the Preferred Shares may include optional or mandatory redemption
provisions which provide for the redemption of such shares at certain times, in
whole or in part, at the original purchase price per Preferred Share plus
accrued dividends and redemption premium, if any. The terms may also provide
that the Trust may tender for or purchase Preferred Shares and that the Trust
may subsequently resell any shares so
44
tendered for or purchased. In addition, if the Preferred Shares are rated, the
rating agency may impose additional mandatory redemption requirements if
certain asset coverage or other tests are not met by the Trust or if there is
an arrearage in the payment of dividends. The Trust cannot predict what, if
any, additional mandatory redemption requirements may be imposed by a rating
agency in connection with its rating of the Preferred Shares. Any redemption or
purchase of Preferred Shares by the Trust will reduce the leverage applicable
to the Common Shares, while any resale of Preferred Shares by the Trust will
increase such leverage. See "Special Leverage Considerations."
The discussion above describes the Board of Trustees' present intention
with respect to an offering of Preferred Shares. If the Board of Trustees
determines to proceed with such an offering, the terms of the Preferred Shares
may be the same as, or different from, the terms described above, subject to
applicable law and the Trust's Declaration of Trust. The Board of Trustees,
without the approval of the Common Shareholders, may authorize an offering of
Preferred Shares or may determine not to authorize such an offering, and may
fix the terms of the Preferred Shares.
ANTI-TAKEOVER PROVISIONS
The Trust presently has certain anti-takeover provisions in its
Declaration of Trust which could have the effect of limiting the ability of
other entities or persons to acquire control of the Trust, to cause it to
engage in certain transactions or to modify its structure. Following the first
meeting of Shareholders, the Board of Trustees will be divided into three
classes, each having a term of three years. Each year the term of one class
expires. This provision could delay for up to two years the replacement of a
majority of the Board of Trustees. See "Trustees and Officers." In addition,
the affirmative vote or consent of the holders of 80% of the shares (Common
Shares and Preferred Shares voting as separate classes) of the Trust (a greater
vote than that required by the Act and greater than the required vote
applicable to business corporations under state law) is required to authorize
the conversion of the Trust from a closed-end to an open-end investment
company, or generally to authorize any of the following transactions:
(i) merger or consolidation of the Trust with or into any other
corporation;
(ii) issuance of any securities of the Trust to any person or entity
for cash;
(iii) sale, lease or exchange of all or any substantial part of the
assets of the Trust, to any entity or person (except assets having an aggregate
fair market value of less than $1,000,000);
(iv) sale, lease or exchange to the Trust, in exchange for
securities of the Trust, of any assets of any entity or person (except assets
having an aggregate fair market value of less than $1,000,000)
if such corporation, person or entity is directly, or indirectly through
affiliates, the beneficial owner of 5% or more of the outstanding shares of the
Trust. However, such 80% vote or consent will not be required with respect to
the foregoing transactions where the Board of Trustees under certain conditions
approves the transaction, in which case, with respect to (i) and (iii) above, a
majority shareholder vote or consent will be required, and, with respect to
(ii) and (iv) above, no shareholder vote or consent would be required.
Furthermore, any amendment to the provisions in the Declaration of Trust
requiring an 80% shareholder vote or consent for the foregoing transactions
similarly requires an 80% shareholder vote or consent. Reference is made to the
Declaration of Trust of the Trust, on file with the Securities and Exchange
Commission, for the full text of these provisions. See "Further Information."
The foregoing provisions will make more difficult a change in the
Trust's management, or consummation of the foregoing transactions without the
Trustees' approval, and could have the effect of depriving Common Shareholders
of an opportunity to sell their Common Shares at a premium over
45
prevailing market prices by discouraging a third party from seeking to obtain
control of the Trust in a tender offer or similar transaction. However, the
Board of Trustees has considered these anti-takeover provisions and believes
that they are in the shareholders' best interests and benefit shareholders by
providing the advantage of potentially requiring persons seeking control of the
Trust to negotiate with its management regarding the price to be paid and
facilitating the continuity of the Trust's management.
PRINCIPAL SHAREHOLDER
InterCapital provided the initial capital for the Trust by purchasing
Common Shares of the Trust for $ on February , 1994. As of the date
of this Prospectus, InterCapital owned 100% of the outstanding shares of the
Trust. InterCapital may be deemed to control the Trust until such time as it
owns less than 25% of the outstanding shares of the Trust.
SHARE REPURCHASES AND TENDERS
===============================================================================
Shares of closed-end investment companies frequently trade at a
discount from net asset value. In recognition of the possibility that the
Trust's Common Shares might similarly trade at a discount, the Trustees have
determined that it would be in the interest of Common Shareholders for the
Trust to take action to attempt to reduce or eliminate a market value discount
from net asset value. To that end, the Trustees presently contemplate that the
Trust would from time to time take action either to repurchase or redeem its
Common Shares in the open market, or to tender for the Common Shares at net
asset value. The Board presently intends, on an annual basis, to consider the
making of a tender offer for the Common Shares. At no time, however, will the
Trustees be required to make such repurchases or tender offers.
The Trust may repurchase its Common Shares in the open market or in
privately negotiated transactions, at a price not above market value, if any,
or net asset value, whichever is lower, at the time of such purchase. Such
repurchases will be done in accordance with applicable securities laws.
In addition, the Trustees have currently determined to consider, on an
annual basis, the making of an offer to each shareholder of record to purchase
shares owned by such shareholder at a price to be determined in accordance with
the terms and conditions described below.
There can be no assurance that repurchases and/or tenders will result
in the Trust's shares trading at a price which is equal to their net asset
value. The Trust anticipates that the market price of its Common Shares will
vary from time to time from net asset value. The market price of the Trust's
Common Shares will, among other things, be determined by the relative demand
for and supply of such Common Shares in the market, the Trust's investment
performance, the Trust's dividends and yield and investor perception of the
Trust's overall attractiveness as an investment as compared with other
investment alternatives. Nevertheless, the fact that the Trust's Common Shares
may be the subject of repurchases and/or tender offers from time to time may
enhance their attractiveness to investors and thus reduce the spread between
market price and net asset value that might otherwise exist. In the opinion of
the Investment Manager, sellers will be less inclined to accept a significant
discount if they have some prospect of being able to recover net asset value in
conjunction with a possible tender offer. Common Shares will not be repurchased
unless after such repurchase the Trust would continue to satisfy the Act asset
coverage requirements under the Act with respect to the Preferred Shares and
any asset coverage requirements which may be imposed by any rating service as a
condition of its rating of the Preferred Shares. If Preferred Shares are
issued, any repurchase of Common Shares may also require the Trust to redeem
Preferred Shares.
46
Although the Trustees believe that share repurchases and tenders
generally would have a favorable effect on the market price of the Trust's
Common Shares, it should be recognized that the acquisition of Common Shares by
the Trust will decrease the total assets of the Trust and therefore have the
effect of increasing the Trust's expense ratio and decreasing the asset
coverage available with respect to the Preferred Shares. Because of the nature
of the Trust's investment objective, policies and portfolio, the Investment
Manager does not anticipate that repurchases and tenders should have an adverse
effect on the Trust's investment performance and does not anticipate any
material difficulty in disposing of portfolio securities in order to consummate
share repurchases and tenders.
Even if a tender offer has been made, it is the Trustees' announced
policy, which may be changed by the Trustees, not to accept tenders or effect
repurchases if (1) such transactions, if consummated, would (a) result in the
delisting of the Trust's Common Shares from the New York Stock Exchange (the
Exchange having advised the Trust that it would consider delisting if the
aggregate market value of the Trust's outstanding publicly held Common Shares
is less than $5,000,000, the number of publicly held Common Shares falls below
600,000 or the number of roundlot holders falls below 1,200), or (b) impair the
Trust's status as a regulated investment company under the Code (which would
make the Trust a taxable entity, causing the Trust's income to be taxed at the
corporate level in addition to the taxation of shareholders who receive
dividends from the Trust) or (c) result in a failure to comply with applicable
asset coverage requirements, or (d) would result in the forced redemption of
Preferred Shares due to the asset coverage requirements imposed by the Act or
by a rating agency as a condition of its rating of the Preferred Shares; (2)
the Trust would not be able to liquidate portfolio securities in an orderly
manner and consistent with the Trust's investment objective and policies in
order to repurchase Common Shares; or (3) there is, in the judgment of the
Trustees, any material (a) legal action or proceeding instituted or threatened
challenging such transactions or otherwise materially adversely affecting the
Trust, (b) suspension of or limitation on prices for trading securities
generally on the New York Stock Exchange or any foreign exchange on which
portfolio securities of the Trust are traded, (c) declaration of a banking
moratorium by federal, state or foreign authorities or any suspension of
payment by banks in the United States, New York State or foreign countries in
which the Trust invests, (d) limitation affecting the Trust or the issuers of
its portfolio securities imposed by federal, state or foreign authorities on
the extension of credit by lending institutions or on the exchange of foreign
currency, (e) commencement of war, armed hostilities or other international or
national calamity directly or indirectly involving the United States or other
countries in which the Trust invests, or (f) other event or condition which
would have a material adverse effect on the Trust or its shareholders if Common
Shares were repurchased. The Trustees may modify these conditions in light of
experience.
It is currently anticipated that any tender offer made by the Trust
will be at a price equal to the net asset value of the Common Shares on a date
subsequent to the Trust's receipt of all tenders. A procedure will be
established whereby the current net asset value of the Common Shares is readily
ascertainable to the Common Shareholders throughout the offering period. Each
offer will be made and Common Shareholders notified in accordance with the
requirements of the Securities Exchange Act of 1934 and the Act, either by
publication or mailing or both. Each offering document will contain such
information as is prescribed by such laws and the rules and regulations
promulgated thereunder. When a tender offer is authorized to be made by the
Trustees, the terms of such tender offer will set forth the maximum number of
Common Shares (if less than all) that the Trust is willing to purchase pursuant
to the tender offer. The Trust will purchase, subject to such maximum number of
Common Shares tendered in accordance with the terms of the offer, all Common
Shares tendered in accordance with the terms of the offer unless it determines
to accept none of them. In the event that a number of Common Shares in excess
of such maximum number of outstanding Common Shares are tendered in accordance
with the Trust's tender
47
offer, the Trust intends to purchase, on a pro rata basis, an amount of
tendered Common Shares equal to such maximum amount of the outstanding Common
Shares. Each person tendering Common Shares to the Trust will be charged a
service charge, currently expected to be $25.00, to help defray certain costs,
including the processing of tender forms, effecting payment, postage and
handling. In accordance with the current SEC staff position, such service
charge may not be deducted from the proceeds of the tender. Accordingly,
payment of the proceeds to Common Shareholders tendering their shares will be
delayed until payment of the service charge is received by the Trust. The
Trust's transfer agent will receive the fee as an offset to these costs. The
Trust expects the cost to the Trust of effecting a tender offer will exceed the
aggregate of all service charges received from those who tender their Common
Shares. These excess costs, if any, will be charged against capital.
Subject to its investment restrictions, the Trust may borrow money to
finance the repurchase of its Common Shares in the open market or pursuant to
any tender offer. Interest on any borrowings to finance share repurchase
transactions will reduce the Trust's net income. See "Investment Practices--
Borrowing" and "Investment Restrictions."
Tendered Common Shares that have been accepted and purchased by the
Trust will be held in the treasury ("Treasury Shares") until retired by the
Trustees. Treasury Shares will be recorded and reported as an offset to
shareholders' equity, and accordingly will reduce the Trust's total net asset
value. If Treasury Shares are retired, Common Shares issued and outstanding and
capital in excess of par will be reduced.
CUSTODIAN, DIVIDEND DISBURSING AGENT AND TRANSFER AGENT
===============================================================================
The Bank of New York, 110 Washington Street, New York, New York 10286
is the Custodian of the Trust's assets. The Custodian has no part in choosing
the Trust's investment policies or in deciding which securities are to be
purchased or sold for the Trust's portfolio. Any Trust cash balances with the
Custodian in excess of $100,000 are unprotected by Federal deposit insurance.
Such amounts may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two,
Jersey City, New Jersey 07311, an affiliate of InterCapital, is the Transfer
Agent of the Trust's Common Shares, Dividend Disbursing Agent for payment of
dividends and distributions and Agent for Shareholders under the Plan. For
these services Dean Witter Trust Company receives an annual per shareholder
account fee from the Trust.
48
UNDERWRITING
===============================================================================
The Underwriters named below, for whom Dean Witter Distributors Inc.,
Two World Trade Center, New York, New York 10048, is acting as Representative,
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement (a copy of which has been filed as an exhibit to the Registration
Statement), to purchase from the Trust the respective number of Common Shares
set forth opposite their names in the table below:
NUMBER OF
NAME COMMON SHARES
- ----- --------------
Dean Witter Distributors Inc................................
---------
Total............................................. 7,000,000
---------
---------
The nature of the Underwriters' obligation is such that they must
purchase all of the Common Shares offered hereby (other than those covered by
the over-allotment option described below) if any are purchased.
49
The Representative has advised the Trust that the Underwriters propose
to offer the Common Shares to the public at the initial offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per Common Share of which $ per
Common Share may be reallowed to other dealers. Additionally, the
Representative has advised the Trust that the Representative, at its
discretion, may pay out of the management fee portion of the sales load an
additional fee, not in excess of $ per share, to each Underwriter which
sells in excess of a specified number of Common Shares as set forth in each
Underwriter's underwriting syndicate invitation. If an Underwriter sells in
excess of the specified number of Common Shares, this additional fee will be
payable on all Common Shares sold by such Underwriter. The sales load of $
per Common Share is equal to % of the public offering price. After the
initial public offering, the public offering price, concession and reallowance
may be changed.
All monies for Common Shares purchased by Shareholders in the
underwriting must be received by February , 1994, five business days from the
date of this Prospectus.
The Trust has granted to the Underwriters an option, exercisable not
later than 45 days after the date of this Prospectus, to purchase up to
1,050,000 additional Common Shares of the Trust at the same price per share as
the Trust will receive for the 7,000,000 Common Shares which the Underwriters
have agreed to purchase. The Underwriters may exercise such option only to
cover over-allotments, if any, of Common Shares made in connection with the
sale of Common Shares offered hereby. If the Underwriters exercise their over-
allotment option, they have severally agreed, subject to certain conditions, to
purchase approximately the same percentage thereof that the number of Common
Shares purchased by each of them in the underwriting bears to the total number
of Common Shares indicated above. If purchased, the Underwriters will sell such
additional Common Shares on the same terms as those on which the initial Common
Shares are being offered.
The Trust and the Investment Manager have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments the Underwriters may be
required to make in respect thereof.
Prior to this offering there has been no trading market for the Common
Shares of the Trust.
The Trust anticipates that certain Underwriters may from time to time
act as brokers or dealers in connection with the execution of the Trust's
portfolio transactions after they have ceased to be Underwriters and, subject
to certain restrictions, may act as brokers while they are Underwriters. An
affiliate of the Representative is the Investment Manager of the Trust and
receives compensation from the Trust in connection with such services. See "The
Trust and its Management," "Investment Management Agreement" and "Portfolio
Transactions and Brokerage." Certain Trustees and Executive Officers of the
Trust are, or formerly were, officers and/or directors of the Representative or
its parent, DWR. See "Trustees and Officers."
The Trust's Common Shares have been approved for listing on the New
York Stock Exchange under the symbol "IMS." In order to meet the requirements
for listing, the Underwriters have undertaken to sell lots of 100 or more
Common Shares to a minimum of 2,000 beneficial owners.
REPORTS TO SHAREHOLDERS
===============================================================================
The Trust will send to shareholders semi-annual reports showing the
Trust's portfolio and other information. An annual report, containing financial
statements audited by independent accountants, together with their report
thereon, will be sent to shareholders each year.
50
LEGAL OPINIONS AND EXPERTS
===============================================================================
Certain legal matters in connection with the Common Shares offered
hereby will be passed upon for the Trust by Sheldon Curtis, Esq., who is an
officer and the General Counsel of the Trust and of InterCapital, and for the
Underwriters by Brown & Wood, New York, New York. Both Sheldon Curtis, Esq. and
Brown & Wood may rely upon the opinion of Lane & Altman, Boston, Massachusetts
as to matters of Massachusetts law.
The statement of assets and liabilities of the Trust at February ,
1994 included herein has been so included in reliance upon the report
of , independent accountants, given on the authority of said firm as
experts in auditing and accounting.
FURTHER INFORMATION
===============================================================================
This Prospectus does not contain all of the information set forth in
the Registration Statement that the Trust 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.
51
REPORT OF INDEPENDENT ACCOUNTANTS
===============================================================================
To the Shareholder and Trustees of
InterCapital Insured Municipal Securities
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of InterCapital
Insured Municipal Securities (the "Trust") at February , 1994, in conformity
with generally accepted accounting principles. This financial statement is the
responsibility of the Trust's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
February , 1994
52
INTERCAPITAL INSURED MUNICIPAL SECURITIES
STATEMENT OF ASSETS AND LIABILITIES AT FEBRUARY , 1994
===============================================================================
Assets:
Cash.............................................. $
Deferred organization expenses (Note 1)...........
--------
Total assets....................................
Liabilities:
Organization expenses payable (Note 1)............
Commitments (Notes 1 and 2).......................
--------
Net assets:
Preferred Shares of beneficial interest,
$.01 par value; 1,000,000 shares
authorized, none issued (Note 3)................
Common Shares of beneficial interest,
$.01 par value; unlimited number of
shares authorized, shares
issued and outstanding..........................
Paid-in surplus attributable to Common Shares.....
--------
$
--------
--------
Net asset value per Common Share.................. $
--------
--------
- ----------
Note 1-- InterCapital Insured Municipal Securities (the "Trust") was organized
as a Massachusetts business trust on October 14, 1993 and has had no
operations other than those relating to organizational matters and
the issuance of Common Shares of beneficial interest for $
to Dean Witter InterCapital Inc. (the "Investment Manager"). The
Trust is registered under the Investment Company Act of 1940, as
amended (the "Act"), as a diversified closed-end management
investment company.
Organization expenses relating to the Trust incurred and to be
incurred by the Investment Manager will be reimbursed by the Trust.
Such expenses, estimated at $ , will be deferred and amortized on
the straight-line method by the Trust against operations over a
period not to exceed sixty months from the commencement of operations
of the Trust. Costs relating to the public offering of its common
shares, estimated to be $ , will be paid from the proceeds of the
offering and charged to capital at the time of issuance of such
Common Shares.
Note 2-- The Trust will enter into an Investment Management Agreement with the
Investment Manager. Certain officers and/or Trustees of the Trust are
officers and/or directors of the Investment Manager. The Investment
Manager is a wholly-owned subsidiary of Dean Witter, Discover & Co.
The Investment Management Agreement provides for the Investment
Manager to receive a fee computed weekly and payable monthly at the
annual rate of 0.35% of the Trust's average weekly net assets. The
Investment Manager will provide portfolio management and certain
administrative, clerical and bookkeeping services for the Trust. For
purposes of calculating the management fee, the liquidation
preference of any Preferred Shares issued by the Trust will not be
deducted from the Trust's total assets.
Note 3-- The Trust is authorized by its Declaration of Trust to issue up to
1,000,000 Preferred Shares of beneficial interest having a par value
of $.01 per share in one or more series, with rights as determined by
the Trustees, by action of the Trustees without the approval of the
Common Shareholders.
53
APPENDIX A
RATINGS OF INVESTMENTS
===============================================================================
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
MUNICIPAL BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and therefore not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca present obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-1
Conditional Rating: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3
in each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade (MIG). MIG 1 denotes best quality
and means there is present strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the market for
refinancing. MIG 2 denotes high quality and means that margins of protection
are ample although not as large as in MIG 1. MIG 3 denotes favorable quality
and means that all security elements are accounted for but that the undeniable
strength of the previous grades, MIG 1 and MIG 2, is lacking. MIG 4 denotes
adequate quality and means that the protection commonly regarded as required of
an investment security is present and that while the notes are not distinctly
or predominantly speculative, there is specific risk.
VARIABLE RATE DEMAND OBLIGATIONS
A short-term rating, in addition to the Bond or MIG ratings, designated
VMIG may also be assigned to an issue having a demand feature. The assignment
of the VMIG symbol reflects such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. The VMIG rating criteria are identical to the MIG criteria discussed
above.
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. These ratings apply to Municipal Commercial Paper as well as
taxable Commercial Paper. 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" OR "S&P")
MUNICIPAL BOND RATINGS
A Standard & Poor's municipal bond rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
A-2
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 Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.
B Debt rated "B" has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayments of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.
CC The rating "CC" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC--" debt rating.
CI The rating "CI" is reserved for income bonds on which no interest is
being paid.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
A-3
Bonds rated "BB," "B," "CCC," "CC" and "C" are regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation
and "C" the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (\): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major ratings categories.
The foregoing ratings are sometimes followed by a "p" which indicates
that the rating is provisional. A provisional rating assumes the successful
completion of the project being financed by bonds being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion of the project, makes
no comment on the likelihood or risk of default upon failure of such
completion.
MUNICIPAL NOTE RATINGS
Commencing on July 27, 1984, Standard & Poor's instituted a new rating
category with respect to certain municipal note issues with a maturity of less
than three years. The new note ratings denote the following:
SP-1 denotes a very strong or strong capacity to pay principal and
interest. Issues determined to possess overwhelming safety characteristics are
given a plus (+) designation (SP-1+).
SP-2 denotes a satisfactory capacity to pay principal and interest.
SP-3 denotes a speculative capacity to pay principal and interest.
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to purchase
or sell a security. The ratings are based upon current information furnished by
the issuer or obtained by S&P from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity
for timely payment. Issues in this category are further refined with the
designation 1, 2 and 3 to indicate the relative degree of safety.
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.
A-4
APPENDIX B
FUTURES AND OPTIONS
===============================================================================
Interest Rate Futures Contracts. The Trust may purchase and sell
interest rate futures contracts ("futures contracts") that are traded on U.S.
commodity exchanges on such underlying securities as U.S. Treasury bonds,
notes, and bills. As a futures contract purchaser, the Trust incurs an
obligation to take delivery of a specified amount of the obligation underlying
the contract at a specified time in the future for a specified price. As a
seller of a futures contract, the Trust incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return for
an agreed upon price.
The Trust will purchase or sell futures contracts only for the purpose
of hedging its portfolio (or anticipated portfolio) securities against changes
in prevailing interest rates. If the Investment Manager anticipates that
interest rates may rise, the Trust may sell a futures contract to protect
against the potential decline in the value of the securities held by the Trust.
However, it is possible that the futures market may advance and the value of
securities held in the Trust's portfolio may decline. If this were to occur,
the Trust would lose money on the futures contracts and also experience a
decline in value in its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts. If declining interest rates are anticipated, the Trust may purchase
a futures contract to protect against a potential increase in the price of
securities the Trust intends to purchase. If the Trust purchases a futures
contract to hedge against the increase in value of securities it intends to
buy, and the value of such securities decreases, then the Trust 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.
Although most interest rate futures contracts call for actual delivery
or acceptance of debt 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 debt security and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of debt security and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Trust will be able to enter into a closing
transaction.
When the Trust enters into a futures contract it is initially required
to deposit with its Custodian, in a segregated account in the name of the
broker performing the transaction, an "initial margin" of cash, U.S. Government
securities or other high-grade short-term debt obligations equal to
approximately 2% of the contract amount. Initial margin requirements are
established by the Exchanges on which futures contracts trade and may, from
time to time, change. In addition, brokers may establish margin deposit
requirements in excess of those required by the Exchanges.
B-1
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 broker's client but is, rather, a good faith deposit on the
futures contract which will be returned to the Trust upon the proper
termination of the futures contract. The margin deposits made are marked-to-
market daily and the Trust may be required to make subsequent deposits into the
segregated account, maintained at its Custodian for that purpose, of cash, U.S.
Government securities or other high-grade short-term debt obligations called
"variation margin," in the name of the broker, which are reflective of price
fluctuations in the futures contract.
Options on Interest Rate Futures. The Trust may purchase and write call
and put options on futures contracts which are traded on an Exchange or Board
of Trade and enter into closing transactions with respect to such options to
terminate an existing position. (Put and call options on financial futures have
similar characteristics as Exchange-traded options on debt securities. For a
further description of such options, see the "Options" section below.) Premiums
received from the writing of an option are included in initial margin deposits.
An option on a futures contract gives the purchaser the right, and the writer
the obligation, 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. If the
holder decides not to enter into the contract, the premium paid for the
contract is lost. Since the value of the option is fixed at the point of sale,
there are no daily payments of cash to reflect the change in the value of the
underlying contract, as discussed for futures contracts. The value of the
option changes and is reflected in the net asset value of the Trust.
Limitations on Futures and Options Thereon. The Trust is required to
maintain margin deposits with brokerage firms through which it effects futures
contracts and options thereon. The initial margin requirements vary according
to the type of the underlying security. In addition, due to current industry
practice, daily variations in gains and losses on open contracts are required
to be reflected in cash in the form of variation margin payments. The Trust may
be required to make additional margin payments during the term of the contract.
Premiums received from the writing of an option on a futures contract are
included in initial margin deposits.
The Trust may not purchase and sell futures contracts or purchase
related options thereon if, immediately thereafter, the amount committed to
initial margin plus the amount paid for premiums for unexpired options on
futures contracts for other than bona fide hedging purposes exceeds 5% of the
value of the Trust's total assets.
The Trust will only purchase and write options on futures contracts to
hedge a position or anticipated position in Municipal Obligations or to close
out a long or short position in futures contracts. If, for example, the
Investment Manager wished to protect against an increase in interest rates and
the resulting negative impact on the value of a portion of its portfolio, it
might write a call option on a futures contract, the underlying security of
which correlates with the portion of the portfolio the Investment Manager seeks
to hedge. Any premiums received in the writing of options on futures contracts
may, of course, augment the income of the Trust and thereby provide a further
hedge against losses resulting from price declines in portions of the Trust's
portfolio.
B-2
In instances involving the purchase of futures contracts by the Trust,
an amount of cash, Treasury bills or other high grade short-term debt
obligations equal to the market value of the futures contract will be deposited
in a segregated account with its custodian to collateralize the position and
thereby ensure that the use of such futures contract is unleveraged. There is
no overall limitation on the percentage of the Trust's portfolio securities
which may be subject to a hedge position. In addition, the Trust will cover all
purchases of futures contracts and options thereon by maintaining a segregated
account with its custodian consisting of cash, Treasury bills or other high
grade short-term debt obligations in an amount equal to the value of the
futures or option position less than the amount of initial or variation margin
for the contracts.
Options. The Trust may purchase or sell (write) options on debt
securities as a means of achieving additional return or hedging the Trust's
portfolio securities. The Trust will only write covered call or covered put
options, and will only purchase options, which are listed on national
securities exchanges. Listed options are issued by the Options Clearing
Corporation ("OCC"). Ownership of a listed call option gives the Trust the
right to buy from the OCC the underlying security covered by the option at the
stated exercise price (the price per unit of the underlying security) by filing
an exercise notice prior to the expiration date of the option. The writer
(seller) of the option would then have the obligation to sell to the OCC the
underlying security at that exercise price prior to the expiration date of the
option, regardless of its then current market price. Ownership of a listed put
option would give the Trust the right to sell the underlying security to the
OCC at the stated exercise price. Upon notice of exercise of the put option,
the writer of the put would have the obligation to purchase the underlying
security from the OCC at the exercise price.
Covered Call Writing. The Trust may write covered call options on debt
securities only, in order to achieve additional return. As a writer of a call
option, the Trust has the obligation, upon notice of exercise of the option, to
deliver the security underlying the option prior to the expiration date of the
option. Generally, a call option is "covered" if the Trust owns, or has the
right to acquire, without additional cash consideration (or for additional cash
consideration held for the Trust by its Custodian in a segregated account) the
underlying security subject to the option. A call option is also covered if the
Trust holds a call on the same security as the underlying security of the
written option, where the exercise price of the call used for coverage is equal
to or less than the exercise price of the call written or greater than the
exercise price of the call written if the mark-to-market difference is
maintained by the Trust in cash, U.S. Government securities or other high-grade
short-term debt obligations which the Trust may hold in its portfolio in a
segregated account maintained with the Trust's custodian.
The Trust will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Furthermore, the income
received from the premium will offset a portion of any potential loss incurred
by the Trust if the securities underlying the option are ultimately sold by the
Trust at a loss. The income received from premiums will fluctuate with varying
economic market conditions. If the market value of the securities upon which
call options have been written increases, the Trust may receive less 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, during the option period the Trust may be
required, at any time, to deliver the underlying security against payment of
the exercise price on any calls it has written. This obligation is terminated
upon the expiration of the option period or at such earlier time when the
writer effects a closing purchase transaction. A closing purchase transaction
is accomplished by purchasing an option of the same series as the option
previously written. However, once the Trust has been assigned an exercise
notice, the Trust will be unable to effect a closing purchase transaction.
B-3
Closing purchase transactions are ordinarily effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of an underlying security or to enable the
Trust to write another call option on the underlying security with either a
different exercise price or expiration date or both. Also, effecting a closing
purchase transaction will permit the cash or proceeds from the concurrent sale
of any securities subject to the option to be used for other investments by the
Trust. The Trust may realize a net gain or loss from a closing purchase
transaction depending upon whether the amount of the premium received on the
call option is more or less than the cost of effecting the closing purchase
transaction. Any loss incurred in a closing purchase transaction may be wholly
or partially offset by unrealized appreciation in the market value of the
underlying security. Conversely, a gain resulting from a closing purchase
transaction could be offset in whole or in part or exceeded by a decline in the
market value of the underlying security.
If a call option expires unexercised, the Trust realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security during the option period. If a call option is exercised, the Trust
realizes a gain or loss from the sale of the underlying security equal to the
difference between the purchase price of the underlying security and the
proceeds of the sale of the security plus the premium received on the option
less the commission paid.
Options written by the Trust will normally have expiration dates of up
to nine 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.
Covered Put Writing. As a writer of covered put options, the Trust
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. A put is "covered" if, at all
times, the Trust maintains, in a segregated account maintained on its behalf at
the Trust's Custodian, cash, U.S. Government securities or other high-grade
short-term debt obligations, in an amount equal to at least the exercise price
of the option, at all times during the option period. In writing puts, the
Trust assumes the risk of loss should the market value of the underlying
security decline below the exercise price of the option. During the option
period, the Trust may be required, at any time, to make payment of the exercise
price against delivery of the underlying security. The operation of and
limitations on covered put options in other respects are substantially
identical to those of call options.
The Trust will write put options for two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the
Investment Manager wishes to purchase the security underlying the option at a
price lower than its current market price, in which case it will write the
covered put at an exercise price reflecting the lower purchase price sought.
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 difference between the exercise price of the option
and the current market price of the underlying securities when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
Purchasing Call and Put Options. The Trust may purchase listed call and
put options on debt securities. The Trust may purchase call options only in
order to close out a covered call position (see "Covered Call Writing" above).
B-4
The Trust may purchase put options on securities which it holds (or has
the right to acquire) in its portfolio only to protect itself against a decline
in the value of the security. If the value of the underlying security were to
fall below the exercise price of the put purchased in an amount greater than
the premium paid for the option, the Trust would incur no additional loss. The
Trust may also purchase put options to close out written put positions in a
manner similar to call options closing purchase transactions. In addition, the
Trust may sell a put option which it has previously purchased prior to the sale
of the securities underlying such option. Such a sale would result in a net
gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction costs paid on the put option which
is sold. Any such gain or loss could be offset in whole or in part by a change
in the market value of the underlying security. If a put option purchased by
the Trust expired without being sold or exercised, the premium would be lost.
Risks of Options and Futures Transactions. During the option period,
the covered call writer has, in return for the premium on the option, given up
the opportunity for capital appreciation above the exercise price should the
market price of the underlying security increase, but has retained the risk of
loss should the price of the underlying security decline. The secured put
writer also retains the risk of loss should the market value of the underlying
security decline below the exercise price of the option. In both cases, the
writer has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer had received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver 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,
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 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, U.S.
Government securities or other high-grade short-term debt obligations as
security for the put option for other investment purposes until the exercise or
expiration of the option.
The Trust may close out its position as writer of an option only if a
liquid secondary market exists on options exchanges for options of that series.
There is no assurance that such a market will exist. However, the Trust 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 Trust 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
B-5
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.
There is similarly no assurance that a liquid secondary market will
exist for futures contracts and related options in which the Trust 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 Trust
would continue to be required to make daily cash payments of variation margin.
In addition, limitations imposed by an exchange on which futures contracts are
traded may compel or prevent the Trust from closing out a contract which may
result in reduced gain or increased loss to the Trust. The absence of a liquid
market in futures contracts might cause the Trust to make or take delivery of
the underlying securities at a time when it may be disadvantageous to do so.
Exchanges may limit the amount by which the price of a futures contract
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit movements have ceased. In the event of adverse price movements, the
Trust would continue to be required to make daily cash payments of variation
margin on open futures positions. In such situations, if the Trust 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 Trust may be required to make or take 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 options and futures
positions could also have an adverse impact on the Trust's ability to
effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Trust
engages in transactions in options, futures or options thereon, the Trust could
experience delays and/or losses in liquidating open positions purchased or sold
through the broker and/or incur a loss of all or part of its margin deposits
with the broker. Transactions are entered into by the Trust only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written
on one or more accounts or through one or more brokers). An exchange may order
the liquidation of positions found to be in violation of these limits and it
may impose other sanctions or restrictions. These position limits may restrict
the number of listed options which the Trust may write.
While the futures contracts and options transactions to be engaged in
by the Trust for the purpose of hedging the Trust's portfolio securities are
not speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities is that the prices
of securities subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Trust's portfolio securities. The risk of imperfect correlation may be
increased by the fact that the Trust will invest in futures contracts on
taxable securities and there is no guarantee that the prices of taxable
securities will move in a similar manner to the prices of tax-exempt
securities. Another such risk is that the price of the futures contract may not
move in tandem with the change in prevailing interest rates against which the
Trust seeks a hedge. A correlation may be distorted by the fact that the
futures market
B-6
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. If participants in the futures market elect to close out their contracts
through offsetting transactions rather than meet margin deposit requirements,
distortions in the normal relationships between the debt securities and futures
market could result. Price distortions could also result if investors in
futures contracts opt to make or take delivery of underlying securities rather
than engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause distortions. Due
to the possibility of price distortions in the futures market and because of
the imperfect correlation between movements in the prices of debt securities
and movements in the prices of futures contracts, a correct forecast of
interest rate trends by the Investment Manager may still not result in a
successful hedging transaction. However, such distortions are generally minor
and would diminish as the contract approaches maturity.
Another risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements
or the time span within which the movements take place. For example, if the
Trust sold futures contracts for the sale of securities in anticipation of an
increase in interest rates, and then interest rates went down instead, causing
bond prices to rise, the Trust would lose money on the sale.
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
Trust because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when a purchase
of a call or put option on a futures contract would result in a loss to the
Trust when the purchase or sale of a futures contract would not result in a
loss, such as when there is no movement in the prices of the underlying
securities. The writing of a put or call option on a futures contract involves
risks similar to those relating to transactions in futures contracts as
described above.
B-7
APPENDIX C
RISKS OF CERTAIN MUNICIPAL OBLIGATIONS
===============================================================================
The following is a summary of the risks associated with certain
Municipal Obligations in which the Trust reserves the right to invest more than
25% of its total assets:
Health Facility Obligations. Some of the Municipal Obligations in which
the Trust may invest are obligations of issuers whose revenues are derived from
services provided by hospitals or other health care facilities, including
nursing homes. Ratings of bonds issued for health care facilities are often
based on feasibility studies that contain projections of occupancy levels,
revenues and expenses. A facility's gross receipts and net income available for
debt service may be affected by future events and conditions including, among
other things, demand for services, the ability of the facility to provide the
services required, physicians' confidence in the facility, management
capabilities, economic developments in the service area, competition from other
similar providers, efforts by insurers and governmental agencies to limit
rates, legislation establishing state rate-setting agencies, expenses,
government regulation, the cost and possible unavailability of malpractice
insurance, and the termination or restriction of governmental financial
assistance, including that associated with Medicare, Medicaid and other similar
third party payor programs. Medicare reimbursements are currently calculated on
a prospective basis utilizing a single nationwide schedule of rates and are not
based on a provider's actual costs. Such method of reimbursement may adversely
affect reimbursements to hospitals and other facilities for services provided
under the Medicare program and thereby may have an adverse effect on the
ability of such institutions to satisfy debt service requirements.
Certain health care facility bonds provide for redemption at par at any
time upon the sale by the issuer of the health care facilities to a non-
affiliated entity or in other special circumstances. In the event of a default
upon a bond secured by health care facilities, the limited alternative uses for
such facilities may result in the recovery upon such collateral not providing
sufficient funds to fully repay the bonds.
Housing Obligations. Some of the Municipal Obligations in which the
Trust may invest are obligations of issuers whose revenues are primarily
derived from mortgage loans to housing projects for low to moderate income
families. Such issues are generally characterized by mandatory redemption at
par or accreted value in the event of economic defaults and in the event of a
failure of the operator of a project to comply with certain covenants as to the
operation of the project. The ability of such issuers to make debt service
payments will be affected by events and conditions affecting financed projects,
including, among other things, the achievement and maintenance of sufficient
occupancy levels and adequate rental income, employment and income conditions
prevailing in local labor markets, increases in taxes, utility costs and other
operating expenses, the managerial ability of project managers, changes in laws
and governmental regulations, the appropriation of subsidies and social and
economic trends affecting the localities in which the projects are located.
Occupancy of such housing projects may be adversely affected by high rent
levels and income limitations imposed under federal and state programs.
Single Family Mortgage Revenue Bonds. Some of the Municipal Obligations
in which the Trust may invest are single family mortgage revenue bonds, which
are issued for the purpose of making mortgages on or acquiring from originating
financial institutions notes secured by mortgages on residences located within
the issuer's boundaries and owned by persons of low or moderate income.
Mortgage loans are generally partially or completely prepaid prior to their
final maturities as a result of events such
C-1
as sale of the mortgaged premises, default, condemnation or casualty loss.
Because these bonds are subject to extraordinary mandatory redemption in whole
or in part from such prepayments of mortgage loans, a substantial portion of
such bonds will probably be redeemed prior to their scheduled maturities or
even prior to their ordinary call dates. Extraordinary mandatory redemption
without premium could also result from the failure of the issuer or the
originating financial institutions to make mortgage loans in sufficient amounts
within a specified time period. The redemption price of such issues may be more
or less than the offering price of such bonds. Additionally, unusually high
rates of default on the underlying mortgage loans may reduce revenues available
for the payment of principal of or interest on such mortgage revenue bonds.
Industrial Revenue Obligations. Some of the Municipal Obligations in
which the Trust may invest are industrial revenue bonds ("IRBs"), which are
tax-exempt securities issued by states, municipalities, public authorities or
similar entities to finance the cost of acquiring, constructing or improving
various industrial projects. These projects are usually operated by corporate
entities. Issuers are obligated only to pay amounts due on the IRBs to the
extent that funds are available from the unexpended proceeds of the IRBs or
receipts or revenues of the issuer under an arrangement between the issuer and
the corporate operator of a project. The arrangement may be in the form of a
lease, installment sale agreement, conditional sale agreement or loan
agreement, but in each case the payments to the issuer are designed to be
sufficient to meet the payments of amounts due on the IRBs. Regardless of the
structure, payment of IRBs is solely dependent upon the creditworthiness of the
corporate operator of the project and, if applicable, corporate guarantor.
Corporate operators or guarantors may be affected by many factors which may
have an adverse impact on the credit quality of the particular company or
industry. These include cyclicality of revenues and earnings, regulatory and
environmental restrictions, litigation resulting from accidents or
environmentally-caused illnesses, technological developments, extensive
competition and financial deterioration resulting from leveraged buy-outs or
takeovers. The IRBs may be subject to special or extraordinary redemption
provisions which may provide for redemption at par or accreted value, plus, if
applicable, a premium. The Trust cannot predict the causes or likelihood of the
redemption of IRBs prior to the stated maturity of such bonds.
Electric Utility Obligations. Some of the Municipal Obligations in
which the Trust may invest are obligations of issuers whose revenues are
primarily derived from the sale of electric energy. The problems faced by such
issuers include the difficulty in obtaining approval for timely and adequate
rate increases from the applicable public utility commissions, the difficulty
of financing large construction programs, increased competition, reductions in
estimates of future demand for electricity in certain areas of the country, the
limitations on operations and increased costs and delays attributable to
environmental considerations, the difficulty of the capital market in absorbing
utility debt, the difficulty in obtaining fuel at reasonable prices and the
effect of energy conservation. All of such issuers have been experiencing
certain of these problems in varying degrees. In addition, federal, state and
municipal governmental authorities may from time to time review existing, and
impose additional, regulations governing the licensing, construction and
operation of nuclear power plants, which may adversely affect the ability of
the issuers of certain of the Municipal Obligations to make payments of
principal and/or interest on such bonds.
Airport Facility Revenue Bonds. Some of the Municipal Obligations in
which the Trust may invest are obligations of issuers which are payable from
and secured by revenues derived from the ownership and operation of airports.
The major portion of an airport's gross operating income is generally derived
from fees received from signatory airlines pursuant to use agreements which
consist of annual payments for airport use, occupancy of certain terminal
space, service fees and leases. Airport operating income
C-2
may therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry is
experiencing significant variations in earnings and traffic due to increased
competition, excess capacity, increased costs, deregulation, traffic
constraints and other factors, and several airlines are experiencing severe
financial difficulties. In particular, facilities with use agreements involving
airlines experiencing financial difficulty may experience a reduction in
revenue due to the possible inability of these airlines to meet their use
agreement obligations because of such financial difficulties and possible
bankruptcy. The Trust cannot predict what effect these industry conditions may
have on airport revenues which are dependent for payment on the financial
condition of the airlines and their usage of the particular airport facility.
Water and/or Sewerage Obligations. Some of the Municipal Obligations in
which the Trust may invest are obligations of issuers whose revenues are
derived from the sale of water and/or sewerage services. Such bonds are
generally payable from user fees. The problems of such issuers include the
ability to obtain timely and adequate rate increases, population decline
resulting in decreased user fees, the difficulty of financing large
construction programs, the limitations on operations and increased costs and
delays attributable to environmental considerations, the increasing difficulty
of obtaining or discovering new supplies of fresh water, the effect of
conservation programs and the impact of "no-growth" zoning ordinances. All of
such issuers have been experiencing certain of these problems in varying
degrees.
University and College Revenue Obligations. Some of the Municipal
Obligations in which the Trust may invest are obligations of issuers which are,
or which govern the operation of, colleges and universities and whose revenues
are derived mainly from tuition, dormitory revenues, grants and endowments.
General problems of such issuers include the prospect of a declining percentage
of the population consisting of "college" age individuals, possible inability
to raise tuitions and fees sufficiently to cover increased operating costs, the
uncertainty of continued receipt of federal grants and state funding, and
government legislation or regulations which may adversely affect the revenues
or costs of such issuers. All of such issuers have been experiencing certain of
these problems in varying degrees.
Bridge Authority and Tollroad Obligations. Some of the Municipal
Obligations in which the Trust may invest are obligations of issuers which
derive their payments from bridge, road or tunnel toll revenues. The problems
faced by such issuers include competition from toll-free vehicular facilities,
a reduction in the availability of fuel to motorists or significant increases
in the costs thereof, increased costs and delays attributable to environmental
considerations and the difficulty in obtaining approval for timely and adequate
toll increases.
Resource Recovery Obligations. Some of the Municipal Obligations in
which the Trust may invest are obligations of issuers whose revenues are
primarily derived from the disposal of solid waste products and the sale of
energy generated by such disposal. Resource recovery plants in the United
States have experienced several well-publicized failures, in response to which
municipal entities wanting to solve their disposal problem by resource recovery
have been unwilling to accept the technological risk, turning instead to
equipment vendors to provide guarantees to cover that risk. The municipal
revenue streams pledged under these obligations can vary considerably, and may
involve a mixture of special taxes, user fees, and the municipal entity's
credit. A general fund pledge can be equal to or less than a full faith and
credit pledge. Economics and financial feasibility of any project depend on a
number of factors, including whether (1) project cost estimates are
commensurate with industry averages, (2) solid waste to obtain full operating
capacity is available, given population growth and historical waste generation
trends, (3) alternative disposal facilities will not pose any competitive
threat to waste flow, (4) the price at which energy produced by such facilities
may be sold is consistent with market assumptions, (5) facility and landfill
options have a useful life corresponding to the life of the bonds, and (6)
management is capable of construction, start-up, and plant operation. Changes
in governmental regulations could affect the continued operation of the
resource recovery facilities.
C-3
APPENDIX D
INSURANCE CLAIMS-PAYING ABILITY RATINGS
===============================================================================
The insurance companies issuing policies insuring the Municipal
Obligations held in the Trust's portfolio will have insurance claims-paying
ability ratings of "AAA" from Standard & Poor's Corporation ("S&P") and "Aaa"
from Moody's Investors Service, Inc. ("Moody's").
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. An insurer with an insurance
claims-paying ability rating of "AAA" has the highest rating assigned by S&P.
Capacity to honor insurance contracts is adjudged by S&P to be extremely strong
and highly likely to remain so over a long period of time. A Moody's insurance
claims-paying ability rating is an opinion of the ability of an insurance
company to repay punctually senior policyholder obligations and claims. An
insurer with an insurance claims-paying ability rating of "Aaa" is judged by
Moody's to be of the best quality. In the opinion of Moody's, the policy
obligations of an insurance company with an insurance claims-paying ability
rating of "Aaa" carry the smallest degree of credit risk and, while the
financial strength of these companies is likely to change, such changes as can
be visualized are most unlikely to impair the company's fundamentally strong
position.
An insurance claims-paying ability rating by S&P or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment; nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).
The assignment of ratings by S&P or Moody's to debt issues that are
fully or partially supported by insurance policies, contracts, or guarantees is
a separate process from the determination of claims-
paying ability ratings. The likelihood of a timely flow of funds from the
insurer to the trustee for the bondholders is a key element in the rating
determination for such debt issues.
Moody's and S&P's ratings are not recommendations to buy, sell or hold
the Municipal Obligations insured by policies issued by insurers and such
ratings may be subject to revision or withdrawal at any time by the rating
agencies. Any downward revision or withdrawal of either or both ratings may
have an adverse effect on the market price of the Municipal Obligations insured
by policies issued by insurers.
The Moody's claims-paying ability rating of an insurer should be
evaluated independently of S&P's rating. Any further explanation as to the
significance of the ratings may be obtained only from the applicable rating
agency.
D-1
<TABLE>
APPENDIX E
TAXABLE EQUIVALENT YIELDS FOR 1994
==================================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME* 1994 A TAX-FREE YIELD OF
- ------------------------------------------ FEDERAL ---------------------------------------------------------------------
SINGLE JOINT TAX BRACKET** 5.00% 5.50% 6.00%
RETURN RETURN IS EQUAL TO A TAXABLE YIELD OF
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$22,751 - $55,100 $38,001 - $91,850 28.00% 6.94% 7.64% 8.33%
$55,101 - $115,000 $91,851 - $140,000 31.00% 7.25% 7.97% 8.70%
$115,001 - $250,000 $140,001 - $250,000 36.00% 7.81% 8.59% 9.38%
Over $250,000 Over $250,000 39.60% 8.28% 9.11% 9.93%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
* The above table is based on the federal taxable income brackets, which are adjusted annually for inflation.
** The taxable yields shown above assume that an investor pays regular Federal tax rather than the
alternative minimum tax. The reduction, or possible elimination, of the personal exemption deductions
for high-income taxpayers and the overall limit on itemized deductions may cause an investor's actual
marginal rate to exceed the rate used in the above table for a particular range of taxable income.
Additionally, income may be subject to state and local taxes. The tax rates shown above do not apply
to corporate taxpayers. The tax characteristics of the Trust are described more fully elsewhere in this
Prospectus. Consult your tax adviser for further details. This chart is for illustrative purposes only and
cannot be taken as an indication of anticipated Trust performance.
</TABLE>
E-1
APPENDIX F
COMPARISON OF COMPOUNDED YIELDS
===============================================================================
5.375% 6.89%
END OF YEAR TAX-EXEMPT INVESTMENT TAXABLE INVESTMENT
----------- --------------------- ------------------
0 $10,000 $10,000
1 10,538 10,441
2 11,104 10,901
3 11,701 11,382
4 12,330 11,884
5 12,992 12,408
6 13,691 12,955
7 14,427 13,526
8 15,202 14,123
9 16,019 14,746
10 16,880 15,396
11 17,787 16,075
12 18,744 16,784
13 19,751 17,524
14 20,813 18,296
15 21,931 19,103
16 23,110 19,946
17 24,352 20,825
18 25,661 21,743
19 27,040 22,702
20 28,494 23,703
ASSUMPTIONS
- -----------
Yield and Reinvestment Rate on Tax-Exempt Investment.......... 5.375%
Yield and Reinvestment Rate on Taxable Investment............. 6.890%
The 6.89% Taxable Investment column reflects a reduction for federal income
taxes at the 36% federal tax bracket. An investor's tax rate may differ from
the 36% rate assumption depending on the amount of the investor's income and
the reduction, or possible elimination, of the personal exemption deduction for
high-income taxpayers and an overall limit on itemized deductions.
Additionally, income may be subject to certain state and local taxes and the
federal alternative minimum tax. The tax characteristics of the Trust are
described more fully elsewhere in this Prospectus. Consult your tax adviser for
further details.
The above table does not apply to corporate investors.
F-1
INTERCAPITAL INSURED MUNICIPAL
SECURITIES
7,000,000 COMMON SHARES OF
BENEFICIAL INTEREST
PROSPECTUS
DEAN WITTER DISTRIBUTORS INC.
FEBRUARY , 1994
38620
INTERCAPITAL INSURED MUNICIPAL SECURITIES
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
i. Report of Independent Accountant (contained in
Prospectus)
ii. Statement on Assets and Liabilities as of February ,
1994
(b) Exhibits:
Exhibit
Number Description
1.(a) -- Declaration of Trust of Registrant*
2. -- By-Laws of Registrant*
3. -- None
4. -- Not Applicable
5. -- Copy of Trust's Dividend Reinvestment Plan
6. -- Not Applicable
7. -- Form of Investment Management Agreement between
Registrant and Dean Witter InterCapital Inc.
8.(a) -- Form of Master Agreement Among Underwriters*
(b) -- Form of Underwriting Agreement
(c) -- Form of Selected Dealers Agreement*
9. -- Not Applicable
10.(a) -- Form of Custodian Agreement
(b) -- Form of Amended and Restated Transfer Agency
Agreement
(c) -- Form of Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services
Company Inc.
11. -- Not Applicable
Exhibit
Number Description
12. -- Opinion of Sheldon Curtis, Esq.**
13. -- Not Applicable
14. -- Consent of Price Waterhouse**
15. -- None
16. -- Investment Letter of Dean Witter InterCapital Inc.**
Other -- Powers of Attorney
* Previously filed by Registrant with its initial Registration
Statement dated October 19, 1993.
** To be filed by Amendment.
Item 25. Marketing Arrangements.
Reference is made to the Underwriting Agreement to be filed
by Amendment as Exhibit 8(b) to this Registration
Statement.
Item 26. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission
Registration Fee $ 37,734.00
New York Stock Exchange listed fee $
NASD registration fee $ 12,575.00
Blue Sky Fees and Expenses $
(including fees of counsel)
Transfer Agent Fee $
Accounting fees and expenses $
Legal fees and expenses $
Printing and engraving $
Miscellaneous $
$
-----------
-----------
2
Item 27. Persons Controlled by or Under Common Control With
Registrant.
Prior to the effectiveness of this Registration Statement, the
Registrant will sell 7,113 of its shares of beneficial interest to
Dean Witter InterCapital Inc., a Delaware corporation. Dean Witter
InterCapital Inc. is a wholly-owned subsidiary of Dean Witter,
Discover & Co. ("DWDC"), a Delaware corporation, that is a balanced
financial services organization providing a broad range of
nationally marketed credit and investment products.
Item 28. Number of Holders of Securities.
(1) (2)
Number of Record Holders
Title of Class at February , 1994
Shares of Beneficial Interest 1
Item 29. Indemnification.
Pursuant to Section 5.3 of the Registrant's Declaration of
Trust and under Section 4.8 of the Registrant's By-Laws, the
indemnification of the Registrant's trustees, officers, employees
and agents is permitted if it is determined that they acted under
the belief that their actions were in or not opposed to the best
interest of the Registrant, and, with respect to any criminal
proceeding, they had reasonable cause to believe their conduct was
not unlawful. In addition, indemnification is permitted only if it
is determined that the actions in question did not render them
liable by reason of willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the
Registrant. Trustees, officers, employees and agents will be
indemnified for the expense of litigation if it is determined that
they are entitled to indemnification against any liability
established in such litigation. The Registrant may also advance
money for these expenses provided that they give their undertakings
to repay the Registrant unless their conduct is later determined to
permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of
Trust and paragraph 8 of the Registrant's Investment Management
Agreement, neither the Investment Manager nor any trustee, officer,
employee or agent of the Registrant shall be liable for any action
or failure to act, except in the case of bad faith, willful
misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
3
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer,
or controlling person of the Registrant in connection with the
successful defense of any action, suit or proceeding) is asserted
against the Registrant by such trustee, officer or controlling
person in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act, and will be
governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent
with Release 11330 of the Securities and Exchange Commission under
the Investment Company Act of 1940, so long as the interpretation
of Sections 17(h) and 17(i) of such Act remains in effect.
Registrant, in conjunction with the Investment Manager,
Registrant's Trustees, and other registered investment management
companies managed by the Investment Manager, maintains insurance on
behalf of any person who is or was a Trustee, officer, employee, or
agent of Registrant, or who is or was serving at the request of
Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted
against him and incurred by him or arising out of his position.
However, in no event will Registrant maintain insurance to
indemnify any such person for any act for which Registrant itself
is not permitted to indemnify him.
Item 30. Business and Other Connections of Investment Adviser.
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment adviser. The following information is
given regarding officers of Dean Witter InterCapital Inc.
Information regarding the other officers of Inter Capital is
included in Item 29(b) below. The term "Dean Witter Funds" used
below refers to the Registrant and the following other Funds: (1)
InterCapital Income Securities Inc., (2) High Income Advantage
Trust, (3) High Income Advantage Trust II, (4) High Income
Advantage Trust III, (5) Municipal Income Trust, (6) Municipal
Income Trust II, (7) Municipal Income Trust III, (8) Dean Witter
Government Income Trust, (9) Municipal Premium Income Trust, (10)
Municipal Income Opportunities Trust, (11) Municipal Income
Opportunities Trust II, (12) Municipal Income Opportunities Trust
4
III, (13) Prime Income Trust, (14) InterCapital Insured Municipal
Bond Trust, (15) InterCapital Quality Municipal Income Trust, (16)
InterCapital Quality Municipal Investment Trust, (17) InterCapital
Insured Municipal Income Trust, (18) InterCapital California
Insured Municipal Income Trust, (19) InterCapital Insured Municipal
Trust, (20) InterCapital Quality Municipal Securities, (21)
InterCapital California Quality Municipal Securities and (22)
InterCapital New York Quality Municipal Securities, registered
closed-end investment companies, and (1) Dean Witter Equity Income
Trust, (2) Dean Witter Tax-Exempt Securities Trust, (3) Dean Witter
Tax-Free Daily Income Trust, (4) Dean Witter Dividend Growth
Securities Inc., (5) Dean Witter Convertible Securities Trust, (6)
Dean Witter Liquid Asset Fund Inc., (7) Dean Witter Developing
Growth Securities Trust, (8) Dean Witter Retirement Series, (9)
Dean Witter Federal Securities Trust, (10) Dean Witter World Wide
Investment Trust, (11) Dean Witter U.S. Government Securities
Trust, (12) Dean Witter Select Municipal Reinvestment Fund, (13)
Dean Witter High Yield Securities Inc., (14) Dean Witter
Intermediate Income Securities, (15) Dean Witter New York Tax-Free
Income Fund, (16) Dean Witter California Tax-Free Income Fund, (17)
Dean Witter Health Sciences Trust, (18) Dean Witter California Tax-
Free Daily Income Trust, (19) Dean Witter Managed Assets Trust,
(20) Dean Witter U.S. Government Money Market Trust, (21) Dean
Witter American Value Fund, (22) Dean Witter Strategist Fund, (23)
Dean Witter Utilities Fund, (24) Dean Witter Value-Added Market
Series, (25) Dean Witter World Wide Income Trust, (26) Dean Witter
New York Municipal Money Market Trust, (27) Dean Witter Capital
Growth Securities, (28) Dean Witter Precious Metals and Minerals
Trust, (29) Dean Witter European Growth Fund Inc., (30) Dean Witter
Global Short-Term Income Fund Inc., (31) Dean Witter Pacific Growth
Fund Inc., (32) Dean Witter Multi-State Municipal Series Trust,
(33) Dean Witter Premier Income Trust, (34) Dean Witter Short-Term
U.S. Treasury Trust, (35) Dean Witter Diversified Income Trust,
(36) Dean Witter Health Sciences Trust, (37) Dean Witter Global
Dividend Growth Securities, (38) Active Assets Tax-Free Trust, (39)
Active Assets Money Trust, (40) Active Assets Government Securities
Trust, (41) Active Assets California Tax-Free Income Trust, (42)
Dean Witter Natural Resource Development Securities Inc., (43) Dean
Witter Variable Investment Series, (44) Dean Witter Limited Term
Municipal Trust and (45) Dean Witter Short-Term Bond Fund,
registered open-end investment companies. InterCapital is a wholly-
owned direct subsidiary of Dean Witter, Discover & Co. The
principal address of the Dean Witter Funds is Two World Trade
Center, New York, New York 10048. The term "TCW/DW Funds" refers
to the following Funds: (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 and (6) TCW/DW Balanced Fund, registered open-end
investment companies, and (7) TCW/DW Term Trust 2000, (8) TCW/DW
Term Trust 2002 and (9) TCW/DW Term Trust 2003, registered closed-
end investment companies.
5
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
Charles A. Chairman, Chief Executive Vice
Fiumefreddo Executive Officer President and Director
of Dean Witter
Reynolds Inc.("DWR");
Chairman, Director
or Trustee, President
and Chief Executive
Officer of the Dean
Witter Funds;
Chairman, Chief
Executive Officer and
Trustee of the TCW/DW
Funds; Chairman and
Director of Dean
Witter Trust Company
("DWTC"); Chairman,
Chief Executive
Officer and Director
of Dean Witter
Distributors Inc.
("Distributors") and
Dean Witter Services
Company Inc. ("DWSC");
Formerly Executive
Vice President and
Director of Dean
Witter, Discover & Co.
("DWDC"); Director
and/or officer of DWDC
subsidiaries.
Philip J. Purcell Director Chairman, Chief
Executive Officer and
Director of DWDC and
DWR; Director of
Distributors and DWSC.
Richard M. Director President and Chief
DeMartini Operating Officer of
Dean Witter Capital
and Director of DWDC,
DWR and Distributors.
6
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
James F. Higgins Director President and Chief
Operating Officer of
Dean Witter Financial;
Director of DWDC, DWR
DWSC and Distributors.
Thomas C. Executive Vice Director of DWDC and
Schneider President, Chief DWR; Executive Vice
Financial Officer President, Chief
and Director Financial Officer and
Director of
Distributors and DWSC.
Christine A. Director Director of DWR;
Edwards Executive Vice
President, Secretary
and General Counsel of
DWR and DWDC;
Executive Vice
President, Secretary
and Chief Legal
Officer of
Distributors.
Robert M. Scanlan President and Vice President of
Chief Operating the Dean Witter Funds
Officer and the TCW/DW Funds;
President of DWSC;
Executive Vice
President of
Distributors;
Executive Vice
President and Director
of DWTC.
7
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
David A. Hughey Executive Vice Vice President of the
President and Dean Witter Funds and
Chief Administrative the TCW/DW Funds;
Officer Executive Vice
President and Chief
Administrative Officer
of DWSC; Executive
Vice President,
Chief Administrative
Officer and Director
of DWTC; Executive
Vice President and
Chief Administrative
Officer of
Distributors.
Edmund C. Executive Vice Vice President of the
Puckhaber President Dean Witter Funds.
John Van Heuvelen Executive Vice President and Chief
President Executive Officer of
DWTC.
Sheldon Curtis Senior Vice Vice President,
President, Secretary and
General Counsel General Counsel of the
and Secretary Dean Witter Funds and
the TCW/DW Funds;
Senior Vice President
and Secretary of DWTC;
Assistant Secretary of
DWR and DWDC; Senior
Vice President,
General Counsel and
Secretary of DWSC;
Senior Vice President,
Assistant General
Counsel and Assistant
Secretary of
Distributors.
Peter M. Avelar Senior Vice Vice President of
President various Dean Witter
Funds.
8
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
Mark Bavoso Senior Vice
President
Thomas H. Senior Vice Vice President of
Connelly President various Dean Witter
Funds.
Edward Gaylor Senior Vice Vice President of
President various Dean Witter
Funds.
Rajesh K. Gupta Senior Vice Vice President of
President various Dean Witter
Funds.
Kenton J. Senior Vice Vice President of
Hinchliffe President various Dean Witter
Funds.
John B. Kemp, III Senior Vice Director of the
President Provident Savings
Bank, Jersey City,
New Jersey.
Anita Kolleeny Senior Vice Vice President of
President various Dean Witter
Funds.
Jonathan R. Page Senior Vice Vice President of
President various Dean Witter
Funds.
Ira Ross Senior Vice Vice President of
President various Dean Witter
Funds.
Rochelle G. Senior Vice Vice President of
Siegel President various Dean Witter
Funds.
Paul D. Vance Senior Vice Vice President of
President various Dean Witter
Funds.
Elizabeth A. Senior Vice
Vetell President
James F. Senior Vice Vice President of
Willison President various Dean Witter
Funds.
9
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
Ronald Worobel Senior Vice Vice President of
President various Dean Witter
Funds.
Thomas F. Caloia First Vice Treasurer of the
President and Dean Witter Funds
Assistant Treasurer and the TCW/DW Funds;
First Vice President
and Assistant
Treasurer of DWSC;
Assistant Treasurer of
Distributors.
Barry Fink First Vice Assistant Secretary of
President and the Dean Witter Funds
Assistant Secretary and the TCW/DW Funds;
First Vice President
and Assistant
Secretary of DWSC.
Michael Interrante First Vice President First Vice President
and Controller and Controller of
DWSC; Assistant
Treasurer of
Distributors.
Robert Zimmerman First Vice
President
Joseph Arcieri Vice President
Douglas Brown Vice President
Rosalie Clough Vice President
B. Catherine Vice President
Connelly
Marilyn K. Cranney Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
and Assistant
Secretary of DWSC;
Assistant Secretary
of DWR and DWDC.
Salvatore DeSteno Vice President Vice President of
DWSC.
Dwight Doolan Vice President
Bruce Dunn Vice President
10
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
Geoffrey D. Flynn Vice President Vice President of
DWSC.
Bette Freedman Vice President
Robert Geis Vice President
Deborah Genovese Vice President
Peter W. Gurman Vice President
Shant Harootunian Vice President
John Hechtlinger Vice President
David Johnson Vice President
Christopher Jones Vice President
Stanley Kapica Vice President
Paula LaCosta Vice President Vice President of
various Dean Witter
Funds.
Lawrence S. Lafer Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
and Assistant
Secretary of DWSC.
Thomas Lawlor Vice President
Lou Anne D. Vice President Assistant Secretary
McInnis and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
and Assistant
Secretary of DWSC.
James Nash Vice President
Hugh Rose Vice President
Ruth Rossi Vice President Assistant Secretary
and Assistant of the Dean Witter
Secretary Funds and the TCW/DW
Funds; Vice President
and Assistant
Secretary of DWSC.
11
Other Substantial
Business, Profession,
Position with Vocation or Employment,
Dean Witter including Name, Prin-
InterCapital cipal Address and
Name Inc. Nature of Connection
Howard A. Schloss Vice President
Rose Simpson Vice President
Diane Lisa Sobin Vice President Vice President of
various Dean Witter
Funds.
Kathleen Stromberg Vice President Vice President of
various Dean Witter
Funds.
Vinh Q. Tran Vice President Vice President of
various Dean Witter
Funds.
Alice Weiss Vice President Assistant Vice
President of Dean
Witter Value-Added
Market Series.
Marianne Zalys Vice President
Item 31. Location of Accounts and Records
All accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder are maintained by the Investment Manager at its
offices, except records relating to holders of shares issued by the
Registrant, which are maintained by the Registrant's Transfer Agent,
at its place of business as shown in the Statement of Additional
Information.
Item 32. Management Services
Registrant is not a party to any such management-related
service contract.
Item 33. Undertakings.
(a) Registrant undertakes to suspend offering of the shares
covered hereby until it amends its prospectus contained herein if (1)
subsequent to the effective date of this Registration Statement, its
net asset value per share declines more than 10 per cent from its net
asset value per share as of the effective date of this Registration
Statement, or (2) its net asset value increases to an amount greater
than its net proceeds as stated in the prospectus contained herein.
12
(b) Not applicable
(c) Not applicable
The undersigned Registrant undertakes to assist shareholders in
communicating with other shareholders for the purpose of removing
trustees by providing the support specified in Section 16(c) of the
1940 Act as though such Section applied.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of a Registration Statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(2) For purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
yh:\ins\partc
13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and the State of New York
on the 6th day of January, 1994.
INTERCAPITAL INSURED MUNICIPAL SECURITIES
By: /s/ Sheldon Curtis
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title Date
(1) Principal Executive Officer Chairman, President,
Chief Executive
Officer and Trustee
By:/s/ Charles A. Fiumefreddo 01/06/94
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By:/s/ Thomas F. Caloia 01/06/94
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo
Edward R. Telling
By:/s/ Sheldon Curtis 01/06/94
Sheldon Curtis
Attorney-in-Fact
Jack F. Bennett Paul Kolton
John R. Haire Michael E. Nugent
John E. Jeuck Albert T. Sommers
Manuel H. Johnson Edwin J. Garn
By:/s/ David M. Butowsky 01/06/94
David M. Butowsky
Attorney-in-Fact
EXHIBIT INDEX
1.(a) -- Declaration of Trust of Registrant*
2. -- By-Laws of Registrant*
3. -- None
4. -- Not Applicable
5. -- Copy of Trust's Dividend Reinvestment Plan
6. -- Not Applicable
7. -- Form of Investment Management Agreement between
Registrant and Dean Witter InterCapital Inc.
8.(a) -- Form of Master Agreement Among Underwriters*
(b) -- Form of Underwriting Agreement
(c) -- Form of Selected Dealers Agreement*
9. -- Not Applicable
10.(a) -- Form of Custodian Agreement
(b) -- Form of Amended and Restated Transfer Agency
Agreement
(c) -- Form of Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services
Company Inc.
11. -- Not Applicable
12. -- Opinion of Sheldon Curtis, Esq.**
13. -- Not Applicable
14. -- Consent of Price Waterhouse**
15. -- None
16. -- Investment Letter of Dean Witter InterCapital
Inc.**
Other -- Powers of Attorney
* Previously filed by Registrant with its initial Registration
Statement dated October 19, 1993.
** To be filed by Amendment.
INTERCAPITAL INSURED
MUNICIPAL SECURITIES
Dear Shareholder:
This brochure details the provisions of the Dividend Reinvestment
Plan (the "Plan") for common shares of beneficial interest ("Shares") of
InterCapital Insured Municipal Securities (the "Trust").
We believe that you will find this service, offered through the
Trust's Transfer Agent, Dean Witter Trust Company (the "Transfer Agent"), a
convenient way to increase your investment in the Trust through reinvestment of
the Trust's monthly dividends and other distributions.
If you are not already enrolled in the Plan and wish to participate
and your shares are held in your own name, simply complete and mail the
enrollment form in the enclosed business reply envelope. IF YOUR SHARES ARE
HELD IN THE NAME OF A BROKERAGE FIRM, BANK OR OTHER NOMINEE, YOU SHOULD CONTACT
YOUR NOMINEE TO PARTICIPATE IN THE PLAN.
Participation in the Plan is entirely voluntary and, subject to the
terms of the Plan, you may enroll or withdraw at any time.
INTERCAPITAL INSURED
MUNICIPAL SECURITIES
Two World Trade Center
New York, N.Y. 10048
Tel. (212) 392-1600
HIGHLIGHTS OF THE
- -------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- -------------------------------------------------------------------------------
The Dividend Reinvestment Plan provides shareholders with an effective and
efficient program to put their distributions from the Trust to work through
reinvestment in additional Trust Shares each month.
1. Participation
- -------------------------------------------------------------------------------
All persons (except as noted below) who become registered shareholders of the
Trust may participate in the Plan. Owners of Shares held in the names of
brokers and nominees of banks and other financial institutions who wish to
participate in the Plan must notify their broker or nominee of their desire to
participate in the Plan and such broker or nominee is then advised to contact
Dean Witter Trust Company.
2. Operation of the Plan
- -------------------------------------------------------------------------------
Whenever the Trust declares a dividend or other distribution, it will pay the
amount thereof in cash to the Transfer Agent on behalf of shareholders
participating in the Plan which the Transfer Agent must use to buy Shares in
the open market for the participants' accounts. Market price for the purpose of
the Plan will be the market price of the Shares on a national securities
exchange or, in the event that the Shares are not listed on a securities
exchange at the time, market price will be the asked price, or the mean of the
asked prices if more than one is available, of the Shares in the over-the-
counter market.
3. Dividend Information
- -------------------------------------------------------------------------------
Each Dividend Reinvestment Plan shareholder will receive a quarterly
confirmation of his or her account detailing the current dividend rate, total
amount of the dividend (or other distribution), number of Shares purchased
through reinvestment, average cost and total number of Shares held in the
account. You will receive tax information annually for your personal
records and to help you prepare your tax return. The automatic reinvestment of
dividends or distributions will not relieve participants of any income tax that
may be payable on such dividends or distributions.
4. Certificates
- -------------------------------------------------------------------------------
The Transfer Agent will hold the Shares it has purchased for each shareholder
as long as the shareholder remains a participant in the Plan. However,
certificates for full Shares held by the Agent will be issued to the
shareholder upon his or her written request.
5. Fractional Shares
- -------------------------------------------------------------------------------
The full amount of a shareholder's distribution will be reinvested, in full and
fractional Shares carried out to three decimal places. Upon termination of the
Dividend Reinvestment Plan, the fractional Shares will not be issued, but will
be liquidated and the cash proceeds will be sent to the shareholder.
6. Withdrawal from the Plan
- -------------------------------------------------------------------------------
Shareholders may elect to terminate their participation in the Dividend
Reinvestment Plan and thereafter receive dividends in cash by giving written
notice to Dean Witter Trust Company, P.O. Box 1040, Jersey City, New Jersey
07303. The attached form may be used for purposes of giving such written
notice. For this written notice to be effective for any dividend or
distribution it must be received by the Agent prior to the record date for any
such dividend or distribution. Such notice shall be effective for all further
dividends or distributions. Shareholders may resume participation in the Plan
at any time by written request to the Transfer Agent. On termination of his or
her participation in the Plan, the shareholder will receive a certificate for
full Shares in his or her account plus a check for the market value of any
fractional Shares.
TERMS & PROVISIONS OF THE
- -------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- -------------------------------------------------------------------------------
(A) Shareholders of the Trust (except brokers, and nominees of banks and
financial institutions) may participate in the Dividend Reinvestment Plan ("the
Plan") and will be deemed to have appointed Dean Witter Trust Company,
Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311 (the
"Transfer Agent") as their Transfer Agent to act on their behalf under the
Plan. Under the Plan, dividends and distributions ("distributions") will be
reinvested in additional Shares of the Trust. The Plan will continue in effect
for each shareholder as to all future distributions until terminated.
(B) The payment date for distributions will generally be approximately two
weeks after the record date.
(C) Whenever the Trust declares a dividend or other distribution, it will pay
the amount thereof to the Transfer Agent on behalf of shareholders under the
Plan in cash which the Transfer Agent must use to buy Shares in the open market
for the participants' accounts. Market price for the purpose of the Plan will
be the market price of the Shares on a national securities exchange or, in the
event the Shares are not listed on a securities exchange at the time, market
price will be the asked price, or the mean of the asked prices if more than one
is available, of the Shares in the over-the-counter market.
(D) The cost of full and fractional Shares acquired for each shareholder's
account in connection with a particular distribution shall be determined by the
average cost per share of the Shares acquired by the Transfer Agent in
connection with that distribution. Shareholders will receive a confirmation
showing the average cost of Shares acquired as soon as practicable after the
Transfer Agent has received or purchased Shares. The Transfer Agent may mingle
the cash in a shareholder's account with similar funds of other shareholders of
the Trust for whom it acts as Transfer Agent under the Plan.
(E) As used herein, the term "market price" means the closing price of the
Trust's Shares on a national securities exchange plus expected brokerage
commissions.
(F) There is no service charge by the Transfer Agent to shareholders who
participate in the Plan. However, the Trust reserves the right to amend the
Plan in the future to include a service charge. Each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Transfer
Agent's open market purchases in connection with the reinvestment of dividends
or capital gains distributions.
(G) The Transfer Agent will maintain the shareholder's account, hold the
additional Shares acquired through the Plan in safekeeping and furnish him or
her with written confirmation of all transactions in the account. Upon written
request to the Transfer Agent signed by the shareholder, a certificate for all
full Shares in a shareholder's account will be sent to the shareholder, but the
shareholder will continue to be a participant in the Plan unless he requests
termination.
(H) Shareholders may terminate their participation in the Plan at any time and
elect to receive distributions in cash by notifying the Transfer Agent in
writing. Such notification must be received prior to the record date of any
distribution. There will be no charge or other penalty for such termination.
Upon termination, the Transfer Agent will send the shareholder a share
certificate for the number of full Shares in his or her account and a check for
the market value of any fractional Share unless otherwise instructed by the
shareholder.
(I) Brokers and nominees of banks and financial institutions are advised to
contact the Transfer Agent in the event any beneficial owners of the Shares
held in their names desire to participate in the Plan.
(J) Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan, or
change the Transfer Agent. Any material change in the Plan will be applied to
any distribution paid subsequent to notice thereof sent to participants in the
Plan at least thirty days before the record date for such distribution. The
Transfer Agent is to be liable only for wilful misconduct or negligence in
acting as Transfer Agent under the Plan.
DIVIDEND REINVESTMENT PLAN
(This form is for shareholders who hold Shares in their own names, If
your Shares are held through a brokerage firm, bank or other nominee and you
wish to participate in the Plan, you should instruct your broker or nominee to
contact Dean Witter Trust Company.)
INTERCAPITAL INSURED MUNICIPAL SECURITIES
AUTHORIZATION FOR REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
(PLEASE READ CAREFULLY BEFORE SIGNING.)
I hereby authorize InterCapital Insured Municipal Securities (the
"Trust") to pay to Dean Witter Trust Company for my account all income
dividends and capital gains distributions payable to me on Shares of the Trust
now or hereafter registered in my name, and hereby elect to receive in Shares
all such dividends and distributions payable in cash, except as set forth
below.
I hereby appoint Dean Witter Trust Company as my Agent, subject to the
Terms and Conditions of Dividend Reinvestment Plan (the "Plan") set forth in
the accompanying brochure, and authorize Dean Witter Trust Company, as such
Agent, in accordance with such Terms and Conditions to apply all such income
dividends and capital gains distributions payable solely in cash, after
deducting the charges as provided in such Terms and Conditions, to the purchase
of Shares of the Trust.
This authorization and appointment is given with the understanding
that I may terminate it at any time by terminating my account under the Plan as
provided in such Terms and Conditions.
Name(s): __________________________________
__________________________________
(Please Print)
Address,
Including Zip Code: _______________________
___________________________________________
Signature:---------------------------------
Signature:---------------------------------
(Two signatures if joint tenancy)
Social Security Number: ___________________
Brokerage Firm's Name: ____________________
City and State: ___________________________
Brokerage Firm's
Account Number: __________________________
Date: ____________________________________
YOU SHOULD NOT RETURN THIS FORM IF YOU WISH TO RECEIVE YOUR DIVIDENDS OR
DISTRIBUTIONS IN CASH.
This authorization form, when signed, should be mailed to:
DEAN WITTER TRUST COMPANY
P.O. BOX 1040
JERSEY CITY, NJ 07303
(USE THIS FORM TO TERMINATE PARTICIPATION IN THE DIVIDEND REINVESTMENT PLAN)
INTERCAPITAL INSURED MUNICIPAL SECURITIES
Date: _____________________ , 19__
To Dean Witter Trust Company
I hereby terminate my participation in the Dividend Reinvestment Plan and
request that all dividends and distributions on my InterCapital Insured
Municipal Securities account be paid in cash.
Name(s):______________________________
______________________________________
(Please Print)
Address,
Including Zip Code:___________________
______________________________________
______________________________________
Signature:____________________________
Signature:____________________________
(Two signatures if joint tenancy)
Social Security Number:_______________
Brokerage Firm's Name:________________
City and State:_______________________
Brokerage Firm's
Account Number:_______________________
Important: Check one below
( ) Send certificate for Shares in
Reinvestment Plan and check for any
fractional Share
or
( ) Hold all Shares, full and fractional, in my account
Send to: Dean Witter Trust Company
P.O. Box 1040
Jersey City, New Jersey 07303
EXHIBIT 7
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the day of February, 1994, by and between
InterCapital Insured Municipal Securities, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter
called the "Fund"), and Dean Witter InterCapital Inc., a Delaware corporation
(hereinafter called the "Investment Manager"):
WHEREAS, The Fund intends to engage in business as a closed-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "Act"); and
WHEREAS, The Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940, and engages in the business of
acting as investment adviser; and
WHEREAS, The Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms and
conditions hereinafter set forth; and
WHEREAS, The Investment Manager desires to be retained to perform
services on said terms and conditions:
Now, Therefore, this Agreement
W I T N E S S E T H:
that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:
1. The Fund hereby retains the Investment Manager to act as investment
manager of the Fund and, subject to the supervision of the Trustees, to
supervise the investment activities of the Fund as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; shall continuously
manage the assets of the Fund in a manner consistent with the investment
objectives and policies of the Fund; shall determine the securities and
commodities to be purchased, sold or otherwise disposed of by the Fund and the
timing of such purchases, sales and dispositions; and shall take such further
action, including the placing of purchase and sale orders on behalf of the
Fund, as the Investment Manager shall deem necessary or appropriate. The
Investment Manager shall also furnish to or place at the disposal of the Fund
such of the information, evaluations, analyses and opinions formulated or
obtained by the Investment Manager in the discharge of its duties as the Fund
may, from time to time, reasonably request.
2. The Investment Manager shall, at its own expense, maintain such
staff and employ or retain such personnel and consult with such other persons
as it shall from time to time determine to be necessary or useful to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Investment Manager
shall be deemed to include persons employed or otherwise retained by the
Investment Manager to furnish statistical and other factual data, advice
regarding economic factors and trends, information with respect to technical
and scientific developments, and such other information, advice and assistance
as the Investment Manager may desire. The Investment Manager shall, as agent
for the Fund, maintain the Fund's records and books of account (other than
those maintained by the Fund's transfer agent, registrar, custodian and other
agencies). All such books and records so maintained shall be the property of
the Fund and, upon request therefor, the Investment Manager shall surrender to
the Fund such of the books and records so requested.
1
3. The Fund will, from time to time, furnish or otherwise make
available to the Investment Manager such financial reports, proxy statements
and other information relating to the business and affairs of the Fund as the
Investment Manager may reasonably require in order to discharge its duties and
obligations hereunder.
4. The Investment Manager shall bear the cost of rendering the
investment management and supervisory services to be performed by it under this
Agreement, and shall, at its own expense, pay the compensation of the officers
and employees, if any, of the Fund, and provide such office space, facilities
and equipment and such clerical help and bookkeeping services as the Fund shall
reasonably require in the conduct of its business. The Investment Manager shall
also bear the cost of telephone service, heat, light, power and other utilities
provided to the Fund.
5. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including without limitation: the charges and expenses of
any registrar, any custodian or depository appointed by the Fund for the
safekeeping of its cash, portfolio securities or commodities and other
property, and any stock transfer or dividend agent or agents appointed by the
Fund; brokers' commissions chargeable to the Fund in connection with portfolio
transactions to which the Fund is a party; all taxes, including securities or
commodities issuance and transfer taxes, and fees payable by the Fund to
federal, state or other governmental agencies; the cost and expense of
engraving or printing of certificates representing shares of the Fund, all
costs and expenses in connection with the registration and maintenance of
registration of the Fund and its shares with the Securities and Exchange
Commission and various states and other jurisdictions (including filing fees
and legal fees and disbursements of counsel) the cost and expense of printing,
including typesetting, and distributing prospectuses for such purposes; all
expenses of shareholders' and trustees' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of trustees or members of any advisory board or committee who are not
employees of the Investment Manager or any corporate affiliate of the
Investment Manager; all expenses incident to the payment of any dividend or
distribution program; charges and expenses of any outside service used for
pricing of the Fund's shares; charges and expenses of legal counsel, including
counsel to the Trustees of the Fund who are not interested persons (as defined
in the Act) of the Fund or the Investment Manager, and of independent
accountants, in connection with any matter relating to the Fund; membership
dues of industry associations; interest payable on Fund borrowings; fees and
expenses incident to the listing of the Fund's shares on any stock exchange;
postage; insurance premiums on property or personnel (including officers and
Trustees) of the Fund which inure to its benefit; extraordinary expenses
(including but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the Fund shall pay to the
Investment Manager monthly compensation, calculated from the day following
effectiveness hereof, determined by applying the annual rate of % to the
Fund's average weekly net assets. For the purposes of calculating the
management fee, the liquidation preference of any Preferred Shares issued by
the Fund will not be deducted from the Fund's total assets. Except as
hereinafter set forth, compensation under this Agreement shall be calculated
and accrued weekly and paid monthly by applying the annual rates to the average
weekly net assets of the Fund determined as of the close of the last business
day of each week. At the request of the Investment Manager, compensation
hereunder shall be calculated and accrued at more frequent intervals in a
manner consistent with the calculation of fees on a weekly basis. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth above.
2
7. The Investment Manager will use its best efforts in the supervision
and management of the investment activities of the Fund, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Investment Manager shall not be liable to the Fund
or any of its investors for any error of judgment or mistake of law of for any
act or omission by the Investment Manager or for any losses sustained by the
Fund or its investors.
8. Nothing contained in this Agreement shall prevent the Investment
Manager or any affiliated person of the Investment Manager from acting as
investment adviser or manager for any other person, firm or corporation and
shall not in any way bind or restrict the Investment Manager or any such
affiliated person from buying, selling or trading any securities or commodities
for their own accounts or for the account of others for whom they may be
acting. Nothing in this Agreement shall limit or restrict the right of any
Trustee, officer of employee of the Investment Manager to engage in any other
business or to devote his time and attention in part to the management or other
aspects of any other business whether of a similar or dissimilar nature.
9. This Agreement shall remain in effect until April 30, 1995 and from
year to year thereafter provided such continuance is approved at least annually
by the vote of holders of a majority, as defined in the Act, of the outstanding
voting securities of the Fund (Common Shares and Preferred Shares voting
together as a single class) or by the Trustees of the Fund; provided, that in
either event such continuance is also approved annually by the vote of a
majority of the Trustees of the Fund who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party, which vote must
be cast in person at a meeting called for the purpose of voting on such
approval; provided, however, that (a) the Fund may, at any time and without the
payment of any penalty, terminate this Agreement upon thirty days' written
notice to the Investment Manager, either by majority vote of the Trustees of
the Fund or by the vote of a majority of the outstanding voting securities of
the Fund (Common Shares and Preferred Shares voting together as a single
class); (b) this Agreement shall immediately terminate in the event of its
assignment (to the extent required by the Act and the rules thereunder) unless
such automatic terminations shall be prevented by an exemptive order of the
Securities and Exchange Commission; and (c) the Investment Manager may
terminate this Agreement without payment of penalty on thirty days' written
notice to the Fund. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed post-paid, to the other party at the
principal office of such party.
10. This Agreement may be amended by the parties without the vote or
consent of the shareholders of the Fund to supply any omission, to cure,
correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it necessary to conform this Agreement to the
requirements of applicable federal laws or regulations, but neither the Fund
nor the Investment Manager shall be liable for failing to do so.
11. This Agreement shall be construed in accordance with the laws of
the State of New York and the applicable provisions of the Act. To the extent
the applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Act, the latter shall control.
12. The Declaration of Trust, as amended, establishing InterCapital
Insured Municipal Securities, dated October 14, 1993, 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
InterCapital Insured Municipal Securities, as amended, 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
3
InterCapital Insured Municipal Securities 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 InterCapital Insured Municipal Securities, but the Trust Estate
only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in New York, New York.
INTERCAPITAL INSURED MUNICIPAL SECURITIES
By ......................................
Attest:
..................................
DEAN WITTER INTERCAPITAL INC.
By ....................................
Attest:
..................................
4
Proof of January 7, 1994
INTERCAPITAL INSURED MUNICIPAL SECURITIES
7,000,000 COMMON SHARES OF BENEFICIAL INTEREST
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
February , 1994
DEAN WITTER DISTRIBUTORS INC.
As Representative of the several Underwriters
Two World Trade Center
New York, New York 10048
Dear Sirs:
1. Introductory. InterCapital Insured Municipal Securities, a Massachusetts
business trust (the "Trust"), proposes to issue and sell, pursuant to the terms
of this Agreement, to the several Underwriters named in Schedule A hereto (the
"Underwriters" which term also shall include any underwriter substituted as
hereinafter provided in Section 11), an aggregate of 7,000,000 Common Shares of
Beneficial Interest of the Trust, par value $.01 per share (the "Beneficial
Common Shares"), as set forth in Schedule A, except as may be provided
otherwise in the Pricing Agreement, as hereinafter defined. The aggregate of
7,000,000 Beneficial Common Shares so to be sold by the Trust is herein called
the "Firm Shares". The Trust also proposes to sell severally to the
Underwriters, on a pro rata basis, at the option of the Underwriters, an
aggregate of not more than 1,050,000 additional Beneficial Common Shares as
provided in Section 3 of this Agreement. The aggregate of 1,050,000 Beneficial
Common Shares so proposed to be sold is herein called the "Optional Shares".
The Firm Shares and the Optional Shares are collectively referred to herein as
the "Shares". Dean Witter Distributors Inc. is acting as representative of the
several Underwriters and in such capacity is hereinafter referred to as the
"Representative".
Before the purchase and public offering of the Shares by the several
Underwriters, the Trust and the Representative, acting on behalf of the several
Underwriters, shall enter into an agreement substantially in the form of
Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the
form of an exchange of any standard form of written telecommunication between
the Trust and the Representative and shall specify such applicable information
as is indicated in Exhibit A hereto. The offering of the Shares will be
governed by this Agreement, as supplemented by the Pricing Agreement. From and
after the date of the execution and delivery of the Pricing Agreement, this
Agreement shall be deemed to incorporate the Pricing Agreement.
2. (a) Representations and Warranties. The Trust and Dean Witter InterCapital
Inc., a Delaware corporation (the "Adviser"), each severally represents and
warrants to, and agrees with, the several Underwriters, as of the date hereof
and as of the date of the Pricing Agreement (such latter date being hereinafter
referred to as the "Representation Date"), that:
(i) A registration statement on Form N-2 (File No. 33-50663) with
respect to the Shares has heretofore been delivered to the Underwriters, has
been carefully prepared by the Trust in conformity with the requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the Investment Company
Act of 1940, as amended (the "1940 Act"), and a notification on Form
N-8A of the registration of the Trust as an investment company has been
similarly prepared by the Trust under the 1940 Act, and, in the case of both
such documents, the published rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
under the 1933 Act and the 1940 Act, and have been filed with the Commission
under the 1933 Act and the 1940 Act. One or more amendments to such
registration statement, including an amended preliminary prospectus, copies of
which have heretofore been delivered to the Underwriters, have been so prepared
and filed; and the Trust has so prepared and proposes so
to file prior to the effective date of such registration statement an amendment
to such registration statement including the final form of prospectus. Such
registration statement as amended at the time such registration statement
becomes effective and the prospectus constituting a part thereof (including in
each case the information, if any, deemed to be a part thereof pursuant to Rule
430A(b) of the Rules and Regulations) are hereinafter referred to as the
"Registration Statement" and the "Prospectus", respectively, except that if any
revised prospectus shall be provided to the Underwriters by the Trust for use
in connection with the offering of the Shares which differs from the prospectus
on file at the Commission at the time the Registration Statement becomes
effective (whether such prospectus is required to be filed by the Trust
pursuant to Rule 497(c) or Rule 497(h) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use.
(ii) When the Registration Statement becomes effective and as of the
Representation Date, the Registration Statement and the Prospectus will conform
in all material respects to the requirements of the 1933 Act, the 1940 Act and
the Rules and Regulations. At the time the Registration Statement becomes
effective and at the Representation Date, the Registration Statement will not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Prospectus, at the time the Registration Statement becomes
effective and as of the Representation Date (unless the term "Prospectus"
refers to a prospectus which has been provided to the Underwriters by the Trust
for use in connection with the offering of the Shares which differs from the
prospectus on file at the Commission at the time the Registration Statement
becomes effective, in which case at the time it is first provided to the
Underwriters for such use) and at the First Closing Date and the Option Closing
Date referred to in Section 3, will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the foregoing representations,
warranties and agreements shall not apply to information contained in or
omitted from the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon, and in conformity with, written information
furnished to the Trust by or on behalf of any Underwriter, directly or through
the Representative, specifically for use in the preparation thereof.
(iii) Since the date as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated therein,
(A) there has been no material adverse change in the condition, financial or
otherwise, of the Trust, or in the earnings, business affairs or business
prospects of the Trust, whether or not arising in the ordinary course of
business, (B) there have been no transactions entered into by the Trust which
are material to the Trust other than those in the ordinary course of business,
and (C) there has been no dividend or distribution of any kind declared, paid
or made by the Trust on any class of its capital shares.
(iv) The statement of assets and liabilities, together with the related
notes, included in the Registration Statement presents fairly the financial
position of the Trust as at the date indicated and said statement has been
prepared in conformity with generally accepted accounting principles.
(v) Price Waterhouse, who have expressed their opinions on the
statement of assets and liabilities included in the Registration Statement, are
independent public accountants as required by the 1933 Act and the Rules and
Regulations.
(vi) The Trust has been duly organized and is validly existing as a
voluntary association (commonly referred to as a business trust) in good
standing under the laws of The Commonwealth of Massachusetts; the Declaration
of Trust of the Trust pursuant to which the Trust was established, confers on
the Trustees named therein, and their successors in trust, power and authority
to own, lease and operate its properties and conduct its business as
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described in the Registration Statement and the Prospectus; the Trust is duly
qualified to transact business and is in good standing in each jurisdiction in
which such qualification is required; and the Trust has no subsidiaries.
(vii) The Trust is registered with the Commission under the 1940 Act as
a closed-end diversified management investment company.
(viii) The authorized, issued and outstanding capital shares of the
Trust are as set forth in the Prospectus under the caption "Description of
Shares"; the Shares have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Trust pursuant to this Agreement against payment of the consideration set forth
in the Pricing Agreement, will be validly issued and fully paid and non-
assessable; the Shares conform in all material respects to all statements
relating thereto contained in the Prospectus; and the issuance of the Shares to
be purchased by the Underwriters is not subject to preemptive rights.
(ix) The Trust is not in violation of its Declaration of Trust or its
by-laws (the "By-laws") or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any material
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which it is a party or by which it or its properties may be bound; and the
execution and delivery of this Agreement and the Pricing Agreement and the
Investment Management Agreement and the Custodian Agreement referred to in the
Registration Statement (as used herein, the "Management Agreement" and the
"Custodian Agreement", respectively) and the consummation of the transactions
contemplated herein and therein have been duly authorized by all necessary
Trust action and will not conflict with or constitute a breach of, or default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Trust pursuant to, any material
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which the Trust is a party or by which it may be bound or to which any of
the property or assets of the Trust is subject, nor will such action result in
any violation of the provisions of the Declaration of Trust or By-laws or, to
the best of its knowledge, any law, administrative regulation or administrative
or court decree; and no consent, approval, authorization or order of any court
or governmental authority or agency is required for the consummation by the
Trust of the transactions contemplated by this Agreement, the Pricing
Agreement, the Management Agreement or the Custodian Agreement, except such as
has been obtained under the 1940 Act or as may be required under the 1933 Act,
or state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters.
(x) The Trust owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease or own, as the case may be, and to operate
its properties and to carry on its businesses as contemplated in the
Prospectus.
(xi) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Trust, threatened against or affecting the Trust, which might
result in any material adverse change in the condition, financial or otherwise,
business affairs or business prospects of the Trust, or might materially and
adversely affect the properties or assets of the Trust; and there are no
material contracts or documents of the Trust which are required to be filed as
exhibits to the Registration Statement by the 1933 Act, the 1940 Act or by the
Rules and Regulations which have not been so filed.
(xii) The Trust owns or possesses, or can acquire on reasonable terms,
by license or otherwise, adequate trademarks, service marks and trade names
necessary to conduct the business now operated by it, and the Trust has not
received any notice of infringement of or conflict with asserted rights of
others with respect to any trademarks, service marks or trade names which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling
or finding, would materially adversely affect the conduct of the business,
operations, financial condition or income of the Trust.
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(xiii) Any advertisement or other marketing materials approved by the
Trust or the Adviser for use in the public offering of the Shares pursuant to
Rule 482 under the Rules and Regulations (the "Omitting Prospectus") complies
with the requirements of such Rule 482.
(xiv) Any advertisement or other marketing materials approved by the
Trust or the Adviser for use by the Underwriters and other securities firms in
the public offering of the Shares do not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(xv) The Shares have been approved for listing on the New York Stock
Exchange upon notice of issuance.
(b) The Adviser represents and warrants to each Underwriter as of the date
hereof and as of the Representation Date, as follows:
(i) The Adviser has been duly incorporated and is validly existing and
in good standing as a corporation under the laws of the State of Delaware with
corporate power and authority to conduct its business as described in the
Prospectus.
(ii) The Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and is not
prohibited by the Advisers Act or the 1940 Act, or the rules and regulations
under such acts, from acting under the Management Agreement for the Trust as
contemplated by the Prospectus.
(iii) The description of the Adviser in the Prospectus is true and
correct and does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading.
(iv) This Agreement has been duly authorized, executed and delivered by
the Adviser; the Management Agreement has been duly authorized, executed and
delivered by the Adviser and constitutes a valid and binding obligation of the
Adviser, enforceable in accordance with its terms, subject, as to enforcement,
to bankruptcy, insolvency, reorganization or other laws relating to or
affecting creditors' rights and to general equity principles; and neither the
execution and delivery of this Agreement or the Advisory Agreement nor the
performance by the Adviser of its respective obligations hereunder and
thereunder, as the case may be, will conflict with, or result in a breach of,
any of the terms and provisions of, or constitute, with or without giving
notice or lapse of time or both, a default under, any agreement or instrument
to which the Adviser is a party or by which it is bound, or any law, order,
rule or regulation applicable to it of any jurisdiction, court, federal or
state regulatory body, administrative agency or other governmental body, stock
exchange or securities association having jurisdiction over the Adviser or its
properties or operations.
(v) The Adviser has the financial resources available to it necessary
for the performance of its services and obligations as contemplated in the
Registration Statement and the Prospectus.
(c) Any certificate signed by any officer of the Trust or the Adviser and
delivered to the Representative or to counsel for the Underwriters shall be
deemed a representation and warranty by the Trust or the Adviser, as the case
may be, to each Underwriter as to the matters covered thereby.
3. Purchase by, and Sale and Delivery to, Underwriters; Closing Date. On the
basis of the representations, warranties, covenants and agreements herein
contained, and subject to the terms and conditions herein set forth, the Trust
agrees to sell to the Underwriters the Firm Shares, and subject to the terms
and conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Trust at the price per share set forth in the
Pricing Agreement, the number of Firm Shares set opposite their name in
Schedule A (except as otherwise provided in the Pricing Agreement), subject to
adjustment in accordance with Section 11 hereof.
If the Trust has elected not to rely upon Rule 430A under the Rules and
Regulations, the initial public offering price and the purchase price per share
to be paid by the several Underwriters for the
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Firm Shares each have been determined and set forth in the Pricing Agreement,
dated the date hereof, and an amendment to the Registration Statement and the
Prospectus will be filed before the Registration Statement becomes effective.
If the Trust has elected to rely upon Rule 430A under the Rules and
Regulations, the purchase price per share to be paid by the several
Underwriters for the Firm Shares shall be an amount equal to the initial public
offering price, less an amount per share to be determined by agreement between
the Representative and the Trust. The initial public offering price and the
purchase price, when so determined, shall be set forth in the Pricing
Agreement. In the event that such prices have not been agreed upon and the
Pricing Agreement has not been executed and delivered by all parties thereto by
the close of business on the fourth business day following the date of this
Agreement, this Agreement shall terminate forthwith, without liability of any
party to any other party, unless otherwise agreed to by the Trust and the
Representative.
The Trust will deliver the Firm Shares to the Representative for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representative may direct by notice in writing to the Trust given at or prior
to 12:00 Noon, New York Time, on the second full business day preceding the
Closing Date or, if no such direction is received, in the names of the
respective Underwriters), against payment of the purchase price therefor by
check or checks in New York Clearing House or similar next day funds, payable
to the order of the Trust, all at the offices of Brown & Wood, One World Trade
Center, New York, New York 10048. The time and date of delivery and closing
shall be at 10:00 A.M., on the fifth full business day after the Registration
Statement becomes effective (or, if the Trust has elected to rely upon Rule
430A, the fifth full business day after execution of the Pricing Agreement);
provided, however, that such date and time may be accelerated or extended by
agreement between the Trust and the Representative or postponed pursuant to the
provisions of Section 11 hereof. The time and date of such payment and delivery
are herein referred to as the "First Closing Date". The Trust shall make the
certificates for the Shares available to the Representative for examination on
behalf of the Underwriters not later than 10:00 A.M., New York Time, on the
business day preceding the Closing Date at the offices of Dean Witter Trust
Company in New York, New York.
In addition, for the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Shares as contemplated by the
Prospectus, the Trust hereby grants the Underwriters an option to purchase,
severally and not jointly, up to 1,050,000 shares in the aggregate of the
Optional Shares. The purchase price per share to be paid for the Optional
Shares shall be the same price per share as for the Firm Shares. The option
granted hereby may be exercised as to all or any part of the Optional Shares at
any time not more than 45 days subsequent to the effective date of this
Agreement (or if the Trust has elected to rely on Rule 430A, not more than 45
days subsequent to the date of the Pricing Agreement). No Optional Shares shall
be sold and delivered unless the Firm Shares previously have been, or
simultaneously are, sold and delivered. The right to purchase the Optional
Shares or any portion thereof may be surrendered and terminated at any time
upon notice by the Representative to the Trust.
The option granted hereby may be exercised by the Representative on behalf
of the Underwriters by giving written notice to the Trust setting forth the
number of Optional Shares to be purchased by them and the date and time for
delivery of and payment for the Optional Shares. Such date and time for
delivery of and payment for the Optional Shares (which may be the First Closing
Date) is herein called the "Option Closing Date" and shall not be later than
seven full business days after written notice is given. Optional Shares shall
be purchased for the account of each Underwriter in the same proportion as the
number of Firm Shares set forth opposite such Underwriter's name in Schedule A
hereto bears to the total number of Firm Shares (except as otherwise provided
in the Pricing Agreement and subject to adjustment by the Representative to
eliminate odd lots). Upon exercise of the option by the Representative the
Trust agrees to sell to the Underwriters the number of Optional Shares set
forth in the written notice of exercise and the Underwriters agree, severally
and not jointly, subject to the terms and conditions herein set forth, to
purchase such Optional Shares.
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The Trust will deliver the Optional Shares to the Representative for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representative may direct by notice in writing to the Trust given at or prior
to 12:00 Noon, New York Time, on the second full business day preceding the
Option Closing Date or, if no such direction is received, in the names of the
respective Underwriters), against payment of the purchase price therefor by
check or checks in New York Clearing House or similar next day funds, payable
to the order of the Trust, all at the offices of Brown & Wood. The Trust shall
make the certificates for the Optional Shares available to the Representative
for examination on behalf of the Underwriters not later than 10:00 A.M., New
York Time, on the business day preceding the Option Closing Date at the offices
of Dean Witter Trust Company in New York, New York.
It is understood that Dean Witter Distributors Inc., individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make payment to the Trust on behalf of any Underwriter or Underwriters, for the
Shares to be purchased by such Underwriter or Underwriters. Any such payment by
Dean Witter Distributors Inc. shall not relieve such Underwriter or
Underwriters from any of its or their other obligations hereunder.
After the Registration Statement becomes effective, the several Underwriters
propose to make an initial public offering of the Shares at the initial public
offering price. The Representative shall promptly advise the Trust of the
making of the initial public offering.
4. Covenants and Agreements of the Trust. The Trust covenants and agrees
with the several Underwriters that:
(a) The Trust will use its best efforts to cause the Registration
Statement to become effective under the 1933 Act, will advise the
Representative promptly as to the time at which the Registration Statement
becomes effective, will, if required, cause the issuance of any orders
exempting the Trust from any provisions of the 1940 Act and will advise the
Representative promptly as to the time at which any such orders are granted,
will advise the Representative promptly of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or of
the institution of any proceedings for that purpose, and will use its best
efforts to prevent the issuance of any such stop order and to obtain as soon as
possible the lifting thereof, if issued. The Trust will advise the
Representative promptly of any request by the Commission for any amendment of
or supplement to the Registration Statement or the Prospectus or for additional
information, and will not at any time file any amendment to the Registration
Statement or supplement to the Prospectus which shall not previously have been
submitted to the Representative a reasonable time prior to the proposed filings
thereof or to which the Representative shall reasonably object in writing or
which is not in compliance with the 1933 Act, the 1940 Act and the Rules and
Regulations. The Trust will advise the Representative promptly when the
Prospectus has been timely filed pursuant to Rule 497(c) or Rule 497(h) of the
Rules and Regulations, or when the certification in lieu of filing pursuant to
Rule 497(c) has been timely filed pursuant to Rule 497(j) of the Rules and
Regulations, whichever is applicable under the Rules and Regulations.
(b) The Trust will prepare and file with the Commission, promptly upon
the request of the Representative, any amendments or supplements to the
Registration Statement or the Prospectus (including any revised prospectus
which the Trust proposes for use by the Underwriters in connection with the
offering of the Shares which differs from the prospectus on file at the
Commission at the time the Registration Statement becomes effective, whether
such revised prospectus is required to be filed pursuant to Rule 497(c) or Rule
497(h) of the Rules and Regulations) which in the opinion of the Representative
may be necessary to enable the several Underwriters to continue the
distribution of the Shares and will use its best efforts to cause the same to
become effective as promptly as possible.
(c) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Shares is required to be delivered
under the 1933 Act any event relating to or affecting the Trust occurs as a
result of which the Prospectus would include an untrue statement of a material
fact, or omit to state any material fact necessary to make the statements
therein, in the
6
light of the circumstances under which they were made, not misleading, or if it
is necessary, at any time to amend the Prospectus to comply with the 1933 Act,
the Trust will promptly notify the Representative thereof and will prepare an
amended or supplemented prospectus (in form and substance satisfactory to
counsel to the Underwriters) which will correct such statement or omission;
and, in case any Underwriter is required to deliver a prospectus relating to
the Shares nine months or more after the effective date of the Registration
Statement, the Trust upon the request of the Representative and at the expense
of such Underwriter will prepare promptly such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the 1933 Act.
(d) The Trust will deliver to the Representative, at or before the
First Closing Date, signed copies of the Registration Statement and all
amendments thereto including all financial statements and exhibits thereto and
will deliver to the Representative such number of copies of the Registration
Statement, including such financial statements but without exhibits, and of all
amendments thereto, as the Representative may reasonably request. The Trust
will deliver or mail to or upon the order of the Representative on the date of
the initial public offering, and thereafter from time to time during the period
when delivery of a prospectus relating to the Shares is required under the 1933
Act, as many copies of the Prospectus, in final form or as thereafter amended
or supplemented as the Representative may reasonably request; provided,
however, that the expense of the preparation and delivery of any prospectus
required for use nine months or more after the effective date of the
Registration Statement shall be borne by the Underwriters required to deliver
such prospectus.
(e) The Trust will make generally available to its security holders as
soon as practicable, but in any event not later than 60 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) which will be in reasonable detail
(but which need not be audited) and which will comply with Section 11(a) of the
1933 Act, covering a period of at least twelve months beginning not later than
the first day of the Trust's fiscal quarter next following the "effective date"
(as defined in said Rule 158) of the Registration Statement.
(f) The Trust will cooperate with the Representative to enable the
Shares to be qualified for sale under the securities laws of such jurisdictions
as the Representative may designate and at the request of the Representative
will make such applications and furnish such information as may be required of
it as the issuer of the Shares for that purpose; provided, however, that the
Trust shall not be required to qualify to do business or to file a general
consent to service of process in any such jurisdiction. The Trust will, from
time to time, prepare and file such statements and reports as are or may be
required of it as the issuer of the Shares to continue such qualifications in
effect for so long a period as the Representative may reasonably request for
the distribution of the Shares.
(g) The Trust will furnish to its shareholders annual reports
containing financial statements certified by independent public accountants
and, at least semi-annually, reports containing summary financial information
in reasonable detail which may be unaudited. During the period of five years
from the date hereof, the Trust will deliver to the Representative and, upon
request, to each of the other Underwriters, copies of each annual report of the
Trust and each other report furnished by the Trust to its shareholders; and
will deliver to the Representative, as soon as they are available, copies of
any other reports (financial or other) which the Trust shall publish or
otherwise make available to any of its security holders as such, and as soon as
they are available, copies of any reports and financial statements furnished to
or filed with the Commission or any national securities exchange.
(h) The Trust will use the net proceeds received by it from the sale of
the Shares in the manner specified in the Prospectus under "Use of Proceeds".
7
(i) Between the date of this Agreement and the termination of any
trading restrictions or the First Closing Date, whichever is later, the Trust
will not, without the Representative's prior consent, offer or sell, or enter
into any agreement to sell, any equity or equity-related securities of the
Trust other than the Shares.
(j) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule 430A of
the Rules and Regulations, then immediately following the execution of the
Pricing Agreement, the Trust will prepare, and file or transmit for filing with
the Commission in accordance with such Rule 430A and Rule 497(h) of the Rules
and Regulations, copies of an amended Prospectus, or, if required by such Rule
430A, a post-effective amendment to the Registration Statement (including an
amended prospectus), containing all information so omitted.
5. Payment of Expenses. The Trust will pay (directly or by reimbursement) all
expenses incident to the performance of its obligations under this Agreement,
including but not limited to all expenses and taxes incident to delivery of the
Shares to the Representative, all expenses incident to the registration of the
Shares under the 1933 Act and the 1940 Act and the printing of copies of the
Registration Statement, each preliminary prospectus, each Omitting Prospectus,
the Prospectus, any amendments or supplements thereto, all expenses incident to
the preparation, printing and delivery of all marketing materials and any
audio-visual materials made available to all Underwriters, all communications
to potential investors, the "Blue Sky" memorandum, this Agreement and the
Pricing Agreement and furnishing the same to the Underwriters and dealers
except as otherwise provided in Sections 4(c) and 4(d), the fees and
disbursements of the Trust's counsel and accountants, all filing and printing
fees and expenses (including legal fees and disbursements of counsel for the
Underwriters) incurred in connection with qualification of the Shares for sale
under the laws of such jurisdictions as the Representative may designate, all
fees and expenses paid or incurred in connection with filings made with the
National Association of Securities Dealers, Inc., the fees and expenses
incurred in connection with the listing of the Shares on the New York Stock
Exchange, the costs of preparing Share certificates, the costs and fees of any
registrar or transfer agent and all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section.
6. Indemnification and Contribution. (a) The Trust and the Adviser, jointly
and severally, agree to indemnify and hold harmless each Underwriter, and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the 1933 Act, against any losses, claims, damages, liabilities or expenses
(including the reasonable cost of investigating and defending against any
claims therefor and counsel fees incurred in connection therewith), joint or
several, as incurred, which may be based upon the 1933 Act, or any other
statute or at common law, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), including the information deemed to be part of the
Registration Statement pursuant to Rule 430A(b) of the Rules and Regulations,
if applicable, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue statement
of a material fact contained in any Omitting Prospectus, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, unless such statement or omission was made in
reliance upon, and in conformity with, written information furnished to the
Trust by any Underwriter, directly or through the Representative, specifically
for use in the preparation thereof; provided, however, that the Trust or the
Adviser shall not be liable with respect to any claims made against any
Underwriter or any such controlling person under this subsection unless such
Underwriter or controlling person shall have notified the Trust or the Adviser
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 such Underwriter or controlling person, but failure to notify the Trust or
the Adviser of any such claim shall not relieve either of them
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from any liiability which they may have to such Underwriter or controlling
person otherwise than on account of the indemnity agreement contained in this
paragraph. The Trust and the Adviser will be entitled to participate at their
own expense in the defense, or, if they so elect, to assume the defense of any
suit brought to enforce any such liability, but, if the Trust or the Adviser
elects to assume the defense, such defense shall be conducted by counsel chosen
by it or them. In the event the Trust or the Adviser elects to assume the
defense of any such suit and retain such counsel, the Underwriter or
Underwriters or controlling person or persons, defendant or defendants in the
suit, may retain additional counsel but shall bear the fees and expenses of
such counsel unless (i) the Trust or the Adviser shall have specifically
authorized the retaining of such counsel or (ii) the parties to such suit
include such Underwriter or Underwriters or controlling person or persons and
the Trust or the Adviser and such Underwriter or Underwriters or controlling
person or persons have been advised by counsel that one or more legal defenses
may be available to it or them which may not be available to the Trust or the
Adviser, in which case the Trust and the Adviser shall not be entitled to
assume the defense of such suit notwithstanding their obligation to bear the
fees and expenses of such counsel. The Trust and the Adviser shall not be
liable to indemnify any person for any settlement of any such claim effected
without the Trust's and the Adviser's written consent. This indemnity agreement
will be in addition to any liability which the Trust or the Adviser might
otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Trust and the Adviser, their respective trustees and directors, each of the
Trust's officers who signed the Registration Statement and each person, if any,
who controls the Trust or the Adviser within the meaning of Section 15 of the
1933 Act against any losses, claims, damages, liabilities or expenses
(including the reasonable cost of investigating and defending against any
claims therefor and counsel fees incurred in connection therewith), joint or
several, as incurred, which may be based upon the 1933 Act, or any other
statute or at common law, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto) including the information deemed to be part of the
Registration Statement pursuant to Rule 430A(b) of the Rules and Regulations,
if applicable, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue statement
of a material fact contained in any Omitting Prospectus, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, but only insofar as any such statement or omission
was made in reliance upon, and in conformity with, written information
furnished to the Trust or the Adviser by such Underwriter, directly or through
the Representative, specifically for use in the preparation thereof; provided,
however, that an Underwriter shall not be liable with respect to any claims
made against the Trust or the Adviser or any person against whom the action is
brought unless the Trust or the Adviser or such person shall have notified such
Underwriter 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 Trust or the Adviser or such person, but failure to notify
such Underwriter of such claim shall not relieve it from any liability which it
may have to the Trust or the Adviser or such person otherwise than on account
of its indemnity agreement contained in this paragraph. Such Underwriter shall
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 such Underwriter elects to assume the defense, such defense
shall be conducted by counsel chosen by it. In the event that any Underwriter
elects to assume the defense of any such suit and retain such counsel, the
Trust, the Adviser, said officers, trustees and directors and any other
Underwriter or Underwriters or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, respectively, unless (i) such Underwriter shall have
specifically authorized the retaining of such counsel or (ii) the parties to
such suit include any indemnified party and such Underwriter, and any such
indemnified party has been advised by counsel that one or more legal defenses
may be available to it which may not be available to such Underwriter, in which
case such Underwriter shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such counsel.
The Underwriter against whom indemnity
9
may be sought shall not be liable to indemnify any person for any settlement of
any such claim effected without such Underwriter's consent. This indemnity
agreement will be in addition to any liability which such Underwriter might
otherwise have.
(c) In addition to the foregoing indemnification provided for in this Section
6, the Trust and the Adviser, jointly and severally, also agree to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act, to the same
extent as the indemnity from the Trust and the Adviser to each Underwriter
contained in paragraph (a) of this Section 6, with respect to any advertisement
or other marketing material prepared by the Trust or the Adviser for use by the
Underwriters and other securities firms in the public offering of the Shares.
If any action or claim shall be brought or asserted against the Underwriter (or
any such controlling person), in respect to which indemnity may be sought
against the Trust or the Adviser pursuant to the provisions of this paragraph,
the Trust and the Adviser shall have the rights and duties given to the Trust
and the Adviser, and the Underwriters and any such controlling person shall
have the rights and duties given to the Underwriters, by paragraph (a) of this
Section 6.
(d) If the indemnification provided for in this Section 6 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or
(c) 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), as incurred, in such proportion as is appropriate
to reflect the relative benefits received by the Trust on the one hand and the
Underwriters 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, as incurred, in such proportion as
is appropriate to reflect not only such relative benefits but also the relative
fault of the Trust and the Adviser on the one hand and the Underwriters 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 Trust and the Adviser on the one hand and the
Underwriters 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 Trust bear to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
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 Trust and the Adviser or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Trust, the Adviser, and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of 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 (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
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. The Underwriters' obligations to contribute are
several in proportion to their respective underwriting obligations and not
joint.
10
7. Survival of Indemnities, Representations, Warranties, etc. The respective
indemnities, covenants, agreements, representations, warranties and other
statements of the Trust, the Adviser and the several Underwriters, as set forth
in this Agreement or made by them respectively, pursuant to this Agreement,
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter, the Trust or the Adviser or any of their
officers, trustees or directors or any controlling person, and shall survive
delivery of and payment for the Shares.
8. Conditions of Underwriters' Obligations. The respective obligations of the
several Underwriters hereunder shall be subject to the accuracy, at and (except
as otherwise stated herein) as of the date hereof, the Representation Date, the
First Closing Date and the Option Closing Date, of the representations and
warranties made herein by the Trust and the Adviser, to the accuracy of the
statements of the Trust's officers or trustees in any certificate furnished
pursuant to the provisions hereof, to compliance at and as of such Closing Date
by the Trust and the Adviser, with their covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to such
Closing Date, and to the following additional conditions:
(a) The Registration Statement shall become effective not later than
5:30 P.M., New York Time, on the date hereof or, with the consent of the
Representative, at a later time and date, not later, however, than 5:30 P.M. on
the first business day following the date hereof, or at such later date as may
be approved by a majority in interest of the Underwriters, and at such Closing
Date (i) no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Trust, the Adviser or the Representative, threatened by the
Commission, and any request for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the reasonable satisfaction of the
Representative, and (ii) there shall not have come to the attention of the
Representative any facts that would cause it to believe that the Prospectus, at
the time it was required to be delivered to a purchaser of the Shares,
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. If the Trust
has elected to rely upon Rule 430A of the Rules and Regulations, the price of
the Shares and any price related information previously omitted from the
effective Registration Statement pursuant to Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 497(h) of the Rules
and Regulations within the prescribed time period, and before the First Closing
Date the Trust shall have provided evidence satisfactory to the Representative
of such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) At the time of execution of this Agreement, the Representative
shall have received from Price Waterhouse a letter, dated the date of such
execution, in form and substance previously approved by the Representative, and
to the effect that:
(i) They are independent public accountants with respect to the Trust
within the meaning of the 1933 Act and the 1940 Act and the Rules and
Regulations as they relate to registration statements on Form N-2.
(ii) In their opinion, the statement of assets and liabilities examined
by them and included in the Registration Statement complies as to form in all
material respects with the applicable accounting requirements of the 1933 Act,
the 1940 Act and the Rules and Regulations as they relate to registration
statements on Form N-2.
(iii) They have performed specified procedures, not constituting an
audit, including a reading of the latest available interim financial statements
of the Trust, if any, a reading of the minute books of the Trust, inquiries of
officials of the Trust responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such letter, and on
the basis of such inquiries and procedures nothing came to their attention that
11
caused them to believe that at the date of the latest available statement of
assets and liabilities read by such accountants, or at a subsequent specified
date not more than five days prior to the date of such letter, there was any
change in the capital shares or net assets of the Trust as compared with
amounts shown on the statement of assets and liabilities included in the
Prospectus.
(c) The Representative shall have received from Price Waterhouse a
letter, dated the First Closing Date, to the effect that such accountants
reaffirm, as of such First Closing Date, and as though made on such First
Closing Date, the statements made in the letter furnished by such accountants
pursuant to paragraph (b) of this Section 8, except that the specified date
will be a date not more than five days prior to the Closing Date.
(d) The Representative shall have received from Sheldon Curtis, Esq.,
General Counsel for the Trust, an opinion, dated the First Closing Date, to the
effect that:
(i) The Trust has been duly organized and is validly existing as a
business trust in good standing under the laws of The Commonwealth of
Massachusetts.
(ii) The Trust has power and authority to own, lease and operate its
properties and conduct its business as described in the Registration Statement
and the Prospectus.
(iii) The Trust is duly qualified to transact business and is in good
standing in each jurisdiction in which such qualification is required.
(iv) The Shares have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Trust pursuant to this Agreement against payment of the consideration set forth
in the Pricing Agreement, will be validly issued and fully paid and non-
assessable (except for certain possible liability of shareholders described in
the Prospectus under "Description of Shares--General"); the issuance of the
Shares is not subject to preemptive rights; and the authorized capital shares
of the Trust conform in all material respects to the description thereof in the
Registration Statement.
(v) Each of this Agreement and the Pricing Agreement has been duly
authorized, executed and delivered by the Trust and complies with all
applicable provisions of the 1940 Act.
(vi) The Registration Statement is effective under the 1933 Act and, to
the best of such counsel's knowledge and information, no stop order suspending
the effectiveness of the Registration Statement has been issued under the 1933
Act and no order suspending the Trust's registration has been issued under
Section 8(e) of the 1940 Act, or proceedings therefor initiated or threatened
by the Commission.
(vii) At the time the Registration Statement became effective and at
the Representation Date, the Registration Statement (other than the statement
of assets and liabilities included therein, as to which no opinion need be
rendered) complied as to form in all material respects with the requirements of
the 1933 Act and the 1940 Act and the Rules and Regulations; and nothing has
come to such counsel's attention that would lead him to believe that the
Registration Statement, at the time it became effective or at the
Representation Date, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus, at the
Representation Date (unless the term "Prospectus" refers to the Prospectus
which has been provided to the Underwriters by the Trust for use in connection
with the offering of the Shares which differs from the Prospectus on file at
the Commission at the time the Registration Statement becomes effective, in
which case at the time it is provided to the Underwriters for such use) or at
the First Closing Date, included an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statement
therein, in light of the circumstances under which they were made, not
misleading.
12
(viii) To the best of such counsel's knowledge and information, there
are no legal or governmental proceedings pending or threatened against the
Trust which are required to be disclosed in the Registration Statement, other
than those disclosed therein.
(ix) To the best of such counsel's knowledge and information, there are
no contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments of the Trust required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed as exhibits thereto, the descriptions
thereof or references thereto are correct, and no default exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other instrument so described, referred to or filed.
(x) No consent, approval, authorization or order of any court or
governmental authority or agency is required in connection with the sale of the
Shares to the Underwriters, except such as has been obtained under the 1933
Act, the 1940 Act or the Rules and Regulations or such as may be required under
state securities laws; and to the best of such counsel's knowledge and
information, the execution and delivery of this Agreement, the Pricing
Agreement, the Management Agreement and the Custodian Agreement and the
consummation of the transactions contemplated herein and therein will not
conflict with or constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Trust pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Trust is a party or by
which it may be bound or to which any of the property or assets of the Trust is
subject, nor will such action result in any violation of the provisions of the
Declaration of Trust, as amended, or By-Laws of the Trust, or any law,
administrative regulation or administrative or court decree.
(xi) The Management Agreement and the Custodian Agreement each has been
duly authorized and approved by the Trust and complies with all applicable
provisions of the 1940 Act, and each of said agreements has been duly executed
and delivered by the Trust.
(xii) The Trust is registered with the Commission under the 1940 Act as
a closed-end diversified management investment company, and all required action
has been taken by the Trust under the 1933 Act, the 1940 Act and the Rules and
Regulations to make the public offering and consummate the sale of the Shares
pursuant to this Agreement; the provisions of the Declaration of Trust, as
amended, and By-Laws of the Trust comply as to form in all material respects
with the requirements of the 1940 Act.
(xiii) The information in the Prospectus under the caption "Taxation",
to the extent that it constitutes matters of law or legal conclusions, has been
reviewed by such counsel and is correct.
(e) The representative shall have received from Sheldon Curtis, Esq.,
General Counsel for the Adviser, an opinion dated the First Closing Date to the
effect that:
(i) The Adviser has been duly organized as a corporation under the laws
of the State of Delaware with corporate power and authority to conduct its
business as described in the Prospectus.
(ii) The Adviser is duly registered as an investment adviser under the
Advisers Act and is not prohibited by the Advisers Act or the 1940 Act, or the
rules and regulations under such Acts, from acting under the Management
Agreement for the Trust as contemplated by the Prospectus.
(iii) This Agreement and the Management Agreement each has been duly
authorized, executed and delivered by the Adviser, and the Management Agreement
constitutes a valid and binding obligation of the Adviser, enforceable in
accordance with its terms, subject, as
13
to enforcement, to bankruptcy, insolvency, reorganization or other laws
relating to or affecting creditors' rights and to general equity principles,
and, to the best of such counsel's knowledge and information, neither the
execution and delivery of this Agreement or the Management Agreement, nor the
performance by the Adviser of its obligations hereunder or thereunder, will
conflict with, or result in a breach of, any of the terms and provisions of, or
constitute, with or without giving notice or lapse of time or both, a default
under, any agreement or instrument to which the Adviser is a party or by which
the Adviser is bound, or any law, order, rule or regulation applicable to the
Adviser of any jurisdiction, court, federal or state regulatory body,
administrative agency or other governmental body, stock exchange or securities
association having jurisdiction over the Adviser or its properties or
operations.
(iv) To the best of such counsel's knowledge and information, the
description of the Adviser in the Registration Statement and the Prospectus
does not contain any untrue statement of a material fact or omit to state any
material fact required to be stated herein or necessary to make the statements
therein not misleading.
(f) The Representative shall have received from Brown & Wood, counsel
for the Underwriters, their opinion or opinions dated the First Closing Date
with respect to the organization of the Trust, the validity of the Shares,
registration under and compliance with the 1933 Act and the 1940 Act, this
Agreement and the Pricing Agreement, the Registration Statement and the
Prospectus and such other related matters as the Representative may require,
and the Trust shall have furnished to such counsel such documents as they may
request for the purpose of enabling them to pass upon such matters.
In giving their opinions, Sheldon Curtis, Esq. and Brown & Wood may rely as
to matters involving the laws of The Commonwealth of Massachusetts upon the
opinion of Lane & Altman. In giving their opinions, Sheldon Curtis, Esq. and
Brown & Wood may rely (i) as to the qualification of the Trust and the Adviser
to do business in any state or jurisdiction, upon certificates of appropriate
government officials, and (ii) as to matters of fact, upon certificates and
written statements of officers and employees of and accountants for the Trust
and the Adviser.
(g) At the First Closing Date (i) the Registration Statement and the
Prospectus shall contain all statements which are required to be stated therein
in accordance with the 1933 Act, the 1940 Act and the Rules and Regulations and
in all material respects shall conform to the requirements of the 1933 Act, the
1940 Act and the Rules and Regulations and neither the Registration Statement
nor the Prospectus shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and no action, suit or proceeding at
law or in equity shall be pending or, to the knowledge of the Trust or the
Adviser, threatened against the Trust or the Adviser which would be required to
be set forth in the Prospectus other than as set forth therein, (ii) there
shall not have been, since the respective dates as of which information is
given in the Registration Statement and the Prospectus, any material adverse
change in the condition, financial or otherwise, of the Trust or in its
earnings, business affairs or business prospects, whether or not arising in the
ordinary course of business, from that set forth in the Registration Statement
and Prospectus, (iii) the Adviser shall have the financial resources available
to it necessary for the performance of its services and obligations as
contemplated in the Registration Statement and the Prospectus, (iv) no
proceedings shall be pending or, to the knowledge of the Trust or the Adviser,
threatened against the Trust or the Adviser before or by any Federal, state or
other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, financial condition or income of either the Trust or the Adviser
other than as set forth in the Prospectus, (v) neither the Trust nor the
Adviser shall be in material default in the performance or observance of any
contract to which it is a party, (vi) no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceeding therefor shall have been instituted or
14
threatened by the Commission and (vii) no proceedings shall have been
instituted or threatened by the Commission which would adversely affect the
Trust's standing as a registered investment company under the 1940 Act or the
Adviser's standing as a registered investment adviser under the Advisers Act;
and the Representative shall have received, at such First Closing Date, a
certificate of the President or a Vice President and the chief financial or
accounting officer of the Trust and of the Adviser, dated as of such First
Closing Date, evidencing compliance with the appropriate provisions of this
subsection (g).
(h) The Representative shall have received certificates, dated the
First Closing Date (i) of the President or a Vice President and the chief
financial or accounting officer of the Trust to the effect that the
representations and warranties of the Trust contained in Section 2(a) are true
and correct with the same force and effect as though expressly made at and as
of such First Closing Date and (ii) of the Chief Executive Officer, President
or a Vice President and the chief financial or accounting officer of the
Adviser to the effect that the representations and warranties of the Adviser
contained in Sections 2(a) and (b) are true and correct with the same force and
effect as though expressly made at and as of such First Closing Date.
(i) The Trust and the Adviser shall have furnished to the
Representative such additional certificates as the Representative may have
reasonably requested as to the accuracy, at and as of the First Closing Date,
of the representations and warranties made herein by them as to compliance at
and as of the First Closing Date by them with their covenants and agreements
herein contained and other provisions hereof to be satisfied at or prior to the
First Closing Date and as to other conditions to the obligations of the
Underwriters hereunder.
(j) In the event the Underwriters exercise the option granted in
Section 3 hereof to purchase all or any portion of the Optional Shares, the
representations and warranties of the Trust and the Adviser contained herein
and the statements in any certificates furnished by the Trust and the Adviser
hereunder shall be true and correct as of the Option Closing Date, and the
Representative shall have received:
(i) A letter from Price Waterhouse, in form and substance satisfactory
to the Representative and dated the Option Closing Date, substantially the same
in scope and substance as the letter furnished to the Representative pursuant
to Section 8(b), except that the specified date in the letter furnished
pursuant to this Section 8(j) shall be a date not more than five days prior to
the Option Closing Date.
(ii) The opinion of Sheldon Curtis, Esq., General Counsel for the
Trust, in form and substance satisfactory to counsel for the Underwriters,
dated the Option Closing Date, relating to the Optional Shares and otherwise to
the same effect as the opinion required by Section 8(d).
(iii) The opinion of Sheldon Curtis, Esq., General Counsel for the
Adviser, in form and substance satisfactory to counsel for the Underwriters,
dated the Option Closing Date, to the same effect as the opinion required by
Section 8(e).
(iv) The opinion of Brown & Wood, counsel for the Underwriters, dated
the Option Closing Date, relating to the Optional Shares and otherwise to the
same effect as the opinion required by Section 8(f).
(v) A certificate, dated the Option Closing Date, of the President or a
Vice President and the chief financial or accounting officer of the Trust
confirming that the certificate or certificates delivered at the First Closing
Date pursuant to Section 8(g) and Section 8(h) remains or remain true as of the
Option Closing Date.
(vi) A certificate, dated the Option Closing Date, of the Adviser
confirming that the certificate or certificates delivered at the First Closing
Date pursuant to Section 8(g) and Section 8(h) remains or remain true as of the
Option Closing Date.
15
(vii) Such additional certificates, dated the Option Closing Date, as
the Representative may have reasonably requested pursuant to Section 8(i).
If any of the conditions hereinabove provided for in this Section shall not
have been satisfied when and as required by this Agreement, this Agreement may
be terminated by the Representative by notifying the Trust of such termination
in writing or by telegram at or prior to the First Closing Date, but the
Representative shall be entitled to waive any of such conditions.
9. Termination. This Agreement may be terminated by the Representative by
notice to the Trust if at or prior to the First Closing Date (i) trading in
securities on the New York or American Stock Exchanges shall have been
suspended or minimum or maximum prices shall have been established on either
such exchange, or a banking moratorium shall have been declared by New York or
United States authorities; (ii) there shall have been any material adverse
change in the financial markets in the United States or any outbreak or
escalation of hostilities between the United States and any foreign power, or
of any other insurrection or armed conflict involving the United States which,
in the judgment of the Representative, makes it impracticable or inadvisable to
offer or sell the Shares; (iii) there shall have been, since the date of this
Agreement or since the respective dates as of which information is given in the
Registration Statement, any material adverse change in the condition (financial
or otherwise), or in the earnings, business affairs or business prospects of
the Trust; or (iv) there shall be any litigation, pending or threatened, which,
in the judgment of the Representative, makes it impracticable or inadvisable to
offer or deliver the Shares on the terms contemplated by the Prospectus.
10. Reimbursement of Underwriters. Notwithstanding any other provisions
hereof, if this Agreement shall be terminated by the Representative under
Section 8, Section 9 or Section 12, the Trust and the Adviser will bear and pay
the expenses specified in Section 5 hereof and, in addition to their
obligations pursuant to Section 6, hereof, except when the Representative
terminates this Agreement pursuant to clause (i) or (ii) of Section 9, the
Trust and the Adviser will reimburse the reasonable out-of-pocket expenses of
the several Underwriters (including reasonable fees and disbursements of
counsel for the Underwriters) incurred in connection with this Agreement and
the proposed purchase of the Shares, and promptly upon demand the Trust and the
Adviser will pay such amounts to you as Representative. In addition, the
provisions of Section 6 shall survive any such termination.
11. Default By Underwriters. If any Underwriter or Underwriters shall default
in its or their obligations to purchase Firm Shares hereunder on the First
Closing Date and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10%
of the total number of Shares which the Underwriters are obligated to purchase
at the First Closing Date, the other Underwriters shall be obligated severally,
in proportion to their respective commitments hereunder, to purchase the Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase. If any Underwriter or Underwriters shall so default and the aggregate
number of Firm Shares with respect to which such default or defaults occur is
more than 10% of the total number of shares underwritten and arrangements
satisfactory to the Representative and the Trust for the purchase of such
shares of Firm Shares by other persons are not made within 48 hours after such
default, this Agreement shall terminate.
If the remaining Underwriters or substituted underwriters are required hereby
or agree to take up all or part of the Firm Shares of a defaulting Underwriter
or Underwriters as provided in this Section 11, (i) the Trust shall have the
right to postpone the First Closing Date for a period of not more than five
full business days, in order that the Trust may effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or
in any other documents or arrangements, and the Trust agrees promptly to file
any amendments to the Registration Statement or supplements to the Prospectus
which may thereby be made necessary, and (ii) the respective numbers of Firm
Shares to be purchased by the remaining Underwriters or substituted
underwriters shall be taken as the basis of their underwriting obligation for
all purposes of this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of its liability to the Trust or the Underwriters for
16
damages occasioned by its default hereunder. Any termination of this Agreement
pursuant to this Section 11 shall be without liability on the part of any non-
defaulting Underwriter or the Trust, except for expenses to be paid or
reimbursed pursuant to Section 5 and except for the provisions of Section 6.
12. Default By the Trust. If the Trust shall fail at the First Closing Date
to sell and deliver the number of Shares which it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the
part of any non-defaulting party, other than obligations under Section 10
hereof. No action taken pursuant to this Section 12 shall relieve the Trust
from liability, if any, in respect of such default.
13. Notices. All communications hereunder shall be in writing and, if sent to
the Underwriters shall be mailed, delivered or telegraphed and confirmed to
you, as their Representative, at Two World Trade Center, 64th Floor, New York,
New York 10048, except that notices given to an Underwriter pursuant to Section
6 hereof shall be sent to such Underwriter at the address furnished by the
Representative or if sent to the Trust or the Adviser shall be mailed,
delivered or telegraphed and confirmed at Two World Trade Center, New York, New
York 10048, attention: Sheldon Curtis, Esq., General Counsel.
14. Successors. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Trust, the Adviser and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right,
remedy or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Trust and the Adviser
contained in this Agreement shall also be for the benefit of the person or
persons, if any, who control any Underwriter or Underwriters within the meaning
of Section 15 of the Act, and the indemnities of the several Underwriters shall
also be for the benefit of each trustee or director of the Trust and the
Adviser, each of the Trust's officers who has signed the Registration Statement
and the person or persons, if any, who control the Trust and the Adviser within
the meaning of Section 15 of the 1933 Act.
15. Liability of Shareholders, Trustees and Officers. This Agreement is
executed by or on behalf of the trustees of the Trust solely in their capacity
as such trustees, and shall not constitute their personal obligation either
jointly or severally in their individual capacities. No trustee, officer or
shareholder of the Trust shall be liable for any obligations of the Trust under
this instrument and the Trust shall be solely liable therefor; all parties
hereto shall look solely to the Trust for the payment of any claim, or the
performance of any obligation, hereunder.
16. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in said state. Specified times of day refer to New York
City time.
17
17. Authority of the Representative. In connection with this Agreement, the
Representative will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by the Representative, as representative of
the several Underwriters, will be binding on all the Underwriters.
If the foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below for that purpose, whereupon this
letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
INTERCAPITAL INSURED MUNICIPAL SECURITIES
By: .....................
Authorized Signature
DEAN WITTER INTERCAPITAL INC.
By:.....................
Authorized Signature
Accepted and delivered,
as of the date first above written:
DEAN WITTER DISTRIBUTORS INC.
Acting on its own behalf and as
Representative of the several Underwriters
referred to in the foregoing Agreement.
By:.....................
Authorized Signature
18
SCHEDULE A
NUMBER OF
FIRM SHARES
NAME TO BE PURCHASED
- ------ ---------------
Dean Witter Distributors Inc......................
---------
Total.............................................. 7,000,000
=========
19
EXHIBIT A
INTERCAPITAL INSURED MUNICIPAL SECURITIES
7,000,000 COMMON SHARES OF BENEFICIAL INTEREST
(PAR VALUE $.01 PER SHARE)
PRICING AGREEMENT
February , 1994
DEAN WITTER DISTRIBUTORS INC.
As Representative of the several Underwriters
Two World Trade Center
New York, New York 10048
Dear Sirs:
Reference is made to the Underwriting Agreement, dated February , 1994 (the
"Underwriting Agreement"), relating to the purchase by the several Underwriters
named in Schedule A thereto, for whom Dean Witter Distributors Inc. is acting
as representative (the "Representative"), of the above Common Shares of
Beneficial Interest (the "Firm Shares") of InterCapital Quality Municipal
Securities (the "Trust") and relating to the option granted to such
Underwriters to purchase up to an additional 1,050,000 Common Shares of
Beneficial Interest of the Trust to cover over-allotments in connection with
the sale of the Firm Shares (the "Optional Shares"). The Firm Shares and all or
any part of the Optional Shares are collectively herein referred to as the
"Shares."
Pursuant to Section 3 of the Underwriting Agreement, the Trust agrees with
each Underwriter as follows:
1. The initial public offering price per share for the Shares,
determined as provided in Section 3, shall be $15.00.
2. The purchase price per share for the Shares to be paid by the
several Underwriters shall be $ , being an amount equal to the initial
public offering price set forth above less $ per share.
This Agreement is executed by or on behalf of the trustees of the Trust
solely in their capacity as such trustees, and shall not constitute their
personal obligation either jointly or severally in their individual capacities.
No trustee, officer or shareholder of the Trust shall be liable for any
obligations of the Trust under this instrument and the Trust shall be solely
liable therefor; all parties hereto shall look solely to the Trust estate for
the payment of any claim, or the performance of any obligation, hereunder.
A-1
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Trust a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Trust in accordance with its terms.
Very truly yours,
INTERCAPITAL INSURED MUNICIPAL SECURITIES
By: .....................
Authorized Signature
Accepted and delivered,
as of the date first above written:
DEAN WITTER DISTRIBUTORS INC.
Acting on its own behalf and as Representative
of the several Underwriters referred to in the
within-mentioned Underwriting Agreement.
By: .....................
Authorized Signature
A-2
CUSTODY AGREEMENT
Agreement made as of this day of ,
1993, between INTERCAPITAL INSURED MUNICIPAL SECURITIES, a
Massachusetts business trust organized and existing under the
laws of the Commonwealth of Massachusetts, having its
principal office and place of business at 2 World Trade
Center, New York, New York 10048 (hereinafter called the
"Fund"), and THE BANK OF NEW YORK, a New York corporation
authorized to do a banking business, having its principal of-
fice and place of business at 48 Wall Street, New York, New
York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises
hereinafter set forth, the Fund and the Custodian agree as
follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, shall have the following meanings:
1. "Agreement" shall mean this Custody Agreement and all
Appendices and Certifications described in the Exhibits
delivered in connection herewith.
2. "Authorized Person" shall mean any person, whether
or not such person is an Officer or employee of the Fund, duly
authorized by the Board of Trustees of the Fund to give Oral
Instructions and Written Instructions on behalf of the Fund
and listed in the Certificate annexed hereto as Appendix A or
such other Certificate as may be received by the Custodian
from time to time, provided that each person who is designated
in any such Certificate as an "Officer of DWTC" shall be an
Authorized Person only for purposes of Articles XII and XIII
hereof.
3. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and
federal agency securities, its successor or successors and its
nominee or nominees.
4. "Call Option" shall mean an exchange traded option
with respect to Securities other than Index, Futures
Contracts, and Futures Contract Options entitling the holder,
upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the
specified underlying instruments, currency, or Securities.
5. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this
Agreement to be given to the Custodian which is actually
received (irrespective of constructive receipt) by the
Custodian and signed on behalf of the Fund by any two Offic-
ers. The term Certificate shall also include instructions by
the Fund to the Custodian communicated by a Terminal Link.
6. "Clearing Member" shall mean a registered
broker-dealer which is a clearing member under the rules of
O.C.C. and a member of a national securities exchange
qualified to act as a custodian for an investment company, or
any broker-dealer reasonably believed by the Custodian to be
such a clearing member.
7. "Collateral Account" shall mean a segregated account
so denominated which is specifically allocated to a Series and
pledged to the Custodian as security for, and in consideration
of, the Custodian's issuance of any Put Option guarantee let-
ter or similar document described in paragraph 8 of Article V
herein.
8. "Covered Call Option" shall mean an exchange traded
option entitling the holder, upon timely exercise and payment
of the exercise price, as specified therein, to purchase from
the writer thereof the specified underlying instruments, cur-
rency, or Securities (excluding Futures Contracts) which are
owned by the writer thereof.
9. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and
Exchange Commission, its successor or successors and its
nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, specifically identi-
fied in a certified copy of a resolution of the Fund's Board
of Trustees specifically approving deposits therein by the
Custodian.
10. "Financial Futures Contract" shall mean the firm
commitment to buy or sell financial instruments on a U.S. com-
modities exchange or board of trade at a specified future time
at an agreed upon price.
11. "Futures Contract" shall mean a Financial Futures
Contract and/or Index Futures Contracts.
- 2 -
12. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
13. "Investment Company Act of 1940" shall mean the
Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
14. "Index Futures Contract" shall mean a bilateral
agreement pursuant to which the parties agree to take or make
delivery of an amount of cash equal to a specified dollar
amount times the difference between the value of a particular
index at the close of the last business day of the contract
and the price at which the futures contract is originally
struck.
15. "Index Option" shall mean an exchange traded option
entitling the holder, upon timely exercise, to receive an
amount of cash determined by reference to the difference
between the exercise price and the value of the index on the
date of exercise.
16. "Margin Account" shall mean a segregated account in
the name of a broker, dealer, futures commission merchant, or
a Clearing Member, or in the name of the Fund for the benefit
of a broker, dealer, futures commission merchant, or Clearing
Member, or otherwise, in accordance with an agreement between
the Fund, the Custodian and a broker, dealer, futures commis-
sion merchant or a Clearing Member (a "Margin Account Agree-
ment"), separate and distinct from the custody account, in
which certain Securities and/or money of the Fund shall be
deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time
determine. Securities held in the Book-Entry System or a
Depository shall be deemed to have been deposited in, or
withdrawn from, a Margin Account upon the Custodian's effect-
ing an appropriate entry in its books and records.
17. "Money Market Security" shall mean all instruments
and obligations commonly known as a money market instruments,
where the purchase and sale of such securities normally
requires settlement in federal funds on the same day as such
purchase or sale, including, without limitation, certain
Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and/or principal by the government
of the United States or agencies or instrumentalities thereof,
any tax, bond or revenue anticipation note issued by any state
or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase
agreements with respect to Securities and bank time deposits.
18. "O.C.C." shall mean the Options Clearing Corpora-
tion, a clearing agency registered under Section 17A of the
- 3 -
Securities Exchange Act of 1934, its successor or successors,
and its nominee or nominees.
19. "Officers" shall mean the President, any Vice
President, the Secretary, the Clerk, the Treasurer, the
Controller, any Assistant Secretary, any Assistant Clerk, any
Assistant Treasurer, and any other person or persons, whether
or not any such other person is an officer or employee of the
Fund, but in each case only if duly authorized by the Board of
Trustees of the Fund to execute any Certificate, instruction,
notice or other instrument on behalf of the Fund and listed in
the Certificate annexed hereto as Appendix B or such other
Certificate as may be received by the Custodian from time to
time; provided that each person who is designated in any such
Certificate as holding the position of "Officer of DWTC" shall
be an Officer only for purposes of Articles XII and XIII
hereof.
20. "Option" shall mean a Call Option, Covered Call Op-
tion, Index Option and/or a Put Option.
21. "Oral Instructions" shall mean verbal instructions
actually received (irrespective of constructive receipt) by
the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized
Person.
22. "Put Option" shall mean an exchange traded option
with respect to instruments, currency, or Securities other
than Index Options, Futures Contracts, and Futures Contract
Options entitling the holder, upon timely exercise and tender
of the specified underlying instruments, currency, or Securi-
ties, to sell such instruments, currency, or Securities to the
writer thereof for the exercise price.
23. "Reverse Repurchase Agreement" shall mean an agree-
ment pursuant to which the Fund sells Securities and agrees to
repurchase such Securities at a described or specified date
and price.
24. "Security" shall be deemed to include, without
limitation, Money Market Securities, Call Options, Put Op-
tions, Index Options, Index Futures Contracts, Index Futures
Contract Options, Financial Futures Contracts, Financial
Futures Contract Options, Reverse Repurchase Agreements, over
the counter options on Securities, common stocks and other
securities having characteristics similar to common stocks,
preferred stocks, debt obligations issued by state or
municipal governments and by public authorities, (including,
without limitation, general obligation bonds, revenue bonds,
industrial bonds and industrial development bonds), bonds,
debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments
representing rights to receive, purchase, sell or subscribe
- 4 -
for the same, or evidencing or representing any other rights
or interest therein, or rights to any property or assets.
25. "Senior Security Account" shall mean an account
maintained and specifically allocated to a Series under the
terms of this Agreement as a segregated account, by recorda-
tion or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund specifically al-
located to such Series shall be deposited and withdrawn from
time to time in accordance with Certificates received by the
Custodian in connection with such transactions as the Fund may
from time to time determine.
26. "Series" shall mean the various portfolios, if any,
of the Fund as described from time to time in the current and
effective prospectus for the Fund, except that if the Fund
does not have more than one portfolio, "Series" shall mean the
Fund or be ignored where a requirement would be imposed on the
Fund or the Custodian which is unnecessary if there is only
one portfolio.
27. "Shares" shall mean the shares of beneficial inter-
est of the Fund and its Series.
28. "Terminal Link" shall mean an electronic data
transmission link between the Fund and the Custodian requiring
in connection with each use of the Terminal Link the use of an
authorization code provided by the Custodian and at least two
access codes established by the Fund, provided, that the Fund
shall have delivered to the Custodian a Certificate
substantially in the form of Appendix C.
29. "Transfer Agent" shall mean Dean Witter Trust
Company, a New Jersey limited purpose trust company, its suc-
cessors and assigns.
30. "Transfer Agent Account" shall mean any account in
the name of the Transfer Agent maintained with The Bank of New
York pursuant to a Cash Management and Related Services Agree-
ment between The Bank of New York and the Transfer Agent.
31. "Written Instructions" shall mean written communica-
tions actually received (irrespective of constructive receipt)
by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized
Person by telex or any other such system whereby the receiver
of such communications is able to verify by codes or otherwise
with a reasonable degree of certainty the identity of the
sender of such communication.
- 5 -
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the
Custodian as custodian of the Securities and moneys at any
time owned by the Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as
hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to
be delivered to the Custodian all Securities and all moneys
owned by it, at any time during the period of this Agreement,
and shall specify with respect to such Securities and money
the Series to which the same are specifically allocated, and
the Custodian shall not be responsible for any Securities or
money not so delivered. The Custodian shall physically
segregate, keep and maintain the Securities of the Series
separate and apart from each other Series and from other as-
sets held by the Custodian. Except as otherwise expressly
provided in this Agreement, the Custodian will not be
responsible for any Securities and moneys not actually
received by it, unless the Custodian has been negligent or has
engaged in willful misconduct with respect thereto. The
Custodian will be entitled to reverse any credits of money
made on the Fund's behalf where such credits have been previ-
ously made and moneys are not finally collected, unless the
Custodian has been negligent or has engaged in willful
misconduct with respect thereto. The Fund shall deliver to the
Custodian a certified resolution of the Board of Trustees of
the Fund, substantially in the form of Exhibit A hereto, ap-
proving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry
System all Securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated and
to utilize the Book-Entry System to the extent possible in
connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and
sales of Securities, loans of Securities and deliveries and
returns of Securities collateral. Prior to a deposit of
Securities specifically allocated to a Series in any
Depository, the Fund shall deliver to the Custodian a certi-
fied resolution of the Board of Trustees of the Fund,
substantially in the form of Exhibit B hereto, approving,
- 6 -
authorizing and instructing the Custodian on a continuous and
ongoing basis until instructed to the contrary by a
Certificate to deposit in such Depository all Securities
specifically allocated to such Series eligible for deposit
therein, and to utilize such Depository to the extent possible
with respect to such Securities in connection with its
performance hereunder, including, without limitation, in con-
nection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of Securities
collateral. Securities and moneys deposited in either the
Book-Entry System or a Depository will be represented in ac-
counts which include only assets held by the Custodian for
customers, including, but not limited to, accounts in which
the Custodian acts in a fiduciary or representative capacity
and will be specifically allocated on the Custodian's books to
the separate account for the applicable Series. Prior to the
Custodian's accepting, utilizing and acting with respect to
Clearing Member confirmations for Options and transactions in
Options for a Series as provided in this Agreement, the
Custodian shall have received a certified resolution of the
Fund's Board of Trustees, substantially in the form of Exhibit
C hereto, approving, authorizing and instructing the Custodian
on a continuous and on-going basis, until instructed to the
contrary by a Certificate, to accept, utilize and act in ac-
cordance with such confirmations as provided in this Agreement
with respect to such Series. All securities are to be held or
disposed of by the Custodian for, and subject at all times to
the instructions of, the Fund pursuant to the terms of this
Agreement. The Custodian shall have no power or authority to
assign, hypothecate, pledge or otherwise dispose of any
Securities except as provided by the terms of this Agreement,
and shall have the sole power to release and deliver Securi-
ties held pursuant to this Agreement.
2. The Custodian shall establish and maintain separate
accounts, in the name of each Series, and shall credit to the
separate account for each Series all moneys received by it for
the account of the Fund with respect to such Series. Such
moneys will be held in such manner and account as the Fund and
the Custodian shall agree upon in writing from time to time.
Money credited to a separate account for a Series shall be
subject only to drafts, orders, or charges of the Custodian
pursuant to this Agreement and shall be disbursed by the
Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Resolutions of the Fund's Board of
Trustees certified by an Officer and by the Secretary or As-
sistant Secretary of the Fund setting forth the name and ad-
dress of the person to whom the payment is to be made, the
Series account from which payment is to be made, the purpose
for which payment is to be made, and declaring such purpose to
be a proper corporate purpose; provided, however, that amounts
- 7 -
representing dividends or distributions with respect to
Shares shall be paid only to the Transfer Agent Account;
(c) In payment of the fees and in reimbursement of
the expenses and liabilities of the Custodian attributable to
such Series and authorized by this Agreement; or
(d) Pursuant to Certificates to pay interest,
taxes, management fees or operating expenses (including,
without limitation thereto, Board of Trustees' fees and
expenses, and fees for legal accounting and auditing
services), which Certificates set forth the name and address
of the person to whom payment is to be made, state the purpose
of such payment and designate the Series for whose account the
payment is to be made.
3. Promptly after the close of business on each day,
the Custodian shall furnish the Fund with confirmations and a
summary, on a per Series basis, of all transfers to or from
the account of the Fund for a Series, either hereunder or with
any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are
transferred to the account of the Fund for a Series but held
in a Depository, the Custodian shall upon such transfer also
by book-entry or otherwise identify such Securities as
belonging to such Series in a fungible bulk of Securities
registered in the name of the Custodian (or its nominee) or
shown on the Custodian's account on the books of the
Book-Entry System or the Depository. At least monthly and
from time to time, the Custodian shall furnish the Fund with a
detailed statement, on a per Series basis, of the Securities
and moneys held under this Agreement for the Fund.
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the
Custodian hereunder, which are issued or issuable only in
bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that
form; all other Securities held hereunder may be registered in
the name of the Fund, in the name of any duly appointed
registered nominee of the Custodian as the Custodian may from
time to time determine, or in the name of the Book-Entry
System or a Depository or their successor or successors, or
their nominee or nominees. The Fund agrees to furnish to the
Custodian appropriate instruments to enable the Custodian to
hold or deliver in proper form for transfer, or to register in
the name of its registered nominee or in the name of the
Book-Entry System or a Depository any Securities which it may
hold hereunder and which may from time to time be registered
in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not
held in the Book-Entry System or in a Depository in a separate
account in the name of such Series physically segregated at
all times from those of any other person or persons.
- 8 -
5. Except as otherwise provided in this Agreement and
unless otherwise instructed to the contrary by a Certificate,
the Custodian by itself, or through the use of the Book-Entry
System or a Depository with respect to Securities held
hereunder and therein deposited, shall with respect to all
Securities held for the Fund hereunder in accordance with
preceding paragraph 4:
(a) Promptly collect all income and dividends due
or payable;
(b) Promptly give notice to the Fund and promptly
present for payment and collect the amount of money or other
consideration payable upon such Securities which are called,
but only if either (i) the Custodian receives a written notice
of such call, or (ii) notice of such call appears in one or
more of the publications listed in Appendix D annexed hereto,
which may be amended at any time by the Custodian without the
prior consent of the Fund, provided the Custodian gives prior
notice of such amendment to the Fund;
(c) Promptly present for payment and collect for
the Fund's account the amount payable upon all Securities
which mature;
(d) Promptly surrender Securities in temporary form
in exchange for definitive Securities;
(e) Promptly execute, as custodian, any necessary
declarations or certificates of ownership under the Federal
Income Tax Laws or the laws or regulations of any other taxing
authority now or hereafter in effect;
(f) Hold directly, or through the Book-Entry System
or the Depository with respect to Securities therein
deposited, for the account of a Series, all rights and similar
securities issued with respect to any Securities held by the
Custodian for such Series hereunder; and
(g) Promptly deliver to the Fund all notices, prox-
ies, proxy soliciting materials, consents and other written
information (including, without limitation, notices of tender
offers and exchange offers, pendency of calls, maturities of
Securities and expiration of rights) relating to Securities
held pursuant to this Agreement which are actually received by
the Custodian, such proxies and other similar materials to be
executed by the registered holder (if Securities are
registered otherwise than in the name of the Fund), but
without indicating the manner in which proxies or consents are
to be voted.
- 9 -
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry
System or the Depository, shall:
(a) Promptly execute and deliver to such persons as
may be designated in such Certificate proxies, consents,
authorizations, and any other instruments whereby the author-
ity of the Fund as owner of any Securities held hereunder for
the Series specified in such Certificate may be exercised;
(b) Promptly deliver any Securities held hereunder
for the Series specified in such Certificate in exchange for
other Securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the
exercise of any right, warrant or conversion privilege and
receive and hold hereunder specifically allocated to such
Series any cash or other Securities received in exchange;
(c) Promptly deliver any Securities held hereunder
for the Series specified in such Certificate to any protective
committee, reorganization committee or other person in connec-
tion with the reorganization, refinancing, merger, consolida-
tion, recapitalization or sale of assets of any corporation,
and receive and hold hereunder specifically allocated to such
Series in exchange therefor such certificates of deposit,
interim receipts or other instruments or documents as may be
issued to it to evidence such delivery or such Securities as
may be issued upon such delivery; and
(d) Promptly present for payment and collect the
amount payable upon Securities which may be called as
specified in the Certificate.
7. Notwithstanding any provision elsewhere contained
herein, the Custodian shall not be required to obtain posses-
sion of any instrument or certificate representing any Futures
Contract, any Option, or any Futures Contract Option until
after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments
or certificates are available. The Fund shall deliver to the
Custodian such a Certificate no later than the business day
preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall
comply with Section 17(f) of the Investment Company Act of
1940 in connection with the purchase, sale, settlement, clos-
ing out or writing of Futures Contracts, Options, or Futures
Contract Options by making payments or deliveries specified in
Certificates in connection with any such purchase, sale,
writing, settlement or closing out upon its receipt from a
broker, dealer, or futures commission merchant of a statement
or confirmation reasonably believed by the Custodian to be in
the form customarily used by brokers, dealers, or future
- 10 -
commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be,
confirming that such Security is held by such broker, dealer
or futures commission merchant, in book-entry form or
otherwise, in the name of the Custodian (or any nominee of the
Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from
the Margin Account and payments with respect to Securities to
which a Margin Account relates, shall be made in accordance
with the terms and conditions of the Margin Account
Agreement. Whenever any such instruments or certificates are
available, the Custodian shall, notwithstanding any provision
in this Agreement to the contrary, make payment for any
Futures Contract, Option, or Futures Contract Option for which
such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or
such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such
certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or
certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the
provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each execution of a purchase of
Securities by the Fund, other than a purchase of an Option, a
Futures Contract, or a Futures Contract Option, the Fund shall
deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each purchase of Money
Market Securities, a Certificate, Oral Instructions or Writ-
ten Instructions, specifying with respect to each such
purchase: (a) the Series to which such Securities are to be
specifically allocated; (b) the name of the issuer and the
title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d)
the date of purchase and settlement; (e) the purchase price
per unit; (f) the total amount payable upon such purchase; (g)
the name of the person from whom or the broker through whom
the purchase was made, and the name of the clearing broker, if
any; and (h) the name of the broker to whom payment is to be
made. The Custodian shall, upon receipt of such Securities
purchased by or for the Fund, pay to the broker specified in
- 11 -
the Certificate out of the moneys held for the account of such
Series the total amount payable upon such purchase, provided
that the same conforms to the total amount payable as set
forth in such Certificate, Oral Instructions or Written
Instructions.
2. Promptly after each execution of a sale of Securi-
ties by the Fund, other than a sale of any Option, Futures
Contract, Futures Contract Option, or any Reverse Repurchase
Agreement, the Fund shall deliver such to the Custodian (i)
with respect to each sale of Securities which are not Money
Market Securities, a Certificate, and (ii) with respect to
each sale of Money Market Securities, a Certificate, Oral
Instructions or Written Instructions, specifying with respect
to each such sale: (a) the Series to which such Securities
were specifically allocated; (b) the name of the issuer and
the title of the Security; (c) the number of shares or
principal amount sold, and accrued interest, if any; (d) the
date of sale and settlement; (e) the sale price per unit; (f)
the total amount payable to the Fund upon such sale; (g) the
name of the broker through whom or the person to whom the sale
was made, and the name of the clearing broker, if any; and (h)
the name of the broker to whom the Securities are to be
delivered. On the settlement date, the Custodian shall
deliver the Securities specifically allocated to such Series
to the broker in accordance with generally accepted street
practices and as specified in the Certificate upon receipt of
the total amount payable to the Fund upon such sale, provided
that the same conforms to the total amount payable as set
forth in such Certificate, Oral Instructions or Written
Instructions.
ARTICLE V
OPTIONS
1. Promptly after each execution of a purchase of any
Option by the Fund other than a closing purchase transaction
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to each Option purchased: (a) the Series to
which such Option is specifically allocated; (b) the type of
Option (put or call); (c) the instrument, currency, or
Security underlying such Option and the number of Options, or
the name of the in the case of an Index Option, the index to
which such Option relates and the number of Index Options
purchased; (d) the expiration date; (e) the exercise price;
(f) the dates of purchase and settlement; (g) the total amount
payable by the Fund in connection with such purchase; and (h)
the name of the Clearing Member through whom such Option was
purchased. The Custodian shall pay, upon receipt of a Clear-
ing Member's statement confirming the purchase of such Option
held by such Clearing Member for the account of the Custodian
(or any duly appointed and registered nominee of the
- 12 -
Custodian) as custodian for the Fund, out of moneys held for
the account of the Series to which such Option is to be
specifically allocated, the total amount payable upon such
purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount pay-
able as set forth in such Certificate.
2. Promptly after the execution of a sale of any Option
purchased by the Fund, other than a closing sale transaction,
pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to each such
sale: (a) the Series to which such Option was specifically
allocated; (b) the type of Option (put or call); (c) the
instrument, currency, or Security underlying such Option and
the number of Options, or the name of the issuer and the title
and number of shares subject to such Option or, in the case of
a Index Option, the index to which such Option relates and the
number of Index Options sold; (d) the date of sale; (e) the
sale price; (f) the date of settlement; (g) the total amount
payable to the Fund upon such sale; and (h) the name of the
Clearing Member through whom the sale was made. The Custodian
shall consent to the delivery of the Option sold by the Clear-
ing Member which previously supplied the confirmation
described in preceding paragraph 1 of this Article with
respect to such Option against payment to the Custodian of the
total amount payable to the Fund, provided that the same
conforms to the total amount payable as set forth in such
Certificate.
3. Promptly after the exercise by the Fund of any Call
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to such Call Option: (a) the Series to which
such Call Option was specifically allocated; (b) the name of
the issuer and the title and number of shares subject to the
Call Option; (c) the expiration date; (d) the date of exercise
and settlement; (e) the exercise price per share; (f) the
total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call
Option was exercised. The Custodian shall, upon receipt of
the Securities underlying the Call Option which was exercised,
pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total
amount payable to the Clearing Member through whom the Call
Option was exercised, provided that the same conforms to the
total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to such Put Option: (a) the Series to which
such Put Option was specifically allocated; (b) the name of
the issuer and the title and number of shares subject to the
Put Option; (c) the expiration date; (d) the date of exercise
- 13 -
and settlement; (e) the exercise price per share; (f) the
total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Op-
tion was exercised. The Custodian shall, upon receipt of the
amount payable upon the exercise of the Put Option, deliver or
direct a Depository to deliver the Securities specifically
allocated to such Series, provided the same conforms to the
amount payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Index
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver to the Custodian a Certificate specify-
ing with respect to such Index Option: (a) the Series to which
such Index Option was specifically allocated; (b) the type of
Index Option (put or call); (c) the number of Options being
exercised; (d) the index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the total amount
to be received by the Fund in connection with such exercise;
and (h) the Clearing Member from whom such payment is to be
received.
6. Whenever the Fund writes a Covered Call Option, the
Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Covered Call Option: (a) the
Series for which such Covered Call Option was written; (b) the
name of the issuer and the title and number of shares for
which the Covered Call Option was written and which underlie
the same; (c) the expiration date; (d) the exercise price; (e)
the premium to be received by the Fund; (f) the date such
Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received.
The Custodian shall deliver or cause to be delivered, in
exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs
prevailing among Clearing Members dealing in Covered Call Op-
tions and shall impose, or direct a Depository to impose, upon
the underlying Securities specified in the Certificate
specifically allocated to such Series such restrictions as may
be required by such receipts. Notwithstanding the foregoing,
the Custodian has the right, upon prior written notification
to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not
deposited with a Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate instructing the Custodian to deliver, or to direct
the Depository to deliver, the Securities subject to such
Covered Call Option and specifying: (a) the Series for which
such Covered Call Option was written; (b) the name of the is-
suer and the title and number of shares subject to the Covered
Call Option; (c) the Clearing Member to whom the underlying
- 14 -
Securities are to be delivered; and (d) the total amount pay-
able to the Fund upon such delivery. Upon the return and/or
cancellation of any receipts delivered pursuant to paragraph 6
of this Article, the Custodian shall deliver, or direct a
Depository to deliver, the underlying Securities as specified
in the Certificate against payment of the amount to be
received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing with respect to such Put Option: (a) the Series for which
such Put Option was written; (b) the name of the issuer and
the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Put Option is written; (g) the name of
the Clearing Member through whom the premium is to be received
and to whom a Put Option guarantee letter is to be delivered;
(h) the amount of cash, and/or the amount and kind of Securi-
ties, if any, specifically allocated to such Series to be
deposited in the Senior Security Account for such Series; and
(i) the amount of cash and/or the amount and kind of Securi-
ties specifically allocated to such Series to be deposited
into the Collateral Account for such Series. The Custodian
shall, after making the deposits into the Collateral Account
specified in the Certificate, issue a Put Option guarantee
letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member
specified in the Certificate against receipt of the premium
specified in said Certificate. Notwithstanding the foregoing,
the Custodian shall be under no obligation to issue any Put
Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and
described in the preceding paragraph is exercised, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing: (a) the Series to which such Put Option was written; (b)
the name of the issuer and title and number of shares subject
to the Put Option; (c) the Clearing Member from whom the
underlying Securities are to be received; (d) the total amount
payable by the Fund upon such delivery; (e) the amount of cash
and/or the amount and kind of Securities specifically al-
located to such Series to be withdrawn from the Collateral
Account for such Series and (f) the amount of cash and/or the
amount and kind of Securities, specifically allocated to such
Series, if any, to be withdrawn from the Senior Security Ac-
count. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian
in connection with such Put Option, the Custodian shall pay
out of the moneys held for the account of the Series to which
such Put Option was specifically allocated the total amount
payable to the Clearing Member specified in the Certificate as
set forth in such Certificate, against delivery of such
- 15 -
Securities, and shall make the withdrawals specified in such
Certificate.
10. Whenever the Fund writes an Index Option, the Fund
shall promptly deliver to the Custodian a Certificate specify-
ing with respect to such Index Option: (a) the Series for
which such Index Option was written; (b) whether such Index
Option is a put or a call; (c) the number of options written;
(d) the index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the Clearing Member through
whom such Option was written; (h) the premium to be received
by the Fund; (i) the amount of cash and/or the amount and kind
of Securities, if any, specifically allocated to such Series
to be deposited in the Senior Security Account for such
Series; (j) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to
be deposited in the Collateral Account for such Series; and
(k) the amount of cash and/or the amount and kind of Securi-
ties, if any, specifically allocated to such Series to be
deposited in a Margin Account, and the name in which such ac-
count is to be or has been established. The Custodian shall,
upon receipt of the premium specified in the Certificate, make
the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such
receipts, if any, which the Custodian has specifically agreed
to issue, which are in accordance with the customs prevailing
among Clearing Members in Index Options and make the deposits
into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the
Certificate.
11. Whenever an Index Option written by the Fund and
described in the preceding paragraph of this Article is
exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to such Index Option: (a)
the Series for which such Index Option was written; (b) such
information as may be necessary to identify the Index Option
being exercised; (c) the Clearing Member through whom such
Index Option is being exercised; (d) the total amount payable
upon such exercise, and whether such amount is to be paid by
or to the Fund; (e) the amount of cash and/or amount and kind
of Securities, if any, to be withdrawn from the Margin
Account; and (f) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Senior Security
Account for such Series; and the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from
the Collateral Account for such Series. Upon the return
and/or cancellation of the receipt, if any, delivered pursuant
to the preceding paragraph of this Article, the Custodian
shall pay out of the moneys held for the account of the Series
to which such Stock Index Option was specifically allocated to
the Clearing Member specified in the Certificate the total
amount payable, if any, as specified therein.
- 16 -
12. Promptly after the execution of a purchase or sale
by the Fund of any Option identical to a previously written
Option described in paragraphs, 6, 8 or 10 of this Article in
a transaction expressly designated as a "Closing Purchase
Transaction" or a "Closing Sale Transaction", the Fund shall
promptly deliver to the Custodian a Certificate specifying
with respect to the Option being purchased: (a) that the
transaction is a Closing Purchase Transaction or a Closing
Sale Transaction; (b) the Series for which the Option was
written; (c) the instrument, currency, or Security subject to
the Option, or, in the case of an Index Option, the index to
which such Option relates and the number of Options held; (d)
the exercise price; (e) the premium to be paid by or the
amount to be paid to the Fund; (f) the expiration date; (g)
the type of Option (put or call); (h) the date of such
purchase or sale; (i) the name of the Clearing Member to whom
the premium is to be paid or from whom the amount is to be
received; and (j) the amount of cash and/or the amount and
kind of Securities, if any, to be withdrawn from the
Collateral Account, a specified Margin Account, or the Senior
Security Account for such Series. Upon the Custodian's
payment of the premium or receipt of the amount, as the case
may be, specified in the Certificate and the return and/or
cancellation of any receipt issued pursuant to paragraphs 6, 8
or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction or the
Closing Sale Transaction, the Custodian shall remove, or
direct a Depository to remove, the previously imposed
restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a
Closing Purchase Transaction with respect to any Option
purchased or written by the Fund and described in this
Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3
Article III herein, and upon the return and/or cancellation of
any receipts issued by the Custodian, shall make such
withdrawals from the Collateral Account, and the Margin Ac-
count and/or the Senior Security Account as may be specified
in a Certificate received in connection with such expiration,
exercise, or consummation.
14. Securities acquired by the Fund through the exercise
of an Option described in this Article shall be subject to
Article IV hereof.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures
Contract, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Futures Contract,
- 17 -
(or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is
being entered; (b) the category of Futures Contract (the name
of the underlying index or financial instrument); (c) the
number of identical Futures Contracts entered into; (d) the
delivery or settlement date of the Futures Contract(s); (e)
the date the Futures Contract(s) was (were) entered into and
the maturity date; (f) whether the Fund is buying (going long)
or selling (going short) such Futures Contract(s); (g) the
amount of cash and/or the amount and kind of Securities, if
any, to be deposited in the Senior Security Account for such
Series; (h) the name of the broker, dealer, or futures commis-
sion merchant through whom the Futures Contract was entered
into; and (i) the amount of fee or commission, if any, to be
paid and the name of the broker, dealer, or futures commission
merchant to whom such amount is to be paid. The Custodian
shall make the deposits, if any, to the Margin Account in ac-
cordance with the terms and conditions of the Margin Account
Agreement. The Custodian shall make payment out of the moneys
specifically allocated to such Series of the fee or commis-
sion, if any, specified in the Certificate and deposit in the
Senior Security Account for such Series the amount of cash
and/or the amount and kind of Securities specified in said
Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or
futures commission merchant with respect to an outstanding
Futures Contract shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agree-
ment.
(b) Any variation margin payment or similar payment
from a broker, dealer, or futures commission merchant to the
Fund with respect to an outstanding Futures Contract shall be
received and dealt with by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian
hereunder is retained by the Fund until delivery or settlement
is made on such Futures Contract, the Fund shall deliver to
the Custodian prior to the delivery or settlement date a
Certificate specifying: (a) the Futures Contract and the
Series to which the same relates; (b) with respect to an Index
Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract,
the Securities and/or amount of cash to be delivered or
received; (c) the broker, dealer, or futures commission
merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be
withdrawn from the Senior Security Account for such Series.
The Custodian shall make the payment or delivery specified in
the Certificate, and delete such Futures Contract from the
- 18 -
statements delivered to the Fund pursuant to paragraph 3 of
Article III herein.
4. Whenever the Fund shall enter into a Futures
Contract to offset a Futures Contract held by the Custodian
hereunder, the Fund shall deliver to the Custodian a
Certificate specifying: (a) the items of information required
in a Certificate described in paragraph 1 of this Article, and
(b) the Futures Contract being offset. The Custodian shall
make payment out of the money specifically allocated to such
Series of the fee or commission, if any, specified in the
Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3
of Article III herein, and make such withdrawals from the
Senior Security Account for such Series as may be specified in
such Certificate. The withdrawals, if any, to be made from
the Margin Account shall be made by the Custodian in ac-
cordance with the terms and conditions of the Margin Account
Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the execution of a purchase of any
Futures Contract Option by the Fund, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series to which such Option
is specifically allocated; (b) the type of Futures Contract
Option (put or call); (c) the type of Futures Contract and
such other information as may be necessary to identify the
Futures Contract underlying the Futures Contract Option
purchased; (d) the expiration date; (e) the exercise price;
(f) the dates of purchase and settlement; (g) the amount of
premium to be paid by the Fund upon such purchase; (h) the
name of the broker or futures commission merchant through whom
such option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made.
The Custodian shall pay out of the moneys specifically al-
located to such Series the total amount to be paid upon such
purchase to the broker or futures commissions merchant through
whom the purchase was made, provided that the same conforms to
the amount set forth in such Certificate.
2. Promptly after the execution of a sale of any
Futures Contract Option purchased by the Fund pursuant to
paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to each such sale: (a)
Series to which such Futures Contract Option was specifically
allocated; (b) the type of Future Contract Option (put or
call); (c) the type of Futures Contract and such other
- 19 -
information as may be necessary to identify the Futures
Contract underlying the Futures Contract Option; (d) the date
of sale; (e) the sale price; (f) the date of settlement; (g)
the total amount payable to the Fund upon such sale; and (h)
the name of the broker of futures commission merchant through
whom the sale was made. The Custodian shall consent to the
cancellation of the Futures Contract Option being closed
against payment to the Custodian of the total amount payable
to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the
Fund pursuant to paragraph 1 is exercised by the Fund, the
Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Op-
tion was specifically allocated; (b) the particular Futures
Contract Option (put or call) being exercised; (c) the type of
Futures Contract underlying the Futures Contract Option; (d)
the date of exercise; (e) the name of the broker or futures
commission merchant through whom the Futures Contract Option
is exercised; (f) the net total amount, if any, payable by the
Fund; (g) the amount, if any, to be received by the Fund; and
(h) the amount of cash and/or the amount and kind of Securi-
ties to be deposited in the Senior Security Account for such
Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments
of money, if any, and the deposits of Securities, if any, into
the Senior Security Account as specified in the Certificate.
The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option,
the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a)
the Series for which such Futures Contract Option was written;
(b) the type of Futures Contract Option (put or call); (c) the
type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the expiration date; (e) the
exercise price; (f) the premium to be received by the Fund;
(g) the name of the broker or futures commission merchant
through whom the premium is to be received; and (h) the amount
of cash and/or the amount and kind of Securities, if any, to
be deposited in the Senior Security Account for such Series.
The Custodian shall, upon receipt of the premium specified in
the Certificate, make out of the moneys and Securities
specifically allocated to such Series the deposits into the
Senior Security Account, if any, as specified in the
Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
- 20 -
5. Whenever a Futures Contract Option written by the
Fund which is a call is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the
Series to which such Futures Contract Option was specifically
allocated; (b) the particular Futures Contract Option
exercised; (c) the type of Futures Contract underlying the
Futures Contract Option; (d) the name of the broker or futures
commission merchant through whom such Futures Contract Option
was exercised; (e) the net total amount, if any, payable to
the Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise; and (g) the amount of
cash and/or the amount and kind of Securities to be deposited
in the Senior Security Account for such Series. The Custodian
shall, upon its receipt of the net total amount payable to the
Fund, if any, specified in such Certificate make the payments,
if any, and the deposits, if any, into the Senior Security
Account as specified in the Certificate. The deposits, if any,
to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
6. Whenever a Futures Contract Option which is written
by the Fund and which is a put is exercised, the Fund shall
promptly deliver to the Custodian a Certificate specifying:
(a) the Series to which such Option was specifically al-
located; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying such Futures
Contract Option; (d) the name of the broker or futures commis-
sion merchant through whom such Futures Contract Option is
exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise; and (g) the amount and
kind of Securities and/or cash to be withdrawn from or
deposited in, the Senior Security Account for such Series, if
any. The Custodian shall, upon its receipt of the net total
amount payable to the Fund, if any, specified in the
Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any,
and the deposits, if any, into the Senior Security Account as
specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
7. Promptly after the execution by the Fund of a
purchase of any Futures Contract Option identical to a previ-
ously written Futures Contract Option described in this
Article in order to liquidate its position as a writer of such
Futures Contract Option, the Fund shall deliver to the
Custodian a Certificate specifying with respect to the Futures
Contract Option being purchased: (a) the Series to which such
Option is specifically allocated; (b) that the transaction is
a closing transaction; (c) the type of Future Contract and
such other information as may be necessary to identify the
- 21 -
Futures Contract underlying the Futures Option Contract; (d)
the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the name of the broker or futures
commission merchant to whom the premium is to be paid; and (h)
the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for
such Series. The Custodian shall effect the withdrawals from
the Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall
be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures Contract Op-
tion written or purchased by the Fund and described in this
Article, the Custodian shall (a) delete such Futures Contract
Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdraw-
als from and/or in the case of an exercise such deposits into
the Senior Security Account as may be specified in a
Certificate. The deposits to and/or withdrawals from the
Margin Account, if any, shall be made by the Custodian in ac-
cordance with the terms and conditions of the Margin Account
Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this
Article shall be subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after the execution of any short sales of
Securities by any Series of the Fund, the Fund shall deliver
to the Custodian a Certificate specifying: (a) the Series for
which such short sale was made; (b) the name of the issuer and
the title of the Security; (c) the number of shares or
principal amount sold, and accrued interest or dividends, if
any; (d) the dates of the sale and settlement; (e) the sale
price per unit; (f) the total amount credited to the Fund upon
such sale, if any, (g) the amount of cash and/or the amount
and kind of Securities, if any, which are to be deposited in a
Margin Account and the name in which such Margin Account has
been or is to be established; (h) the amount of cash and/or
the amount and kind of Securities, if any, to be deposited in
a Senior Security Account, and (i) the name of the broker
through whom such short sale was made. The Custodian shall
upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon
such sale, if any, as specified in the Certificate is held by
- 22 -
such broker for the account of the Custodian (or any nominee
of the Custodian) as custodian of the Fund, issue a receipt or
make the deposits into the Margin Account and the Senior
Security Account specified in the Certificate.
2. Promptly after the execution of a purchase to
close-out any short sale of Securities, the Fund shall
promptly deliver to the Custodian a Certificate specifying
with respect to each such closing out: (a) the Series for
which such transaction is being made; (b) the name of the is-
suer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if
any, required to effect such closing-out to be delivered to
the broker; (d) the dates of closing-out and settlement; (e)
the purchase price per unit; (f) the net total amount payable
to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of
cash and the amount and kind of Securities to be withdrawn, if
any, from the Margin Account; (i) the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account; and (j) the name of the
broker through whom the Fund is effecting such closing-out.
The Custodian shall, upon receipt of the net total amount pay-
able to the Fund upon such closing-out, and the return and/ or
cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of
the moneys held for the account of the Fund to the broker the
net total amount payable to the broker, and make the withdraw-
als from the Margin Account and the Senior Security Account,
as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the
Custodian hereunder, the Fund shall deliver to the Custodian a
Certificate, or in the event such Reverse Repurchase Agreement
is a Money Market Security, a Certificate, Oral Instructions,
or Written Instructions specifying: (a) the Series for which
the Reverse Repurchase Agreement is entered; (b) the total
amount payable to the Fund in connection with such Reverse
Repurchase Agreement and specifically allocated to such
Series; (c) the broker, dealer, or financial institution with
whom the Reverse Repurchase Agreement is entered; (d) the
amount and kind of Securities to be delivered by the Fund to
such broker, dealer, or financial institution; (e) the date of
such Reverse Repurchase Agreement; and (f) the amount of cash
and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Senior Security
Account for such Series in connection with such Reverse
Repurchase Agreement. The Custodian shall, upon receipt of
- 23 -
the total amount payable to the Fund specified in the
Certificate, Oral Instructions, or Written Instructions make
the delivery to the broker, dealer, or financial institution
and the deposits, if any, to the Senior Security Account,
specified in such Certificate, Oral Instructions, or Written
Instructions.
2. Upon the termination of a Reverse Repurchase Agree-
ment described in preceding paragraph 1 of this Article, the
Fund shall promptly deliver a Certificate or, in the event
such Reverse Repurchase Agreement is a Money Market Security,
a Certificate, Oral Instructions, or Written Instructions to
the Custodian specifying: (a) the Reverse Repurchase Agreement
being terminated and the Series for which same was entered;
(b) the total amount payable by the Fund in connection with
such termination; (c) the amount and kind of Securities to be
received by the Fund and specifically allocated to such Series
in connection with such termination; (d) the date of termina-
tion; (e) the name of the broker, dealer, or financial
institution with whom the Reverse Repurchase Agreement is to
be terminated; and (f) the amount of cash and/or the amount
and kind of Securities to be withdrawn from the Senior Securi-
ties Account for such Series. The Custodian shall, upon
receipt of the amount and kind of Securities to be received by
the Fund specified in the Certificate, Oral Instructions, or
Written Instructions, make the payment to the broker, dealer,
or financial institution and the withdrawals, if any, from the
Senior Security Account, specified in such Certificate, Oral
Instructions, or Written Instructions.
3. The Certificates, Oral Instructions, or Written
Instructions described in paragraphs 1 and 2 of this Article
may with respect to any particular Reverse Repurchase Agree-
ment be combined and delivered to the Custodian at the time of
entering into such Reverse Repurchase Agreement.
ARTICLE X
LOANS OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities
specifically allocated to a Series held by the Custodian
hereunder, the Fund shall deliver or cause to be delivered to
the Custodian a Certificate specifying with respect to each
such loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the
title of the Securities, (c) the number of shares or the
principal amount loaned, (d) the date of loan and delivery,
(e) the total amount to be delivered to the Custodian against
the loan of the Securities, including the amount of cash col-
lateral and the premium, if any, separately identified, and
(f) the name of the broker, dealer, or financial institution
- 24 -
to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial
institution to which the loan was made upon receipt of the
total amount designated in the Certificate as to be delivered
against the loan of Securities. The Custodian may accept pay-
ment in connection with a delivery otherwise than through the
Book-Entry System or a Depository only in the form of a certi-
fied or bank cashier's check payable to the order of the Fund
or the Custodian drawn on New York Clearing House funds.
2. In connection with each termination of a loan of
Securities by the Fund, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with
respect to each such loan termination and return of Securi-
ties: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the
title of the Securities to be returned, (c) the number of
shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the
Custodian (including the cash collateral for such Securities
minus any offsetting credits as described in said
Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be
returned. The Custodian shall receive all Securities returned
from the broker, dealer, or financial institution to which
such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the
total amount payable upon such return of Securities as set
forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall establish a Senior Security Ac-
count and from time to time make such deposits thereto, or
withdrawals therefrom, as specified in a Certificate. Such
Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such
Series to be deposited in, or withdrawn from, such Senior
Security Account for such Series. In the event that the Fund
fails to specify in a Certificate the Series, the name of the
issuer, the title and the number of shares or the principal
amount of any particular Securities to be deposited by the
Custodian into, or withdrawn from, a Senior Securities Ac-
count, the Custodian shall be under no obligation to make any
such deposit or withdrawal and shall promptly notify the Fund
that no such deposit has been made.
- 25 -
2. The Custodian shall make deliveries or payments from
a Margin Account to the broker, dealer, futures commission
merchant or Clearing Member in whose name, or for whose
benefit, the account was established as specified in the
Margin Account Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any
Margin Account shall be dealt with in accordance with the
terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and
security interest in and to any property at any time held by
the Custodian in any Collateral Account described herein. In
accordance with applicable law the Custodian may enforce its
lien and realize on any such property whenever the Custodian
has made payment or delivery pursuant to any Put Option
guarantee letter or similar document or any receipt issued
hereunder by the Custodian. In the event the Custodian should
realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee
letter or similar document or any receipt, such deficiency
shall be a debt owed the Custodian by the Fund within the
scope of Article XIV herein.
5. On each business day the Custodian shall furnish the
Fund with a statement with respect to each Margin Account in
which money or Securities are held specifying as of the close
of business on the previous business day: (a) the name of the
Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker,
dealer, or futures commission merchant specified in the name
of a Margin Account a copy of the statement furnished the Fund
with respect to such Margin Account.
6. The Custodian shall establish a Collateral Account
and from time to time shall make such deposits thereto as may
be specified in a Certificate. Promptly after the close of
business on each business day in which cash and/or Securities
are maintained in a Collateral Account for any Series, the
Custodian shall furnish the Fund with a statement with respect
to such Collateral Account specifying the amount of cash
and/or the amount and kind of Securities held therein. No
later than the close of business next succeeding the delivery
to the Fund of such statement, the Fund shall furnish to the
Custodian a Certificate or Written Instructions specifying the
then market value of the Securities described in such state-
ment. In the event such then market value is indicated to be
less than the Custodian's obligation with respect to any
outstanding Put Option guarantee letter or similar document,
- 26 -
the Fund shall promptly specify in a Certificate the ad-
ditional cash and/or Securities to be deposited in such Col-
lateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of
the resolution of the Board of Trustees of the Fund, certified
by the Secretary, the Clerk, any Assistant Secretary or any
Assistant Clerk, either (i) setting forth with respect to the
Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall
be determined, the amount payable per Share of such Series to
the shareholders of record as of that date and the total
amount payable to the Dividend Agent and any sub-dividend
agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein
and the declaration of dividends and distributions thereon
the Custodian to rely on Oral Instructions, Written Instruc-
tions, or a Certificate setting forth the date of the declara-
tion of such dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per Share of
such Series to the shareholders of record as of that date and
the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution,
Oral Instructions, Written Instructions, or Certificate, as
the case may be, the Custodian shall pay to the Transfer Agent
Account out of the moneys held for the account of the Series
specified therein the total amount payable to the Dividend
Agent and any sub-dividend agent or co-dividend agent of the
Fund with respect to such Series.
ARTICLE XIII
SALE OF SHARES
1. Whenever the Fund shall sell any Shares, it shall
deliver or cause to be delivered, to the Custodian a
Certificate duly specifying:
(a) The Series, the number of Shares sold, trade
date, and price; and
- 27 -
(b) The amount of money to be received by the
Custodian for the sale of such Shares and specifically al-
located to the separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent,
the Custodian shall credit such money to the separate account
in the name of the Series for which such money was received.
3. Upon issuance of any Shares of any Series the
Custodian shall pay, out of the money held for the account of
such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the
receipt of a Certificate specifying the amount to be paid.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion
advance funds on behalf of any Series which results in an
overdraft because the moneys held by the Custodian in the
separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities
specifically allocated to such Series, as set forth in a
Certificate, Oral Instructions, or Written Instructions or
which results in an overdraft in the separate account of such
Series for some other reason, or if the Fund is for any other
reason indebted to the Custodian with respect to a Series,
(except a borrowing for investment or for temporary or
emergency purposes using Securities as collateral pursuant to
a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness
shall be deemed to be a loan made by the Custodian to the Fund
for such Series payable on demand and shall bear interest from
the date incurred at a rate per annum (based on a 360-day year
for the actual number of days involved) equal to the Federal
Funds Rate plus 1/2%, such rate to be adjusted on the effec-
tive date of any change in such Federal Funds Rate but in no
event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien
and security interest in the aggregate amount of such
overdrafts and indebtedness as may from time to time exist in
and to any property specifically allocated to such Series at
any time held by it for the benefit of such Series or in which
the Fund may have an interest which is then in the Custodian's
possession or control or in possession or control of any third
party acting in the Custodian's behalf. The Fund authorizes
the Custodian, in its sole discretion, at any time to charge
any such overdraft or indebtedness together with interest due
thereon against any money balance of account standing to such
Series' credit on the Custodian's books. In addition, the
- 28 -
Fund hereby covenants that on each Business Day on which
either it intends to enter a Reverse Repurchase Agreement and/
or otherwise borrow from a third party, or which next succeeds
a Business Day on which at the close of business the Fund had
outstanding a Reverse Repurchase Agreement or such a borrow-
ing, it shall prior to 9 a.m., New York City time, advise the
Custodian, in writing, of each such borrowing, shall specify
the Series to which the same relates, and shall not incur any
indebtedness, including pursuant to any Reverse Repurchase
Agreement, not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian
by any bank (including, if the borrowing is pursuant to a
separate agreement, the Custodian) from which it borrows money
for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for
such borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount
of collateral. The Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such
borrowing: (a) the Series to which such borrowing relates; (b)
the name of the bank, (c) the amount and terms of the borrow-
ing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other
loan agreement, (d) the time and date, if known, on which the
loan is to be entered into, (e) the date on which the loan
becomes due and payable, (f) the total amount payable to the
Fund on the borrowing date, (g) the market value of Securities
to be delivered as collateral for such loan, including the
name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (h) a
statement specifying whether such loan is for investment
purposes or for temporary or emergency purposes and that such
loan is in conformance with the Investment Company Act of 1940
and the Fund's prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified col-
lateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may,
at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory
note or loan agreement. The Custodian shall deliver such
Securities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described
in this paragraph. The Fund shall cause all Securities
released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the
event that the Fund fails to specify in a Certificate the
Series, the name of the issuer, the title and number of shares
or the principal amount of any particular Securities to be
- 29 -
delivered as collateral by the Custodian, to any such bank,
the Custodian shall not be under any obligation to deliver any
Securities.
ARTICLE XV
CONCERNING THE CUSTODIAN
1. The Custodian shall use reasonable care in the
performance of its duties hereunder, and, except as
hereinafter provided, neither the Custodian nor its nominee
shall be liable for any loss or damage, including counsel
fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agree-
ment, except for any such loss or damage arising out of its
own negligence, bad faith, or willful misconduct or that of
its officers, employees, or agents. The Custodian may, with
respect to questions of law arising hereunder or under any
Margin Account Agreement, apply for and obtain the advice and
opinion of counsel to the Fund, at the expense of the Fund,
or of its own counsel, at its own expense, and shall be fully
protected with respect to anything done or omitted by it in
good faith in conformity with such advice or opinion. The
Custodian shall be liable to the Fund for any loss or damage
resulting from the use of the Book-Entry System or any
Depository arising by reason of any negligence or willful
misconduct on the part of the Custodian or any of its
employees or agents.
2. Notwithstanding the foregoing, the Custodian shall
be under no obligation to inquire into, and shall not be li-
able for:
(a) The validity (but not the authenticity) of the
issue of any Securities purchased, sold, or written by or for
the Fund, the legality of the purchase, sale or writing
thereof, or the propriety of the amount paid or received
therefor, as specified in a Certificate, Oral Instructions, or
Written Instructions;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid
therefor, as specified in a Certificate;
(c) The legality of the declaration or payment of
any dividend by the Fund, as specified in a resolution,
Certificate, Oral Instructions, or Written Instructions;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
- 30 -
(e) The legality of any loan of portfolio Securi-
ties, nor shall the Custodian be under any duty or obligation
to see to it that the cash collateral delivered to it by a
broker, dealer, or financial institution or held by it at any
time as a result of such loan of portfolio Securities of the
Fund is adequate collateral for the Fund against any loss it
might sustain as a result of such loan, except that this sub-
paragraph shall not excuse any liability the Custodian may
have for failing to act in accordance with Article X hereof or
any Certificate, Oral Instructions, or Written Instructions
given in accordance with this Agreement. The Custodian
specifically, but not by way of limitation, shall not be under
any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for
the Fund is sufficient collateral for the Fund, but such duty
or obligation shall be the sole responsibility of the Fund.
In addition, the Custodian shall be under no duty or obliga-
tion to see that any broker, dealer or financial institution
to which portfolio Securities of the Fund are lent pursuant to
Article X of this Agreement makes payment to it of any
dividends or interest which are payable to or for the account
of the Fund during the period of such loan or at the termina-
tion of such loan, provided, however, that the Custodian shall
promptly notify the Fund in the event that such dividends or
interest are not paid and received when due; or
(f) The sufficiency or value of any amounts of
money and/or Securities held in any Margin Account, Senior
Security Account or Collateral Account in connection with
transactions by the Fund, except that this sub-paragraph shall
not excuse any liability the Custodian may have for failing to
establish, maintain, make deposits to or withdrawals from such
accounts in accordance with this Agreement. In addition, the
Custodian shall be under no duty or obligation to see that any
broker, dealer, futures commission merchant or Clearing Member
makes payment to the Fund of any variation margin payment or
similar payment which the Fund may be entitled to receive from
such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from
any broker, dealer, futures commission merchant or Clearing
Member is the amount the Fund is entitled to receive, or to
notify the Fund of the Custodian's receipt or non-receipt of
any such payment.
3. The Custodian shall not be liable for, or considered
to be the Custodian of, any money, whether or not represented
by any check, draft, or other instrument for the payment of
money, received by it on behalf of the Fund until the
Custodian actually receives such money directly or by the
final crediting of the account representing the Fund's inter-
est at the Book-Entry System or the Depository.
4. With respect to Securities held in a Depository,
except as otherwise provided in paragraph 5(b) of Article III
- 31 -
hereof, the Custodian shall have no responsibility and shall
not be liable for ascertaining or acting upon any calls,
conversions, exchange offers, tenders, interest rate changes
or similar matters relating to such Securities, unless the
Custodian shall have actually received timely notice from the
Depository in which such Securities are held. In no event
shall the Custodian have any responsibility or liability for
the failure of a Depository to collect, or for the late col-
lection or late crediting by a Depository of any amount pay-
able upon Securities deposited in a Depository which may
mature or be redeemed, retired, called or otherwise become
payable. However, upon receipt of a Certificate from the Fund
of an overdue amount on Securities held in a Depository the
Custodian shall make a claim against the Depository on behalf
of the Fund, except that the Custodian shall not be under any
obligation to appear in, prosecute or defend any action suit
or proceeding in respect to any Securities held by a
Depository which in its opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all
expense and liability be furnished as often as may be
required, or alternatively, the Fund shall be subrogated to
the rights of the Custodian with respect to such claim against
the Depository should it so request in a Certificate. This
paragraph shall not, however, excuse any failure by the
Custodian to act in accordance with a Certificate, Oral
Instructions, or Written Instructions given in accordance with
this Agreement.
5. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount due to
the Fund from the Transfer Agent of the Fund nor to take any
action to effect payment or distribution by the Transfer Agent
of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount if the
Securities upon which such amount is payable are in default,
or if payment is refused after the Custodian has timely and
properly, in accordance with this Agreement, made due demand
or presentation, unless and until (i) it shall be directed to
take such action by a Certificate and (ii) it shall be assured
to its satisfaction of reimbursement of its costs and expenses
in connection with any such action, but the Custodian shall
have such a duty if the Securities were not in default on the
payable date and the Custodian failed to timely and properly
make such demand for payment and such failure is the reason
for the non-receipt of payment.
7. The Custodian may appoint one or more banking
institutions as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to,
banking institutions located in foreign countries, of
Securities and moneys at any time owned by the Fund, upon such
- 32 -
terms and conditions as may be approved in a Certificate or
contained in an agreement executed by the Custodian, the Fund
and the appointed institution.
8. The Custodian agrees to indemnify the Fund against
and save the Fund harmless from all liability, claims, losses
and demands whatsoever, including attorney's fees, howsoever
arising or incurred because of the negligence, bad faith or
willful misconduct of any Sub-Custodian of the Securities and
moneys owned by the Fund, provided such Sub-Custodian is a
banking institution located in a foreign country and appointed
by the Custodian pursuant to paragraph 7 of this Article.
9. The Custodian shall not be under any duty or obliga-
tion (a) to ascertain whether any Securities at any time
delivered to, or held by it, for the account of the Fund and
specifically allocated to a Series are such as properly may be
held by the Fund or such Series under the provisions of its
then current prospectus, or (b) to ascertain whether any
transactions by the Fund, whether or not involving the
Custodian, are such transactions as may properly be engaged in
by the Fund.
10. The Custodian shall be entitled to receive and the
Fund agrees to pay to the Custodian all reasonable
out-of-pocket expenses and such compensation as may be agreed
upon from time to time between the Custodian and the Fund.
The Custodian may charge such compensation, and any such
expenses with respect to a Series incurred by the Custodian in
the performance of its duties under this Agreement against any
money specifically allocated to such Series. The Custodian
shall also be entitled to charge against any money held by it
for the account of a Series the amount of any loss, damage,
liability or expense, including counsel fees, for which it
shall be entitled to reimbursement under the provisions of
this Agreement attributable to, or arising out of, its serving
as Custodian for such Series. The expenses for which the
Custodian shall be entitled to reimbursement hereunder shall
include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred
in settling outside of New York City transactions involving
the purchase and sale of Securities of the Fund.
Notwithstanding the foregoing or anything else contained in
this Agreement to the contrary, the Custodian shall, prior to
effecting any charge for compensation, expenses, or any
overdraft or indebtedness or interest thereon, submit an
invoice therefor to the Fund.
11. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing, Oral
Instructions, or Written Instructions received by the
Custodian and reasonably believed by the Custodian to be
genuine. The Fund agrees to forward to the Custodian a
- 33 -
Certificate or facsimile thereof confirming Oral Instructions
or Written Instructions in such manner so that such
Certificate or facsimile thereof is received by the Custodian,
whether by hand delivery, telecopier or other similar device,
or otherwise, by the close of business of the same day that
such Oral Instructions or Written Instructions are given to
the Custodian. The Fund agrees that the fact that such
confirming instructions are not received by the Custodian
shall in no way affect the validity of the transactions or
enforceability of the transactions thereby authorized by the
Fund. The Fund agrees that the Custodian shall incur no li-
ability to the Fund in acting upon Oral Instructions or Writ-
ten Instructions given to the Custodian hereunder concerning
such transactions provided such instructions reasonably appear
to have been received from an Authorized Person.
12. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian
and reasonably believed by the Custodian to be given in ac-
cordance with the terms and conditions of any Margin Account
Agreement. Without limiting the generality of the foregoing,
the Custodian shall be under no duty to inquire into, and
shall not be liable for, the accuracy of any statements or
representations contained in any such instrument or other
notice including, without limitation, any specification of any
amount to be paid to a broker, dealer, futures commission
merchant or Clearing Member. This paragraph shall not excuse
any failure by the Custodian to have acted in accordance with
any Margin Agreement it has executed or any Certificate, Oral
Instructions, or Written Instructions given in accordance with
this Agreement.
13. The books and records pertaining to the Fund, as
described in Appendix E hereto, which are in the possession of
the Custodian shall be the property of the Fund. Such books
and records shall be prepared and maintained by the Custodian
as required by the Investment Company Act of 1940, as amended,
and other applicable securities laws and rules and regula-
tions. The Fund, or the Fund's authorized representatives,
shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's
authorized representative, and the Fund shall reimburse the
Custodian its expenses of providing such copies. Upon reason-
able request of the Fund, the Custodian shall provide in hard
copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by
the Custodian on a computer disc, or are similarly maintained,
and the Fund shall reimburse the Custodian for its expenses of
providing such hard copy or micro-film.
14. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting
- 34 -
control of the Book-Entry System, each Depository or O.C.C.,
and with such reports on its own systems of internal account-
ing control as the Fund may reasonably request from time to
time.
15. The Custodian shall furnish upon request annually to
the Fund a letter prepared by the Custodian's accountants with
respect to the Custodian's internal systems and controls in
the form generally provided by the Custodian to other invest-
ment companies for which the Custodian acts as custodian.
16. The Fund agrees to indemnify the Custodian against
and save the Custodian harmless from all liability, claims,
losses and demands whatsoever, including attorney's fees,
howsoever arising out of, or related to, the Custodian's
performance of its obligations under this Agreement, except
for any such liability, claim, loss and demand arising out of
the Custodian's own negligence, bad faith, or willful
misconduct or that of its officers, employees, or agents.
17. Subject to the foregoing provisions of this Agree-
ment, the Custodian shall deliver and receive Securities, and
receipts with respect to such Securities, and shall make and
receive payments only in accordance with the customs prevail-
ing from time to time among brokers or dealers in such Securi-
ties and, except as may otherwise be provided by this
Agreement or as may be in accordance with such customs, shall
make payment for Securities only against delivery thereof and
deliveries of Securities only against payment therefor.
18. The Custodian shall have no duties or
responsibilities whatsoever except such duties and
responsibilities as are specifically set forth in this Agree-
ment, and no covenant or obligation shall be implied in this
Agreement against the Custodian.
ARTICLE XVI
TERMINATION
1. Except as provided in paragraph 3 of this Article,
this Agreement shall continue until terminated by either the
Custodian giving to the Fund, or the Fund giving to the
Custodian, a notice in writing specifying the date of such
termination, which date shall be not less than 60 days after
the date of the giving of such notice. In the event such
notice or a notice pursuant to paragraph 3 of this Article is
given by the Fund, it shall be accompanied by a copy of a
resolution of the Board of Trustees of the Fund, certified by
an Officer and the Secretary or an Assistant Secretary of the
Fund, electing to terminate this Agreement and designating a
successor custodian or custodians, each of which shall be
eligible to serve as a custodian for the securities of a
- 35 -
management investment company under the Investment Company Act
of 1940. In the event such notice is given by the Custodian,
the Fund shall, on or before the termination date, deliver to
the Custodian a copy of a resolution of the Board of Trustees
of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, designating a
successor custodian or custodians. In the absence of such
designation by the Fund, the Custodian may designate a
successor custodian which shall be a bank or trust company
having not less than $2,000,000 aggregate capital, surplus and
undivided profits. Upon the date set forth in such notice
this Agreement shall terminate, and the Custodian shall upon
receipt of a notice of acceptance by the successor custodian
on that date deliver directly to the successor custodian all
Securities and moneys then owned by the Fund and held by it as
Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall
then be entitled.
2. If a successor custodian is not designated by the
Fund or the Custodian in accordance with the preceding
paragraph, the Fund shall upon the date specified in the
notice of termination of this Agreement and upon the delivery
by the Custodian of all Securities (other than Securities held
in the Book-Entry System which cannot be delivered to the
Fund) and moneys then owned by the Fund be deemed to be its
own custodian and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement,
other than the duty with respect to Securities held in the
Book Entry System which cannot be delivered to the Fund to
hold such Securities hereunder in accordance with this Agree-
ment.
3. Notwithstanding the foregoing, the Fund may
terminate this Agreement upon the date specified in a written
notice in the event of the "Bankruptcy" of The Bank of New
York. As used in this sub-paragraph, the term "Bankruptcy"
shall mean The Bank of New York's making a general assignment,
arrangement or composition with or for the benefit of its
creditors, or instituting or having instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or
the entry of a order for relief under any applicable
bankruptcy law or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors'
rights, or if a petition is presented for the winding up or
liquidation of the party or a resolution is passed for its
winding up or liquidation, or it seeks, or becomes subject to,
the appointment of an administrator, receiver, trustee,
custodian or other similar official for it or for all or
substantially all of its assets or its taking any action in
furtherance or, or indicating its consent to approval of, or
acquiescence in, any of the foregoing.
- 36 -
ARTICLE XVII
TERMINAL LINK
1. At no time and under no circumstances shall the Fund
be obligated to have or utilize the Terminal Link, and the
provisions of this Article shall apply if, but only if, the
Fund in its sole and absolute discretion elects to utilize the
Terminal Link to transmit Certificates to and to receive
notices from the Custodian.
2. The parties hereto shall utilize the Terminal Link
only for the purpose of the Fund providing Certificates to the
Custodian and the Custodian providing notices to the Fund and
only after the Fund and the Custodian shall have established
access codes and internal safekeeping procedures to safeguard
and protect the confidentiality and availability of such
access codes. Each use of the Terminal Link by the Fund shall
constitute a representation and warranty that at least two
such access codes have been utilized and that such procedures
have been established.
3. Each party shall obtain and maintain at its own cost
and expense all equipment and services, including, but not
limited to communications services, necessary for it to
utilize the Terminal Link, and the other party shall not be
responsible for the reliability or availability of any such
equipment or services, except that the Custodian shall not pay
any communications costs of any line leased by the Fund, even
if such line is also used by the Custodian.
4. The Fund acknowledges that any data bases made
available as part of, or through the Terminal and any
proprietary data, software, processes, information and
documentation (other than any such which are or become part of
the public domain or are legally required to be made available
to the public) (collectively, the "Information"), are the
exclusive and confidential property of the Custodian. The
Fund shall, and shall cause others to which it discloses the
Information, to keep the Information confidential by using the
same care and discretion it uses with respect to its own
confidential property and trade secrets, and shall neither
make nor permit any disclosure without the express prior writ-
ten consent of the Custodian.
5. Upon termination of this Agreement for any reason,
each Fund shall return to the Custodian any and all copies of
the Information which are in the Fund's possession or under
its control, or which the Fund distributed to third parties.
The provisions of this Article shall not affect the copyright
status of any of the Information which may be copyrighted and
shall apply to all Information whether or not copyrighted.
- 37 -
6. The Custodian reserves the right to modify the
Terminal Link from time to time without notice to the Fund,
except that the Custodian shall give the Fund notice not less
than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund
agrees not to modify or attempt to modify the Terminal Link
without the Bank's prior written consent. The Fund
acknowledges that the Terminal Link is the property of the
Custodian and, accordingly, the Fund agrees that any
modifications to the Terminal Link, whether by the Fund or the
Custodian and whether with or without the Custodian's consent,
shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and sup-
pliers it utilizes or the Fund utilizes in connection with the
Terminal Link makes any warranties or representations, express
or implied, in fact or in law, including but not limited to
warranties of merchantability and fitness for a particular
purpose.
8. Each party will, and will cause its officers and
employees to, treat the user and authorization codes,
passwords and authentication keys applicable to Terminal Link
with extreme care. Each party hereby irrevocably authorizes
the other to act in accordance with and rely on Certificates
and notices received by it through the Terminal Link. Each
party acknowledges that it is its responsibility to assure
that only its authorized persons use the Terminal Link on its
behalf, and that a party shall not be responsible nor liable
for use of the Terminal Link on its behalf of the other party
by unauthorized persons except that the other party shall be
liable for such use thereof by unauthorized persons who have
obtained access thereto as a result of the bad faith or
willful misconduct of such party or any of its officers or
employees.
9. Notwithstanding anything else in this Agreement to
the contrary, neither party shall have any liability to the
other for any losses, damages, injuries, claims, costs or
expenses arising as a result of a delay, omission or error in
the transmission of a Certificate or notice by use of the
Terminal Link except for money damages for those suffered as
the result of the negligence, bad faith or willfull misconduct
of such party or its officers, employees or agents in an
amount not exceeding for any incident $100,000, provided,
however, that a party shall have no liability under this
Section 9 if the other party fails to comply with the
provisions of Section 11.
10. Without limiting the generality of the foregoing, it
is hereby agreed that in no event shall either party or any
manufacturer or supplier of its computer equipment, software
or services relating to the Terminal Link be responsible for
any special, indirect, incidental or consequential damages
- 38 -
which the other party may incur or experience by reason of its
use of the Terminal Link even if such party, manufacturer or
supplier has been advised of the possibility of such damages,
nor with respect to the use of the Terminal Link shall either
party or any such manufacturer or supplier be liable for acts
of God, or with respect to the following to the extent beyond
such person's reasonable control: machine or computer
breakdown or malfunction, interruption or malfunction of
communication facilities, labor difficulties or any other
similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors,
omissions or interruptions in, or delay or unavailability of,
the Terminal Link as promptly as practicable, and in any event
within 24 hours after the earliest of (i) discovery thereof,
(ii) the business day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case
of any error, the date of actual receipt of the earliest
notice which reflects such error, it being agreed that
discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the
Custodian learns of any errors, omissions or interruption in,
or delay or unavailability of, the Terminal Link.
12. Each party shall, as soon as practicable after its
receipt of a Certificate or of any notice transmitted by the
Terminal Link, verify to the other party by use of the
Terminal Link its receipt of such Certificate or notice, and
in the absence of such verification a party to whom a
Certificate or notice is sent shall not be liable for any
failure to act in accordance with such Certificate or notice,
and the sending party may not claim that such Certificate or
notice was received by the other.
ARTICLE XVIII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed
by two of the present Officers of the Fund under its seal,
setting forth the names and the signatures of the present
Authorized Persons. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event that
any such present Authorized Person ceases to be an Authorized
Person or in the event that other or additional Authorized
Persons are elected or appointed. Until such new Certificate
shall be received, the Custodian shall be entitled to rely and
to act upon Oral Instructions, Written Instructions, or
signatures of the present Authorized Persons as set forth in
the last delivered Certificate to the extent provided by this
Agreement.
- 39 -
2. Annexed hereto as Appendix B is a Certificate signed
by two of the present Officers of the Fund under its seal,
setting forth the names and the signatures of the present Of-
ficers of the Fund. The Fund agrees to furnish to the
Custodian a new Certificate in similar form in the event any
such present Officer ceases to be an Officer of the Fund, or
in the event that other or additional Officers are elected or
appointed. Until such new Certificate shall be received, the
Custodian shall be entitled to rely and to act upon the
signatures of the Officers as set forth in the last delivered
Certificate to the extent provided by this Agreement.
3. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the
Custodian, other than any Certificate or Written Instructions,
shall be sufficiently given if addressed to the Custodian and
mailed or delivered to it at its offices at 90 Washington
Street, New York, New York 10286, or at such other place as
the Custodian may from time to time designate in writing.
4. Any notice or other instrument in writing,
authorized or required by this Agreement to be given to the
Fund shall be sufficiently given if addressed to the Fund and
mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund
may from time to time designate in writing.
5. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties
with the same formality as this Agreement and approved by a
resolution of the Board of Trustees of the Fund, except that
Appendices A and B may be amended unilaterally by the Fund
without such an approving resolution.
6. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of the
Custodian, or by the Custodian or The Bank of New York without
the written consent of the Fund, authorized or approved by a
resolution of the Fund's Board of Trustees. For purposes of
this paragraph, no merger, consolidation, or amalgamation of
the Custodian, The Bank of New York, or the Fund shall be
deemed to constitute an assignment of this Agreement.
7. This Agreement shall be construed in accordance with
the laws of the State of New York without giving effect to
conflict of laws principles thereof. Each party hereby
consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any
dispute arising hereunder and hereby waives its right to trial
by jury.
- 40 -
8. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but such counterparts shall, together, constitute only one
instrument.
9. A copy of the Declaration of Trust of the Fund is on
file with the Secretary of The Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on
behalf of the Board of Trustees of the Fund as Trustees and
not individually and that the obligations of this instrument
are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property
of the Fund; provided, however, that the Declaration of Trust
of the Fund provides that the assets of a particular Series of
the Fund shall under no circumstances be charged with li-
abilities attributable to any other Series of the Fund and
that all persons extending credit to, or contracting with or
having any claim against a particular Series of the Fund shall
look only to the assets of that particular Series for payment
of such credit, contract or claim.
- 41 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective Officers,
thereunto duly authorized and their respective seals to be
hereunto affixed, as of the day and year first above written.
INTERCAPITAL INSURED
MUNICIPAL SECURITIES
(SEAL) By:_______________________
Attest:
_______________________
THE BANK OF NEW YORK
(SEAL) By:_______________________
Attest:
_______________________
- 42 -
APPENDIX A
I, , President and I,
, of InterCapital Insured
Municipal Securities, a Massachusetts business trust (the
"Fund"), do hereby certify that:
The following individuals have been duly authorized by
the Board of Trustees of the Fund in conformity with the
Fund's Declaration of Trust and By-Laws to give Oral Instruc-
tions and Written Instructions on behalf of the Fund, except
that those persons designated as being an "Officer of DWTC"
shall be an Authorized Person only for purposes of Articles
XII and XIII. The signatures set forth opposite their
respective names are their true and correct signatures:
Name Position Signature
_________________ ________________ _________________
APPENDIX B
I, , President and I,
, of
InterCapital Insured Municipal Securities, a Massachusetts
business trust (the "Fund"), do hereby certify that:
The following individuals for whom a position other than
"Officer of DWTC" is specified serve in the following posi-
tions with the Fund and each has been duly elected or ap-
pointed by the Board of Trustees of the Fund to each such
position and qualified therefor in conformity with the Fund's
Declaration of Trust and By-Laws. With respect to the
following individuals for whom a position of "Officer of DWTC"
is specified, each such individual has been designated by a
resolution of the Board of Trustees of the Fund to be an
Officer for purposes of the Fund's Custody Agreement with The
Bank of New York, but only for purposes of Articles XII and
XIII thereof and a certified copy of such resolution is
attached hereto. The signatures of each individual below set
forth opposite their respective names are their true and
correct signatures:
Name Position Signature
____________________ ___________________ _________________
APPENDIX C
The undersigned, ,
hereby certifies that he or she is the duly elected and acting
of InterCapital Insured Municipal Securities (the
"Fund"), further certifies that the following resolutions were
adopted by the Board of Trustees of the Fund at a meeting duly
held on , 1993, at which a quorum at all times
present and that such resolutions have not been modified or
rescinded and are in full force an effect as of the date
hereof.
RESOLVED, that The Bank New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the
Fund dated as of , 1993 (the "Custody Agree-
ment") is authorized and instructed on a continuous and ongo-
ing basis to act in accordance with, and to rely on instruc-
tions by the Fund to the Custodian communicated by a Terminal
Link as defined in the Custody Agreement.
RESOLVED, that the Fund shall establish access codes and
grant use of such access codes only to officers of the Fund as
defined in the Custody Agreement, and shall establish internal
safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes.
RESOLVED, that Officers of the Fund as defined in the
Custody Agreement shall, following the establishment of such
access codes and such internal safekeeping procedures, advise
the Custodian that the same have been established by deliver-
ing a Certificate, as defined in the Custody Agreement, and
the Custodian shall be entitled to rely upon such advice.
IN WITNESS WHEREOF, I hereunto set my hand in the seal of
InterCapital Insured Municipal Securities, as of the day
of , 1993.
(SEAL)
APPENDIX D
I, Vincent Blazewicz, a Vice President with THE BANK OF
NEW YORK do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
APPENDIX E
The following books and records pertaining to Fund shall
be prepared and maintained by the Custodian and shall be the
property of the Fund:
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of InterCapital Insured
Municipal Securities, a Massachusetts business trust (the
"Fund"), and further certifies that the following resolution
was adopted by the Board of Trustees of the Fund at a meeting
duly held on , 1993, at which a quorum was at
all times present and that such resolution has not been
modified or rescinded and is in full force and effect as of
the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1993, (the
"Custody Agreement") is authorized and instructed on a
continuous and ongoing basis to deposit in the Book-Entry
System, as defined in the Custody Agreement, all securi-
ties eligible for deposit therein, regardless of the
Series to which the same are specifically allocated, and
to utilize the Book-Entry System to the extent possible
in connection with its performance thereunder, including,
without limitation, in connection with settlements of
purchases and sales of securities, loans of securities,
and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of InterCapital Insured Municipal Securities, as of the
day of , 1993.
(SEAL)
EXHIBIT B
CERTIFICATION
The undersigned, , hereby
certifies that he or she is the duly elected and acting
of InterCapital Insured Municipal
Securities, a Massachusetts business Trust (the "Fund"), and
further certifies that the following resolution was adopted by
the Board of Trustees of the Fund at a meeting duly held on
, 1993, at which a quorum was at all times
present and that such resolution has not been modified or
rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1993 (the
"Custody Agreement") is authorized and instructed on a
continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agree-
ment, to the contrary to deposit in The Depository Trust
Company ("DTC"), as a "Depository" as defined in the
Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are
specifically allocated, and to utilize DTC to the extent
possible in connection with its performance thereunder,
including, without limitation, in connection with
settlements of purchases and sales of securities, loans
of securities, and deliveries and returns of securities
collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of InterCapital Insured Municipal Securities, as of the
day of , 1993.
(SEAL)
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of InterCapital Insured Municipal
Securities, a Massachusetts business Trust (the "Fund"), and
further certifies that the following resolution was adopted by
the Board of Trustees of the Fund at a meeting duly held on
, 1993, at which a quorum was at all times
present and that such resolution has not been modified or
rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1993,
(the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agree-
ment, to the contrary to deposit in the Participants
Trust Company as a Depository, as defined in the Custody
Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are
specifically allocated, and to utilize the Participants
Trust Company to the extent possible in connection with
its performance thereunder, including, without limita-
tion, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries
and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of InterCapital Insured Municipal Securities, as of the
day of , 1993.
(SEAL)
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of InterCapital Insured Municipal Securities, a Massachusetts
business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of
the Fund at a meeting duly held on , 1993, at
which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1993, (the
"Custody Agreement") is authorized and instructed on a
continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agree-
ment, to the contrary, to accept, utilize and act with
respect to Clearing Member confirmations for Options and
transaction in Options, regardless of the Series to which
the same are specifically allocated, as such terms are
defined in the Custody Agreement, as provided in the
Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of InterCapital Insured Municipal Securities, as of the
day of , 1993.
(SEAL)
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
DEAN WITTER TRUST COMPANY
(closed-end funds)
TABLE OF CONTENTS
Page
Article 1 Terms of Appointment; Duties of DWTC . . . 2
Article 2 Fees and Expenses. . . . . . . . . . . . . 5
Article 3 Representations and Warranties of DWTC . . 6
Article 4 Representations and Warranties of the
Fund . . . . . . . . . . . . . . . . . . . 7
Article 5 Duty of Care and Indemnification . . . . . 8
Article 6 Documents and Covenants of the Fund and
DWTC . . . . . . . . . . . . . . . . . . . 11
Article 7 Duration and Termination of Agreement. . . 15
Article 8 Assignment . . . . . . . . . . . . . . . . 16
Article 9 Affiliations . . . . . . . . . . . . . . . 17
Article 10 Amendment. . . . . . . . . . . . . . . . . 18
Article 11 Applicable Law . . . . . . . . . . . . . . 18
Article 12 Miscellaneous. . . . . . . . . . . . . . . 18
Article 13 Merger of Agreement. . . . . . . . . . . . 20
Article 14 Personal Liability . . . . . . . . . . . . 20
AMENDEND AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the first
day of August, 1993 by and between each of the Dean Witter
Funds listed on the signature page 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 COMPANY, a trust company
organized under the laws of New Jersey, having its principal
office and place of business at Harborside Financial Center,
Plaza Two, Jersey City, New Jersey 07311 ("DWTC").
WHEREAS, the Fund desires to appoint DWTC as its
transfer agent, dividend disbursing agent, shareholder
servicing agent, registrar and agent in connection with the
Fund's Dividend Reinvestment Plan and DWTC 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 DWTC
1.1 Subject to the terms and conditions set
forth in this Agreement, the Fund hereby employs and appoints
DWTC to act as, and DWTC agrees to act as, the transfer agent
for each series and class of shares of the Fund ("Shares"),
dividend disbursing agent, shareholder servicing agent,
registrar and agent in connection with the Fund's Dividend
Reinvestment Plan (the "Plan").
1.2 DWTC agrees that it will perform the fol-
lowing services:
(a) In accordance with procedures established
from time to time by agreement between the Fund and DWTC
shall:
(i) In accordance with instructions from the
Fund given by Certificate of the Secretary of the Fund, issue
Shares upon receipt of payment therefor, and issue
certificates therefore or hold such Shares in book form in the
appropriate Shareholder account;
(ii) Effect transfers of Shares by the
registered owners thereof upon receipt of appropriate
instructions;
(iii) Prepare and transmit payments for
dividends and distributions declared by the Fund in accordance
with instructions and serve as the plan agent for the Plan and
purchase and issue shares in accordance with such Plan;
(iv) Maintain records of account for and advise
the Fund and its Shareholders as to the foregoing;
(v) 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. DWTC
shall also provide to the Fund on a regular basis the total
number of Shares which are authorized, issued and outstanding
and shall notify the Fund in case any proposed issue of Shares
by the Fund would result in an overissue. In case any issue
of Shares would result in an overissue, DWTC shall refuse to
issue such Shares and shall not countersign and issue any
certificates requested for such Shares. When recording the
issuance of Shares, DWTC 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), DWTC shall: (i)
perform all of the customary services of a transfer agent,
dividend disbursing agent, registrar and, as relevant,
shareholder servicing agent, including but not limited to,
maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing proxies, receiving and tabulating
proxies, mailing shareholder reports, 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, 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 which will enable the Fund to monitor
the total number of Shares sold in each State or other
jurisdiction.
(c) DWTC shall provide such additional
services and functions not specifically described herein as
may be mutually agreed between DWTC and the Fund. Procedures
applicable to such services may be established from time to
time by agreement between the Fund and DWTC.
Article 2 Fees and Expenses
2.1 For performance by DWTC pursuant to this
Agreement, each Fund agrees to pay DWTC an annual mainten-
ance fee for each Shareholder account and certain trans-
actional 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 DWTC.
2.2 In addition to the fees paid under Section
2.1 above, the Fund agrees to reimburse DWTC for out-of-pocket
expenses or advances incurred by DWTC in connection with the
services rendered by DWTC hereunder. In addition, any other
expenses incurred by DWTC 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 DWTC by the Fund upon request prior to the mailing date of
such materials.
Article 3 Representations and Warranties of DWTC
DWTC represents and warrants to the Fund that:
3.1 It is a trust company duly organized and
existing and in good standing under the laws of New Jersey and
it is duly qualified to carry on its business 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.
3.6 It complies and will continue to comply
with New York Stock Exchange Rule 496.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to DWTC that:
4.1 It is a corporation duly organized and
existing and in good standing under the laws of 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 a closed-end investment company
registered with the SEC under the Investment Company Act of
1940, as amended (the "1940 Act").
Article 5 Duty of Care and Indemnification
5.1 DWTC shall not be responsible for, and the
Fund shall indemnify and hold DWTC 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 DWTC 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 DWTC or its agents or
subcontractors of information, records and documents which (i)
are received by DWTC 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 of firm on behalf of the Fund.
(d) The reliance on, or the carrying out by DWTC 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 such Shares be registered 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 DWTC 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 DWTC as a result of the lack of good faith,
negligence or willful misconduct of DWTC, its officers,
employees or agents.
5.3 At any time DWTC 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 DWTC under
this Agreement, and DWTC 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. DWTC, 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 DWTC 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. DWTC, 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 o$ 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 DWTC
6.1 The Fund shall promptly furnish to DWTC
the following:
(a) If a corporation:
(i) A certified copy of the resolution of the
Board of Directors of the Fund authorizing the appointment of
DWTC and the execution and delivery of this Agreement;
(ii) A certified copy of the Articles of
Incorporation and By-Laws of the Fund and all amendments
thereto;
(iii) Certified copies of each vote of the
Board of Directors designating persons authorized to give
instructions on behalf of the Fund and signature cards bearing
the signature of any officer of the Fund or any other person
authorized to sign written instructions on behalf of the Fund.
(iv) A specimen of the certificate for Shares
of the Fund in the form approved by the Board of Directors,
with a certificate of the Secretary of the Fund as to such
approval;
(b) If a business trust:
(i) a certified copy of the resolution of the
Board of Trustees of the Fund authorizing the appointment of
DWTC 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 registration statements and any amendments
and supplements thereto filed with the SEC pursuant to the
requirements of the 1933 Act and the 1940 Act;
(d) All account application forms, if any, or other
documents relating to Shareholder accounts and/or relating to
any dividend reinvestment plan or other service offered or to
be offered by the Fund; and
(e) Such other certificates, documents or opinions
as DWTC deems to be appropriate or necessary for the proper
performance of its duties.
6.2 DWTC 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 DWTC 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, DWTC agrees that all such records prepared or
maintained by DWTC relating to the services to be performed by
DWTC 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 DWTC 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 DWTC and the Fund.
6.5 In case of any request or demands for the
inspection of the Shareholder records of the Fund, DWTC will
endeavor to notify the Fund and to secure instructions from an
authorized officer of the Fund as to such inspection. DWTC
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 July 31, 1996 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 DWTC 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, DWTC reserves the right to charge for any
other reasonable fees and expenses associated with such
termination.
Article 8 Assignment
8.1 Except as provided in Section 8.3 below,
neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the written consent of
the other party.
8.2 This Agreement shall inure to the benefit
of and be binding upon the parties and their respective
permitted successors and assigns.
8.3 DWTC 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 DWTC; provided,
however, that such person or entity has and maintains the
qualifications, if any, required to perform such obligations
and duties and that DWTC 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 DWTC may now or hereafter, without the
consent of or notice to the Fund, function as transfer agent,
registrar 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 Dean
Witter, Discover & Co. or any of its or their 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 DWTC as directors, officers, employees, agents
and shareholders or otherwise, and that the directors,
officers, employees, agents and shareholders of DWTC 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. ("Additional Dean Witter Funds") desires to
retain DWTC to act as transfer agent, dividend disbursing
agent and/or shareholder servicing agent, and DWTC desires to
render such services, such services shall be provided pursuant
to a letter agreement, substantially in the form of Exhibit A
hereto, between DWTC and each Additional Dean Witter 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 DWTC 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 DWTC and the Fund issued by a surety company
satisfactory to DWTC, except that DWTC may accept an affidavit
of loss and indemnity agreement executed by the registered
holder (or legal representative) without surety in such form
as DWTC deems appropriate indemnifying DWTC and the Fund for
the issuance of a replacement certificate, in cases where the
alleged loss is in the amount of $1000 or less.
12.3 Any notice or other instrument authorized or
required by this Agreement to be given in writing to the Fund
or to DWTC 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 DWTC:
Dean Witter Trust Company
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.
f:\custody.ce
IN WITNESS WHEREOF, the parties hereto have caused
this 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.
INTERCAPITAL INCOME SECURITIES INC.
HIGH INCOME ADVANTAGE TRUST
HIGH INCOME ADVANTAGE TRUST II
HIGH INCOME ADVANTAGE TRUST III
DEAN WITTER GOVERNMENT INCOME TRUST
MUNICIPAL INCOME TRUST
MUNICIPAL INCOME TRUST II
MUNICIPAL INCOME TRUST III
MUNICIPAL INCOME OPPORTUNITIES TRUST
MUNICIPAL INCOME OPPORTUNITIES TRUST II
MUNICIPAL INCOME OPPORTUNITIE TRUST III
MUNICIPAL PREMIUM INCOME TRUST
INTERCAPITAL INSURED MUNICIPAL BOND TRUST
INTERCAPITAL QUALITY MUNICIPAL INVESTMENT TRUST
INTERCAPITAL INSURED MUNICIPAL TRUST
INTERCAPITAL QUALITY MUNICIPAL INCOME TRUST
INTERCAPITAL INSURED MUNICIPAL INCOME TRUST
INTERCAPITAL QUALITY MUNICIPAL SECURITIES
INTERCAPITAL INSURED CALIFORNIA MUNICIPAL INCOME TRUST
INTERCAPITAL CALIFORNIA QUALITY MUNICIPAL SECURITIES
INTERCAPITAL NEW YORK QUALITY MUNICIPAL SECURITIES
TCW/DW TERM TRUST 2000
TCW/DW TERM TRUST 2002
TCW/DW TERM TRUST 2003
By: /s/ Sheldon Curtis
Sheldon Curtis
Vice President and General Counsel
ATTEST:
/s/ Barry Fink
Barry Fink
Assistant Secretary
DEAN WITTER TRUST COMPANY
BY:/s/ Charles A. Fiumefreddo
Charles A. Fiumefreddo
Chairman
ATTEST:
/s/ David A. Hughey
David A. Hughey
Executive Vice President
Dean Witter Trust Company
Harborside Financial Center, Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, InterCapital Insured Municipal
Securities, a Massachusetts business trust) (the "Fund"),
desires to employ and appoint Dean Witter Trust Company
("DWTC") to act as transfer agent for each series and class of
shares of the Fund, dividend disbursing agent shareholder
servicing agent, registrar and agent in connection with the
Fund's Dividend Reinvestment Plan.
The Fund hereby agrees that, in consideration for
the payment by the Fund to DWTC of fees as set out in the fee
schedule attached hereto as Schedule A, DWTC 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 DWTC'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,
INTERCAPITAL INSURED MUNICIPAL SECURTIES
By:
ACCEPTED AND AGREED TO:
DEAN WITTER TRUST COMPANY
By:
Its:
Date:
f:\custody.ce
SCHEDULE A
Fund: InterCapital Insured Municipal Securities
Fees: (1) Annual maintenance fee of $8.50 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.
f:\schedA\63
EXHIBIT 10(C)
SERVICES AGREEMENT
AGREEMENT made as of the 31st day of December, 1993 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a New Jersey
corporation (herein referred to as "DWS").
WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement")
with certain investment companies as set forth on Schedule A (each such
investment company being herein referred to as a "Fund" and, collectively, as
the "Funds") pursuant to which InterCapital is to perform, or supervise the
performance of, among other services, administrative services for the Funds
(and, in the case of Funds with multiple portfolios, the Series or Portfolios
of the Funds (such Series and Portfolio being herein individually referred to
as "a Series" and, collectively, as "the Series"));
WHEREAS, InterCapital desires to retain DWS to perform the
administrative services as described below; and
WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:
Now, therefore, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DWS agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, DWS
shall (i) administer the Fund's business affairs and supervise the overall day-
to-day operations of the Fund (other than rendering investment advice); (ii)
provide the Fund with full administrative services, including the maintenance
of certain books and records, such as journals, ledger accounts and other
records required under the Investment Company Act of 1940, as amended
(the"Act"), the notification to the Fund and InterCapital of available funds
for investment, the reconciliation of account information and balances among
the Fund's custodian, transfer agent and dividend disbursing agent and
InterCapital, and the calculation of the net asset value of the Fund's shares;
(iii) provide the Fund with the services of persons competent to perform such
supervisory, administrative and clerical functions as are necessary to provide
effective operation of the Fund; (iv) oversee the performance of administrative
and professional services rendered to the Fund by others, including its
custodian, transfer agent and dividend disbursing agent, as well as accounting,
auditing and other services; (v) provide the Fund with adequate general office
space and facilities; (vi) assist in the preparation and the printing of the
periodic updating of the Fund's registration statement and prospectus (and, in
the case of an open-end Fund, the statement of additional information), tax
returns, proxy statements, and reports to its shareholders and the Securities
and Exchange Commission; and (vii) monitor the compliance of the Fund's
investment policies and restrictions.
In the event that InterCapital enters into an Investment Management
Agreement with another investment company, and wishes to retain DWS to perform
administrative services hereunder, it shall notify DWS in writing. If DWS is
willing to render such services, it shall notify InterCapital in writing,
whereupon such other Fund shall become a Fund as defined herein.
2. DWS shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as it shall from time
to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of DWS shall be deemed to include officers
of DWS and persons employed or otherwise retained by DWS (including officers
and employees of InterCapital, with the consent of InterCapital) to furnish
services, statistical and other factual data, information with respect to
technical and scientific developments, and such other information, advice and
assistance as DWS may desire. DWS shall maintain each Fund's records and books
of account (other than those maintained by the Fund's transfer agent,
registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, DWS
shall surrender to InterCapital or to the Fund such of the books and records so
requested.
3. InterCapital will, from time to time, furnish or otherwise make
available to DWS such financial reports, proxy statements and other information
relating to the business and affairs of the Fund as DWS may
1
reasonably require in order to discharge its duties and obligations to the Fund
under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or weekly (in the case of a
closed-end Fund) by applying the annual rate or rates set forth on Schedule B
to the net assets of each Fund. Except as hereinafter set forth, (i) in the
case of an open-end Fund, compensation under this Agreement shall be calculated
by applying 1/365th of the annual rate or rates to the Fund's or the Series'
daily net assets determined as of the close of business on that day or the last
previous business day and (ii) in the case of a closed-end Fund, compensation
under this Agreement shall be calculated by applying the annual rate or rates
to the Fund's average weekly net assets determined as of the close of the last
business day of each week. If this Agreement becomes effective subsequent to
the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
on Schedule B. Subject to the provisions of paragraph 5 hereof, payment of DWS'
compensation for the preceding month shall be made as promptly as possible
after completion of the computations contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to InterCapital pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof
imposed by state securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, or, in the case of InterCapital
Income Securities Inc. or Dean Witter Variable Investment Series or any Series
thereof, the expense limitation specified in the Fund's Investment Management
Agreement, the fee payable hereunder shall be reduced on a pro rata basis in
the same proportion as the fee payable by the Fund under the Investment
Management Agreement is reduced.
6. DWS shall bear the cost of rendering the administrative services to
be performed by it under this Agreement, and shall, at its own expense, pay the
compensation of the officers and employees, if any, of the Fund employed by
DWS, and such clerical help and bookkeeping services as DWS shall reasonably
require in performing its duties hereunder.
7. DWS will use its best efforts in the performance of administrative
activitives on behalf of each Fund, but in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations hereunder,
DWS shall not be liable to the Fund or any of its investors for any error of
judgment or mistake of law or for any act or omission by DWS or for any losses
sustained by the Fund or its investors. It is understood that, subject to the
terms and conditions of the Investment Management Agreement between each Fund
and InterCapital, InterCapital shall retain ultimate responsibility for all
services to be performed hereunder by DWS. DWS shall indemnify InterCapital and
hold it harmless from any liability that InterCapital may incur arising out of
any act or failure to act by DWS in carrying out its responsibilities
hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person controlling,
controlled by or under common control with DWS, and that DWS and any person
controlling, controlled by or under common control with DWS may have an
interest in the Fund. It is also understood that DWS and any affiliated persons
thereof or any persons controlling, controlled by or under common control with
DWS have and may have advisory, management, administration service or other
contracts with other organizations and persons, and may have other interests
and businesses, and further may purchase, sell or trade any securities or
commodities for their own accounts or for the account of others for whom they
may be acting.
9. This Agreement shall continue until April 30, 1994, and thereafter
shall continue automatically for successive periods of one year unless
terminated by either party by written notice delivered to the other party
within 30 days of the expiration of the then-existing period. Notwithstanding
the foregoing, this Agreement may be terminated at any time, by either party on
30 days' written notice delivered to the other party. In the
2
event that the Investment Management Agreement between any Fund and
InterCapital is terminated, this Agreement will automatically terminate with
respect to such Fund.
10. This Agreement may be amended or modified by the parties in any
manner by mutual written agreement executed by each of the parties hereto.
11. This Agreement shall be construed and interpreted in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By: ............................
Attest:
...............................
DEAN WITTER SERVICES COMPANY INC.
By: .............................
Attest:
...............................
C 65500
3
SCHEDULE A
DEAN WITTER FUNDS
AT DECEMBER 31, 1993
OPEN-END FUNDS
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter American Value Fund
6. Dean Witter California Tax-Free Daily Income Trust
7. Dean Witter California Tax-Free Income Fund
8. Dean Witter Capital Growth Securities
9. Dean Witter Convertible Securities Trust
10. Dean Witter Developing Growth Securities Trust
11. Dean Witter Diversified Income Trust
12. Dean Witter Dividend Growth Securities Inc.
13. Dean Witter Equity Income Trust
14. Dean Witter European Growth Fund Inc.
15. Dean Witter Federal Securities Trust
16. Dean Witter Global Dividend Growth Securities
17. Dean Witter Global Short-Term Income Fund Inc.
18. Dean Witter Health Sciences Trust
19. Dean Witter High Yield Securities Inc.
20. Dean Witter Intermediate Income Securities
21. Dean Witter Limited Term Municipal Trust
22. Dean Witter Liquid Asset Fund Inc.
23. Dean Witter Managed Assets Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter Natural Resource Development Securities Inc.
26. Dean Witter New York Municipal Money Market Trust
27. Dean Witter New York Tax-Free Income Fund
28. Dean Witter Pacific Growth Fund Inc.
29. Dean Witter Precious Metals and Minerals Trust
30. Dean Witter Premier Income Trust
31. Dean Witter Retirement Series
32. Dean Witter Select Municipal Reinvestment Fund
33. Dean Witter Short-Term U.S. Treasury Trust
34. Dean Witter Strategist Fund
35. Dean Witter Tax-Exempt Securities Trust
36. Dean Witter Tax-Free Daily Income Trust
37. Dean Witter U.S. Government Money Market Trust
38. Dean Witter U.S. Government Securities Trust
39. Dean Witter Utilities Fund
40. Dean Witter Value-Added Market Series
41. Dean Witter Variable Investment Series
42. Dean Witter World Wide Income Trust
43. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
44. High Income Advantage Trust
45. High Income Advantage Trust II
46. High Income Advantage Trust III
47. InterCapital Income Securities Inc.
48. Dean Witter Government Income Trust
49. InterCapital Insured Municipal Bond Trust
50. InterCapital Insured Municipal Trust
51. InterCapital Insured Municipal Income Trust
52. InterCapital California Insured Municipal Income Trust
53. InterCapital Quality Municipal Investment Trust
54. InterCapital Quality Municipal Income Trust
55. InterCapital Quality Municipal Securities
56. InterCapital California Quality Municipal Securities
57. InterCapital New York Quality Municipal Securities
4
SCHEDULE B
COMPENSATION TO DEAN WITTER SERVICES COMPANY INC.
Name of Fund:
Fee:
Dated: December , 1993
5
DEAN WITTER SERVICES COMPANY
SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994
Monthly compensation calculated weekly by applying the following annual
rates to the weekly net assets.
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Securities
February , 1994
Dean Witter Services Company Inc.
Two World Trade Center
New York, New York 10048
Att: President
Re: Services Agreement/Additional Fund(s)
Gentlemen:
In accordance with the provisions of the Services Agreement,
dated December 31, 1993, between us, we hereby advise you that we
have entered into an Investment Management Agreement with
InterCapital Insured Municipal Securities and, accordingly, we
retain you, pursuant to the said Services Agreement, to perform the
administrative services provided therein.
Please indicate your acceptance of this additional Fund under
the provisions of the Services Agreement by signing below.
Very truly yours,
DEAN WITTER INTERCAPITAL INC.
BY:
Accepted:
DEAN WITTER SERVICES COMPANY INC.
BY:
ltrmgt.dws
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Charles A. Fiumefreddo,
whose signature appears below, constitutes and appoints Sheldon
Curtis, Marilyn K. Cranney and Barry Fink, his true and lawful
attorneys-in-fact and agents, with full power of substitution among
himself and each of the persons appointed herein, for him and in
his name, place and stead, in any and all capacities, to sign any
amendments to any registration statement of InterCapital Insured
Municipal Securities, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of
them, may lawfully do or cause to be done by virtue hereof.
Dated: December 3, 1993
/s/ Charles A. Fiumefreddo
Charles A. Fiumefreddo
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John R. Haire, whose
signature appears below, constitutes and appoints David M.
Butowsky, Ronald M. Feiman and Stuart M. Strauss or either of them,
his true and lawful attorneys-in-fact and agents, with full power
of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of
InterCapital Insured Municipal Securities, and to file the same,
with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, as fully to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by
virtue hereof.
Dated: December 3, 1993
/s/John R. Haire
John R. Haire
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Manuel H. Johnson, whose
signature appears below, constitutes and appoints David M.
Butowsky, Ronald M. Feiman and Stuart M. Strauss, or either of
them, his true and lawful attorneys-in-fact and agents, with full
power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any
and all capacities, to sign any amendments to any registration
statement of InterCapital Insured Municipal Securities, and to file
the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: December 3, 1993
/s/Manuel H. Johnson
Manuel H. Johnson
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Paul Kolton, whose
signature appears below, constitutes and appoints David M.
Butowsky, Ronald M. Feiman and Stuart M. Strauss, or either of
them, his true and lawful attorneys-in-fact and agents, with full
power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any
and all capacities, to sign any amendments to any registration
statement of InterCapital Insured Municipal Securities, and to file
the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: December 3, 1993
/s/Paul Kolton
Paul Kolton
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Albert T. Sommers, whose
signature appears below, constitutes and appoints David M.
Butowsky, Ronald M. Feiman and Stuart M. Strauss, or either of
them, his true and lawful attorneys-in-fact and agents, with full
power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any
and all capacities, to sign any amendments to any registration
statement of InterCapital Insured Municipal Securities, and to file
the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: December 3, 1993
/s/Albert T. Sommers
Albert T. Sommers
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Michael E. Nugent, whose
signature appears below, constitutes and appoints David M.
Butowsky, Ronald M. Feiman and Stuart M. Strauss, or either of
them, his true and lawful attorneys-in-fact and agents, with full
power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any
and all capacities, to sign any amendments to any registration
statement of InterCapital Insured Municipal Securities, and to file
the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: December 3, 1993
/s/Michael E. Nugent
Michael E. Nugent
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Jack F. Bennett, whose
signature appears below, constitutes and appoints David M.
Butowsky, Ronald M. Feiman and Stuart M. Strauss, or either of
them, his true and lawful attorneys-in-fact and agents, with full
power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any
and all capacities, to sign any amendments to any registration
statement of InterCapital Insured Municipal Securities, and to file
the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: December 3, 1993
/s/Jack F. Bennett
Jack F. Bennett
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that John E. Jeuck, whose
signature appears below, constitutes and appoints David M.
Butowsky, Ronald M. Feiman and Stuart M. Strauss, or either of
them, his true and lawful attorneys-in-fact and agents, with full
power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any
and all capacities, to sign any amendments to any registration
statement of InterCapital Insured Municipal Securities, and to file
the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: December 3, 1993
/s/John E. Jeuck
John E. Jeuck
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Edward R. Telling, whose
signature appears below, constitutes and appoints Sheldon Curtis,
Marilyn K. Cranney and Barry Fink, or either of them, his true and
lawful attorneys-in-fact and agents, with full power of
substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of
InterCapital Insured Municipal Securities, and to file the same,
with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, as fully to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by
virtue hereof.
Dated: December 3, 1993
/s/Edward R. Telling
Edward R. Telling
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Edwin J. Garn, whose
signature appears below, constitutes and appoints David M.
Butowsky, Ronald M. Feiman and Stuart M. Strauss, or either of
them, his true and lawful attorneys-in-fact and agents, with full
power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any
and all capacities, to sign any amendments to any registration
statement of InterCapital Insured Municipal Securities, and to file
the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
Dated: December 3, 1993
/s/Edwin J. Garn
Edwin J. Garn
