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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998
REGISTRATION NOS.: 33-50857
811-7117
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO.
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POST-EFFECTIVE AMENDMENT NO. 5 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 6 /X/
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MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
(A MASSACHUSETTS BUSINESS TRUST)
FORMERLY NAMED DEAN WITTER SHORT TERM BOND FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the registration statement
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
_X_ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS.
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<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
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<S> <C>
PART A PROSPECTUS
1. ........................................ Cover Page
2. ........................................ Summary of Fund Expenses; Prospectus Summary
3. ........................................ Performance Information; Financial Highlights
4. ........................................ Investment Objective and Policies; The Fund and its Management;
Cover Page; Investment Restrictions; Prospectus Summary
5. ........................................ The Fund and Its Management; Back Cover; Investment Objective and
Policies
6. ........................................ Dividends, Distributions and Taxes; Additional Information
7. ........................................ Purchase of Fund Shares; Shareholder Services; Redemptions and
Repurchases
8. ........................................ Redemptions and Repurchases; Shareholder Service;
9. ........................................ Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
10. ........................................ Cover Page
11. ........................................ Table of Contents
12. ........................................ The Fund and Its Management
13. ........................................ Investment Practices and Policies; Investment Restrictions;
Portfolio Transactions and Brokerage
14. ........................................ The Fund and Its Management; Trustees and Officers
15. ........................................ Trustees and Officers
16. ........................................ The Fund and Its Management; Purchase of Fund Shares; Custodian and
Transfer Agent; Independent Accountant;
17. ........................................ Portfolio Transactions and Brokerage
18. ........................................ Description of Shares; Validity of Shares of Beneficial Interest
19. ........................................ Repurchase of Fund Shares; Redemptions and Repurchases; Shareholder
Services
20. ........................................ Dividends, Distributions and Taxes
21. ........................................ Purchase of Fund Shares
22. ........................................ Dividends, Distributions and Taxes
23. ........................................ Performance Information
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS
JUNE 30, 1998
Morgan Stanley Dean Witter Short-Term Bond Fund (the "Fund") is a
no-load, open-end diversified management investment company whose investment
objective is to provide a high level of current income consistent with the
preservation of capital. The Fund seeks to achieve its objective by investing in
a diversified portfolio of short-term fixed-income securities with a dollar-
weighted average portfolio maturity of less than three years. (See "Investment
Objective and Policies.")
Shares of the Fund are sold and redeemed at net asset value
without the imposition of a sales charge. In accordance with a Plan of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
with Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"), the Fund
authorizes the Distributor or any of its affiliates, including Morgan Stanley
Dean Witter Advisors Inc., to make payments, out of their own resources, for
specific expenses incurred in promoting the distribution of the Fund's shares.
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated June 30, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
MORGAN STANLEY DEAN WITTER
DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/3
Financial Highlights/4
The Fund and its Management/5
Investment Objective and Policies/5
Risks and Portfolio Characteristics/7
Investment Restrictions/16
Purchase of Fund Shares/17
Shareholder Services/19
Redemptions and Repurchases/22
Dividends, Distributions and Taxes/24
Performance Information/24
Additional Information/25
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Morgan Stanley Dean Witter
Short-Term Bond Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
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PROSPECTUS SUMMARY
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<TABLE>
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The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is a no-load, open-end,
Fund diversified management investment company investing in a diversified portfolio of short-term fixed-income
securities with a dollar-weighted average portfolio maturity of less than three years.
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Shares Offered Shares of beneficial interest with $0.01 par value (see page 25).
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Offering The price of the shares offered by this Prospectus is determined once daily as of 4:00 p.m., New York time, on
Price each day that the New York Stock Exchange is open, and is equal to the net asset value per share without a sales
charge (see page 18).
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Minimum Minimum initial purchase, $1,000 ($100 if the account is opened through EasyInvest-SM-); minimum subsequent
Purchase investments, $100 (see page 17).
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Investment The investment objective of the Fund is to provide investors with a high level of current income, consistent
Objective with the preservation of capital.
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Investment Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its wholly-owned subsidiary,
Manager Morgan Stanley Dean Witter Services Company Inc., serve in various investment management, advisory, management
and administrative capacities to 101 investment companies and other portfolios with assets of approximately
$114.6 billion at May 31, 1998 (see page 5).
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Management The Investment Manager receives a monthly fee at the annual rate of 0.70% of the average daily net assets (see
Fee page 5).
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Dividends and Dividends are declared daily and are payable monthly. Capital gains distributions, if any, are paid at least
Capital Gains once a year or are retained for reinvestment by the Fund. Dividends and distributions are automatically invested
Distributions in additional shares at net asset value unless the shareholder elects to receive cash (see page 24).
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Distributor Morgan Stanley Dean Witter Distributors Inc. ("The Distributor") sells shares of the Fund through Dean Witter
and Plan of Reynolds Inc. ("DWR") and other selected broker-dealers. The Distributor has entered into a Plan of Distribution
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended, (the "Act") with the Fund
authorizing the Distributor or any of its affiliates, including the Investment Manager, to make payments, out of
their own resources, for expenses incurred in connection with the promotion or distribution of the Fund's shares
(see page 17).
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Redemption Shares are redeemable at net asset value. An account may be involuntarily redeemed if total value of the account
is less than $100 or, if the account was opened through EasyInvest-SM-, if after twelve months the shareholder
has invested less than $1,000 in the account (see page 22).
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Shareholder Automatic Investment of Dividends and Distributions; Investment of Distributions Received in Cash; Exchange
Services Privilege; Systematic Withdrawal Plan; EasyInvest-SM-; Tax-Sheltered Retirement Plans (see pages 19-22).
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Risks The prices of interest-bearing securities are, generally, inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values of fixed-income securities also may
be affected by changes in the credit rating or financial condition of the issuing entities. Mortgage-backed
securities are subject to prepayments or refinancings of the mortgage pools underlying such securities which may
have an impact upon the yield and the net asset value of the Fund's shares. Certain of the mortgage-backed
securities in which the Fund may invest have higher yields than traditional mortgage-backed securities and will
have concomitant greater price volatility. Asset-backed securities involve risks resulting mainly from the fact
that such securities do not usually contain the complete benefit of a security interest in the related
collateral. Certain of the high yield, high risk fixed-income securities in which the Fund may invest are
subject to greater risk of loss of income and principal than the higher rated lower yielding fixed-income
securities. The foreign securities and markets in which the Fund will invest pose different and generally
greater risks than those risks customarily associated with domestic securities and markets including
fluctuations in foreign currency exchange rates, foreign tax rates and foreign exchange controls. (see pages
7-15).
</TABLE>
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THE PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.
2
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended April 30, 1998.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases.................................. None
Maximum Sales Charge Imposed on Reinvested Dividends....................... None
Deferred Sales Charge...................................................... None
Redemption Fees............................................................ None
Exchange Fee............................................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fees*........................................................... 0.70%
12b-1 Fees................................................................. None
Other Expenses*............................................................ 0.40%
Total Fund Operating Expenses*............................................. 1.10%
</TABLE>
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* FOR THE PERIOD JANUARY 1, 1996 THROUGH DECEMBER 31, 1996, THE INVESTMENT
MANAGER WAIVED ITS FEE AND REIMBURSED EXPENSES TO THE EXTENT THEY EXCEEDED
1.0% OF DAILY NET ASSETS. FOR THE PERIOD JANUARY 1, 1997 THROUGH DECEMBER 31,
1998, THE INVESTMENT MANAGER IS WAIVING ITS COMPENSATION AND ASSUMING ALL
OPERATING EXPENSES (EXCEPT FOR BROKERAGE FEES) WITHOUT LIMITATION. ACTUAL
MANAGEMENT FEES AND OTHER EXPENSES FOR THE FISCAL YEAR ENDED APRIL 30, 1998,
TAKING THE WAIVER OF FEES AND ASSUMPTION OF EXPENSES INTO EFFECT, WERE 0.0%
AND 0.0%, RESPECTIVELY.
<TABLE>
<CAPTION>
10
EXAMPLE 1 Year 3 Years 5 Years Years
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You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at
the end of each time period:.......... $11 $35 $61 $134
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE MORE OR LESS
THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and Its Management" and "Redemptions and Repurchases."
3
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements and notes thereto and the report of independent
accountants which are contained in the Statement of Additional Information.
Further information about the performance of the Fund is contained in the Fund's
Annual Report to Shareholders, which may be obtained without charge upon request
to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED APRIL 30, JANUARY 10, 1994*
----------------------------------------------- THROUGH
1998 1997 1996 1995 APRIL 30, 1994
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<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $9.50 $9.54 $9.46 $9.62 $10.00
----------- ---------- ---------- ---------- -------
Net investment income................... 0.65 0.61 0.63 0.77 0.21
Net realized and unrealized gain
(loss)................................. -- (0.06) 0.05 (0.33) (0.40 )
----------- ---------- ---------- ---------- -------
Total from investment operations........ 0.65 0.55 0.68 0.44 (0.19 )
----------- ---------- ---------- ---------- -------
Less dividends and distributions from:
Net investment income................ (0.66) (0.59) (0.45) (0.59) (0.19 )
Paid-in-capital...................... -- -- (0.15) (0.01) --
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Total dividends and distributions....... (0.66) (0.59) (0.60) (0.60) (0.19 )
----------- ---------- ---------- ---------- -------
Net asset value, end of period.......... $9.49 $9.50 $9.54 $9.46 $9.62
----------- ---------- ---------- ---------- -------
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TOTAL INVESTMENT RETURN+................ 7.02% 5.88% 7.33% 4.76% (2.01 )%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ --(3) 0.64%(3) 0.37%(3) --(3) --(2)(3)
Net investment income................... 6.52%(3) 6.25%(3) 6.54%(3) 7.64%(3) 6.36%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $107,699 $42,252 $33,178 $29,818 $43,403
Portfolio turnover rate................. 55% 67% 64% 74% 9%(1)
</TABLE>
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* COMMENCEMENT OF OPERATIONS.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER, THE ANNUALIZED EXPENSE AND NET INVESTMENT INCOME RATIOS
WOULD HAVE BEEN 1.10% AND 5.42%, RESPECTIVELY, FOR THE YEAR ENDED APRIL 30,
1998, 1.30% AND 5.59%, RESPECTIVELY, FOR THE YEAR ENDED APRIL 30, 1997,
1.29% AND 5.61%, RESPECTIVELY, FOR THE YEAR ENDED APRIL 30, 1996, 1.08% AND
6.56%, RESPECTIVELY, FOR THE YEAR ENDED APRIL 30, 1995 AND 1.55% AND 4.81%,
RESPECTIVELY, FOR THE PERIOD ENDED APRIL 30, 1994.
4
<PAGE>
THE FUND AND ITS MANAGEMENT
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Morgan Stanley Dean Witter Short-Term Bond Fund (the "Fund") (formerly named
Dean Witter Short-Term Bond Fund) is a no-load, open-end diversified management
investment company. The Fund is a trust of the type commonly known as a
"Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on October 22, 1993.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048, is
the Fund's Investment Manager. The Investment Manager is a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., a preeminent global financial
services firm that maintains leading market positions in each of its three
primary businesses--securities, asset management and credit services. The
Investment Manager, which was incorporated in July, 1992 under the name Dean
Witter InterCapital Inc., changed its name to Morgan Stanley Dean Witter
Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"), serve in various investment management,
advisory, management and administrative capacities to 101 investment companies,
28 of which are listed on the New York Stock Exchange, with combined assets of
approximately $110.3 billion at May 31, 1998. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $4.3 billion at such date.
The Fund has retained the Investment Manager, pursuant to an Investment
Management Agreement, to provide administrative services, manage its business
affairs and manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. MSDW Advisors has
retained MSDW Services to perform the aforementioned administrative services to
the Fund.
The Fund's Board of Trustees reviews the various services provided by the
Investment Manager to ensure that the Fund's general investment policies and
programs are being properly carried out and that administrative services are
being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
following annual rate of 0.70% to the Fund's net assets determined as of the
close of each business day. The Investment Manager has undertaken from January
1, 1997 through December 31, 1998 to assume all operating expenses (except for
any brokerage fees) and to waive its compensation without limitation. For the
fiscal year ended April 30, 1998, the Fund accrued total compensation to the
Investment Manager of 0.70% of the Fund's average daily net assets and the
Fund's total expenses amounted to an annual rate of 1.10% of the Fund's average
daily net assets exclusive of any waivers.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide investors with a high
level of current income, consistent with the preservation of capital. This
investment objective is a fundamental policy of the Fund and, as such, may not
be altered without the approval of the shareholders of the Fund. There is no
assurance that the Fund will achieve its investment objective.
The Fund seeks to achieve its investment objective by investing in
short-term, fixed-income securities with a dollar-weighted average portfolio
maturity of less than three years. The Fund may
5
<PAGE>
invest in nominally longer-term securities that have many of the characteristics
of shorter-term securities which will be deemed to have maturities earlier than
their ultimate maturity dates (E.G., securities with demand features). A
substantial portion of the Fund's portfolio will consist of fixed-income
securities issued by U.S. corporate issuers and by the U.S. Government, its
agencies and instrumentalities.
Under normal market conditions, at least 65% of the Fund's total assets will
be invested in bonds (for purposes of this provision, debt securities, which had
at time of issuance a maturity of greater than one year, are defined as
"bonds"). Furthermore, a portion of the Fund's portfolio (up to 25% of the
Fund's total assets) may be invested in fixed-income securities issued by
foreign corporate and government issuers.
The Fund is designed for the investor who seeks a higher yield than a money
market fund and less fluctuation in net asset value than a longer-term bond
fund. In addition, while an investment in the Fund is not federally insured and
there is no guarantee of price stability (the Fund is not a money market fund
with a virtually constant net asset value per share), an investment in the
Fund--unlike a certificate of deposit ("CD")--is not frozen for any specific
period of time, may be redeemed at any time without incurring early withdrawal
penalties, and may also provide a higher yield.
The non-governmental debt securities in which the Fund will invest will
include: (a) corporate debt securities, including bonds, notes and commercial
paper, rated in the four highest categories by a nationally recognized
statistical rating organization ("NRSRO") including Moody's Investors Service,
Inc., Standard & Poor's Corporation, Duff and Phelps, Inc. and Fitch Investors
Service, Inc.; (b) bank obligations, including CDs, banker's acceptances and
time deposits, issued by banks with a long-term CD rating in one of the four
highest categories by a NRSRO; and (c) investment grade fixed-rate and
adjustable rate Mortgage-Backed and Asset-Backed securities (see below) of
corporate issuers. Investments in securities rated within the four highest
rating categories by a NRSRO are considered "investment grade." However, such
securities rated within the fourth highest rating category by a NRSRO may have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings. Where a fixed-income security is not rated by a NRSRO (as
may be the case with a foreign security) the Investment Manager will make a
determination of its creditworthiness and may deem it to be investment grade.
The Fund may also invest in preferred stocks rated in one of the four
highest categories by a NRSRO.
Up to 5% of the Fund's net assets may be invested in fixed-income securities
rated below investment grade. Such lower-rated securities are considered to be
speculative investments and, while producing higher yields than investment grade
securities, are subject to greater credit risks. The Fund does not have any
minimum quality rating standards with respect to this portion of its portfolio.
If an investment grade fixed-income security held by the Fund is downgraded by a
rating agency to a grade below investment grade, the Fund may retain such
security in its portfolio unless such downgraded security, together with all
other non-investment grade fixed-income securities held by the Fund constitute,
in the aggregate, more than 5% of the Fund's net assets. In such event, the
Investment Manager will seek to sell such securities from its portfolio, as soon
as is reasonably practicable, in sufficient amounts to reduce this total to
below 5% of its net assets. A description of fixed-income security ratings is
contained in the Appendix to the Statement of Additional Information.
The United States Government securities (including zero coupon securities)
in which the
6
<PAGE>
Fund will invest include securities which are direct obligations of the United
States Government, such as United States treasury bills, and which are backed by
the full faith and credit of the United States; securities which are backed by
the full faith and credit of the United States but which are obligations of a
United States agency or instrumentality (E.G., obligations of the Government
National Mortgage Association); securities issued by a United States agency or
instrumentality which has the right to borrow, to meet its obligations, from an
existing line of credit with the United States Treasury (E.G., obligations of
the Federal National Mortgage Association); securities issued by a United States
agency or instrumentality which is backed by the credit of the issuing agency or
instrumentality (E.G., obligations of the Federal Farm Credit System); and
governmentally issued mortgage-backed securities.
In addition, as stated above, up to 25% of the Fund's total assets may be
invested in securities issued by foreign corporations and governments and their
agencies and instrumentalities. Such securities may be denominated in foreign
currencies. The principal foreign currencies in which such securities will be
denominated are: the Australian dollar; Deutsche mark; Japanese yen; French
franc; British pound; Canadian dollar; Mexican peso; Swiss franc; Dutch guilder;
Austrian schilling; Spanish Peseta; Swedish Krona; and European Currency Unit.
The Fund will only invest in foreign securities which are rated by a NRSRO as
investment grade or which, if unrated, are deemed by the Investment Manager to
be of investment grade creditworthiness.
RISKS AND PORTFOLIO CHARACTERISTICS
The net asset value of the Fund's shares will fluctuate with changes in the
market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The Fund's yield will
also vary based on the yield of the Fund's portfolio securities.
MORTGAGE-BACKED SECURITIES. As stated above, a portion of the Fund's
investments may be in Mortgage-Backed securities. Mortgage-Backed securities are
securities that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans secured by real property. The term
Mortgage-Backed securities as used herein includes adjustable rate mortgage
securities and derivative mortgage products such as collateralized mortgage
obligations, stripped Mortgage-Backed securities and other products described
below.
There are currently three basic types of Mortgage-Backed securities: (i)
those issued or guaranteed by the United States Government or one of its
agencies or instrumentalities, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC") (securities issued by GNMA, but
not those issued by FNMA or FHLMC, are backed by the "full faith and credit" of
the United States); (ii) those issued by private issuers that represent an
interest in or are collateralized by Mortgage-Backed securities issued or
guaranteed by the United States Government or one of its agencies or
instrumentalities; and (iii) those issued by private issuers that represent an
interest in or are collateralized by whole mortgage loans or Mortgage-Backed
securities without a government guarantee but usually having some form of
private credit enhancement (described below).
The Fund will invest in mortgage pass-through securities representing
participation interests in pools of residential mortgage loans originated by
United States governmental or private lenders and guaranteed, to the extent
provided in such securities, by the United States Government or one of its
agencies or instrumentalities. Such securities, which are ownership interests in
the underlying mortgage loans, differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually semiannually)
and principal payments at maturity or on specified call dates. Mortgage
pass-through securities provide for
7
<PAGE>
monthly payments that are a "pass-through" of the monthly interest and principal
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans, net of any fees paid to the guarantor of such securities
and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which the Fund invests
include those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA certificates
are direct obligations of the U.S. Government and, as such, are backed by the
"full faith and credit" of the United States. FNMA is a federally chartered,
privately owned corporation and FHLMC is a corporate instrumentality of the
United States. FNMA and FHLMC certificates are not backed by the full faith and
credit of the United States but the issuing agency or instrumentality has the
right to borrow, to meet its obligations, from an existing line of credit with
the U.S. Treasury. The U.S. Treasury has no legal obligation to provide such
line of credit and may choose not to do so.
Certificates for Mortgage-Backed securities evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the payment of
principal and interest on mortgages underlying the certificates, whether or not
such amounts are collected by the issuer on the underlying mortgages.
Private mortgage pass-through securities are structured similarly to the
GNMA, FNMA and FHLMC mortgage pass-through securities and are issued by
originators of and investors in mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. These securities usually are backed by a
pool of conventional fixed rate or adjustable rate mortgage loans. Since private
mortgage pass-through securities typically are not guaranteed by an entity
having the credit status of GNMA, FNMA and FHLMC, such securities generally are
structured with one or more types of credit enhancement.
The Fund may also invest in adjustable rate mortgage securities ("ARMs"),
which are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed rates. ARMs eligible for inclusion in a mortgage
pool generally provide for a fixed initial mortgage interest rate for either the
first three, six, twelve or thirteen, twenty-four, thirty-six or longer
scheduled monthly payments. Thereafter, the interest rates are subject to
periodic adjustment based on changes to a designated benchmark index. ARMs
contain maximum and minimum rates beyond which the mortgage interest rate may
not vary over the lifetime of the security. In addition, certain ARMs provide
for additional limitations on the maximum amount by which the mortgage interest
rate may adjust for any single adjustment period. Alternatively, certain ARMs
contain limitations on changes in the required monthly payment. In the event
that a monthly payment is not sufficient to pay the interest accruing on an ARM,
any such excess interest is added to the principal balance of the mortgage loan,
which is repaid through future monthly payments. If the monthly payment for such
an instrument exceeds the sum of the interest accrued at the applicable mortgage
interest rate and the principal payment required at such point to amortize the
outstanding principal balance over the remaining term of the loan, the excess is
utilized to reduce the then outstanding principal balance of the ARM.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may invest in collateralized
mortgage obligations or "CMOs". CMOs are debt obligations collateralized by
mortgage loans or mortgage pass-through securities. Typically, CMOs are
collateralized by GNMA, FNMA, or FHLMC certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral is collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage
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Assets. Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distributions on the multiclass pass-through securities. CMOs
may be issued by agencies or instrumentalities of the United States Government,
or by private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of the foregoing.
The issuer of a series of CMOs may elect to be treated as a Real Estate
Mortgage Investment Conduit ("REMIC"). REMICs include governmental and/ or
private entities that issue a fixed pool of mortgages secured by an interest in
real property. REMICs are similar to CMOs in that they issue multiple classes of
securities, but unlike CMOs, which are required to be structured as debt
securities, REMICs may be structured as indirect ownership interests in the
underlying assets of the REMICs themselves. However, there are no effects on the
Fund from investing in CMOs issued by entities that have elected to be treated
as REMICs, and all future references to CMOs shall also be deemed to include
REMICs. In addition, in reliance upon an interpretation by the staff of the
Securities and Exchange Commission with respect to limitations contained in
Section 12(d) of the Act, the Fund may invest without limitation in CMOs and
other Mortgage-Backed securities which are not by definition excluded from the
provisions of the Act, and which have obtained exemptive orders from such
provisions from the Securities and Exchange Commission.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis. Certain CMOs may have variable or floating
interest rates and others may be stripped (securities which provide only the
principal or interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of a CMO series in a number of different ways. Generally,
the purpose of the allocation of the cash flow of a CMO to the various classes
is to obtain a more predictable cash flow to the individual tranches than exists
with the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO tranche, the lower the anticipated yield
will be on that tranche at the time of issuance relative to prevailing market
yields on Mortgage-Backed securities. As part of the process of creating more
predictable cash flows on most of the tranches in a series of CMOs, one or more
tranches generally must be created that absorb most of the volatility in the
cash flows on the underlying mortgage loans. The yields on these tranches are
generally higher than prevailing markets yields on Mortgage-Backed securities
with similar maturities. As a result of the uncertainty of the cash flows of
these tranches, the market prices of and yield on these tranches generally are
more volatile.
The Fund may invest up to 10% of its total assets in inverse floaters.
Inverse floaters constitute a class of CMOs with a coupon rate that moves
inversely to a designated index, such as the LIBOR (London Inter-Bank Offered
Rate) Index. Inverse floaters have coupon rates that typically change at a
multiple of the changes of the relevant index rate. Any rise in the index rate
(as a consequence of an increase in interest rates) causes a drop in the coupon
rate of an inverse floater while any drop in the index rate causes an increase
in the coupon of an inverse floater. In addition, like most other fixed-income
securities, the value of inverse floaters will decrease as interest rates
increase. Inverse floaters exhibit greater price volatility than the majority of
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mortgage pass-through securities or CMOs. In addition, some inverse floaters
exhibit extreme sensitivity to changes in prepayments. As a result, the yield to
maturity of an inverse floater is sensitive not only to changes in interest
rates but also to changes in prepayment rates on the related underlying Mortgage
Assets.
The Fund also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped Mortgage-Backed securities
are derivative multiclass mortgage securities. Stripped Mortgage-Backed
securities may be issued by agencies or instrumentalities of the United States
Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Up to 15% of
the net assets of the Fund may be invested in Stripped Mortgage-Backed
Securities.
Stripped Mortgage-Backed securities usually are structured with two classes
that receive different proportions of the interest and principal distribution on
a pool of Mortgage Assets. A common type of Stripped Mortgage-Backed security
will have one class receiving some of the interest and most of the principal
from the Mortgage Assets, while the other class will receive most of the
interest and the remainder of the principal. In the most extreme case, one class
will receive all of the interest (the interest-only or "IO" class), while the
other class receive all of the principal (the principal-only or "PO" class). PO
classes generate income through the accretion of the deep discount at which such
securities are purchased, and, while PO classes do not receive periodic payments
of interest, they receive monthly payments associated with scheduled
amortization and principal prepayment from the Mortgage Assets underlying the PO
class. The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying Mortgage
Assets, and a rapid rate of principal payments may have a material adverse
effect on the Fund's yield to maturity. If the underlying Mortgage Assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities even if the
securities are rated investment grade.
The Fund may purchase Stripped Mortgage-Backed securities for income, or for
hedging purposes to protect the Fund's portfolio against interest rate
fluctuations. For example, since an IO class will tend to increase in value as
interest rates rise, it may be utilized to hedge against a decrease in value of
other fixed-income securities in a rising interest rate environment. The Fund's
management understands that the staff of the Securities and Exchange Commission
("SEC") considers privately issued Stripped Mortgage-Backed securities
representing interest only or principal only components of U.S. Government or
other debt securities to be illiquid securities. The Fund will treat such
securities as illiquid so long as the staff maintains such position. The staff
of the SEC also takes the position that the determination of whether a
particular government-issued IO or PO backed by fixed-rate mortgages is liquid
may be made under guidelines and standards established by the Fund's Trustees.
Such securities may be deemed liquid if they can be disposed of promptly in the
ordinary course of business at a value reasonably close to that used in the
calculation of the net asset value per share. The Fund may
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not invest more than 15% of its net assets in illiquid securities.
TYPES OF CREDIT ENHANCEMENT. Mortgage-Backed securities are often backed by
a pool of assets representing the obligations of a number of different parties.
To lessen the effect of failures by obligors on underlying assets to make
payments, those securities may contain elements of credit support, which fall
into two categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from default ensures ultimate payment of the obligations on at least a
portion of assets in the pool. This protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquencies or
losses in excess of those anticipated could adversely affect the return on an
investment in a security. In addition, any circumstances adversely affecting the
ability of third parties (E.G., insurance companies) to satisfy any of their
obligations with respect to any Mortgage-Backed security, such as a diminishment
of their creditworthiness, could adversely affect the value of the security. The
Fund will not pay any fees for credit support, although the existence of credit
support may increase the price of a security.
RISKS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed securities have
certain different characteristics than traditional debt securities. Among the
major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be prepaid
at any time. As a result, if the Fund purchases such a security at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Alternatively, if the Fund purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity. The Fund
may invest a portion of its assets in derivative Mortgage-Backed securities such
as Stripped Mortgage-Backed securities which are highly sensitive to changes in
prepayment and interest rates. The Investment Manager seeks to manage these
risks (and potential benefits) by investing in a variety of such securities and
through hedging techniques.
Mortgage-Backed securities, like all fixed income securities, generally
decrease in value as a result of increases in interest rates. In addition,
although generally the value of fixed-income securities increases during periods
of falling interest rates and, as stated above, decreases during periods of
rising interest rates, as a result of prepayments and other factors, this is not
always the case with respect to Mortgage-Backed securities.
Although the extent of prepayments on a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Accordingly, amounts
available for reinvestment by the Fund are likely to be greater during a period
of declining interest rates and, as a result, likely to be reinvested at lower
interest rates than during a period of rising interest rates. Mortgage-Backed
securities generally decrease in value as a result of increases in interest
rates and may benefit less than other fixed-income securities from declining
interest rates because of the risk of prepayment.
There are certain risks associated specifically with CMOs. CMOs issued by
private entities are not
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U.S. Government securities and are not guaranteed by any government agency,
although the securities underlying a CMO may be subject to a guarantee.
Therefore, if the collateral securing the CMO, as well as any third party credit
support or guarantees, is insufficient to make payment, the holder could sustain
a loss. Also, a number of different factors, including the extent of prepayment
of principal of the Mortgage Assets, affect the availability of cash for
principal payments by the CMO issuer on any payment date and, accordingly,
affect the timing of principal payments on each CMO class. In addition, CMO
classes with higher yields tend to be more volatile with respect to cash flow of
the underlying mortgages; as a result the market prices of a yield on these
classes tend to be more volatile.
ASSET-BACKED SECURITIES. The Fund may invest in Asset-Backed securities.
Asset-Backed securities represent the securitization techniques used to develop
Mortgage-Backed securities applied to a broad range of other assets. Through the
use of trusts and special purpose corporations, various types of assets,
primarily automobile and credit card receivables and home equity loans, are
being securitized in pass-through structures similar to the mortgage
pass-through structures described above or in a pay-through structure similar to
the CMO structure.
Asset-Backed securities involve certain risks that are not posed by
Mortgage-Backed securities, resulting mainly from the fact that Asset-Backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, including the bankruptcy laws, some of which
may reduce the ability to obtain full payment. In the case of automobile
receivables, due to various legal and economic factors, proceeds for repossessed
collateral may not always be sufficient to support payments on these securities.
New instruments and variations of existing Mortgage-Backed securities and
Asset-Backed securities continue to be developed. The Fund may invest in any
such instruments or variations as may be developed, to the extent consistent
with its investment objective and policies and applicable regulatory
requirements.
FOREIGN SECURITIES. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United States
and abroad) or changed circumstances in dealings between nations. Fluctuations
in the relative rates of exchange between different currencies will affect the
value of the Fund's investments denominated in foreign currency. Changes in
foreign currency exchange rates relative to the U.S. dollar will affect the U.S.
dollar value of the Fund's assets denominated in that currency and thereby
impact upon the Fund's total return on such assets. When purchasing foreign
securities, the Fund will generally enter into foreign currency exchange
transactions or forward foreign exchange contracts to facilitate settlement. The
Fund will utilize forward foreign exchange contracts in these instances as an
attempt to limit the effect of changes in the relationship between the U.S.
dollar and the foreign currency during the period between the trade date and the
settlement date for the transaction.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward contracts or
futures contracts (described in the Statement of Additional Information). The
Fund will incur
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certain costs in connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to the more
rigorous uniform accounting, auditing and financial reporting standards and
requirements applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the Fund
due to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments. To the
extent the Fund purchases Eurodollar certificates of deposit issued by foreign
branches of domestic United States banks, consideration will be given to their
domestic marketability, the lower reserve requirements normally mandated for
overseas banking operations, the possible impact of interruptions in the flow of
international currency transactions, and future international political and
economic developments which might adversely affect the payment of principal or
interest.
Many European countries are about to adopt a single European currency, the
euro (the "Euro Conversion"). The consequences of the Euro Conversion for
foreign exchange rates, interest rates and the value of European securities
eligible for purchase by the Fund are presently unclear. Such consequences may
adversely affect the value and/or increase the volatility of securities held by
the Fund.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer. The
agreement provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase agreements only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Trustees of the Fund. In addition, as
described above,the value of the collateral underlying the repurchase agreement
will be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in
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the ordinary course of business, the Fund may purchase securities on a
when-issued or delayed delivery basis or may purchase or sell securities on a
forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
month or more after the date of the commitment. While the Fund will only
purchase securities on a when-issued, delayed delivery or forward commitment
basis with the intention of acquiring the securities, the Fund may sell the
securities before the settlement date, if it is deemed advisable. The securities
so purchased or sold are subject to market fluctuation and no interest accrues
to the purchaser during this period. At the time the Fund makes the commitment
to purchase or sell securities on a when-issued, delayed delivery or forward
commitment basis, it will record the transaction and thereafter reflect the
value, each day, of such security purchased or, if a sale, the proceeds to be
received in determining its net asset value. At the time of delivery of the
securities, their value may be more or less than the purchase or sale price. The
Fund will also establish a segregated account with its custodian bank in which
it will continually maintain cash or cash equivalents or other liquid portfolio
securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
when-issued, delayed delivery or forward commitment basis may increase the
volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. The commitment
for the purchase of any such security will not be recognized by the Fund until
the Investment Manager determines that issuance of the security is probable. At
such time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At such time, the
Fund will also establish a segregated account with its custodian bank in which
it will continuously maintain cash or U.S. Government securities or other liquid
debt portfolio securities equal in value to recognized commitments for such
securities. Settlement of the trade will occur within five business days of the
occurrence of the subsequent event. With respect to 75% of its total assets, the
value of the Fund's commitments to purchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund, may
not exceed 5% of the value of the Fund's total assets at the time the initial
commitment to purchase such securities is made (see "Investment Restrictions").
Subject to the foregoing restrictions, the Fund may purchase securities on such
basis without limit. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value. The Investment Manager and the
Trustees do not believe that the net asset value of the Fund will be adversely
affected by its purchase of securities on such basis.
ZERO COUPON SECURITIES. A portion of the U.S. Government securities
purchased by the Fund may be "zero coupon" Treasury securities. These are U.S.
Treasury bills, notes and bonds which have been stripped of their unmatured
interest coupons and receipts or which are certificates representing interests
in such stripped debt obligations and coupons. In addition, a portion of the
fixed-income securities purchased by such Fund may be "zero coupon" securities.
"Zero coupon" securities are purchased at a discount from their face amount,
giving the purchaser the right to receive their full value at maturity. A zero
coupon security pays no interest to its holder during its life. Its value to an
investor consists of the difference between its face value at the time of
maturity and the price for which it was acquired, which is generally an amount
significantly less than its face value (sometimes referred to as a "deep
discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out
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at maturity. While such compounding at a constant rate eliminates the risk of
receiving lower yields upon reinvestment of interest if prevailing interest
rates decline, the owner of a zero coupon security will be unable to participate
in higher yields upon reinvestment of interest received if prevailing interest
rates rise. For this reason, zero coupon securities are subject to substantially
greater market price fluctuations during periods of changing prevailing interest
rates than are comparable debt securities which make current distributions of
interest. Current federal tax law requires that a holder (such as the Fund) of a
zero coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the Fund receives no interest payments
in cash on the securities during the year.
Currently, the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
Except as specifically noted, all investment policies and practices
discussed in this Prospectus are not fundamental policies of the Fund and, as
such, may be changed without shareholder approval.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
PORTFOLIO MANAGEMENT
The Fund's portfolio is managed by its Investment Manager with a view to
achieving its investment objective. The Fund is managed within the Taxable
Income Group, which manages 23 taxable mutual funds and fund portfolios, with
approximately $13.9 billion in assets as of May 31, 1998. Rochelle G. Siegel,
Senior Vice President of MSDW Advisors and a member of the Corporate Bond Group,
has been designated as the Fund's primary portfolio manager. Ms. Siegel has been
managing portfolios comprised of fixed-income securities for more than 20 years
and has been a portfolio manager at MSDW Advisors for over five years.
Securities purchased by the Fund are, generally, sold by dealers acting as
principal for their own accounts. Pursuant to an order issued by the Securities
and Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with Dean Witter Reynolds Inc., Morgan Stanley & Co.
Incorporated and other broker-dealers that are affiliates of the Investment
Manager. In addition, the Fund may incur brokerage
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commissions on transactions conducted through Dean Witter Reynolds Inc.
Although the Fund does not intend to engage in substantial short-term
trading, it may sell portfolio securities without regard to the length of time
that they have been held, in order to take advantage of new investment
opportunities or yield differentials, or because the Fund desires to preserve
gains or limit losses due to changing economic conditions, interest rate trends,
or the financial condition of the issuer. The Fund anticipates a portfolio
turnover rate of no more than 100%.
INVESTMENT IN OTHER INVESTMENT VEHICLES. Under the Investment Company Act of
1940, as amended (the "Act"), the Fund generally may invest up to 10% of its
total assets in the aggregate in shares of other investment companies and up to
3% of its total assets in any one investment company, as long as that investment
company does not represent more than 5% of the voting stock of the acquired
investment company at the time such shares are purchased. In addition, the Fund
may invest in real estate investment trusts, which pool investors' funds for
investments primarily in commercial real estate properties. Investment in other
investment companies may be the sole or most practical means by which the Fund
may participate in certain securities markets, and investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in an investment company or real estate
investment trust, the Fund would bear its ratable share of that entity's
expenses, including its advisory and administration fees. At the same time the
Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will be
absorbing duplicate levels of fees with respect to investments in other
investment companies and in real estate investment trusts.
INVESTMENT RESTRICTIONS
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The investment restrictions listed below are among the restrictions that
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations issued,
or guaranteed by, the United States Government, its agencies or
instrumentalities).
2. As to 75% of its total assets, purchase more than 10% of all outstanding
voting securities or any class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to Mortgage-Backed
securities or Asset-Backed securities or to any obligation of the United States
Government, its agencies or instrumentalities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
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Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PURCHASE OF FUND SHARES
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The Fund offers its shares for sale to the public on a continuous basis at
the offering price without the imposition of a sales charge. The offering price
will be the net asset value per share next determined following receipt of an
order (see "Determination of Net Asset Value"). Pursuant to a Distribution
Agreement between the Fund and Morgan Stanley Dean Witter Distributors Inc.
("MSDW Distributors" or the "Distributors"), an affiliate of the Investment
Manager, shares of the Fund are distributed by the Distributor and are offered
by Dean Witter Reynolds Inc. ("DWR"), a selected dealer and subsidiary of Morgan
Stanley Dean Witter & Co., and other broker-dealers which have entered into
agreements with the Distributor ("Selected Broker-Dealers"). It is anticipated
that DWR will undergo a change of corporate name which is expected to
incorporate the brand name of "Morgan Stanley Dean Witter," pending approval of
various regulatory authorities. The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000 and subsequent purchases of $100 or
more may be made by sending a check, payable to Morgan Stanley Dean Witter
Short-Term Bond Fund, directly to Morgan Stanley Dean Witter Trust FSB (the
"Transfer Agent" or "MSDW Trust") at P.O. Box 1040, Jersey City, NJ 07303 or by
contacting a Morgan Stanley Dean Witter Financial Advisor or other Selected
Broker-Dealer Representative. The minimum initial purchase in the case of
investments through EasyInvest-SM-, an automatic purchase plan (see "Shareholder
Services"), is $100, provided that the schedule of automatic investments will
result in investments totalling at least $1,000 within the first twelve months.
The minimum initial purchase in the case of an "Education IRA" is $500, if the
Distributor has reason to believe that additional investments will increase the
investment in the account to $1,000 within three years. In the case of
investments pursuant to (i) Systematic Payroll Deduction Plans (including
Individual Retirement Plans), (ii) the MSDW Advisors mutual fund asset
allocation program and (iii) fee-based programs approved by the Distributor,
pursuant to which participants pay an asset based fee for services in the nature
of investment advisory, administrative and/or brokerage services, the Fund, in
its discretion, may accept investments without regard to any minimum amounts
which would otherwise be required, provided, in the case of Systematic Payroll
Deduction Plans, that the Distributor has reason to believe that additional
investments will increase the investment in all accounts under such Plans to at
least $1,000. In the case of investments pursuant to Systematic Payroll
Deduction Plans, the Fund, in its discretion, may accept investments without
regard to any minimum amounts which would otherwise be required if the Fund has
reason to believe that additional investments will increase the investment in
all accounts under such Plans to at least $1,000. Certificates for shares
purchased will not be issued unless a request is made by the shareholder in
writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor or a Selected
Broker-Dealer on a normal three business day settlement basis; that is, payment
is due on the third business day (settlement date) after the order is placed
with the Distributor or Selected Broker-Dealer. Shares of the Fund purchased
through the Distributor or Selected Broker-Dealer are entitled to dividends
beginning on the next business day following settlement date. Since DWR or any
other Selected Broker-Dealer may forward investors' funds on settlement date, it
will benefit from the temporary use of the funds if payment is made prior
thereto. Shares purchased through the
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Transfer Agent are entitled to dividends beginning on the next business day
following receipt of an order. As noted above, orders placed directly with the
Transfer Agent must be accompanied by payment. Investors will be entitled to
receive dividends or distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions.
Sales personnel of a Selected Broker-Dealer are compensated for shares of
the Fund sold by them by the Distributor or any of its affiliates and/or by a
Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation as special
sales incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
PLAN OF DISTRIBUTION
The Fund has entered into a Plan of Distribution pursuant to Rule 12b-1
under the Act with the Distributor whereby the Distributor is authorized to
utilize its own resources or those of its affiliates, including MSDW Advisors,
to finance certain services and activities in connection with the distribution
of the Fund's shares. The principal activities and services which may be
provided by the Distributor, DWR, its affiliates and other Selected
Broker-Dealers under the Plan include: (1) compensation to, and expenses of,
Morgan Stanley Dean Witter Financial Advisors and other employees of DWR and
other Selected Broker-Dealers, including overhead and telephone expenses; (2)
sales incentives and bonuses to sales representatives and to marketing personnel
in connection with promoting sales of the Fund's shares; (3) expenses incurred
in connection with promoting sales of the Fund's shares; (4) preparing and
distributing sales literature; and (5) providing advertising and promotional
activities, including direct mail solicitation and television, radio, newspaper,
magazine and other media advertisements.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time, (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open by taking the value of all assets of the Fund, subtracting all
its liabilities, dividing by the number of shares outstanding and adjusting to
the nearest cent. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by the
New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued; if there were no sales that
day, the security, is valued at the latest bid price (in cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated as the primary market pursuant to procedures adopted by the
Trustees); and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available bid
price prior to the time of valuation. When market quotations are not readily
available, including circumstances under which it is determined by the
Investment Manager that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Fund's Trustees. For valuation purposes, quotations of foreign portfolio
securities are translated into U.S. dollar equivalents at the prevailing market
rates as of the morning of valuation. Dividends receivable are accrued as of the
ex-dividend date or as of the time that the relevant ex-dividend date and
amounts become known.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the
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Trustees determine such does not reflect the securities' market value, in which
case these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
SHAREHOLDER SERVICES
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AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund, (or, if specified by the shareholder, any open-end
investment company for which MSDW Advisors serves as investment manager
(collectively, with the Fund, the "Morgan Stanley Dean Witter Funds") unless the
shareholder requests that they be paid in cash. Such dividends and distributions
will be paid in shares of the Fund at net asset value per share. At any time an
investor may request the Transfer Agent in writing to have subsequent dividends
and/or capital gains distributions paid to the investor in cash rather than
shares. To assure sufficient time to process the change, such request should be
received by the Transfer Agent at least five business days prior to the payment
date for which it commences to take effect. In the case of recently purchased
shares for which registration instructions have not been received on the record
date, cash payments will be made to DWR or other Selected Broker-Dealer through
whom shares were purchased.
INVESTMENT OF DISTRIBUTIONS RECEIVED IN CASH. Any shareholder who receives a
cash payment representing a dividend or capital gains distribution may invest
such dividend or distribution at the net asset value next determined after
receipt by the Transfer Agent by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date.
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Fund's Transfer Agent for
investment in shares of the Fund (see "Purchase of Fund Shares" and "Redemptions
and Repurchases--Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer Representative or the Transfer Agent for
further information about any of the above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
the self-employed, eligible Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax advisor. For further
information regarding plan administration, custodial fees and other details,
investors should contact their Morgan Stanley Dean Witter Financial Advisor or
other Selected Broker-Dealer Representative or the Transfer Agent.
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EXCHANGE PRIVILEGE
An "Exchange Privilege," that is, the privilege of exchanging shares of
certain Morgan Stanley Dean Witter Funds for shares of the Fund, exists whereby
shares of Morgan Stanley Dean Witter Funds that are multiple class funds
("Morgan Stanley Dean Witter Multi-Class Funds"), shares of Morgan Stanley Dean
Witter Multi-State Municipal Series Trust and Morgan Stanley Dean Witter Hawaii
Municipal Trust, which are Morgan Stanley Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"), and shares of Morgan Stanley Dean Witter
Global Short-Term Income Fund Inc. ("Global Short-Term"), which is a Morgan
Stanley Dean Witter Fund offered with a contingent deferred sales charge
("CDSC"), may be exchanged for shares of the Fund, Morgan Stanley Dean Witter
Intermediate Term U.S. Treasury Trust, Morgan Stanley Dean Witter Limited Term
Municipal Trust and Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust,
and for shares of five Morgan Stanley Dean Witter Funds which are money market
funds: Morgan Stanley Dean Witter Liquid Asset Fund Inc., Morgan Stanley Dean
Witter U.S. Government Money Market Trust, Morgan Stanley Dean Witter Tax-Free
Daily Income Trust, Morgan Stanley Dean Witter California Tax Free Daily Income
Trust and Morgan Stanley Dean Witter New York Municipal Money Market Trust
(which nine funds, including the Fund, are hereinafter collectively referred to
as "Exchange Funds"). Shares of the Exchange Funds received in an exchange for
shares of a Morgan Stanley Dean Witter Multi-Class Fund may be redeemed and
exchanged only for shares of the corresponding Class of a Morgan Stanley Dean
Witter Multi-Class Fund or for shares of one of the other Exchange Funds,
provided that shares of the Exchange Funds received in an exchange for Class A
shares of a Morgan Stanley Dean Witter Multi-Class Fund may also be redeemed and
exchanged for shares of a FSC Fund and shares of the Exchange Funds received in
an exchange for Class B shares of a Morgan Stanley Dean Witter Multi-Class Fund
may also be redeemed and exchanged for shares of Global Short-Term. In addition,
shares of the Exchange Funds received in an exchange for shares of a FSC Fund
may be redeemed and exchanged for Class A shares of a Morgan Stanley Dean Witter
Multi-Class Fund or for shares of one of the other Exchange Funds, and shares of
the Exchange Funds received in an exchange for shares of Global Short-Term may
be redeemed and exchanged for Class B shares of a Morgan Stanley Dean Witter
Multi-Class Fund or for shares of one of the other Exchange Funds.
An exchange to an Exchange Fund that is not a money market fund is on the
basis of the next calculated net asset value per share of each fund after the
exchange order is received. When exchanging into a money market fund, shares of
the Morgan Stanley Dean Witter Multi-Class Fund, the FSC Fund, Global Short-Term
or the Exchange Fund are redeemed at their next calculated net asset value and
exchanged for shares of the money market fund at their net asset value
determined the following business day. Ultimately, any applicable CDSC will have
to be paid upon redemption of shares originally purchased from Global Short-Term
or a Class of a Morgan Stanley Dean Witter Multi-Class Fund that imposes a CDSC.
(If shares of an Exchange Fund received in exchange for shares originally
purchased from Global Short-Term or Class B of a Morgan Stanley Dean Witter
Multi-Class Fund are exchanged for shares of Global Short-Term or another Morgan
Stanley Dean Witter Multi-Class Fund having a different CDSC schedule than that
of Global Short-Term or the Morgan Stanley Dean Witter Multi-Class Fund from
which the Exchange Fund shares were acquired, the shares will be subject to the
higher CDSC schedule). During the period of time the shares originally purchased
from Global Short-Term or from a Class of a Morgan Stanley Dean Witter
Multi-Class Fund that imposes a CDSC remain in the Exchange Fund, the holding
period (for the purpose of determining the rate of CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a Morgan Stanley Dean Witter
Multi-Class Fund or shares of Global Short-Term, the holding period previously
frozen when the first exchange
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was made resumes on the last day of the month in which shares of a Morgan
Stanley Dean Witter Multi-Class Fund or shares of Global Short-Term are
reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of a Morgan Stanley Dean Witter
Multi-Class Fund or in shares of Global Short-Term. In the case of exchanges of
Class A shares of a Morgan Stanley Dean Witter Multi-Class Fund which are
subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in shares of a FSC Fund. In the
case of shares exchanged into an Exchange Fund on or after April 23, 1990, upon
a redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 fees, if any, incurred on or after that date which are attributable
to those shares (see "Purchase of Fund Shares--Plan of Distribution" in the
respective Exchange Fund Prospectus for a description of Exchange Fund
distribution fees). Exchanges may be made after the shares of the fund acquired
by purchase (not by exchange or dividend reinvestment) have been held for thirty
days. There is no waiting period for exchanges of shares acquired by exchange or
dividend reinvestment.
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional purchases
and/ or exchanges from the investor. Although the Fund does not have any
specific definition of what constitutes a pattern of frequent exchanges, and
will consider all relevant factors in determining whether a particular situation
is abusive and contrary to the best interests of the Fund and its other
shareholders, investors should be aware that the Fund and each of the other
Morgan Stanley Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange.
The Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such Morgan Stanley Dean Witter Funds for which shares of the Fund
may be exchanged, upon such notice as may be required by applicable regulatory
agencies (presently sixty days' prior written notice for termination or material
revision), provided that six months' prior written notice of termination will be
given to the shareholders who hold shares of the Exchange Funds pursuant to this
Exchange Privilege, and provided further that the Exchange Privilege may be
terminated or materially revised without notice under certain unusual
circumstances. Shareholders maintaining margin accounts with DWR or another
Selected Broker-Dealer are referred to their Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer Representative regarding
restrictions on exchange of shares of the Fund pledged in their margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain one and read it carefully before
investing. Exchanges are subject to the minimum investment requirement of each
Class of shares and any other conditions imposed by each fund. An exchange will
be treated for federal income tax purposes the same as a repurchase or
redemption of shares on which the shareholder has realized a capital gain or
loss. However, the ability to deduct capital losses on an exchange may be
limited in situations where there is an exchange of shares within ninety days
after the shares are purchased. The Exchange Privilege is only available in
states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers
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are part of the account information, shareholders may initiate an exchange of
shares of the Fund for shares of any of the above Morgan Stanley Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their Morgan Stanley Dean Witter Financial Advisor or
other Selected Broker-Dealer Representative (no Exchange Privilege Authorization
Form is required). Other shareholders (and those who are clients of DWR or other
Selected Broker-Dealer but who wish to make exchanges directly by writing or
telephoning the Transfer Agent) must complete and forward to the Transfer Agent
an Exchange Privilege Authorization Form, copies of which may be obtained from
the Fund, to initiate an exchange. If the Authorization Form is used, exchanges
may be made in writing or by contacting the Transfer Agent at (800) 869-NEWS
(toll free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer Representative, if
appropriate, or make a written exchange request. Shareholders are advised that
during periods of drastic economic or market changes, it is possible that the
telephone exchange procedures may be difficult to implement, although this has
not been the experience of the other Morgan Stanley Dean Witter Funds in the
past.
Additional information on the above is available from an account executive
of Morgan Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
Representative from the Transfer Agent.
REDEMPTIONS AND REPURCHASES
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REDEMPTION. Shares of the Fund can be redeemed for cash at any time at its
respective current net asset value per share (without any redemption or other
charge). If shares are held in a shareholder's account without a share
certificate, a written request for redemption is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or an
accompanying stock power, and the request for redemption, must be signed by the
shareholder or shareholders exactly as the shares are registered. Each request
for redemption, whether or not accompanied by a share certificate, must be sent
to the Fund's Transfer Agent at P.O Box 983, Jersey City, NJ 07303, which will
redeem the shares at their net asset value next determined (see "Purchase of
Fund Shares--Determination of Net Asset Value") after it receives the request,
and certificates, if any, in good order. Any redemption request received after
such determination will be redeemed at the price next determined. The term "good
order" means that the share certificates, if any, and request for redemption are
properly signed, accompanied by any documentation required by the Transfer
Agent, and bear signature guarantees when required by the Fund or the Transfer
Agent. If redemption is requested by a corporation, partnership, trust or
fiduciary, the Transfer Agent may require that written evidence of authority
acceptable to the Transfer Agent be submitted before such request will be
accepted. A stock power may be obtained from any dealer or commercial
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<PAGE>
bank. The Fund may change the signature guarantee requirements upon notice to
shareholders, which may be by means of a new Prospectus.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor for the account of the shareholder), partnership, trust or
fiduciary, or sent to the shareholder at an address other than the registered
address, signature(s) must be guaranteed by an eligible guarantor acceptable to
the Transfer Agent (shareholders should contact the Transfer Agent for a
determination as to whether a particular institution is an eligible guarantor).
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next determined (see "Purchase of Fund Shares-- Determination of Net
Asset Value") after such repurchase order is received by DWR or other Selected
Broker-Dealer. Payment for shares repurchased may be made by the Fund to the
Distributor for the account of the shareholder. The offer by DWR and other
Selected Broker-Dealers to repurchase shares from shareholders may be suspended
without notice by them at any time. In that event, shareholders may redeem their
shares through the Fund's Transfer Agent as set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their Morgan Stanley Dean Witter Financial Advisor
or other Selected Broker-Dealer Representative regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the redemption or
repurchase, reinstate any portion or all of the proceeds of such redemption or
repurchase in shares of the Fund at net asset value next determined after a
reinstatement request, together with the proceeds, is received by the Transfer
Agent.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on 60 days'
notice and at net asset value, the shares (other than shares held in an
Individual Retirement Account or custodial account under Section 403(b)(7) of
the Internal Revenue Code) of any shareholder whose shares have a value of less
than $100 as a result of redemptions or repurchases, or such lesser amount as
may be fixed by the Trustees or, in the case of an account opened through
EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account. However, before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares is less than the applicable amount and allow the shareholder sixty
days in which to make an additional investment in an amount which will increase
the value of his or her account to at least the applicable amount or more before
the redemption is processed.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends on each day the
New York Stock Exchange is open for business. Such dividends are payable
monthly. The Fund intends to distribute substantially all of its daily net
investment income on an annual basis. Dividends from net capital gains, if any,
will be paid at least once each year.
Shareholders may instruct the Transfer Agent (in writing) to have their
dividends paid out monthly in cash. Processing of dividend checks begins
immediately following the monthly payment date. Shareholders who have requested
to receive dividends in cash will normally be sent their monthly dividend check
during the first ten days of the following month.
TAXES. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
federal income tax on such income and capital gains.
Shareholders who are required to pay taxes on their income will normally
have to pay federal income taxes, and any applicable state and/or local income
taxes, on the dividends and distributions they receive from the Fund. Such
dividends and distributions, to the extent that they are derived from net
investment income and net short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. Any dividends
declared in the last quarter of any calendar year which are paid in the
following year prior to February 1 will be deemed, for tax purposes, to have
been received by the shareholder in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. It is not anticipated that any portion of the
Fund's distributions will be eligible for the dividends received deduction to
corporate shareholders.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
Shareholders will also be notified of their proportionate share of long-term
capital gains distributions that are eligible for a reduced rate of tax under
the Taxpayer Relief Act of 1997.
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy. Shareholders who are not citizens or residents
of, or entities organized in, the United States may be subject to withholding
taxes of up to 30% on certain payments received from the Fund.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject to
state and local taxes; therefore, each shareholder is advised to consult his or
her own tax advisor.
PERFORMANCE INFORMATION
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From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return of
the Fund are based on historical earnings
24
<PAGE>
and are not intended to indicate future performance. The yield of the Fund is
computed by dividing the net investment income of the Fund over a 30-day period
by an average value (using the average number of shares entitled to receive
dividends and the net asset value per share at the end of the period), all in
accordance with applicable regulatory requirements. Such amount is compounded
for six months and then annualized for a twelve-month period to derive the yield
of the Fund.
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average annual
total return" of the Fund refers to a figure reflecting the average annualized
percentage increase (or decrease) in the value of an initial investment in the
Fund of $1,000 over periods of one, five and ten years or over the life of the
Fund, if less than any of the foregoing. Average annual total return reflects
all income earned by the Fund, any appreciation or depreciation of the Fund's
assets, all expenses incurred by the Fund and any sales charges which would be
incurred by redeeming shareholders, for the period. It also assumes reinvestment
of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, and year-by-year or
other types of total return figures. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the Fund.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations
(such as mutual fund performance rankings of Lipper Analytical Services, Inc.).
ADDITIONAL INFORMATION
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VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges. There are
no conversion, pre-emptive or other subscription rights. In the event of
liquidation, each share of beneficial interest of the Fund is entitled to its
portion of all of the Fund's assets after all debts and expenses have been paid.
The shares do not have cumulative voting rights.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.
CODE OF ETHICS. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted by
those companies. The Code of Ethics is intended to ensure that the interests of
shareholders and other clients are placed ahead of any personal interest, that
no undue personal benefit is obtained from a person's employment activities
25
<PAGE>
and that actual and potential conflicts of interest are avoided. To achieve
these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Morgan Stanley Dean Witter Fund is engaged at the same time in a purchase or
sale of the same security. The Code of Ethics bans the purchase of securities in
an initial public offering, and also prohibits engaging in futures and option
transactions and profiting on short-term trading (that is, a purchase within
sixty days of a sale or a sale within sixty days of a purchase) of a security.
In addition, investment personnel may not purchase or sell a security for their
personal account within thirty days before or after any transaction in any
Morgan Stanley Dean Witter Fund managed by them. Any violations of the Code of
Ethics are subject to sanctions, including reprimand, demotion or suspension or
termination of employment. The Code of Ethics comports with regulatory
requirements and the recommendations in the 1994 report by the Investment
Company Institute Advisory Group on Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
26
<PAGE>
Morgan Stanley Dean Witter
Short-Term Bond Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Rajesh K. Gupta
Vice President
Rochelle G. Siegel
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
MORGAN STANLEY
DEAN WITTER
SHORT-TERM
BOND FUND
[PHOTO]
PROSPECTUS -- JUNE 30, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY
JUNE 30, 1998 DEAN WITTER
SHORT-TERM
BOND FUND
- --------------------------------------------------
Morgan Stanley Dean Witter Short-Term Bond Fund (the "Fund") is an open-end
diversified management investment company whose investment objective is to
provide a high level of current income consistent with the preservation of
capital. The Fund seeks to achieve its objective by investing in a diversified
portfolio of short-term fixed-income securities, with a dollar-weighted average
portfolio maturity of less than three years. (See "Investment Objective and
Policies.")
A Prospectus for the Fund dated June 30, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone number listed below or
from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc., or
from Dean Witter Reynolds Inc. at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in addition
to and more detailed than that set forth in the Prospectus. It is intended to
provide additional information regarding the activities and operations of the
Fund, and should be read in conjunction with the Prospectus.
Morgan Stanley Dean Witter
Short-Term Bond Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and Its Management............................................................ 3
Trustees and Officers.................................................................. 7
Investment Practices and Policies...................................................... 13
Investment Restrictions................................................................ 28
Portfolio Transactions and Brokerage................................................... 29
Purchase of Fund Shares................................................................ 30
Shareholder Services................................................................... 33
Redemptions and Repurchases............................................................ 38
Dividends, Distributions and Taxes..................................................... 38
Performance Information................................................................ 41
Description of Shares.................................................................. 42
Custodian and Transfer Agent........................................................... 42
Independent Accountants................................................................ 42
Reports to Shareholders................................................................ 43
Legal Counsel.......................................................................... 43
Experts................................................................................ 43
Registration Statement................................................................. 43
Financial Statements -- April 30, 1998................................................. 44
Report of Independent Accountants...................................................... 54
Appendix............................................................................... 55
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts on
October 22, 1993 under the name Dean Witter Short-Term Bond Fund. Effective June
22, 1998, the Trustees of the Fund adopted an Amendment to the Declaration of
Trust of the Fund changing the name of the Fund to Morgan Stanley Dean Witter
Short-Term Bond Fund.
THE INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager" or "MSDW
Advisors"), whose address is Two World Trade Center, New York, New York 10048,
is the Fund's Investment Manager. MSDW Advisors is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co. ("MSDW"), a Delaware corporation. The daily
management of the Fund is conducted by or under the direction of officers of the
Fund and of the Investment Manager, subject to review by the Fund's Trustees.
Information as to these Trustees and Officers is contained under the caption
"Trustees and Officers."
MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
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 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Dean Witter Global Asset Allocation Fund
23 Morgan Stanley Dean Witter Global Dividend Growth Securities
24 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25 Morgan Stanley Dean Witter Global Utilities Fund
26 Morgan Stanley Dean Witter Growth Fund
27 Morgan Stanley Dean Witter Hawaii Municipal Trust
28 Morgan Stanley Dean Witter Health Sciences Trust
29 Morgan Stanley Dean Witter High Yield Securities Inc.
30 Morgan Stanley Dean Witter Income Builder Fund
31 Morgan Stanley Dean Witter Information Fund
32 Morgan Stanley Dean Witter Intermediate Income Securities
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
33 Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34 Morgan Stanley Dean Witter International SmallCap Fund
35 Morgan Stanley Dean Witter Japan Fund
36 Morgan Stanley Dean Witter Limited Term Municipal Trust
37 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38 Morgan Stanley Dean Witter Market Leader Trust
39 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40 Morgan Stanley Dean Witter Mid-Cap Growth Fund
41 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43 Morgan Stanley Dean Witter New York Municipal Money Market Trust
44 Morgan Stanley Dean Witter New York Tax-Free Income Fund
45 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47 Dean Witter Retirement Series
48 Morgan Stanley Dean Witter Select Dimensions Investment Series
49 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
50 Morgan Stanley Dean Witter Short-Term Bond Fund
51 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
52 Morgan Stanley Dean Witter Special Value Fund
53 Morgan Stanley Dean Witter S&P 500 Index Fund
54 Morgan Stanley Dean Witter Strategist Fund
55 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
56 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
57 Morgan Stanley Dean Witter U.S. Government Money Market Trust
58 Morgan Stanley Dean Witter U.S. Government Securities Trust
59 Morgan Stanley Dean Witter Utilities Fund
60 Morgan Stanley Dean Witter Value-Added Market Series
61 Morgan Stanley Dean Witter Variable Investment Series
62 Morgan Stanley Dean Witter World Wide Income Trust
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
20 InterCapital New York Quality Municipal Securities
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
21 Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
</TABLE>
In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is the
investment advisor (the "TCW/DW Funds"):
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
</TABLE>
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company; and
(iii) investment advisor of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in the International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the preparation
of prospectuses, statements of additional information, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone service, heat,
light, power and other utilities provided to the Fund. The Investment Manager
has retained MSDW Services to provide its administrative services under the
Agreement.
The Fund pays all expenses incurred in its operation. Expenses not expressly
assumed by the Investment Manager under the Agreement or by the distributor of
the Fund's shares, Morgan Stanley Dean Witter Distributors Inc. ("Distributors"
or the "Distributor") (see "Purchase of Fund Shares") will be paid by the Fund.
The expenses borne by the Fund include, but are not limited to: charges and
expenses of any registrar; custodian, stock transfer and dividend disbursing
agent; brokerage commissions;
5
<PAGE>
taxes; engraving and printing of share certificates; registration costs of the
Fund and its shares under federal and state securities laws; the cost and
expense of printing, including typesetting, and distributing Prospectuses and
Statements of Additional Information of the Fund and supplements thereto to the
Fund's shareholders; all expenses of shareholders' and trustees' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of trustees or members of any advisory board or
committee who are not employees of the Investment Manager or any corporate
affiliate of the Investment Manager; all expenses incident to any dividend,
withdrawal or redemption options; charges and expenses of any outside service
used for pricing of the Fund's shares; fees and expenses of legal counsel,
including counsel to the trustees who are not interested persons of the Fund or
of the Investment Manager (not including compensation or expenses of attorneys
who are employees of the Investment Manager) and independent accountants;
membership dues of industry associations; interest on the Fund's borrowings;
postage; insurance premiums on property or personnel (including officers and
trustees) of the Fund which inure to its benefit; extraordinary expenses
including, but not limited to, legal claims and liabilities and litigation costs
and any indemnification relating thereto (depending upon the nature of the legal
claim, liability or lawsuit), the costs of litigation, payment of legal claims
or liabilities or indemnification relating thereto; and all other costs of the
Fund's operations.
The Investment Manager had undertaken from January 10, 1994 (commencement of
operations) to assume all operating expenses and to waive the compensation
provided for in its Management Agreement until such time as the Fund had $50
million of net assets or until December 31, 1995 whichever occurred first. The
Investment Manager had undertaken from January 1, 1996 through December 31, 1996
to continue to assume all operating expenses (except for any brokerage fees) and
to continue to waive compensation to the extent such expenses and compensation
exceed 1.0% of the Fund's daily net assets on an annualized basis. The
Investment Manager has undertaken from January 1, 1997 through December 31, 1998
to assume all operating expenses (except for any brokerage fees) and to waive
its compensation without limitation.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the annual
rate of 0.70% to the daily net assets of the Fund. For the fiscal period January
10, 1994 (commencement of the Fund's operations) through April 30, 1994, and for
the fiscal year ended April 30, 1995 the fees payable under the Agreement of
$73,373, $264,109, respectively, were waived by the Investment Manager, pursuant
to its undertakings described above. For the fiscal year ended April 30, 1996,
the fees payable under the Management Agreement amounted to $234,741 of which
$180,434 was waived by the Investment Manager pursuant to undertakings described
above. For the fiscal year ended April 30, 1997, the fees payable under the
Management Agreement amounted to $261,509 of which $237,756 was waived by the
Investment Manager pursuant to undertakings described above. For the fiscal year
ended April 30, 1998, the fees payable under the Management Agreement amounted
to $443,693 of which $443,693 was waived by the Investment Manager pursuant to
the undertakings described above.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or advisor to others.
The Investment Manager paid the organizational expenses of the Fund incurred
prior to the offering of the Fund's shares. The Fund agreed to bear and
reimburse the Investment Manager for such expenses, which totalled approximately
$173,000. The Fund has deferred and is amortizing the reimbursed expenses on the
straight line method over a period not to exceed five years from the date of
commencement of the Fund's operations.
The Agreement was initially approved by the Trustees on February 21, 1997
and by the shareholders of the Fund at a Special Meeting of Shareholders held on
May 21, 1997. The Agreement is
6
<PAGE>
substantially identical to a prior investment management agreement which was
initially approved by the Trustees and by MSDW Advisors as the sole shareholder
on December 2, 1993. The Agreement took effect on May 31, 1997 upon the
consummation of the merger of Dean Witter, Discover & Co. with Morgan Stanley
Group Inc. The Agreement may be terminated at any time, without penalty, on
thirty days' notice by the Board of Trustees of the Fund, by the holders of a
majority, as defined in the Investment Company Act of 1940 (the "Act"), of the
outstanding shares of the Fund, or by the Investment Manager. The Agreement will
automatically terminate in the event of its assignment (as defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999,
and will continue from year to year thereafter, provided continuance of the
Agreement is approved at least annually by the vote of the holders of a majority
of the outstanding shares of the Fund, as defined in the Act, or by the Trustees
of the Fund; provided that in either event such continuance is approved annually
by the vote of a majority of the Trustees of the Fund who are not parties to the
Agreement or "interested persons" (as defined in the Act) of any such party (the
"Independent Trustees"), which vote must be cast in person at a meeting called
for the purpose of voting on such approval.
The following owned more than 5% of the outstanding shares of the Fund on
June 6, 1998: Hare & Co., c/o The Bank of New York, PO Box 11203, New York, NY
10286.
The Fund has acknowledged that the name "Morgan Stanley Dean Witter" is a
property right of MSDW. The Fund has agreed that MSDW or any corporate affiliate
of MSDW, may use, or at any time permit others to use, the name "Morgan Stanley
Dean Witter." The Fund has also agreed that in the event the investment
management contract between the Investment Manager and the Fund is terminated,
or if the affiliation between the Investment Manager and its parent companies is
terminated, the Fund will eliminate the name "Morgan Stanley Dean Witter" from
its name if MSDW or any corporate affiliate of MSDW, shall so request.
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with MSDW
Advisors, and with the 86 Morgan Stanley Dean Witter Funds and the 11 TCW Funds,
are shown below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (57) ................................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Morgan Stanley Dean Witter Funds; formerly President
7887 N. Federal Highway and Chief Executive Officer of Hills Department Stores
Boca Raton, Florida (May, 1991-July, 1995); formerly, variously Chairman,
Chief Executive Officer, President and Chief Operating
Officer (1987-1991) of the Sears Merchandise Group of
Sears, Roebuck and Co.; Director of Eaglemark Financial
Services, Inc. and Weirton Steel Corporation.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Charles A. Fiumefreddo* (65) ......................... Chairman, Director or Trustee, President and Chief
Chairman of the Board, Executive Officer of the Morgan Stanley Dean Witter Funds;
President, Chief Executive Officer Chairman, Chief Executive Officer and Trustee of the
and Trustee TCW/DW Funds; formerly Chairman, Chief Executive Officer
Two World Trade Center and Director of MSDW Advisors, MSDW Distributors and MSDW
New York, New York Services, Executive Vice President and Director of Dean
Witter Reynolds Inc. ("DWR"), Chairman and Director Morgan
Stanley Dean Witter Trust FSB ("MSDW Trust"), and Director
and/or officer of various MSDW subsidiaries (until June,
1998).
Edwin J. Garn (65) ................................... Director or Trustee of the Morgan Stanley Dean Witter
Trustee Funds; formerly United States Senator (R- Utah)
c/o Huntsman Corporation (1974-1992) and Chairman, Senate Banking Committee
500 Huntsman Way (1980-1986); formerly Mayor of Salt Lake City, Utah
Salt Lake City, Utah (1971-1974); formerly Astronaut, Space Shuttle Discovery
(April 12-19, 1985); Vice Chairman, Huntsman Corporation
(since January, 1993); Director of Franklin Covey (time
management systems), John Alden Financial Corp. (health
insurance), United Space Alliance (joint venture between
Lockheed Martin and the Boeing Company) and Nuskin Asia
Pacific (multilevel Marketing); member of the board of
various civic and charitable organizations.
John R. Haire (73) ................................... Chairman of the Audit Committee and Director or Trustee of
Trustee the Morgan Stanley Dean Witter Funds; Chairman of the
Two World Trade Center Audit Committee and Trustee of the TCW/DW Funds; Formerly
New York, New York Chairman of the Independent Directors or Trustees of the
Morgan Stanley Dean Witter Funds and the TCW/DW Funds
(until June, 1998); formerly President, Council for Aid to
Education (1978-1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an Investment Advisor
(1964-1978).
Wayne E. Hedien (63) ................................. Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds (commencing on September 1, 1997); Director
c/o Gordon Altman Butowsky of The PMI Group, Inc. (private mortgage insurance);
Weitzen Shalov & Wein Trustee and Vice Chairman of The Field Museum of Natural
Counsel to the Independent Trustees History; formerly associated with the Allstate Companies
114 West 47th Street (1966-1994), most recently as Chairman of The Allstate
New York, New York Corporation (March, 1993-December, 1994) and Chairman and
Chief Executive Officer of its wholly-owned subsidiary,
Allstate Insurance Company (July, 1989-December, 1994);
director of various other business and charitable
organizations.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (49) ........................... Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group of
c/o Johnson Smick International, Inc. Seven Council (G7C), an international economic commission;
1133 Connecticut Avenue, N.W. Director or Trustee of the Morgan Stanley Dean Witter
Washington, D.C. Funds; Trustee of the TCW/DW Funds; Director of NASDAQ
(since June, 1995); Director of Greenwich Capital Markets
Inc. (broker-dealer) and NVR, Inc. (home construction);
Chairman and Trustee of the Financial Accounting
Foundation (oversight Organization of the Financial
Accounting Standards Board); formerly Vice Chairman of the
Board of Governors of the Federal Reserve System
(1986-1990) and Assistant Secretary of the U.S. Treasury
(1982-1986).
Michael E. Nugent (62) ............................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the Morgan
c/o Triumph Capital, L.P. Stanley Dean Witter Funds; Trustee of the TCW/DW Funds;
237 Park Avenue formerly Vice President, Bankers Trust Company and BT
New York, New York Capital Corporation (1984-1988); Director of various
business organizations.
Philip J. Purcell* (54) .............................. Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDW, DWR and Novus Credit Services Inc.;
1585 Broadway Director of MSDW Advisors, MSDW Services and MSDW
New York, New York Distributors; Director or Trustee of the Morgan Stanley
Dean Witter Funds; Director and/or officer of various MSDW
subsidiaries.
John L. Schroeder (67) ............................... Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; Trustee of the TCW/DW Funds; Director of
c/o Gordon Altman Butowsky Citizens Utilities Company; formerly Executive Vice
Weitzen Shalov & Wein President and Chief Investment Officer of the Home
Counsel to the Independent Trustees Insurance Company (August, 1991-September, 1995).
114 West 47th Street
New York, New York
Barry Fink (43) ...................................... Senior Vice President (since March, 1997) and Secretary
Vice President, and General Counsel (since February, 1997) of MSDW
Secretary and General Counsel Advisors and MSDW Services; Senior Vice President (since
Two World Trade Center March, 1997) and Assistant Secretary and Assistant General
New York, New York Counsel (since February, 1997) of MSDW Distributors;
Assistant Secretary of DWR (since August, 1996); Vice
President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds and the TCW/DW Funds (since
February, 1997); previously First Vice President (June,
1993-February, 1997), Vice President (until June, 1993)
and Assistant Secretary and Assistant General Counsel of
MSDW Advisors and MSDW Services and Assistant Secretary of
the Morgan Stanley Dean Witter Funds and TCW/DW Funds.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Peter M. Avelar (39) ................................. Senior Vice President of MSDW Advisors (since April,
Vice President 1992); Vice President of various Morgan Stanley Dean
Two World Trade Center Witter Funds; previously Vice President of MSDW Advisors.
New York, New York
Rajesh K. Gupta (38) ................................. Senior Vice President of MSDW Advisors; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Rochelle G. Siegel (49) .............................. Senior Vice President of MSDW Advisors; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (52) ................................ First Vice President and Assistant Treasurer of MSDW
Treasurer Advisors and MSDW Services; Treasurer of the Morgan
Two World Trade Center Stanley Dean Witter Funds and the TCW/DW Funds.
New York, New York
</TABLE>
- ------------------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Mitchell M. Merin, President, Chief Executive Officer and
Director of MSDW Advisors and MSDW Services, Chairman and Director of MSDW
Distributors and MSDW Trust, Executive Vice President and Director of DWR, and
Director of SPS Transaction Services, Inc. and various other MSDW subsidiaries
Robert M. Scanlan, President and Chief Operating Officer of MSDW Advisors and
MSDW Services, Executive Vice President of MSDW Distributors and MSDW Trust and
Director of MSDW Trust, Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of MSDW Advisors and Director of MSDW Trust, Robert S.
Giambrone, Senior Vice President of MSDW Advisors, MSDW Services, MSDW
Distributors and MSDW Trust and Director of MSDW Trust, and Jonathan Page and
James F. Willison, and Kevin Hurley, Senior Vice Presidents of MSDW Advisors,
are Vice Presidents of the Fund. Marilyn K. Cranney and Carsten Otto, First Vice
Presidents and Assistant General Counsels of MSDW Advisors and MSDW Services,
Lou Anne D. McInnis, Ruth Rossi and Frank Bruttomesso, Vice Presidents and
Assistant General Counsels of MSDW Advisors and MSDW Services, and Todd Lebo,
Staff Attorney, with MSDW Advisors, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same individuals
also serve as directors or trustees for all of the Morgan Stanley Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of this
Statement of Additional Information, there are a total of 86 Morgan Stanley Dean
Witter Funds, comprised of 132 portfolios. As of May 31, 1998, the Morgan
Stanley Dean Witter Funds had total net assets of approximately $106.4 billion
and more than six million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with MSDW Advisors or any of its affiliated persons and do not own
any stock or other securities issued by MSDW Advisors' parent company, MSDW.
These are the "disinterested" or "independent" Trustees. Four of the seven
independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Morgan Stanley Dean Witter Funds seek as
Independent Trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' Boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
Indeed, by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law from
doing so.
10
<PAGE>
All of the Independent Trustees serve as members of the Audit Committee.
Three of them also serve as members of the Derivatives Committee. During the
calendar year ended December 31, 1997, the Audit Committee, the Derivatives
Committee and the Independent Trustees held a combined total of seventeen
meetings.
The Independent Trustees are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill any
Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1 plan
of distribution. Most of the Morgan Stanley Dean Witter Funds have such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; and reviewing the adequacy of the Fund's system of internal
controls.
Finally, the Board of each Fund has formed a Derivatives Committee to
approve parameters for and monitor the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Morgan Stanley Dean Witter Funds
avoids the duplication of effort that would arise from having different groups
of individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Morgan Stanley Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750).
If a Board meeting and a meeting of the Independent Trustees or a Committee
meeting, or a meeting of the Independent Trustees and/or more than one Committee
meeting, take place on a single day, the Trustees are paid a single meeting fee
by the Fund. The Fund also reimburses such Trustees for travel and other
out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund for their services as Trustee. Mr. Haire currently
serves as Chairman of the Audit Committee. Prior to June 1, 1998, Mr. Haire also
served as Chairman of the Independent Trustees, for which services the Fund paid
him an additional annual fee of $1,200.
11
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended April 30, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,600
Edwin J. Garn................................................. 1,700
John R. Haire................................................. 3,550
Wayne E. Hedien............................................... 982
Dr. Manuel H. Johnson......................................... 1,650
Michael E. Nugent............................................. 1,700
John L. Schroeder............................................. 1,700
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for services
to the 84 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. Mr. Haire serves as Chairman of the Audit Committee of each
Morgan Stanley Dean Witter Fund and each TCW/DW Fund and, prior to June 1, 1998,
also served as Chairman of the Independent Directors or Trustees of those Funds.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Morgan Stanley Dean Witter Money Market Funds. Mr. Hedien's term as
Director or Trustee of each Morgan Stanley Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS TOTAL CASH
CHAIRMAN OF FOR SERVICE COMPENSATION
FOR SERVICE INDEPENDENT AS FOR
AS DIRECTOR OR DIRECTORS/TRUSTEES CHAIRMAN OF SERVICES TO
TRUSTEE AND AND AUDIT INDEPENDENT 84
COMMITTEE FOR SERVICE AS COMMITTEES OF TRUSTEES MORGAN
MEMBER OF 84 TRUSTEE AND 84 AND AUDIT STANLEY
MORGAN STANLEY COMMITTEE MORGAN STANLEY COMMITTEES OF DEAN WITTER
NAME OF DEAN WITTER MEMBER OF 14 DEAN WITTER 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS TCW/DW FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $133,602 -- -- -- $133,602
Edwin J. Garn.............. 149,702 -- -- -- 149,702
John R. Haire.............. 149,702 $73,725 $157,463 $ 25,350 406,240
Wayne E. Hedien............ 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson...... 145,702 71,125 -- -- 216,827
Michael E. Nugent.......... 149,702 73,725 -- -- 223,427
John L. Schroeder.......... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the Morgan
Stanley Dean Witter Funds, not including the Fund, have adopted a retirement
program under which an Independent Trustee who retires after serving for at
least five years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "Adopting Fund"
and each such Trustee referred to as an "Eligible Trustee") is entitled to
retirement payments upon reaching the eligible retirement age (normally, after
attaining age 72). Annual payments are based upon length of service. Currently,
upon retirement, each Eligible Trustee is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing for the
remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 29.41% of his or her Eligible Compensation plus 0.4901667% of
such Eligible Compensation for each full month of service as an Independent
Director or Trustee of any Adopting Fund in excess of five years up to a maximum
of 58.82% after ten years of service. The foregoing
12
<PAGE>
percentages may be changed by the Board.(1) "Eligible Compensation" is one-fifth
of the total compensation earned by such Eligible Trustee for service to the
Adopting Fund in the five year period prior to the date of the Eligible
Trustee's retirement. Benefits under the retirement program are not secured or
funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Morgan Stanley Dean Witter Funds (not
including the Fund) for the year ended December 31, 1997, and the estimated
retirement benefits for the Fund's Independent Trustees, to commence upon their
retirement, from the 57 Morgan Stanley Dean Witter Funds as of December 31,
1997.
RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
BENEFITS BENEFITS
ESTIMATED ACCRUED AS UPON
CREDITED YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- ------------------------------------------------------ ------------------- -------------------------- -----------
<S> <C> <C> <C> <C>
Michael Bozic......................................... 10 58.82% $20,499 $ 55,026
Edwin J. Garn......................................... 10 58.82 30,878 55,026
John R. Haire......................................... 10 58.82 (19,823)(3) 132,002
Wayne E. Hedien....................................... 9 50.00 0 46,772
Dr. Manuel H. Johnson................................. 10 58.82 12,832 55,026
Michael E. Nugent..................................... 10 58.82 22,546 55,026
John L. Schroeder..................................... 8 49.02 39,350 46,123
</TABLE>
- ------------------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
As stated in the Prospectus, the Fund seeks to achieve its investment
objective by investing in short-term, fixed-income securities with a
dollar-weighted average portfolio maturity of less than three years. In
calculating the maturity of certain of the Fund's securities (E.G., securities
with a demand feature), the Fund will utilize the provisions of Rule 2a-7 of the
Act.
The maturity of a portfolio instrument shall be deemed to be the period
remaining (calculated from the trade date or such other date on which the Fund's
interest in the instrument is subject to market action) until the date noted on
the face of the instrument as the date on which the principal amount must be
paid, or in the case of an instrument called for redemption, the date on which
the redemption payment must be made, except that:
(1) An instrument that is issued or guaranteed by the United States
government or any agency thereof which has a variable rate of interest
readjusted no less frequently than every 762 days shall be deemed to have a
maturity equal to the period remaining until the next readjustment of the
interest rate.
13
<PAGE>
(2) A variable rate instrument, the principal amount of which is
scheduled on the face of the instrument to be paid in 397 calendar days or
less shall be deemed to have a maturity equal to the period remaining until
the next readjustment of the interest rate.
(3) A variable rate instrument that is subject to a demand feature shall
be deemed to have a maturity equal to the longer of the period remaining
until the next readjustment of the interest rate or the period remaining
until the principal amount can be recovered through demand.
(4) A floating rate instrument that is subject to a demand feature shall
be deemed to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
(5) A repurchase agreement shall be deemed to have a maturity equal to
the period remaining until the date on which the repurchase of the
underlying securities is scheduled to occur, or, where no date is specified,
but the agreement is subject to a demand, the notice period applicable to a
demand for the repurchase of the securities.
(6) A portfolio lending agreement shall be treated as having a maturity
equal to the period remaining until the date on which the loaned securities
are scheduled to be returned, or where no date is specified, but the
agreement is subject to demand, the notice period applicable to a demand for
the return of the loaned securities.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into
forward foreign currency exchange contracts ("forward contracts") as a hedge
against fluctuations in future foreign exchange rates. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large, commercial and investment banks) and their
customers. Such forward contracts will only be entered into with United States
banks and their foreign branches or foreign banks whose assets total $1 billion
or more. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
When management of the Fund believes that a particular foreign currency may
suffer a substantial movement against the U.S. dollar, it may enter into a
forward contract to purchase or sell, for a fixed amount of dollars or other
currency, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase (by the Fund or the
counterparty) and the foreign currency in which the security is denominated
during the period between the date on which the security is purchased or sold
and the date on which payment is made or received.
At other times, when, for example, the Fund's Investment Manager believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar or some other foreign currency, the Fund may
enter into a forward contract to sell, for a fixed amount of dollars or other
currency, the amount of foreign currency approximating the value of some or all
of the Fund's securities holdings (or securities which the Fund has purchased
for its portfolio) denominated in such foreign currency. Under identical
circumstances, the Fund may enter into a forward contract to sell, for a fixed
amount of U.S. dollars or other currency, an amount of foreign currency other
than the currency in which
14
<PAGE>
the securities to be hedged are denominated approximating the value of some or
all of the portfolio securities to be hedged. This method of hedging, called
"cross-hedging," will be selected by the Investment Manager when it is
determined that the foreign currency in which the portfolio securities are
denominated has insufficient liquidity or is trading at a discount as compared
with some other foreign currency with which it tends to move in tandem.
In addition, when the Fund's Investment Manager anticipates purchasing
securities at some time in the future, and wishes to lock in the current
exchange rate of the currency in which those securities are denominated against
the U.S. dollar or some other foreign currency, the Fund may enter into a
forward contract to purchase an amount of currency equal to some or all of the
value of the anticipated purchase, for a fixed amount of U.S. dollars or other
currency. The Fund may, however, close out the forward contract without
purchasing the security which was the subject of the "anticipatory" hedge.
The Fund will not enter into forward contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate the Fund
to deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the management of the Fund believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be served.
The Fund's custodian bank will place cash, U.S. Government securities or other
liquid portfolio securities in a segregated account of the Fund in an amount
equal to the value of the Fund's total assets committed to the consummation of
forward contracts entered into under the circumstances set forth above. If the
value of the securities placed in the segregated account declines, additional
cash or securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Fund's commitments with
respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign securities denominated in a foreign currency against adverse exchange
rate moves vis-a-vis the U.S. dollar, at the maturity of the forward contract
for delivery by the Fund of a foreign currency, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency (however, the ability of the Fund to terminate a contract is
contingent upon the willingness of the currency trader with whom the contract
has been entered into to permit an offsetting transaction). It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the sale of the
portfolio securities if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a
15
<PAGE>
foreign currency, it may hedge against a decline in the principal value of the
security by entering into a forward contract to sell an amount of the relevant
foreign currency equal to some or all of the principal value of the security.
At times when the Fund has written a call option on a security or the
currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a greater
extent than the value of the premium received for the option. The Fund will
maintain with its Custodian at all times, cash, U.S. Government securities, or
other appropriate liquid portfolio securities in a segregated account equal in
value to all forward contract obligations and option contract obligations
entered into in hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies. Thus
a dealer may offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
In all of the above circumstances, if the currency in which the Fund
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager. The Fund generally will not enter into a forward
contract with a term of greater than one year, although it may enter into
forward contracts for periods of up to five years. The Fund may be limited in
its ability to enter into hedging transactions involving forward contracts by
the Internal Revenue Code (the "Code") requirements relating to qualifications
as a regulated investment company (see "Dividends, Distributions and Taxes").
The Fund has not and does not intend to, in the foreseeable future, enter into
forward contracts involving greater than 5% of its net assets.
REPURCHASE AGREEMENTS. When cash may be available for only a few days, it
may be invested by the Fund in repurchase agreements until such time as it may
otherwise be invested or used for payments of obligations of the Fund. A
repurchase agreement may be viewed as a type of secured lending by the Fund
which typically involves the acquisition by the Fund of government securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Fund will sell
back to the institution, and that the institution will repurchase, the
underlying security ("collateral") at a specified price and at a fixed time in
the future, usually not more than seven days from the date of purchase. The
collateral will be maintained in a segregated account and will be marked to
market daily to determine that the full value of the collateral, as specified in
the agreement, does not decrease below the repurchase price plus accrued
interest. If such decrease occurs, additional collateral will be added to the
account to maintain full collateralization. In the event the original seller
defaults on its obligations to repurchase, as a result of its bankruptcy or
otherwise, the Fund will seek to sell the collateral, which action could involve
costs or delays. In such case, the Fund's ability to dispose of the collateral
to recover its investment may be restricted or delayed.
The Fund will, when received, accrue interest from the institution until the
time when the repurchase is to occur. Although such date is deemed by the Fund
to be the maturity date of a repurchase
16
<PAGE>
agreement, the maturities of securities subject to repurchase agreements are not
subject to any limits and may exceed one year.
When repurchase agreements involve certain risks not associated with direct
investments in debt securities, each Fund follows procedures designed to
minimize such risks. Repurchase agreements will be transacted only with large,
well-capitalized and well-established financial institutions whose financial
condition will be continuously monitored by the Investment Manager subject to
procedures established by the Trustees. The procedures also require that the
collateral underlying the agreement be specified.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. As
discussed in the Prospectus, from time to time, in the ordinary course of
business, the Fund may purchase securities on a when-issued or delayed delivery
basis or may purchase or sell securities on a forward commitment basis--i.e.,
delivery and payment can take place a month or more after the date of the
transactions. The securities so purchased are subject to market fluctuation and
no interest accrues to the purchaser during this period. While the Fund will
only purchase securities on a when-issued, delayed delivery or forward
commitment basis with the intention of acquiring the securities, the Fund may
sell the securities before the settlement date, if it is deemed advisable. At
the time the Fund makes the commitment to purchase securities on a when-issued
or delayed delivery basis, the Fund will record the transaction and thereafter
reflect the value, each day, of such security in determining the net asset value
of the Fund. At the time of delivery of the securities, the value may be more or
less than the purchase price. The Fund will also establish a segregated account
with the Fund's custodian bank in which it will continuously maintain cash or
U.S. Government securities or other liquid portfolio securities equal in value
to commitments for such when-issued or delayed delivery securities; subject to
this requirement, the Fund may purchase securities on such basis without limit.
An increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund foregoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account with its custodian bank in
which it will maintain cash, U.S. Government Securities or other liquid
portfolio securities equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar
rolls involve the risk that the market value of the securities the Fund is
obligated to repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a reverse repurchase agreement
or dollar roll files for bankruptcy or becomes insolvent, the Fund's use of
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. Reverse repurchase agreements and dollar rolls are
speculative techniques involving leverage, and are considered borrowings by the
Fund. The Fund has not to date and does not intend to enter into reverse
repurchase agreements or dollar rolls in the foreseeable future.
17
<PAGE>
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements and subject to Investment Restriction (6) below, the Fund may lend
its portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund, and are at all
times secured by cash or money market instruments, which are maintained in a
segregated account pursuant to applicable regulations and that are equal to at
least the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive the income on the
loaned securities while at the same time earning interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations. The
Fund will not lend portfolio securities having a value of more than 10% of its
total assets.
A loan may be terminated by the borrower on one business day's notice, or by
the Fund on four business days' notice. If the borrower fails to deliver the
loaned securities within four days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made of firms deemed
by the Fund's management to be creditworthy and when the income which can be
earned from such loans justifies the attendant risks. Upon termination of the
loan, the borrower is required to return the securities to the Fund. Any gain or
loss in the market price during the loan period will inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, in
whole or in part as may be appropriate, to be delivered within one day after
notice, to permit the exercise of such rights if the matters involved would have
a material effect on the Fund's investment in such loaned securities. The Fund
will pay reasonable finder's, administrative and custodian fees in connection
with a loan of its securities. The Fund has not to date and does not intend to
lend any of its portfolio securities in the foreseeable future.
PRIVATE PLACEMENTS. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933 or which are otherwise not
readily marketable. These securities are generally referred to as private
placements or restricted securities. Limitations on the resale of such
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering such securities for resale and the risk of
substantial delays in effecting such registration. The above policy on purchase
of illiquid securities may be changed by the Fund's Trustees.
The Securities and Exchange Commission has recently adopted Rule 144A under
the Securities Act of 1933, which will permit the Fund to sell restricted
securities to qualified institutional buyers without limitation. The Trustees of
the Fund have adopted procedures for the Investment Manager to utilize in
determining the liquidity of securities which may be sold pursuant to Rule 144A.
In addition, the Trustees have determined that, where such securities are
determined to be liquid under these procedures, investment in such securities by
the Fund shall not be subject to the 5% limitation referred to above. However,
the Fund has not to date and does not intend to purchase any restricted
securities in the foreseeable future.
WARRANTS. The Fund may acquire warrants which are attached to other
securities in its portfolio, or which are issued as a distribution by the issuer
of a security held in its portfolio. Warrants are, in effect, an option to
purchase equity securities at a specific price, generally valid for a specific
period of time, and have no voting rights, pay no dividends and have no rights
with respect to the corporation issuing them. The Fund has not to date and does
not intend to acquire any warrants in the forseeable future.
CONVERTIBLE SECURITIES. Certain of the fixed-income securities purchased by
the Fund may be convertible into common stock of the issuer. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The value
of a convertible security is a function of its "investment value" (its value as
if it did not have a
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conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security. Convertible securities may be purchased by the Fund
at varying price levels above their investment values and/or their conversion
values in keeping with the Fund's objective. The Fund has not to date and does
not intend to invest in any convertible securities in the foreseeable future.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same series to effect closing transactions,
and may hedge against potential changes in the market value of investments (or
anticipated investments) and facilitate the reallocation of the Fund's assets
into and out of equities and fixed-income securities by purchasing put and call
options on portfolio (or eligible portfolio) securities and engaging in
transactions involving futures contracts and options on such contracts. The Fund
may also hedge against potential changes in the market value of the currencies
in which its investments (or anticipated investments) are denominated by
purchasing put and call options on currencies and engage in transactions
involving currency futures contracts and options on such contracts. However, the
Fund has not to date and does not intend to enter into any options or futures
transactions in the foreseeable future.
Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on Exchanges and are written in over-the-counter
transactions ("OTC options"). Listed options are issued by the Options Clearing
Corporation ("OCC") and other clearing entities including foreign exchanges.
Ownership of a listed call option gives the Fund 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 Fund 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.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges on which such securities trade will not continue indefinitely to
introduce options with new expirations to replace expiring options on particular
issues. Instead, the expirations introduced at the commencement of options
trading on a particular issue will be allowed to run their course, with the
possible addition of a limited number of new expirations as the original ones
expire. Options trading on each issue of bonds or notes will thus be phased out
as new options are listed on more recent issues, and options representing a full
range of expirations will not ordinarily be available for every issue on which
options are traded.
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding,
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the Fund will hold the Treasury bills in a segregated account with its
Custodian, so that they will be treated as being covered.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S. dollar against such foreign currency. The Fund may also purchase
call and put options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which a
security is denominated and the U.S. dollar, then a loss to the Fund occasioned
by such value decline would be ameliorated by receipt of the premium on the
option sold. At the same time, however, the Fund gives up the benefit of any
rise in value of the relevant portfolio securities above the exercise price of
the option and, in fact, only receives a benefit from the writing of the option
to the extent that the value of the portfolio securities falls below the price
of the premium received. The Fund may also write options to close out long call
option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless and until, in the opinion of the management of the
Fund, the market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in connection with
the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
OTC OPTIONS. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the Fund. With OTC options, such variables
as expiration date, exercise price and premium will be agreed upon between the
Fund and the
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transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that
option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. The Fund will engage in OTC option
transactions only with primary U.S. Government securities dealers recognized by
the Federal Reserve Bank of New York.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities and the U.S. dollar and foreign currencies, without
limit, in order to aid in achieving its investment objective. Generally, a call
option is "covered" if the Fund owns, or has the right to acquire, without
additional cash consideration (or for additional cash consideration held for the
Fund by its Custodian in a segregated account) the underlying security
(currency) subject to the option except that in the case of call options on U.S.
Treasury Bills, the Fund might own U.S. Treasury Bills of a different series
from those underlying the call option, but with a principal amount and value
corresponding to the exercise price and a maturity date no later than that of
the securities (currency) deliverable under the call option. A call option is
also covered if the Fund holds a call on the same security (currency) as the
underlying security (currency) of the written option, where the exercise price
of the call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the mark
to market difference is maintained by the Fund in cash, U.S. Government
securities or other liquid portfolio securities which the Fund holds in a
segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities (currency) alone. Moreover, the
income received from the premium will offset a portion of the potential loss
incurred by the Fund if the securities (currency) underlying the option are
ultimately sold (exchanged) by the Fund at a loss. The premium received will
fluctuate with varying economic market conditions. If the market value of the
portfolio securities (or the currencies in which they are denominated) upon
which call options have been written increases, the Fund 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 and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. 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 Fund. The Fund may realize
a net gain or loss from a closing purchase transaction depending upon whether
the amount of the premium received on the call option is more or less than the
cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a closing purchase transaction could be offset
in whole or in part or exceeded by a decline in the market value of the
underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between
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the purchase price of the underlying security (currency) and the proceeds of the
sale of the security (currency) plus the premium received for on the option less
the commission paid.
Options written by a Fund normally have expiration dates of from up to nine
months (equity securities) to eighteen months (fixed-income securities) 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 (currency) at the time
the option is written. See "Risks of Options and Futures Transactions," below.
COVERED PUT WRITING. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchase of the
put, at the option's exercise price at any time during the option period, at the
purchaser's election (certain listed and OTC put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other liquid portfolio securities in an amount equal to at least
the exercise price of the option, at all times during the option period.
Similarly, a short put position could be covered by the Fund by its purchase of
a put option on the same security as the underlying security of the written
option, where the exercise price of the purchased option is equal to or more
than the exercise price of the put written or less than the exercise price of
the put written if the mark to market difference is maintained by the Fund in
cash, U.S. Government securities or other liquid portfolio securities which the
Fund holds in a segregated account maintained at its Custodian. In writing puts,
the Fund assumes the risk of loss should the market value of the underlying
security decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). In the case of
listed options, during the option period, the Fund may be required, at any time,
to make payment of the exercise price against delivery of the underlying
security. The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.
The Fund will write put options for 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 Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options in order to close out a covered call position (see
"Covered Call Writing" above) or purchase call options on securities they intend
to purchase. The Fund may also purchase a call option on foreign currency to
hedge against an adverse exchange rate move of the currency in which the
security it anticipates purchasing is denominated vis-a-vis the currency in
which the exercise price is denominated. The purchase of the call option to
effect a closing transaction or a call written over-the-counter may be a listed
or an OTC option. In either case, the call purchased is likely to be on the same
securities (currencies) and have the same terms as the written option. If
purchased over-the-counter, the option would generally be acquired from the
dealer or financial institution which purchased the call written by the Fund.
The Fund may purchase put options on securities (currency) 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 (currency). If the value of the underlying
security (currency) were to fall below the exercise price of the put purchased
in an amount greater than the premium paid for the option, the Fund would incur
no additional loss. The Fund may also purchase put options to close out written
put positions in a manner similar to call options closing purchase transactions.
In addition, the Fund may sell a put option which it has previously purchased
prior to the sale of the securities (currency) 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
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offset in whole or in part by a change in the market value of the underlying
security (currency). If a put option purchased by the Fund expired without being
sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security (or the currency in which it is denominated) increase, but
has retained the risk of loss should the price of the underlying security
(currency) decline. The covered put writer also retains the risk of loss should
the market value of the underlying security (currency) decline below the
exercise price of the option less the premium received on the sale of the
option. In both cases, the writer has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities (currency) at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell (exchange) an underlying security
(currency) at a time when it might otherwise be advantageous to do so. A covered
put option writer who is unable to effect a closing purchase transaction or to
purchase an offsetting over-the-counter option would continue to bear the risk
of decline in the market price of the underlying security (currency) until the
option expires or is exercised. In addition, a covered put writer would be
unable to utilize the amount held in cash or U.S. Government or other liquid
portfolio securities as security for the put option for other investment
purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option Exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, the Fund may
be able to purchase an offsetting option which does not close out its position
as a writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
Exchanges limit the amount by which the price of a future contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and
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futures positions could also have an adverse impact on the Fund's ability to
effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
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 Fund may write.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities is that the prices of securities
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities. Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing interest
rates against which the Fund seeks a hedge. A correlation may also be distorted
by the fact that the futures market is dominated by short-term traders seeking
to profit from the difference between a contract or security price objective and
their cost of borrowed funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
FUTURES CONTRACTS. The Fund may purchase and sell interest rate and index
futures contracts ("futures contracts") that are traded on U.S. and foreign
commodity exchanges on such underlying securities as U.S. Treasury bonds, notes
and bills ("interest rate" figures), on the U.S. dollar and foreign currencies,
and such indexes as the S&P 500 Index, Moody's Investment-Grade Corporate Bond
Index and the New York Stock Exchange Composite Index ("index" futures).
As a futures contract purchaser, the Fund 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 Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise and,
concomitantly, the price of fixed-income securities fall, the Fund may sell an
interest rate futures contract or a bond index futures contract. If declining
interest rates are anticipated, the Fund may purchase an interest rate futures
contract to protect against a potential increase in the price of U.S. Government
securities the Fund intends to purchase. Subsequently, appropriate fixed-income
securities may be purchased by the Fund in an orderly fashion; as securities are
purchased, corresponding futures positions would be terminated by offsetting
sales of contracts.
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The Fund will purchase or sell futures contracts on the U.S. dollar and on
foreign currencies to hedge against an anticipated rise or decline in the value
of the U.S. dollar or foreign currency in which a portfolio security of the Fund
is denominated vis-a-vis another currency.
The Fund will purchase or sell index futures contracts for the purpose of
hedging its portfolio (or anticipated portfolio) securities against changes in
their prices. If the Investment Manager anticipates that the prices of
securities held by the Fund may fall, the Fund may sell an appropriate index
futures contract. Conversely, if the Investment Manager wishes to hedge against
anticipated price rises in those securities which the Fund intends to purchase,
the Fund may purchase an index futures contracts. In addition, interest rate and
index futures contracts will be bought or sold in order to close out a short or
long position in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open or
close of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures contract purchase for
the same aggregate amount of the specific type of equity 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 equity security and the same delivery date. If the offsetting sale price
exceeds the purchase price, the purchaser would realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize a
loss. There is no assurance that the Fund will be able to enter into a closing
transaction.
INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other liquid portfolio
securities equal to approximately 2% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits called "variation margin", with
the Fund's Custodian, in the account in the name of the broker, which are
reflective of price fluctuations in the futures contract. Currently, interest
rates futures contracts can be purchased on debt securities such as U.S.
Treasury Bills and Bonds, U.S. Treasury Notes with maturities between 6 1/2 and
10 years, GNMA Certificates and Bank Certificates of Deposit.
INDEX FUTURES CONTRACTS. The Fund may invest in index futures contracts. An
index futures contract sale creates an obligation by the Fund, as seller, to
deliver cash at a specified future time. An index futures contract purchase
would create an obligation by the Fund, as purchaser, to take delivery of cash
at a specified future time. Futures contracts on indexes do not require the
physical delivery of securities, but provide for a final cash settlement on the
expiration date which reflects accumulated profits and losses credited or
debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirement is approximately 5% of the contract amount for index futures.
In addition, due to current industry practice, daily variations in gains and
losses on open contracts are required to be reflected in cash in the form of
variation margin payments. The Fund may be required to make additional margin
payments during the term of the contract.
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At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect to,
among others, the Standard & Poor's 500 Stock Price Index and the Standard &
Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade and the Value Line Stock
Index on the Kansas City Board of Trade.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect to
such options to terminate an existing position. An option on a futures contract
gives the purchaser the right (in return for the premium paid), and the writer
the obligation, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option is accompanied by delivery of the accumulated balance in
the writer's futures margin account, which represents the amount by which the
market price of the futures contract at the time of exercise exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Investment
Manager wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, augment the total return of the
Fund and thereby provide a further hedge against losses resulting from price
declines in portions of the Fund's portfolio.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's assets
which may be subject to a hedge position. In addition, in accordance with the
regulations of the Commodity Futures Trading Commission ("CFTC") under which the
Fund is exempted from registration as a commodity pool operator, the Fund may
only enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that the Fund would be permitted to write options on futures
contracts for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The Fund
may sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible
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that the futures market may advance and the value of the securities held in the
portfolio of the Fund may decline. If this occurred, the Fund would lose money
on the futures contract and also experience a decline in value of its portfolio
securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio will tend to move
in the same direction as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Fund may determine not to invest in the securities as
planned and will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities.
In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the Fund
by its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other liquid portfolio securities equal in value (when added to any initial
or variation margin on deposit) to the market value of the securities underlying
the futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities underlying the futures contract (in the
case of a stock index futures contract a portfolio of securities substantially
replicating the relevant index), or by holding a call option permitting the Fund
to purchase the same contract at a price no higher than the price at which the
short position was established.
Exchanges may limit the amount by which the price of futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Code's requirements for
qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Taxes" in the Prospectus and
the Statement of Additional Information.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities which are the subject of the hedge. If participants in the futures
market elect to close out their contracts through offsetting transactions rather
than meet margin deposit requirements, distortions in the normal relationship
between the debt securities and futures markets could result. Price distortions
could also result if investors in futures contracts opt to make or take delivery
of underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which the Fund may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position, and in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent the Fund from closing out a contract which may
result in reduced gain or increased loss to the Fund. The absence of a
27
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liquid market in futures contracts might cause the Fund to make or take delivery
of the underlying securities at a time when it may be disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities.
The Investment Manager has substantial experience in the use of the
investment techniques described above under the heading "Options and Futures
Transactions," which techniques require skills different from those needed to
select the portfolio securities underlying various options and futures
contracts.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate will not exceed
100%. A 100% turnover rate would occur, for example, if 100% of the securities
held in the Fund's portfolio (excluding all securities whose maturities at
acquisition were one year or less) were sold and replaced within one year.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein, although the fund
may purchase securities of issuers which engage in real estate operations
and securities secured by real estate or interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
3. With the exception of reverse repurchase agreements and dollar
rolls, borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
4. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(3). For the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial or variation margin for futures are not deemed to be pledges of
assets.
5. Issue senior securities as defined in the Act, except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement or dollar roll;
(b) purchasing any securities on a when-issued or delayed delivery basis;
(c) purchasing or selling futures contracts, forward foreign exchange
contracts or options; (d) borrowing money in accordance with restrictions
described above; or (e) lending portfolio securities.
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6. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objective and policies; (b) by investment in
repurchase agreements; or (c) by lending its portfolio securities.
7. Make short sales of securities.
8. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the purchase
of a security on margin.
9. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
10. Invest for purposes of exercising control or management of any other
issuer.
11. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or in accordance with the provisions of Section 12(d) of the Act and
any Rules promulgated thereunder.
12. Purchase or sell commodities or commodities contracts except that
the Fund may purchase or sell futures contracts or options on futures.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
The Investment Manager is responsible for decisions to buy and sell
securities and commodities for the Fund, the selection of brokers and dealers to
effect the transactions, and the negotiation of brokerage commissions, if any.
The Fund 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 Fund 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 Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid. The Fund paid no brokerage commissions during the fiscal years ended
April 30, 1996, 1997 and 1998.
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including 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 opinion of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain initial
and secondary offerings, the Investment Manager utilizes a pro-rata allocation
process based on the size of the Morgan Stanley Dean Witter Funds involved and
the number of shares available from the public offering.
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<PAGE>
The policy of the Fund, regarding purchases and sales of securities is that
primary consideration be given to obtaining the most favorable prices and
efficient execution of transactions. In seeking to implement the Fund's
policies, the Investment Manager effects transactions with those brokers and
dealers who the Investment Manager believes provide the most favorable prices
and are capable of providing efficient executions. If the Investment Manager
believes such price and executions are obtainable from more than one broker or
dealer, it may give consideration to placing portfolio transactions with those
brokers and dealers who also furnish research and other services to the Fund or
the Investment Manager. Although the Fund may purchase securities from brokers
or dealers acting as principal, who also provide research for the advisor, it
will not pay a mark-up in consideration for such services. Such services may
include, but are not limited to, any one or more of the following: information
as to the availability of securities for purchase or sale; statistical or
factual information or opinions pertaining to investment; wire services; and
appraisals or evaluations of portfolio securities.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not, in every case, benefit the
Fund directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the Fund will not reduce the management fee it
pays to the Investment Manager by any amount that may be attributable to the
value of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e. Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers.
Consistent with the policy described above, brokerage transactions in
securities and commodities listed on exchanges or admitted to unlisted trading
privileges may be effected through DWR, Morgan Stanley & Co. Incorporated ("MS &
Co.") and other affiliated brokers and dealers. In order for the affiliated
broker or dealer to effect portfolio transactions for the Fund, the commissions,
fees or other remuneration received by the affiliated broker or dealer must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow the affiliated broker or dealer to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker in a commensurate arms-length transaction. Furthermore, the
Trustees of the Fund, including a majority of the Trustees who are not
"interested" Trustees, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to affiliated
broker or dealer are consistent with the foregoing standard. During the fiscal
years ended April 30, 1996, 1997 and 1998, the Fund paid no brokerage commission
to DWR. During the period June 1, 1997 through April 30, 1998, the Fund paid no
brokerage commissions to MS & Co., which broker-dealer became an affiliate of
the Investment Manager on May 31, 1997 upon consummation of the merger of Dean
Witter, Discover & Co. with Morgan Stanley Group Inc. During the fiscal year
ended April 30, 1998 the Fund held $1,018,860 of Lehman Brothers Holdings, Inc.,
7.625% bonds, maturing 07/15/1999 and $2,017,060 of Salomon Brothers Holdings,
Inc., 6.5% bonds maturing 03/01/2000, both of which issuers are among the ten
broker-dealers with whom the Fund transacted principal transactions in the
largest amounts.
PURCHASE OF FUND SHARES
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As discussed in the Prospectus, the Fund offers its shares for sale to the
public through Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"),
on a continuous basis at an offering price equal to the net asset value per
share next determined following receipt of any order without a sales charge.
(See the Prospectus--"Purchase of Fund Shares"). The Distributor, a Delaware
corporation, is an
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<PAGE>
indirect wholly-owned subsidiary of MSDW. In addition, the Distributor has
entered into selected broker-dealer agreements with DWR and other dealers
("Selected Broker-Dealers") pursuant to which shares of the Fund are sold. The
Trustees of the Fund, including a majority of the Trustees who are not, and were
not at the time they voted, interested persons of the Fund, as defined in the
Act (the "Independent Trustees"), approved, at their meeting held on April 24,
1997, the current Distribution Agreement appointing the Distributor exclusive
distributor of the Fund's shares and providing for the Distributor to bear
distribution expenses not borne by the Fund. By its terms, the Distribution
Agreement had an initial term ending April 30, 1998, and provides that it will
continue from year to year thereafter if approved by the Board. At their meeting
held on April 30, 1998, the Trustees of the Fund, including a majority of the
Independent Trustees, approved the continuation of the Distribution Agreement.
The current Distribution Agreement took effect on May 31, 1997 upon the
consummation of the merger of Dean Witter, Discover & Co. with Morgan Stanley
Group Inc. and is substantially identical to the Fund's prior Distribution
Agreement except for its dates of effectiveness and termination.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to Morgan Stanley Dean
Witter Financial Advisors and other Selected Broker-Dealer Representatives. The
Distributor will also pay certain expenses in connection with the distribution
of the shares of the Fund, including the costs of preparing, printing and
distributing advertising or promotional materials, and the costs of printing and
distributing prospectuses and supplements thereto used in connection with the
offering and sale of the Fund's shares. The Fund bears the costs of initial
typesetting, printing and distribution of prospectuses and supplements thereto
to shareholders. The Fund also will bear the costs of registering the Fund and
its shares under federal and state securities laws. The Fund and the Distributor
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the Distribution
Agreement, the Distributor uses its best efforts in rendering services to the
Fund, but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations, the Distributor is not liable to the Fund
or any of its shareholders for any error of judgment or mistake of law or for
any act or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan") whereby the Distributor or any of its affiliates, including
MSDW Advisors, is authorized to utilize their own resources to finance certain
activities in connection with the distribution of shares of the Fund. The Plan
was approved by the Trustees and by MSDW Advisors as the Fund's sole shareholder
on December 2, 1993, whereupon the Plan went into effect. The vote of the
Trustees, which was cast in person at a meeting called for the purpose of voting
on such Plan, included a majority of the Trustees who are not and were not at
the time of their voting interested persons of the Fund and who have and had at
the time of their votes no direct or indirect financial interest in the
operation of the Plan (the "Independent 12b-1 Trustees"). In making their
decision to adopt the Plan, the Trustees requested from the Distributor and
received such information as they deemed necessary to make an informed
determination as to whether or not adoption of the Plan was in the best
interests of the shareholders of the Fund. After due consideration of the
information received, the Trustees, including the Independent 12b-1 Trustees,
determined that adoption of the Plan would benefit the shareholders of the Fund.
The Plan provides that the Fund authorizes the Distributor or any of its
affiliates, including MSDW Advisors, to bear the expense of all promotional and
distribution related activities on behalf of the Fund. Among the activities and
services which may be provided under the Plan are: (1) compensation to and
expenses of Morgan Stanley Dean Witter Financial Advisors and other Selected
Broker-Dealer Representatives and other employees of the Distributor and
Selected Broker-Dealers including overhead and telephone expenses; (2) sales
incentives and bonuses to sales representatives and to marketing personnel in
connection with promoting sales of the Fund's shares; (3) expenses incurred in
connection with promoting sales of the Fund's shares; (4) preparing and
distributing sales literature; and (5) providing
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advertising and promotional activities, including direct mail solicitation and
television, radio, newspaper, magazine and other media advertisements.
Pursuant to the Selected Broker-Dealer Agreements between the Distributor
and DWR and other Selected Broker-Dealers, the Morgan Stanley Dean Witter
Financial Advisors and other Selected Broker-Dealer Representatives may be paid
an annual fee based upon the current value of the respective accounts for which
they are the Financial Advisors or Representatives of record. The fee also
reflects a payment made for expenses associated with the servicing of
shareholder's accounts, including the expenses of operating branch offices in
connection with the servicing of shareholder's accounts, which expenses include
lease costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies and other expenses relating to branch office servicing of shareholder
accounts.
Under the Plan, the Distributor uses its best efforts in rendering services
to the Fund, but in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations, the Distributor is not
liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
Under the Plan, the Distributor provides the Fund, for review by the
Trustees, and the Trustees review, promptly after the end of each fiscal
quarter, a written report regarding the distribution expenses incurred by the
Distributor of the Fund during such fiscal quarter, which report includes (1) an
itemization of the types of expenses and the purposes therefor; (2) the amounts
of such expenses; and (3) a description of the benefits derived by the Fund. In
the Trustees' quarterly review of the Plan they will consider its continued
appropriateness.
The Plan had an initial term ending April 30, 1995, and will remain in
effect from year to year thereafter, provided such continuance is approved
annually by a vote of the Trustees, including a majority of the Independent
12b-1 Trustees. Assumption by the Fund of any distribution expenses under the
Plan must be approved by the shareholders, and all material amendments to the
Plan must be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of the
holders of a majority of the Independent 12b-1 Trustees or by a vote of a
majority of the outstanding voting securities (as defined in the Act) on not
more than 30 days written notice to any other party to the Plan. So long as the
Plan is in effect, the selection or nomination of the Independent 12b-1 Trustees
is committed to the discretion of the Independent 12b-1 Trustees. At their
meeting held on April 30, 1998, the Trustees of the Fund, including all of the
Independent 12b-1 Trustees, approved the most recent continuance of the Plan for
an additional year until April 30, 1999.
No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial interest in the operation of the Plan except to the extent that the
Distributor or certain of its employees may be deemed to have such an interest
as a result of benefits derived from the successful operation of the Plan or as
a result of receiving a portion of the amounts expended thereunder by the
Distributor or any of its affiliates, including MSDW Advisors.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost,
unless the Trustees determine such does not reflect the securities' market
value, in which case these securities will be valued at their fair value as
determined by the Trustees. Other short-term debt securities will be valued on a
mark-to-market basis until such time as they reach a remaining maturity of sixty
days, whereupon they will be valued at amortized cost using their value on the
61st day unless the Trustees determine such does not reflect the securities'
market value, in which case these securities will be valued at their fair value
as determined by the Trustees. 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.
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As discussed in the Prospectus, the net asset value per share of the Fund is
determined once daily on each day that the New York Stock Exchange is open. The
net asset value per share will not be determined on such federal and non-federal
holidays as are observed by the New York Stock Exchange. The New York Stock
Exchange currently observes the following holidays: New Year's Day; Presidents'
Day; Reverend Dr. Martin Luther King Jr. Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the Fund's
Transfer Agent, Morgan Stanley Dean Witter Trust FSB (the "Transfer Agent").
This is an open account in which shares owned by the investor are credited by
the Transfer Agent in lieu of issuance of a share certificate. If a share
certificate is desired, it must be requested in writing for each transaction.
Certificates are issued only for full shares and may be redeposited in the
account at any time. There is no charge to the investor for issuance of a
certificate. Whenever a shareholder instituted transaction takes place in the
Shareholder Investment Account, the shareholder will be mailed a confirmation of
the transaction from the Fund or from DWR or other selected broker-dealer.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or capital gains distribution may invest such dividend or distribution
at net asset value (without sales charge), next determined by returning the
check or the proceeds to the Transfer Agent within 30 days after the payment
date. If the shareholder returns the proceeds of a dividend or distribution,
such funds must be accompanied by a signed statement indicating that the
proceeds constitute a dividend or distribution to be invested. Such investment
will be made at the net asset value per share next determined after receipt of
the check or proceeds by the Transfer Agent.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the Fund, unless the
shareholder requests that they be paid in cash. Each purchase of shares of the
Fund is made upon the condition that the Transfer Agent is thereby automatically
appointed as agent of the investor to receive all dividends and capital gains
distributions on shares owned by the investor. Such dividends and distributions
will be paid, at the net asset value per share, in shares of the Fund (or in
cash if the shareholder so requests) on the monthly payment date, which will be
no later than the last business day of the month for which the dividend or
distribution is payable. Processing of dividend checks begins immediately
following the monthly payment date. Shareholders who have requested to receive
dividends in cash will normally receive their monthly dividend check during the
first ten days of the following month. At any time an investor may request the
Transfer Agent, in writing, to have subsequent dividends and/or capital gains
distributions paid to him or her in cash rather than shares. To assure
sufficient time to process the change, such request should be received by the
Transfer Agent at least five business days prior to the record date of the
dividend or distribution. In the case of recently purchased shares for which
registration instructions have not been received on the record date, cash
payments will be made to DWR or other selected broker-dealer, and will be
forwarded to the shareholder, upon the receipt of proper instructions. It has
been, and remains the Fund's policy and practice that, if checks for dividends
or distributions paid in cash remain uncashed, no interest will accrue on
amounts represented by such uncashed checks.
TARGETED DIVIDENDS.-SM- In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of an open-end Morgan Stanley Dean Witter Fund
other than Morgan Stanley Dean Witter Short-Term Bond Fund. Such investment will
be made as described above for automatic investment in shares of the Fund, at
the net asset value per share of the selected Morgan Stanley Dean Witter Fund as
of the close of business on the payment date of the dividend or distribution and
will begin to earn dividends, if any, in the selected
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Morgan Stanley Dean Witter Fund the next business day. To participate in the
Targeted Dividends program, shareholders should contact their Morgan Stanley
Dean Witter Financial Advisor or other Selected Broker-Dealer Representative or
the Transfer Agent. Shareholders of the Fund must be shareholders of the Morgan
Stanley Dean Witter Fund targeted to receive investments from dividends at the
time they enter the Targeted Dividends program. Investors should review the
prospectus of the targeted Morgan Stanley Dean Witter Fund before entering the
program.
EASYINVEST.-SM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings or following redemption of
shares of a Morgan Stanley Dean Witter money market fund, account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected. Shares of the Morgan Stanley
Dean Witter money market funds redeemed in connection with EasyInvest are
redeemed on the business day preceding the transfer of funds. For further
information or to subscribe to EasyInvest, shareholders should contact their
Morgan Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
Representative or the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a withdrawal
plan is available for shareholders who own or purchase shares of the Fund having
a minimum value of $10,000 based upon the then current offering price. The Plan
provides for monthly or quarterly (March, June, September and December) checks
in any dollar amount, not less than $25, or in any whole percentage of the
account balance, on an annualized basis.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income, and generally, state and local
tax purposes.
Dividends and capital gains distributions on shares held under the
Systematic Withdrawal Plan will be invested in additional full and fractional
shares at net asset value (without a sales charge). Shares will be credited to
an open account for the investor by the Transfer Agent; no share certificates
will be issued. Only shareholders having accounts in which no share certificates
have been issued will be permitted to enroll in the Withdrawal Plan. A
shareholder is entitled to a share certificate upon written request to the
Transfer Agent, although in that event the shareholder's Systematic Withdrawal
Plan will be terminated.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent within five business days after the date of redemption.
The Withdrawal Plan may be terminated at any time by the Fund.
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time change the amount and interval of withdrawal payments and the
address to which checks are mailed through his or her Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer Representative or by written
notification to the Transfer Agent. The shareholder's signature on such
notification must be guaranteed by an eligible guarantor as described above. The
shareholder may also terminate the Systematic Withdrawal Plan at any time by
written notice to the Transfer Agent. In the event of such termination, the
account will be continued as a Shareholder
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Investment Account. The shareholder may also redeem all or part of the shares
held in the Systematic Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
a shareholder may make additional investments in Fund shares at any time through
the Shareholder Investment Account by sending a check in any amount, not less
than $100, payable to Morgan Stanley Dean Witter Short-Term Bond Fund, directly
to the Fund's Transfer Agent. The investment proceeds will be applied to the
purchase of shares of the Fund at the net asset value per share next computed
after receipt of the check or purchase payment by the Transfer Agent. The shares
so purchased will be credited to the investor's account.
EXCHANGE PRIVILEGE. As discussed in the Prospectus under the caption
"Exchange Privilege," an Exchange Privilege exists whereby investors who have
purchased shares of any of the Morgan Stanley Dean Witter Funds that are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds"), shares of
Morgan Stanley Dean Witter Multi-State Municipal Series Trust and Morgan Stanley
Dean Witter Hawaii Municipal Trust, which are Morgan Stanley Dean Witter Funds
sold with a front-end sales charge ("FSC Funds"), and shares of Morgan Stanley
Dean Witter Global Short-Term Income Fund Inc. ("Global Short-Term"), which is a
Morgan Stanley Dean Witter Fund offered with a contingent deferred sales charge
("CDSC"), will be permitted, after the shares of the fund acquired by purchase
(not by exchange or dividend reinvestment) have been held for thirty days, to
redeem all or part of their shares in that fund, have the proceeds invested in
shares of the Fund, Morgan Stanley Dean Witter Intermediate Term U.S. Treasury
Trust, Morgan Stanley Dean Witter Limited Term Municipal Trust and Morgan
Stanley Dean Witter Short-Term U.S. Treasury Trust, and in shares of five money
market funds: Morgan Stanley Dean Witter Liquid Asset Fund Inc., Morgan Stanley
Dean Witter Tax-Free Daily Income Trust, Morgan Stanley Dean Witter California
Tax-Free Daily Income Trust, Morgan Stanley Dean Witter New York Municipal Money
Market Trust, or Morgan Stanley Dean Witter U.S. Government Money Market Trust
(these nine funds, including the Fund, are hereinafter collectively referred to
as "Exchange Funds"). There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. Shares of the Exchange Funds
received in an exchange for shares of a Morgan Stanley Dean Witter Multi-Class
Fund may be redeemed and exchanged only for shares of the corresponding Class of
a Morgan Stanley Dean Witter Multi-Class Fund or for shares of one of the other
Exchange Funds, provided that shares of the Exchange Funds received in an
exchange for Class A shares of a Morgan Stanley Dean Witter Multi-Class Fund may
also be redeemed and exchanged for shares of a FSC Fund, and shares of the
Exchange Funds received in an exchange for Class B shares of a Morgan Stanley
Dean Witter Multi-Class Fund may also be redeemed and exchanged for shares of
Global Short-Term. In addition, shares of the Exchange Funds received in an
exchange for shares of a FSC Fund may be redeemed and exchanged for Class A
shares of a Morgan Stanley Dean Witter Mutli-Class Fund or for shares of one of
the other Exchange Funds, and shares of the Exchange Funds received in an
exchange for shares of Global Short-Term may be redeemed and exchanged for Class
B shares of a Morgan Stanley Dean Witter Multi-Class Fund or for shares of one
of the other Exchange Funds. Ultimately, any applicable CDSC will have to be
paid upon redemption of shares originally purchased from Global Short-Term or a
Class of a Morgan Stanley Dean Witter Multi-Class Fund that imposes a CDSC. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
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When shares of a Morgan Stanley Dean Witter Multi-Class Fund or Global
Short-Term are exchanged for shares of any Exchange Fund, the exchange is
executed at no charge to the shareholder, without the imposition of the CDSC at
the time of the exchange. During the period of time the shareholder remains in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the holding period or "year since purchase
payment made" is frozen. When shares are redeemed out of the Exchange Fund, they
will be subject to a CDSC which would be based upon the period of time the
shareholder held shares in a Morgan Stanley Dean Witter Multi-Class Fund or in
Global Short-Term. However, in the case of shares exchanged into the Exchange
Fund on or after April 23, 1990, upon redemption of shares which results in a
CDSC being imposed, a credit (not to exceed the amount of the CDSC) will be
given in an amount equal to the Exchange Fund 12b-1 distribution fees, if any,
incurred on or after that date which are attributable to those shares.
Shareholders acquiring shares of an Exchange Fund pursuant to this exchange
privilege may exchange those shares back into a Morgan Stanley Dean Witter
Multi-Class Fund or Global Short-Term from the Exchange Fund, with no CDSC being
imposed on such exchange. The holding period previously frozen when shares were
first exchanged for shares of the Exchange Fund resumes on the last day of the
month in which shares of a Morgan Stanley Dean Witter Multi-Class Fund or of
Global Short-Term are reacquired. Thus, a CDSC is imposed only upon an ultimate
redemption, based upon the time (calculated as described above) the shareholder
was invested in a Morgan Stanley Dean Witter Multi-Class Fund or in Global
Short-Term. In the case of exchanges of Class A shares of a Morgan Stanley Dean
Witter Multi-Class Fund which are subject to a CDSC, the holding period also
includes the time (calculated as described above) the shareholder was invested
in a FSC fund.
When shares initially purchased in a Morgan Stanley Dean Witter Multi-Class
Fund or in Global Short-Term are exchanged for shares of a Morgan Stanley Dean
Witter Multi-Class Fund, shares of Global Short-Term, shares of a FSC Fund, or
shares of an Exchange Fund, the date of purchase of the shares of the fund
exchanged into, for purposes of the CDSC upon redemption, will be the last day
of the month in which the shares being exchanged were originally purchased. In
allocating the purchase payments between funds for purposes of the CDSC, the
amount which represents the current net asset value of shares at the time of the
exchange which were (i) purchased more than one, three or six years (depending
on the CDSC schedule applicable to the shares) prior to the exchange, (ii)
originally acquired through reinvestment of dividends or distributions and (iii)
acquired in exchange for shares of FSC funds, or for shares of other Morgan
Stanley Dean Witter Funds for which shares of FSC funds have been exchanged (all
such shares called "Free Shares"), will be exchanged first. After an exchange,
all dividends earned on shares in the Exchange Fund will be considered Free
Shares. If the exchanged amount exceeds the value of such Free Shares, an
exchange is made, on a block-by-block basis, of non-Free Shares held for the
longest period of time (except that if shares held for identical periods of time
but subject to different CDSC schedules are held in the same Exchange Privilege
account, the shares of that block that are subject to a lower CDSC rate will be
exchanged prior to the shares of that block that are subject to a higher CDSC
rate). Shares equal to any appreciation in the value of non-Free Shares
exchanged will be treated as Free Shares, and the amount of the purchase
payments for the non-Free Shares of the fund exchanged into will be equal to the
lesser of (a) the purchase payments for, or (b) the current net asset value of,
the exchanged non-Free Shares. If an exchange between funds would result in
exchange of only part of a particular block of non-Free Shares, then shares
equal to any appreciation in the value of the block (up to the amount of the
exchange) will be treated as Free Shares and exchanged first, and the purchase
payment for that block will be allocated on a pro rata basis between the
non-Free Shares of that block to be retained and the non-Free Shares to be
exchanged. The prorated amount of such purchase payment attributable to the
retained non-Free Shares will remain as the purchase payment for such shares,
and the amount of purchase payment for the exchanged non-Free Shares will be
equal to the lesser of (a) the prorated amount of the purchase payment for, or
(b) the current net asset value of, those exchanged non-Free Shares. Based upon
the procedures described in the Morgan Stanley Dean Witter Multi-Class Fund
Prospectus under the caption "Purchase of Fund Shares" and in the Global
Short-Term Prospectus under the caption "Contingent Deferred Sales
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Charge," any applicable CDSC will be imposed upon the ultimate redemption of
shares of any fund, regardless of the number of exchanges since those shares
were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of the shares of any
other fund and the general administration of the Exchange Privilege. No
commission or discounts will be paid to the Distributor or any selected
broker-dealer for any transactions pursuant to this Exchange Privilege.
Shares of the Fund acquired pursuant to the Exchange Privilege will be held
by the Fund's Transfer Agent in an Exchange Privilege account distinct from any
account of the same shareholder who may have acquired shares of the Fund
directly. A shareholder of the Fund will not be permitted to make additional
investments in such Exchange Privilege account, except through the exchange of
additional shares of the fund in which the shareholder had initially invested,
and the proceeds of any shares redeemed from such Exchange Privilege account may
not thereafter be placed back into that Exchange Privilege account, except by
utilizing the Reinstatement Privilege (see "Redemptions and
Repurchases--Reinstatement Privilege"). If such a shareholder desires to make
any additional investments in the Fund, a separate account will be maintained
for receipt of such investments. The Fund will have additional costs for account
maintenance if a shareholder has more than one account with the Fund.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $10,000 for the Fund (although the
Fund, in its discretion, may accept initial investments of as low as $5,000) and
$5,000 for Morgan Stanley Dean Witter Liquid Asset Fund Inc., Morgan Stanley
Dean Witter Tax-Free Daily Income Trust, Morgan Stanley Dean Witter California
Tax-Free Daily Income Trust, and Morgan Stanley Dean Witter New York Municipal
Money Market Trust, although those funds may, at their discretion, accept
initial investments of as low as $1,000. The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Morgan Stanley Dean
Witter Speical Value Fund. The minimum initial investment for the Exchange
Privilege account of each Class of all other Morgan Stanley Dean Witter Funds
for which the Exchange Privilege is available is $1,000.) Upon exchange into an
Exchange Fund, the shares of that fund will be held in a special Exchange
Privilege account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of the Fund or of money market funds,
including the check writing feature, will not be available for funds held in
that account.
The Fund and each of the other Morgan Stanley Dean Witter Funds may limit
the number of times this Exchange Privilege may be exercised by an investor
within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by any of the Morgan Stanley Dean Witter
Funds, upon such notice as may be required by applicable regulatory agencies
(presently sixty days' prior written notice for termination or material
revision), provided that six months' prior written notice of termination will be
given to the shareholders who hold shares of Exchange Funds pursuant to this
Exchange Privilege, and provided further that the Exchange Privilege may be
terminated or materially revised at times (a) when the New York Stock Exchange
is closed for other than customary weekends and holidays, (b) when trading on
that Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable
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rules and regulations of the Securities and Exchange Commission shall govern as
to whether the conditions prescribed in (b) or (c) exist), or (e), if the Fund
would be unable to invest amounts effectively in accordance with its investment
objective(s), policies and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer Representative or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
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PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares presented for repurchase or redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate and/or
written request in good order. The term "good order" means that the share
certificate, if any, and request for redemption, are properly signed,
accompanied by any documentation required by the Transfer Agent, and bear
signature guarantees when required by the Fund or the Transfer Agent. Such
payment may be postponed or the right of redemption suspended at times (a) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on that Exchange is restricted, (c) when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or (d) during any period when
the Securities and Exchange Commission by order so permits; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist.
INVOLUNTARY REDEMPTION. As described in the Prospectus, due to the
relatively high cost of handling small investments, the Fund reserves the right
to redeem, at net asset value, the shares of any shareholder whose shares have a
value of less than $100, or such lesser amount as may be fixed by the Board of
Trustees. However, before the Fund redeems such shares and sends the proceeds to
the shareholder, it will notify the shareholder that the value of the shares is
less than $100 and allow him or her 60 days to make an additional investment in
an amount which will increase the value of his or her account to $100 or more
before the redemption is processed.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 30 days after the redemption
or repurchase, reinstate any portion or all of the proceeds of such redemption
or repurchase in shares of the Fund held by the shareholder at the net asset
value next determined after a reinstatement request, together with the proceeds,
is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax and state income tax treatment of any gain or loss realized upon the
redemption or repurchase, except that if the redemption or repurchase resulted
in a loss and reinstatement is made in shares of the Fund, some or all of the
loss, depending on the amount reinstated, will not be allowed as a deduction for
federal income tax and state personal income tax purposes but will be applied to
adjust the cost basis of the shares acquired upon reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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The Fund intends to qualify and elect to be treated as a regulated
investment company for each taxable year under the Internal Revenue Code of
1986, as amended (the "Code"). To so qualify, the Fund must meet certain
requirements as to the nature of its income and the nature of its assets.
As a regulated investment company, the Fund will not be subject to United
States federal income tax on its income that it distributes to its shareholders,
provided that an amount equal to at least 90% of its investment company taxable
income (i.e., 90% of its taxable income minus the excess, if any, of its net
realized long-term capital gains over its net realized short-term capital losses
including any capital loss
38
<PAGE>
carryovers), plus or minus certain other adjustments as specified in section 852
of the Code) for the taxable year is distributed, but will be subject to tax at
regular corporate rates on any income or gains that it does not distribute.
Furthermore, the Fund will be subject to a United States corporate income tax
with respect to such distributed amounts in any year that it fails to qualify as
a regulated investment company or fails to meet this distribution requirement.
The Fund will determine either to distribute or to retain all or part of any
net long-term capital gains in any year for reinvestment. If any such gains are
retained, the Fund expects to designate such retained amounts as undistributed
capital gains in a notice to its shareholders who (a) will be required to
include in income for United States federal income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed amount, (b) will
be entitled to credit their proportionate shares of the 35% tax paid by the Fund
on the undistributed amount against their United States federal income tax
liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax basis,
for United States federal income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income.
The Code imposes a 4% nondeductible excise tax on the Fund to the extent the
Fund does not distribute by the end of any calendar year at least 98% of its net
investment income for that year and 98% of the net amount of its capital gains
(both long-and short-term) for the one-year period ending, as a general rule, on
October 31 of that year. For this purpose, however, any income or gain retained
by the Fund that is subject to corporate income tax will be considered to have
been distributed by year-end. The Fund anticipates that it will pay such
dividends and will make such distributions as are necessary in order to avoid
the application of this tax.
Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held for
twelve months or less will be generally short-term gains or losses.
Gains or losses on the Fund's transactions in certain listed options on
securities and on futures and options on futures traded on U.S. exchanges
generally are treated as 60% long-term gain or loss and 40% short-term gain or
loss. When the Fund engages in options and futures transactions, various tax
regulations applicable to the Fund may have the effect of causing the Fund to
recognize a gain or loss for tax purposes before that gain or loss is realized,
or to defer recognition of a realized loss for tax purposes. Recognition, for
tax purposes, of an unrealized loss may result in a lesser amount of the Fund's
realized net gains being available for distribution.
The Fund may invest in securities having original issue discount which may
generate income in excess of the cash received by the Fund. Consequently, the
Fund may be required to borrow or to liquidate securities in order to make
distributions.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
Distributions in excess of the Fund's current and accumulated earnings and
profits will, as to each shareholder, be treated as a tax-free return of
capital, to the extent of a shareholder's basis in his shares of the Fund, and
as a capital gain thereafter (if the shareholder held his or her shares of the
Fund as capital assets).
Shareholders receiving dividends or distributions in the form of additional
Fund shares should be treated for United States federal income tax purposes as
receiving a distribution in an amount equal to
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the amount of money that the shareholders receiving cash dividends or
distributions will receive, and should have a cost basis in the shares received
equal to such amount.
Any loss realized on the redemption by a shareholder of his shares will be
disallowed to the extent the shares disposed of are replaced, including
replacement through the reinvesting of dividends and capital gains distributions
in the Fund, within a period (of 61 days) beginning 30 days before and ending 30
days after the disposition of the shares. In such a case, the basis of the
shares acquired will be increased to reflect the disallowed loss. Any loss
realized by a shareholder on the sale of a Fund share held by the shareholder
for six months or less will be treated for United States income tax purposes as
a long-term capital loss to the extent of any distributions or deemed
distributions of long-term capital gains received by the shareholder with
respect to such share.
Distributions may also be subject to state, local and foreign taxes
depending on each shareholder's particular situation.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies are currently considered to be qualifying
income for purposes of determining whether the Fund qualifies as a regulated
investment company. It is currently unclear, however, who will be treated as the
issuer of certain foreign currency instruments or how foreign currency options,
futures, or forward foreign currency contracts will be valued for purposes of
the regulated investment company diversification requirements applicable to the
Fund. The Fund may request a private letter ruling from the Internal Revenue
Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts," and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund may not
be able to make any ordinary dividend distributions and distributions paid
during the year may be characterized for tax purposes as a return of capital.
Exchange control regulations may restrict repatriations of investment income
and capital or the proceeds of securities sales by foreign investors such as the
Fund and may limit the Fund's ability to pay sufficient dividends and to make
sufficient distributions to satisfy the 90% and excise tax distribution
requirements.
The Fund's transactions, if any, in foreign currencies, forward contracts,
options and futures contracts (including options and futures contracts on
foreign currencies) may be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the Fund
(i.e., may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These rules also (a) could require the Fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat them as they were
closed out) and (b) may cause the Fund to recognize income without receiving
cash with which to pay dividends or make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income and excise taxes.
The foregoing discussion is a general summary of certain of the current
Federal income tax laws regarding the Fund and investors. The discussion does
not purport to deal with all of the Federal income tax consequences applicable
to the Fund, or to all categories of investors, some of which may be subject
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to special rules. Investors should consult their own tax advisors regarding the
tax consequences to them of investments in shares.
PERFORMANCE INFORMATION
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As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. Yield
is calculated for any 30-day period as follows: the amount of interest and/or
dividend income for each security in the Fund's portfolio is determined in
accordance with regulatory requirements; the total for the entire portfolio
constitutes the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income". The resulting amount
is divided by the product of the net asset value per share on the last day of
the period multiplied by the average number of Fund shares outstanding during
the period that were entitled to dividends. This amount is added to 1 and raised
to the sixth power. 1 is then subtracted from the result and the difference is
multiplied by 2 to arrive at the annualized yield. Based on the foregoing
calculation, the Fund's annualized yield for the thirty (30) day period ended
April 30, 1998 was 6.21%. Without the waiver of fees and assumption of expenses
by the Investment Manager, the Fund's annualized yield for the thirty (30) day
period ended April 30, 1998 would have been 4.95%.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result. Based on the
foregoing calculation, the Fund's average annual total return for the fiscal
year ended April 30, 1998 was 7.02% and for the period January 10, 1994
(commencement of operations) through April 30, 1998 was 5.29%. Without the
waiver of fees and assumption of expenses by the Investment Manager, the average
annual total return for the fiscal year ended April 30, 1998 and the period
January 10, 1994 through April 30, 1998 would have been 6.34% and 4.83%,
respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, year-by-year or other types of
total return figures. In addition, the Fund may compute its aggregate total
return for specified periods by determining the aggregate percentage rate which
will result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value by the initial $1,000 investment and subtracting 1 from the result. Based
on the foregoing calculation, the Fund's aggregate total return for the fiscal
year ended April 30, 1998 was 7.02% and for the period January 10, 1994
(commencement of operations) through April 30, 1998 was 24.84%.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return and multiplying by $10,000, $50,000 or $100,000, as the
case may be. Investments of $10,000, $50,000 and $100,000 in the Fund at
inception would have grown to $12,484, $62,420 and $124,840, respectively at
April 30, 1998.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. All of the Trustees have been elected by the shareholders of the Fund,
most recently at a Special Meeting of Shareholders
41
<PAGE>
held on May 21, 1997. The Trustees themselves have the power to alter the number
and the terms of office of the Trustees, and they may at any time lengthen their
own terms or make their terms of unlimited duration and appoint their own
successors, provided that always at least a majority of the Trustees has been
elected by the shareholders of the Fund. Under certain circumstances the
Trustees may be removed by action of the Trustees. The shareholders also have
the right to remove the Trustees following a meeting called for that purpose
requested in writing by the record holders of not less than ten percent of the
Fund's outstanding shares. The voting rights of shareholders are not cumulative,
so that holders of more than 50 percent of the shares voting can, if they
choose, elect all Trustees being selected, while the holders of the remaining
shares would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances). The Trustees have not presently authorized
any such additional series or classes of shares.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his or her own bad
faith, willful misfeasance, gross negligence, or reckless disregard of his or
her duties. It also provides that all third persons shall look solely to the
Fund's property for satisfaction of claims arising in connection with the
affairs of the Fund. With the exceptions stated, the Declaration of Trust
provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liabilities in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB, Harborside Financial Center, Plaza
Two, Jersey City, New Jersey 07311 is the Transfer Agent of the Fund's shares
and Dividend Disbursing Agent for payment of dividends and distributions on Fund
shares and Agent for shareholders under various investment plans described
herein. Morgan Stanley Dean Witter Trust FSB is an affiliate of Morgan Stanley
Dean Witter Advisors Inc., the Fund's Investment Manager, and of Morgan Stanley
Dean Witter Distributors Inc., the Fund's Distributor. As Transfer Agent and
Dividend Disbursing Agent, Morgan Stanley Dean Witter Trust FSB's
responsibilities include maintaining shareholder accounts, disbursing cash
dividends and reinvesting dividends, processing account registration changes,
handling purchase and redemption transactions, mailing prospectuses and reports,
mailing and tabulating proxies, processing share certificate transactions, and
maintaining shareholder records and lists. For these services Morgan Stanley
Dean Witter Trust FSB receives a per shareholder account fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
42
<PAGE>
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on April 30. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund included in this Statement of
Additional Information and incorporated by reference in the Prospectus, have
been so included and incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
43
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (45.0%)
AUTO - RENTALS (1.9%)
$ 1,000 Hertz Corp............................................................ 9.50% 05/15/98 $ 1,001,100
1,000 Hertz Corp............................................................ 7.375 06/15/01 1,032,360
------------
2,033,460
------------
AUTOMOTIVE - FINANCE (3.8%)
2,000 Ford Motor Credit Corp................................................ 6.375 10/06/00 2,017,780
2,000 General Motors Acceptance Corp........................................ 7.125 05/01/01 2,056,320
------------
4,074,100
------------
BANKS - INTERNATIONAL (0.9%)
1,000 Kansallis-Osake Pankki (Finland)...................................... 6.125 05/15/98 1,000,160
------------
BANKS - REGIONAL (2.8%)
2,000 Long Island Savings Bank.............................................. 6.20 04/02/01 1,999,580
1,000 Republic New York Corp................................................ 8.25 11/01/01 1,067,700
------------
3,067,280
------------
BROKERAGE (2.8%)
1,000 Lehman Brothers Holdings, Inc......................................... 7.625 07/15/99 1,018,860
2,000 Salomon, Inc.......................................................... 6.50 03/01/00 2,017,060
------------
3,035,920
------------
CABLE & TELECOMMUNICATIONS (5.9%)
2,000 Airtouch Communications Inc........................................... 7.125 07/15/01 2,051,280
1,000 Century Communications Corp........................................... 9.75 02/15/02 1,063,750
1,375 News American Holdings, Inc........................................... 7.50 03/01/00 1,407,024
800 Rogers Cablesystems, Ltd.............................................. 9.625 08/01/02 849,000
1,000 Telecommunications, Inc............................................... 7.375 02/15/00 1,020,980
------------
6,392,034
------------
COMPUTER SERVICES (1.2%)
1,270 Comdisco, Inc......................................................... 6.50 06/15/00 1,278,827
------------
FINANCIAL (2.9%)
1,000 AT&T Capital Corp..................................................... 6.65 04/30/99 1,005,330
1,000 Fletcher Challenge Financial Inc...................................... 9.80 06/15/98 1,004,650
1,065 International Lease Finance Corp...................................... 5.75 07/01/98 1,065,426
------------
3,075,406
------------
FINANCIAL SERVICES (1.5%)
1,500 Golden West Financial Corp............................................ 7.875 01/15/02 1,582,110
------------
FOOD SERVICES (1.9%)
2,000 Supervalu, Inc........................................................ 7.25 07/15/99 2,031,740
------------
FOREIGN GOVERNMENT AGENCY (1.8%)
2,000 Korea Development Bank................................................ 6.25 05/01/00 1,909,660
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GAS TRANSMISSION (1.9%)
$ 2,000 The Williams Companies, Inc........................................... 7.50% 09/15/99 $ 2,039,080
------------
INSURANCE (1.0%)
1,000 NAC Re Corp........................................................... 8.00 06/15/99 1,021,530
------------
OIL INTEGRATED - DOMESTIC (1.0%)
1,000 Occidental Petroleum Corp............................................. 8.50 11/09/01 1,069,370
------------
PHOTOGRAPHY (0.9%)
1,000 Polaroid Corp......................................................... 8.00 03/15/99 1,019,000
------------
RAILROADS (2.9%)
2,000 Norfolk Southern Corp................................................. 6.875 05/01/01 2,044,920
1,000 Union Pac Corp........................................................ 7.375 05/15/01 1,027,520
------------
3,072,440
------------
TRANSPORTATION (0.2%)
300 AMR Corp.............................................................. 8.10 11/01/98 303,246
------------
TRANSPORTATION - SHIPPING (1.9%)
2,000 GATX Capital Corp..................................................... 6.50 11/01/00 2,013,860
------------
UTILITIES - ELECTRIC (7.8%)
1,500 Commonwealth Edison Co................................................ 6.50 04/15/00 1,511,730
493 Commonwealth Edison Co................................................ 7.625 02/15/03 500,454
370 Consumers Energy Co................................................... 8.875 11/15/99 385,096
2,000 CSW Investments-144A*................................................. 6.95 08/01/01 2,042,340
1,000 Illinois Power Co..................................................... 5.625 04/15/00 992,900
1,000 Ohio Edison Co........................................................ 6.875 09/15/99 1,010,450
500 Pacific Gas & Electric Co............................................. 5.75 12/01/98 500,195
1,490 System Energy Resources Inc........................................... 7.625 04/01/99 1,510,145
------------
8,453,310
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $48,798,585)........................................................................ 48,472,533
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (43.6%)
ASSET-BACKED SECURITY (1.9%)
2,000 California Infrastructure & Economic Development Bank Special
Purpose Trust SCE-1 Class A-3....................................... 6.17 03/25/03 2,010,080
------------
MORTGAGE PASS-THROUGH SECURITIES (13.8%)
2,000 Federal Home Loan Mortgage Corp. PC Gold.............................. 6.00 (a) 1,994,375
4,244 Federal Home Loan Mortgage Corp. PC Gold.............................. 6.00 06/01/98-04/01/03 4,232,003
5,022 Federal Home Loan Mortgage Corp. PC Gold.............................. 6.50 10/01/98-09/01/02 5,051,658
3,641 Federal National Mortgage Assoc....................................... 6.00 10/01/00-07/01/01 3,614,025
------------
14,892,061
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (25.1%)
$ 4,000 Federal Farm Credit Banks............................................. 6.11-6.16% 11/06/00-12/18/00 $ 4,006,210
11,000 Federal Home Loan Banks............................................... 5.45-6.25 12/22/99-12/04/00 10,994,140
2,000 Federal Home Loan Mortgage Corp....................................... 5.97 03/02/01 1,997,240
10,000 Federal National Mortgage Assoc....................................... 5.44-6.22 07/23/99-02/02/01 10,008,080
------------
27,005,670
------------
U.S. GOVERNMENT OBLIGATIONS (2.8%)
1,000 U.S. Treasury Note+................................................... 6.00 09/30/98 1,002,190
1,000 U.S. Treasury Note+................................................... 5.875 08/31/99 1,004,440
1,000 U.S. Treasury Note+................................................... 5.75 09/30/99 1,002,990
------------
3,009,620
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $46,859,818)........................................................................ 46,917,431
------------
SHORT-TERM INVESTMENTS (8.8%)
U.S. GOVERNMENT AGENCY (b) (8.3%)
9,000 Federal Home Loan Mortgage Corp.
(AMORTIZED COST $9,000,000)......................................... 5.45 05/01/98 9,000,000
------------
REPURCHASE AGREEMENT (0.5%)
510 The Bank of New York (dated 04/30/98; proceeds $510,772) (c)
(IDENTIFIED COST $510,694).......................................... 5.50 05/01/98 510,694
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $9,510,694)......................................................................... 9,510,694
------------
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $105,169,097) (D)........................................................ 97.4 % 104,900,658
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 2.6 2,798,576
------ -------------
NET ASSETS................................................................................ 100.0 % $ 107,699,234
------ -------------
------ -------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
+ Securities segregated as collateral for security purchased on a forward
commitment basis.
PC Participation Certificate.
(a) Security purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date. The actual principal amount
and maturity date will be determined upon settlement.
(b) Security was purchased on a discount basis. The interest rate shown has been
adjusted to reflect a money market equivalent yield.
(c) Collateralized by $520,332 Federal National Mortgage Association 6.07% due
04/24/03 valued at $520,908.
(d) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $243,729 and the
aggregate gross unrealized depreciation is $512,168, resulting in net
unrealized depreciation of $268,439.
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $105,169,097).............................................................. $104,900,658
Receivable for:
Shares of beneficial interest sold........................................................ 5,887,690
Interest.................................................................................. 1,488,536
Deferred organizational expenses.............................................................. 24,174
Receivable from affiliate..................................................................... 101,634
Prepaid expenses and other assets............................................................. 11,881
------------
TOTAL ASSETS............................................................................. 112,414,573
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 4,043,859
Shares of beneficial interest repurchased................................................. 595,589
Dividends to shareholders................................................................. 36,418
Accrued expenses and other payables........................................................... 39,473
------------
TOTAL LIABILITIES........................................................................ 4,715,339
------------
NET ASSETS............................................................................... $107,699,234
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $109,548,970
Net unrealized depreciation................................................................... (268,439)
Accumulated undistributed net investment income............................................... 78
Accumulated net realized loss................................................................. (1,581,375)
------------
NET ASSETS............................................................................... $107,699,234
------------
------------
NET ASSET VALUE PER SHARE,
11,346,474 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)............... $9.49
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................................................................. $4,134,905
----------
EXPENSES
Investment management fee....................................................................... 443,693
Registration fees............................................................................... 57,682
Professional fees............................................................................... 56,073
Shareholder reports and notices................................................................. 41,518
Organizational expenses......................................................................... 34,598
Transfer agent fees and expenses................................................................ 33,115
Custodian fees.................................................................................. 14,108
Trustees' fees and expenses..................................................................... 11,968
Other........................................................................................... 4,943
----------
TOTAL EXPENSES............................................................................. 697,698
Less: amounts waived/reimbursed................................................................. (697,698)
----------
NET EXPENSES............................................................................... --
----------
NET INVESTMENT INCOME...................................................................... 4,134,905
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss............................................................................... (421,092)
Net change in unrealized depreciation........................................................... 353,108
----------
NET LOSS................................................................................... (67,984)
----------
NET INCREASE.................................................................................... $4,066,921
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, APRIL 30,
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................... $ 4,134,905 $ 2,333,799
Net realized loss............................................................... (421,092) (230,430)
Net change in unrealized depreciation........................................... 353,108 (27,367)
------------ ------------
NET INCREASE............................................................... 4,066,921 2,076,002
Dividends from net investment income............................................ (4,191,003) (2,254,744)
Net increase from transactions in shares of beneficial interest................. 65,571,237 9,252,602
------------ ------------
NET INCREASE............................................................... 65,447,155 9,073,860
NET ASSETS:
Beginning of period............................................................. 42,252,079 33,178,219
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $78 AND $56,176,
RESPECTIVELY)............................................................... $107,699,234 $ 42,252,079
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Short-Term Bond Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment objective is to provide a high level
of current income consistent with the preservation of capital. The Fund seeks to
achieve its objective by investing in a diversified portfolio of short-term
fixed income securities. The Fund was organized as a Massachusetts business
trust on October 22, 1993 and commenced operations on January 10, 1994.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) all portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (2) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") that sale
and bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees
(valuation of securities for which market quotations are not readily available
may be based upon current market prices of securities which are comparable in
coupon, rating and maturity or an appropriate matrix utilizing similar factors);
(3) certain portfolio securities may be valued by an outside pricing service
approved by the Trustees. The pricing service may utilize a matrix system
incorporating security quality, maturity and coupon as the evaluation model
parameters, and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (4) short-term debt securities having a maturity date of
more than sixty days at the time of purchase are valued on a mark-to-market
basis until sixty days prior to maturity and thereafter at amortized cost based
on their value on the 61st day. Short-term debt securities having a maturity
date of sixty days or less at the time of purchase are valued at amortized cost.
49
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998, CONTINUED
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $173,000 which has been
reimbursed, exclusive of any amounts assumed. Such expenses have been deferred
and are being amortized on the straight-line method over a period not to exceed
five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.70% to the net assets of the Fund determined as of the close of
each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of
50
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998, CONTINUED
all personnel, including officers of the Fund who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
For the period January 1, 1997 through December 31, 1998, the Investment Manager
is waiving its compensation and assuming all operating expenses without
limitation.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales\prepayments of portfolio
securities, excluding short-term investments, for the year ended April 30, 1998
were $89,499,911 and $32,924,944, respectively. Included in the aforementioned
are purchases and sales\prepayments of U.S. Government securities of $49,903,973
and $20,958,107, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent. At April 30, 1998, the Fund had transfer agent fees
and expenses payable of approximately $2,300.
4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 1998 APRIL 30, 1997
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 15,691,994 $ 149,203,263 5,655,876 $ 53,856,789
Reinvestment of dividends........................................ 323,662 3,075,757 187,178 1,780,724
----------- -------------- ----------- ------------
16,015,656 152,279,020 5,843,054 55,637,513
Repurchased...................................................... (9,118,681) (86,707,783) (4,870,750) (46,384,911)
----------- -------------- ----------- ------------
Net increase..................................................... 6,896,975 $ 65,571,237 972,304 $ 9,252,602
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
51
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998, CONTINUED
5. FEDERAL INCOME TAX STATUS
At April 30, 1998, the Fund had a net capital loss carryover of approximately
$1,424,000, to offset future capital gains to the extent provided by regulations
available through April 30 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ------------------------------------------
2003 2004 2005 2006
- --------- --------- --------- ---------
<S> <C> <C> <C>
$ 378 $ 501 $ 186 $ 359
- --------- --------- --------- ---------
- --------- --------- --------- ---------
</TABLE>
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $158,000 during fiscal 1998.
As of April 30, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
52
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED APRIL 30, JANUARY 10, 1994*
----------------------------------- THROUGH
1998 1997 1996 1995 APRIL 30, 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period....................... $ 9.50 $ 9.54 $ 9.46 $ 9.62 $ 10.00
-------- ------- ------- ------- ------
Net investment income......... 0.65 0.61 0.63 0.77 0.21
Net realized and unrealized
gain (loss).................. -- (0.06) 0.05 (0.33) (0.40)
-------- ------- ------- ------- ------
Total from investment
operations................... 0.65 0.55 0.68 0.44 (0.19)
-------- ------- ------- ------- ------
Less dividends and
distributions from:
Net investment income...... (0.66) (0.59) (0.45) (0.59) (0.19)
Paid-in-capital............ -- -- (0.15) (0.01) --
-------- ------- ------- ------- ------
Total dividends and
distributions................ (0.66) (0.59) (0.60) (0.60) (0.19)
-------- ------- ------- ------- ------
Net asset value, end of
period....................... $ 9.49 $ 9.50 $ 9.54 $ 9.46 $ 9.62
-------- ------- ------- ------- ------
-------- ------- ------- ------- ------
TOTAL INVESTMENT RETURN+...... 7.02% 5.88% 7.33% 4.76% (2.01)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... --(3) 0.64%(3) 0.37%(3) --(3) -- (2)(3)
Net investment income......... 6.52%(3) 6.25%(3) 6.54%(3) 7.64%(3) 6.36%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.................... $107,699 $42,252 $33,178 $29,818 $43,403
Portfolio turnover rate....... 55% 67% 64% 74% 9%(1)
</TABLE>
- ---------------------
* Commencement of operations.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the annualized expense and net investment income ratios
would have been 1.10% and 5.42%, respectively, for the year ended April 30,
1998, 1.30% and 5.59%, respectively, for the year ended April 30, 1997,
1.29% and 5.61%, respectively, for the year ended April 30, 1996, 1.08% and
6.56%, respectively, for the year ended April 30, 1995 and 1.55% and 4.81%,
respectively, for the period ended April 30, 1994.
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER SHORT-TERM BOND FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter Short-Term Bond Fund
(the "Fund") at April 30, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the four years in the period
then ended and for the period January 10, 1994 (commencement of operations)
through April 30, 1994, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at April 30, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
JUNE 9, 1998
54
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
<TABLE>
<S> <C>
Aaa Fixed-income securities which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Fixed-income securities which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade fixed-income securities. They are rated lower than the best fixed-income
securities because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or there may
other elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A Fixed-income securities which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the future.
Baa Fixed-income securities which are rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over any
great length of time. Such fixed-income securities lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade.
Ba Fixed-income securities 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 in the future. Uncertainty of position characterizes
bonds in this class.
B Fixed-income securities 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 Fixed-income securities 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 Fixed-income securities 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 Fixed-income securities which are rated C are the lowest rated class of fixed
income securities, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
</TABLE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal
fixed-income security rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and a modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
55
<PAGE>
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. The 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")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
<TABLE>
<S> <C>
AAA Fixed-income securities rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to pay interest and
repay principal and differs from the highest-rate issues only in small degree.
A Fixed-income securities rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than fixed-income securities in
higher-rated categories.
BBB Fixed-income securities rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay principal for fixed-income
securities in this category than for fixed-income securities in higher-rated
categories.
Fixed-income securities rated AAA, AA, A and BBB are considered investment grade.
BB Fixed-income securities rated "BB" have less near-term vulnerability to default
than other speculative grade fixed-income securities. However, it faces major
ongoing uncertainties or exposures to adverse business, financial or economic
conditions which could lead to inadequate capacity or willingness to pay interest
and repay principal.
B Fixed-income securities rated "B" have a greater vulnerability to default but
presently have 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.
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
CCC Fixed-income securities rated "CCC" have a current identifiable vulnerability to
default, and are 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, they are not likely to
have the capacity to pay interest and repay principal.
CC The rating "CC" is typically applied to fixed-income securities subordinated to
senior debt which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to fixed-income securities subordinated to
senior debt which is assigned an actual or implied "CCC-" rating.
CI The rating "CI" is reserved for fixed-income securities 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.
Fixed-income securities 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 fixed-income securities 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 rating from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing with the major ratings
categories.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by S&P from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2, and 3 to indicate the relative degree of safety.
<TABLE>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1."
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this
designation are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
</TABLE>
FITCH INVESTORS SERVICE, INC. ("FITCH")
BOND RATINGS
The Fitch Bond Ratings provides a guide to investors in determining the
investment risk associated with a particular security. The rating represents its
assessment of the issuer's ability to meet the obligations of a specific debt
issue or class of debt in a timely manner. Fitch bond ratings are not
recommendations to buy, sell or hold securities since they incorporate no
information on market price or yield relative to other debt instruments.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the record of the issuer and of
any guarantor, as well as the political and economic environment that might
affect the future financial strength and credit quality of the issuer.
57
<PAGE>
Bonds which have the same rating are of similar but not necessarily
identical investment quality since the limited number of rating categories
cannot fully reflect small differences in the degree of risk. Moreover, the
character of the risk factor varies from industry to industry and between
corporate, health care and municipal .
In assessing credit risk, Fitch Investors Service relies on current
information furnished by the issuer and/or guarantor and other sources which it
considers reliable. Fitch does not perform an audit of the financial statements
used in assigning a rating.
Ratings may be changed, withdrawn or suspended at any time to reflect
changes in the financial condition of the issuer, the status of the issue
relative to other debt of the issuer, or any other circumstances that Fitch
considers to have a material effect on the credit of the obligor.
<TABLE>
<S> <C>
AAA rated bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA rated bonds are considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal, while very strong, is
somewhat less than for AAA rated securities or more subject to possible change over
the term of the issue.
A rated bonds are considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB rated bonds are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to weaken this ability than bonds with higher ratings.
BB rated bonds are considered speculative and of low investment grade. The obligor's
ability to pay interest and repay principal is not strong and is considered likely
to be affected over time by adverse economic changes.
B rated bonds are considered highly speculative. Bonds in this class are lightly
protected as to the obligor's ability to pay interest over the life of the issue
and repay principal when due.
CCC rated bonds may have certain identifiable characteristics which, if not remedied,
could lead to the possibility of default in either principal or interest payments.
CC rated bonds are minimally protected. Default in payment of interest and/or
principal seems probable.
C rated bonds are in imminent default in payment of interest or principal.
</TABLE>
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner. Fitch's
short-term ratings are as follows:
<TABLE>
<S> <C>
Fitch-1+ (Exceptionally Strong Credit Quality) Issues assigned this rating are regarded
as having the strongest degree of assurance for timely payment.
Fitch-1 (Very Strong Credit Quality) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues rated Fitch-1+.
Fitch-2 (Good Credit Quality) Issues assigned this rating have a satisfactory degree of
assurance for timely payment but the margin of safety is not as great as the two
higher categories.
</TABLE>
58
<PAGE>
<TABLE>
<S> <C>
Fitch-3 (Fair Credit Quality) Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse change is likely to cause these securities to be rated below
investment grade.
Fitch-S (Weak Credit Quality) Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are vulnerable
to near term adverse changes in financial and economic conditions.
D (Default) Issues assigned this rating are in actual or imminent payment default.
LOC This symbol LOC indicates that the rating is based on a letter of credit issued
by a commercial bank.
</TABLE>
DUFF & PHELPS, INC.
LONG-TERM RATINGS
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action, regulation, technological
obsolescence, demand shifts, cost structure, and management depth and expertise.
The projected viability of the obligor at the trough of the cycle is a critical
determination.
Each rating also takes into account the legal form of the security, (e.g.,
first mortgage bonds, subordinated debt, preferred stock, etc.). The extent of
rating dispersion among the various classes of securities is determined by
several factors including relative weightings of the different security classes
in the capital structure, the overall credit strength of the issuer, and the
nature of covenant protection. Review of indenture restrictions is important to
the analysis of a company's operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per quarter
(more frequently, if necessary).
<TABLE>
<CAPTION>
RATING SCALE DEFINITION
<S> <C>
AAA Highest credit quality. The risk factors are negligible, being only slightly more than risk-free
U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest, but may vary slightly from
AA time to time because of economic conditions.
AA-
A+ Protection factors are average but adequate. However, risk factors are more variable and greater
A in periods of economic stress.
A
BBB+ Below average protection factors but still considered sufficient for prudent investment.
BBB Considerable variability in risk during economic cycles.
BBB-
BB+ Below investment grade but deemed likely to meet obligations when due. Present or prospective
BB financial protection factors fluctuate according to industry conditions or company fortunes.
BB- Overall quality may move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be met when due. Financial
B protection factors will fluctuate widely according to economic cycles, industry conditions and/or
B- company fortunes. Potential exists for frequent changes in the quality rating within this
category or into a higher or lower quality rating grade.
</TABLE>
59
<PAGE>
<TABLE>
<S> <C>
CCC Well below investment grade securities. May be in default or have considerable uncertainty exists
as to timely payment of principal, interest or preferred dividends. Protection factors are narrow
and risk can be substantial with unfavorable economic/ industry conditions, and/or with
unfavorable company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>
SHORT-TERM RATINGS
Duff & Phelps' short-term ratings are consistent with the rating criteria
utilized by money market participants. The ratings apply to all obligations with
maturities of under one year, including commercial paper, the uninsured portion
of certificates of deposit, unsecured bank loans, master notes, bankers
acceptances, irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.
Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of fund, including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.
<TABLE>
<S> <C>
A. CATEGORY 1: HIGH GRADE
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
Duff- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
B. CATEGORY 2: GOOD GRADE
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk
factors are small.
C. CATEGORY 3: SATISFACTORY GRADE
Duff 3 Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
D. CATEGORY 4: NON-INVESTMENT GRADE
Duff 4 Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and
market access may be subject to a high degree of variation.
E. CATEGORY 5: DEFAULT
Duff 5 Issuer failed to meet scheduled principal and/or interest payments.
</TABLE>
60
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PART C OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
(1) Financial statements and schedules, included in Prospectus (Part A):
<TABLE>
<CAPTION>
<S><C>
Page in
Prospectus
----------
Financial highlights for the period January 10, 1994 through April 30, 1994
and for the fiscal years ended April 30, 1995, 1996, 1997 and 1998. . . . . 4
(2) Financial statements included in the Statement of Additional
Information (Part B):
Page in
SAI
---
Portfolio of Investments at April 30, 1998. . . . . . . . . . . . . . . . . 44
Statement of Assets and Liabilities at April 30, 1998 . . . . . . . . . . . 47
Statement of Operations for the year ended April 30, 1998 . . . . . . . . . 47
Statement of Changes in Net Assets for the fiscal years ended
April 30, 1997 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 49
Financial highlights for the period January 10, 1994 through
April 30, 1994 and for the fiscal years ended April 30, 1995,
1996, 1997 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
(3) Financial statements included in Part C:
None
(b) EXHIBITS:
1 -- Amendment to the Declaration of Trust dated June 22, 1998
2 -- By-Laws of the Registrant, Amended and Restated as of
October 23, 1997
5 -- Form of Investment Management Agreement between the
Registrant and Dean Witter InterCapital Inc.
6 -- Form of Distribution Agreement between Registrant and Morgan
Stanley Dean Witter Distributors Inc.
<PAGE>
8 -- Form of Amended and Restated Transfer Agency and Services
Agreement between the Registrant and Morgan Stanley Dean
Witter Trust FSB
9 -- Form of Services Agreement between Morgan Stanley Dean
Witter Advisors Inc. and Morgan Stanley Dean Witter Services
Company Inc.
11 -- Consent of Independent Accountants
16 -- Schedules for Computation of Performance Quotations
27 -- Financial Data Schedule
Other -- Power of Attorney
- --------------------------
All other exhibits were previously filed via EDGAR and are incorporated by
reference.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
Item 26. NUMBER OF HOLDERS OF SECURITIES.
(1) (2)
Number of Record Holders
Title of Class at May 31, 1998
-------------- ------------------------
Shares of Beneficial Interest 3,049
Item 27. INDEMNIFICATION
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
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,
<PAGE>
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment advisor. The following information is given regarding
officers of Morgan Stanley Dean Witter Advisors Inc ("MSDW Advisors"). MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
principal address of the Morgan Stanley Dean Witter Funds is Two World Trade
Center, New York, New York 10048.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
Closed-End Investment Companies
- -------------------------------
(1) Dean Witter Government Income Trust
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) InterCapital California Insured Municipal Income Trust
(6) InterCapital California Quality Municipal Securities
(7) InterCapital Income Securities Inc.
(8) InterCapital Insured California Municipal Securities
(9) InterCapital Insured Municipal Bond Trust
(10) InterCapital Insured Municipal Income Trust
(11) InterCapital Insured Municipal Securities
(12) InterCapital Insured Municipal Trust
(13) InterCapital New York Quality Municipal Securities
(14) InterCapital Quality Municipal Income Trust
(15) InterCapital Quality Municipal Investment Trust
(16) InterCapital Quality Municipal Securities
(17) Morgan Stanley Dean Witter Prime Income Trust
<PAGE>
(18) Municipal Income Opportunities Trust
(19) Municipal Income Opportunities Trust II
(20) Municipal Income Opportunities Trust III
(21) Municipal Income Trust
(22) Municipal Income Trust II
(23) Municipal Income Trust III
(24) Municipal Premium Income Trust
Open-end Investment Companies
- -----------------------------
(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 Global Asset Allocation Fund
(6) Dean Witter Retirement Series
(7) Morgan Stanley Dean Witter American Value Fund
(8) Morgan Stanley Dean Witter Balanced Growth Fund
(9) Morgan Stanley Dean Witter Balanced Income Fund
(10) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(11) Morgan Stanley Dean Witter California Tax-Free Income Fund
(12) Morgan Stanley Dean Witter Capital Appreciation Fund
(13) Morgan Stanley Dean Witter Capital Growth Securities
(14) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(15) Morgan Stanley Dean Witter Convertible Securities Trust
(16) Morgan Stanley Dean Witter Developing Growth Securities Trust
(17) Morgan Stanley Dean Witter Diversified Income Trust
(18) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(19) Morgan Stanley Dean Witter Equity Fund
(20) Morgan Stanley Dean Witter European Growth Fund Inc.
(21) Morgan Stanley Dean Witter Federal Securities Trust
(22) Morgan Stanley Dean Witter Financial Services Trust
(23) Morgan Stanley Dean Witter Fund of Funds
(24) Morgan Stanley Dean Witter Global Dividend Growth Securities
(25) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Limited Term Municipal Trust
(38) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(39) Morgan Stanley Dean Witter Market Leader Trust
(40) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(41) Morgan Stanley Dean Witter Mid-Cap Growth Fund
<PAGE>
(42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(44) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(45) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter S&P 500 Index Fund
(49) Morgan Stanley Dean Witter Select Dimensions Investment Series
(50) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(51) Morgan Stanley Dean Witter Short-Term Bond Fund
(52) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(53) Morgan Stanley Dean Witter Special Value Fund
(54) Morgan Stanley Dean Witter Strategist Fund
(55) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(56) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(57) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(58) Morgan Stanley Dean Witter U.S. Government Securities Trust
(59) Morgan Stanley Dean Witter Utilities Fund
(60) Morgan Stanley Dean Witter Value-Added Market Series
(61) Morgan Stanley Dean Witter Variable Investment Series
(62) Morgan Stanley Dean Witter World Wide Income Trust
The term "TCW/DW Funds" refers to the following registered investment companies:
Open-End Investment Companies
- -----------------------------
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth Fund
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
Closed-End Investment Companies
- -------------------------------
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH OR
MORGAN STANLEY DEAN EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE
WITTER ADVISORS INC. OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Mitchell M. Merin Chairman and Director of Morgan Stanley Dean Witter
President, Chief Distributors Inc. ("MSDW Distributors") and Morgan Stanley
Executive Officer and Dean Witter Trust FSB ("MSDW Trust"); President, Chief
Director Executive Officer and Director of Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"); Executive Vice
President and Director of Dean Witter Reynolds Inc. ("DWR");
Director of SPS Transaction Services, Inc. and various other
Morgan Stanley Dean Witter & Co. ("MSDW") subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of MSDW
Director and DWR; Director of MSDW Services and MSDW Distributors;
Director or Trustee of the Morgan Stanley Dean Witter Funds;
Director and/or officer of various MSDW subsidiaries.
Richard M. DeMartini President and Chief Operating Officer of Dean Witter
Director Capital, a division of DWR; Director of DWR, MSDW
Services, MSDW Distributors and MSDW Trust; Trustee of
the TCW/DW Funds.
James F. Higgins President and Chief Operating Officer of Dean Witter
Director Financial; Director of DWR, MSDW Services, MSDW Distributors
and MSDW Trust.
Thomas C. Schneider Executive Vice President and Chief Strategic and
Executive Vice Administrative Officer of MSDW; Executive Vice
President, Chief President and Chief Financial Officer of MSDW Services
Financial Officer and and MSDW Distributors; Director of DWR, MSDW
Director Services, MSDW Distributors and MSDW.
Christine A. Edwards Executive Vice President, Chief Legal Officer and
Director Secretary of MSDW; Executive Vice President,
Secretary and Chief Legal Officer of MSDW Distributors;
Director of DWR, MSDW Services and MSDW Distributors.
Robert M. Scanlan President and Chief Operating Officer of MSDW Services,
President and Chief Executive Vice President of MSDW Distributors; Executive
Operating Officer Vice President and Director of MSDW Trust; Vice President
of the Morgan Stanley Dean Witter Funds and the TCW/DW Funds.
John B. Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of MSDW Trust.
President
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds
Executive Vice President and Director of MSDW Trust.
and Chief Investment
Officer
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH OR
MORGAN STANLEY DEAN EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE
WITTER ADVISORS INC. OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Edward C. Oelsner, III
Executive Vice President
Barry Fink Assistant Secretary of DWR; Senior Vice President, Secretary
Senior Vice President, and General Counsel of MSDW Services; Senior Vice President,
Secretary and General Assistant Secretary and Assistant General Counsel of MSDW
Counsel Distributors; Vice President, Secretary and General Counsel of the
Morgan Stanley Dean Witter Funds and the TCW/DW Funds.
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW Distributors and
Senior Vice President MSDW Trust and Director of MSDW Trust; Vice President of the
Morgan Stanley Dean Witter Funds and the TCW/DW Funds.
Rajesh Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kenton J. Hinchcliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Margaret Iannuzzi
Senior Vice President
Jenny Beth Jones Vice President of Morgan Stanley Dean Witter Special
Senior Vice President Value Fund.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH OR
MORGAN STANLEY DEAN EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE
WITTER ADVISORS INC. OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of Morgan Stanley Dean Witter Market
Senior Vice President Leader Trust.
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jayne M. Stevlingson Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Ronald J. Worobel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services, Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial Officer of the
Treasurer Morgan Stanley Dean Witter Funds and the TCW/DW Funds.
Thomas Chronert
First Vice President
Rosalie Clough
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and Assistant
First Vice President Secretary of MSDW Services; Assistant Secretary of the
and Assistant Secretary Morgan Stanley Dean Witter Funds and the TCW/DW Funds.
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH OR
MORGAN STANLEY DEAN EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE
WITTER ADVISORS INC. OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Salvatore DeSteno Vice President of MSDW Services.
First Vice President
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Carsten Otto Assistant Secretary of DWR; First Vice President and Assistant
First Vice President Secretary of MSDW Services; Assistant Secretary of the
and Assistant Secretary Morgan Stanley Dean Witter Funds and the TCW/DW Funds.
Robert Zimmerman
First Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Witter
Vice President
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
Frank Bruttomesso Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley Dean
Assistant Secretary Witter Funds and the TCW/DW Funds.
Ronald Caldwell
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH OR
MORGAN STANLEY DEAN EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE
WITTER ADVISORS INC. OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Joseph Cardwell
Vice President
Philip Casparius
Vice President
David Dineen
Vice President
Bruce Dunn
Vice President
Michael Durbin
Vice President
Sheila Finnerty
Vice President
Jeffrey D. Geffen
Vice President
Michael Geringer
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Sandra Grossman
Vice President
Peter W. Gurman
Vice President
Matthew Haynes Vice President of Morgan Stanley Dean Witter
Vice President Variable Investment Series.
Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds
Elizabeth Hinchman
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH OR
MORGAN STANLEY DEAN EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE
WITTER ADVISORS INC. OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
David Hoffman
Vice President
Christopher Jones
Vice President
Kevin Jung
Vice President
Carol Espejo Kane
Vice President
James P. Kastberg
Vice President
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Login
Vice President
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
Albert McGarity
Vice President
LouAnne D. McInnis Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley Dean
Assistant Secretary Witter Funds and the TCW/DW Funds.
Sharon K. Milligan
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH OR
MORGAN STANLEY DEAN EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE
WITTER ADVISORS INC. OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Julie Morrone
Vice President
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
Richard Norris
Vice President
George Paoletti
Vice President
Anne Pickrell Vice President of Morgan Stanley Dean Witter Global
Vice President Short-Term Income Fund Inc.
Michael Roan
Vice President
John Roscoe
Vice President
Hugh Rose
Vice President
Robert Rossetti Vice President of Morgan Stanley Dean Witter Precious
Vice President Metals and Minerals Trust.
Ruth Rossi Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley Dean
Assistant Secretary Witter Funds and the TCW/DW Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH OR
MORGAN STANLEY DEAN EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS AND NATURE
WITTER ADVISORS INC. OF CONNECTION
- -------------------- --------------------------------------------------------------
<S> <C>
Naomi Stein
Vice President
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Marybeth Swisher
Vice President
Robert Vanden Assem
Vice President
James P. Wallin
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
</TABLE>
Item 29. PRINCIPAL UNDERWRITERS
(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:
(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 Global Asset Allocation Fund
(6) Dean Witter Retirement Series
(7) Morgan Stanley Dean Witter American Value Fund
(8) Morgan Stanley Dean Witter Balanced Growth Fund
(9) Morgan Stanley Dean Witter Balanced Income Fund
(10) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(11) Morgan Stanley Dean Witter California Tax-Free Income Fund
(12) Morgan Stanley Dean Witter Capital Appreciation Fund
(13) Morgan Stanley Dean Witter Capital Growth Securities
(14) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" PORTFOLIO
(15) Morgan Stanley Dean Witter Convertible Securities Trust
(16) Morgan Stanley Dean Witter Developing Growth Securities Trust
(17) Morgan Stanley Dean Witter Diversified Income Trust
(18) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(19) Morgan Stanley Dean Witter Equity Fund
<PAGE>
(20) Morgan Stanley Dean Witter European Growth Fund Inc.
(21) Morgan Stanley Dean Witter Federal Securities Trust
(22) Morgan Stanley Dean Witter Financial Services Trust
(23) Morgan Stanley Dean Witter Fund of Funds
(24) Morgan Stanley Dean Witter Global Dividend Growth Securities
(25) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Limited Term Municipal Trust
(38) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(39) Morgan Stanley Dean Witter Market Leader Trust
(40) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(41) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(44) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(45) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter Prime Income Trust
(49) Morgan Stanley Dean Witter S&P 500 Index Fund
(50) Morgan Stanley Dean Witter Short-Term Bond Fund
(51) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(52) Morgan Stanley Dean Witter Special Value Fund
(53) Morgan Stanley Dean Witter Strategist Fund
(54) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(55) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(56) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(57) Morgan Stanley Dean Witter U.S. Government Securities Trust
(58) Morgan Stanley Dean Witter Utilities Fund
(59) Morgan Stanley Dean Witter Value-Added Market Series
(60) Morgan Stanley Dean Witter Variable Investment Series
(61) Morgan Stanley Dean Witter World Wide Income Trust
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust
<PAGE>
(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 28 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. None of the
following persons has any position or office with the Registrant.
Name Positions and Office with MSDW Distributors
- ---- -------------------------------------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance Officer.
Michael T. Gregg Vice President and Assistant Secretary.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 30th day of June, 1998
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
By /s/ Barry Fink
--------------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No.5 has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 6/30/98
--------------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 6/30/98
--------------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 6/30/98
--------------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
Wayne E. Hedien
By /s/ Stuart M. Strauss 6/30/98
--------------------------------
Stuart M. Strauss
Attorney-in-Fact
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
Exhibit Index
1 -- Amendment to the Declaration of Trust dated June 22, 1998
2 -- By-Laws of the Registrant, Amended and Restated as of October 23,
1997
5 -- Form of Investment Management Agreement between the Registrant and
Dean Witter InterCapital Inc.
6 -- Form of Distribution Agreement between Registrant and Morgan
Stanley Dean Witter Distributors Inc.
8 -- Form of Amended and Restated Transfer Agency and Services Agreement
between the Registrant and Morgan Stanley Dean Witter Trust FSB
9 -- Form of Services Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Services Company Inc.
11 -- Consent of Independent Accountants
16 -- Schedules for Computation of Performance Quotations
27 -- Financial Data Schedule
Other -- Power of Attorney
<PAGE>
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of Dean Witter
Short-Term Bond Fund (the "Trust"), an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts, that annexed hereto is an
Amendment to the Declaration of Trust of the Trust adopted by the Trustees of
the Trust on April 30, 1998 as provided in Section 9.3 of the said Declaration,
said Amendment to take effect on June 22, 1998, and I do hereby further
certify that such amendment has not been amended and is on the date hereof in
full force and effect.
Dated this 22nd day of June, 1998.
/s/ Barry Fink
--------------------------------
Barry Fink
Secretary
<PAGE>
AMENDMENT
Dated: June 22, 1998
To be Effective: June 22, 1998
TO
DEAN WITTER SHORT-TERM BOND FUND
DECLARATION OF TRUST
DATED
OCTOBER 21, 1993
<PAGE>
Amendment dated June 22, 1998 to the Declaration of Trust
(the "Declaration") of Dean Witter Short-Term Bond Fund (the "Trust")
dated October 21, 1993
WHEREAS, the Trust was established by the Declaration on the date
hereinabove set forth under the laws of the Commonwealth of Massachusetts; and
WHEREAS, the Trustees of the Trust have deemed it advisable to change the
name of the Trust to "Morgan Stanley Dean Witter Short-Term Bond Fund," such
change to be effective on June 22, 1998;
NOW, THEREFORE:
1. Section 1.1 of Article I of the Declaration is hereby amended so that
that Section shall read in its entirety as follows:
"Section 1.1. NAME. The name of the Trust created hereby is the
Morgan Stanley Dean Witter Short-Term Bond Fund and so far as may be
practicable the Trustees shall conduct the Trust's activities, execute
all documents and sue or be sued under that name, which name (and the
word "Trust" whenever herein used) shall refer to the Trustees as
Trustees, and not as individuals, or personally, and shall not refer
to the officers, agents, employees or Shareholders of the Trust.
Should the Trustees determine that the use of such name is not
advisable, they may use such other name for the Trust as they deem
proper and the Trust may hold its property and conduct its activities
under such other name."
2. Subsection (o) of Section 1.2 of Article I of the Declaration is hereby
amended so that that subsection shall read in its entirety as follows:
"Section 1.2. DEFINITIONS...
"(o) "TRUST" means the Morgan Stanley Dean Witter Short-Term Bond
Fund."
3. Section 11.7 of Article XI of the Declaration is hereby amended so that
that section shall read as follows:
"Section 11.7. USE OF THE NAME "MORGAN STANLEY DEAN WITTER." Morgan
Stanley Dean Witter & Co. ("MSDW") has consented to the use by the
Trust of the identifying name "Morgan Stanley Dean Witter," which is a
property right of MSDW. The Trust will only use the name "Morgan
Stanley Dean Witter" as a component of its
<PAGE>
name and for no other purpose, and will not purport to grant to any
third party the right to use the name "Morgan Stanley Dean Witter" for
any purpose. MSDW, or any corporate affiliate of MSDW, may use or
grant to others the right to use the name "Morgan Stanley Dean
Witter," or any combination or abbreviation thereof, as all or a
portion of a corporate or business name or for any commercial purpose,
including a grant of such right to any other investment company. At
the request of MSDW or any corporate affiliate of MSDW, the Trust will
take such action as may be required to provide its consent to the use
of the name "Morgan Stanley Dean Witter," or any combination or
abbreviation thereof, by MSDW or any corporate affiliate of MSDW, or
by any person to whom MSDW or a corporate affiliate of MSDW shall have
granted the right to such use. Upon the termination of any investment
advisory agreement into which a corporate affiliate of MSDW and the
Trust may enter, the Trust shall, upon request of MSDW or any
corporate affiliate of MSDW, cease to use the name "Morgan Stanley
Dean Witter" as a component of its name, and shall not use the name,
or any combination or abbreviation thereof, as part of its name or for
any other commercial purpose, and shall cause its officers, Trustees
and Shareholders to take any and all actions which MSDW or any
corporate affiliate of MSDW may request to effect the foregoing and to
reconvey to MSDW any and all rights to such name."
4. The Trustees of the Trust hereby reaffirm the Declaration, as amended,
in all respects.
5. This Amendment may be executed in more than one counterpart, each of
which shall be deemed an original, but all of which together shall constitute
one and the same document.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the Trustees of the Trust, have executed
this instrument this 3rd day of April, 1998.
/s/ Michael Bozic /s/ Manuel H. Johnson
- ----------------------------- -----------------------------
Michael Bozic, as Trustee Manuel H. Johnson, as Trustee
and not individually and not individually
c/o Levitz Furniture Corp. Inc. c/o Johnson Smick International
6111 Broken Sound Parkway, NW 1133 Connecticut Avenue, NW
Boca Raton, FL 33487 Washington, D.C. 20036
/s/ Charles A. Fiumefreddo /s/ Michael E. Nugent
- ----------------------------- -----------------------------
Charles A. Fiumefreddo, as Trustee Michael E. Nugent, as Trustee
and not individually and not individually
Two World Trade Center c/o Triumph Capital, L.P.
New York, NY 10048 237 Park Avenue
New York, NY 10017
/s/ Edwin J. Garn /s/ Philip J. Purcell
- ----------------------------- -----------------------------
Edwin J. Garn, as Trustee Philip J. Purcell, as Trustee
and not individually and not individually
c/o Huntsman Corporation 1585 Broadway
500 Huntsman Way New York, NY 10036
Salt Lake City, UT 84111
/s/ John R. Haire /s/ John L. Schroeder
- ----------------------------- -----------------------------
John R. Haire, as Trustee John L. Schroeder, as Trustee
and not individually and not individually
Two World Trade Center c/o Gordon Altman Butowsky Weitzen
New York, NY 10048 Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, NY 10036
/s/ Wayne E. Hedien
- -----------------------------
Wayne E. Hedien, as Trustee
and not individually
c/o Gordon Altman Butowsky Weitzen
Shalov & Wein
Counsel to the Independent Trustees
114 West 47th Street
New York, NY 10036
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On this 3rd day of April, 1998, MICHAEL BOZIC, CHARLES A. FIUMEFREDDO,
EDWIN J. GARN, JOHN R. HAIRE, WAYNE E. HEDIEN, MANUEL H. JOHNSON, MICHAEL E.
NUGENT, PHILIP J. PURCELL and JOHN L. SCHROEDER, known to me to be the
individuals described in and who executed the foregoing instrument, personally
appeared before me and they severally acknowledged the foregoing instrument to
be their free act and deed.
/s/ Marilyn K. Cranney
----------------------
Notary Public
MARILYN K. CRANNEY
NOTARY PUBLIC, State of New York
No. 24-4795538
Qualified in Kings County
Commission Expires May 31, 1999
<PAGE>
BY-LAWS
OF
DEAN WITTER SHORT-TERM BOND FUND
AMENDED AND RESTATED AS OF OCTOBER 23, 1997
ARTICLE I
DEFINITIONS
The terms "COMMISSION," "DECLARATION," "DISTRIBUTOR," "INVESTMENT
ADVISER," "MAJORITY SHAREHOLDER VOTE," "1940 ACT," "SHAREHOLDER," "SHARES,"
"TRANSFER AGENT," "TRUST," "TRUST PROPERTY," and "TRUSTEES" have the
respective meanings given them in the Declaration of Trust of Dean Witter
Short-Term Bond Fund dated October 21, 1993.
ARTICLE II
OFFICES
SECTION 2.1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be
in the City of Boston, County of Suffolk.
SECTION 2.2. OTHER OFFICES. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or
the business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. MEETINGS. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the
provisions of Section 16(a) of the 1940 Act, for that purpose. Meetings of
Shareholders shall also be called by the Secretary upon the written request
of the holders of Shares entitled to vote as otherwise required by Section
16(c) of the 1940 Act and to the extent required by the corporate or business
statute of any state in which the Shares of the Trust are sold, as made
applicable to the Trust by the provisions of Section 2.3 of the Declaration.
Such request shall state the purpose or purposes of such meeting and the
matters proposed to be acted on thereat. Except to the extent otherwise
required by Section 16(c) of the 1940 Act, as made applicable to the Trust by
the provisions of Section 2.3 of the Declaration, the Secretary shall inform
such Shareholders of the reasonable estimated cost of preparing and mailing
such notice of the meeting, and upon payment to the Trust of such costs, the
Secretary shall give notice stating the purpose or purposes of the meeting to
all entitled to vote at such meeting. No meeting need be called upon the
request of the holders of Shares entitled to cast less than a majority of all
votes entitled to be cast at such meeting, to consider any matter which is
substantially the same as a matter voted upon at any meeting of Shareholders
held during the preceding twelve months.
SECTION 3.3. NOTICE OF MEETINGS. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes
thereof, shall be given by the Secretary not less than ten (10) nor more than
ninety (90) days before such meeting to each Shareholder entitled to vote at
such meeting. Such notice shall be deemed to be given when deposited in the
United States mail, postage prepaid, directed to the Shareholder at his
address as it appears on the records of the Trust.
SECTION 3.4. QUORUM AND ADJOURNMENT OF MEETINGS. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares
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issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum for
the transaction of business. In the absence of a quorum, the Shareholders
present or represented by proxy and entitled to vote thereat shall have the
power to adjourn the meeting from time to time. The Shareholders present in
person or represented by proxy at any meeting and entitled to vote thereat
also shall have the power to adjourn the meeting from time to time if the
vote required to approve or reject any proposal described in the original
notice of such meeting is not obtained (with proxies being voted for or
against adjournment consistent with the votes for and against the proposal
for which the required vote has not been obtained). The affirmative vote of
the holders of a majority of the Shares then present in person or represented
by proxy shall be required to adjourn any meeting. Any adjourned meeting may
be reconvened without further notice or change in record date. At any
reconvened meeting at which a quorum shall be present, any business may be
transacted that might have been transacted at the meeting as originally
called.
SECTION 3.5. VOTING RIGHTS, PROXIES. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his
duly authorized attorney-in-fact, for each Share of beneficial interest of
the Trust and for the fractional portion of one vote for each fractional
Share entitled to vote so registered in his name on the records of the Trust
on the date fixed as the record date for the determination of Shareholders
entitled to vote at such meeting. No proxy shall be valid after eleven months
from its date, unless otherwise provided in the proxy. At all meetings of
Shareholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting. Pursuant to a resolution of a majority of the Trustees, proxies may
be solicited in the name of one or more Trustees or Officers of the Trust.
SECTION 3.6. VOTE REQUIRED. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority
Shareholder Vote.
SECTION 3.7. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election
of the meeting. In case any person appointed as Inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies,
shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results,
and do such other acts as may be proper to conduct the election or vote with
fairness to all Shareholders. On request of the chairman of the meeting, or
of any Shareholder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them
and shall execute a certificate of any facts found by them.
SECTION 3.8. INSPECTION OF BOOKS AND RECORDS. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under Section 32 of the Corporations Law of the
State of Massachusetts.
SECTION 3.9. ACTION BY SHAREHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting
of Shareholders.
SECTION 3.10. PRESENCE AT MEETINGS. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
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ARTICLE IV
TRUSTEES
SECTION 4.1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the Chairman and shall
be called by the Chairman or the Secretary upon the written request of any
two (2) Trustees.
SECTION 4.2. NOTICE OF SPECIAL MEETINGS. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage prepaid,
directed to the Trustee at his address as it appears on the records of the
Trust. Subject to the provisions of the 1940 Act, notice or waiver of notice
need not specify the purpose of any special meeting.
SECTION 4.3. TELEPHONE MEETINGS. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such
committee, as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. QUORUM, VOTING AND ADJOURNMENT OF MEETINGS. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act
of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall have been
obtained.
SECTION 4.5. ACTION BY TRUSTEES WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of the Trustees may be taken without a meeting if a consent in
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.
SECTION 4.6. EXPENSES AND FEES. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of
said persons shall receive for services rendered as a Trustee of the Trust
such compensation as may be fixed by the Trustees. Nothing herein contained
shall be construed to preclude any Trustee from serving the Trust in any
other capacity and receiving compensation therefor.
SECTION 4.7. EXECUTION OF INSTRUMENTS AND DOCUMENTS AND SIGNING OF CHECKS
AND OTHER OBLIGATIONS AND TRANSFERS. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all
checks, notes, drafts and other obligations for the payment of money by the
Trust shall be signed, and all transfer of securities standing in the name of
the Trust shall be executed, by the Chairman, the President, any Vice
President or the Treasurer or by any one or more officers or agents of the
Trust as shall be designated for that purpose by vote of the Trustees;
notwithstanding the above, nothing in this Section 4.7 shall be deemed to
preclude the electronic authorization, by designated persons, of the Trust's
Custodian (as described herein in Section 9.1) to transfer assets of the
Trust, as provided for herein in Section 9.1.
SECTION 4.8. INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative
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(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Trustee, officer, employee, or agent of the Trust. The
indemnification shall be against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement, actually and reasonably
incurred by him in connection with the action, suit, or proceeding, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or on behalf of the Trust to obtain a judgment or decree in its
favor by reason of the fact that he is or was a Trustee, officer, employee,
or agent of the Trust. The indemnification shall be against expenses,
including attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust; except that no indemnification shall be
made in respect of any claim, issue, or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Trust, except to the extent that the court in which the
action or suit was brought, or a court of equity in the county in which the
Trust has its principal office, determines upon application that, despite the
adjudication of liability but in view of all circumstances of the case, the
person is fairly and reasonably entitled to indemnity for those expenses
which the court shall deem proper, provided such Trustee, officer, employee
or agent is not adjudged to be liable by reason of his willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) or (b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists of
Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person shall
be entitled to indemnification for any liability, whether or not there is
an adjudication of liability, arising by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties as described
in Section 17(h) and (i) of the Investment Company Act of 1940
("disabling conduct"). A person shall be deemed not liable by reason of
disabling conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
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(A) a majority of a quorum of Trustees who are neither "interested
persons" of the Trust, as defined in Section 2(a)(19) of the
Investment Company Act of 1940, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit
or proceeding may be paid by the Trust in advance of the final disposition
thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by
the Trust; and
(3) either, (i) such person provides a security for his undertaking, or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately
will be found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to a person
who has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. EXECUTIVE AND OTHER COMMITTEES. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the
Trustees of the Trust and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Trust. In the absence of
any member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in
place of such absent member. Each such committee shall keep a record of its
proceedings.
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The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. ADVISORY COMMITTEE. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in
any other capacity and which shall have advisory functions with respect to
the investments of the Trust but which shall have no power to determine that
any security or other investment shall be purchased, sold or otherwise
disposed of by the Trust. The number of persons constituting any such
advisory committee shall be determined from time to time by the Trustees. The
members of any such advisory committee may receive compensation for their
services and may be allowed such fees and expenses for the attendance at
meetings as the Trustees may from time to time determine to be appropriate.
SECTION 5.3. COMMITTEE ACTION WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Trustees appointed pursuant to Section
5.1 of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. EXECUTIVE OFFICERS. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more
than one capacity. The executive officers of the Trust shall be elected
annually by the Trustees and each executive officer so elected shall hold
office until his successor is elected and has qualified.
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the President the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.
SECTION 6.3. TERM AND REMOVAL AND VACANCIES. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any
officer or agent of the Trust may be removed by the Trustees whenever, in
their judgment, the best interests of the Trust will be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed.
SECTION 6.4. COMPENSATION OF OFFICERS. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.
SECTION 6.5. POWER AND DUTIES. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
SECTION 6.6. THE CHAIRMAN. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees, shall be a signatory on all Annual and
Semi-Annual Reports as may be sent to shareholders, and he shall perform such
other duties as the Trustees may from time to time prescribe.
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SECTION 6.7. THE PRESIDENT. (a) The President shall be the chief executive
officer of the Trust; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the
Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
SECTION 6.8. THE VICE PRESIDENTS. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by
the Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President,
and he or they shall perform such other duties as the Trustees or the
President may from time to time prescribe.
SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the President.
SECTION 6.10. THE SECRETARY. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or
by the signature of an Assistant Secretary.
SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and
he shall render to the Trustees and the President, whenever any of them
require it, an account of his transactions as Treasurer and of the financial
condition of the Trust; and he shall perform such other duties as the
Trustees, or the President, may from time to time prescribe.
SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order
determined by the Trustees or the President, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers
as the Trustees, or the President, may from time to time prescribe.
SECTION 6.14. DELEGATION OF DUTIES. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from
time to time determine.
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Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary
from the computation thereof on the records of the Trust, the Trustees shall
have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the
Trust to avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. CERTIFICATES OF SHARES. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the President, or a Vice President, and countersigned by the
Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option,
determine not to issue a certificate or certificates to evidence Shares owned
of record by any Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Trust, such certificate or certificates
shall, nevertheless, be adopted by the Trust and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures shall appear therein had not ceased
to be such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The
Trustees may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Trust alleged to
have been lost, stolen or destroyed, upon satisfactory proof of such loss,
theft, or destruction; and the Trustees may, in their discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal
representative, to give to the Trust and to such Registrar, Transfer Agent
and/or Transfer Clerk as may be authorized or required to countersign such
new certificate or certificates, a bond in such sum and of such type as they
may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be against them or any of them on
account of or in connection with the alleged loss, theft or destruction of
any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. APPOINTMENT AND DUTIES. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at
least five million dollars ($5,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
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all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it
as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery
of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting of
shareholders, Trustees or committee, as the case may be, in person, shall be
deemed equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. LOCATION OF BOOKS AND RECORDS. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2. RECORD DATE. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii)
receive payment of any dividend or the allotment of any rights, or in order
to make a determination of Shareholders for any other proper purpose. The
record date, in any case, shall not be more than one hundred eighty (180)
days, and in the case of a meeting of Shareholders not less than ten (10)
days, prior to the date on which such meeting is to be held or the date on
which such other particular action requiring determination of Shareholders is
to be taken, as the case may be. In the case of a meeting of Shareholders,
the meeting date set forth in the notice to Shareholders accompanying the
proxy statement shall be the date used for purposes of calculating the 180
day or 10 day period, and any adjourned meeting may be reconvened without a
change in record date. In lieu of fixing a record date, the Trustees may
provide that the transfer books shall be closed for a stated period but not
to exceed, in any case, twenty (20) days. If the transfer books are closed
for the purpose of determining Shareholders entitled to notice of a vote at a
meeting of Shareholders, such books shall be closed for at least ten (10)
days immediately preceding the meeting.
SECTION 11.3. SEAL. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from
time to time provide. The seal of the Trust may be affixed to any document,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation under Massachusetts law.
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SECTION 11.4. FISCAL YEAR. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. ORDERS FOR PAYMENT OF MONEY. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement
between the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees;
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration, or these By-Laws, a vote of the Shareholders. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration, and any
apparent inconsistency shall be construed in favor of the related provisions
in the Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Dean Witter Short-Term Bond Fund,
dated October 21, 1993, a copy of which is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name Dean
Witter Short-Term Bond Fund refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no
Trustee, Shareholder, officer, employee or agent of Dean Witter Short-Term
Bond Fund shall be held to any personal liability, nor shall resort be had to
their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said Dean Witter Short-Term Bond
Fund, but the Trust Estate only shall be liable.
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INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of May, 1997, and amended as of April
30, 1998, by and between Dean Witter Short-Term Bond Fund, 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 is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act
of 1940, as amended (the "Act"); and
WHEREAS, 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.
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 who are also directors, officers or employees of
the Investment
C-66350--DWSHTMBOFD
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Manager, 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 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
preparing, printing (including typesetting) and distributing prospectuses and
statements of additional information of the Fund and supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Trustees' meetings and
of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Manager or any
corporate affiliate of the Investment Manager; all expenses incident to the
payment of any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; 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; 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 determined by applying the annual rate
of 0.70% to the daily net assets of the Fund determined as of the close of each
business day. Except as hereinafter set forth, compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. Such calculations shall be made by applying
1/365ths of the annual rates to the net assets of the Fund each day determined
as of the close of business on that day or the last previous business day. 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.
Subject to the provisions of paragraph 7 hereof, payment of the Investment
Manager's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by paragraph 7
hereof.
7. In the event the operating expenses of the Fund, including amounts
payable to the Investment Manager pursuant to paragraph 6 hereof, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund imposed by state securities laws or
regulations thereunder, as such limitations may be raised or lowered from time
to time, the Investment Manager shall reduce its management fee in respect to
the Fund to the extent of such excess and, if required, pursuant to any such
laws or regulations, will reimburse the Fund for annual operating expenses in
excess of any expense limitation that may be applicable; provided, however,
there shall be excluded from such expenses the amount of any interest, taxes,
brokerage commissions, distribution fees and extraordinary expenses (including
but not limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Fund. Such reduction,
if any, shall be computed and accrued daily, shall be settled on a monthly
basis, and shall be based upon the expense limitation applicable to the Fund as
at the end of the last business day of the month. Should two or more such
expense limitations be applicable as at the end of the last business of the
month, that expense limitation which results in the largest reduction in the
Investment Manager's fee shall be applicable.
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For purposes of this provision, should any applicable expense limitation
be based upon the gross income of the Fund, such gross income shall include,
but not be limited to, interest on debt securities in the Fund's portfolio
accrued to and including the last day of the Fund's fiscal year, and dividends
declared on equity securities in the Fund's portfolio, the record dates for
which fall on or prior to the last day of such fiscal year, but shall not
include gains from the sale of securities.
8. 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 or for any
act or omission by the Investment Manager or for any losses sustained by the
Fund or its investors.
9. 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 or employee of the Investment Manager to engage in any other
business or to devote his or her time and attention in part to the management
or other aspects of any other business whether of a similar or dissimilar
nature.
10. This Agreement shall remain in effect until April 30, 1999 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 Investment Company Act
(the "Act"), of the outstanding voting securities of the Fund 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; (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.
11. 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.
12. 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,
conflicts with the applicable provisions of the Act, the latter shall control.
13. The Investment Manager and the Fund each agree that the name "Dean
Witter," which comprises a component of the Fund's name, is a property right of
the Investment Manager. The Fund agrees and consents that (i) it will only use
the name "Dean Witter" as a component of its name and for no other purpose,
(ii) it will not purport to grant to any third party the right to use the name
"Dean Witter" for any purpose, (iii) the Investment Manager or its parent,
Morgan Stanley Dean Witter & Co., or any corporate affiliate of the Investment
Manager's parent, may use or grant to others the right to use the name "Dean
Witter," or any combination or abbreviation thereof, as all or a portion of a
corporate or business name or for any commercial purpose, including a grant of
such right to any other investment company, (iv) at the request of the
Investment Manager or its parent, the Fund will take such action as may be
required to provide its consent to the use of the name "Dean Witter," or any
combination or abbreviation thereof, by the Investment Manager or its parent or
any corporate affiliate of the Investment Manager's parent, or by any person to
whom the Investment Manager or its parent or any corporate affiliate of the
Investment Manager's parent shall have granted the right to such use, and (v)
upon the termination of any investment advisory agreement into which the
Investment
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Manager and the Fund may enter, or upon termination of affiliation of the
Investment Manager with its parent, the Fund shall, upon request by the
Investment Manager or its parent, cease to use the name "Dean Witter" as a
component of its name, and shall not use the name, or any combination or
abbreviation thereof, as a part of its name or for any other commercial
purpose, and shall cause its officers, Trustees and shareholders to take any
and all actions which the Investment Manager or its parent may request to
effect the foregoing and to reconvey to the Investment Manager or its parent
any and all rights to such name.
14. The Declaration of Trust establishing Dean Witter Short-Term Bond
Fund, dated October 21, 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 Dean Witter Short-Term
Bond Fund refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of Dean Witter Short-Term Bond Fund shall be held to
any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise, in connection with
the affairs of said Dean Witter Short-Term Bond Fund, but the Trust Estate only
shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on April 30, 1998 in New York, New York.
DEAN WITTER SHORT-TERM BOND FUND
By: /s/ Barry Fink
----------------------------
Attest:
/s/ Frank Bruttomesso
- ----------------------------
DEAN WITTER INTERCAPITAL INC.
By: /s/ Charles A. Fiumefreddo
----------------------------
Attest:
/s/ Marilyn K. Cranney
- ----------------------------
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DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 28th day of July, 1997, and amended as of June 22,
1998, between each of the open-end investment companies to which Morgan Stanley
Dean Witter Advisors Inc. acts as investment manager, that are listed on
Schedule A, as may be amended from time to time (each, a "Fund" and
collectively, the "Funds"), and Morgan Stanley Dean Witter Distributors Inc., a
Delaware corporation (the "Distributor").
W I T N E S S E T H:
WHEREAS, each Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and it is in the
interest of each Fund to offer its shares for sale continuously, and
WHEREAS, each Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of each Fund's transferable
shares, of $0.01 par value (the "Shares"), to commence on the date listed above,
in order to promote the growth of each Fund and facilitate the distribution of
its shares.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. APPOINTMENT OF THE DISTRIBUTOR.
(a) Each Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Fund to sell Shares to the public on the terms set forth
in this Agreement and that Fund's prospectus and the Distributor hereby accepts
such appointment and agrees to act hereunder. Each Fund, during the term of this
Agreement, shall sell Shares to the Distributor upon the terms and conditions
set forth herein.
(b) The Distributor agrees to purchase Shares, as principal for its own
account, from each Fund and to sell Shares as principal to investors, and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate of
the Distributor, upon the terms described herein and in that Fund's prospectus
(the "Prospectus") and statement of additional information included in the
Fund's registration statement (the "Registration Statement") most recently filed
from time to time with the Securities and Exchange Commission (the "SEC") and
effective under the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act or as the Prospectus may be otherwise amended or supplemented and filed
with the SEC pursuant to Rule 497 under the 1933 Act.
SECTION 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall be the
exclusive principal underwriter and distributor of each Fund, except that the
exclusive rights granted to the Distributor to sell the Shares shall not apply
to Shares issued by each Fund: (i) in connection with the merger or
consolidation of any other investment company or personal holding company with
the Fund or the acquisition by purchase or otherwise of all (or substantially
all) the assets or the outstanding shares of any such company by the Fund; (ii)
pursuant to reinvestment of dividends or capital gains distributions; or (iii)
pursuant to the reinstatement privilege afforded redeeming shareholders.
SECTION 3. PURCHASE OF SHARES FROM EACH FUND. The Shares are offered in
four classes (each, a "Class"), as described in the Prospectus, as amended or
supplemented from time to time.
(a) The Distributor shall have the right to buy from each Fund the Shares of
the particular class needed, but not more than the Shares needed (except for
clerical errors in transmission), to fill unconditional orders for Shares of the
applicable class placed with the Distributor by investors or securities dealers.
The price which the Distributor shall pay for the Shares so purchased from the
Fund shall be the net asset value, determined as set forth in the Prospectus,
used in determining the public offering price on which such orders were based.
(b) The Shares are to be resold by the Distributor at the public offering
price of Shares of the applicable class as set forth in the Prospectus, to
investors or to securities dealers, including DWR, who
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have entered into selected dealer agreements with the Distributor upon the terms
and conditions set forth in Section 7 hereof ("Selected Dealers").
(c) Each Fund shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(f) hereof. Each Fund shall also have the right to suspend the sale of
the Shares if trading on the New York Stock Exchange shall have been suspended,
if a banking moratorium shall have been declared by federal or New York
authorities, or if there shall have been some other extraordinary event which,
in the judgment of a Fund, makes it impracticable to sell its Shares.
(d) Each Fund, or any agent of a Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by a Fund; provided, however, that a Fund
will not arbitrarily or without reasonable cause refuse to accept orders for the
purchase of Shares. The Distributor will confirm orders upon their receipt, and
each Fund (or its agent) upon receipt of payment therefor and instructions will
deliver share certificates for such Shares or a statement confirming the
issuance of Shares. Payment shall be made to the Fund in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).
(e) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct each Fund's transfer agent to receive instructions directly
from the Selected Dealer on behalf of the Distributor as to registration of
Shares in the names of investors and to confirm issuance of the Shares to such
investors. The Distributor is also authorized to instruct the transfer agent to
receive payment directly from the Selected Dealer on behalf of the Distributor,
for prompt transmittal to each Fund's custodian, of the purchase price of the
Shares. In such event the Distributor shall obtain from the Selected Dealer and
maintain a record of such registration instructions and payments.
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES.
(a) Any of the outstanding Shares of a Fund may be tendered for redemption
at any time, and each Fund agrees to redeem its Shares so tendered in accordance
with the applicable provisions set forth in its Prospectus. The price to be paid
to redeem the Shares shall be equal to the net asset value determined as set
forth in the Prospectus less any applicable contingent deferred sales charge
("CDSC"). Upon any redemption of Shares the Fund shall pay the total amount of
the redemption price in New York Clearing House funds in accordance with
applicable provisions of the Prospectus.
(b) The redemption by a Fund of any of its Class A Shares purchased by or
through the Distributor will not affect the applicable front-end sales charge
secured by the Distributor or any Selected Dealer in the course of the original
sale, except that if any Class A Shares are tendered for redemption within seven
business days after the date of the confirmation of the original purchase, the
right to the applicable front-end sales charge shall be forfeited by the
Distributor and the Selected Dealer which sold such Shares.
(c) The proceeds of any redemption of Class A, Class B or Class C Shares
shall be paid by each Fund as follows: (i) any applicable CDSC shall be paid to
the Distributor or to the Selected Dealer, or, when applicable, pursuant to the
Rules of the Association of the National Association of Securities Dealers, Inc.
("NASD"), retained by the Fund and (ii) the balance shall be paid to the
redeeming shareholders, in each case in accordance with applicable provisions of
its Prospectus in New York Clearing House funds. The Distributor is authorized
to direct a Fund to pay directly to the Selected Dealer any CDSC payable by a
Fund to the Distributor in respect of Class A, Class B, or Class C Shares sold
by the Selected Dealer to the redeeming shareholders.
(d) The Distributor is authorized, as agent for the Fund, to repurchase
Shares, represented by a share certificate which is delivered to any office of
the Distributor in accordance with applicable provisions set forth in each
Fund's Prospectus. The Distributor shall promptly transmit to the transfer agent
of the Fund for redemption all Shares so delivered. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's transfer
agent in connection with all such repurchases.
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(e) The Distributor is authorized, as agent for each Fund, to repurchase
Shares held in a shareholder's account with a Fund for which no share
certificate has been issued, upon the telephonic request of the shareholders, or
at the discretion of the Distributor. The Distributor shall promptly transmit to
the transfer agent of the Fund, for redemption, all such orders for repurchase
of Shares. Payment for Shares repurchased may be made by a Fund to the
Distributor for the account of the shareholder. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's transfer
agent in connection with all such repurchases.
(f) Redemption of its Shares or payment by a Fund may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or
during any other period when the SEC, by order, so permits.
(g) With respect to its Shares tendered for redemption or repurchase by any
Selected Dealer on behalf of its customers, the Distributor is authorized to
instruct the transfer agent of a Fund to accept orders for redemption or
repurchase directly from the Selected Dealer on behalf of the Distributor and to
instruct the Fund to transmit payments for such redemptions and repurchases
directly to the Selected Dealer on behalf of the Distributor for the account of
the shareholder. The Distributor shall obtain from the Selected Dealer, and
shall maintain, a record of such orders. The Distributor is further authorized
to obtain from the Fund, and shall maintain, a record of payment made directly
to the Selected Dealer on behalf of the Distributor.
SECTION 5. DUTIES OF THE FUND.
(a) Each Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of its Shares, including one
certified copy, upon request by the Distributor, of all financial statements
prepared by the Fund and examined by independent accountants. Each Fund shall,
at the expense of the Distributor, make available to the Distributor such number
of copies of its Prospectus as the Distributor shall reasonably request.
(b) Each Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of Shares as investors may
reasonably be expected to purchase.
(c) Each Fund shall use its best efforts to pay the filing fees for an
appropriate number of its Shares to be sold under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by a Fund at any
time in its discretion. As provided in Section 8(c) hereof, such filing fees
shall be paid by the Fund. The Distributor shall furnish any information and
other material relating to its affairs and activities as may be required by a
Fund in connection with the sale of its Shares in any state.
(d) Each Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of its annual and
interim reports.
SECTION 6. DUTIES OF THE DISTRIBUTOR.
(a) The Distributor shall sell shares of each Fund through DWR and may sell
shares through other securities dealers and its own Financial Advisors, and
shall devote reasonable time and effort to promote sales of the Shares, but
shall not be obligated to sell any specific number of Shares. The services of
the Distributor hereunder are not exclusive and it is understood that the
Distributor may act as principal underwriter for other registered investment
companies, so long as the performance of its obligations hereunder is not
impaired thereby. It is also understood that Selected Dealers, including DWR,
may also sell shares for other registered investment companies.
3
<PAGE>
(b) Neither the Distributor nor any Selected Dealer shall give any
information or make any representations, other than those contained in the
Registration Statement or related Prospectus and any sales literature
specifically approved by the appropriate Fund.
(c) The Distributor agrees that it will at all times comply with the
applicable terms and limitations of the Rules of the Association of the NASD.
SECTION 7. SELECTED DEALERS AGREEMENTS.
(a) The Distributor shall have the right to enter into selected dealer
agreements with Selected Dealers for the sale of Shares. In making agreements
with Selected Dealers, the Distributor shall act only as principal and not as
agent for a Fund. Shares sold to Selected Dealers shall be for resale by such
dealers only at the public offering price set forth in the Prospectus. With
respect to Class A Shares, in such agreement the Distributor shall have the
right to fix the portion of the applicable front-end sales charge which may be
allocated to the Selected Dealers.
(b) Within the United States, the Distributor shall offer and sell Shares
only to Selected Dealers that are members in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures, as approved by each
Fund, for the confirmation of sales of its Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the NASD, as such requirements may from time
to time exist.
SECTION 8. PAYMENT OF EXPENSES.
(a) Each Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of legal counsel including counsel to the Directors/Trustees
of each Fund who are not interested persons (as defined in the 1940 Act) of the
Fund or the Distributor, and independent accountants, in connection with the
preparation and filing of any required Registration Statements and Prospectuses
and all amendments and supplements thereto, and the expense of preparing,
printing, mailing and otherwise distributing prospectuses and statements of
additional information, annual or interim reports or proxy materials to
shareholders.
(b) The Distributor shall bear all expenses incurred by it in connection
with its duties and activities under this Agreement including the payment to
Selected Dealers of any sales commissions, service fees and other expenses for
sales of a Fund's Shares (except such expenses as are specifically undertaken
herein by a Fund) incurred or paid by Selected Dealers, including DWR. The
Distributor shall bear the costs and expenses of preparing, printing and
distributing any supplementary sales literature used by the Distributor or
furnished by it for use by Selected Dealers in connection with the offering of
the Shares for sale. Any expenses of advertising incurred in connection with
such offering will also be the obligation of the Distributor. It is understood
and agreed that, so long as a Fund's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act ("Rule 12b-1 Plan") continues in effect, any expenses
incurred by the Distributor hereunder may be paid in accordance with the terms
of such Rule 12b-1 Plan.
(c) Each Fund shall pay the filing fees, and, if necessary or advisable in
connection therewith, bear the cost and expense of qualifying each Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing to
offer Shares therein until the Fund decides to discontinue selling Shares
pursuant to Section 5(c) hereof.
SECTION 9. INDEMNIFICATION.
(a) Each Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith) arising by reason of any person acquiring
any Shares, which may be based upon the 1933 Act, or on any other statute or at
common law, on the ground that the Registration Statement or related Prospectus
and Statement of Additional Information, as from time to time amended
4
<PAGE>
and supplemented, or the annual or interim reports to shareholders of a Fund,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of a Fund in favor of the Distributor and any such
controlling persons to be deemed to protect the Distributor or any such
controlling persons thereof against any liability to a Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of reckless disregard of its
obligations and duties under this Agreement; or (ii) is a Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or any such controlling persons, as the case may be, shall have
notified the Fund in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon the Distributor or uch controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. Each Fund will be entitled to participate
at its own expense in the defense, or, if it so elects, to assume the defense,
of any such suit brought to enforce any such liability, but if a Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained by them.
Each Fund shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or
Directors/Trustees in connection with the issuance or sale of the Shares.
(b) (i) The Distributor shall indemnify and hold harmless each Fund and each
of its Directors/ Trustees and officers and each person, if any, who controls
the Fund against any loss, liability, claim, damage, or expense described in the
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to a Fund in writing by or on behalf of the Distributor
for use in connection with the Registration Statement or related Prospectus and
Statement of Additional Information, as from time to time amended, or the annual
or interim reports to shareholders.
(ii) The Distributor shall indemnify and hold harmless each Fund and
each Fund's transfer agent, individually and in its capacity as the Fund's
transfer agent, from and against any claims, damages and liabilities which arise
as a result of actions taken pursuant to instructions from, or on behalf of, the
Distributor to: (1) redeem all or a part of shareholder accounts in the Fund
pursuant to Section 4(g) hereof and pay the proceeds to, or as directed by, the
Distributor for the account of each shareholder whose Shares are so redeemed;
and (2) register Shares in the names of investors, confirm the issuance thereof
and receive payment therefor pursuant to Section 3(e) hereof.
(iii) In case any action shall be brought against a Fund or any person
so indemnified by this Section 9(b) in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties given
to a Fund, and the Fund and each person so indemnified shall have the rights and
duties given to the Distributor, by the provisions of subsection (a) of this
Section 9.
(c) If the indemnification provided for in this Section 9 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each indemnifiying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by a Fund on the one hand and the Distributor on the other
from the
5
<PAGE>
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of a Fund on the one hand and the Distributor on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by a Fund on the one hand and the Distributor on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Fund bear to the total
compensation received by the Distributor, in each case as set forth in the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by a Fund or the Distributor and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Each Fund and the Distributor agree that it would not be
just and equitable ifcontribution were determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to above. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to above shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such claim. Notwithstanding the
provisions of this subsection (c), the Distributor shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Shares distributed by it to the public were offered to the public exceeds
the amount of any damages which it has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
SECTION 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement
shall remain in force until April 30, 1999, and thereafter, but only so long as
such continuance is specifically approved at least annually by (i) the Board of
Directors/Trustees of each Fund, or by the vote of a majority of the outstanding
voting securities of the Fund, cast in person or by proxy, and (ii) a majority
of those Directors/ Trustees who are not parties to this Agreement or interested
persons of any such party and who have no direct or indirect financial interest
in this Agreement or in the operation of the Fund's Rule 12b-1 Plan or in any
agreement related thereto, cast in person at a meeting called for the purpose of
voting upon such approval.
This Agreement may be terminated at any time without the payment of any
penalty, by the Directors/ Trustees of a Fund, by a majority of the
Directors/Trustees of a Fund who are not interested persons of the Fund and who
have no direct or indirect financial interest in this Agreement, or by vote of a
majority of the outstanding voting securities of a Fund, or by the Distributor,
on sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.
SECTION 11. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Directors/Trustees of a Fund, or by the vote of a majority of outstanding voting
securities of a Fund, and (ii) a majority of those Directors/Trustees of a Fund
who are not parties to this Agreement or interested persons of any such party
and who have no direct or indirect financial interest in this Agreement or in
any Agreement related to the Fund's Rule 12b-1 Plan, cast in person at a meeting
called for the purpose of voting on such approval.
SECTION 12. ADDITIONAL FUNDS. If at any time another Fund desires to
appoint the Distributor as its principal underwriter and distributor under this
Agreement, it shall notify the Distributor in writing. If the Distributor is
willing to serve as the Fund's principal underwriter and distributor under this
Agreement, it shall notify the Fund in writing, whereupon such other Fund shall
become a Fund hereunder.
SECTION 13. GOVERNING LAW. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the 1940
Act. To the extent the applicable law of the
6
<PAGE>
State of New York, or any of the provisions herein, conflicts with the
applicable provisions of the 1940 Act, the latter shall control.
SECTION 14. PERSONAL LIABILITY. With respect to any Fund that is organized
as an unincorporated business trust under the laws of the Commonwealth of
Massachusetts, its Declaration of the Trust (each, a "Declaration") is on file
in the office of the Secretary of the Commonwealth of Massachusetts. Each
Declaration provides that the name of the Fund 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 any Fund 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 any Fund, but the Trust Estate only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.
ON BEHALF OF THE FUNDS SET FORTH ON
SCHEDULE A, ATTACHED HERETO
By: ..................................
MORGAN STANLEY DEAN WITTER
DISTRIBUTORS INC.
By: ..................................
7
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
SCHEDULE A
AT JUNE 22, 1998
<TABLE>
<S> <C>
1) Morgan Stanley Dean Witter American Value Fund
2) Morgan Stanley Dean Witter Balanced Growth Fund
3) Morgan Stanley Dean Witter Balanced Income Fund
4) Morgan Stanley Dean Witter California Tax-Free Income Fund
5) Morgan Stanley Dean Witter Capital Appreciation Fund
6) Morgan Stanley Dean Witter Capital Growth Securities
7) Morgan Stanley Dean Witter Competitive Edge Fund
8) Morgan Stanley Dean Witter Convertible Securities Trust
9) Morgan Stanley Dean Witter Developing Growth Securities Trust
10) Morgan Stanley Dean Witter Diversified Income Trust
11) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
12) Morgan Stanley Dean Witter Equity Fund
13) Morgan Stanley Dean Witter European Growth Fund Inc.
14) Morgan Stanley Dean Witter Federal Securities Trust
15) Morgan Stanley Dean Witter Financial Services Trust
16) Morgan Stanley Dean Witter Fund of Funds
17) Dean Witter Global Asset Allocation Fund
18) Morgan Stanley Dean Witter Global Dividend Growth Securities
19) Morgan Stanley Dean Witter Global Utilities Fund
20) Morgan Stanley Dean Witter Growth Fund
21) Morgan Stanley Dean Witter Health Sciences Trust
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Builder Fund
24) Morgan Stanley Dean Witter Information Fund
25) Morgan Stanley Dean Witter Intermediate Income Securities
26) Morgan Stanley Dean Witter International SmallCap Fund
27) Morgan Stanley Dean Witter Japan Fund
28) Morgan Stanley Dean Witter Market Leader Trust
29) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
30) Morgan Stanley Dean Witter Mid-Cap Growth Fund
31) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
32) Morgan Stanley Dean Witter New York Tax-Free Income Fund
33) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
34) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
35) Morgan Stanley Dean Witter Research Fund
36) Morgan Stanley Dean Witter Special Value Fund
37) Morgan Stanley Dean Witter S&P 500 Index Fund
38) Morgan Stanley Dean Witter Strategist Fund
39) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
40) Morgan Stanley Dean Witter U.S. Government Securities Trust
41) Morgan Stanley Dean Witter Utilities Fund
42) Morgan Stanley Dean Witter Value-Added Market Series
43) Morgan Stanley Dean Witter Worldwide High Income Fund
44) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>
8
<PAGE>
AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
with
MORGAN STANLEY DEAN WITTER TRUST FSB
[open-end funds]
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Article 1 Terms of Appointment. . . . . . . . . . . . . . . . . . . . .1
Article 2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . .5
Article 3 Representations and Warranties of MSDW TRUST. . . . . . . . .6
Article 4 Representations and Warranties of the Fund. . . . . . . . . .7
Article 5 Duty of Care and Indemnification. . . . . . . . . . . . . . .7
Article 6 Documents and Covenants of the Fund and MSDW TRUST. . . . . .10
Article 7 Duration and Termination of Agreement . . . . . . . . . . . .13
Article 8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . .14
Article 9 Affiliations. . . . . . . . . . . . . . . . . . . . . . . . .14
Article 10 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . .15
Article 11 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . .15
Article 12 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . .15
Article 13 Merger of Agreement . . . . . . . . . . . . . . . . . . . . .17
Article 14 Personal Liability. . . . . . . . . . . . . . . . . . . . . .17
-i-
<PAGE>
AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT
AMENDED AND RESTATED AGREEMENT made as of the 1st day of August, 1997
by and between each of the Funds listed on the signature pages hereof, each of
such Funds acting severally on its own behalf and not jointly with any of such
other Funds (each such Fund hereinafter referred to as the "Fund"), each such
Fund having its principal office and place of business at Two World Trade
Center, New York, New York, 10048, and MORGAN STANLEY DEAN WITTER TRUST FSB
("MSDW TRUST"), a federally chartered savings bank, having its principal office
and place of business at Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311.
WHEREAS, the Fund desires to appoint MSDW TRUST as its transfer agent,
dividend disbursing agent and shareholder servicing agent and MSDW TRUST 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 MSDW TRUST
1.1 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints MSDW TRUST to act as, and MSDW
TRUST agrees to act as, the transfer agent for each series and class of shares
of the Fund, whether now or hereafter authorized or issued ("Shares"), dividend
disbursing agent and shareholder servicing agent in
-1-
<PAGE>
connection with any accumulation, open-account or similar plans provided to the
holders of such Shares ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of the Fund,
including without limitation any periodic investment plan or periodic withdrawal
program.
1.2 MSDW TRUST agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Fund and MSDW TRUST, MSDW TRUST shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation therefor to the
custodian of the assets of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and issue certificates therefor or hold such Shares in book form in
the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;
(iv) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any redemption, pay over or cause to
be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
-2-
<PAGE>
(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may be
reflected in the prospectus;
(viii) Maintain records of account for and advise the Fund and
its Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain
pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934
Act") a record of the total number of Shares of the Fund which are authorized,
based upon data provided to it by the Fund, and issued and outstanding. MSDW
TRUST shall also provide to the Fund on a regular basis the total number of
Shares that are authorized, issued and outstanding and shall notify the Fund in
case any proposed issue of Shares by the Fund would result in an overissue. In
case any issue of Shares would result in an overissue, MSDW TRUST shall refuse
to issue such Shares and shall not countersign and issue any certificates
requested for such Shares. When recording the issuance of Shares, MSDW TRUST
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), MSDW TRUST shall:
-3-
<PAGE>
(i) perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, shareholder servicing agent in
connection with dividend reinvestment, accumulation, open-account or similar
plans (including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing appropriate forms required with respect to
dividends and distributions by federal tax authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders and providing Shareholder account information;
(ii) open any and all bank accounts which may be necessary or
appropriate in order to provide the foregoing services; and
(iii) provide a system that will enable the Fund to monitor the
total number of Shares sold in each State or other jurisdiction.
(c) In addition, the Fund shall:
(i) identify to MSDW TRUST in writing those transactions and
assets to be treated as exempt from Blue Sky reporting for each State; and
-4-
<PAGE>
(ii) verify the inclusion on the system prior to activation of
each State in which Fund shares may be sold and thereafter monitor the daily
purchases and sales for shareholders in each State. The responsibility of MSDW
TRUST for the Fund's status under the securities laws of any State or other
jurisdiction is limited to the inclusion on the system of each State as to which
the Fund has informed MSDW TRUST that shares may be sold in compliance with
state securities laws and the reporting of purchases and sales in each such
State to the Fund as provided above and as agreed from time to time by the Fund
and MSDW TRUST.
(d) MSDW TRUST shall provide such additional services and
functions not specifically described herein as may be mutually agreed between
MSDW TRUST and the Fund. Procedures applicable to such services may be
established from time to time by agreement between the Fund and MSDW TRUST.
Article 2 Fees and Expenses
2.1 For performance by MSDW TRUST pursuant to this Agreement,
each Fund agrees to pay MSDW TRUST an annual maintenance fee for each
Shareholder account and certain transactional fees, if applicable, as set out in
the respective fee schedule attached hereto as Schedule A. Such fees and
out-of-pocket expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between the Fund
and MSDW TRUST.
2.2 In addition to the fees paid under Section 2.1 above, the
Fund agrees to reimburse MSDW TRUST for out of pocket expenses in connection
with the services rendered
-5-
<PAGE>
by MSDW TRUST hereunder. In addition, any other expenses incurred by MSDW TRUST
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 MSDW TRUST by
the Fund upon request prior to the mailing date of such materials.
Article 3 Representations and Warranties of MSDW TRUST
MSDW TRUST represents and warrants to the Fund that:
3.1 It is a federally chartered savings bank whose principal
office is in New Jersey.
3.2 It is and will remain registered with the U.S. Securities
and Exchange Commission ("SEC") as a Transfer Agent pursuant to the requirements
of Section 17A of the 1934 Act.
3.3 It is empowered under applicable laws and by its charter and
By-Laws to enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
-6-
<PAGE>
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to MSDW TRUST that:
4.1 It is a corporation duly organized and existing and in good
standing under the laws of Delaware or Maryland or a trust duly organized and
existing and in good standing under the laws of Massachusetts, as the case may
be.
4.2 It is empowered under applicable laws and by its Articles of
Incorporation or Declaration of Trust, as the case may be, and under its By-Laws
to enter into and perform this Agreement.
4.3 All corporate proceedings necessary to authorize it to enter
into and perform this Agreement have been taken.
4.4 It is an investment company registered with the SEC under
the Investment Company Act of 1940, as amended (the "1940 Act").
4.5 A registration statement under the Securities Act of 1933
(the "1933 Act") is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale.
Article 5 Duty of Care and Indemnification
5.1 MSDW TRUST shall not be responsible for, and the Fund shall
indemnify and hold MSDW TRUST harmless from and against, any and all losses,
damages, costs,
-7-
<PAGE>
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of MSDW TRUST 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 MSDW TRUST or its agents or
subcontractors of information, records and documents which (i) are received by
MSDW TRUST or its agents or subcontractors and furnished to it by or on behalf
of the Fund, and (ii) have been prepared and/or maintained by the Fund or any
other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by MSDW TRUST or its
agents or subcontractors of, any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities or Blue Sky
laws of any State or other jurisdiction that notice of offering of such Shares
in such State or other jurisdiction or in violation of any stop order or other
determination or ruling by any federal agency or any State or other jurisdiction
with respect to the offer or sale of such Shares in such State or other
jurisdiction.
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<PAGE>
5.2 MSDW TRUST 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 MSDW TRUST as a result of the lack of good faith,
negligence or willful misconduct of MSDW TRUST, its officers, employees or
agents.
5.3 At any time, MSDW TRUST 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 MSDW
TRUST under this Agreement, and MSDW TRUST 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. MSDW TRUST, 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 MSDW TRUST 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. MSDW TRUST, 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.
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<PAGE>
5.4 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes.
5.5 Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this Agreement or for any
act or failure to act hereunder.
5.6 In order that the indemnification provisions contained in
this Article 5 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 6 Documents and Covenants of the Fund and MSDW TRUST
6.1 The Fund shall promptly furnish to MSDW TRUST the following,
unless previously furnished to Dean Witter Trust Company, the prior transfer
agent of the Fund:
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(a) If a corporation:
(i) A certified copy of the resolution of the Board of
Directors of the Fund authorizing the appointment of MSDW TRUST 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 MSDW TRUST 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;
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<PAGE>
(iii) Certified copies of each vote of the Board of Trustees
designating persons authorized to give instructions on behalf of the Fund and
signature cards bearing the signature of any officer of the Fund or any other
person authorized to sign written instructions on behalf of the Fund;
(iv) A specimen of the certificate for Shares of the Fund in the
form approved by the Board of Trustees, with a certificate of the Secretary of
the Fund as to such approval;
(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act or the 1940 Act;
(d) All account application forms or other documents relating
to Shareholder accounts and/or relating to any plan, program or service offered
or to be offered by the Fund; and
(e) Such other certificates, documents or opinions as MSDW
TRUST deems to be appropriate or necessary for the proper performance of its
duties.
6.2 MSDW TRUST 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.
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<PAGE>
6.3 MSDW TRUST 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, MSDW TRUST agrees that all such records prepared or maintained by
MSDW TRUST relating to the services performed by MSDW TRUST 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 MSDW TRUST 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
MSDW TRUST and the Fund.
6.5 In case of any request or demands for the inspection of the
Shareholder records of the Fund, MSDW TRUST will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. MSDW TRUST reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 7 Duration and Termination of Agreement
7.1 This Agreement shall remain in full force and effect until
August 1,
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<PAGE>
2000 and from year-to-year thereafter unless terminated by either party as
provided in Section 7.2 hereof.
7.2 This Agreement may be terminated by the Fund on 60 days
written notice, and by MSDW TRUST 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, MSDW TRUST 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 MSDW TRUST 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 MSDW TRUST; provided, however,
that such person or entity has and maintains the qualifications, if any,
required to perform such obligations and duties, and that MSDW TRUST
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<PAGE>
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 MSDW TRUST may now or hereafter, without the consent of or
notice to the Fund, function as transfer agent and/or shareholder servicing
agent for any other investment company registered with the SEC under the 1940
Act and for any other issuer, including without limitation any investment
company whose adviser, administrator, sponsor or principal underwriter is or may
become affiliated with Morgan Stanley Dean Witter & Co. or any of its direct or
indirect subsidiaries or affiliates.
9.2 It is understood and agreed that the Directors or Trustees
(as the case may be), officers, employees, agents and shareholders of the Fund,
and the directors, officers, employees, agents and shareholders of the Fund's
investment adviser and/or distributor, are or may be interested in MSDW TRUST as
directors, officers, employees, agents and shareholders or otherwise, and that
the directors, officers, employees, agents and shareholders of MSDW TRUST 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.
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<PAGE>
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 Morgan Stanley Dean Witter Advisors Inc. or
any of its affiliates ("Additional Funds") desires to retain MSDW TRUST to act
as transfer agent, dividend disbursing agent and/or shareholder servicing agent,
and MSDW TRUST desires to render such services, such services shall be provided
pursuant to a letter agreement, substantially in the form of Exhibit A hereto,
between MSDW TRUST and each Additional Fund.
12.2 In the event of an alleged loss or destruction of any Share
certificate, no new certificate shall be issued in lieu thereof, unless there
shall first be furnished to MSDW TRUST 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 MSDW TRUST and the
Fund issued by a surety company satisfactory to MSDW TRUST, except that MSDW
TRUST may accept an affidavit of loss and indemnity agreement executed by the
registered holder (or legal representative) without surety in such form as MSDW
TRUST deems appropriate indemnifying MSDW TRUST and the Fund for the issuance of
a replacement certificate, in cases where the alleged loss is in the amount of
$1,000 or less.
12.3 In the event that any check or other order for payment of
money on the
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account of any Shareholder or new investor is returned unpaid for any reason,
MSDW TRUST will (a) give prompt notification to the Fund's distributor
("Distributor") (or to the Fund if the Fund acts as its own distributor) of such
non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as MSDW TRUST may, in its sole
discretion, deem appropriate or as the Fund and, if applicable, the Distributor
may instruct MSDW TRUST.
12.4 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to MSDW TRUST 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 MSDW TRUST:
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
Attention: President
Article 13 Merger of Agreement
13.1 This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
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<PAGE>
Article 14 Personal Liability
14.1 In the case of a Fund organized as a Massachusetts business
trust, a copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against, a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit, contract or claim.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Agreement to be executed in their names and on their behalf by and
through their duly authorized officers, as of the day and year first above
written.
MORGAN STANLEY DEAN WITTER FUNDS
MONEY MARKET FUNDS
1. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Morgan Stanley Dean Witter U.S. Government Money Market Trust
4. Active Assets Government Securities Trust
5. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
6. Active Assets Tax-Free Trust
7. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
8. Morgan Stanley Dean Witter New York Municipal Money Market Trust
9. Active Assets California Tax-Free Trust
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<PAGE>
EQUITY FUNDS
10. Morgan Stanley Dean Witter American Value Fund
11. Morgan Stanley Dean Witter Mid-Cap Growth Fund
12. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
13. Morgan Stanley Dean Witter Capital Growth Securities
14. Morgan Stanley Dean Witter Global Dividend Growth Securities
15. Morgan Stanley Dean Witter Income Builder Fund
16. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
17. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
18. Morgan Stanley Dean Witter Developing Growth Securities Trust
19. Morgan Stanley Dean Witter Health Sciences Trust
20. Morgan Stanley Dean Witter Capital Appreciation Fund
21. Morgan Stanley Dean Witter Information Fund
22. Morgan Stanley Dean Witter Value-Added Market Series
23. Morgan Stanley Dean Witter European Growth Fund Inc.
24. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
25. Morgan Stanley Dean Witter International SmallCap Fund
26. Morgan Stanley Dean Witter Japan Fund
27. Morgan Stanley Dean Witter Utilities Fund
28. Morgan Stanley Dean Witter Global Utilities Fund
29. Morgan Stanley Dean Witter Special Value Fund
30. Morgan Stanley Dean Witter Financial Services Trust
31. Morgan Stanley Dean Witter Market Leader Trust
32. Morgan Stanley Dean Witter Fund of Funds
33. Morgan Stanley Dean Witter S&P 500 Index Fund
34. Morgan Stanley Dean Witter Competitive Edge Fund
35. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
36. Morgan Stanley Dean Witter Equity Fund
37. Morgan Stanley Dean Witter Growth Fund
BALANCED FUNDS
38. Morgan Stanley Dean Witter Balanced Growth Fund
39. Morgan Stanley Dean Witter Balanced Income Trust
ASSET ALLOCATION FUNDS
40. Morgan Stanley Dean Witter Strategist Fund
41. Dean Witter Global Asset Allocation Fund
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FIXED INCOME FUNDS
42. Morgan Stanley Dean Witter High Yield Securities Inc.
43. Morgan Stanley Dean Witter High Income Securities
44. Morgan Stanley Dean Witter Convertible Securities Trust
45. Morgan Stanley Dean Witter Intermediate Income Securities
46. Morgan Stanley Dean Witter Short-Term Bond Fund
47. Morgan Stanley Dean Witter World Wide Income Trust
48. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
49. Morgan Stanley Dean Witter Diversified Income Trust
50. Morgan Stanley Dean Witter U.S. Government Securities Trust
51. Morgan Stanley Dean Witter Federal Securities Trust
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
54. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
55. Morgan Stanley Dean Witter Limited Term Municipal Trust
56. Morgan Stanley Dean Witter California Tax-Free Income Fund
57. Morgan Stanley Dean Witter New York Tax-Free Income Fund
58. Morgan Stanley Dean Witter Hawaii Municipal Trust
59. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
60. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
SPECIAL PURPOSE FUNDS
61. Dean Witter Retirement Series
62. Morgan Stanley Dean Witter Variable Investment Series
63. Morgan Stanley Dean Witter Select Dimensions Investment Series
TCW/DW FUNDS
64. TCW/DW North American Government Income Trust
65. TCW/DW Latin American Growth Fund
66. TCW/DW Income and Growth Fund
67. TCW/DW Small Cap Growth Fund
68. TCW/DW Total Return Trust
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69. TCW/DW Global Telecom Trust
70. TCW/DW Mid-Cap Equity Trust
71. TCW/DW Emerging Markets Opportunities Trust
By:_______________________________
Barry Fink
Vice President and General Counsel
ATTEST:
_________________________
Assistant Secretary
MORGAN STANLEY DEAN WITTER TRUST FSB
By:
_____________________________
John Van Heuvelen
President
ATTEST:
_________________________
Executive Vice President
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<PAGE>
EXHIBIT A
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311
Gentlemen:
The undersigned, (inset name of investment company) a (Massachusetts
business trust/Maryland corporation) (the "Fund"), desires to employ and appoint
Morgan Stanley Dean Witter Trust FSB ("MSDW TRUST") to act as transfer agent for
each series and class of shares of the Fund, whether now or hereafter authorized
or issued ("Shares"), dividend disbursing agent and shareholder servicing agent,
registrar and agent in connection with any accumulation, open-account or similar
plan provided to the holders of Shares, including without limitation any
periodic investment plan or periodic withdrawal plan.
The Fund hereby agrees that, in consideration for the payment by the
Fund to MSDW TRUST of fees as set out in the fee schedule attached hereto as
Schedule A, MSDW TRUST 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.
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<PAGE>
Please indicate MSDW TRUST's acceptance of employment and appointment
by the Fund in the capacities set forth above by so indicating in the space
provided below.
Very truly yours,
(name of fund)
By:__________________________________
Barry Fink
Vice President and General Counsel
ACCEPTED AND AGREED TO:
MORGAN STANLEY DEAN WITTER TRUST FSB
By:_______________________
Its:______________________
Date:_____________________
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SCHEDULE A
Fund: Morgan Stanley Dean Witter Short-Term Bond Fund
Fees: (1) Annual maintenance fee of $13.20 per shareholder account,
payable monthly.
(2) A fee equal to 1/12 of the fee set forth in (1) above, for
providing Forms 1099 for accounts closed during the year, payable
following the end of the calendar year.
(3) Out-of-pocket expenses in accordance with Section 2.2 of the
Agreement.
(4) Fees for additional services not set forth in this Agreement
shall be as negotiated between the parties.
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995, and amended as of June
22, 1998, by and between Morgan Stanley Dean Witter Advisors Inc., a Delaware
corporation (herein referred to as "MSDW Advisors"), and Morgan Stanley Dean
Witter Services Company Inc., a Delaware corporation (herein referred to as
"MSDW Services").
WHEREAS, MSDW Advisors 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 MSDW Advisors 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, MSDW Advisors desires to retain MSDW Services to perform the
administrative services as described below; and
WHEREAS, MSDW Services desires to be retained by MSDW Advisors 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. MSDW Services agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, MSDW
Services 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 MSDW Advisors of available funds
for investment, the reconciliation of account information and balances among
the Fund's custodian, transfer agent and dividend disbursing agent and MSDW
Advisors, 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 MSDW Advisors enters into an Investment Management
Agreement with another investment company, and wishes to retain MSDW Services
to perform administrative services hereunder, it shall notify MSDW Services in
writing. If MSDW Services is willing to render such services, it shall notify
MSDW Advisors in writing, whereupon such other Fund shall become a Fund as
defined herein.
2. MSDW Services 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 MSDW Services shall be deemed to include
officers of MSDW Services and persons employed or otherwise retained by MSDW
Services (including officers and employees of MSDW Advisors, with the consent
of MSDW Advisors) to furnish services, statistical and other factual data,
information with respect to technical and scientific developments, and such
other information, advice and assistance as MSDW Services may desire. MSDW
Services 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, MSDW Services shall surrender to MSDW
Advisors or to the Fund such of the books and records so requested.
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<PAGE>
3. MSDW Advisors will, from time to time, furnish or otherwise make
available to MSDW Services such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as MSDW Services
may reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation
or request of the Board of Directors/Trustees of the Fund.
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by MSDW Services, MSDW Advisors shall pay to MSDW Services
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 MSDW Services' 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 MSDW Advisors 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 Morgan Stanley 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. MSDW Services 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 MSDW Services, and such clerical help and bookkeeping services
as MSDW Services shall reasonably require in performing its duties hereunder.
7. MSDW Services 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, MSDW Services 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 MSDW Services 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 MSDW Advisors, MSDW
Advisors shall retain ultimate responsibility for all services to be performed
hereunder by MSDW Services. MSDW Services shall indemnify MSDW Advisors and
hold it harmless from any liability that MSDW Advisors may incur arising out of
any act or failure to act by MSDW Services 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, MSDW Services, and in any person
controlling, controlled by or under common control with MSDW Services, and that
MSDW Services and any person controlling, controlled by or under common control
with MSDW Services may have an interest in the Fund. It is also understood that
MSDW Services and any affiliated persons thereof or any persons controlling,
controlled by or under common control with MSDW Services 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.
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<PAGE>
9. This Agreement shall continue until April 30, 1999, and thereafter
shall continue automatically for successive periods of one year unless
terminated by either party by written notice delivered to the other party
within 30 days of the expiration of the then-existing period. Notwithstanding
the foregoing, this Agreement may be terminated at any time, by either party on
30 days' written notice delivered to the other party. In the event that the
Investment Management Agreement between any Fund and MSDW Advisors is
terminated, this Agreement will automatically terminate with respect to such
Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
11. This Agreement may be assigned by either party with the written
consent of the other party.
12. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.
MORGAN STANLEY DEAN WITTER ADVISORS
INC.
By:
-------------------------------
Attest:
-------------------------------
MORGAN STANLEY DEAN WITTER SERVICES
COMPANY INC.
By:
-------------------------------
Attest:
-------------------------------
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<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
AS AMENDED AS OF JUNE 22, 1998
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 Retirement Series
6. Morgan Stanley Dean Witter American Value Fund
7. Morgan Stanley Dean Witter Balanced Growth Fund
8. Morgan Stanley Dean Witter Balanced Income Fund
9. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
10. Morgan Stanley Dean Witter California Tax-Free Income Fund
11. Morgan Stanley Dean Witter Capital Appreciation Fund
12. Morgan Stanley Dean Witter Capital Growth Securities
13. Morgan Stanley Dean Witter Competitive Edge Fund,
"BEST IDEAS" Portfolio
14. Morgan Stanley Dean Witter Convertible Securities Trust
15. Morgan Stanley Dean Witter Developing Growth Securities Trust
16. Morgan Stanley Dean Witter Diversified Income Trust
17. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
18. Morgan Stanley Dean Witter Equity Fund
19. Morgan Stanley Dean Witter European Growth Fund Inc.
20. Morgan Stanley Dean Witter Federal Securities Trust
21. Morgan Stanley Dean Witter Financial Services Trust
22. Morgan Stanley Dean Witter Fund of Funds
(i) Domestic Portfolio
(ii) International Portfolio
23. Morgan Stanley Dean Witter Global Dividend Growth Securities
24. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25. Morgan Stanley Dean Witter Global Utilities Fund
26. Morgan Stanley Dean Witter Growth Fund
27. Morgan Stanley Dean Witter Hawaii Municipal Trust
28. Morgan Stanley Dean Witter Health Sciences Trust
29. Morgan Stanley Dean Witter High Yield Securities Inc.
30. Morgan Stanley Dean Witter Income Builder Fund
31. Morgan Stanley Dean Witter Information Fund
32. Morgan Stanley Dean Witter Intermediate Income Securities
33. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34. Morgan Stanley Dean Witter International SmallCap Fund
35. Morgan Stanley Dean Witter Japan Fund
36. Morgan Stanley Dean Witter Limited Term Municipal Trust
37. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38. Morgan Stanley Dean Witter Market Leader Trust
39. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40. Morgan Stanley Dean Witter Mid-Cap Growth Fund
41. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43. Morgan Stanley Dean Witter New York Municipal Money Market Trust
44. Morgan Stanley Dean Witter New York Tax-Free Income Fund
45. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47. Morgan Stanley Dean Witter Select Dimensions Investment Series
(i) American Value Portfolio
(ii) Balanced Growth Portfolio
(iii) Developing Growth Portfolio
(iv) Diversified Income Portfolio
(v) Dividend Growth Portfolio
(vi) Emerging Markets Portfolio
(vii) Global Equity Portfolio
(viii) Growth Portfolio
(ix) Mid-Cap Growth Portfolio
(x) Money Market Portfolio
(xi) North American Government Securities Portfolio
(xii) Utilities Portfolio
(xiii) Value-Added Market Portfolio
48. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
49. Morgan Stanley Dean Witter U.S. Government Money Market Trust
50. Morgan Stanley Dean Witter Utilities Fund
A-1
<PAGE>
51. Morgan Stanley Dean Witter Short-Term Bond Fund
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Special Value Fund
54. Morgan Stanley Dean Witter Strategist Fund
55. Morgan Stanley Dean Witter S&P 500 Index Fund
56. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
57. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
58. Morgan Stanley Dean Witter U.S. Government Securities Trust
59. Morgan Stanley Dean Witter Value-Added Market Series
60. Morgan Stanley Dean Witter Variable Investment Series
(i) Capital Appreciation Portfolio
(ii) Capital Growth Portfolio
(iii) Competitive Edge "Best Ideas" Portfolio
(iv) Dividend Growth Portfolio
(v) Equity Portfolio
(vi) European Growth Portfolio
(vii) Global Dividend Growth Portfolio
(viii) High Yield Portfolio
(ix) Income Builder Portfolio
(x) Money Market Portfolio
(xi) Quality Income Plus Portfolio
(xii) Pacific Growth Portfolio
(xiii) S&P 500 Index Portfolio
(xiv) Strategist Portfolio
(xv) Utilities Portfolio
61. Morgan Stanley Dean Witter World Wide Income Trust
62. Morgan Stanley Dean Witter Worldwide High Income Fund
63. Dean Witter Global Asset Allocation Fund
CLOSED-END FUNDS
64. High Income Advantage Trust
65. High Income Advantage Trust II
66. High Income Advantage Trust III
67. InterCapital Income Securities Inc.
68. Dean Witter Government Income Trust
69. InterCapital Insured Municipal Bond Trust
70. InterCapital Insured Municipal Trust
71. InterCapital Insured Municipal Income Trust
72. InterCapital California Insured Municipal Income Trust
73. InterCapital Insured Municipal Securities
74. InterCapital Insured California Municipal Securities
75. InterCapital Quality Municipal Investment Trust
76. InterCapital Quality Municipal Income Trust
77. InterCapital Quality Municipal Securities
78. InterCapital California Quality Municipal Securities
79. InterCapital New York Quality Municipal Securities
A-2
<PAGE>
SCHEDULE B
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES
AS AMENDED AS OF JUNE 22, 1998
Monthly compensation calculated daily by applying the following annual
rates to a fund's daily net assets:
FIXED INCOME FUNDS
- ------------------
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Balanced Income Fund
Morgan Stanley Dean Witter 0.055% of the portion of the daily net assets not exceeding
California Tax-Free Income Fund $500 million; 0.0525% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.050%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.0475% of the portion of the
daily net assets exceeding $1 billion but not exceeding $1.25
billion; and 0.045% of the portion of the daily net assets
exceeding $1.25 billion.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
Convertible Securities Trust $750 million; 0.055% of the portion of the daily net assets
exceeding $750 million but not exceeding $1 billion; 0.050% of
the portion of the daily net assets of the exceeding $1 billion
but not exceeding $1.5 billion; 0.0475% of the portion of the
daily net assets exceeding $1.5 billion but not exceeding
$2 billion; 0.045% of the portion of the daily net assets
exceeding $2 billion but not exceeding $3 billion; and 0.0425%
of the portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.040% of the daily net assets.
Diversified Income Trust
Morgan Stanley Dean Witter Federal 0.055% of the portion of the daily net assets not exceeding
Securities Trust $1 billion; 0.0525% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.050% of
the portion of the daily net assets exceeding $1.5 billion but
not exceeding $2 billion; 0.0475% of the portion of the daily
net assets exceeding $2 billion but not exceeding $2.5 billion;
0.045% of the portion of the daily net assets exceeding $2.5
billion but not exceeding $5 billion; 0.0425% of the portion of
the daily net assets exceeding $5 billion but not exceeding $7.5
billion; 0.040% of the portion of the daily net assets exceeding
$7.5 billion but not exceeding $10 billion; 0.0375% of the
portion of the daily net assets exceeding $10 billion but not
exceeding $12.5 billion; and 0.035% of the portion of the daily
net assets exceeding $12.5 billion.
Morgan Stanley Dean Witter Global 0.055% of the portion of the daily net assets not exceeding
Short-Term Income Fund Inc. $500 million; and 0.050% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Hawaii 0.035% of the daily net assets.
Municipal Trust
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter High 0.050% of the portion of the daily net assets not exceeding
Yield Securities Inc. $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $2 billion;
0.0325% of the portion of the daily net assets exceeding $2
billion but not exceeding $3 billion; and 0.030% of the portion
of daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
Intermediate Income Securities $500 million; 0.050% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.040%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; and 0.030% of the portion of the
daily net assets exceeding $1 billion.
Morgan Stanley Dean Witter 0.035% of the daily net assets.
Intermediate Term
U.S. Treasury Trust
Morgan Stanley Dean Witter Limited 0.050% of the daily net assets.
Term Municipal Trust
Morgan Stanley Dean Witter 0.035% of the daily net assets.
Multi-State Municipal Series Trust
(10 Series)
Morgan Stanley Dean Witter New 0.055% of the portion of the daily net assets not exceeding
York Tax-Free Income Fund $500 million; and 0.0525% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.065% of the daily net assets.
Retirement Series- Intermediate
Income Securities Series
U.S. Government Securities Series 0.065% of the daily net assets.
Morgan Stanley Dean Witter Select 0.039% of the daily net assets.
Dimensions Investment
Series--North American
Government Securities Portfolio
Morgan Stanley Dean Witter Select 0.050% of the daily net assets.
Municipal Reinvestment Fund
Morgan Stanley Dean Witter 0.070% of the daily net assets.
Short-Term Bond Fund
Morgan Stanley Dean Witter 0.035% of the daily net assets.
Short-Term U.S. Treasury Trust
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Tax-Exempt Securities Trust $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; and 0.035% of the portion of the
daily net assets exceeding $1 billion but not exceeding $1.25
billion; .0325% of the portion of the daily net assets exceeding
$1.25 billion.
Morgan Stanley Dean Witter U.S. 0.050% of the portion of the daily net assets not exceeding $1
Government Securities Trust billion; 0.0475% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.045% of the portion
of the daily net assets exceeding $1.5 billion but not exceeding
$2 billion; 0.0425% of the portion of the daily net assets
exceeding $2 billion but not exceeding $2.5 billion; 0.040% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $5 billion; 0.0375% of the portion of the daily
net assets exceeding $5 billion but not exceeding $7.5 billion;
0.035% of the portion of the daily net assets exceeding $7.5
billion but not exceeding $10 billion; 0.0325% of the portion of
the daily net assets exceeding $10 billion but not exceeding
$12.5 billion; and 0.030% of the portion of the daily net assets
exceeding $12.5 billion.
Morgan Stanley Dean Witter
Variable Investment Series-
High Yield Portfolio 0.050% of the portion of the daily net assets not exceeding
$500 million; and 0.0425% of the daily net assets exceeding
$500 million.
Quality Income Plus Portfolio 0.050% of the portion of the daily the net assets up to $500
million; and 0.045% of the portion of the daily net assets
exceeds $500 million.
Morgan Stanley Dean Witter World 0.075% of the portion of the daily net assets up to $250 million;
Wide Income Trust 0.060% of the portion of the daily net assets exceeding $250
million but not exceeding $500 million; 0.050% of the portion
of the daily net assets of the exceeding $500 million but not
exceeding $750 milliion; 0.040% of the portion of the daily net
assets exceeding $750 million but not exceeding $1 billion; and
0.030% of the portion of the daily net assets exceeding $1
billion.
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Worldwide High Income Fund
EQUITY FUNDS
- ------------
Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not exceeding
American Value Fund $250 million; 0.050% of the portion of the daily net assets
exceeding $250 million but not exceeding $2.25 billion; 0.0475%
of the portion of the daily net assets exceeding $2.25 billion
but not exceeding $3.5 billion; 0.0450% of the portion of the
daily net assets exceeding 3.5 billion but not exceeding 4.5
billion; and 0.0425% of the portion of the daily net assets
exceeding $4.5 billion.
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Balanced Growth Fund
Morgan Stanley Dean Witter Capital 0.075% of the portion of the daily net assets not exceeding
Appreciation Fund $500 million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Capital 0.065% of the portion of the daily net assets not exceeding
Growth Securities $500 million; 0.055% of the portion exceeding $500 million but
not exceeding $1 billion; 0.050% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5 billion; and
0.0475% of the portion of the daily net assets exceeding $1.5
billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Developing Growth Securities $500 million; and 0.0475% of the portion of the daily net assets
Trust exceeding $500 million.
Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not exceeding
Dividend Growth Securities Inc. $250 million; 0.050% of the portion of the daily net assets
exceeding $250 million but not exceeding $1 billion; 0.0475% of
the portion of the daily net assets exceeding $1 billion but not
exceeding $2 billion; 0.045% of the portion of the daily net
assets exceeding $2 billion but not exceeding $3 billion;
0.0425% of the portion of the daily net assets exceeding $3
billion but not exceeding $4 billion; 0.040% of the portion of
the daily net assets exceeding $4 billion but not exceeding $5
billion; 0.0375% of the portion of the daily net assets exceeding
$5 billion but not exceeding $6 billion; 0.035% of the portion of
the daily net assets exceeding $6 billion but not exceeding $8
billion; 0.0325% of the portion of the daily net assets exceeding
$8 billion but not exceeding $10 billion; 0.030% of the portion
of the daily net assets exceeding $10 billion but not exceeding
$15 billion; and 0.0275% of the portion of the daily net assets
exceeding $15 billion.
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
European Growth Fund Inc. $500 million; 0.057% of the portion of the daily net assets
exceeding $500 million but not exceeding $2 billion; and
0.054% of the portion of the daily net assets exceeding $2
billion.
Morgan Stanley Dean Witter 0.075% of the daily net assets.
Financial Services Trust
Morgan Stanley Dean Witter Fund
of Funds-
Domestic Portfolio None
International Portfolio None
Dean Witter Global Asset 0.070% of the daily net assets.
Allocation Fund
</TABLE>
B-4
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Global 0.075% of the portion of the daily net assets not exceeding $1
Dividend Growth Securities billion; 0.0725% of the portion of the daily net assets exceeding
$1 billion but not exceeding $1.5 billion; 0.070% of the portion
of the daily net assets exceeding $1.5 billion but not
exceeding $2.5 billion; 0.0675% of the portion of the daily net
assets exceeding $2.5 billion but not exceeding $3.5 billion;
0.0650% of the portion of the daily net assets exceeding $3.5
billion but not exceeding $4.5 billion; and 0.0625% of the
portion of the daily net assets exceeding $4.5 billion.
Morgan Stanley Dean Witter Global 0.065% of the portion of the daily net assets not exceeding
Utilities Fund $500 million; and 0.0625% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Health 0.10% of the portion of daily net assets not exceeding $500
Sciences Trust million; and 0.095% of the portion of daily net assets exceeding
$500 million.
Morgan Stanley Dean Witter Income 0.075% of the portion of the net assets not exceeding $500
Builder Fund million; and 0.0725% of the portion of daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding
Information Fund $500 million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.075% of the daily net assets.
International SmallCap Fund
Morgan Stanley Dean Witter Japan 0.060% of the daily net assets.
Fund
Morgan Stanley Dean Witter Market 0.075% of the daily net assets.
Leader Trust
Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not exceeding
Mid-Cap Growth Fund $500 million; and 0.0725% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter Natural 0.0625% of the portion of the daily net assets not exceeding
Resource Development Securities $250 million and 0.050% of the portion of the daily net assets
Inc. exceeding $250 million.
Morgan Stanley Dean Witter Pacific 0.060% of the portion of the daily net assets not exceeding $1
Growth Fund Inc. billion; 0.057% of the portion of the daily net assets exceeding
$1 billion but not exceeding $2 billion; and 0.054% of the
portion of the daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter 0.080% of the daily net assets.
Precious Metals and Minerals Trust
Dean Witter Retirement Series-
American Value Series 0.085% of the daily net assets.
Capital Growth Series 0.085% of the daily net assets.
Dividend Growth Series 0.075% of the daily net assets.
Global Equity Series 0.10% of the daily net assets.
Strategist Series 0.085% of the daily net assets.
Utilities Series 0.075% of the daily net assets.
Value Added Market Series 0.050% of the daily net assets.
</TABLE>
B-5
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Select
Dimensions Investment Series--
American Value Portfolio 0.0625% of the daily net assets.
Balanced Growth Portfolio 0.065% of the daily net assets.
Developing Growth Portfolio 0.050% of the daily net assets.
Diversified Income Portfolio 0.040% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding
$500 million; and 0.050% of the portion of the daily net assets
exceeding $500 million.
Emerging Markets Portfolio 0.075% of the daily net assets.
Global Equity Portfolio 0.10% of the daily net assets.
Growth Portfolio 0.048% of the daily net assets.
Mid-Cap Growth Portfolio 0.075% of the daily net assets
Utilities Portfolio 0.065% of the daily net assets.
Value-Added Market Portfolio 0.050% of the daily net assets.
Morgan Stanley Dean Witter Special 0.075% of the daily net assets.
Value Fund
Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not exceeding
Strategist Fund $500 million; 0.055% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.050% of
the portion of the daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.0475% of the portion of the daily net
assets exceeding $1.5 billion but not exceeding $2.0 billion; and
0.045% of the portion of the daily net assets exceeding $2.0
billion.
Morgan Stanley Dean Witter 0.040% of the daily net assets.
S&P 500 Index Fund
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not exceeding
Utilities Fund $500 million; 0.055% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.0525% of
the portion of the daily net assets exceeding $1 billion but not
exceeding $1.5 billion; 0.050% of the portion of the daily net
assets exceeding $1.5 billion but not exceeding $2.5 billion;
0.0475% of the portion of the daily net assets exceeding $2.5
billion but not exceeding $3.5 billion; 0.045% of the portion of
the daily net assets exceeding $3.5 but not exceeding $5 billion;
and 0.0425% of the daily net assets exceeding $5 billion.
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Value-Added Market Series $500 million; 0.45% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.0425% of
the portion of the daily net assets exceeding $1.0 billion but
not exceeding $2.0 billion; and 0.040% of the portion of the
daily net assets exceeding $2 billion.
Morgan Stanley Dean Witter
Variable Investment Series-
Capital Appreciation Portfolio 0.075% of the daily net assets.
Capital Growth Portfolio 0.065% of the daily net assets.
Competitive Edge "Best Ideas" 0.065% of the daily net assets.
Portfolio
</TABLE>
B-6
<PAGE>
<TABLE>
<S> <C>
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not exceeding
$500 million; and 0.050% of the portion of the daily net assets
exceeding $500 million but not exceeding $1 billion; 0.0475% of
the portion of the daily net assets exceeding $1.0 billion but
not exceeding $2.0 billion; and 0.045% of the portion of the
daily net assets exceeding $2 billion.
Equity Portfolio 0.050% of the net assets of the portion of the daily net assets
not exceeding $1 billion; and 0.0475% of the portion of the
daily net assets exceeding $1 billion.
European Growth Portfolio 0.060% of the portion of the daily net assets not exceeding
$500 million; and 0.057% of the portion of the daily net assets
exceeding $500 million.
Income Builder Portfolio 0.075% of the daily net assets.
S&P 500 Index Portfolio 0.040% of the daily net assets.
Strategist Portfolio 0.050% of the daily net assets.
Utilities Portfolio 0.065% of the portion of the daily net assets not exceeding
$500 million and 0.055% of the portion of the daily net assets
exceeding $500 million.
Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not exceeding $1.5
Competitive Edge Fund, "BEST billion; and 0.0625% of the portion of the daily net assets
IDEAS" Portfolio exceeding $1.5 billion.
Morgan Stanley Dean Witter 0.051% of the daily net assets.
Equity Fund
Morgan Stanley Dean Witter 0.048% of the portion of daily net assets not exceeding $750
Growth Fund million; 0.045% of the portion of daily net assets exceeding
$750 million but not exceeding $1.5 billion; and 0.042% of the
portion of daily net assets exceeding $1.5 billion.
Morgan Stanley Dean Witter 0.075 of the daily net assets.
Mid-Cap Dividend Growth Fund
MONEY MARKET FUNDS
- ------------------
Active Assets Trusts: 0.050% of the portion of the daily net assets not exceeding
(1) Active Assets Money Trust $500 million; 0.0425% of the portion of the daily net assets
(2) Active Assets Tax-Free Trust exceeding $500 million but not exceeding $750 million; 0.0375%
(3) Active Assets California of the portion of the daily net assets exceeding $750 million
Tax-Free Trust but not exceeding $1 billion; 0.035% of the portion of the daily
(4) Active Assets Government net assets exceeding $1 billion but not exceeding $1.5 billion;
Securities Trust 0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
</TABLE>
B-7
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
California Tax-Free Daily $500 million; 0.0425% of the portion of the daily net assets
Income Trust exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter Liquid 0.050% of the portion of the daily net assets not exceeding
Asset Fund Inc. $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.35 billion;
0.0325% of the portion of the daily net assets exceeding $1.35
billion but not exceeding $1.75 billion; 0.030% of the portion of
the daily net assets exceeding $1.75 billion but not exceeding
$2.15 billion; 0.0275% of the portion of the daily net assets
exceeding $2.15 billion but not exceeding $2.5 billion; 0.025% of
the portion of the daily net assets exceeding $2.5 billion but
not exceeding $15 billion; 0.0249% of the portion of the daily
net assets exceeding $15 billion but not exceeding $17.5 billion;
and 0.0248% of the portion of the daily net assets exceeding
$17.5 billion.
Morgan Stanley Dean Witter New 0.050% of the portion of the daily net assets not exceeding
York Municipal Money $500 million; 0.0425% of the portion of the daily net assets
Market Trust exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Dean Witter Retirement Series-
Liquid Asset Series 0.050% of the daily net assets.
U.S. Government Money 0.050% of the daily net assets.
Market Series
Morgan Stanley Dean Witter Select
Dimensions Investment Series-
Money Market Portfolio 0.050% of the daily net assets.
</TABLE>
B-8
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not exceeding
Tax-Free Daily Income Trust $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter U.S. 0.050% of the portion of the daily net assets not exceeding
Government Money Market Trust $500 million; 0.0425% of the portion of the daily net assets
exceeding $500 million but not exceeding $750 million; 0.0375%
of the portion of the daily net assets exceeding $750 million
but not exceeding $1 billion; 0.035% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding $1.5
billion but not exceeding $2 billion; 0.030% of the portion of
the daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.0275% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3 billion; and 0.025% of the
portion of the daily net assets exceeding $3 billion.
Morgan Stanley Dean Witter 0.050% of the daily net assets.
Variable Investment Series-
Money Market Portfolio
</TABLE>
Monthly compensation calculated weekly by applying the following annual
rates to a fund's weekly net assets:
CLOSED-END FUNDS
<TABLE>
<S> <C>
Dean Witter Government 0.060% of the average weekly net assets.
IncomeTrust
High Income Advantage Trust 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750 million;
0.040% of the portion of average weekly net assets exceeding
$750 million and not exceeding $1 billion; and 0.030% of the
portion of average weekly net assets exceeding $1 billion.
High Income Advantage Trust II 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750 million;
0.040% of the portion of average weekly net assets exceeding
$750 million and not exceeding $1 billion; and 0.030% of the
portion of average weekly net assets exceeding $1 billion.
</TABLE>
B-9
<PAGE>
<TABLE>
<S> <C>
High Income Advantage Trust III 0.075% of the portion of the average weekly net assets not
exceeding $250 million; 0.060% of the portion of average
weekly net assets exceeding $250 million and not exceeding
$500 million; 0.050% of the portion of average weekly net
assets exceeding $500 million and not exceeding $750 million;
0.040% of the portion of the average weekly net assets
exceeding $750 million and not exceeding $1 billion; and
0.030% of the portion of average weekly net assets exceeding
$1 billion.
InterCapital Income Securities Inc. 0.050% of the average weekly net assets.
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Bond Trust
InterCapital Insured Municipal Trust 0.035% of the average weekly net assets.
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Income Trust
InterCapital California Insured 0.035% of the average weekly net assets.
Municipal Income Trust
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Investment Trust
InterCapital New York Quality 0.035% of the average weekly net assets.
Municipal Securities
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Income Trust
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Securities
InterCapital California Quality 0.035% of the average weekly net assets.
Municipal Securities
InterCapital Insured Municipal 0.035% of the average weekly net assets.
Securities
InterCapital Insured California 0.035% of the average weekly net assets.
Municipal Securities
</TABLE>
B-10
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 5 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
June 9, 1998, relating to the financial statements and financial highlights of
Dean Witter Short-Term Bond Fund, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Financial Highlights" in
such Prospectus and to the references to us under the headings "Independent
Accountants" and "Experts" in such Statement of Additional Information and to
the reference to us under the heading "Financial Highlights" in such
Prospectus.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
June 29, 1998
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
WITH FEE WAIVER
APRIL 30, 1998
6
YIELD = 2 { [ ((a-b) /cd) +1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = The maximum offering price per share on the last
day of the period
6
YIELD = 2 { [ ((490,006.62 - 0) /10,102,893.229 X 9.49) +1] -1}
= 6.21%
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
WITHOUT FEE WAIVER
APRIL 30, 1998
6
YIELD = 2 { [ ((a-b) /cd) +1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = The maximum offering price per share on the last
day of the period
6
YIELD = 2 { [ ((490006.62-98188.53) / 10,102,893.229 x 9.49) +1] -1}
= 4.95%
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DEAN WITTER SHORT-TERM BOND FUND
(A) AVERAGE ANNUAL TOTAL RETURNS (NO LOAD FUND)
(B) TOTAL RETURN (NO LOAD FUND)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN
<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED -P 30-Apr-98 RETURN - TR YEARS - n COMPOUND RETURN - t
- ----------- ----------- ----------- ---------- -------------------
<S> <C> <C> <C> <C>
30-Apr-97 $1,070.20 7.02% 1.00 7.02%
10-Jan-94 $1,248.40 24.84% 4.3012 5.29%
</TABLE>
(C) AVERAGE ANNUAL TOTAL RETURNS (STANDARIZED COMPUTATIONS) WITHOUT WAIVER OF
FEES AND ASSUMPTION OF EXPENSES.
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EVb |
tb = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
tb = AVERAGE ANNUAL COMPOUND RETURN
(DEDUCTION FOR EXPENSES ASSUMED BY FUND MANAGER)
n = NUMBER OF YEARS
EVb = ENDING VALUE (DEDUCTION FOR EXPENSES
ASSUMED BY FUND MANAGER)
P = INITIAL INVESTMENT
<TABLE>
<CAPTION>
(C)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL
INVESTED - P 30-Apr-98 YEARS - n COMPOUND RETURN - t
- ------------ ----------- --------- -------------------
<S> <C> <C> <C>
30-Apr-97 $1,063.40 1.00 6.34%
10-Jan-94 $1,224.70 4.3012 4.83%
</TABLE>
(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000
FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
$10,000 TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT- G $50,000 INVESTMENT- G $100,000 INVESTMENT- G
- ------------ ----------- --------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
10-Jan-94 24.84 $12,484 $62,420 $124,840
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000913534
<NAME> DEAN WITTER SHORT TERM BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 105,169,097
<INVESTMENTS-AT-VALUE> 104,900,658
<RECEIVABLES> 7,376,226
<ASSETS-OTHER> 137,689
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 112,414,573
<PAYABLE-FOR-SECURITIES> 4,043,859
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 671,480
<TOTAL-LIABILITIES> 4,715,339
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 109,548,970
<SHARES-COMMON-STOCK> 11,346,474
<SHARES-COMMON-PRIOR> 4,449,499
<ACCUMULATED-NII-CURRENT> 78
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,581,375)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (268,439)
<NET-ASSETS> 107,699,234
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,134,905
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 4,134,905
<REALIZED-GAINS-CURRENT> (421,092)
<APPREC-INCREASE-CURRENT> 353,108
<NET-CHANGE-FROM-OPS> 4,066,921
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,191,003)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,691,994
<NUMBER-OF-SHARES-REDEEMED> (9,118,681)
<SHARES-REINVESTED> 323,662
<NET-CHANGE-IN-ASSETS> 65,447,155
<ACCUMULATED-NII-PRIOR> 56,176
<ACCUMULATED-GAINS-PRIOR> (1,160,283)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 443,693
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 697,698
<AVERAGE-NET-ASSETS> 63,384,710
<PER-SHARE-NAV-BEGIN> 9.50
<PER-SHARE-NII> .65
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.66)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.49
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that WAYNE E. HEDIEN, whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald Feiman and
Stuart Strauss, or any 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 ANY OF THE
DEAN WITTER FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, 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 any of them, may lawfully do or cause to be
done by virtue hereof.
Dated: September 1, 1997
/s/ WAYNE E. HEDIEN
--------------------------------------
Wayne E. Hedien
<PAGE>
SCHEDULE A
<TABLE>
<C> <S>
1. Active Assets Money Trust
2. Active Assets Tax-Free Trust
3. Active Assets Government Securities Trust
4. Active Assets California Tax-Free Trust
5. Dean Witter New York Municipal Money Market Trust
6. Dean Witter American Value Fund
7. Dean Witter Tax-Exempt Securities Trust
8. Dean Witter Tax-Free Daily Income Trust
9. Dean Witter Capital Growth Securities
10. Dean Witter U.S. Government Money Market Trust
11. Dean Witter Precious Metals and Minerals Trust
12. Dean Witter Developing Growth Securities Trust
13. Dean Witter World Wide Investment Trust
14. Dean Witter Value-Added Market Series
15. Dean Witter Utilities Fund
16. Dean Witter Strategist Fund
17. Dean Witter California Tax-Free Daily Income Trust
18. Dean Witter Convertible Securities Trust
19. Dean Witter Intermediate Income Securities
20. Dean Witter World Wide Income Trust
21. Dean Witter S&P 500 Index Fund
22. Dean Witter U.S. Government Securities Trust
23. Dean Witter Federal Securities Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter California Tax-Free Income Fund
26. Dean Witter New York Tax-Free Income Fund
27. Dean Witter Select Municipal Reinvestment Fund
28. Dean Witter Variable Investment Series
29. High Income Advantage Trust
30. High Income Advantage Trust II
31. High Income Advantage Trust III
32. InterCapital Insured Municipal Bond Trust
33. InterCapital Insured Municipal Trust
34. InterCapital Insured Municipal Income Trust
35. InterCapital Quality Municipal Investment Trust
36. InterCapital Quality Municipal Income Trust
37. Dean Witter Government Income Trust
38. Municipal Income Trust
39. Municipal Income Trust II
40. Municipal Income Trust III
41. Municipal Income Opportunities Trust
42. Municipal Income Opportunities Trust II
43. Municipal Income Opportunities Trust III
44. Municipal Premium Income Trust
45. Prime Income Trust
46. Dean Witter Short-Term U.S. Treasury Trust
47. Dean Witter Diversified Income Trust
48. InterCapital California Insured Municipal Income Trust
49. Dean Witter Health Sciences Trust
50. Dean Witter Global Dividend Growth Securities
51. InterCapital Quality Municipal Securities
</TABLE>
<PAGE>
<TABLE>
<C> <S>
52. InterCapital California Quality Municipal Securities
53. InterCapital New York Quality Municipal Securities
54. Dean Witter Retirement Series
55. Dean Witter Limited Term Municipal Trust
56. Dean Witter Short-Term Bond Fund
57. Dean Witter Global Utilities Fund
58. InterCapital Insured Municipal Securities
59. InterCapital Insured California Municipal Securities
60. Dean Witter High Income Securities
61. Dean Witter National Municipal Trust
62. Dean Witter International SmallCap Fund
63. Dean Witter Mid-Cap Growth Fund
64. Dean Witter Select Dimensions Investment Series
65. Dean Witter Global Asset Allocation Fund
66. Dean Witter Balanced Growth Fund
67. Dean Witter Balanced Income Fund
68. Dean Witter Intermediate Term U.S. Treasury Trust
69. Dean Witter Hawaii Municipal Trust
70. Dean Witter Japan Fund
71. Dean Witter Capital Appreciation Fund
72. Dean Witter Information Fund
73. Dean Witter Fund of Funds
74. Dean Witter Special Value Fund
75. Dean Witter Income Builder Fund
76. Dean Witter Financial Services Trust
77. Dean Witter Market Leader Trust
78. Dean Witter Managers' Select Fund
79. Dean Witter Liquid Asset Fund Inc.
80. Dean Witter Natural Resource Development Securities Inc.
81. Dean Witter Dividend Growth Securities Inc.
82. Dean Witter European Growth Fund Inc.
83. Dean Witter Pacific Growth Fund Inc.
84. Dean Witter High Yield Securities Inc.
85. Dean Witter Global Short-Term Income Fund Inc.
86. InterCapital Income Securities Inc.
</TABLE>