AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1996
REGISTRATION NO.: 33-53015
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. [ ]
POST-EFFECTIVE AMENDMENT NO. 3 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
AMENDMENT NO. 4 [X]
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DEAN WITTER NATIONAL MUNICIPAL TRUST
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[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.
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO SECTION (a)(1) OF RULE 24f-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT FILED THE RULE 24f-2 NOTICE FOR
ITS FISCAL YEAR ENDING SEPTEMBER 30, 1996 WITH THE SECURITIES AND EXCHANGE
COMMISSION ON NOVEMBER 7, 1996.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
CROSS-REFERENCE SHEET
FORM N-1A
ITEM CAPTION
- ---- -------
PART A PROSPECTUS
- ------ ----------
1. .............. Cover Page
2. .............. Prospectus Summary; Summary of Fund Expenses
3. .............. Financial Highlights; Performance Information Investment
Objective and Policies; The Fund and its Management; Cover
Page; Investment Restrictions;
4. .............. Prospectus Summary; Financial Highlights The Fund and Its
Management; Back Cover; Investment
5. .............. Objective and Policies Dividends, Distributions and Taxes;
Additional
6. .............. Information
7. .............. Purchase of Fund Shares; Shareholder Services
8. .............. Redemptions and Repurchases; Shareholder Services
9. .............. Not Applicable
PART B STATEMENT OF ADDITIONAL INFORMATION
- ------ -----------------------------------
10. ............. Cover Page
11. ............. Table of Contents
12. ............. The Fund and Its Management Investment Practices and
Policies; Investment
13. ............. Restrictions; Portfolio Transactions and Brokerage
14. ............. The Fund and Its Management; Trustees and Officers
15. ............. Trustees and Officers The Fund and Its Management; The
Distributor; Shareholder Services; Custodian and Transfer
Agent;
16. ............. Independent Accountants
17. ............. Portfolio Transactions and Brokerage
18. ............. Description of Shares The Distributor; Redemptions and
Repurchases;
19. ............. Shareholder Services
20. ............. Dividends, Distributions and Taxes
21. ............. Purchase of Fund Shares
22. ............. Dividends, Distributions and Taxes
23. ............. Performance Information
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
NOVEMBER 26, 1996
Dean Witter National Municipal Trust (the "Fund") is an open-end
diversified management investment company whose investment objective is to
provide a high level of current income exempt from federal income tax,
consistent with the preservation of capital. The Fund invests principally in
tax-exempt fixed-income securities which are rated in the three highest
categories by Moody's Investors Service, Inc. or Standard & Poor's Corporation.
(See "Investment Objective and Policies.")
Shares of the Fund are continuously offered at net asset value.
However, redemptions and/or repurchases are subject in most cases to a
contingent deferred sales charge, scaled down from 3% to 1% of the amount
redeemed, if made within three years of purchase, which charge will be paid to
the Fund's Distributor, Dean Witter Distributors Inc. See "Redemptions and
Repurchases--Contingent Deferred Sales Charge." In addition, the Fund pays the
Distributor a distribution fee pursuant to a Plan of Distribution at the annual
rate of 0.60% of the lesser of the (i) average daily aggregate net sales or
(ii) average daily net assets of the Fund. See "Purchase of Fund Shares--Plan
of Distribution."
This Prospectus sets forth concisely the information you should know
before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated November 26, 1996, which has been filed with
the Securities and Exchange Commission, and which is available at no charge
upon request of the Fund at the address or telephone numbers listed below. The
Statement of Additional Information is incorporated herein by reference.
Dean Witter
National Municipal Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll free)
TABLE OF CONTENTS
Prospectus Summary/ 2
Summary of Fund Expenses/ 3
Financial Highlights/ 4
The Fund and its Management/ 5
Investment Objective and Policies/ 5
Risk Considerations and Investment Practices/ 8
Investment Restrictions/ 10
Purchase of Fund Shares/ 11
Shareholder Services/ 14
Redemptions and Repurchases/ 16
Dividends, Distributions and Taxes/ 18
Performance Information/ 20
Additional Information/ 20
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
<PAGE>
PROSPECTUS SUMMARY
- -------------------------------------------------------------------------------
The The Fund is organized as a Trust, commonly known as a
Fund Massachusetts business trust, and is an open-end diversified
management investment company investing principally in
investment grade, tax-exempt fixed-income securities (see
page 5).
- -------------------------------------------------------------------------------
Shares Offered Shares of beneficial interest with $0.01 par value (see
page 20).
- -------------------------------------------------------------------------------
Offering Price At net asset value (see page 11). Shares redeemed within
three years of purchase are subject to a contingent deferred
sales charge under most circumstances (see pages 16-18).
- -------------------------------------------------------------------------------
Minimum Minimum initial purchase is $1,000 ($100 if the account was
Purchase opened through EasyInvest (Service Mark)); minimum
subsequent purchase is $100 (see page 11).
- -------------------------------------------------------------------------------
Investment The investment objective of the Fund is to provide a high
Objective level of current income exempt from federal income tax,
consistent with the preservation of capital (see page 5).
- -------------------------------------------------------------------------------
Investment Dean Witter InterCapital Inc. ("InterCapital"), the
Manager Investment Manager of the Fund, and its wholly-owned
subsidiary, Dean Witter Services Company Inc., serve in
various investment management, advisory, management and
administrative capacities to 100 investment companies and
other portfolios with assets of approximately $88 billion at
October 31, 1996 (see page 5).
- -------------------------------------------------------------------------------
Management Fee The monthly fee is at an annual rate of 0.35% of average
daily net assets (see page 5).
- -------------------------------------------------------------------------------
Dividends and Income dividends are declared daily and paid monthly;
Capital Gains capital gains, if any, may be distributed annually or
Distributions retained for reinvestment by the Fund. Dividends and
distributions are automatically reinvested in additional
shares at net asset value (without sales charge), unless the
shareholder elects to receive cash (see page 18).
- -------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. (the "Distributor"). For its
services as Distributor, which include payment of sales
commissions to account executives and various other
promotional and sales related expenses, the Distributor
receives from the Fund a distribution fee accrued daily and
payable monthly at the rate of 0.60% per annum of the lesser
of (i) the Fund's average daily aggregate net sales or (ii)
the Fund's average daily net assets. This fee compensates
the Distributor for the services it provides in distributing
shares of the Fund and for its sales related expenses. The
Distributor also receives the proceeds of any contingent
deferred sales charges (see pages 11-13).
- -------------------------------------------------------------------------------
Redemption-- At net asset value; redeemable involuntarily if total value
Contingent of the account is less than $100 or, if the account was
Deferred opened through EasyInvest (Service Mark), if after twelve
Sales months the shareholder has invested less than $1,000 in the
Charge account. Although no commission or sales load is imposed
upon the purchase of shares, a contingent deferred sales
charge (scaled down from 3% to 1%) is imposed on any
redemption of shares if after such redemption the aggregate
current value of an account with the Fund is less than the
aggregate amount of the investor's purchase payments made
during the three years preceding the redemption. However,
there is no charge imposed on redemption of shares purchased
through reinvestment of dividends or distributions (see
pages 16-18).
- -------------------------------------------------------------------------------
Risks The value of the Fund's portfolio securities, and therefore
the Fund's net asset value per share, may increase or
decrease due to various factors, principally changes in
prevailing interest rates and the ability of the issuers of
the Fund's portfolio securities to pay interest and
principal on such obligations. The Fund may purchase
when-issued and delayed delivery securities (see pages 8-9).
The Fund may invest in lease obligations and variable rate
obligations which may entail additional risks (see pages
7-8). The Fund may also invest in futures and options, which
may be considered speculative in nature and which may
involve greater risks than those customarily assumed by
certain other investment companies which do not invest in
such instruments (see pages 8-9).
- -------------------------------------------------------------------------------
The above is qualified in its entirety by the detailed information appearing
elsewhere in the Prospectus and in the Statement of Additional Information.
2
<PAGE>
SUMMARY OF FUND EXPENSES
- -------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth are for the fiscal year
ended September 30, 1996.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
- --------------------------------
<S> <C>
Maximum Sales Charge Imposed on Purchases ............................................ None
Maximum Sales Charge Imposed on Reinvested Dividends ................................. None
Contingent Deferred Sales Charge ..................................................... None
(as a percentage of the lesser of original purchase price or redemption proceeds) .. 3.0%
</TABLE>
A contingent deferred sales charge is imposed at the following declining
rates:
Year Since Purchase Payment Made Percentage
-------------------------------- ----------
First .............................. 3.0%
Second ............................. 2.0%
Third .............................. 1.0%
Fourth and thereafter .............. None
<TABLE>
<CAPTION>
<S> <C>
Redemption Fees .......................................................... None
Exchange Fee ............................................................. None
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
Management Fee (after fee waiver)* ...................................... 0.27%
12b-1 Fees** ............................................................. 0.59%
Other Expenses* .......................................................... 0.25%
---------
Total Fund Operating Expenses* ........................................... 1.11%
=========
</TABLE>
- --------------
"Management Fee" and "Other Expenses" have been restated to reflect current
fees and expenses.
* Pursuant to an undertaking, the Investment Manager assumed all expenses
(except for any brokerage and 12b-1 fees) and waived the compensation provided
for in its Management Agreement until December 31, 1995. The Investment Manager
has undertaken from January 1, 1996 through June 30, 1997, to continue to waive
management fees and to continue to assume expenses (except for brokerage and
12b-1 fees) to the extent such fees and expenses exceed, on an annualized
basis, 0.50% of the daily net assets of the Fund. Without the waiver of fees
and assumption of expenses, Management Fees would have been 0.35% and Other
Expenses would have been 0.25%.
** The 12b-1 fee is accrued daily and payable monthly, at an annual rate of
0.60% of the lesser of: (a) the average daily aggregate gross sales of the
Fund's shares since the inception of the Fund (not including reinvestments of
dividends or distributions), less the average daily aggregate net asset value
of the Fund's shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or waived, or (b) the Fund's
average daily net assets. A portion of the 12b-1 fee equal to 0.15% of the
Fund's average daily net assets is characterized as a service fee within the
meaning of National Association of Securities Dealers, Inc. ("NASD") guidelines
(see "Purchase of Fund Shares").
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- -------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period .............. $41 $45 $61 $136
You would pay the following expenses on the investment, assuming no redemption . $11 $35 $61 $136
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equiv alent of the maximum front-end sales
charges permitted by the NASD.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, notes thereto and the unqualified report of the
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
June 2, 1994*
For the year ended For the year ended through
September 30, 1996 September 30, 1995 September 30, 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $10.39 $ 9.87 $10.00
------------------ ------------------ ------------------
Net investment income ....................... 0.50 0.50 0.09
Net realized and unrealized gain (loss) .... 0.11 0.52 (0.13)
------------------ ------------------ ------------------
Total from investment operations ............ 0.61 1.02 (0.04)
Less dividends from net investment income .. (0.50) (0.50) (0.09)
------------------ ------------------ ------------------
Net asset value, end of period .............. $10.50 $10.39 $ 9.87
================== ================== ==================
TOTAL INVESTMENT RETURN+ .................... 5.94% 10.54% (0.46)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................... 0.97%(5) 0.60%(4) 0.60 %(2)(3)
Net investment income ....................... 4.72%(5) 4.93%(4) 3.07 %(2)(3)
SUPPLEMENTAL DATA:
Net asset value, end of period, in thousands $81,616 $64,276 $29,860
Portfolio turnover rate ..................... 13% 2% -- ++%
</TABLE>
- --------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on
the net asset value as of the last business day of the period.
++ Less than 0.5%.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 2.08% and 1.59%, respectively.
(4) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 1.34% (which includes 0.01% gross up for
custody cash credits) and 4.20%, respectively.
(5) If the Fund had borne all expenses that were reimbursed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 1.19% (which includes 0.01% gross up for
custody cash credits) and 4.50%, respectively.
4
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter National Municipal Trust (the "Fund") is an open-end diversified
management investment company. The Fund is a trust of the type commonly known
as a "Massachusetts business trust" and was organized under the laws of the
Commonwealth of Massachusetts on March 29, 1994.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the
Fund's Investment Manager. The Investment Manager, which was incorporated in
July, 1992, is a wholly-owned subsidiary of Dean Witter, Discover & Co.
("DWDC"), a balanced financial services organization providing a broad range of
nationally marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to a total of 100 investment companies, thirty of
which are listed on the New York Stock Exchange, with combined total net assets
of approximately $85.1 billion as of October 31, 1996. The Investment Manager
also manages portfolios of pension plans, other institutions and individuals
which aggregated approximately $2.9 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund. The Fund's
Trustees review the various services provided by or under the direction of the
Investment Manager to ensure that the Fund's general investment policies and
programs are being properly carried out and that administrative services are
being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily at the annual rate
of 0.35% of the daily net assets of the Fund.
Pursuant to an undertaking, the Investment Manager assumed all expenses
(except for brokerage and 12b-1 fees) and waived the compensation provided for
in its Investment Management Agreement until December 31, 1995. The Investment
Manager has undertaken from January 1, 1996 through June 30, 1997, to continue
to waive management fees and to continue to assume expenses (except for
brokerage and 12b-1 fees) to the extent they exceed, on an annualized basis,
0.50% of the daily net assets of the Fund. For the fiscal year ended September
30, 1996, the Fund accrued total compensation to the Investment Manager of
0.20% of the Fund's average daily net assets and the Fund's total expenses
amounted to an annual rate of 0.97% of the Fund's average daily net assets
after any waivers.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is to provide a high level of current
income which is exempt from federal income tax, consistent with the
preservation of capital. There is no assurance that this objective will be
achieved. This objective is fundamental and may not be changed without
shareholder approval. The Fund seeks to achieve its investment objective by
investing its assets in accordance with the following policies:
1. At least 75% of the Fund's total assets will be invested in: (a)
Municipal Bonds which are rated at the time of purchase within the
5
<PAGE>
three highest grades by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"); (b) Municipal Notes which at the
time of purchase are rated in the two highest grades by Moody's or S&P or,
if not rated, have outstanding one or more issues of Municipal Bonds rated
as set forth in clause (a) of this paragraph; and (c) Municipal Commercial
Paper which at the time of purchase are rated P-1 by Moody's and A-1 by
S&P.
2. The Fund may invest up to 25% of its total assets in Municipal
Obligations which are unrated or, if rated, are not within the three highest
Bond rating categories of Moody's or S&P or the two highest Note rating
categories of Moody's or S&P. The Fund does not intend to invest in
Municipal Bonds which are rated below either Baa by Moody's or BBB by S&P
(the lowest ratings considered investment grade) or, if not rated, are
deemed by the Investment Manager to be below investment grade, in amounts
exceeding 5% of its net assets.
Investments in Municipal Bonds rated either Baa by Moody's or BBB by
S&P 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. Municipal Bonds rated
below investment grade may not currently be paying any interest and may have
extremely poor prospects of ever attaining any real investment standing. Any
subsequent change in any rating of any security below investment grade which
causes the Fund to be invested in such securities in an amount exceeding 5%
of its net assets will result in the elimination of that security from the
Fund's portfolio as soon as practicable without adverse market or tax
consequences to the Fund.
3. Certain Municipal Obligations in which the Fund may invest without
limit may subject certain investors to the alternative minimum tax and,
therefore, a substantial portion of the income produced by the Fund may be
taxable for such investors under the alternative minimum tax. The Fund,
therefore, may not ordinarily be a suitable investment for investors who are
subject to the alternative minimum tax. The suitability of the Fund for
these investors will depend upon a comparison of the after-tax yield likely
to be provided from the Fund to comparable tax-exempt investments not
subject to such tax and also to comparable fully taxable investments in
light of each such investor's tax position. See "Dividends, Distributions
and Taxes."
4. Up to 25% of the Fund's total assets may be invested in taxable
money market instruments under any one or more of the following
circumstances: (a) pending investment of proceeds of sale of Fund shares or
of portfolio securities; (b) pending settlement of purchases of portfolio
securities; and (c) to maintain liquidity for the purpose of meeting
anticipated redemptions. In addition, the Fund may temporarily invest more
than 25% of its total assets in taxable securities to maintain a "defensive"
posture when, in the opinion of the Investment Manager, it is advisable to
do so because of market conditions. The types of taxable securities in which
the Fund may temporarily invest are limited to the following short-term
fixed-income securities (maturing in one year or less from the time of
purchase): (i) obligations of the United States Government, its agencies,
instrumentalities or authorities (including zero coupon securities); (ii)
commercial paper rated P-1 by Moody's or A-1 by S&P; (iii) certificates of
deposit of domestic banks with assets of $1 billion or more; and (iv)
repurchase agreements with respect to any of the foregoing portfolio
securities.
The average dollar weighted maturity of the Fund's portfolio under normal
circumstances is expected to be in excess of 20 years, but the average
maturity, as well as the emphasis on longer-term obligations, may vary
depending upon market conditions.
Municipal Obligations are debt obligations of states, cities, municipalities
and municipal agencies
6
<PAGE>
which generally have maturities, at the time of their issuance, of either one
year or more (Bonds) or from six months to three years (Notes). Municipal
Commercial Paper refers to short-term obligations of municipalities. Any
Municipal Obligation which depends directly or indirectly on the credit of the
Federal Government shall be considered to have a rating of Aaa/AAA. The Fund
may also purchase Municipal Obligations which had originally been issued by the
same issuer as two separate series of the same issue with different interest
rates, but which are now linked together to form one series.
The two principal classifications of Municipal Obligations and Commercial
Paper are "general obligation" and "revenue" obligations or commercial paper.
General obligation bonds, notes or commercial paper are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Issuers of general obligation bonds, notes or commercial paper
include a state, its counties, cities, towns and other government units.
Revenue bonds, notes or commercial paper are payable from the revenues derived
from a particular facility or class of facilities or, in some cases, from
specific revenue sources. Revenue bonds, notes or commercial paper are issued
for a wide variety of purposes, including the financing of electric, gas, water
and sewer systems and other public utilities; industrial development and
pollution control facilities; single and multi-family housing units; public
buildings and facilities; air and marine ports; transportation facilities such
as toll roads, bridges and tunnels; and health and educational facilities such
as hospitals and dormitories. They rely primarily on user fees to pay debt
service, although the principal revenue source is often supplemented by
additional security features which are intended to enhance the creditworthiness
of the issuer's obligations. In some cases, particularly revenue bonds issued
to finance housing and public buildings, a direct or implied "moral obligation"
of a governmental unit may be pledged to the payment of debt service. In other
cases, a special tax or other charge may augment user fees.
Included within the revenue category are participations in lease obligations
or installment purchase contracts (hereinafter collectively called "lease
obligations") of municipalities. State and local governments issue lease
obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer) have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain "non-appropriation" clauses
that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on an annual or other periodic
basis. Consequently, continued lease payments on those lease obligations
containing "non-appropriation" clauses are dependent on future legislative
actions. If such legislative actions do not occur, the holders of the lease
obligation may experience difficulty in exercising their rights, including
disposition of the property.
Lease obligations represent a relatively new type of financing that has not
yet developed the depth of marketability associated with more conventional
municipal obligations, and, as a result, certain of such lease obligations, may
be considered illiquid securities. To determine whether or not the Fund will
consider such securities to be illiquid (the Fund may not invest more than ten
percent of its net assets in illiquid securities), the Trustees of the Fund
have established guidelines to be utilized by the Fund in determining the
liquidity of a lease obligation. The factors to be considered in making the
determination include: (1) the frequency of trades and quoted prices for the
obligation; (2) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; (3) the willingness of dealers to
undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
7
<PAGE>
Variable Rate Obligations. The interest rates payable on certain Municipal
Bonds and Municipal Notes are not fixed and may fluctuate based upon changes in
market rates. Municipal obligations of this type are called "variable rate"
obligations. The interest rate payable on a variable rate obligation is
adjusted either at predesignated periodic intervals or whenever there is a
change in the market rate of interest on which the interest rate payable is
based.
The foregoing percentage and rating policies apply at the time of
acquisition of a security based on the last previous determination of the
Fund's net asset value. Any subsequent change in any rating by a rating service
or change in percentages resulting from market fluctuations or other changes in
the Fund's total assets will not require elimination of any security from the
Fund's portfolio until such time as the Investment Manager determines that it
is practicable to sell the security without undue market or tax consequences to
the Fund.
The ratings assigned by Moody's and S&P represent their opinions as to the
quality of the securities which they undertake to rate (see the Appendix to the
Statement of Additional Information). It should be emphasized, however, that
the ratings are general and not absolute standards of quality.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
The value of the Fund's portfolio securities and, therefore, the Fund's net
asset value per share may increase or decrease due to various factors,
principally changes in prevailing interest rates and the ability of the issuers
of the Fund's portfolio securities to pay interest and principal on such
obligations on a timely basis. Generally, a rise in interest rates will result
in a decrease in the Fund's net asset value per share, while a drop in interest
rates will result in an increase in the Fund's net asset value per share.
When-Issued and Delayed Delivery Securities. The Fund may purchase
tax-exempt securities on a when-issued or delayed delivery basis; i.e.,
delivery and payment can take place a month or more after the date of the
transaction. These securities are subject to market fluctuation and no interest
accrues to the purchaser prior to settlement. At the time the Fund makes the
commitment to purchase such securities, it will record the transaction and
thereafter reflect the value, each day, of such securities in determining its
net asset value. 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.
Zero Coupon Securities. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as income
each year even though the Fund receives no interest payments in cash on the
security during the year.
Futures Contracts and Options on Futures. The Fund may enter into financial
futures contracts ("futures contracts"), options on such futures and municipal
bond index futures contracts for hedging purposes. The Fund may sell a futures
contract or a call option thereon or purchase a put option on such
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futures contract, if the Investment Manager anticipates interest rates to rise,
as a hedge against a decrease in the value of the Fund's portfolio securities.
If the Investment Manager anticipates that interest rates will decline, the
Fund may purchase a futures contract or a call option thereon or sell a put
option on such futures contract, to protect against an increase in the price of
the securities the Fund intends to purchase. These futures contracts and
related options thereon will be used only as a hedge against anticipated
interest rate changes. A futures contract sale creates an obligation by the
Fund, as seller, to deliver the specific type of instrument called for in the
contract at a specified future time for a specified price. A futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of
the specific type of financial instrument at a specified future time at a
specified price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was effected.
Although the terms of futures contracts specify actual delivery or receipt
of securities, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the securities.
Closing out of a futures contract is effected by entering into an offsetting
purchase or sale transaction.
Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract (a long
position in the case of a call option and a short position in the case of a put
option). If the holder decides not to enter into the contract, the premium paid
for the option on the contract is lost. Since the value of the option is fixed
at the point of sale, there are not daily payments of cash to reflect the
change in the value of the underlying contract as there are by a purchaser or
seller of a futures contract. The value of the option does change and is
reflected in the net asset value of the Fund.
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities subject to
futures contracts may correlate imperfectly with the behavior of the cash
prices of the Fund's portfolio securities. The risk of imperfect correlation
may be increased by the fact that the Fund will invest in futures contracts on
taxable securities and there is no guarantee that the prices of taxable
securities will move in a similar manner to the prices of tax-exempt
securities. The correlation may be distorted by the fact that the futures
market is dominated by short-term traders seeking to profit from the difference
between a contract or security price objective and their cost of borrowed
funds. Such distortions are generally minor and would diminish as the contract
approached maturity.
Another risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements
or the time span within which the movements take place. For example, if the
Fund sold futures contracts for the sale of securities in anticipation of an
increase in interest rates, and then interest rates went down instead, causing
bond prices to rise, the Fund would lose money on the sale.
In addition to the risks that apply to all options transactions (see the
Statement of Additional Information for a description of the characteristics
of, and the risks of investing in, options on debt securities), there are
several special risks relating to options on futures; in particular, the
ability to establish and close out positions on options on futures will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop or be maintained.
Municipal Bond Index Futures. The Fund may utilize municipal bond index
futures contracts and options thereon for hedging purposes. The Fund's
strategies in employing such contracts will be similar to that discussed above
with respect to financial futures and options thereon. A municipal bond index
is a method of reflecting in a single number the market value of many different
municipal bonds and
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is designed to be representative of the municipal bond market generally. The
index fluctuates in response to changes in the market values of the bonds
included within the index. Unlike futures contracts on particular financial
instruments, transactions in futures on a municipal bond index will be settled
in cash, if held until the close of trading in the contract. However, like any
other futures contract, a position in the contract may be closed out by
purchase or sale of an offsetting contract for the same delivery month prior to
expiration of the contract.
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. The Fund may not purchase or sell
futures contracts or related options thereon if, immediately thereafter, more
than one-third of its net assets would be hedged.
For a discussion of the risks of certain types of Municipal Obligations,
such as lease obligations and residual interest bonds, see above in "Investment
Objectives and Policies."
PORTFOLIO MANAGEMENT
The Fund is actively managed by the Investment Manager with a view to
achieving the Fund's investment objective. In determining which securities to
purchase for the Fund or hold in the Fund's portfolio, the Investment Manager
will rely on information from various sources, including research, analysis and
appraisals of brokers and dealers, including Dean Witter Reynolds Inc. ("DWR"),
a broker-dealer affiliate of InterCapital, the views of Trustees of the Fund
and others regarding economic developments and interest rate trends, and the
Investment Manager's own analysis of factors it deems relevant. The Fund is
managed within InterCapital's Tax-Exempt Income Group, which manages 40
tax-exempt municipal funds and fund portfolios, with approximately $10.7
billion in assets as of October 31, 1996. James F. Willison, Senior Vice
President of InterCapital and Manager of InterCapital's Tax-Exempt Income
Group, is the primary portfolio manager of the Fund and has been managing
portfolios of municipal securities at InterCapital for over five years.
Securities are purchased and sold principally in response to the Investment
Manager's current evaluation of an issuer's ability to meet its debt
obligations in the future, and the Investment Manager's current assessment of
future changes in the levels of interest rates on tax-exempt securities of
varying maturities. Securities purchased by the Fund are, generally, sold by
dealers acting as principal for their own accounts. Pursuant to an order of the
Securities and Exchange Commission, the Fund may effect principal transactions
in certain money market instruments with DWR. In addition, the Fund may incur
brokerage commissions on transactions conducted through DWR.
The portfolio trading engaged in by the Fund may result in its portfolio
turnover rate exceeding 100%. The Fund will incur underwriting discount costs
(on underwritten securities) commensurate with its portfolio turnover rate.
Additionally, see "Dividends, Distributions and Taxes" for a discussion of the
tax policy of the Fund. A more extensive discussion of the Fund's portfolio
brokerage policies is set forth in the Statement of Additional Infor mation.
Except as specifically noted, all investment objectives, policies and
practices discussed above are not fundamental policies of the Fund and, as
such, may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the
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<PAGE>
"Act"), a fundamental policy may not be changed without the vote of a majority
of the outstanding voting securities of the Fund, as defined in the Act.
For purposes of the following restrictions: (a) an "issuer" of a security is
the entity whose assets and revenues are committed to the payment of interest
and principal on that particular security; (b) a "taxable security" is any
security the interest on which is subject to federal income tax; and (c) all
percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting
from market fluctuations or other changes in the Fund's total assets does not
require elimination of any security from the portfolio.
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 of any one issuer (other than obligations issued, or
guaranteed as to principal and interest, by the United States Government, its
agencies or instrumentalities).
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities (industrial development and pollution control bonds are
grouped into industries based upon the business in which the issuers of such
obligations are engaged).
4. Invest more than 5% of the value of its total assets in taxable
securities of issuers having a record, together with predecessors, of less than
three years of continuous operation. This restriction shall not apply to any
obligation of the United States Government, its agencies or instrumentalities.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers who have entered into agreements with the Distributor ("Selected
Broker-Dealers"). The principal executive office of the Distributor is located
at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Subsequent purchases of $100 or more
may be made by sending a check, payable to Dean Witter National Municipal
Trust, directly to Dean Witter Trust Company (the "Transfer Agent") at P.O. Box
1040, Jersey City, N.J. 07303 or by contacting an account executive of DWR or
other Selected Broker-Dealer. The minimum initial purchase in the case of
investments through EasyInvest (Service Mark), an automatic purchase plan (see
"Shareholder Services"), is $100, provided that the schedule of automatic
investments will result in investments totalling $1,000 within the first twelve
months. In the case of purchases made pursuant to systematic payroll deduction
plans, the Fund, in its discretion, may accept such purchases without regard to
any minimum amounts which would otherwise be required if the Fund has reason to
believe that additional purchases will increase the amount of the purchase of
shares 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 on a normal three
business day settlement basis; that is payment generally is due on or before
the third business day (settlement date) after the order is placed with the
Distributor. Shares purchased through the Distributor are entitled to dividends
beginning on the next business day following settlement date. Since the
Distributor forwards in-
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<PAGE>
vestors' funds on settlement date, it will benefit from the temporary use of
the funds if payment is made prior thereto. Shares purchased through the
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 capital gains distributions if their order is received by the close of
business on the day prior to the record date for such distributions. The
offering price will be the net asset value per share next determined following
receipt of an order (see "Determination of Net Asset Value" below). While no
sales charge is imposed at the time shares are purchased, a contingent deferred
sales charge may be imposed at the time of redemption (see "Redemptions and
Repurchases"). Sales personnel are compensated for selling shares of the Fund
at the time of their sale by the Distributor or any of its affiliates and/or
the Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive 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.
Analogous Dean Witter Funds. The Distributor and the Investment Manager
serve in the same capacities for Dean Witter Tax-Exempt Securities Trust, an
open-end investment company with investment objectives and policies similar to
those of the Fund. Unlike the Fund, however, shares of Dean Witter Tax-Exempt
Securities Trust are offered to the public with a sales charge imposed at the
time of purchase, rather than a contingent deferred sales charge assessed upon
redemptions within three years of purchase. These two Dean Witter Funds have
differing fees and expenses, which will affect performance. Investors who would
like to receive a prospectus for Dean Witter Tax-Exempt Securities Trust should
call the telephone numbers listed on the front cover of this Prospectus, or may
call their account executive for additional information.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan"), under which the Fund pays the Distributor a fee, which is
accrued daily and payable monthly, at an annual rate of 0.60% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Fund (not including reinvestments of dividends or capital
gains distributions), less the average daily aggregate net asset value of the
Fund's shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the Fund's average
daily net assets. This fee is treated by the Fund as an expense in the year it
is accrued. A portion of the fee payable pursuant to the Plan, equal to 0.15%
of the Fund's average daily net assets, is characterized as a service fee
within the meaning of NASD guidelines. The service fee is a payment made for
personal service and/or the maintenance of shareholder accounts.
Amounts paid under the Plan are paid to the Distributor to compensate it for
the services provided and the expenses borne by the Distributor and others in
the distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to and expenses of DWR
account executives and others who engage in or support distribution of shares,
including overhead and telephone expenses; printing and distribution of
prospectuses and reports used in connection with the offering of the Fund's
shares to other than current shareholders; and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan to compensate DWR and
other Selected Broker-Dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed distribution expenses.
For the fiscal year ended September 30, 1996, the Fund accrued payments
under the Plan amounting to $452,823 which amount is equal to 0.59% of the
Fund's average daily net assets for the fiscal year. The payments accrued under
the Plan were calculated pursuant to clause (a) of the compensation formula
under the Plan.
At any given time, the expenses in distributing shares of the Fund may be
in excess of the total of
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(i) the payments made by the Fund pursuant to the Plan, and (ii) the proceeds
of contingent deferred sales charges paid by investors upon the redemption of
shares (see "Redemptions and Repurchases -- Contingent Deferred Sales Charge").
For example, if $1 million in expenses in distributing shares of the Fund had
been incurred and $750,000 had been received as described in (i) and (ii)
above, the excess expense would amount to $250,000. The Distributor has advised
the Fund that such excess amounts, including the carrying charge described
above, totalled $2,185,656 at September 30, 1996 which was equal to 2.68% of
the Fund's net assets on such date. Because there is no requirement under the
Plan that the Distributor be reimbursed for all expenses or any requirement
that the Plan be continued from year to year, this excess amount does not
constitute a liability of the Fund. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan, and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or contingent deferred sales charges, may or may not be
recovered through future distribution fees or contingent deferred sales
charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined 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 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.
Portfolio securities (other than short-term taxable debt securities, futures
and options) are valued for the Fund by an outside independent pricing service
approved by the Fund's Trustees. The service utilizes a computerized grid
matrix of tax-exempt securities and evaluations by its staff in determining
what it believes is the fair value of the Fund's portfolio securities. The
Board believes that timely and reliable market quotations are generally not
readily available to the Fund for purposes of valuing tax-exempt securities and
that the valuations supplied by the pricing services are more likely to
approximate the fair value of such securities.
Short-term taxable debt securities with remaining maturities of sixty days
or less at time of purchase are valued at amortized cost, unless the Board
determines such does not reflect the securities' market value, in which case
these securities will be valued at their market value as determined by the
Board of Trustees. Other taxable short-term debt securities with maturities of
more than sixty days will be valued on a mark to market basis until such time
as they reach a 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' fair value, in which case these
securities will be valued at their fair market value as determined by the Board
of Trustees. Listed options on debt securities are valued at the latest sale
price on the exchange on which they are listed unless no sales of such options
have taken place that day, in which case, they will be valued at the mean
between their closing bid and asked prices. Unlisted options on debt securities
are valued at the mean between their latest bid and asked price. Futures are
valued at the latest sale price on the commodities exchange on which they trade
unless the Board of Trustees determines that such price does not reflect their
market value, in which case they will be valued at their fair value as
determined by the Board of 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 Board of Trustees.
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<PAGE>
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which InterCapital serves as investment manager
(collectively, with the Fund, the "Dean Witter Funds")), unless the shareholder
requests that they be paid in cash. Shares so acquired are not subject to the
imposition of a contingent deferred sales charge upon their redemption (see
"Redemptions and Repurchases"). 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 generally 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.
EasyInvest(Service Mark). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases").
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September,
December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable
contingent deferred sales charge will be imposed on shares redeemed under the
Withdrawal Plan (See "Redemptions and Repurchases--Contingent Deferred Sales
Charge"). Therefore, any shareholder participating in the Withdrawal Plan will
have sufficient shares redeemed from his or her account so that the proceeds
(net of any applicable contingent deferred sales charge) to the shareholder
will be the designated monthly or quarterly amount.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of
the above services.
Tax-Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the Transfer
Agent.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for shares of other Dean Witter
Funds sold with a contingent deferred sales charge ("CDSC funds"), and for
shares of Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term
Municipal Trust, Dean Witter Short-Term Bond Fund, Dean Witter Balanced Income
Fund, Dean Witter Balanced Growth Fund, Dean Witter Intermediate Term U.S.
Treasury Trust and five Dean Witter Funds which are money market funds (the
foregoing eleven non-CDSC funds are hereinafter referred to as the "Exchange
Funds"). Exchanges may be made after the shares of the Fund acquired by
purchase (not by exchange or dividend reinvestment) have been held for thirty
days. There is no waiting period for exchanges of shares acquired by exchange
or dividend reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is
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on the basis of the next calculated net asset value per share of each fund
after the exchange order is received. When exchanging into a money market fund
from the Fund, shares of the Fund are redeemed out of the Fund at their next
calculated net asset value and the proceeds of the redemption are used to
purchase shares of the money market fund at their net asset value determined
the following day. Subsequent exchanges between any of the money market funds
and any of the CDSC funds can be effected on the same basis. No contingent
deferred sales charge ("CDSC") is imposed at the time of any exchange, although
any applicable CDSC will be imposed upon ultimate redemption. Shares of the
Fund which are exchanged for shares of another CDSC fund having a higher CDSC
schedule than the Fund will be subject to the CDSC schedule of the other CDSC
fund, even if shares are subsequently reexchanged for shares of the Fund prior
to redemption. During the period of time the shareholder remains invested in
the Exchange Fund (calculated from the last day of the month in which the
Exchange Fund shares were acquired), the holding period (for the purpose of
determining the rate of the CDSC) is frozen. If those shares are subsequently
reexchanged for shares of a CDSC fund, the holding period previously frozen
when the first exchange was made resumes on the last day of the month in which
shares of a CDSC fund are reacquired. Thus, the CDSC is based upon the time
(calculated as described above) the shareholder was invested in shares of a
CDSC fund (see "Redemptions and Repurchases--Contingent Deferred Sales
Charge"). However, in the case of shares of the Fund exchanged into an Exchange
Fund upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the Exchange Fund 12b-1 distribution fees incurred on or after that date
which are attributable to those shares. (Exchange Fund 12b-1 distribution fees,
if any, are described in the prospectuses for those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
certain Dean Witter Funds sold with a front-end sales charge ("front-end sales
charge funds"), but shares of the Fund, however acquired, may not be exchanged
for shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders
and, at the Investment Manager's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor.
Although the Fund does not have any specific definition of what constitutes a
pattern of frequent exchanges, and will consider all relevant factors in
determining whether a particular situation is abusive and contrary to the best
interests of the Fund and its other shareholders, investors should be aware
that the Fund and each of the other Dean Witter Funds may in their discretion
limit or otherwise restrict the number of times this Exchange Privilege may be
exercised by any investor. Any such restriction will be made by the Fund on a
prospective basis only, upon notice to the shareholder not later than ten days
following such shareholder's most recent exchange.
The Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such Dean Witter Funds for which shares of the Fund may be
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
exchange of shares of the Fund pledged in their margin account.
The current prospectus for each fund describes its investment objectives and
policies, and shareholders should obtain one and read it carefully before
investing. Exchanges are subject to the minimum investment requirement and
other conditions imposed by each fund. In the case of any shareholder holding a
share certificate or certificates, no exchanges may be made until the share
15
<PAGE>
certificate(s) have been received by the Transfer Agent and deposited in the
shareholder's account. An exchange will be treated for federal income tax
purposes as a redemption or repurchase of shares, on which the shareholder may
realize a capital gain or loss. However, the ability to deduct capital losses
on an exchange is limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. There are also limits on the
deduction of losses after the payment of exempt-interest dividends for shares
held for less than six months (see "Dividends, Distributions and Taxes"). The
Exchange Privilege is only available in states where an exchange may legally be
made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their DWR or other Selected Broker-Dealer account
executive (no Exchange Privilege Authorization Form is required). Other
shareholders (and those shareholders who are clients of DWR or another Selected
Broker-Dealer but who wish to make exchanges directly by writing or telephoning
the Transfer Agent) must complete and forward to the Transfer Agent an Exchange
Privilege Authorization Form, copies of which may be obtained from the Transfer
Agent, to initiate an exchange. If the Authorization Form is used, exchanges
may be made by contacting the Transfer Agent at (800) 869-NEWS (toll free). The
Fund will employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. Such procedures may include
requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for
any losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m.and 4:00 p.m. New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request (see "Redemptions and Repurchases"). Shareholders are advised that
during periods of drastic economic or market changes, it is possible that the
telephone exchange procedures may be difficult to implement, although this has
not been the case with the Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their account executive or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales
charges (see below). If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption, along with any additional
information required by the Transfer Agent.
Contingent Deferred Sales Charge. Shares of the Fund which are held three
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any charge upon
redemption. Shares redeemed sooner than three years after purchase may,
however, be subject to a charge upon redemption. This charge is called a
"contingent deferred sales charge" ("CDSC"), which will be a percentage
16
<PAGE>
of the dollar amount of shares redeemed and will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The size of this percentage will depend upon how long the shares have
been held, as set forth in the table below:
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE
PURCHASE AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
------------ -------------------
First .................... 3.0%
Second ................... 2.0%
Third .................... 1.0%
Fourth and thereafter ... None
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the three years preceding the redemption;
(ii) the current net asset value of shares purchased more than three years
prior to the redemption; and (iii) the current net asset value of shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Dean Witter Funds sold with a front-end
sales charge or of other Dean Witter Funds acquired in exchange for such
shares. Moreover, in determining whether a CDSC is applicable it will be
assumed that amounts described in (i), (ii) and (iii) above (in that order) are
redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination
of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or in the case of a
"key-employee" of a "top heavy" plan, following attainment of age 59 1/2); (B)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) of
the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which Dean Witter Trust Company,
an affiliate of the Investment Manager, serves as recordkeeper or Trustee
("Eligible 401(k) Plan"), provided that either: (A) the plan continues to be an
Eligible 401(k) Plan after the redemption; or (B) the redemption is in
connection with the complete termination of the plan involving the distribution
of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value per share next determined (see "Purchase of Fund Shares") after
such repurchase order is received by DWR or other Selected Broker-Dealer,
reduced by the applicable CDSC.
17
<PAGE>
The CDSC, if any, will be the only fee imposed by the Fund, the Distributor,
DWR or other Selected Broker-Dealers. The offers by DWR and other Selected
Broker-Dealers to repurchase shares may be suspended without notice by them at
any time. In that event, shareholders may redeem their shares through the
Fund's Transfer Agent as set forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented for
repurchase or redemption will be made by check within seven days after receipt
by the Transfer Agent of the certificate and/or written request in good order.
Such payment may be postponed or the right of redemption suspended under
unusual circumstances. If the shares to be redeemed have recently been
purchased by check, payment of the redemption 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 investment of the check by
the Transfer Agent). Shareholders maintaining margin accounts with DWR or
another Selected Broker-Dealer are referred to their account executive
regarding restrictions on redemption of shares of the Fund pledged in the
margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the redemption or
repurchase, reinstate any portion or all of the proceeds of such redemption or
repurchase in shares of the Fund at their net asset value next determined after
a reinstatement request, together with the proceeds, is received by the
Transfer Agent and receive a pro-rata credit for any CDSC paid in connection
with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right to redeem, on sixty
days' notice, and at net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Code) whose shares have a value of less than $100 as a
result of redemptions or repurchases, or such lesser amount as may be fixed by
the Board of Trustees or, in the case of an account opened through EasyInvest
(Service Mark), 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 to
make an additional investment in an amount which will increase the value of the
account to at least the applicable amount or more before the redemption is
processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund declares dividends from net investment
income on each day the New York Stock Exchange is open for business (see
"Purchase of Fund Shares"). Such dividends are paid monthly. The Fund intends
to distribute all of the Fund's net investment income on an annual basis.
The Fund will distribute at least once each year all net realized short-term
capital gains in excess of any realized net long-term capital losses, if any.
The Fund intends to distribute all of its realized net long-term capital gains,
if any, in excess of any realized net short-term capital losses and any
available net capital loss carryovers, at least once per fiscal year, although
it may elect to retain all or part of such gains for reinvestment. Taxable
capital gains may be generated by the sale of portfolio securities and by
transactions in options and futures contracts engaged in by the Fund. All
dividends and capital gains distributions will be paid in additional Fund
shares (without sales charge) and automatically credited to the shareholder's
account without issuance of a share certificate unless the shareholder requests
in writing that all dividends be paid in cash and such request is received by
the close of business on the day prior to the record date for such
distributions (see "Shareholder Services--Automatic
18
<PAGE>
Investment of Dividends and Distributions"). Any dividends declared in the last
quarter of any year which are paid in the following year prior to February 1
will be deemed received by the shareholder in the prior year.
Taxes. Because the Fund intends to distribute all of its net investment
income and capital gains to shareholders and intends to otherwise qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code,
it is not expected that the Fund will be required to pay any federal income
tax.
The Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders by maintaining, as of the close of each quarter of its taxable
year, at least 50% of the value of its total assets in tax-exempt securities.
If the Fund satisfies such requirement, distributions from net investment
income to shareholders, whether taken in cash or reinvested in additional
shares, will be excludable from gross income for federal income tax purposes to
the extent net investment income is represented by interest on tax-exempt
securities. Exempt-interest dividends are included, however, in determining
what portion, if any, of a person's Social Security benefits are subject to
federal income tax. The Internal Revenue Code may subject interest received on
certain otherwise tax-exempt securities to an alternative minimum tax. This
alternative minimum tax may be incurred due to interest received on certain
"private activity bonds" (in general, bonds that benefit non-government
entities) issued after August 7, 1986 which, although tax-exempt, are used for
purposes other than those generally performed by government units (e.g., bonds
used for commercial or housing purposes). Income received on such bonds is
classified as a "tax preference item," under the alternative minimum tax, for
both individual and corporate investors. The Fund anticipates that a portion of
its investments will be made in such "private activity bonds," with the result
that a portion of the exempt-interest dividends paid by the Fund will be an
item of tax preference to shareholders subject to the alternative minimum tax.
In addition, certain corporations which are subject to the alternative minimum
tax may also have to include exempt-interest dividends in calculating their
alternative minimum taxable income in situations where the "adjusted current
earnings" of the corporation exceeds its alternative minimum taxable income.
Under the Revenue Reconciliation Act of 1993, all or a portion of the Fund's
gain from the sale or redemption of tax-exempt obligations purchased at a
market discount after April 30, 1993 will be treated as ordinary income rather
than capital gain. This rule may increase the amount of ordinary income
dividends received by shareholders.
Within sixty days after the end of its fiscal year, the Fund will mail to
its shareholders a statement indicating the percentage of the dividend
distributions for such fiscal year which constitutes exempt-interest dividends
and the percentage, if any, that is taxable, and the percentage, if any, of the
exempt-interest dividends which constitutes an item of tax preference.
Shareholders will normally be subject to federal income tax on dividends
paid from interest income derived from taxable securities and on distributions
of net short-term capital gains, if any. Distributions of long-term capital
gains, if any, are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund shares and regardless of whether the
distribution is received in additional shares or in cash. To avoid being
subject to a 31% federal backup withholding tax on taxable dividends, capital
gains distributions and proceeds of redemptions or repurchases, shareholders'
taxpayer identification numbers must be furnished and certified as to their
accuracy.
Any loss on the sale or exchange of shares of the Fund which are held for
six months or less is disallowed to the extent of the amount of any
exempt-interest dividend paid with respect to such shares. Treasury Regulations
may provide for a reduction in such required holding periods. If a shareholder
receives a distribution that is taxed as a long-term capital gain on shares
held for six months or less and sells those shares at a loss, the loss will be
treated as a long-term capital loss.
19
<PAGE>
Interest on indebtedness incurred by shareholders to purchase or carry
shares of an investment company paying exempt-interest dividends, such as the
Fund, will not be deductible by the investor for federal income tax purposes.
The exemption of interest income for federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any state
or local taxing authority. Thus, shareholders of the Fund may be subject to
state and local taxes on exempt-interest dividends.
Shareholders should consult their tax advisers as to the applicability of
the above to their own tax situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return of
the Fund are based on historical earnings and are not intended to indicate
future performance. The yield of the Fund is computed by dividing the Fund's
net investment income over a 30-day period by an average value (using the
average number of shares entitled to receive dividends and the maximum offering
price per share at the end of the period), all in accordance with applicable
regulatory requirements. Such amount is compounded for six months and then
annualized for a twelve-month period to derive the Fund's yield. The Fund may
also quote tax-equivalent yield, which is calculated by determining the pre-tax
yield which, after being taxed at a stated rate, would be equivalent to the
yield determined as described above.
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 all
sales charges which would be incurred by redeeming shareholders, for the stated
periods. It also assumes reinvestment of all dividends and distributions paid
by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. Such calculations may or may not reflect the
deduction of the contingent deferred sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the
Fund. The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations
(such as mutual fund performance rankings of Lipper Analytical Services, Inc.).
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of $.01
par value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of ex-
20
<PAGE>
penses out of the Fund's property for any shareholder held personally liable
for the obligations of the Fund. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations. Given the
above limitations on shareholder personal liability and the nature of the
Fund's assets and operations the possibility of the Fund's being unable to meet
its obligations is remote and, in the opinion of Massachusetts counsel to the
Fund, the risk to Fund shareholders of personal liability is remote.
Code of Ethics. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to ensure
that the interests of shareholders and other clients are placed ahead of any
personal interest, that no undue personal benefit is obtained from a person's
employment activities and that actual and potential conflicts of interest are
avoided. To achieve these goals and comply with regulatory requirements, the
Code of Ethics requires, among other things, that personal securities
transactions by employees of the companies be subject to an advance clearance
process to monitor that no Dean Witter Fund is engaged at the same time in a
purchase or sale of the same security. The Code of Ethics bans the purchase of
securities in an initial public offering, and also prohibits engaging in
futures and options transactions and profiting on short-term trading (that is,
a purchase within sixty days of a sale or a sale within sixty days of a
purchase) of a security. In addition, investment personnel may not purchase or
sell a security for their personal account within thirty days before or after
any transaction in any Dean Witter Fund managed by them. Any violations of the
Code of Ethics are subject to sanctions, including reprimand, demotion or
suspension or termination of employment. The Code of Ethics comports with
regulatory requirements and the recommendations in the 1994 report by the
Investment Company Institute Advisory Group on Personal Investing.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
21
<PAGE>
THE DEAN WITTER FAMILY OF FUNDS
MONEY MARKET FUNDS
Dean Witter Liquid Asset Fund Inc.
Dean Witter Tax-Free Daily Income Trust
Dean Witter U.S. Government Money Market Trust
Dean Witter California Tax-Free Daily Income Trust
Dean Witter New York Municipal Money Market Trust
EQUITY FUNDS
Dean Witter American Value Fund
Dean Witter Natural Resource Development Securities Inc.
Dean Witter Dividend Growth Securities Inc.
Dean Witter Developing Growth Securities Trust
Dean Witter World Wide Investment Trust
Dean Witter Value-Added Market Series
Dean Witter Utilities Fund
Dean Witter Capital Growth Securities
Dean Witter European Growth Fund Inc.
Dean Witter Precious Metals and Minerals Trust
Dean Witter Pacific Growth Fund Inc.
Dean Witter Health Sciences Trust
Dean Witter Global Dividend Growth Securities
Dean Witter Global Utilities Fund
Dean Witter International SmallCap Fund
Dean Witter Mid-Cap Growth Fund
Dean Witter Balanced Growth Fund
Dean Witter Capital Appreciation Fund
Dean Witter Information Fund
Dean Witter Japan Fund
Dean Witter Income Builder Fund
Dean Witter Special Value Fund
FIXED-INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter Federal Securities Trust
Dean Witter Convertible Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter New York Tax-Free Income Fund
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income Securities
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Premier Income Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal Trust
Dean Witter Short-Term Bond Fund
Dean Witter National Municipal Trust
Dean Witter High Income Securities
Dean Witter Balanced Income Fund
Dean Witter Hawaii Municipal Trust
Dean Witter Intermediate Term U.S. Treasury Trust
DEAN WITTER RETIREMENT SERIES
Liquid Asset Series
U.S. Government Money Market Series
U.S. Government Securities Series
Intermediate Income Securities Series
American Value Series
Capital Growth Series
Dividend Growth Series
Strategist Series
Utilities Series
Value-Added Market Series
Global Equity Series
ASSET ALLOCATION FUNDS
Dean Witter Strategist Fund
Dean Witter Global Asset Allocation Fund
ACTIVE ASSETS ACCOUNT PROGRAM
Active Assets Money Trust
Active Assets Tax-Free Trust
Active Assets California Tax-Free Trust
Active Assets Government Securities Trust
<PAGE>
Dean Witter
National Municipal Trust
Two World Trade Center
New York, New York 10048
Board of Trustees
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
DEAN WITTER
NATIONAL
MUNICIPAL
TRUST
PROSPECTUS--NOVEMBER 26, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DEAN WITTER
NATIONAL
NOVEMBER 26, 1996 MUNICIPAL
TRUST
- -----------------------------------------------------------------------------
Dean Witter National Municipal Trust (the "Fund") is an open-end diversified
management investment company whose investment objective is to provide a high
level of current income exempt from federal income tax, consistent with the
preservation of capital. The Fund invests principally in tax-exempt
fixed-income securities which are rated in the three highest categories by
Moody's Investors Service, Inc. or Standard & Poor's Corporation. (See
"Investment Practices and Policies.")
A Prospectus for the Fund dated November 26, 1996, 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 numbers listed below
or from the Fund's Distributor, Dean Witter Distributors Inc., or from Dean
Witter Reynolds Inc. at any of its branch offices. This Statement of Additional
Information is not a Prospectus. It contains information in addition to and
more detailed than that set forth in the Prospectus. It is intended to provide
additional information regarding the activities and operations of the Fund, and
should be read in conjunction with the Prospectus.
Dean Witter
National Municipal Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
The Fund and its Management ......................................... 3
Trustees and Officers ............................................... 6
Investment Practices and Policies .................................. 11
Investment Restrictions ............................................. 17
Portfolio Transactions and Brokerage ............................... 19
The Distributor ..................................................... 20
Determination of Net Asset Value ................................... 23
Shareholder Services ................................................ 24
Redemptions and Repurchases ......................................... 28
Dividends, Distributions and Taxes ................................. 31
Performance Information ............................................. 32
Description of Shares ............................................... 33
Custodian and Transfer Agent ........................................ 34
Independent Accountants ............................................. 34
Reports to Shareholders ............................................. 35
Legal Counsel ....................................................... 35
Experts ............................................................. 35
Registration Statement .............................................. 35
Financial Statements -- September 30, 1996 .......................... 36
Report of Independent Accountants .................................. 47
Appendix ............................................................ 48
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund was organized as a Massachusetts business trust on March 29, 1994.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
whose address is Two World Trade Center, New York, New York 10048, is the
Fund's Investment Manager. InterCapital is a wholly-owned subsidiary of Dean
Witter, Discover & Co. ("DWDC"), a Delaware corporation. In an internal
reorganization which took place in January, 1993, InterCapital assumed the
investment advisory, administrative and management activities previously
performed by the InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a
broker-dealer affiliate of InterCapital. (As hereinafter used in this Statement
of Additional Information, the terms "InterCapital" and "Investment Manager"
refer to DWR's InterCapital Division prior to the internal reorganization and
to Dean Witter InterCapital Inc. thereafter.) The daily management of the Fund
and research relating to the Fund's portfolio is conducted by or under the
direction of officers of the Fund and of the Investment Manager, subject to
periodic review by the Fund's Board of Trustees. In addition, Trustees of the
Fund provide guidance on economic factors and interest rate trends. Information
as to these trustees and officers is contained under the caption "Trustees and
Officers."
InterCapital is also the investment manager or investment adviser of the
following investment companies: Dean Witter Liquid Asset Fund Inc.,
InterCapital Income Securities Inc., Dean Witter High Yield Securities Inc.,
Dean Witter Tax-Free Daily Income Trust, Dean Witter Developing Growth
Securities Trust, Dean Witter American Value Fund, Dean Witter Dividend Growth
Securities Inc., Dean Witter Natural Resource Development Securities Inc., Dean
Witter U.S. Government Money Market Trust, Dean Witter California Tax-Free
Income Fund, Dean Witter Variable Investment Series, Dean Witter World Wide
Investment Trust, Dean Witter Select Municipal Reinvestment Fund, Dean Witter
U.S. Government Securities Trust, Dean Witter New York Tax-Free Income Fund,
Dean Witter Convertible Securities Trust, Dean Witter Federal Securities Trust,
Dean Witter Value-Added Market Series, High Income Advantage Trust, High Income
Advantage Trust II, High Income Advantage Trust III, Dean Witter Government
Income Trust, Dean Witter California Tax-Free Daily Income Trust, Dean Witter
Utilities Fund, Dean Witter Strategist Fund, Dean Witter World Wide Income
Trust, Dean Witter Intermediate Income Securities, Dean Witter Capital Growth
Securities, Dean Witter European Growth Fund Inc., Dean Witter Pacific Growth
Fund Inc., Dean Witter Precious Metals and Minerals Trust, Dean Witter Global
Short-Term Income Fund Inc., Dean Witter Multi-State Municipal Series Trust,
Dean Witter New York Municipal Money Market Trust, InterCapital Quality
Municipal Investment Trust, Dean Witter Premier Income Trust, Dean Witter
Short-Term U.S. Treasury Trust, InterCapital Insured Municipal Bond Trust,
InterCapital Insured Municipal Trust, InterCapital Quality Municipal Income
Trust, Dean Witter Diversified Income Trust, Dean Witter Health Sciences Trust,
Dean Witter Retirement Series, InterCapital Quality Municipal Securities,
InterCapital California Quality Municipal Securities, InterCapital New York
Quality Municipal Securities, Dean Witter Global Dividend Growth Securities,
Dean Witter Global Utilities Fund, Dean Witter High Income Securities, Dean
Witter Limited Term Municipal Trust, Dean Witter Short-Term Bond Fund, Dean
Witter International SmallCap Fund, Dean Witter Mid-Cap Growth Fund, Dean
Witter Select Dimensions Investment Series, Dean Witter Balanced Growth Fund,
Dean Witter Balanced Income Fund, Dean Witter Hawaii Municipal Trust, Dean
Witter Capital Appreciation Fund, Dean Witter Intermediate Term U.S. Treasury
Trust, Dean Witter Information Fund, Dean Witter Japan Fund, Dean Witter Income
Builder Fund, Dean Witter Special Value Fund, InterCapital Insured Municipal
Securities, InterCapital Insured California Municipal Securities, InterCapital
Insured Municipal Income Trust, InterCapital California Insured Municipal
Income Trust, Active Assets Money Trust, Active Assets California Tax-Free
Trust, Active Assets Tax-Free Trust, Active Assets Government Securities Trust,
Municipal Income Trust, Municipal Income Trust II, Municipal Income Trust III,
Municipal Income Opportunities Trust, Municipal Income Opportunities Trust II,
Municipal Income Opportunities Trust III, Municipal Premium Income Trust and
Prime Income Trust. The foregoing investment companies, together with the Fund,
are collectively referred to as the Dean Witter Funds.
3
<PAGE>
In addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following companies for
which TCW Funds Management, Inc. is the investment adviser: TCW/DW Core Equity
Trust, TCW/DW North American Government Income Trust, TCW/DW Latin American
Growth Fund, TCW/DW Income and Growth Fund, TCW/DW Small Cap Growth Fund,
TCW/DW Balanced Fund, TCW/DW Total Return Trust, TCW/DW Mid-Cap Equity Trust,
TCW/DW Global Telecom Trust, TCW/DW Strategic Income Trust, TCW/DW Term Trust
2000, TCW/DW Term Trust 2002, TCW/DW Term Trust 2003 and TCW/DW Emerging
Markets Opportunities Trust (the "TCW/DW Funds"). InterCapital also serves as:
(i) sub-adviser to Templeton Global Opportunities Trust, an open-end investment
company; (ii) administrator of The BlackRock Strategic Term Trust Inc., a
closed-end investment company; and (iii) sub-administrator of MassMutual
Participation Investors and Templeton Global Governments Income Trust,
closed-end investment companies.
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 and policies.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, bookkeeping and legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, proxy statements and reports required to be filed with federal
and state securities commissions (except insofar as the participation or
assistance of independent accountants and attorneys is, in the opinion of the
Investment Manager, necessary or desirable). In addition, the Investment
Manager pays the salaries of all personnel, including officers of the Fund, who
are employees of the Investment Manager. The Investment Manager also bears the
cost of telephone service, heat, light, power and other utilities provided to
the Fund. The Investment Manager has retained DWSC to perform its
administrative services under the Agreement.
Expenses not expressly assumed by the Investment Manager under the Agreement
or by the Distributor of the Fund's shares, Dean Witter Distributors Inc.
("Distributors" or the "Distributor") (see "The Distributor"), will be paid by
the Fund. 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; taxes; engraving and printing share
certificates; registration costs of the Fund and its shares under federal and
state securities laws; the cost and expense of printing, including typesetting,
and distributing Prospectuses and Statements of Additional Information of the
Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing 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 Funds or of the Investment Manager (not
including compensation or expenses of attorneys who are employees of the
Investment Manager) and independent accountants; membership dues of industry
associations; interest on Fund borrowings; postage; insurance premiums on
property or personnel (including officers and trustees) of the Fund which inure
to its benefit; extraordinary expenses (including, but not limited to, legal
claims and liabilities and litigation costs and any indemnification relating
thereto); and all other costs of the Fund's operation. 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 at the annual rate of 0.35% of the daily net
assets of the Fund. The Investment Manager had undertaken from June 2, 1994
(commencement of operations) to assume all expenses (except for brokerage and
12b-1 fees) and to waive the compensation provided for in its Management
Agreement until December 31, 1995. The
4
<PAGE>
Investment Manager has undertaken from January 1, 1996 through June 30, 1997 to
continue to waive management fees and to continue to assume expenses (except
for brokerage and 12b-1 fees) to the extent they exceed, on an annualized
basis, 0.50% of the Fund's daily net assets. During the fiscal period June 2,
1994 through September 30, 1994 and during the fiscal year ended September 30,
1995, the fees payable ($21,252 and $158,216, respectively) under the Agreement
were waived by the Investment Manager pursuant to the undertaking described
above covering these periods. During the fiscal year ended September 30, 1996,
the management fees payable under the Agreement amounted to $269,889 of which
$117,136 was waived by the Investment Manager pursuant to the undertakings
described above.
The Investment Manager has paid the organizational expenses of the Fund, in
the amount of approximately $148,000, incurred prior to the offering of the
Fund's shares. The Fund has reimbursed the Investment Manager for such expenses
exclusive of any amounts assumed by the Investment Manager. 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 provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Agreement was initially approved by the Trustees on May 10, 1994 and by
InterCapital as the sole Shareholder on May 10, 1994. The Agreement may be
terminated at any time, without penalty, on thirty days' notice, by the Board
of Trustees of the Fund, by the holders of a majority, as defined in the
Investment Company Act of 1940, as amended (the "Act"), of the outstanding
shares of the Fund, or by the Investment Manager. The Agreement will
automatically terminate in the event of its assignment (as defined in the Act).
Under its terms, the Agreement had an initial term ending April 30, 1995,
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 (as defined in the Act) of the outstanding shares of the Fund, or by
the Board of Trustees of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Independent
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. At its meeting held on April 17, 1996, the
Fund's Board of Trustees, including all of the Independent Trustees, approved
the most recent continuation of the Agreement until April 30, 1997.
The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has agreed that DWR or its parent company may use or, at any
time, permit others to use, the name "Dean Witter". The Fund has also agreed
that in the event the investment management contract between the Investment
Manager and the Fund is terminated, or if the affiliation between InterCapital
and its parent company is terminated, the Fund will eliminate the name "Dean
Witter" from its name if DWR or its parent company shall so request.
5
<PAGE>
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
InterCapital, and with the 82 Dean Witter Funds and the 14 TCW/DW Funds, are
shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- --------------------------------------------------------
<S> <C>
Michael Bozic (55) Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee
c/o Levitz Furniture Corporation of the Dean Witter Funds; formerly President and Chief
6111 Broken Sound Parkway, N.W. Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 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., the United Negro College Fund and Weirton
Steel Corporation.
Charles A. Fiumefreddo* (63) Chairman, Chief Executive Officer and Director of
Chairman of the Board, President and Chief InterCapital, Distributors and DWSC; Executive Vice
Executive Officer and Trustee President and Director of DWR; Chairman, Director or
Two World Trade Center Trustee, President and Chief Executive Officer of the
New York, New York Dean Witter Funds; Chairman, Chief Executive Officer and
Trustee of the TCW/DW Funds; Chairman and Director of
Dean Witter Trust Company ("DWTC"); Director and/or
officer of various DWDC subsidiaries; formerly Executive
Vice President and Director of DWDC (until February,
1993).
Edwin J. Garn (64) Director or Trustee of the Dean Witter Funds; formerly
Trustee United States Senator (R-Utah) (1974-1992) and Chairman,
c/o Huntsman Chemical Corporation Senate Banking Committee (1980-1986); formerly Mayor of
500 Huntsman Way Salt Lake City, Utah (1971-1974); formerly Astronaut,
Salt Lake City, Utah Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Chemical Corporation (since January,
1993); Director of Franklin Quest (time management
systems) and John Alden Financial Corp.; member of the
board of various civic and charitable organizations.
John R. Haire (71) Chairman of the Audit Committee and Chairman of the
Trustee Committee of the Independent Directors or Trustees and
Two World Trade Center Director or Trustee of the Dean Witter Funds; Chairman
New York, New York of the Audit Committee and Chairman of the Committee of
the Independent Trustees and Trustee of the TCW/DW
Funds; formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of
Anchor Corporation, an Investment Adviser (1964-1978);
Director of Washington National Corporation (insurance).
6
<PAGE>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------- --------------------------------------------------------
Dr. Manuel H. Johnson (47) Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Koch Professor of International
c/o Johnson Smick International, Inc. Economics and Director of the Center for Global Market
1133 Connecticut Avenue, N.W. Studies at George Mason University; Co-Chairman and a
Washington, DC founder of the Group of Seven Council (G7C), an
international economic commission (since September,
1990); Director or Trustee of the Dean Witter Funds;
Trustee of the TCW/DW Funds; Director of NASDAQ (since
June, 1995); Director of Greenwich Capital Markets Inc.
(broker-dealer); formerly Vice Chairman of the Board of
Governors of the Federal Reserve System (1986-1990) and
Assistant Secretary of the U.S. Treasury (1982-1986).
Michael E. Nugent (60) General Partner, Triumph Capital, LP., a private
Trustee investment partnership; Director or Trustee of the Dean
c/o Triumph Capital, LP Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); Director of various business
organizations.
Philip J. Purcell* (53) Chairman of the Board of Directors and Chief Executive
Trustee Officer of DWDC, DWR and Novus Credit Services Inc.;
Two World Trade Center Director of InterCapital, DWSC and Distributors;
New York, New York Director or Trustee of the Dean Witter Funds; Director
and/or officer of various DWDC subsidiaries.
John L. Schroeder (66) Retired; Director or Trustee of the Dean Witter Funds;
Trustee Director of Citizens Utilities Company; formerly
c/o Gordon Altman Butowsky Executive Vice President and Chief Investment Officer of
Weitzen Shalov & Wein the Home Insurance Company (August, 1991-September,
Counsel to the Independent Trustees 1995); and Chairman and Chief Investment Officer of
114 West 47th Street Axe-Houghton Management and the Axe-Houghton Funds
New York, New York (1983-1991).
Sheldon Curtis (64) Senior Vice President, Secretary and General Counsel of
Vice President, Secretary InterCapital and DWSC; Senior Vice President and
and General Counsel Secretary of DWTC; Senior Vice President, Assistant
Two World Trade Center Secretary and Assistant General Counsel of Distributors;
New York, New York Assistant Secretary of DWR; Vice President, Secretary
and General Counsel of the Dean Witter Funds and the
TCW/DW Funds.
James F. Willison (53) Senior Vice President of InterCapital; Vice President of
Vice President various Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (50) First Vice President and Assistant Treasurer of
Treasurer InterCapital and DWSC; Treasurer of the Dean Witter Funds
Two World Trade Center and the TCW/DW Funds.
New York, New York
</TABLE>
- --------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
7
<PAGE>
In addition, Robert M. Scanlan, President and Chief Operating Officer of
InterCapital and DWSC, Executive Vice President of Distributors and DWTC and
Director of DWTC, Robert S. Giambrone, Senior Vice President of InterCapital,
DWSC and Distributors and DWTC and Director of DWTC, Joseph J. McAlinden,
Executive Vice President and Chief Investment Officer of InterCapital and
Director of DWTC, and Peter M. Avelar and Jonathan R. Page, Senior Vice
Presidents of InterCapital, are Vice Presidents of the Fund, and Marilyn K.
Cranney and Barry Fink, First Vice Presidents and Assistant General Counsels of
InterCapital and DWSC, and Lou Anne D. McInnis and Ruth Rossi, Vice Presidents
and Assistant General Counsels of InterCapital and DWSC, and Carsten Otto and
Frank Bruttomesso, Staff Attorneys with InterCapital and DWSC, are Assistant
Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of eight (8) trustees. These same individuals
also serve as directors or trustees for all of the Dean Witter Funds, and are
referred to in this section as Trustees. As of the date of this Statement of
Additional Information, there are a total of 82 Dean Witter Funds, comprised of
122 portfolios. As of October 31, 1996, the Dean Witter Funds had total net
assets of approximately $79.4 billion and more than five million shareholders.
Six Trustees (75% of the total number) have no affiliation or business
connection with InterCapital or any of its affiliated persons and do not own
any stock or other securities issued by InterCapital's parent company, DWDC.
These are the "disinterested" or "independent" Trustees. The other two Trustees
(the "management Trustees") are affiliated with InterCapital. Four of the six
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 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.
All of the Independent Trustees serve as members of the Audit Committee and
the Committee of the Independent Trustees. Three of them also serve as members
of the Derivatives Committee. During the calendar year ended December 31, 1995,
the three Committees held a combined total of fifteen meetings. The Committees
hold some meetings at InterCapital's offices and some outside InterCapital.
Management Trustees or officers do not attend these meetings unless they are
invited for purposes of furnishing information or making a report.
The Committee of the Independent Trustees is charged with recommending to
the full Board approval of management, advisory and administration contracts,
Rule 12b-1 plans and distribution and underwriting agreements; continually
reviewing Fund performance; checking on the pricing of portfolio securities,
brokerage commissions, transfer agent costs and performance, and trading among
Funds in the same complex; and approving fidelity bond and related insurance
coverage and allocations, as well as other matters that arise from time to
time. The Independent Trustees are required to select and nominate individuals
to fill any Independent Trustee vacancy on the Board of any Fund that has a
Rule 12b-1 plan of distribution. Most of the Dean Witter Funds have such a
plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
Board.
8
<PAGE>
Finally, the Board of each Fund has formed a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
DUTIES OF CHAIRMAN OF COMMITTEE OF THE INDEPENDENT TRUSTEES AND AUDIT
COMMITTEE
The Chairman of the Committee of the Independent Trustees and the Audit
Committee maintains an office at the Funds' headquarters in New York. He is
responsible for keeping abreast of regulatory and industry developments and the
Funds' operations and management. He screens and/or prepares written materials
and identifies critical issues for the Independent Trustees to consider,
develops agendas for Committee meetings, determines the type and amount of
information that the Committees will need to form a judgment on various issues,
and arranges to have that information furnished to Committee members. He also
arranges for the services of independent experts and consults with them in
advance of meetings to help refine reports and to focus on critical issues.
Members of the Committees believe that the person who serves as Chairman of
both Committees and guides their efforts is pivotal to the effective
functioning of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment advisory, management and
other operating contracts of the Funds and, on behalf of the Committees,
conducts negotiations with the Investment Manager and other service providers.
In effect, the Chairman of the Committees serves as a combination of chief
executive and support staff of the Independent Trustees.
The Chairman of the Committee of the Independent Trustees and the Audit
Committee is not employed by any other organization and devotes his time
primarily to the services he performs as Committee Chairman and Independent
Trustee of the Dean Witter Funds and as an Independent Trustee and, since July
1, 1996, as Chairman of the Committee of the Independent Trustees and the Audit
Committee of the TCW/DW Funds. The current Committee Chairman has had more than
35 years experience as a senior executive in the investment company industry.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN
WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of separate
groups of Independent Trustees arriving at conflicting decisions regarding
operations and management of the Funds and avoids the cost and confusion that
would likely ensue. Finally, having the same Independent Trustees serve on all
Fund Boards enhances the ability of each Fund to obtain, at modest cost to each
separate Fund, the services of Independent Trustees, and a Chairman of their
Committees, of the caliber, experience and business acumen of the individuals
who serve as Independent Trustees of the Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $1,000 plus a per
meeting fee of $50 for meetings of the Board of Trustees or committees of the
Board of Trustees attended by the Trustee (the Fund pays the Chairman of the
Audit Committee an annual fee of $750 and pays the Chairman of the Committee of
the Independent Trustees an additional annual fee of $1,200). 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.
At such time as the Fund has paid fees to the Independent Trustees for a
full fiscal year, and assuming that during such fiscal year the Fund holds the
same number of Board and committee
9
<PAGE>
meetings as were held by the other Dean Witter Funds during the calendar year
ended December 31, 1995, it is estimated that the compensation paid to each
Independent Trustee during such fiscal year will be the amount shown in the
following table:
FUND COMPENSATION (ESTIMATED)
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- ---------------
Michael Bozic ............. $2,000
Edwin J. Garn ............. 2,000
John R. Haire ............. 3,950
Dr. Manuel H. Johnson .... 2,000
Michael E. Nugent ......... 2,000
John L. Schroeder ......... 2,000
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1995 for services
to the 79 Dean Witter Funds and, in the case of Messrs. Haire, Johnson, Nugent
and Schroeder, the 11 TCW/DW Funds that were in operation at December 31, 1995.
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 Dean Witter Money Market Funds. Mr. Schroeder was elected as a Trustee
of the TCW/DW Funds on April 20, 1995.
COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF TOTAL
FOR SERVICE COMMITTEES OF COMPENSATION
AS DIRECTOR OR FOR SERVICE AS INDEPENDENT PAID
TRUSTEE AND TRUSTEE AND DIRECTORS/ FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER TRUSTEES AND 79 DEAN WITTER
OF 79 DEAN WITTER OF 11 TCW/DW AUDIT FUNDS AND 11
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS COMMITTEES TCW/DW FUNDS
- --------------------------- ----------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Michael Bozic ............. $126,050 -- -- $126,050
Edwin J. Garn ............. 136,450 -- -- 136,450
John R. Haire ............. 98,450 $82,038 $217,350(1) 397,838
Dr. Manuel H. Johnson .... 136,450 82,038 -- 218,488
Michael E. Nugent ......... 124,200 75,038 -- 199,238
John L. Schroeder ......... 136,450 46,964 -- 183,414
</TABLE>
(1) For the 79 Dean Witter Funds in operation at December 31, 1995. As noted
above, on July 1, 1996, Mr. Haire became Chairman of the Committee of
the Independent Trustees and the Audit Committee of the TCW/DW Funds in
addition to continuing to serve in such positions for the Dean Witter
Funds.
As of the date of this Statement of Additional Information, 57 of the 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 Dean Witter Fund that has adopted the retirement
program (each such Fund referred to as an "Adopting Fund" and each such Trustee
referred to as an "Eligible Trustee") is entitled to retirement payments upon
reaching the eligible retirement age (normally, after attaining age 72). Annual
payments are based upon length of service. Currently, upon retirement, each
Eligible Trustee is entitled to receive from the Adopting Fund, commencing as
of his or her retirement date and continuing for the remainder of his or her
life, an annual retirement benefit (the "Regular Benefit") equal to 25.0% of
his or her Eligible Compensation plus 0.4166666% of such Eligible Compensation
for each full month of service as an Independent Director or Trustee of any
Adopting Fund in excess of five years up to a
10
<PAGE>
maximum of 50.0% after ten years of service. The foregoing percentages may be
changed by the Board.(2) "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 Dean Witter Funds (not including the
Fund) as of December 31, 1995, and the estimated retirement benefits for the
Fund's Independent Trustees from the 57 Dean Witter Funds as of December 31,
1995.
RETIREMENT BENEFITS FROM ALL DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
ESTIMATED BENEFITS BENEFITS
CREDITED ACCRUED AS UPON
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 (3)
- --------------------------- --------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Michael Bozic ............. 10 50.0% $ 26,359 $ 51,550
Edwin J. Garn ............. 10 50.0 41,901 51,550
John R. Haire ............. 10 50.0 261,763 130,404
Dr. Manuel H. Johnson .... 10 50.0 16,748 51,550
Michael E. Nugent ......... 10 50.0 30,370 51,550
John L. Schroeder ......... 8 41.7 51,812 42,958
</TABLE>
(2) 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.
(3) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (2)
above.
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
- -----------------------------------------------------------------------------
PORTFOLIO SECURITIES
The payment of principal and interest by issuers of certain Municipal Bonds
and Notes ("Municipal Obligations") purchased by the Fund may be guaranteed by
letters of credit or other credit facilities offered by banks or other
financial institutions. Such guarantees will be considered in determining
whether a Municipal Obligation meets the Fund's investment quality
requirements. In addition, some issues may contain provisions which permit the
Fund to demand from the issuer repayment of principal at some specified
period(s) prior to maturity.
Municipal Bonds. Municipal Bonds, as referred to in the Prospectus, are debt
obligations of a state, its cities, municipalities and municipal agencies (all
of which are generally referred to as "municipalities") which generally have a
maturity at the time of issuance of one year or more, and the interest from
which is, in the opinion of bond counsel, exempt from federal income tax. They
are issued to raise funds for various public purposes, such as construction of
a wide range of public facilities, to refund outstanding obligations and to
obtain funds for general operating expenses or to loan to other public
institutions and facilities. In addition, certain types of industrial
development bonds and pollution control bonds are issued by or on behalf of
public authorities to provide funding for various privately operated
facilities.
11
<PAGE>
Municipal Notes. Municipal Notes are short-term obligations of
municipalities, generally with a maturity at the time of issuance ranging from
six months to three years, the interest from which is, in the opinion of bond
counsel, exempt from federal income tax. The principal types of Municipal Notes
include tax anticipation notes, bond anticipation notes, revenue anticipation
notes and project notes, although there are other types of Municipal Notes in
which the Fund may invest. Notes sold in anticipation of collection of taxes, a
bond sale or receipt of other revenues are usually general obligations of the
issuing municipality or agency. Project Notes are issued by local agencies and
are guaranteed by the United States Department of Housing and Urban
Development. Such notes are secured by the full faith and credit of the United
States Government. Project Notes are not currently being issued.
Municipal Commercial Paper. Municipal Commercial Paper refers to short-term
obligations of municipalities the interest from which is, in the opinion of
bond counsel, exempt from federal income tax, and which may be issued at a
discount and is sometimes referred to as Short-Term Discount Notes. Municipal
Commercial Paper is likely to be used to meet seasonal working capital needs of
a municipality or interim construction financing and to be paid from general
revenues of the municipality or refinanced with long-term debt. In most cases,
Municipal Commercial Paper is backed by letters of credit, lending agreements,
note repurchase agreements or other credit facility agreements offered by banks
or other institutions.
Obligations of issuers of Municipal Bonds, Municipal Notes and Municipal
Commercial Paper are subject to provisions of bankruptcy, insolvency and other
laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, which may be enacted by Congress or any state
extending the time for payment of principal or interest, or both, or imposing
other constraints upon enforcement of such obligations or upon municipalities
to levy taxes. There is also the possibility that, as a result of litigation or
other conditions, the power or ability of any one or more issuers to pay, when
due, principal of and interest on its, or their, Municipal Bonds, Municipal
Notes and Municipal Commercial Paper may be materially affected.
Special Investment Considerations. The percentage and rating policies in the
Prospectus apply at the time of acquisition of a security based upon the last
previous determination of the Fund's net asset value; any subsequent change in
any ratings by a rating service or change in percentages resulting from market
fluctuations or other changes in the amount of total assets will not require
elimination of any security from the Fund's portfolio until such time as the
Investment Manager determines that it is practicable to sell the security
without undue market or tax consequences to the Fund. Therefore, the Fund may
hold securities which have been downgraded to ratings of Ba or BB or lower by
Moody's or S&P. Such securities are considered to be speculative investments.
However, the Fund does not intend to invest in Municipal Obligations which are
rated below either Baa by Moody's or BBB by S&P (the lowest ratings considered
investment grade) or, if not rated, are deemed by the Investment Manager to be
below investment grade, in amounts exceeding 5% of its net assets. Any
subsequent change in any rating of any security below investment grade which
causes the Fund to be invested in such securities in an amount exceeding 5% of
its net assets will result in the elimination of that security from the Fund's
portfolio as soon as practicable without adverse market or tax consequences to
the Fund.
Furthermore, the Fund does not have any minimum quality rating standard for
its downgraded or lower-rated investments. As such, the Fund may invest in
securities rated as low as Caa, Ca or C by Moody's or CCC, CC, C, CI or D by
S&P. Bonds rated Caa or Ca by Moody's may already be in default on payment of
interest or principal, while bonds rated C by Moody's, their lowest bond
rating, can be regarded as having extremely poor prospects of ever attaining
any real investment standing. Bonds rated CI or D by S&P, their lowest bond
rating, are no longer making interest payments or are in default.
Because of the special nature of securities which are rated below investment
grade by national credit rating agencies ("lower-rated securities"), the
Investment Manager must take account of certain special considerations in
assessing the risks associated with such investments. For example, as the lower
rated securities market is relatively new, its growth has paralleled a long
economic expansion and it has not weathered a recession in its present size and
form. Therefore, an economic downturn or increase in interest rates is likely
to have a negative effect on this market and on the value of the lower rated
securities held by the Fund, as well as on the ability of the securities'
issuers to repay principal and interest on their borrowings.
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The prices of lower rated securities have been found to be less sensitive to
changes in prevailing interest rates than higher rated investments, but are
likely to be more sensitive to adverse economic changes or individual corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress which
would adversely affect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by the
Fund defaults, the Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and change can be expected to result
in an increased volatility of market prices of lower rated securities and a
concomitant volatility in the net asset value of a share of the Fund. Moreover,
the market prices of certain of the Fund's portfolio securities which are
structured as zero coupon securities are affected to a greater extent by
interest rate changes and thereby tend to be more volatile than securities
which pay interest periodically and in cash (see "Dividends, Distributions and
Taxes" for a discussion of the tax ramifications of investments in such
securities).
The secondary market for lower rated securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Fund's Trustees to arrive at a
fair value for certain lower rated securities at certain times and should make
it difficult for the Fund to sell certain securities.
New laws and proposed new laws may have a potentially negative impact on the
market for lower rated securities. For example, recent legislation requires
federally-insured savings and loan associations to divest their investments in
lower rated securities. This legislation and other proposed legislation may
have an adverse effect upon the value of lower rated securities and a
concomitant negative impact upon the net asset value of a share of the Fund.
PORTFOLIO CHARACTERISTICS
Variable Rate Obligations. As stated in the Prospectus, the Fund may
invest in obligations of the type called "variable rate obligations".
The interest rate payable on a variable rate obligation is adjusted either
at predesignated periodic intervals or whenever there is a change in the market
rate of interest on which the interest rate payable is based. Other features
may include the right whereby the Fund may demand prepayment of the principal
amount of the obligation prior to its stated maturity (a "demand feature") and
the right of the issuer to prepay the principal amount prior to maturity. The
principal benefit of a variable rate obligation is that the interest rate
adjustment minimizes changes in the market value of the obligation. The
principal benefit to the Fund of purchasing obligations with a demand feature
is that liquidity, and the ability of the Fund to obtain repayment of the full
principal amount of the obligation prior to maturity, is enhanced.
When-Issued and Delayed Delivery Securities. As stated in the Prospectus,
the Fund may purchase tax-exempt securities on a when-issued or delayed
delivery 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 or delayed delivery 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 a
Municipal Obligation on a when-issued or delayed delivery basis, it will record
the transaction and thereafter reflect the value, each day, of the Municipal
Obligation in determining its net asset value. The Fund will also establish a
segregated account with its custodian bank in which it will maintain cash, cash
equivalents or other liquid portfolio securities equal in value to commitments
for such when-issued or delayed delivery securities. The Fund does not believe
that its net asset value or income will be adversely affected by its purchase
of Municipal Obligations on a when-issued or delayed delivery basis. The Fund
may sell securities on a when-issued or delayed delivery basis provided that
the Fund owns the security at the time of the sale. During the fiscal year
ended September 30, 1996, the Fund's investments in when-issued and delayed
delivery securities did not exceed 5% of the Fund's total assets.
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Repurchase Agreements. When cash may be available for only a few days, it
may be invested by the Fund in repurchase agreements until such time as it may
otherwise be invested or used for payments of obligations of the Fund. These
agreements, which may be viewed as a type of secured lending by the Fund,
typically involve the acquisition by the Fund of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
("collateral"), which is held by the Fund's Custodian, at a specified price and
at a fixed time in the future, usually not more than seven days from the date
of purchase. The Fund will receive interest from the institution until the time
when the repurchase is to occur. Although such date is deemed by the Fund to be
the maturity date of a repurchase agreement, the maturities of securities
subject to repurchase agreements are not subject to any limits and may exceed
one year. While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions,
whose financial condition will be continually monitored by the Investment
Manager. In addition, the value of the collateral underlying the repurchase
agreement will always be a least equal to the repurchase price, including any
accrued interest earned on the repurchase agreement. In the event of a default
or bankruptcy by a selling financial institution, the Fund will seek to
liquidate such collateral. However, the exercising of the Fund's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
It is the current policy of the Fund not to invest in repurchase agreements
that do not mature within seven days if any such investment, together with any
other illiquid assets held by the Fund, amounts to more than 15% of its net
assets. The Fund's investments in repurchase agreements may at times be
substantial when, in the view of the Investment Manager, liquidity or other
considerations warrant.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
As discussed in the Prospectus, the Fund may invest in financial futures
contracts ("futures contracts") and related options thereon. These futures
contracts and related options thereon will be used only as a hedge against
anticipated interest rate changes. A futures contract sale creates an
obligation by the Fund, as seller, to deliver the specific type of instrument
called for in the contract at a specified future time for a specified price. A
futures contract purchase would create an obligation by the Fund, as purchaser,
to take delivery of the specific type of financial instrument at a specified
future time at a specified price. The specific securities delivered or taken,
respectively, at settlement date, would not be determined until on or near that
date. The determination would be in accordance with the rules of the exchange
on which the futures contract sale or purchase was effected.
Although the terms of futures contracts specify actual delivery or receipt
of securities, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the securities.
Closing out of a futures contract is usually effected by entering into an
offsetting transaction. An offsetting transaction for a futures contract sale
is effected by the Fund entering into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument at the same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is immediately paid the difference and thus realizes a gain.
If the offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the closing out of a futures
contract purchase is effected by the Fund entering into a futures contract
sale. If the offsetting sale price exceeds the purchase price the Fund realizes
a gain, and if the offsetting sale price is less than the purchase price the
Fund realizes a loss.
Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract (a long
position in the case of a call option and a short position in the case of a put
option). If the holder decides not to enter into the contract, the premium paid
for the contract is lost. Since
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<PAGE>
the value of the option is fixed at the point of sale, there are no daily
payments of cash to reflect the change in the value of the underlying contract,
as discussed below for futures contracts. The value of the option changes is
reflected in the net asset value of the Fund.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects futures contracts and options thereon. The initial
margin requirements vary according to the type of the underlying security. In
addition, due to current industry practice, daily variations in gains and
losses on open contracts are required to be reflected in cash in the form of
variation margin payments. The Fund may be required to make additional margin
payments during the term of the contract.
Currently, 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, Certificates of the Government National Mortgage Association,
Bank Certificates of Deposit and on a municipal bond index (see below). The
Fund may invest in interest rate futures contracts covering these types of
financial instruments as well as in new types of contracts that become
available in the future.
Financial futures contracts are traded in an auction environment on the
floors of several Exchanges--principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. Each Exchange
guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the Exchange membership which
is also responsible for handling daily accounting of deposits or withdrawals of
margin.
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities subject to
futures contracts may correlate imperfectly with the behavior of the cash
prices of the Fund's portfolio securities. The correlation may be distorted by
the fact that the futures market is dominated by short-term traders seeking to
profit from the difference between a contract or security price objective and
their cost of borrowed funds. This would reduce the value of futures contracts
for hedging purposes over a short time period. The correlation may be further
distorted since the futures contracts that are being used to hedge are not
based on municipal obligations.
Another risk is that the Fund's Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements
or the time span within which the movements take place. For example, if the
Fund sold futures contracts for the sale of securities in anticipation of an
increase in interest rates, and then interest rates went down instead, causing
bond prices to rise, the Fund would lose money on the sale.
Put and call options on financial futures have characteristics similar to
Exchange traded options. For a further description of options, see below and
the Prospectus.
In addition to the risks associated in investing in options on securities,
there are particular risks associated with investing in options on futures. In
particular, the ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary
market. It is not certain that such a market will develop.
In order to assure that the Fund is entering into transactions in futures
contracts for hedging purposes as such is defined by the Commodity Futures
Trading Commission either: 1) a substantial majority (i.e., approximately 75%)
of all anticipatory hedge transactions (transactions in which the Fund does not
own at the time of the transaction, but expects to acquire, the securities
underlying the relevant futures contract) involving the purchase of futures
contracts will be completed by the purchase of securities which are the subject
of the hedge or 2) the underlying value of all long positions in futures
contracts will not exceed the total value of a) all short-term debt obligations
held by the Fund; b) cash held by the Fund; c) cash proceeds due to the Fund on
investments within thirty days; d) the margin deposited on the contracts; and
e) any unrealized appreciation in the value of the contracts.
The Fund may not enter into futures contracts or related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
option premiums exceeds 5% of the value of the Fund's total assets. In
instances involving the purchase of futures contracts by the Fund, an amount
equal to the market value of the futures contract will be deposited in a
segregated account of cash and
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<PAGE>
cash equivalents to collateralize the position and thereby ensure that the use
of such futures is unleveraged. The Fund may not purchase or sell futures
contracts or related options if, immediately thereafter, more than one-third of
its net assets would be hedged.
Municipal Bond Index Futures--The Fund may utilize municipal bond index
futures contracts and options thereon for hedging purposes. The Fund's
strategies in employing such contracts will be similar to that discussed above
with respect to financial futures and options thereon. A municipal bond index
is a method of reflecting in a single number the market value of many different
municipal bonds and is designed to be representative of the municipal bond
market generally. The index fluctuates in response to changes in the market
values of the bonds included within the index. Unlike futures contracts on
particular financial instruments, futures contracts on a municipal bond index
will be settled in cash if held until the close of trading in the contract.
However, as in any other futures contract, a position in the contract may be
closed out by purchase or sale of an offsetting contract for the same delivery
month prior to expiration of the contract.
Options--The Fund may purchase or sell (write) options on debt securities as
a means of achieving additional return or hedging the value of the Fund's
portfolio. The Fund will only buy options listed on national securities
exchanges. The Fund will not purchase options if, as a result, the aggregate
cost of all outstanding options exceeds 10% of the Fund's total assets.
Presently there are no options on tax-exempt securities traded on national
securities exchanges and until such time as they become available, the Fund
will not invest in options on debt securities.
A call option is a contract that gives the holder of the option the right to
buy from the writer of the call option, in return for a premium, the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option has the obligation, upon exercise
of the option, to deliver the underlying security upon payment of the exercise
price during the option period. A put option is a contract that gives the
holder of the option the right to sell to the writer, in return for a premium,
the underlying security at a specified price during the term of the option. The
writer of the put has the obligation to buy the underlying security upon
exercise, at the exercise price during the option period.
The Fund will only write covered call or covered put options listed on
national exchanges. The Fund may not write covered options in an amount
exceeding 20% of the value of its total assets. A call option is "covered" if
the Fund owns the underlying security covered by the call or has an absolute
and immediate right to acquire that security or futures contract without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds a call on the same security or futures contract as the call written,
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written or (ii) greater than the exercise price of
the call written if the difference is maintained by the Fund in cash, Treasury
bills or other liquid portfolio securities in a segregated account with its
custodian. A put option is "covered" if the Fund maintains cash, Treasury bills
or other liquid portfolio securities with a value equal to the exercise price
in a segregated account with its custodian, or else holds a put on the same
security or futures contract as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the holder of an
option, it may liquidate its position by effecting a closing sale transaction.
This is accomplished by selling an option of the same series as the option
previously purchased. There can be no assurance that either a closing purchase
or sale transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is more than the
premium
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<PAGE>
received from writing the option or is less than the premium paid to purchase
the option. Since call option prices generally reflect increases in the price
of the underlying security, any loss resulting from the purchase of a call
option may also be wholly or partially offset by unrealized appreciation of the
underlying security. If a put option written by the Fund is exercised, the Fund
may incur a loss equal to the difference between the exercise price of the
option and the sum of the sale price of the underlying security plus the
premiums received from the sale of the option. Other principal factors
affecting the market value of a put or a call option include supply and demand,
interest rates, the current market price and price volatility of the underlying
security and the time remaining until the expiration date.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market
on an exchange will exist for any particular option. In such event, it might
not be possible to effect closing transactions in particular options, so that
the Fund would have to exercise its options in order to realize any profit and
would incur brokerage commissions upon the exercise of call options and upon
the subsequent disposition of underlying securities for the exercise of put
options. If the Fund as a covered call option writer is unable to effect a
closing purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the underlying
security upon exercise.
PORTFOLIO MANAGEMENT
The Fund may engage in short-term trading consistent with its investment
objective. Securities may be sold in anticipation of a market decline (a rise
in interest rates) or purchased in anticipation of a market rise (a decline in
interest rates). In addition, a security may be sold and another security of
comparable quality purchased at approximately the same time to take advantage
of what the Investment Manager believes to be a temporary disparity in the
normal yield relationship between the two securities. These yield disparities
may occur for reasons not directly related to the investment quality of
particular issues or the general movement of interest rates, such as changes in
the overall demand for, or supply of, various types of tax-exempt securities.
In general, purchases and sales may also be made to restructure the
portfolio in terms of average maturity, quality, coupon yield, or
diversification for any one or more of the following purposes: (a) to increase
income, (b) to improve portfolio quality, (c) to minimize capital depreciation,
(d) to realize gains or losses, or for such other reasons as the Investment
Manager deems relevant in light of economic and market conditions.
The Fund may invest in obligations customarily sold to institutional
investors in private transactions with the issuers thereof and up to 5% of its
total assets in securities for which a bona fide market does not exist at the
time of purchase. With respect to any securities as to which a bona fide market
does not exist, the Fund may be unable to dispose of such securities promptly
at reasonable prices.
The Fund does not generally intend to invest more than 25% of its total
assets in securities of any one governmental unit or in the securities of
governmental units located in any one state, territory or possession of the
United States. Subject to investment restriction number 3 disclosed in the
Prospectus under the Section "Investment Restrictions," the Fund may invest
more than 25% of its total assets in industrial development and pollution
control bonds (two kinds of tax-exempt Municipal Bonds).
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, which 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% of the shares present at a meeting
of shareholders, if the holders of more than 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. For purposes of the following restrictions: (a)
an "issuer" of a security is the entity whose assets and revenues are committed
to the payment of
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interest and principal on that particular security; (b) a "taxable security" is
any security the interest on which is subject to federal income tax; and (c)
all percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting
from market fluctuations or other changes in the amount of total or net assets
does not require elimination of any security from the portfolio.
The Fund may not:
1. Purchase or sell real estate or interests therein, although it may
purchase securities secured by real estate or interests therein. This shall
not prohibit the Trust from purchasing, holding and selling real estate
acquired as a result of the ownership of such securities.
2. Purchase or sell commodities except that the Fund may purchase or sell
financial futures contracts and related options thereon.
3. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs.
4. Write, purchase or sell puts, calls, or combinations thereof, except
for options on futures contracts or options on debt securities.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
6. 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 the value of its total assets (not
including the amount borrowed).
7. Pledge its assets or assign or otherwise encumber them except to
secure borrowing effected within the limitations set forth in Restriction
6. However, for the purpose of this restriction, collateral arrangements
with respect to the writing of options and collateral arrangements with
respect to initial margin for futures are not deemed to be pledges of
assets.
8. Issue senior securities as defined in the Act, except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; (c) purchasing or selling any
financial futures contracts; (d) borrowing money in accordance with
restrictions described above; or (e) lending portfolio securities.
9. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Fund may invest consistent with its
investment objective and policies; and (b) by investment in repurchase
agreements.
10. Make short sales of securities.
11. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities.
12. 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.
13. Invest for the purpose of exercising control or management of any
other issuer.
In addition, as a nonfundamental policy, the Fund may not (i) invest in
securities of any issuer if, to the knowledge of the Fund, any officer or
trustee of the Fund or any officer or director of the Manager or the Adviser
owns more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuers; or (ii)
purchase securities of other investment companies, except in connection with a
merger, consolidation, reorganization or acquisition of assets or by purchase
in the open market of securities of closed-end investment companies where no
underwriter's or dealer's commission or profit, other than customary broker's
commissions, is involved and only if immediately
18
<PAGE>
thereafter not more than (a) 5% of the Fund's total assets, taken at market
value, would be invested in any one such company, (b) 10% of the Fund's total
assets, taken at market value, would be invested in such securities and (c) 3%
of any one such company's voting securities would be owned by the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -----------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the Investment
Manager is responsible for decisions to buy and sell securities and futures
contracts for the 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 account 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. During the fiscal period June 2, 1994 through September 30, 1994 and
during the fiscal years ended September 30, 1995 and September 30, 1996, the
Fund paid no brokerage commissions.
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 are 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 opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain
initial and secondary public offerings, the Investment Manager may utilize a
pro-rata allocation process based on the size of the Dean Witter Funds involved
and the number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities and
futures contracts for its portfolio is that primary consideration will be given
to obtaining the most favorable prices and efficient execution of transactions.
Consistent with this policy, when securities transactions are effected on a
stock exchange, the Fund's policy is to pay commissions which are considered
fair and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a requirement
always to seek the lowest commission cost could impede effective portfolio
management and preclude the Fund and the Investment Manager from obtaining a
high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager relies upon its experience and knowledge regarding commissions
generally charged by various brokers and on its judgment in evaluating the
brokerage and research services received from the broker effecting the
transaction. Such determinations are necessarily subjective and imprecise, as
in most cases an exact dollar value for those services is not ascertainable.
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 who are capable of providing efficient
executions. If the Investment Manager believes such price and execution are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. Such
services may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities.
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<PAGE>
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thus reduce its expenses, it
is of indeterminable value and the management fee paid to the Investment
Manager is not reduced by any amount that may be attributable to the value of
such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper (not including Tax-Exempt Municipal
Paper). Such transactions will be effected with DWR only when the price
available from DWR is better than that available from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR. In order for DWR to effect portfolio transactions for
the Fund, the commissions, fees or other remuneration received by DWR must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. This standard would allow DWR to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker
in a commensurate arm's-length transaction. Furthermore, the Trustees of the
Fund, including a majority of the Trustees who are not "interested" Trustees,
have adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to DWR are consistent with the
foregoing standard. The Fund did not effect any securities transactions with or
through DWR or any other selected broker-dealer affiliated with the Fund or its
Investment Manager during the fiscal year ended September 30, 1996.
THE DISTRIBUTOR
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As discussed in the Prospectus, shares of the Fund are distributed by Dean
Witter Distributors Inc. (the "Distributor"). The Distributor has entered into
a selected dealer agreement with DWR, which through its own sales organization
sells shares of the Fund. In addition, the Distributor may enter into selected
dealer agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is an indirect wholly-owned subsidiary of DWDC. The
Trustees of the Fund, including a majority of the Trustees who are not, and
were not at the time they voted, interested persons of the Fund, as defined in
the Act (the "Independent Trustees"), approved, at their meeting held on May
10, 1994, the current Distribution Agreement appointing the Distributor as
exclusive distributor of the Fund's shares and providing for the Distributor to
bear distribution expenses not borne by the Fund. By its terms, the
Distribution Agreement had an initial term ending April 30, 1995, and provides
that it will remain in effect from year to year thereafter if approved by the
Board. At its meeting held on April 17, 1996, the Board of Trustees, including
all of the Independent Trustees, approved the continuation of the Distribution
Agreement until April 30, 1997.
The Distributor bears all expenses incurred in providing services under the
Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives.
The Distributor also pays certain expenses in connection with the distribution
of the Fund's shares, including the costs of preparing, printing and
distributing advertising or promotional materials, and the costs of printing
and distributing prospectuses and supplements thereto used in connection with
the offering and sale of the Fund's shares. The Fund bears the costs of initial
typesetting, printing and distribution of prospectuses and supplements thereto
to shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws. The Fund and the Distributor
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absense of willful misfeasance, bad faith,
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<PAGE>
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
To compensate the Distributor for the services provided and for the expenses
borne by the Distributor or any selected dealer under the Distribution
Agreement, the Fund has adopted a Plan of Distribution pursuant to Rule 12b-1
under the Act (the "Plan") pursuant to which the Fund pays the Distributor
compensation accrued daily and payable monthly at the annual rate of 0.60% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's shares
since the inception of the Fund (not including reinvestments of dividends or
capital gains distributions), less the average daily aggregate net asset value
of the Fund's shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or upon which such charge has
been waived; or (b) the Fund's average daily net assets. The Distributor also
receives the proceeds of contingent deferred sales charges imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan (see "Redemption and Repurchases--Contingent Deferred Sales Charge"
in the Prospectus). The Distributor has informed the Fund that it and/or DWR
received approximately $4,100, $144,389 and $175,876, respectively, in
contingent deferred sales charges for the fiscal period June 2, 1994 through
September 30, 1994 and for the fiscal years ended September 30, 1995 and
September 30, 1996.
The Distributor has informed the Fund that an amount of the fees payable by
the Fund each year pursuant to the Plan of Distribution equal to 0.15% of the
Fund's average daily net assets is characterized as a "service fee" under the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
(of which the Distributor is a member). Such fee is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion
of the Plan of Distribution fee payments made by the Fund is characterized as
an "asset-based sales charge" as such is defined by the aforementioned Rules of
Fair Practice. At their meeting held on October 26, 1995, the Trustees of the
Fund, including all of the Independent 12b-1 Trustees, approved an amendment to
the Plan to permit payments to be made under the Plan with respect to certain
distribution expenses incurred in connection with the distribution of shares,
including personal services to shareholders with respect to holdings of such
shares, of an investment company whose assets are acquired by the Fund in a
tax-free reorganization.
The Plan was adopted by a vote of the Trustees of the Fund on May 10, 1994,
at a meeting of the Trustees called for the purpose of voting on such Plan. The
vote included the vote of a majority of the Trustees of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and who have no direct
or indirect financial interest in the operation of the Plan (the "Independent
12b-1 Trustees"). 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. InterCapital, as sole shareholder of the Fund,
approved the Plan on May 10, 1994, whereupon the Plan went into effect.
Under its terms, 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 in the manner described above.
Under the Plan and as required by Rule 12b-1, the Trustees will receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended by the Distributor under the Plan
and the purpose for which such expenditures were made. At its meeting held on
April 17, 1996, the Board of Trustees, including all of the Independent
Trustees, approved the continuation of the Plan until April 30, 1997. Prior to
approving the continuation of the Plan, the Board requested and received from
the Distributor and reviewed all the information which it deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience
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<PAGE>
indicates that the Plan is operating as anticipated; (2) the benefits the Fund
had obtained, was obtaining and would be likely to obtain under the Plan; and
(3) what services had been provided and were continuing to be provided under
the Plan by the Distributor, DWR and other selected broker-dealers to the Fund
and its shareholders. Based upon their review, the Trustees of the Fund,
including each of the Independent 12b-1 Trustees, determined that continuation
of the Plan would be in the best interest of the Fund and would have a
reasonable likelihood of continuing to benefit the Fund and its shareholders.
This determination was based upon the conclusion of the Trustees that the Plan
provides an effective means of stimulating sales of shares of the Fund and of
reducing or avoiding net redemptions and the potentially adverse effects that
may occur therefrom. In the Trustee's quarterly review of the Plan, they will
consider its continued appropriateness and the level of compensation provided
therein.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended by the Distributor under the Plan
and the purpose for which such expenditures were made. The Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended
September 30, 1996, of $452,823. This amount is equal to 0.59% of the Fund's
average daily net assets for the fiscal year and was calculated pursuant to
clause (a) of the compensation formula under the Plan. This amount is treated
by the Fund as an expense in the year it is accrued.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method shares of the Fund are
sold without a sales load being deducted at the time of purchase, so that the
full amount of an investor's purchase payment will be invested in shares
without any deduction for sales charges. Shares of the Fund may be subject to a
contingent deferred sales charge, payable to the Distributor, if redeemed
during the three years after their purchase. DWR compensates its account
executives by paying them, from its own funds, commissions for the sale of the
Fund's shares, currently a gross sales credit of up to 3% of the amount sold
and an annual residual commission of up to .15 of 1% of the current value of
the amount sold. The gross sales credit is a charge which reflects commissions
paid by DWR to its account executives and DWR's Fund associated
distribution-related expenses, including sales compensation, and overhead and
other branch office distribution-related expenses including: (a) the expenses
of operating DWR's branch offices in connection with the sale of Fund shares,
including lease costs, the salaries and employee benefits of operations and
sales support personnel, utility costs, communications costs and the costs of
stationery and supplies; (b) the costs of client sales seminars; (c) travel
expenses of mutual fund sales coordinators to promote the sale of Fund shares;
and (d) other expenses relating to branch promotion of Fund share sales. The
distribution fee that the Distributor receives from the Fund under the Plan, in
effect, offsets distribution expenses incurred under the Plan on behalf of the
Fund and its opportunity costs, such as the gross sales credit and an assumed
interest charge thereon ("carrying charge"). In the Distributor's reporting of
the distribution expenses to the Fund, such assumed interest (computed at the
"broker's call rate") has been calculated on the gross sales credit as it is
reduced by amounts received by the Distributor under the Plan and any
contingent deferred sales charges received by the Distributor upon redemption
of shares of the Fund. No other interest charge is included as a distribution
expense in the Distributor's calculation of its distribution costs for this
purpose. The broker's call rate is the interest rate charged to securities
brokers on loans secured by exchange-listed securities.
The Fund paid 100% of the $452,823 accrued under the Plan for the fiscal
year ended September 30, 1996 to the Distributor. The Distributor and DWR
estimate that they have spent, pursuant to the Plan, $3,273,255 on behalf of
the Fund since the inception of the Fund. It is estimated that this amount was
spent in approximately the following ways: (i) 24.42% ($799,414)--advertising
and promotional expenses; (ii) 5.00% ($163,737)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 70.58%
($2,310,104)--other expenses, including the gross sales credit and the carrying
charge, of which 5.10% ($117,707) represents carrying charges, 37.77%
($872,574) represents commission credits to DWR branch offices for payments of
commissions to account executives and 57.13% ($1,319,823) represents overhead
and other branch office distribution-related expenses.
At any given time, the expenses of distributing shares of the Fund may be
more or less than the total of (i) the payments made by the Fund pursuant to
the Plan and (ii) the proceeds of contingent deferred
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<PAGE>
sales charges paid by investors upon redemption of shares. The Distributor has
advised the Fund that such excess amount, including the carrying charge
designed to approximate the opportunity costs incurred by DWR which arise from
it having advanced monies without having received the amount of any sales
charges imposed at the time of sale of the Fund's shares, totalled $2,185,656
as of September 30, 1996. Because there is no requirement under the Plan that
the Distributor be reimbursed for all its expenses or any requirement that the
Plan be continued from year to year, this excess amount does not constitute a
liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
Any cumulative expenses incurred but not yet recovered through distribution
fees or contingent deferred sales charges, may or may not be recovered through
future distribution fees or contingent deferred sales charges.
No interested person of the Fund, nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that the Distributor, InterCapital, DWR or certain of their employees may be
deemed to have such an interest as a result of benefits derived from the
successful operation of the Plan or as a result of receiving a portion of the
amounts expended thereunder by the Fund.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
Fund, and all material amendments of the Plan must also be approved by the
Trustees in the manner described above. The Plan may be terminated at any time,
without payment of any penalty, by vote of a majority of the Independent 12b-1
Trustees or by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the Act) on not more than thirty days' written notice to
any other party to the Plan. So long as the Plan is in effect, the election and
nomination of Independent Trustees shall be committed to the discretion of the
Independent Trustees.
DETERMINATION OF NET ASSET VALUE
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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 market value as determined by the Trustees. All other securities and
other assets are valued at their fair value as determined in good faith under
procedures established by and under the supervision of the Trustees.
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 its
liabilities, dividing by the number of shares outstanding and adjusting to the
nearest cent. The New York Stock Exchange currently observes the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities (other than short-term debt securities and futures and
options) are valued for the Fund by an outside independent pricing service
approved by the Board of Trustees. The pricing service has informed the Fund
that in valuing the Fund's portfolio securities it uses both a computerized
grid matrix of tax-exempt securities and evaluations by its staff, in each case
based on information concerning market transactions and quotations from dealers
which reflect the bid side of the market each day. The Fund's portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. The Board of
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Trustees believes that timely and reliable market quotations are generally not
readily available to the Fund for purposes of valuing tax-exempt securities and
that the valuations supplied by the pricing service, using the procedures
outlined above and subject to periodic review, are more likely to approximate
the fair value of such securities. The Investment Manager will periodically
review and evaluate the procedures, methods and quality of services provided by
the pricing service then being used by the Fund and may, from time to time,
recommend to the Board of Trustees the use of other pricing services or
discontinuance of the use of any pricing service in whole or part. The Board
may determine to approve such recommendation or take other provisions for
pricing of the Fund's portfolio securities.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund, maintained by the Fund's
Transfer Agent, Dean Witter Trust Company (the "Transfer Agent"). This is an
open account in which shares owned by the investor are credited by the Transfer
Agent in lieu of issuance of a share certificate. If a share 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 DWR or other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the Fund, 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.
Targeted Dividends. (Service Mark) In states where it is legally
permissible, shareholders may also have all income dividends and capital gains
distributions automatically invested in shares of an open-end Dean Witter Fund
other than Dean Witter National Municipal Trust. Such investment will be made
as described above for automatic investment in shares of the Fund, at the net
asset value per share of the selected Dean Witter Fund as of the close of
business on the Fund's payment date of the dividend or distribution and will
begin to earn dividends, if any, in the selected Dean Witter Fund the next
business day. To participate in the Targeted Dividends program, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent. Shareholders of the Fund must be shareholders of the Dean
Witter Fund targeted to receive investments from dividends at the time they
enter the Targeted Dividends program. Investors should review the prospectus of
the targeted Dean Witter Fund before entering the program.
EasyInvest. (Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account
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at the net asset value calculated the same business day the transfer of funds
is effected. For further information or to subscribe to EasyInvest,
shareholders should contact their DWR or other selected broker-dealer account
executive or the Transfer Agent.
Investment of Dividends or 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 by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset
value per share next determined after receipt of the proceeds by the Transfer
Agent.
Direct Investments through Transfer Agent. A shareholder may make additional
investments in Fund shares at any time by sending a check in any amount, not
less than $100, payable to Dean Witter National Municipal Trust, directly to
the Fund's Transfer Agent. Such amounts will be applied to the purchase of Fund
shares at the net asset value per share next determined after receipt of the
check or purchase payment by the Transfer Agent. The shares so purchased will
be credited to the investor's account.
Systematic Withdrawal Plan. As discussed in the Prospectus, a 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 their current
net asset value. The Withdrawal Plan provides for monthly or quarterly (March,
June, September and December) checks in any dollar amount, not less than $25,
or in any whole percentage of the account balance, on an annualized basis. Any
applicable contingent deferred sales charge will be imposed on shares redeemed
under the Withdrawal Plan (see "Redemptions and Repurchases--Contingent
Deferred Sales Charge" in the Prospectus). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable contingent
deferred sales charge) to the shareholder will be the designated monthly or
quarterly amount.
Dividends and capital gains distributions on shares held under the
Withdrawal Plan will be invested in additional full and fractional shares at
net asset value. Shares will be credited to an open account for the investor by
the Transfer Agent; no share certificates will be issued. A shareholder is
entitled to a share certificate upon written request to the Transfer Agent,
although in that event the shareholder's 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 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 days after the date of redemption. The Systematic Withdrawal
Plan may be terminated at any time by the Transfer Agent.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the contingent deferred sales charge
applicable to the redemption of shares purchased during the preceding six years
(see "Redemptions and Repurchases--Contingent Deferred Sales Charge").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should
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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 by written notification to the Transfer Agent. In addition,
the party and/or the address to which checks are mailed may be changed by
written notification to the Transfer Agent, with signature guarantees required
in the manner described above. The shareholder may also terminate the
Systematic Withdrawal Plan at any time by written notice to the Transfer Agent.
In the event of such termination, the account will be continued as a
Shareholder Investment Account. The shareholder may also redeem all or part of
the shares held in the Withdrawal Plan Account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of the Fund may exchange their
shares for shares of other Dean Witter Funds sold with a contingent deferred
sales charge ("CDSC funds"), for shares of Dean Witter Short-Term Bond Fund,
Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal
Trust, Dean Witter Balanced Income Fund, Dean Witter Balanced Growth Fund, Dean
Witter Intermediate Term U.S. Treasury Trust and for shares of five Dean Witter
Funds which are money market funds (the foregoing eleven non-CDSC funds are
hereinafter referred to as the "Exchange Funds"). Exchanges may be made after
the shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment. An exchange
will be treated for federal income tax purposes the same as a repurchase or
redemption of shares, on which the shareholder may realize a capital gain or
loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed).
As described below, and in the Prospectus under the captions "Exchange
Privilege" and "Contingent Deferred Sales Charge", a contingent deferred sales
charge ("CDSC") may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of the Fund or any
other CDSC fund are exchanged for shares of an Exchange Fund, 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 an Exchange Fund, they will be subject to a CDSC which would be based upon
the period of time the shareholder held shares in a CDSC fund. However, in the
case of shares exchanged for shares of an Exchange Fund, upon a redemption of
shares which results in a CDSC being imposed, a credit (not to exceed the
amount of the CDSC) will be given in an amount equal to the Exchange Fund 12b-1
distribution fees which are attributable to those shares. Shareholders
acquiring shares of an Exchange Fund pursuant to this exchange privilege may
exchange those shares back into a CDSC fund from the Exchange Fund, with no
CDSC being imposed on such exchange. The holding period previously frozen when
shares were first exchanged for shares of the Exchange Fund resumes on the date
shares of a CDSC fund are reacquired. Thus, a CDSC is imposed only upon an
ultimate redemption, based upon the time (calculated as described above) the
shareholder was invested in a CDSC fund.
If shares of the Fund are exchanged for shares of another CDSC fund having a
CDSC which is imposed at a higher rate or is subject to a different time
schedule than the CDSC imposed upon a redemption of a share of the Fund, the
higher CDSC will be imposed upon redemption of shares of the fund exchanged
into. Likewise, if shares of another CDSC fund are exchanged for shares of the
Fund,
26
<PAGE>
upon redemption of shares of the Fund, a CDSC will be imposed in accordance
with the CDSC schedule applicable to the fund with the higher CDSC. Moreover,
if shares of the Fund are exchanged for shares of another CDSC fund with a
different CDSC schedule imposing a higher CDSC and are subsequently exchanged
again for shares of the Fund, the higher CDSC will still apply upon ultimate
redemption of shares of the Fund.
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for shares
of other Dean Witter Funds for which shares of a front-end sales charge fund
have been exchanged) are not subject to any CDSC upon their redemption.
When shares initially purchased in a CDSC fund are exchanged for shares of
another CDSC fund, or for shares of an Exchange Fund, the date of purchase of
the shares of the fund exchanged into, for purposes of the CDSC upon
redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments
between funds for purposes of the CDSC, the amount which represents the current
net asset value of shares at the time of the exchange which were (i) purchased
more than three or six years (depending on the CDSC schedule applicable to the
shares) prior to the exchange, (ii) originally acquired through reinvestment of
dividends or distributions (of the Fund or another Dean Witter Fund) and (iii)
acquired in exchange for shares of front-end sales charge funds, or for shares
of other Dean Witter Funds for which shares of front-end sales charge funds
have been exchanged (all such shares called "Free Shares"), will be exchanged
first. Shares of Dean Witter Strategist Fund acquired prior to November 8,
1989, shares of Dean Witter American Value Fund acquired prior to April 30,
1984, and shares of Dean Witter Dividend Growth Securities Inc. and Dean Witter
Natural Resource Development Securities Inc. acquired prior to July 2, 1984,
are also considered Free Shares and will be the first Free Shares to be
exchanged. After an exchange, all dividends earned on shares in an Exchange
Fund will be considered Free Shares. If the exchanged amount exceeds the value
of such Free Shares, an exchange is made, on a block-by-block basis, of
non-Free Shares held for the longest period of time (except that if shares held
for identical periods of time but subject to different CDSC schedules are held
in a block 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 Prospectus under
the caption "Contingent Deferred Sales Charge", any applicable CDSC will be
imposed upon the ultimate redemption of shares of any fund, regardless of the
number of exchanges since those shares were originally purchased.
With respect to the repurchase of shares of the Fund, the application of
proceeds to the purchase of new shares in the Fund or any other of the funds
and the general administration of the Exchange Privilege, the Transfer Agent
acts as agent for the Distributor and for the shareholder's selected
broker-dealer, if any, in the performance of such functions.
With respect to exchanges, redemptions or repurchases, the Transfer Agent
shall be liable for its own negligence and not for the default or negligence of
its correspondents or for losses in transit. The Fund shall not be liable for
any default or negligence of the Transfer Agent, the Distributor or any
selected broker-dealer.
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The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any
other fund and the general administration of the Exchange Privilege. No
commission or discounts will be paid to the Distributor or any selected
broker-dealer for any transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000 for
Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income Trust,
Dean Witter New York Municipal Money Market Trust and Dean Witter California
Tax-Free Daily Income Trust although those funds may, at their discretion,
accept initial investments of as low as $1,000. The minimum initial investment
for Dean Witter Short-Term U.S. Treasury Trust is $10,000 although that fund
may, at its discretion, accept initial investments of as low as $5,000. The
minimum initial investment is $5,000 for Dean Witter Special Value Fund. The
minimum initial investment for all other Dean Witter Funds for which the
Exchange Privilege is available is $1,000.) Upon exchange into an Exchange
Fund, the shares of that fund will be held in a special Exchange Privilege
Account separately from accounts of those shareholders who have acquired their
shares directly from that fund. As a result, certain services normally
available to shareholders of Exchange Funds, including the check writing
feature, will not be available for funds held in that account.
The Fund and each of the other Dean Witter Funds may limit the number of
times this Exchange Privilege may be exercised by any investor within a
specified period of time. Also, the Exchange Privilege may be terminated or
revised at any time by the Fund and/or any of the Dean Witter Funds for which
shares of the Fund have been exchanged, upon such notice as may be required by
applicable regulatory agencies (presently sixty days prior written notice for
termination or material revision), provided that six months prior written
notice of termination will be given to the shareholders who hold shares of
Exchange Funds, pursuant to the Exchange Privilege and provided further that
the Exchange Privilege may be terminated or materially revised without notice
at times (a) when the New York Stock Exchange is closed for other than
customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange Commission
by order so permits (provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist), or (e) if the Fund would be unable to invest
amounts effectively in accordance with its investment objective(s), policies
and restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other selected broker-dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of the Fund can be redeemed
for cash at any time at the net asset value per share next determined; however,
such redemption proceeds may be reduced by the amount of any applicable
contingent deferred sales charges (see below). If shares are held in a
shareholder's account without a share certificate, a written request for
redemption to the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303
is required. If certificates are held by the shareholder, the shares may be
redeemed by surrendering the certificates with a written request for
redemption. The share certificate, or an accompanying stock power, and the
request for redemption, must be signed by the shareholder or shareholders
exactly as the shares are registered. Each request for redemption, whether or
not accompanied by a share certificate, must be sent to the Fund's Transfer
Agent, which will redeem the shares at their net asset value next computed (see
"Purchase of Fund Shares" in the Prospectus) after it receives the request, and
certificate, if any, in good order. Any redemption request received after such
computation will be redeemed at the next determined net asset value. The term
"good order" means that the share certificate, if any, and request for
redemption are properly signed, accompanied by any documentation required by
the Transfer Agent, and bear signature guarantees when required by the Fund or
the Transfer Agent. If redemption is requested by a
28
<PAGE>
corporation, partnership, trust or fiduciary, the Transfer Agent may require
that written evidence of authority acceptable to the Transfer Agent be
submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other
than the Distributor or a selected broker-dealer for the account of the
shareholder), partnership, trust or fiduciary, or sent to the shareholder at an
address other than the registered address, signatures must be guaranteed by an
eligible guarantor acceptable to the Transfer Agent (shareholders should
contact the Transfer Agent for a determination as to whether a particular
institution is such an eligible guarantor). A stock power may be obtained from
any dealer or commercial bank. The Fund may change the signature guarantee
requirements from time to time upon notice to shareholders, which may be by
means of a revised prospectus.
Contingent Deferred Sales Charge. As stated in the Prospectus, a contingent
deferred sales charge ("CDSC") will be imposed on any redemption by an investor
if after such redemption the current value of the investor's shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Fund shares during the preceding three years. However, no CDSC will
be imposed to the extent that the net asset value of the shares redeemed does
not exceed: (a) the current net asset value of shares purchased more than three
years prior to the redemption, plus (b) the current net asset value of shares
purchased through reinvestment of dividends or distributions of the Fund or
another Dean Witter Fund (see "Shareholder Services--Targeted Dividends"), plus
(c) the current net asset value of shares acquired in exchange for (i) shares
of Dean Witter front-end sales charge funds, or (ii) shares of other Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged (see "Shareholder Services--Exchange Privilege"), plus (d) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Fund shares made during the preceding three years.
The CDSC will be paid to the Distributor. In addition, no CDSC will be imposed
on redemptions of shares which were purchased by certain Unit Investment Trusts
(on which a sales charge has been paid) or which are attributable to
reinvestment of dividends or distributions from, or the proceeds of, such Unit
Investment Trusts.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last three years will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than three years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter front-end sales charge funds, or for shares
of other Dean Witter funds for which shares of front-end sales charge funds
have been exchanged. A portion of the amount redeemed which exceeds an amount
which represents both such increase in value and the value of shares purchased
more than three years prior to the redemption and/or shares purchased through
reinvestment of dividends or distributions and/or shares acquired in the
above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Fund shares until the time of
redemption of such shares. For purposes of determining the number of years from
the time of any payment for the purchase of shares, all payments made during a
month will be aggregated and deemed to have been made on the last day of the
month. The following table sets forth the rates of the CDSC:
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- ------------------------- -----------------------
First .................... 3.0%
Second ................... 2.0%
Third .................... 1.0%
Fourth and thereafter ... None
29
<PAGE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable three year period. This will result in any such CDSC being imposed
at the lowest possible rate. Accordingly, shareholders may redeem, without
incurring any CDSC, amounts equal to any net increase in the value of their
shares above the amount of their purchase payments made within the past three
years and amounts equal to the current value of shares purchased more than
three years prior to the redemption and shares purchased through reinvestment
of dividends or distributions or acquired in exchange for shares of Dean Witter
front-end sales charge funds, or for shares of other Dean Witter Funds for
which shares of front-end sales charge funds have been exchanged. The CDSC will
be imposed in accordance with the table shown above, on any redemptions within
three years of purchase which are in excess of these amounts and which
redemptions are not (a) requested within one year of death or initial
determination of disability of a shareholder, or (b) made pursuant to certain
taxable distributions from retirement plans or retirement accounts, as
described in the Prospectus.
Payment for Shares Redeemed or Repurchased. As discussed in the Prospectus,
payment for shares presented for repurchase or redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate and/or
written request in good order. The term good order means that the share
certificate, if any, and request for redemption are properly signed,
accompanied by any documentation required by the Transfer Agent, and bear
signature guarantees when required by the Fund or the Transfer Agent. Such
payment may be postponed or the right of redemption suspended at times (a) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) during any other
period when the Securities and Exchange Commission by order so permits;
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist. If the shares to be redeemed have recently been purchased by check
(including a certified or bank cashier's check), payment of redemption proceeds
may be delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
investment of the proceeds of the check by the Transfer Agent). Shareholders
maintaining margin accounts with DWR or another selected broker-dealer are
referred to their account executive regarding restrictions on redemption of
shares of the Fund pledged in the margin account.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the contingent deferred sales charge or free of such charge
(and with regard to the length of time shares subject to the charge have been
held), any transfer involving less than all of the shares in an account will be
made on a pro-rata basis (that is, by transferring shares in the same
proportion that the transferred shares bear to the total shares in the account
immediately prior to the transfer). The transferred shares will continue to be
subject to any applicable contingent deferred sales charge as if they had not
been so transferred.
Reinstatement Privilege. As described in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 30 days after the date of
the redemption or repurchase, reinstate any portion or all of the proceeds of
such redemption or repurchase in shares of the Fund at the net asset value next
determined after a reinstatement request, together with such proceeds, is
received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and
reinstatement is made in shares of the Fund, some or all of the loss, depending
on the amount reinstated, will not be allowed as a deduction for federal income
tax purposes but will be applied to adjust the cost basis of the shares
acquired upon reinstatement.
Involuntary Redemption. As described in the Prospectus, due to the
relatively high cost of handling small investments, the Fund reserves the
right to redeem, at net asset value, the shares of any
30
<PAGE>
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
sixty days to make an additional investment in an amount which will increase
the value of his or her account to $100 or more before the redemption is
processed.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Each shareholder will receive at least a quarterly summary of his or her
account, including information as to reinvested dividends and capital gains
distributions. Share certificates for dividends or distributions will not be
issued unless a shareholder requests in writing that a certificate be issued
for a specific number of shares.
In computing net investment income, the Fund will amortize any premiums and
original issue discounts on securities owned, if applicable. Capital gains or
losses realized upon sale or maturity of such securities will be based on their
amortized cost.
Gains or losses on the sales of securities by the Fund will be long-term
capital gains or losses if the securities have been held by the Fund for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term capital gains or losses.
The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. If so
qualified, the Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, realized during any fiscal year to
the extent that it distributes such income and capital gains to its
shareholders.
With respect to the Fund's investments in zero coupon bonds, the Fund
accrues income prior to any actual cash payments by their issuers. In order to
continue to comply with Subchapter M of the Internal Revenue Code and remain
able to forego payment of federal income tax on its income and capital gains,
the Fund must distribute all of its net investment income, including income
accrued from zero coupon bonds. As such, the Fund may be required to dispose of
some of its portfolio securities under disadvantageous circumstances to
generate the cash required for distribution.
As discussed in the Prospectus, the Fund intends to qualify to pay
"exempt-interest dividends" to its shareholders by maintaining, as of the close
of each of its taxable years, at least 50% of the value of its assets in
tax-exempt securities. An exempt-interest dividend is that part of the dividend
distributions made by the Fund which consists of interest received by the Fund
on tax-exempt securities upon which the shareholder incurs no federal income
taxes. Exempt-interest dividends are included, however, in determining what
portion, if any, of a person's Social Security benefits are subject to federal
income tax.
As also discussed in the Prospectus, the Fund intends to invest a portion of
its assets in certain "private activity bonds" issued after August 7, 1986. As
a result, a portion of the exempt-interest dividends paid by the Fund will be
an item of tax preference to shareholders subject to the alternative minimum
tax. Certain corporations which are subject to the alternative minimum tax may
also have to include exempt-interest dividends in calculating their alternative
minimum taxable income in situations where the "adjusted current earnings" of
the corporation exceeds its alternative minimum taxable income.
Within sixty days after the end of its fiscal year, the Fund will mail to
shareholders a statement indicating the percentage of the dividend
distributions for each fiscal year which constitutes exempt-interest dividends,
the percentage, if any, that is taxable, and the percentage, if any, of the
exempt-interest dividends which constitutes an item of tax preference, and to
what extent the taxable portion is long-term capital gain, short-term capital
gain or ordinary income. This percentage should be applied uniformly to all
monthly distributions made during the fiscal year to determine the proportion
of dividends that is tax-exempt. The percentage may differ from the percentage
of tax-exempt dividend distributions for any particular month.
Shareholders will be subject to federal income tax on dividends paid from
interest income derived from taxable securities and on distributions of net
short-term capital gains. Such dividends and
31
<PAGE>
distributions are taxable to the shareholder as ordinary dividend income
regardless of whether the shareholder receives such distributions in additional
shares or in cash. Distributions of long-term capital gains, if any, are
taxable as long-term capital gains, regardless of how long the shareholder has
held the Fund shares and regardless of whether the distribution is received in
additional shares or in cash. Since the Fund's income is expected to be derived
entirely from interest rather than dividends, it is anticipated that no portion
of such dividend distributions will be eligible for the federal dividends
received deduction available to corporations.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Fund is not deductible. Furthermore, entities or persons who are
"substantial users" (or related persons) of facilities financed by industrial
development bonds should consult their tax advisers before purchasing shares of
the Fund. "Substantial user" is defined generally by Income Tax Regulation
1.103-11(b) as including a "non-exempt person" who regularly uses in a trade or
business a part of a facility financed from the proceeds of industrial
development bonds.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities. Similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund could be affected. In that event, the
Fund would re-evaluate its investment objective and policies.
Any dividends or capital gains distributions received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's shares in that fund by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions are, and
some portion of the dividends may be, subject to income tax. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the payment of taxable dividends or the distribution of capital gains, such
payment or distribution would be in part a return of capital but nonetheless
taxable to the shareholder. Therefore, an investor should consider the tax
implications of purchasing Fund shares immediately prior to a distribution
record date.
Shareholders should consult their tax advisers regarding specific questions
as to state or local taxes.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"yield" and/or its "total return" in advertisements and sales literature. Yield
is calculated for any 30-day period as follows: the amount of interest income
for each security in the Fund's portfolio is determined as described below; the
total for the entire portfolio constitutes the Fund's gross income for the
period. Expenses accrued during the period are subtracted to arrive at "net
investment income". The resulting amount is divided by the product of the
maximum offering price per share on the last day of the period (reduced by any
undeclared earned income per share that is expected to be declared shortly
after the end 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.
To determine interest income from debt obligations, a yield-to-maturity,
expressed as a percentage, is determined for obligations held at the beginning
of the period, based on the current market value of the security plus accrued
interest, generally as of the end of the month preceding the 30-day period, or,
for obligations purchased during the period, based on the cost of the security
(including accrued interest). The yield-to-maturity is multiplied by the market
value (plus accrued interest) for each security and the result is divided by
360 and multiplied by 30 days or the number of days the security was held
during the period, if less. Modifications are made for determining
yield-to-maturity on certain tax-exempt securities. For the 30-day period ended
September 30, 1996, the Fund's yield, calculated pursuant to the formula
described above was 4.50%. During this period, InterCapital waived its
management fee and assumed certain expenses of the Fund. Had the Fund borne
these expenses and paid the management fee for the period, the yield for the
30-day period would have been 4.38%.
32
<PAGE>
The Fund may also quote a "tax-equivalent yield" determined by dividing the
tax-exempt portion of quoted yield by 1 minus the stated income tax rate and
adding the result to the portion of the yield that is not tax-exempt. The
Fund's tax-equivalent yield, based upon a Federal personal income tax bracket
of 39.6% for the 30-day period ended September 30, 1996 was 7.45% based upon
the yield calculated above. Without the waiver of the management fee or the
assumption of certain expenses, the Fund's tax-equivalent yield for the period
would have been 7.25%.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. The ending redeemable value
is reduced by any contingent deferred sales charge at the end of the one, five
or ten year or other period. For the purpose of this calculation, it is assumed
that all dividends and distributions are reinvested. The formula for computing
the average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a root
of the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result. The average annual total return of
the Fund for the fiscal year ended September 30, 1996 and for the period June
2, 1994 (commencement of operations) through September 30, 1996 was 2.94% and
6.40%, respectively. During this period, InterCapital waived its management fee
and assumed certain expenses of the Fund. Had the Fund borne these expenses and
paid these fees for the fiscal year ended September 30, 1996 and during the
stated period, the average annual total return for the period would have been
2.73% and 6.09% respectively.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. Such calculation may or may not reflect the
deduction of the contingent deferred sales charge which, if reflected, would
reduce the performance quoted. For example, the average annual total return of
the Fund may be calculated in the manner described in the preceding paragraph,
but without the deduction for any applicable contingent deferred sales charge.
Based on this calculation, the Fund's average annual total return for the
fiscal year ended September 30, 1996 and for the period June 2, 1994
(commencement of operations) through September 30, 1996 was 5.94% and 6.80%,
respectively.
In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage obtained by dividing the ending value (without
reduction for any contingent deferred sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the Fund's total return for the fiscal year ended September 30,
1996 and for the period June 2, 1994 (commencement of operations) through
September 30, 1996 was 5.94% and 16.56%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return to date (expressed as a decimal and without taking into
account the effect of any applicable contingent deferred sales charge) 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 since inception would have grown to
$11,656, $58,280, and $116,560, respectively, at September 30, 1996.
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
of beneficial interest held. The Fund is authorized to issue an unlimited
number of shares of beneficial interest. The Trustees themselves have the power
to alter the number and the terms of office of the Trustees (as provided for
33
<PAGE>
in the Declaration of Trust), and they may at any time lengthen or shorten
their own terms or make their terms of unlimited duration and appoint their own
successors, provided that always at least a majority of the Trustees has been
elected by the shareholders of the Fund. Under certain circumstances the
Trustees may be removed by action of the Trustees. The shareholders also have
the right under certain circumstances to remove the Trustees. The voting rights
of shareholders are not cumulative, so that holders of more than 50 percent of
the shares voting can, if they choose, elect all Trustees being selected, while
the holders of the remaining shares would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the 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 further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his/her
or its own bad faith, willful misfeasance, gross negligence, or reckless
disregard of his duties. It also provides that all third persons shall look
solely to the Fund property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated above, the Declaration
of Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
The Fund shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders or
the Trustees.
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. The Custodian has no part in deciding the
Fund's investment policies or which securities are to be purchased or sold for
the Fund's portfolio. Any of the Fund's cash balances with the Custodian in
excess of $100,000 are unprotected by Federal deposit insurance. Such balances
may, at times, be substantial.
Dean Witter Trust Company, Harborside Financial Center, Plaza Two, Jersey
City, New Jersey 07311 is the Transfer Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends and distributions on Fund shares and
Agent for shareholders under various investment plans described herein. Dean
Witter Trust Company is an affiliate of Dean Witter InterCapital Inc., the
Fund's Investment Manager, and Dean Witter Distributors Inc., the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter Trust
Company's responsibilities include maintaining shareholder accounts, including
providing subaccounting and recordkeeping services for certain retirement
accounts; disbursing cash dividends and reinvesting dividends; processing
account registration changes; handling purchase and redemption transactions;
mailing prospectuses and reports; mailing and tabulating proxies; processing
share certificate transactions; and maintaining shareholder records and lists.
For these services Dean Witter Trust Company receives a per shareholder account
fee from the Fund.
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.
34
<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 is September 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
- -----------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The annual financial statements of the Fund for the year ended September 30,
1996, 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.
35
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (92.4%)
General Obligation (21.4%)
North Slope Borough, Alaska,
$ 3,000 Ser 1994 B (FSA) ...................................................... 0.00 % 06/30/05 $ 1,872,480
3,925 Ser 1996 B (MBIA) ..................................................... 0.00 06/30/06 2,299,422
1,000 Santa Margarita/Dana Point Authority, California, Impr Dists #3, 3A,
4 & 4A 1994 Ser B Refg (MBIA) ......................................... 5.75 08/01/20 992,220
1,000 Atlanta, Georgia, Public Impr Ser 1994 A ................................ 6.125 12/01/23 1,027,700
1,500 Hawaii, 1995 Ser C J .................................................... 6.25 01/01/15 1,563,570
2,000 Chicago, Illinois, Refg Ser 1995 B (FGIC) ............................... 5.125 01/01/25 1,818,480
1,000 Chicago Park District, Illinois, Ser 1995 ............................... 6.60 11/15/14 1,068,440
1,000 Chelsea, Massachusetts, School Act of 1948 (AMBAC) ...................... 6.50 06/15/12 1,082,430
1,000 Massachusetts, 1994 Ser C (FGIC) ........................................ 6.75 11/01/12 1,099,470
1,500 New York City, New York, 1995 Ser D (MBIA) .............................. 6.20 02/01/07 1,621,140
1,000 Delaware City School District, Ohio, Constr & Impr dtd 08/15/95 (FGIC) ... 5.75 12/01/20 997,320
2,000 Washington, 1994 Ser A .................................................. 5.80 09/01/08 2,055,300
- -------- -----------
19,925 17,497,972
- -------- -----------
Educational Facilities Revenue (5.1%)
1,000 California Educational Facilities Authority, Claremont Colleges Ser 1992 . 6.375 05/01/22 1,031,730
500 Atlanta Urban Residential Finance Authority, Georgia, Morehouse College
Refg Ser 1995 (MBIA) .................................................. 5.75 12/01/14 505,295
2,000 New Jersey Economic Development Authority, Educational Testing Service
Ser 1995 (MBIA) ....................................................... 6.125 05/15/15 2,073,340
500 New York State Dormitory Authority, City University 1994 3rd Resolution
Ser 1 (AMBAC) ......................................................... 6.30 07/01/24 524,060
- -------- -----------
4,000 4,134,425
- -------- -----------
Electric Revenue (5.3%)
1,500 Puerto Rico Electric Power Authority, Power Ser X ....................... 6.00 07/01/15 1,508,100
1,000 Austin, Texas, Combined Utilities Refg Ser 1994 (FGIC) .................. 6.25 05/15/16 1,052,010
2,000 Intermountain Power Agency, Utah, Refg 1996 Ser D ....................... 5.00 07/01/21 1,786,140
- -------- -----------
4,500 4,346,250
- -------- -----------
Hospital Revenue (13.7%)
1,465 Birmingham - Carraway Special Care Facilities Financing Authority,
Alabama, Carraway Methodist Health Ser 1995-A (Connie Lee) ............ 6.25 08/15/09 1,547,274
500 Rancho Mirage Joint Powers Financing Authority, California, Eisenhower
Memorial Hospital COPs ................................................ 7.00 03/01/22 538,740
2,000 Orange County Health Facilities Authority, Florida, Adventist
Health/Sunbelt Obligated Group Ser 1995 (AMBAC) ....................... 5.25 11/15/20 1,867,780
1,000 Maryland Health & Higher Educational Facilities Authority, Kernan
Hospital Ser 1994 (Connie Lee) ........................................ 6.10 07/01/24 1,009,390
1,300 New Hampshire Higher Educational & Health Facilities Authority,
St Joseph Hospital Ser 1994 (Connie Lee) .............................. 6.35 01/01/07 1,369,368
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 2,000 University of North Carolina, Hospitals at Chapel Hill Ser 1996 .......... 5.25 % 02/15/19 $ 1,874,860
3,000 Jackson, Tennessee, Jackson-Madison County General Hospital
Refg & Impr Ser 1995 (AMBAC) .......................................... 5.625 04/01/15 2,960,970
- -------- -----------
11,265 11,168,382
- -------- -----------
Industrial Development/Pollution Control Revenue (4.5%)
1,500 Hawaii Department of Budget & Finance, Hawaiian Electric Co
Ser 1995 A (AMT) (MBIA) ............................................... 6.60 01/01/25 1,604,775
2,000 New York State Energy Research & Development Authority,
New York State Electric & Gas Corp 1987 Ser A (AMT) (MBIA) ............ 6.15 07/01/26 2,024,880
- -------- -----------
3,500 3,629,655
- -------- -----------
Mortgage Revenue - Multi-Family (1.9%)
500 Honolulu, Hawaii, Waipahu Towers GNMA Collateralized 1995 Ser A (AMT) .... 6.90 06/20/35 527,055
1,000 Massachusetts Housing Finance Agency, Rental 1994 Ser A (AMT)
(AMBAC) ................................................................ 6.65 07/01/19 1,032,440
- -------- -----------
1,500 1,559,495
- -------- -----------
Mortgage Revenue - Single Family (4.8%)
2,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A (MBIA) ...... 5.875 12/01/24 1,982,120
1,000 Tennessee Housing Development Agency, Finance 1994 Ser B (AMT) .......... 6.55 07/01/19 1,025,210
900 Utah Housing Finance Agency, Federally Insured/Guaranteed Loans
1994 Issue E (AMT) .................................................... 6.50 07/01/26 921,411
- -------- -----------
3,900 3,928,741
- -------- -----------
Public Facilities Revenue (3.7%)
North City West School Facilities Financing Authority, California,
1,000 Community Facs Dist #1 Special Tax Ser 1995 B (FSA) ................... 5.75 09/01/15 996,520
2,000 Community Facs Dist #1 Special Tax Ser 1995 B (FSA) ................... 6.00 09/01/19 2,025,380
- -------- -----------
3,000 3,021,900
- -------- -----------
Transportation Facilities Revenue (14.3%)
2,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA) ...................... 5.125 10/01/16 1,870,580
1,000 Lee County, Florida, Ser 1995 (MBIA) .................................... 5.75 10/01/22 998,660
850 Regional Transportation Authority, Illinois, Ser 1994 A ................. 6.25 06/01/15 890,740
1,000 Kentucky Turnpike Authority, Economic Development Road Revitalization
Refg Ser 1995 (AMBAC) ................................................. 5.625 07/01/15 1,000,300
2,500 Maine Turnpike Authority, Ser 1994 (MBIA) ............................... 6.00 07/01/18 2,549,625
1,000 New York State Thruway, Authority General 1995 Ser C (FGIC) ............. 6.00 01/01/25 1,015,190
1,500 Port Authority of New York & New Jersey, Cons One Hundredth Ser
Second Installment + .................................................. 5.75 12/15/20 1,486,305
2,000 Texas Turnpike Authority, Dallas North Tollway Refg Ser (FGIC) .......... 5.25 01/01/23 1,875,440
- -------- -----------
11,850 11,686,840
- -------- -----------
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
Water & Sewer Revenue (11.8%)
$ 1,000 Birmingham Waterworks & Sewer Board, Alabama, Ser 1993-A ................ 6.00 % 01/01/20 $ 1,016,800
1,000 Castaic Lake Water Agency, California, Refg Ser 1994 A COPs (MBIA) ....... 6.00 08/01/18 1,013,240
1,000 Dade County, Florida, Water & Sewer Ser 1995 (FGIC) ..................... 5.50 10/01/15 980,380
1,000 Chicago, Illinois, Wastewater Ser 1994 (MBIA) ........................... 6.375 01/01/24 1,052,550
2,000 Massachusetts Water Resources Authority, 1992 Ser A ..................... 6.50 07/15/07 2,205,520
2,000 Asheville, North Carolina, Water Ser 1996 (FGIC) (WI) ................... 5.70 08/01/25 1,988,620
1,250 Philadelphia, Pennsylvania, Water & Wastewater Ser 1995 (MBIA) .......... 6.25 08/01/11 1,346,763
- -------- -----------
9,250 9,603,873
- -------- -----------
Other Revenue (3.8%)
2,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special 1996
Ser A (a) (WI) ........................................................ 6.50 09/01/05 2,044,620
1,000 New Jersey Economic Development Authority, Market Transition Sr Lien
Ser 1994 A (MBIA) ..................................................... 5.875 07/01/11 1,022,610
- -------- -----------
3,000 3,067,230
- -------- -----------
Refunded (2.1%)
500 Glendale Industrial Development Authority, Arizona, Thunderbird -
The American Graduate School of International Management Ser 1994
(Connie Lee) .......................................................... 7.125 07/01/05++ 576,230
1,000 Essex County Improvement Authority, New Jersey, County Jail & Youth
House Ser 1994 (AMBAC) ................................................ 6.90 12/01/04++ 1,146,700
- -------- -----------
1,500 1,722,930
- -------- -----------
77,190 TOTAL MUNICIPAL BONDS (Identified Cost $72,847,380) .......................................... 75,367,693
- -------- -----------
SHORT-TERM MUNICIPAL OBLIGATIONS (10.5%)
3,100 Valdez, Alaska, Marine Terminal Exxon Pipeline Co 1993 Ser C
(Demand 10/01/96) ..................................................... 3.70* 12/01/33 3,100,000
2,600 Philadelphia Hospitals & Higher Education Facilities Authority,
Pennsylvania, Children's Hospital of Philadelphia 1996 Ser A
(Demand 10/01/96) ..................................................... 4.00* 03/01/27 2,600,000
2,900 Metropolitan Nashville Airport Authority, Tennessee, American Airlines Inc
Refg Ser 1995 A (Demand 10/01/96) ..................................... 3.90* 10/01/12 2,900,000
- -------- -----------
8,600 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $8,600,000) ........................... 8,600,000
- -------- -----------
$85,790 TOTAL INVESTMENTS (Identified Cost $81,447,380) (b) ............................... 102.9% 83,967,693
========
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS .................................... (2.9) (2,351,488)
-------- -----------
NET ASSETS ........................................................................ 100.0% $81,616,205
======== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
- --------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a when issued basis.
+ Joint exemption in New York and New Jersey.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) Resale is restricted to qualified institutional investors.
(b) Cost is the same for federal income tax purposes.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
September 30, 1996
Alabama ......... 3.1%
Alaska .......... 11.3
Arizona ......... 0.7
California ...... 8.1
Connecticut ..... 2.5
Florida ......... 7.0
Georgia ......... 1.9
Hawaii .......... 4.5%
Illinois ........ 5.8
Kentucky ........ 1.2
Maine ........... 3.1
Maryland ........ 1.2
Massachusetts .. 6.6
New Hampshire .. 1.7
New Jersey ...... 7.0%
New York ........ 8.2
North Carolina . 4.8
Ohio ............ 1.2
Pennsylvania ... 5.2
Puerto Rico ..... 1.8
Tennessee ....... 8.4
Texas ........... 3.6%
Utah ............ 3.3
Washington ...... 2.5
Joint Exemptions (1.8)
-----
Total ........... 102.9%
=====
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1996
ASSETS:
Investments in securities, at value
(identified cost $81,447,380) ............. $83,967,693
Cash ....................................... 350,356
Receivable for:
Interest ................................. 1,126,539
Shares of beneficial interest sold ...... 241,456
Deferred organizational expenses ........... 78,955
Receivable from affiliate .................. 10,951
Prepaid expenses ........................... 19,323
-----------
TOTAL ASSETS ............................. 85,795,273
-----------
LIABILITIES:
Payable for:
Investments purchased .................... 4,032,643
Plan of distribution fee ................. 40,917
Dividends to shareholders ................ 39,805
Investment management fee ................ 15,286
Shares of beneficial interest repurchased 2,118
Accrued expenses ........................... 48,299
-----------
TOTAL LIABILITIES ........................ 4,179,068
-----------
NET ASSETS:
Paid-in-capital ............................ 79,147,068
Net unrealized appreciation ............... 2,520,313
Accumulated undistributed net investment
income .................................... 2,992
Accumulated net realized loss .............. (54,168)
-----------
NET ASSETS ............................... $81,616,205
===========
NET ASSET VALUE PER SHARE,
7,772,649 shares outstanding (unlimited
shares authorized of $.01 par value) ..... $ 10.50
===========
STATEMENT OF OPERATIONS
For the year ended September 30, 1996
NET INVESTMENT INCOME:
INTEREST INCOME ........................ $4,386,918
----------
EXPENSES
Plan of distribution fee ............... 452,823
Investment management fee .............. 269,889
Professional fees ..................... 49,943
Shareholder reports and notices ....... 33,248
Transfer agent fees and expenses ...... 32,563
Organizational expenses ............... 28,158
Registration fees ..................... 26,027
Trustees' fees and expenses ............ 10,808
Custodian fees ......................... 4,197
Other .................................. 11,603
----------
TOTAL EXPENSES BEFORE EXPENSE OFFSET
AND AMOUNTS REIMBURSED/WAIVED ....... 919,259
LESS: AMOUNTS REIMBURSED/WAIVED ..... (165,054)
LESS: EXPENSE OFFSET ................ (4,149)
----------
TOTAL EXPENSES AFTER EXPENSE OFFSET
AND AMOUNTS REIMBURSED/WAIVED ....... 750,056
----------
NET INVESTMENT INCOME ................ 3,636,862
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ..................... (54,168)
Net change in unrealized appreciation . 432,258
----------
NET GAIN ............................. 378,090
----------
NET INCREASE ........................... $4,014,952
==========
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 3,636,862 $ 2,229,414
Net realized gain (loss) .............................. (54,168) 776
Net change in unrealized appreciation/depreciation ... 432,258 2,452,914
----------- -----------
NET INCREASE ........................................ 4,014,952 4,683,104
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (3,642,942) (2,220,342)
Net realized gain ..................................... (776) --
----------- -----------
Total ............................................... (3,643,718) (2,220,342)
Net increase from transactions in shares of beneficial
interest ............................................. 16,969,296 31,953,161
----------- -----------
TOTAL INCREASE ...................................... 17,340,530 34,415,923
NET ASSETS:
Beginning of period ................................... 64,275,675 29,859,752
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$2,992 and $9,072, respectively) .................... $81,616,205 $64,275,675
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter National Municipal Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
provide a high level of current income which is exempt from federal income tax,
consistent with the preservation of capital. The Fund was organized as a
Massachusetts business trust on March 29, 1994 and commenced operations on June
2, 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 -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Fund that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized 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 and nontaxable 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
42
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
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 -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Fund in the amount of
$148,017 which were reimbursed exclusive of $46,853 which was absorbed by the
Investment Manager. 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 0.35% to the Fund's net assets 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 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.
The Investment Manager had undertaken to assume all expenses (except for the
plan of distribution fee and brokerage fees) and waive the compensation
provided for in the Agreement until December 31, 1995. For the period January
1, 1996 through June 30, 1997, the Investment Manager will continue to waive
the management fee and reimburse expenses (except for the plan of distribution
fee and brokerage fees) to the extent they exceed 0.50% of daily net assets. At
September 30, 1996, included in the Statement of Assets and Liabilities, is a
receivable from the Investment Manager which represents expense reimbursements
due to the Fund.
43
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 0.60% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gains distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the Fund's average daily net
assets. Amounts paid under the Plan are paid to the Distributor to compensate
it for the services provided and the expenses borne by it and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to, and expenses of,
account executives of Dean Witter Reynolds Inc., an affiliate of the Investment
Manager and Distributor, and other employees and selected broker-dealers who
engage in or support distribution of the Fund's shares or who service
shareholder accounts, including overhead and telephone expenses, printing and
distribution of prospectuses and reports used in connection with the offering
of the Fund's shares to other than current shareholders and preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may be compensated under the Plan for its opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered may be recovered through future distribution fees from
the Fund and contingent deferred sales charges from the Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. The Distributor has advised
the Fund that such excess amounts, including carrying charges, totaled
$2,185,656 at September 30, 1996.
The Distributor has informed the Fund that for the year ended September 30,
1996, it received approximately $176,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
44
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended September 30, 1996
aggregated $25,614,487 and $9,690,374, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At September 30, 1996, the Fund had
transfer agent fees and expenses payable of approximately $2,900.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sold ...................... 2,938,811 $ 31,065,314 4,055,681 $ 40,945,963
Reinvestment of dividends . 198,921 2,094,383 129,694 1,316,413
------------- -------------- ------------- --------------
3,137,732 33,159,697 4,185,375 42,262,376
Repurchased ............... (1,548,482) (16,190,401) (1,026,786) (10,309,215)
------------- -------------- ------------- --------------
Net increase .............. 1,589,250 $ 16,969,296 3,158,589 $ 31,953,161
============= ============== ============= ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
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 $54,000 during fiscal 1996.
45
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JUNE 2, 1994*
ENDED ENDED THROUGH
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $10.39 $ 9.87 $10.00
------------------ ------------------ ------------------
Net investment income ....................... 0.50 0.50 0.09
Net realized and unrealized gain (loss) .... 0.11 0.52 (0.13)
------------------ ------------------ ------------------
Total from investment operations ............ 0.61 1.02 (0.04)
Less dividends from net investment income .. (0.50) (0.50) (0.09)
------------------ ------------------ ------------------
Net asset value, end of period .............. $10.50 $10.39 $ 9.87
================== ================== ==================
TOTAL INVESTMENT RETURN+ .................... 5.94% 10.54% (0.46)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................... 0.97%(5) 0.60%(4) 0.60 %(2)(3)
Net investment income ....................... 4.72%(5) 4.93%(4) 3.07 %(2)(3)
SUPPLEMENTAL DATA:
Net asset value, end of period, in thousands $81,616 $64,276 $29,860
Portfolio turnover rate ..................... 13% 2% -- ++%
</TABLE>
- --------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on
the net asset value as of the last business day of the period.
++ Less than 0.5%.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 2.08% and 1.59%, respectively.
(4) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 1.34% (which includes 0.01% gross up for
custody cash credits) and 4.20%, respectively.
(5) If the Fund had borne all expenses that were reimbursed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 1.19% (which includes 0.01% gross up for
custody cash credits) and 4.50%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER NATIONAL MUNICIPAL TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter National Municipal
Trust (the "Fund") at September 30, 1996, 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 two years in the
period then ended and for the period June 2, 1994 (commencement of operations)
through September 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 September 30, 1996 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
November 8, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended September 30, 1996, the Fund paid to
shareholders $0.50 per share from net investment income. All
of the Fund's dividends from net investment income were
exempt interest dividends, excludable from gross income for
Federal income tax purposes.
47
<PAGE>
APPENDIX
- --------
RATINGS OF INVESTMENTS
- -----------------------------------------------------------------------------
Moody's Investors Service Inc. ("Moody's")
MUNICIPAL BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and therefore not well safeguarded during both good and bad times in
the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Conditional Rating: Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These bonds are secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
48
<PAGE>
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa though B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal note and other short-term loans are
designated Moody's Investment Grade (MIG). MIG 1 denotes best quality and means
there is present strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing. MIG 2 denotes high quality and means that margins of protection
are ample although not as large as in MIG 1. MIG 3 denotes favorable quality
and means that all security elements are accounted for but that the undeniable
strength of the previous grades, MIG 1 and MIG 2, is lacking. MIG 4 denotes
adequate quality and means that the protection commonly regarded as required of
an investment security is present and that while the notes are not distinctly
or predominantly speculative, there is specific risk.
VARIABLE RATE DEMAND OBLIGATIONS
A short-term rating, in addition to the Bond or MIG ratings, designated
VMIG may also be assigned to an issue having a demand feature. The assignment
of the VMIG symbol reflects such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. The VMIG rating criteria are identical to the MIG criteria discussed
above.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. These ratings apply to Municipal Commercial Paper as well as
taxable Commercial Paper. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
MUNICIPAL BOND RATINGS
A Standard & Poor's municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
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.
49
<PAGE>
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories. Bonds rated AAA, AA, A and BBB are
considered investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions
which would lead to inadequate capacity or willingness to pay interest
and repay principal.
B Debt rated "B" has a greater vulnerability to default but presently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.
CC The rating "CC" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating.
Cl The rating "Cl" is reserved for income bonds on which no interest is
being paid.
D Debt rated "D" is in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
'D' rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having
predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to
adverse conditions.
Plus (+) or minus(-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing
within the major ratings categories.
The foregoing ratings are sometimes followed by a "p" which indicates
that the rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the bonds being
rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no
comment on the likelihood or risk of default upon failure of such
completion.
50
<PAGE>
MUNICIPAL NOTE RATINGS
Commencing on July 27, 1984, Standard & Poor's instituted a new rating
category with respect to certain municipal note issues with a maturity of less
than three years. The new note ratings denote the following:
SP-1 denotes a very strong or strong capacity to pay principal and
interest. Issues determined to possess overwhelming safety characteristics
are given a plus (+) designation (SP-1+).
SP-2 denotes a satisfactory capacity to pay principal and interest.
SP-3 denotes a speculative capacity to pay principal and interest.
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to purchase
or sell a security. The ratings are based upon current information furnished by
the issuer or obtained by S&P from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity
for timely payment. Issues in this category are further refined with the
designation 1, 2 and 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payments 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.
51
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DEAN WITTER NATIONAL MUNICIPAL TRUST
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
(1) Financial statements and schedules, included
in Prospectus (Part A): Page in
Prospectus
----------
Financial highlights for the period June 2,
1994 through September 30, 1994 and for the
fiscal years ended September 30, 1995 and 1996 ..... 4
(2) Financial statements included in the Statement of
Additional Information (Part B): Page in
SAI
-------
Portfolio of Investments at September 30, 1996 ..... 36
Statement of Assets and Liabilities at
September 30, 1996 ................................. 40
Statement of Operations for the year ended
September 30, 1996 ................................. 40
Statement of changes in net assets for
the years ended September 30, 1995 and September
30, 1996............................................ 41
Notes to Financial Statements ...................... 42
Financial highlights for the period June 2, 1994
through September 30, 1994 and for the fiscal years
ended September 30, 1995 and 1996................... 46
(3) Financial statements included in Part C:
None
(b) Exhibits:
2. -- By-Laws of the Registrant, Amended and Restated
as of October 25, 1996
8. -- Form of Amendment to the Custody Agreement
between Registrant and The Bank of New York.
11. -- Consent of Independent Accountants
16. -- Schedules for Computation of Performance Quotations
<PAGE>
27. -- Financial Data Schedule
- -------------------
All other exhibits previously filed and 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 October 31, 1996
-------------- ------------------------
Shares of Beneficial Interest 2,233
Item 27. Indemnification
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was not
unlawful. In addition, indemnification is permitted only if it is determined
that the actions in question did not render them liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of reckless disregard of their obligations and duties to the
Registrant. Trustees, officers, employees and agents will be indemnified for
the expense of litigation if it is determined that they are entitled to
indemnification against any liability established in such litigation. The
Registrant may also advance money for these expenses provided that they give
their undertakings to repay the Registrant unless their conduct is later
determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the
Registrant shall be liable for any action or failure to act, except in the case
of bad faith, willful misfeasance, gross negligence or reckless disregard of
duties to the Registrant.
2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such trustee,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act, and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for
which Registrant itself is not permitted to indemnify him.
Item 28. Business and Other Connections of Investment Adviser.
See "The Fund and Its Management" in the Prospectus regarding the business
of the investment adviser. The following information is given regarding
officers of Dean Witter InterCapital Inc. InterCapital is a wholly-owned
subsidiary of Dean Witter, Discover & Co. The principal address of the Dean
Witter Funds is Two World Trade Center, New York, New York 10048.
The term "Dean Witter Funds" used below refers to the following registered
investment companies:
3
<PAGE>
Closed-End Investment Companies
- -------------------------------
(1) InterCapital Income Securities Inc.
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) Municipal Income Trust
(6) Municipal Income Trust II
(7) Municipal Income Trust III
(8) Dean Witter Government Income Trust
(9) Municipal Premium Income Trust
(10) Municipal Income Opportunities Trust
(11) Municipal Income Opportunities Trust II
(12) Municipal Income Opportunities Trust III
(13) Prime Income Trust
(14) InterCapital Insured Municipal Bond Trust
(15) InterCapital Quality Municipal Income Trust
(16) InterCapital Quality Municipal Investment Trust
(17) InterCapital Insured Municipal Income Trust
(18) InterCapital California Insured Municipal Income Trust
(19) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities
Open-end Investment Companies:
- -----------------------------
(1) Dean Witter Short-Term Bond Fund
(2) Dean Witter Tax-Exempt Securities Trust
(3) Dean Witter Tax-Free Daily Income Trust
(4) Dean Witter Dividend Growth Securities Inc.
(5) Dean Witter Convertible Securities Trust
(6) Dean Witter Liquid Asset Fund Inc.
(7) Dean Witter Developing Growth Securities Trust
(8) Dean Witter Retirement Series
(9) Dean Witter Federal Securities Trust
(10) Dean Witter World Wide Investment Trust
(11) Dean Witter U.S. Government Securities Trust
(12) Dean Witter Select Municipal Reinvestment Fund
(13) Dean Witter High Yield Securities Inc.
(14) Dean Witter Intermediate Income Securities
(15) Dean Witter New York Tax-Free Income Fund
(16) Dean Witter California Tax-Free Income Fund
(17) Dean Witter Health Sciences Trust
(18) Dean Witter California Tax-Free Daily Income Trust
(19) Dean Witter Global Asset Allocation Fund
(20) Dean Witter American Value Fund
(21) Dean Witter Strategist Fund
(22) Dean Witter Utilities Fund
(23) Dean Witter World Wide Income Trust
(24) Dean Witter New York Municipal Money Market Trust
(25) Dean Witter Capital Growth Securities
4
<PAGE>
(26) Dean Witter Precious Metals and Minerals Trust
(27) Dean Witter European Growth Fund Inc.
(28) Dean Witter Global Short-Term Income Fund Inc.
(29) Dean Witter Pacific Growth Fund Inc.
(30) Dean Witter Multi-State Municipal Series Trust
(31) Dean Witter Premier Income Trust
(32) Dean Witter Short-Term U.S. Treasury Trust
(33) Dean Witter Diversified Income Trust
(34) Dean Witter U.S. Government Money Market Trust
(35) Dean Witter Global Dividend Growth Securities
(36) Active Assets California Tax-Free Trust
(37) Dean Witter Natural Resource Development Securities Inc.
(38) Active Assets Government Securities Trust
(39) Active Assets Money Trust
(40) Active Assets Tax-Free Trust
(41) Dean Witter Limited Term Municipal Trust
(42) Dean Witter Variable Investment Series
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Balanced Growth Fund
(51) Dean Witter Balanced Income Fund
(52) Dean Witter Hawaii Municipal Trust
(53) Dean Witter Capital Appreciation Fund
(54) Dean Witter Intermediate Term U.S. Treasury Trust
(55) Dean Witter Information Fund
(56) Dean Witter Japan Fund
(57) Dean Witter Income Builder Fund
(58) Dean Witter Special Value Fund
The term "TCW/DW Funds" refers to the following registered
investment companies:
Open-End Investment Companies
- -----------------------------
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
Closed-End Investment Companies
- -------------------------------
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
5
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -------------------------------------------------
Charles A. Fiumefreddo Executive Vice President and Director of Dean
Chairman, Chief Witter Reynolds Inc. ("DWR"); Chairman, Chief
Executive Officer and Executive Officer and Director of Dean Witter
Director Distributors Inc. ("Distributors") and Dean Witter
Services Company Inc. ("DWSC"); Chairman and
Director of Dean Witter Trust Company ("DWTC");
Chairman, Director or Trustee, President and Chief
Executive Officer of the Dean Witter Funds and
Chairman, Chief Executive Officer and Trustee of
the TCW/DW Funds; Formerly Executive Vice
President and Director of Dean Witter, Discover &
Co. ("DWDC"); Director and/or officer of various
DWDC subsidiaries.
Philip J. Purcell Chairman, Chief Executive Officer and Director of
Director of DWDC and DWR; Director of DWSC and
Distributors; Director or Trustee of the Dean
Witter Funds; Director and/or officer of various
DWDC subsidiaries.
Richard M. DeMartini Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Capital;
Director of DWR, DWSC, Distributors and DWTC;
Trustee of the TCW/DW Funds; Member (since
January, 1993) and Chairman (since January, 1995)
of the Board of Directors of NASDAQ.
James F. Higgins Executive Vice President of DWDC; President and
Director Chief Operating Officer of Dean Witter Financial;
Director of DWR, DWSC, Distributors and DWTC.
Thomas C. Schneider Executive Vice President and Chief Financial
Executive Vice Officer of DWDC, DWR, DWSC and Distributors;
President, Chief Director of DWR, DWSC and Distributors.
Financial Officer and
Director
Christine A. Edwards Executive Vice President, Secretary and General
Director Counsel of DWDC and DWR; Executive Vice President,
Secretary and Chief Legal Officer of Distributors;
Director of DWR, DWSC and Distributors.
6
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -------------------------------------------------
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Joseph J. McAlinden
Executive Vice President
and Chief Investment Vice President of the Dean Witter Funds and
Officer Director of DWTC.
Sheldon Curtis Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
General Counsel and President, Assistant General Counsel and Assistant
Secretary Secretary of Distributors; Senior Vice President
and Secretary of DWTC; Vice President, Secretary
and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Richard Felegy
Senior Vice President
Edward Gaylor
Senior Vice President Vice President of various Dean Witter Funds.
Robert S. Giambrone
Senior Vice President Senior Vice President of DWSC, Distributors and
DWTC and Director of DWTC; Vice President of the
Dean Witter Funds and the TCW/DW Funds.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
Jenny B. Jones
Senior Vice President Vice President of Dean Witter Special Value Fund.
7
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -------------------------------------------------
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira N. Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer and Chief Financial Officer of the
Treasurer Dean Witter Funds and the TCW/DW Funds.
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of DWSC; Assistant
and Assistant Secretary Secretary of the Dean Witter Funds and the TCW/DW
Funds.
Barry Fink First Vice President and Assistant Secretary of
First Vice President DWSC; Assistant Secretary of the Dean Witter
and Assistant Secretary Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
Robert Zimmerman
First Vice President
8
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -------------------------------------------------
Joan Allman
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds
Kirk Balzer
Vice President Vice President of various Dean Witter Funds
Douglas Brown
Vice President
Philip Casparius
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Peter W. Gurman
Vice President
9
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -------------------------------------------------
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of various Dean Witter Funds
Elizabeth Hinchman
Vice President
David Hoffman
Vice President
David Johnson
Vice President
Christopher Jones
Vice President
James Kastberg
Vice President
Stanley Kapica
Vice President
Michael Knox
Vice President Vice President of various Dean Witter Funds
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paula LaCosta
Vice President Vice President of various Dean Witter Funds.
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
LouAnne D. McInnis Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Sharon K. Milligan
Vice President
Julie Morrone
Vice President
10
<PAGE>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC. AND NATURE OF CONNECTION
- ----------------- -------------------------------------------------
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell
Vice President Vice President of Dean Witter Global Short-
Term Income Fund Inc.
Hugh Rose
Vice President
Robert Rossetti
Vice President
Ruth Rossi Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Carl F. Sadler
Vice President
Rafael Scolari
Vice President Vice President of Prime Income Trust
Peter Seeley Vice President of Dean Witter World
Vice President Wide Income Trust
Jayne M. Stevlingson
Vice President Vice President of various Dean Witter Funds.
Kathleen Stromberg
Vice President Vice President of various Dean Witter Funds.
Vinh Q. Tran
Vice President Vice President of various Dean Witter Funds.
Alice Weiss
Vice President Vice President of various Dean Witter Funds.
11
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Item 29. Principal Underwriters
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Global Asset Allocation
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
(17) Dean Witter High Yield Securities Inc.
(18) Dean Witter New York Tax-Free Income Fund
(19) Dean Witter Tax-Exempt Securities Trust
(20) Dean Witter California Tax-Free Income Fund
(21) Dean Witter Limited Term Municipal Trust
(22) Dean Witter Natural Resource Development Securities Inc.
(23) Dean Witter World Wide Income Trust
(24) Dean Witter Utilities Fund
(25) Dean Witter Strategist Fund
(26) Dean Witter New York Municipal Money Market Trust
(27) Dean Witter Intermediate Income Securities
(28) Prime Income Trust
(29) Dean Witter European Growth Fund Inc.
(30) Dean Witter Developing Growth Securities Trust
(31) Dean Witter Precious Metals and Minerals Trust
(32) Dean Witter Pacific Growth Fund Inc.
(33) Dean Witter Multi-State Municipal Series Trust
(34) Dean Witter Federal Securities Trust
(35) Dean Witter Short-Term U.S. Treasury Trust
(36) Dean Witter Diversified Income Trust
(37) Dean Witter Health Sciences Trust
(38) Dean Witter Global Dividend Growth Securities
(39) Dean Witter American Value Fund
(40) Dean Witter U.S. Government Money Market Trust
(41) Dean Witter Global Short-Term Income Fund Inc.
(42) Dean Witter Premier Income Trust
(43) Dean Witter Value-Added Market Series
(44) Dean Witter Global Utilities Fund
(45) Dean Witter High Income Securities
(46) Dean Witter National Municipal Trust
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Balanced Growth Fund
(49) Dean Witter Balanced Income Fund
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(50) Dean Witter Hawaii Municipal Trust
(51) Dean Witter Variable Investment Series
(52) Dean Witter Capital Appreciation Fund
(53) Dean Witter Intermediate Term U.S. Treasury Trust
(54) Dean Witter Information Fund
(55) Dean Witter Japan Fund
(56) Dean Witter Income Builder Fund
(57) Dean Witter Special Value Fund
(1) TCW/DW Core Equity Trust
(2) TCW/DW North American Government Income Trust
(3) TCW/DW Latin American Growth Fund
(4) TCW/DW Income and Growth Fund
(5) TCW/DW Small Cap Growth Fund
(6) TCW/DW Balanced Fund
(7) TCW/DW Total Return Trust
(8) TCW/DW Mid-Cap Equity Trust
(9) TCW/DW Global Telecom Trust
(10) TCW/DW Strategic Income Trust
(b) The following information is given regarding directors and officers of
Distributors not listed in Item 28 above. The principal address of
Distributors is Two World Trade Center, New York, New York 10048. None of
the following persons has any position or office with the Registrant.
Positions and
Office with
Name Distributors
---- ------------
Fredrick K. Kubler Senior Vice President, Assistant
Secretary and Chief Compliance
Officer.
Michael T. Gregg Vice President and Assistant
Secretary.
Item 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
are maintained by the Investment Manager at its offices, except records
relating to holders of shares issued by the Registrant, which are maintained by
the Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 31. Management Services
Registrant is not a party to any such management-related service
contract.
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
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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 26th day of November, 1996.
DEAN WITTER NATIONAL MUNICIPAL TRUST
By /s/ Sheldon Curtis
--------------------------------
Sheldon Curtis
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 3 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 11/26/96
-------------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/Thomas F. Caloia 11/26/96
-------------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/Sheldon Curtis 11/26/96
-------------------------------
Sheldon Curtis
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
By /s/David M. Butowsky 11/26/96
-------------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2. -- By-Laws of the Registrant, Amended and Restated as of
October 25, 1996
8. -- Form of Amendment to the Custody Agreement between Registrant
and The Bank of New York.
11. -- Consent of Independent Accountants
16. -- Schedules for Computation of Performance Quotations
27. -- Financial Data Schedule
BY-LAWS
OF
DEAN WITTER NATIONAL MUNICIPAL TRUST
AMENDED AND RESTATED AS OF OCTOBER 25, 1996
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 National Municipal Trust
dated March 29, 1994.
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
<PAGE>
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum for the
transaction of business. In the absence of a quorum, the Shareholders present
or represented by proxy and entitled to vote thereat shall have power to
adjourn the meeting from time to time. Any adjourned meeting may be held as
adjourned without further notice. At any adjourned meeting at which a quorum
shall be present, any business may be transacted as if the meeting had been
held as originally called.
SECTION 3.5. Voting Rights, Proxies. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his duly
authorized attorney-in-fact, for each Share of beneficial interest of the Trust
and for the fractional portion of one vote for each fractional Share entitled
to vote so registered in his name on the records of the Trust on the date fixed
as the record date for the determination of Shareholders entitled to vote at
such meeting. No proxy shall be valid after eleven months from its date, unless
otherwise provided in the proxy. At all meetings of Shareholders, unless the
voting is conducted by inspectors, all questions relating to the qualification
of voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the chairman of the meeting. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of one or more
Trustees or Officers of the Trust.
SECTION 3.6. Vote Required. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority Shareholder
Vote.
SECTION 3.7. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or his proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees
in advance of the convening of the meeting or at the meeting by the person
acting as chairman. The Inspectors of Election shall determine the number of
Shares outstanding, the Shares represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies, shall receive votes,
ballots or consents, shall hear and determine all challenges and questions in
any way arising in connection with the right to vote, shall count and tabulate
all votes or consents, determine the results, and do such other acts as may be
proper to conduct the election or vote with fairness to all Shareholders. On
request of the chairman of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
SECTION 3.8. Inspection of Books and Records. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under 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.
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
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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 (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
3
<PAGE>
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--
(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.
4
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(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.
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.
5
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All actions of the Executive Committee shall be reported to the Trustees at
the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of any Committee of the Trustees appointed pursuant to Section 5.1 of
these By-Laws may be taken without a meeting if a consent in writing setting
forth the action shall be signed by all members of the Committee entitled to
vote upon the action and such written consent is filed with the records of the
proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. Executive Officers. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The executive officers of the Trust shall be elected annually by the
Trustees and each executive officer so elected shall hold office until his
successor is elected and has qualified.
SECTION 6.2. Other Officers and Agents. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers
and may elect, or may delegate to the Chairman the power to appoint, such other
officers and agents as the Trustees shall at any time or from time to time deem
advisable.
SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any officer
or agent of the Trust may be removed by the Trustees whenever, in their
judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
SECTION 6.4. Compensation of Officers. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.
SECTION 6.5. Power and Duties. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
SECTION 6.6. The Chairman. (a) The Chairman shall be the chief executive
officer of the Trust; he shall preside at all meetings of the Shareholders and
of the Trustees; he shall have general and active management of the business of
the Trust, shall see that all orders and resolutions of the Trustees are
carried into effect, and, in connection therewith, shall be authorized to
delegate to the President or to one or more Vice Presidents such of his powers
and duties at such times and in such manner as he may deem advisable; he shall
be a signatory on all Annual and Semi-Annual Reports as may be sent to
shareholders, and he shall perform such other duties as the Trustees may from
time to time prescribe.
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(b) In the absence of the Chairman, the Board shall determine who shall
preside at all meetings of the shareholders and the Board of Trustees.
SECTION 6.7. The President. The President shall perform such duties as the
Board of Trustees and the Chairman may from time to time prescribe.
SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the Chairman, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President, and
he or they shall perform such other duties as the Trustees or the Chairman may
from time to time prescribe.
SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the Chairman.
SECTION 6.10. The Secretary. The Secretary shall attend all meetings of the
Trustees and all meetings of the Shareholders and record all the proceedings of
the meetings of the Shareholders and of the Trustees in a book to be kept for
that purpose, and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
Shareholders and special meetings of the Trustees, and shall perform such other
duties and have such powers as the Trustees, or the Chairman, may from time to
time prescribe. He shall keep in safe custody the seal of the Trust and affix
or cause the same to be affixed to any instrument requiring it, and, when so
affixed, it shall be attested by his signature or by the signature of an
Assistant Secretary.
SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the Chairman, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
Chairman may from time to time prescribe.
SECTION 6.12. The Treasurer. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and he
shall render to the Trustees and the Chairman, whenever any of them require it,
an account of his transactions as Treasurer and of the financial condition of
the Trust; and he shall perform such other duties as the Trustees, or the
Chairman, may from time to time prescribe.
SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Trustees or the Chairman, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Trustees, or
the Chairman, may from time to time prescribe.
SECTION 6.14. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in Shares,
from any sources permitted by law, all as the Trustees shall from time to time
determine.
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.
7
<PAGE>
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. Certificates of Shares. Certificates for Shares of each series
or class of Shares shall be in such form and of such design as the Trustees
shall approve, subject to the right of the Trustees to change such form and
design at any time or from time to time, and shall be entered in the records of
the Trust as they are issued. Each such certificate shall bear a distinguishing
number; shall exhibit the holder's name and certify the number of full Shares
owned by such holder; shall be signed by or in the name of the Trust by the
Chairman, the President, or a Vice President, and countersigned by the
Secretary or an Assistant Secretary or the Treasurer and an Assistant Treasurer
of the Trust; shall be sealed with the seal; and shall contain such recitals as
may be required by law. Where any certificate is signed by a Transfer Agent or
by a Registrar, the signature of such officers and the seal may be facsimile,
printed or engraved. The Trust may, at its option, determine not to issue a
certificate or certificates to evidence Shares owned of record by any
Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Trust, such certificate or certificates shall,
nevertheless, be adopted by the Trust and be issued and delivered as though the
person or persons who signed such certificate or certificates or whose
facsimile signature or signatures shall appear therein had not ceased to be
such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. Lost, Stolen, Destroyed and Mutilated Certificates. The
Trustees may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
destruction; and the Trustees may, in their discretion, require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
to the Trust and to such Registrar, Transfer Agent and/or Transfer Clerk as may
be authorized or required to countersign such new certificate or certificates,
a bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be
against them or any of them on account of or in connection with the alleged
loss, theft or destruction of any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. Appointment and Duties. The Trust shall at times employ a bank
or trust company having capital, surplus and undivided profits of at least five
million dollars ($5,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as
may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
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.
8
<PAGE>
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 Shareholders entitled to notice of,
or to vote at, any meeting of Shareholders, or Shareholders entitled to receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Shareholders for any other proper purpose. Such date, in any
case, shall be not more than ninety (90) days, and in case of a meeting of
Shareholders not less than ten (10) days, prior to the date on which particular
action requiring such determination of Shareholders is to be taken. In lieu of
fixing a record date the Trustees may provide that the transfer books shall be
closed for a stated period but not to exceed, in any case, twenty (20) days. If
the transfer books are closed for the purpose of determining Shareholders
entitled to notice of a vote at a meeting of Shareholders, such books shall be
closed for at least ten (10) days immediately preceding such meeting.
SECTION 11.3. Seal. The Trustees shall adopt a seal, which shall be in such
form and shall have such inscription thereon as the Trustees may from time to
time provide. The seal of the Trust may be affixed to any document, and the
seal and its attestation may be lithographed, engraved or otherwise printed on
any document with the same force and effect as if it had been imprinted and
attested manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.
SECTION 11.4. Fiscal Year. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. Orders for Payment of Money. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement between
the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
9
<PAGE>
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 National Municipal Trust,
dated March 29, 1994, a copy of which is on file in the office of the Secretary
of the Commonwealth of Massachusetts, provides that the name Dean Witter
National Municipal Trust refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
Shareholder, officer, employee or agent of Dean Witter National Municipal Trust
shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim or otherwise,
in connection with the affairs of said Dean Witter National Municipal Trust,
but the Trust Estate only shall be liable.
10
AMENDMENT TO CUSTODY AGREEMENT
Amendment made as of this 17th day of April, 1996 by and between Dean
Witter National Municipal Trust (the "Fund") and The Bank of New York (the
"Custodian") to the Custody Agreement between the Fund and the Custodian dated
May 10, 1994 (the "Custody Agreement"). The Custody Agreement is hereby amended
as follows:
Article XV Section 8 of the Custody Agreement shall be deleted and be
replaced by Sections 8.(a), 8.(b) and 8.(c) as set forth below:
"8. (a) The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Securities and moneys
owned by the Fund. The Custodian shall indemnify the Fund against and save the
Fund harmless from all liability, claims, losses and demands whatsoever,
including attorneys' fees, howsoever arising or incurred as the result of the
failure of a subcustodian which is a banking institution located in a foreign
country and identified on Schedule A attached hereto and as amended from time
to time upon mutual agreement of the parties (each, a "Subcustodian") to
exercise reasonable care with respect to the safekeeping of such Securities
and moneys to the same extent that the Custodian would be liable to the Fund
if the Custodian were holding such securities and moneys in New York. In the
event of any loss to the Fund by reason of the failure of the Custodian or a
Subcustodian to utilize reasonable care, the Custodian shall be liable to the
Fund only to the extent of the Fund's direct damages, to be determined based
on the market value of the Securities and moneys which are the subject of the
loss at the date of discovery of such loss and without reference to any
special conditions or circumstances.
8. (b) The Custodian shall not be liable for any loss which results
from (i) the general risk of investing, or (ii) investing or holding
Securities and moneys in a particular country including, but not limited to,
losses resulting from nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; or market conditions which prevent
the orderly execution of securities transactions or affect the value of
Securities or moneys.
8. (c) Neither party shall be liable to the other for any loss due
to forces beyond its control including, but not limited to, strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
DEAN WITTER NATIONAL MUNICIPAL
TRUST
[SEAL] By:
------------------------
Attest:
- ------------------
THE BANK OF NEW YORK
[SEAL] By:
-------------------------
Attest:
- -------------------
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Argentina The Bank of Boston
Australia ANZ Banking Group Limited
Austria Girocredit Bank AG
Bangladesh* Standard Charted Bank
Belgium Banque Bruxelles Lambert
Botswana* Stanbic Bank Botswana Ltd.
Brazil The Bank of Boston
Canada Royal Trust/Royal Bank of Canada
Chile The Bank of Boston/Banco de Chile
China Standard Charted Bank
Columbia Citibank, N.A.
Denmark Den Danske Bank
Euromarket CEDEL
Euroclear
First Chicago Clearing Centre
Finland Union Bank of Finland
France Banque Paribas/Credit Commercial de France
Germany Dresdner Bank A.G.
Ghana* Merchant Bank Ghana Ltd.
Greece Alpha Credit Bank
Hong Kong Hong Kong and Shanghai Banking Corp.
Indonesia Hong Kong and Shanghai Banking Corp.
Ireland Allied Irish Bank
Israel Israel Discount Bank
Italy Banca Commerciale Italiana
Japan Yasuda Trust & Banking Co., Lt.
Korea Bank of Seoul
Luxembourg Kredietbank S.A.
Malaysia Hong Kong Bank Malaysia Berhad
Mexico Banco Nacional de Mexico (Banamex)
Netherlands Mees Pierson
New Zealand ANZ Banking Group Limited
Norway Den Norske Bank
Pakistan Standard Chartered Bank
Peru Citibank N.A.
Philippines Hong Kong and Shanghai Banking Corp.
Poland Bank Handlowy w Warsawie
Portugal Banco Comercial Portugues
Singapore United Overseas Bank
South Africa Standard Bank of South Africa Limited
Spain Banco Bilbao Vizcaya
Sri Lanka Standard Chartered Bank
SCHEDULE A
COUNTRY/MARKET SUBCUSTODIAN
- -------------- ------------
Sweden Skandinaviska Enskilda Banken
Switzerland Union Bank of Switzerland
Taiwan Hong Kong and Shanghai Banking Corp.
Thailand Siam Commercial Bank
Turkey Citibank N.A.
United Kingdom The Bank of New York
United States The Bank of New York
Uruguay The Bank of Boston
Venezuela Citibank N.A.
Zimbabwe* Stanbic Bank Zimbabwe Ltd.
* Not yet 17(f) 5 compliant
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
November 8, 1996, relating to the financial statements and financial
highlights of Dean Witter National Municipal Trust, which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the 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
November 21, 1996
SCHEDULE OF COMPUTATION OF YIELD QUOTATION
DEAN WITTER NATIONAL MUNICIPAL TRUST
FOR THE 30 DAY PERIOD ENDED SEPTEMBER 30, 1996
6
(A) YIELD = 2{ [ ((a-b)/c d) + 1] -1}
WHERE: a = Dividends and interest earned during the period
b = Expenses accrued for the period
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price per share on the last day of
the period
6
YIELD = 2{ [(( 374,770.14 - 72,997.59) / 7,727,034.154 * 10.50)+1] -1}
= 4.50%
(B) TAX EQUIVALENT YIELD = SEC Yield - (1- stated tax rate)
= 4.50% / (1-.3960)
= 7.45%
(C) WITHOUT WAIVER OF FEES AND ASSUMPTION OF EXPENSES.
6
YIELD = 2{ [ ((a-b)/c d) + 1] -1}
6
= 2{ [(( 374,770.14 - 81,025.33) / 7,727,034.154 * 10.50)+1] -1}
= 4.38%
(D) TAX EQUIVALENT YIELD = SEC Yield - (1- stated tax rate)
= 4.38% / (1-.3960)
= 7.25%
<PAGE>
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DEAN WITTER NATIONAL MUNICIPAL TRUST
(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
T = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL
INVESTED - P 30-Sep-96 YEARS - n COMPOUND RETURN - T
- ------------ --------- --------- -------------------
30-Sep-95 $1,029.40 1.00 2.94%
02-Jun-94 $1,155.60 2.33 6.40%
(B) 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
(B)
$1,000 EVb AS OF NUMBER OF AVERAGE ANNUAL
INVESTED - P 30-Sep-96 YEARS - n COMPOUND RETURN - t
- ------------ --------- --------- -------------------
30-Sep-95 $1,027.30 1.00 2.73%
02-Jun-94 $1,147.80 2.33 6.09%
(C) TOTAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
(D) AVERAGE ANNUAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)
_ _
| ______________________ |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|
EV
TR = ---------- - 1
P
t = AVERAGE ANNUAL COMPOUND RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
<TABLE>
<CAPTION>
(C) (D)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 30-Sep-96 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
30-Sep-95 $1,059.40 5.94% 1.00 5.94%
02-Jun-94 $1,165.60 16.56% 2.33 6.80%
</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>
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>
02-Jun-94 16.56 $11,656 $58,280 $116,560
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000920993
<NAME> DEAN WITTER NATIONAL MUNICIPAL TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 81,447,380
<INVESTMENTS-AT-VALUE> 83,967,693
<RECEIVABLES> 1,378,946
<ASSETS-OTHER> 448,634
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,795,273
<PAYABLE-FOR-SECURITIES> 4,032,643
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 146,425
<TOTAL-LIABILITIES> 4,179,068
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,147,068
<SHARES-COMMON-STOCK> 7,772,649
<SHARES-COMMON-PRIOR> 6,183,399
<ACCUMULATED-NII-CURRENT> 2,992
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (54,168)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,520,313
<NET-ASSETS> 81,616,205
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,386,918
<OTHER-INCOME> 0
<EXPENSES-NET> 750,056
<NET-INVESTMENT-INCOME> 3,636,862
<REALIZED-GAINS-CURRENT> (54,168)
<APPREC-INCREASE-CURRENT> 432,258
<NET-CHANGE-FROM-OPS> 4,014,952
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,642,942)
<DISTRIBUTIONS-OF-GAINS> (776)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,938,811
<NUMBER-OF-SHARES-REDEEMED> (1,548,482)
<SHARES-REINVESTED> 198,921
<NET-CHANGE-IN-ASSETS> 17,340,530
<ACCUMULATED-NII-PRIOR> 9,072
<ACCUMULATED-GAINS-PRIOR> 776
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 269,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 919,259
<AVERAGE-NET-ASSETS> 77,111,006
<PER-SHARE-NAV-BEGIN> 10.39
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> .11
<PER-SHARE-DIVIDEND> (.50)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
