<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1995
REGISTRATION NOS.: 33-56239
811-07233
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
[X]
PRE-EFFECTIVE AMENDMENT NO.
[ ]
POST-EFFECTIVE AMENDMENT NO. 1
[X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
[X]
AMENDMENT NO. 2
----------------------------
[X]
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
SHELDON CURTIS, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this registration
statement.
----------------------------
<PAGE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX)
immediately upon filing pursuant to paragraph (b)
X
on June 29, 1995 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 WILL FILE A RULE 24F-2 NOTICE
FOR ITS FISCAL YEAR ENDING JANUARY 31, 1996 WITH THE SECURITIES AND EXCHANGE
COMMISSION ON OR ABOUT MARCH 1, 1996.
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
CROSS-REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM CAPTION
- ------------- -----------------------------------------------------
PART A PROSPECTUS
- ------------- -----------------------------------------------------
<S> <C>
1. .... Cover Page
2. .... Summary of Fund Expenses; Prospectus Summary
3. .... Performance Information; Financial Highlights
Investment Objective and Policies; Risk
Considerations; The Fund and its Management; Cover
Page; Investment Restrictions; Prospectus Summary;
4. .... Appendix
The Fund and Its Management; Back Cover; Investment
5. .... Objective and Policies
Dividends, Distributions and Taxes; Additional
6. .... Information
Purchase of Fund Shares; Shareholder Services;
7. .... Redemptions and Repurchases
8. .... Redemptions and Repurchases; Shareholder Services
9. .... Not Applicable
</TABLE>
<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION
- ---------- ----------------------------------------------------------
<S> <C>
10. .... Cover Page
11. .... Table of Contents
12. .... The Fund and Its Management
Investment Practices and Policies; Risk Considerations;
Investment Restrictions; Portfolio Transactions and
13. .... Brokerage
14. .... The Fund and Its Management; Trustees and Officers
15. .... Trustees and Officers
The Fund and Its Management; Purchase of Fund Shares;
16. .... Custodian and Transfer Agent; Independent Accountants
17. .... Portfolio Transactions and Brokerage
18. .... Description of Shares
Repurchase of Fund Shares; Redemptions and Repurchases;
19. .... Statements of Assets and Liabilities; Shareholder Services
20. .... Dividends, Distributions and Taxes
21. .... Purchase of Fund Shares
22. .... Dividends, Distributions and Taxes
23. .... Performance Information
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
PROSPECTUS- JUNE 29, 1995
- -----------------------------------------------------------------------------
Dean Witter Global Asset Allocation Fund (the "Fund") is an open-end,
diversified management investment company whose investment objective is to
seek long-term total return on its investments. The fund seeks to meet its
investment objective by allocating its assets among U.S. and foreign
equities, fixed-income and adjustable rate securities ("fixed-income
securities") and money market instruments.
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, which declines from 5% to 1% of the amount redeemed,
if made within six years of purchase, which charge will be paid to the Fund's
Distributor, Dean Witter Distributors Inc. See "Repurchases and
Redemptions--Contingent Deferred Sales Charge." In addition, the Fund pays
the Distributor a Rule 12b-1 distribution fee pursuant to a Plan of
Distribution at the annual rate of 1.0% 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--Continuous Offering--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 June 29, 1995, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
The Fund and its Management ........................................... 5
Investment Objective and Policies ..................................... 6
Risk Considerations ................................................... 7
Investment Restrictions ............................................... 15
Purchase of Fund Shares ............................................... 15
Shareholder Services .................................................. 18
Redemptions and Repurchases ........................................... 21
Dividends, Distributions and Taxes .................................... 22
Performance Information ............................................... 23
Additional Information ................................................ 24
Appendix .............................................................. 25
</TABLE>
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
Global Asset Allocation Fund
Two World Trade Center
New York, New York 10048
(212)392-2550 or (800) 526-3143
DEAN WITTER DISTRIBUTORS, INC.,
DISTRIBUTOR
<PAGE>
PROSPECTUS SUMMARY
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end,
diversified management investment company. The Fund allocates its assets among U.S. and foreign equities,
income securities and money market instruments.
- ------------------ -------------------------------------------------------------------------------------------------------------
Offering Price At net asset value without sales charge (see page 15). Shares redeemed within six years of purchase are
subject to a contingent deferred sales charge under most circumstances (see page 21).
- ------------------ -------------------------------------------------------------------------------------------------------------
Minimum Purchase Minimum initial investment, $1,000; minimum subsequent investment, $100 (see page 15).
- ------------------ -------------------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is to seek long-term total return on its investments.
Objective
- ------------------ -------------------------------------------------------------------------------------------------------------
Investment Manager Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
and Sub-Advisers subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management
and administrative capacities to ninety-four investment companies and other portfolios with net assets under
management of approximately $72.6 billion at May 31, 1995. InterCapital has retained TCW Funds Management,
Inc. ("TCW") and Morgan Grenfell Investment Services Ltd. ("MGIS") as Sub-Advisers to provide investment
advice and manage the Fund's non-U.S. portfolio. TCW, which is responsible for Canadian and Latin American
investments, serves as investment adviser to thirteen TCW/DW Funds and had at March 31, 1995, together with
its affiliates, approximately $47 billion under management or committed to management in various fiduciary or
advisory capacities, primarily to institutional investors. MGIS, which is responsible for the Fund's
investments outside of the Western Hemisphere, currently serves as investment adviser for U.S. corporate and
public employee benefit plans, investment companies, endowments and foundations with assets of approximately
$10.4 billion at March 31, 1995 (see page 5).
- ------------------ -------------------------------------------------------------------------------------------------------------
Management Fee The Investment Manager receives a monthly fee at the annual rate of 1.0% of the Fund's average daily net
assets. The Sub-Advisers each receive a monthly fee from InterCapital equal to 30% of InterCapital's
investment management fee (see page 5). The management fee is higher than that paid by most other investment
companies.
- ------------------ -------------------------------------------------------------------------------------------------------------
Dividends and Dividends from net investment income are paid at least annually. Capital gains, if any, are distributed at
Distributions least annually or retained for reinvestment by the Fund. Dividends and capital gains distributions are
automatically reinvested in additional shares at net asset value unless the shareholder elects to receive
cash (see page 22).
- ------------------ -------------------------------------------------------------------------------------------------------------
Distributor Dean Witter Distributors Inc. (the "Distributor"). The Distributor receives from the Fund a Rule 12b-1
distribution fee accrued daily and payable monthly at the rate of 1.0% 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 provided in distributing shares of the Fund and for sales related expenses.
The Distributor also receives the proceeds of any contingent deferred sales charges (see page 15).
- ------------------ -------------------------------------------------------------------------------------------------------------
Redemption-- Shares are redeemable by the shareholder at net asset value. An account may be involuntarily redeemed if the
Contingent total value of the account is less than $100. Although no commission or sales load is imposed upon the
Deferred Sales purchase of shares, a contingent deferred sales charge (which declines from 5% to 1%) is imposed on any
Charge redemption of shares if after such redemption the aggregate current value of an account with the Fund falls
below the aggregate amount of the investor's purchase payments made during the first six years preceding the
redemption. However, there is no charge imposed on redemption of shares purchased through reinvestment of
dividends or distributions (see page 21).
- ------------------ -------------------------------------------------------------------------------------------------------------
Risk The net asset value of the Fund's shares will fluctuate with changes in market value of portfolio securities.
Considerations It should be recognized that the foreign securities and markets in which the Fund may invest pose different
and greater risks than those customarily associated with domestic securities and their markets. The Fund may
engage in various investment practices which present special risks, including investments in forward foreign
currency exchange contracts, lower-rated fixed-income securities, convertible securities, adjustable rate
mortgages, options and futures, investment companies, rights and warrants, repurchase agreements, when-issued
and delayed delivery securities and forward commitments, when, as and if issued securities, reverse
repurchase agreements and dollar rolls and private placements (see page 7).
- ------------------ -------------------------------------------------------------------------------------------------------------
Shareholder Automatic Investment of Dividends and Distributions; Investment of Distributions Received in Cash; Systematic
Services Withdrawal Plan; Exchange Privilege; EasyInvestsm, Tax-Sheltered Retirement Plans (see pages 18 through 20).
- ------------------ -------------------------------------------------------------------------------------------------------------
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus
and in the Statement of Additional Information.
2
<PAGE>
SUMMARY OF FUND EXPENSES
- -----------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder
of the Fund will incur.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses
- -------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases ............................................ None
Maximum Sales Charge Imposed on Reinvested Dividends ................................. None
Contingent Deferred Sales Charge (as a percentage of the lesser of original purchase
price or redemption proceeds) ....................................................... 5.0%
</TABLE>
A contingent deferred sales charge is imposed at the following declining
rates:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE PERCENTAGE
- ------------------------------------ --------------
<S> <C>
First ............................... 5.0%
Second .............................. 4.0%
Third ............................... 3.0%
Fourth .............................. 2.0%
Fifth ............................... 2.0%
Sixth ............................... 1.0%
Seventh and thereafter .............. None
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Redemption Fees .......................................................... None
Exchange Fee ............................................................. None
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
- -------------------------------------------------------------------------
Management Fees+ ......................................................... 1.00%
12b-1 Fees*+ ............................................................. 0.98%
Other Expenses+ .......................................................... 1.50%
Total Fund Operating Expenses**+ ......................................... 3.48%
</TABLE>
"Other Expenses," as shown above, are based upon expected amounts of
expenses of the Fund for its first full fiscal year.
* The 12b-1 fee is accrued daily and payable monthly, at an annual rate of
1.00% 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 0.25% 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 and will be paid annually
to the selling broker.
** "Total Fund Operating Expenses," as shown above, is based upon the sum
of the 12b-1 Fees, Management Fees and estimated "Other Expenses," which
may be incurred by the Fund.
+ The Investment Manager has undertaken to assume all operating expenses
(except for any 12b-1 and brokerage fees) and to waive the
compensation provided for in its Management Agreement until such time as
the Fund has $50 million of net assets or until December 31, 1995,
whichever occurs first. The fees and expenses disclosed above do not
reflect the assumption of any expenses or the waiver of any compensation
by the Investment Manager.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ----------------------------------------------------------------------------------- -------- ---------
<S> <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: ......................... $85 $137
You would pay the following expenses on the same investment, assuming no
redemption: ....................................................................... $35 $107
</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 "Redemption and
Repurchases."
Long-term shareholders of the Fund may pay more in sales charges and
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted by the NASD.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout the period has been taken from the records of the Fund
without examination by independent accountants. The financial highlights
should be read in conjunction with the unaudited financial statements and
notes thereto. The related unaudited financial statements are contained in
the Statement of Additional Information.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 28,
1995* THROUGH MAY
31, 1995
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $10.00
-----------
Net investment income ................ 0.07
Net realized and unrealized gain .... 0.67
-----------
Total from investment operations .... 0.74
-----------
Net asset value, end of period ...... $10.74
===========
TOTAL INVESTMENT RETURN+ ............. 7.50%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................. 0.98%(2)(3)
Net investment income ................ 3.35%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands ........................... $25,175
Portfolio turnover rate .............. 30%(1)
</TABLE>
[FN]
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
(3) The Investment Manager had undertaken to assume and will continue to assume
all operating expenses (except for any 12b-1 and brokerage fees) and waive
the compensation provided for in its Investment Management Agreement and the
Sub-Advisers had undertaken to waive and will continue to waive their
respective compensation provided for in the Advisory Agreement, until such
time as the Fund had $50 million of net assets or until December 31, 1995,
whichever occurs first. If the Fund had borne all expenses, after
application of the expense limitation, the above annualized expense and net
investment income ratios would have been 3.48% and .85%, respectively.
See Notes to Financial Statements
4
APITAL PRINTING SYSTEMS]
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Dean Witter Global Asset Allocation Fund (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 October 18, 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 ninety-four investment companies (the "Dean
Witter Funds"), thirty of which are listed on the New York Stock Exchange,
with combined assets of approximately $70.3 billion at May 31, 1995. The
Investment Manager also manages portfolios of pension plans, other
institutions and individuals which aggregated approximately $2.3 billion at
such date.
The Fund has retained the Investment Manager to manage its business
affairs and manage the investment of the Fund's U.S. assets, including the
placing of orders for the purchase and sale of portfolio securities, and to
supervise the investment of all the Fund's assets. In addition, the Fund has
retained InterCapital to provide it with administrative services and
InterCapital has, in turn, retained Dean Witter Services Company to perform
these administrative services.
Under Sub-Advisory Agreements between InterCapital and TCW Funds
Management, Inc. ("TCW") and Morgan Grenfell Investment Services Ltd.
("MGIS"), TCW and MGIS provide the Fund with investment advice and portfolio
management relating to the Fund's investments in securities issued by issuers
located in Canada and Latin America (TCW) and outside the Western Hemisphere
(MGIS), subject to the overall supervision of the Investment Manager.
TCW is located at 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017. TCW was organized in 1987 as a wholly-owned subsidiary of
The TCW Group, Inc., whose subsidiaries, including Trust Company of the West
and TCW Asset Management Company, provide a variety of trust, investment
management and investment advisory services. Robert A. Day, who is Chairman
of the Board of Directors of TCW, may be deemed to be a control person of TCW
by virtue of the aggregate ownership by Mr. Day and his family of more than
25% of the outstanding voting stock of The TCW Group, Inc. As of March 31,
1995, TCW and its affiliated companies had over $47 billion under management
or committed to management, primarily from institutional investors.
MGIS, whose address is 20 Finsbury Circus, London, England, manages, as of
March 31, 1995, assets in excess of $10.4 billion for U.S. corporate and
public employee benefit plans, investment companies, endowments and
foundations. MGIS is an indirect subsidiary of Deutsche Bank AG, the largest
commercial bank in Germany.
The Fund's Trustees review the various services provided by the Investment
Manager and the Sub-Advisers to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 1.0% to the Fund's net assets. As compensation for their
services provided pursuant to their
5
<PAGE>
Sub-Advisory Agreements, the Investment Manager pays each Sub-Adviser monthly
compensation equal to 30% of its monthly compensation.
The Fund's expenses include: the fee of the Investment Manager; the fee
pursuant to the Plan of Distribution (see "Purchase of Fund Shares"); taxes;
certain legal, transfer agent, custodian and auditing fees; and printing and
other expenses relating to the Fund's operations which are not expressly
assumed by the Investment Manager under its Investment Management Agreement
with the Fund. The Investment Manager has undertaken to assume all operating
expenses (except for the Plan of Distribution Fee and any brokerage fees) and
waive the compensation provided for in its Investment Management Agreement
until such time as the Fund has $50 million of net assets or until December
31, 1995, whichever occurs first.
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is to seek long-term total return on
its investments. This objective is a fundamental policy of the Fund and may
not be changed without shareholder approval. There is no assurance that the
objective will be achieved. The Fund's investment policies described below,
unless otherwise stated, are not fundamental and may be changed without
shareholder approval.
The Fund seeks to achieve its investment objective through a managed
investment policy utilizing a portfolio of U.S. and foreign equity, debt and
money market securities. The Investment Manager, with the assistance of the
Fund's Sub-Advisers, will initially allocate, and periodically reallocate,
the composition of the Fund's assets based upon an overall evaluation of
global monetary, economic and financial market trends and the anticipated
relative total return on securities available in different capital markets
around the world. In allocating among equity, fixed-income and money market
securities within a given capital market, the Investment Manager, with the
assistance of the Sub-Advisers, will consider the relative opportunity for
price appreciation of equity and fixed-income securities, dividend yields and
the level of interest rates paid on fixed- income securities of various
maturities. Therefore, at any given time, the Fund's assets may be invested
in any amounts of either U.S. or foreign equity or fixed-income (including
money market) securities, or in any combination thereof. Under normal
circumstances, the Fund will have at least 65% of its total assets invested
in securities issued in at least three separate countries (including the
U.S.).
The Investment Manager will meet with the Fund's Sub-Advisers, at least
quarterly, to discuss the Fund's overall strategy of asset allocation
described above. Once determinations of the equity, fixed-income and money
market sector allocation and geographic distribution of the Fund's assets
have been made, the Investment Manager and each Sub-Adviser will be
responsible for the individual security selection within its geographic area
of responsibility. The final determinations of the sector and geographic
asset allocations of the Fund will be made by the Investment Manager.
Within the equity sector, the Fund seeks to invest in those economic
sectors expected by the Investment Manager or Sub-Adviser to benefit from
major trends and in individual stocks which are deemed by them to have
superior investment potential. The Fund may purchase equity securities
(including convertible debt obligations and, except for certain foreign
jurisdictions, convertible preferred stock) sold on the New York, American
and other domestic and foreign stock exchanges and in the over-the-counter
market.
Within the fixed-income sector, the Fund seeks to maximize the return on
its investments by adjusting maturities and coupon rates to prevailing
interest rate trends around the world, and by taking cognizance of various
conditions and trends in the foreign currency exchange markets. The
fixed-income securities in which the Fund may invest include debt securities
with maturities of greater than one year, which are issued or guaranteed by
the U.S. Government and its agencies or instrumentalities, by for-
6
<PAGE>
eign governments (including foreign states, provinces and municipalities) and
agencies or instrumentalities thereof and debt securities and preferred
stocks issued by U.S. and foreign corporations and other similar business
entities. The Fund may also invest in fixed-income securities issued or
guaranteed by international organizations designed or supported by multiple
governmental entities (which are not obligations of the U.S. Government or
foreign governments) to promote economic reconstruction or development such
as the International Bank for Reconstruction and Development (the "World
Bank").
Generally, the fixed-income securities (including "convertible"
securities, see below) in which the Fund will invest will be rated at the
time of their purchase BBB or better by Standard & Poor's Corporation ("S&P")
or Baa or better by Moody's Investor Service, Inc. ("Moody's"), or investment
grade by a nationally recognized statistical rating organization ("NRSRO"),
or which, if unrated, are deemed to be of comparable quality by the Fund's
Investment Manager and/or Sub-Adviser. However, the Fund may invest up to 10%
of its net assets in fixed-income securities (including convertible
securities) which are rated below investment grade by a NRSRO or which are
unrated (see below for a discussion of the risks of investing in lower-rated
and unrated fixed-income securities and the Appendix for a description of the
Moody's and S&P's ratings).
Investments in securities rated either Baa by Moody's or BBB by S&P may
have speculative characteristics and, therefore, changes in economic
conditions or other circumstances are more likely to weaken their capacity to
make principal and interest payments than would be the case with investments
in securities with higher credit ratings. If a fixed- income security held by
the Fund is rated BBB or Baa and is subsequently downgraded by a rating
agency, the Fund will retain such security in its portfolio until the
Investment Manager and/or Sub-Adviser determines that it is practicable to
sell the security without undue market or tax consequences to the Fund. In
the event that such downgraded securities constitute 10% or more of the
Fund's total assets, the Fund will seek to immediately sell sufficient
securities to reduce the total to below 10%.
Within its money market sector, the Fund seeks to maximize returns by
exploiting spreads among short-term instruments. The money market portion of
the Fund's portfolio will contain short-term (maturities of up to thirteen
months) fixed-income securities, issued by private and governmental
institutions. Such securities may include: U.S. and foreign government
securities; domestic and foreign bank obligations; certificates of deposit
issued by foreign and domestic banks; obligations of savings institutions;
fully insured certificates of deposit; and commercial paper rated within the
two highest grades by S&P or the highest grade by Moody's or, if not rated,
issued by a company having an outstanding debt issue rated at least AA by S&P
or Aa by Moody's. Also included within the money market sector are repurchase
agreements and reverse repurchase agreements with maturities of under
thirteen months.
The principal currencies in which securities held in the Fund's portfolio
will be denominated are: the U.S. dollar; Australian dollar; Deutsche mark;
Japanese yen; French franc; British pound; Canadian dollar; Mexican peso;
Swiss franc; Dutch guilder; Hong Kong dollar; New Zealand dollar; Spanish
peseta; Swedish krona; and European Currency Unit.
RISK CONSIDERATIONS
- -----------------------------------------------------------------------------
FOREIGN SECURITIES
Foreign securities investments may be affected by changes in currency
rates or exchange control regulations, changes in governmental administration
or economic or monetary policy (in the United States and abroad) or changed
circumstances in dealings between nations. Fluctuations in the relative rates
of exchange between the currencies of different nations will affect the value
of the Fund's
7
<PAGE>
investments denominated in foreign currency. Changes in foreign currency
exchange rates relative to the U.S. dollar will affect the U.S. dollar value
of the Fund's assets denominated in that currency and thereby impact upon the
Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade. The foreign currency
transactions of the Fund will be conducted on a spot basis or through forward
foreign currency exchange contracts (described below). The Fund will incur
certain costs in connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer
of Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available
information about such companies. Moreover, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures on foreign
markets may occasion delays in settlements of the Fund's trades effected in
such markets. As such, the inability to dispose of portfolio securities due
to settlement delays could result in losses to the Fund due to subsequent
declines in value of such securities, and the inability of the Fund to make
intended security purchases due to settlement problems could result in a
failure of the Fund to make potentially advantageous investments.
Certain of the foreign markets in which the Fund may invest will be
emerging markets. These new and incompletely formed markets will have
increased risk levels above those occasioned by investing in foreign markets
generally. The types of these risks are set forth above. The Fund's
management will take cognizance of these risks in allocating any of the
Fund's investments in either fixed-income or equity securities issued by
issuers in emerging market countries.
Forward Foreign Currency Exchange Contracts. The Fund may enter into
forward foreign currency exchange contracts ("forward contracts") in
connection with its foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in"
the price of the security in U.S. dollars or some other foreign currency
which the Fund is temporarily holding in its portfolio. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars or
other currency, of the amount of foreign currency involved in the underlying
security transactions, the Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between
the U.S. dollar or other currency which is being used for the security
purchase (by the Fund or the coun-
8
<PAGE>
terparty) and the foreign currency in which the security is denominated
during the period between the date on which the security is purchased or sold
and the date on which payment is made or received.
At other times, when, for example, the Fund's Investment Manager or one of
its Sub-Adviser's believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar or some other
foreign currency, the Fund may enter into a forward contract to sell, for a
fixed amount of dollars or other currency, the amount of foreign currency
approximating the value of some or all of the Fund's securities holdings (or
securities which the fund has purchased for its portfolio) denominated in
such foreign currency. Under identical circumstances, the Fund may enter into
a forward contract to sell, for a fixed amount of U.S. dollars or other
currency, an amount of foreign currency other than the currency in which the
securities to be hedged are denominated approximating the value of some or
all of the portfolio securities to be hedged. This method of hedging, called
"cross- hedging," will be selected when it is determined that the foreign
currency in which the portfolio securities are denominated has insufficient
liquidity or is trading at a discount as compared with some other foreign
currency with which it tends to move in tandem.
In addition, when the Fund anticipates purchasing securities at some time
in the future, and wishes to lock in the current exchange rate of the
currency in which those securities are denominated against the U.S. dollar or
some other foreign currency, the Fund may enter into a forward contract to
purchase an amount of currency equal to some or all of the value of the
anticipated purchase, for a fixed amount of U.S. dollars or other currency.
In all of the above circumstances, if the currency in which the Fund
securities holdings (or anticipated portfolio securities) are denominated
rises in value with respect to the currency which is being purchased (or
sold), then the Fund will have realized fewer gains than had the Fund not
entered into the forward contracts. Moreover, the precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible, since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and
the date it matures. The Fund is not required to enter into such transactions
with regard to its foreign currency-denominated securities and will not do so
unless deemed appropriate. The Fund generally will not enter into a forward
contract with a term of greater than one year, although it may enter into
forward contracts for periods of up to five years. The Fund may be limited in
its ability to enter into hedging transactions involving forward contracts by
the Internal Revenue Code requirements relating to qualification as a
regulated investment company (see "Dividends, Distributions and Taxes").
American Depository Receipts. The Fund may also invest in securities of
foreign issuers in the form of American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or
trust company evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. Generally, ADRs, in
registered form, are designed for use in the United States securities markets
and EDRs, in bearer form, are designed for use in European securities
markets.
FIXED-INCOME SECURITIES
All fixed-income securities are subject to two types of risks: the credit
risk and the interest rate risk. The credit risk relates to the ability of
the issuer to meet interest or principal payments or both as they come due.
The interest rate risk refers to the fluctuations in the net asset value of
any portfolio of fixed-income securities resulting from the inverse
relationship between price and yield of fixed-income securities; that is,
when the general level of interest rates rises, the prices of outstanding
fixed-income securities decline, and when interest rates fall, prices rise.
9
<PAGE>
Lower-Rated Securities. There is no limitation other than the overall 10%
limitation described above on the percentage of the Fund's total assets which
may be invested in convertible securities (see below) and debt securities
below investment grade. Securities below investment grade are the equivalent
of high yield, high risk bonds, commonly known as "junk bonds." Investment
grade is generally considered to be debt securities rated BBB or higher by
S&P or Baa or higher by Moody's. However, the Fund will not invest in debt
securities that are in default in payment of principal or interest.
Because of the special nature of the Fund's permitted investments in lower
rated debt securities, it must take account of certain special considerations
in assessing the risks associated with such investments. 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 corresponding volatility in the net asset value of a share
of the Fund.
Convertible Securities. Among the fixed- income securities in which the
Fund may invest are "convertible" securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the
same or a different issuer within a particular period of time at a specified
price or formula. Convertible securities rank senior to common stocks in a
corporation's capital structure and, therefore, entail less risk than the
corporation's common stock. The value of a convertible security is a function
of its "investment value" (its value as if it did not have a conversion
privilege), and its "conversion value" (the security's worth if it were to be
exchanged for the underlying security, at market value, pursuant to its
conversion privilege).
Adjustable Rate Mortgage Securities. The Fund may also invest in
adjustable rate mortgage securities ("ARMs"), which are pass-through mortgage
securities collateralized by mortgages with adjustable rather than fixed
rates. ARMs eligible for inclusion in a mortgage pool generally provide for a
fixed initial mortgage interest rate for either the first three, six, twelve
or thirteen scheduled monthly payments. Thereafter, the interest rates are
subject to periodic adjustment based on changes to a designated benchmark
index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain
ARMs provide for additional limitations on the maximum amount by which the
mortgage interest rate may adjust for any single adjustment period.
Alternatively, certain ARMs contain limitations on changes in the required
monthly payment. In the event that a monthly payment is not sufficient to pay
the interest accruing on an ARM, any such excess interest is added to the
principal balance of the mortgage loan, which is repaid through future
monthly payments. If the monthly payment for such an instrument exceeds the
sum of the interest accrued at the applicable mortgage interest rate and the
principal payment required at such point to amortize the outstanding
principal balance over the remaining term of the loan, the excess is utilized
to reduce the then outstanding principal balance of the ARM.
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,
10
<PAGE>
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise. For this reason, zero coupon securities are subject to
substantially greater price fluctuations during periods of changing
prevailing interest rates than are comparable securities which pay interest
currently. The Fund may have to sell a portion of its holdings of zero coupon
securities, which sale may take place at a disadvantageous time for the Fund,
to enable it to meet a certain level of distributions.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities which are denominated in either U.S. dollars or foreign currencies
and on the U.S. dollar and foreign currencies, which are or may in the future
be listed on several U.S. and foreign securities exchanges or are written in
over-the-counter transactions ("OTC options"). OTC options are purchased from
or sold (written) to dealers or financial institutions which have entered
into direct agreements with the Fund.
The Fund is permitted to write covered call options on portfolio
securities and the U.S. dollar and foreign currencies, without limit, in
order to hedge against the decline in the value of a security or currency in
which such security is denominated (although such hedge is limited to the
value of the premium received), to close out long call option positions and
to generate income. The Fund may write covered put options, under which the
Fund incurs an obligation to buy the security (or currency) underlying the
option from the purchaser of the put at the option's exercise price at any
time during the option period, at the purchaser's election.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options to
close out a covered call position or to protect against an increase in the
price of a security it anticipates purchasing or, in the case of call options
on a foreign currency, to hedge against an adverse exchange rate change of
the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The Fund
may purchase put options on securities which it holds in its portfolio to
protect itself against a decline in the value of the security and to close
out written put positions in a manner similar to call option closing purchase
transactions. There are no limits on the Fund's ability to purchase call and
put options other than compliance with the foregoing policies.
The Fund may purchase and sell futures contracts that are currently
traded, or may in the future be traded, on U.S. and foreign commodity
exchanges on underlying portfolio securities, on any currency ("currency"
futures), on U.S. and foreign fixed-income securities ("interest rate"
futures) and on such indexes of U.S. or foreign equity or fixed- income
securities as may exist or come into being ("index" futures). The Fund may
purchase or sell interest rate futures contracts for the purpose of
attempting hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against anticipated changes in prevailing
interest rates. The Fund may purchase or sell index futures contracts for the
purpose of hedging some or all of its portfolio (or anticipated portfolio)
securities against changes in their prices (or the currency in which they are
denominated). As a futures contract purchaser, the Fund incurs an obligation
to take delivery of a specified amount of the obligation underlying the
contract at a specified time in the future for a specified price. As a seller
of a futures contract, the Fund incurs an obligation to deliver the specified
amount of the underlying obligation at a specified time in return for an
agreed upon price.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
11
<PAGE>
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any
such futures, options or products as may be developed, to the extent
consistent with its investment objective and applicable regulatory
requirements.
Risks of Options and Futures Transactions. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures
contract, only if a liquid secondary market exists for options or futures
contracts of that series. There is no assurance that such a market will
exist, particularly in the case of OTC options, as such options may generally
only be closed out by entering into a closing purchase transaction with the
purchasing dealer. Also, exchanges may limit the amount by which the price of
many futures contracts may move on any day. If the price moves equal the
daily limit on successive days, then it may prove impossible to liquidate a
futures position until the daily limit moves have ceased.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk is that the Investment Manager or Sub-Adviser
could be incorrect in its expectations as to the direction or extent of
various interest rate or price movements or the time span within which the
movements take place. For example, if the Fund sold futures contracts for the
sale of securities in anticipation of an increase in interest rates, and then
interest rates went down instead, causing bond prices to rise, the Fund would
lose money on the sale. Another risk which will arise in employing futures
contracts to protect against the price volatility of portfolio securities is
that the prices of securities, currencies and indexes subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the U.S. dollar cash prices of the Fund's portfolio
securities and their denominated currencies. See the Statement of Additional
Information for a further discussion of risks.
Investment in Other Investment Vehicles. Under the Investment Company Act
of 1940, as amended (the "Act"), the Fund generally may invest up to 10% of
its total assets in the aggregate in shares of other investment companies and
up to 3% of its total assets in any one investment company, as long as that
investment does not represent more than 5% of the voting stock of the
acquired investment company at the time such shares are purchased. Investment
in other investment companies or vehicles may be the sole or most practical
means by which the Fund can participate in certain foreign markets. Such
investment may involve the payment of substantial premiums above the value of
such issuers' portfolio securities, and is subject to limitations under the
Act and market availability. In addition, special tax considerations may
apply. The Fund does not intend to invest in such vehicles or funds unless,
in the judgment of the Investment Manager or Sub-Adviser, the potential
benefits of such investment justify the payment of any applicable premium or
sales charge. As a shareholder in an investment company, the Fund would bear
its ratable share of that investment company's expenses, including its
advisory and administration fees. At the same time the Fund would continue to
pay its own management fees and other expenses, as a result of which the Fund
and its shareholders in effect will be absorbing duplicate levels of advisory
fees with respect to investments in such other investment companies.
Rights and Warrants. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting
rights, pay no dividends and have no rights with respect to the corporation
issuing them.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the
12
<PAGE>
Fund of government securities or other securities from a selling financial
institution such as a bank, savings and loan association or broker-dealer.
The agreement provides that the Fund will sell back to the institution, and
that the institution will repurchase, the underlying security at a specified
price and at a fixed time in the future, usually not more than seven days
from the date of purchase. While repurchase agreements involve certain risks
not associated with direct investments in debt securities, including the
risks of default or bankruptcy of the selling financial institution, the Fund
follows procedures to minimize such risks. These procedures include effecting
repurchase transactions only with large, well-capitalized and
well-established financial institutions and maintaining adequate
collateralization.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
There is no overall limit on the percentage of the Fund's assets which may be
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis may increase the volatility of the Fund's net asset
value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. There is no overall limit on
the percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value.
Reverse Repurchase Agreements and Dollar Rolls. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of
portfolio assets concurrently with an agreement by the Fund to repurchase the
same assets at a later date at a fixed price. The Fund may enter into dollar
rolls in which the Fund sells securities and simultaneously contracts to
repurchase substantially similar (same type and coupon) securities on a
specified future date. Reverse repurchase agreements and dollar rolls involve
the risk that the market value of the securities the Fund is obligated to
repurchase under the agreement may decline below the repurchase price. In the
event the buyer of securities under a reverse repurchase agreement or dollar
roll files for bankruptcy or becomes insolvent, the Fund's use of proceeds of
the agreement may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. Reverse Repurchase agreements and dollar rolls are
speculative techniques involving leverage (which may increase investment
risk), and are considered borrowings by the Fund.
Restricted Securities. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible
for resale pursuant to Rule 144A under the Securities Act, and determined to
be liquid pursuant to the procedures discussed in the following paragraph,
are not subject to the foregoing restriction.) These securities are generally
referred to as private placements or restricted securities. Limitations on
the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable
13
<PAGE>
prices. The Fund may have to bear the expense of registering such securities
for resale and the risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualifed institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by
the Fund. The procedures require that the following factors be taken into
account in making a liquidity determination: (1) the frequency of trades and
price quotes for the security; (2) the number of dealers and other potential
purchasers who have issued quotes on the security; (3) any dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (the time needed to dispose
of the security, the method of soliciting offers, and the mechanics of
transfer). Investing in restricted securities sellable pursuant to Rule 144A
could have the effect of increasing the level of the illiquidity of the Fund
to the extent that qualified institutional buyers of such securities become,
for a time, uninterested in purchasing these securities. If a restricted
security is determined to be "liquid," such security will not be included
within the category "illiquid securities," which under current policy may not
exceed 15% of the Fund's net assets.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager and its
Sub-Advisers 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 and the Sub-Advisers will rely on
information from various sources, including research, analysis and appraisals
of brokers and dealers, the views of Trustees of the Fund and others
regarding economic developments and interest rate trends, and the Investment
Manager's and Sub-Adviser's own analysis of factors they deem relevant.
The individuals who are primarily responsible for the day-to-day
management of the Fund's portfolio are Mark Bavoso, Senior Vice President of
InterCapital, Michael P. Reilly, Senior Vice President of TCW and Michael
Bullock, Chairman and Chief Investment Officer of MGIS. Mr. Bavoso is a
member of InterCapital's Large Capitalization Equity Group and has been a
portfolio manager at InterCapital for over five years. Mr. Reilly has been a
portfolio manager of affiliates of The TCW Group, Inc. since June, 1992,
prior to which he was Vice President of Security Pacific Bank. Mr. Bullock is
Chairman of MGIS and chief investment officer of its parent company, Morgan
Grenfell Asset Management Limited.
Personnel of the Investment Manager and the Sub-Advisers have substantial
experience in the use of the investment techniques described above under the
heading "Options and Futures Transactions," which techniques require skills
different from those needed to select the portfolio securities underlying
various options and futures contracts.
Orders for transactions in portfolio securities and commodities may be
placed for the Fund with a number of brokers and dealers, including Dean
Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate of InterCapital, and
affiliated broker-dealers of MGIS. Pursuant to an order of the Securities and
Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with DWR, a broker-dealer affiliate of the
Investment Manager. In addition, the Fund may incur brokerage commissions on
transactions conducted through DWR and affiliated broker-dealers of the MGIS.
Although the Fund does not intend to engage in short-term trading, it may
sell portfolio securities without regard to the length of time they have been
held when such sale will, in the opinion of the Investment Manager or
Sub-Adviser, contribute to the Fund's investment objective.
The portfolio trading engaged in by the Fund may result in its portfolio
turnover rate exceeding 200%. The Fund is expected to incur higher than
14
<PAGE>
normal brokerage commission costs due to its portfolio turnover rate.
Short-term gains and losses taxable at ordinary income rates may result from
such portfolio transactions. See "Dividends, Distributions and Taxes" for a
full discussion of the tax implications of the Fund's trading policy. A more
extensive discussion of the Fund's portfolio brokerage policies is set forth
in the Statement of Additional Information.
The expenses of the Fund relating to its portfolio management are likely
to be greater than those incurred by other investment companies investing
primarily in securities issued by domestic issuers as custodial costs,
brokerage commissions and other transaction charges related to investing on
foreign markets are generally higher than in the United States.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For
purposes of the following limitations: (i) all percentage limitations apply
immediately after a purchase or initial investment, and (ii) any subsequent
change in any applicable percentage resulting from market fluctuations or
other changes in total or net assets does not require elimination of any
security from the portfolio.
The Fund may not:
1. 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. 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.
3. Invest more than 5% of the value of its total assets in securities
of issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction shall not apply to any
obligation issued or guaranteed by the United States Government, its
agencies or instrumentalities.
4. As to 75% of its total assets, purchase more than 10% of the voting
securities, or more than 10% of any class of securities, of any issuer.
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 which 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. Minimum subsequent purchases of
$100 or more may be made by sending a check, payable to Dean Witter Global
Asset Allocation Fund directly to Dean Witter Trust Company (the "Transfer
Agent") at P.O. Box 1040, Jersey City, NJ 07303 or by contacting an account
executive of DWR or other Selected Broker- Dealer. In the case of investments
pursuant to Systematic Payroll Deduction Plans (including Individual
Retirement Plans), the Fund, in its discretion, may accept investments
without regard to any mini-
15
<PAGE>
mum amounts which would otherwise be required if the Fund has reason to
believe that additional investments will increase the investment in all
accounts under such Plans to at least $1,000. Certificates for shares
purchased will not be issued unless a request is made by the shareholder in
writing to the Transfer Agent. The offering price will be the net asset value
per share next determined following receipt of an order (see "Determination
of Net Asset Value").
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Shares
of the Fund purchased through the Distributor are entitled to any dividends
declared beginning on the next business day following settlement date. Since
DWR and other Selected Broker-Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is
made prior thereto. Shares purchased through the Transfer Agent are entitled
to any dividends declared beginning on the next business day following
receipt of an order. Orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income
dividends and capital gains distributions if their order is received by the
close of business on the day prior to the record date for such dividends and
distributions. While no sales charge is imposed at the time shares are
purchased, a contingent deferred sales charge may be imposed at the time of
redemption (see "Redemptions and Repurchases"). Sales personnel are
compensated for selling shares of the Fund at the time of their sale by the
Distributor and/or Selected Broker-Dealer. In addition, some sales personnel
of the Selected Broker-Dealer will receive various types of non-cash
compensation as special sales incentives, including trips, educational and/or
business seminars and merchandise. The Fund and the Distributor reserve the
right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan"), under which the Fund pays the Distributor a fee, which
is accrued daily and payable monthly, at an annual rate of 1.0% 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 0.25% 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 for services
provided and the expenses borne by the Distributor and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to and expenses of
DWR's account executives and others who engage in or support distribution of
shares 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 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 expenses.
For the period beginning with the commencement of the Fund's operations on
February 28, 1995 and ended May 31, 1995, the Fund accrued payments under the
Plan amounting to $50,936, which amount is equal to 0.98% of the Fund's
average daily net sales for the fiscal year. The payments accrued under the
Plan were calculated pursuant to clause (a) of the compensation formula under
the Plan.
16
<PAGE>
At any given time, the expenses in distributing shares of the Fund may be
in excess of the total of (i) the payments made by the Fund pursuant to the
Plan, and (ii) the proceeds of contingent deferred sales charges paid by
investors upon the redemption of shares (see "Redemption 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 $1,719,431 at May 31,
1995, which equalled 6.83% of the Fund's net assets at such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, such excess amount, if any, 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 by taking the value of all assets of the Fund,
subtracting all its liabilities, dividing by the number of shares outstanding
and adjusting to the nearest cent. The net asset value per share will not be
determined on Good Friday and on such other federal and non-federal holidays
as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange or quoted by NASDAQ is valued at its
latest sale price on that exchange or quotation service prior to the time
assets are valued; if there were no sales that day, the security is valued at
the latest bid price (in cases where a security is traded on more than one
exchange, the security is valued on the exchange designated as the primary
market by the Trustees); (2) an option is valued at the mean between the
latest bid and asked prices); (3) a futures contract is valued at the latest
sales price on the commodities exchange on which it trades unless the Board
determines that such price does not reflect its market value, in which case
it will be valued at its fair value as determined by the Board of Trustees;
(4) all other portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest bid price; (5) when
market quotations are not readily available, including circumstances under
which it is determined by the Investment Manager or Sub-Adviser that sale or
bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Fund's
Trustees (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of securities which
are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (6) the value of short-term debt securities which
mature at a date less than sixty days subsequent to valuation date will be
determined on an amortized cost or amortized value basis; and (7) the value
of other assets will be determined in good faith at fair value under
procedures established by and under the general supervision of the Fund's
Trustees.
Generally, trading in foreign securities, as well as corporate bonds,
United States government securities and money market instruments, is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The
17
<PAGE>
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
also generally determined prior to the close of the New York Stock Exchange.
Occasionally, events which affect the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange and will therefore not be reflected
in the computation of the Fund's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at their fair value as determined in good faith
under procedures established by and under the supervision of some Trustees.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service utilizes a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
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").
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 after receipt by the Transfer Agent, by returning the check
or the proceeds to the Transfer Agent within thirty days after the payment
date. Shares so acquired are not subject to the imposition of a contingent
deferred sales charge upon their redemption (see "Redemptions and
Repurchases").
EasyInvest.(Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund.
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any 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.
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.
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.
18
<PAGE>
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 and five Dean Witter Funds
which are money market funds (the foregoing ten non-CDSC funds are
hereinafter collectively referred to in this section as the "Exchange
Funds.") Exchanges may be made after the shares of the Fund acquired by
purchase (not by exchange or dividend reinvestment) have been held for thirty
days. There is no waiting period for exchanges of shares acquired by exchange
or dividend reinvestment.
An exchange to another CDSC fund or any Exchange Fund that is not a money
market fund is on the basis of the next calculated net asset value per share
of each fund after the exchange order is received. When exchanging into a
money market fund from the Fund, shares of the Fund are redeemed out of the
Fund at their next calculated net asset value and the proceeds of the
redemption are used to purchase shares of the money market fund at their net
asset value determined the following day. Subsequent exchanges between any of
the money market funds and any of the CDSC funds can be effected on the same
basis. No contingent deferred sales charge ("CDSC") is imposed at the time of
any exchange, although any applicable CDSC will be imposed upon ultimate
redemption. Shares of the Fund acquired in exchange for shares of another
CDSC fund having a different CDSC schedule than that of this Fund will be
subject to the CDSC schedule of this Fund, even if such shares are
subsequently re-exchanged for shares of the CDSC fund originally purchased.
During the period of time the shareholder remains invested in shares of an
Exchange Fund (calculated from the last day of the month in which the shares
were acquired) the holding period (for the purpose of determining the rate of
the contingent deferred sales charge) 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 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, if any, incurred on or after that date which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.)
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("front-end sales charge
funds"), but shares of the Fund, however acquired, may not be exchanged for
shares of front-end sales charge funds. Shares of a CDSC fund acquired in
exchange for shares of a front-end sales charge fund (or in exchange for
shares of other Dean Witter Funds for which shares of a front-end sales
charge fund have been exchanged) are not subject to any CDSC upon their
redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders
and, at the Investment Manager's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor.
Although the Fund does not have any specific definition of what constitutes a
pattern of frequent exchanges, and will consider all relevant factors in
determining whether a particular situation is abusive and contrary to the
best interests of the Fund and its other shareholders, investors should be
aware that the Fund and each of the other Dean Witter Funds may in their
19
<PAGE>
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 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 shareholders who hold shares of an Exchange Fund
pursuant to the Exchange Privilege, and provided further that the Exchange
Privilege may be terminated or materially revised without notice under
certain unusual circumstances. Shareholders maintaining margin accounts with
DWR or another Selected Dealer are referred to their account executive
regarding restrictions on exchange of shares of the Fund pledged in the
margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated
for federal income tax purposes the same as a repurchase or redemption of
shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in
situations where there is an exchange of shares within ninety days after the
shares are purchased. The Exchange Privilege is only available in states
where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are 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
telephoning the Transfer Agent) must complete and forward to the Transfer
Agent an Exchange Privilege Authorization Form, copies of which may be
obtained from the Transfer Agent, to initiate an exchange. If the
Authorization Form is used, exchanges may be made in writing or by contacting
the Transfer Agent at (800) 526-3143 (toll free). The Fund will employ
reasonable procedures to confirm that exchange instructions communicated over
the telephone are genuine. Such procedures may include requiring various
forms of personal identification such as name, mailing address, social
security or other tax identification number and DWR or other Selected
Broker-Dealer account number (if any). Telephone instructions may also be
recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
with the Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
20
<PAGE>
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
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, along with any additional
documentation required by the Transfer Agent.
Contingent Deferred Sales Charge. Shares of the Fund which are held for
six years or more after purchase (calculated from the last day of the month
in which the shares were purchased) will not be subject to any charge upon
redemption. Shares redeemed sooner than six years after purchase may,
however, be subject to a charge upon redemption. This charge is called a
"contingent deferred sales charge" ("CDSC"), which will be a percentage of
the dollar amount of shares redeemed and will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The size of this percentage will depend upon how long the shares
have been held, as set forth in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
YEAR SINCE PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- -------------------------- -----------------------
<S> <C>
First ..................... 5.0%
Second .................... 4.0%
Third ..................... 3.0%
Fourth .................... 2.0%
Fifth ..................... 2.0%
Sixth ..................... 1.0%
Seventh and thereafter ... None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption;
(ii) the current net asset value of shares purchased more than six years
prior to the redemption; and (iii) the current net asset 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 (i) 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 or Custodial Account under Section 403(b)(7) of the Internal Revenue
Code, provided in either case that the redemption is requested within one
year of the death or initial determination of disability, and (ii)
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 Individual Retirement Account or Custodial Account
under Section 403(b)(7) of the Internal Revenue Code following attainment of
age 59 1/2 ; and (c) a tax-free return of an excess contribution to an IRA.
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.
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 repre-
21
<PAGE>
sented 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 purchase
order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by the
Fund, the Distributor, DWR or other Selected Broker-Dealer. The offer by DWR
and other Selected Broker-Dealers to repurchase shares may be suspended
without notice by them at any time. In that event, shareholders may redeem
their shares through the Fund's Transfer Agent as set forth above under
"Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances, e.g., when normal trading is not
taking place on the New York Stock Exchange. If the shares to be redeemed
have recently been purchased by check, payment of the redemption proceeds may
be delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Dealer are referred to their account
executive regarding restrictions on redemption of shares of the Fund pledged
in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the redemption or
repurchase, reinstate any portion or all of the proceeds of such redemption
or repurchase in shares of the Fund at the net asset value next determined
after a reinstatement request, together with the proceeds, is received by the
Transfer Agent and receive a pro rata credit for any CDSC paid in connection
with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right to redeem, upon sixty
days' notice and at net asset value, the shares of any shareholder whose
shares have a value of less than $100 as a result of redemptions or
repurchases, or such lesser amount as may be fixed by the Board of Trustees.
However, before the Fund redeems such shares and sends the proceeds to the
shareholder, it will notify the shareholder that the value of the shares is
less than $100 and allow the shareholder to make an additional investment in
an amount which will increase the value of the account to $100 or more before
the redemption is processed. No CDSC will be imposed on any involuntary
redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund intends to pay at least annually
dividends and to distribute substantially all of the Fund's net investment
income and net short-term capital gains, if there are any. The Fund intends
to distribute dividends from net long-term capital gains, if any, at least
once each year. The Fund may, however, determine either to distribute or to
retain all or part of any long-term capital gains in any year for
reinvestment.
All dividends and any capital gains distributions will be paid in
additional Fund shares and automatically credited to the shareholder's
account without issuance of a share certificate unless the shareholder
requests in writing that all dividends be paid in cash. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions".)
Taxes. Because the Fund intends to distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
22
<PAGE>
qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code, it is not expected that the Fund will be required to
pay any federal income tax. Shareholders who are required to pay taxes on
their income will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from
net investment income or short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash.
One of the requirements for the Fund to remain qualified as a regulated
investment company is that less than 30% of the Fund's gross income be
derived from gains from the sale or other disposition of securities held for
less than three months. Accordingly, the Fund may be restricted in the
writing of options on securities held for less than three months, in the
writing of options which expire in less than three months, and in effecting
closing transactions with respect to call or put options which have been
written or purchased less than three months prior to such transactions. The
Fund may also be restricted in its ability to engage in transactions
involving futures contracts.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
At the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as long-term capital gains, and the amount of dividends
eligible for the Federal dividends received deduction available to
corporations. To avoid being subject to a 31% federal backup withholding tax
on taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers
must be furnished and certified as to their accuracy.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and makes the appropriate election with the Internal Revenue Service, the
Fund will report annually to its shareholders the amount per share of such
taxes to enable shareholders to claim United States foreign tax credits or
deductions with respect to such taxes. In the absence of such an election,
the Fund would deduct foreign tax in computing the amount of its
distributable income.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average
annual total return" of the Fund refers to a figure reflecting the average
annualized percentage increase (or decrease) in the value of an initial
investment in the Fund of $1,000 over periods of one, five and ten years, or
for 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. The Fund may also advertise the growth
of hypothetical investments of $10,000, $50,000 and $100,000 in shares
23
<PAGE>
of the Fund. 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 from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc.).
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by
the Shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain limited 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 notice of such Fund obligations include such disclaimer,
and provides for indemnification out of the Fund's property for any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be
unable to meet its obligations. Given the above limitations on shareholder
personal liability, and the nature of the Fund's assets and operations, in
the opinion of Massachusetts counsel to the Fund, the risk to 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 prohibits
engaging in futures and option transactions and profiting on shortterm
trading (that is, a purchase within sixty days of a sale or a sale within
sixty days of a purchase) of a security. In addition, investment personnel
may not purchase or sell a security for their personal account within thirty
days before or after any transaction in any Dean Witter Fund managed by them.
Any violations of the Code of Ethics are subject to sanctions, including
reprimand, demotion or suspension or termination of employment. The Code of
Ethics comports with regulatory requirements and the recommendations in the
recent report by the Investment Company Institute Advisory Group on Personal
Investing.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone number or address set forth on the front cover
of those Prospectus.
24
<PAGE>
APPENDIX
- -----------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
<TABLE>
<CAPTION>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations; i.e., they are neither highly protected
nor poorly secured. Interest payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as
well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal payments may be very moderate, and therefore
not well safeguarded during both good and bad times in the future. Uncertainty of position characterizes
bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest
and principal payments or of maintenance of other terms of the contract over any long period of time may
be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements
of danger with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in a high degree. Such issues are often
in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
</TABLE>
25
<PAGE>
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end if
its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess
of nine months. The ratings apply to Municipal Commercial Paper as well as
taxable Commercial Paper. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment
capacity of rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3
have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime
rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
<TABLE>
<CAPTION>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal
is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the highest-rated
issues only in small degree.
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.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher-rated
categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other speculative grade debt. However, it faces
major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to
inadequate capacity 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 rating from "AA" to "CCC" may be modified by the addition of a plus or minus sign to
show relative standing with the major ratings categories.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to
purchase or sell a security. The ratings are based upon current information
furnished by the issuer or obtained by S&P from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information. Ratings are graded
27
<PAGE>
into group categories, ranging from "A" for the highest quality obligations
to "D" for the lowest. Ratings are applicable to both taxable and tax-exempt
commercial paper. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2, and 3 to indicate the relative degree of safety.
<TABLE>
<CAPTION>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong. However, the relative degree
of safety is not as overwhelming as for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this designation are, however, somewhat
more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
</TABLE>
28
<PAGE>
Dean Witter
Global Asset Allocation Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
Mark Bavoso
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank N.A.
One Chase Plaza
New York, NY 10005
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
SUBADVISERS
TCW Funds Management, Inc.
Morgan Grenfell Investment Services Limited
DEAN WITTER
GLOBAL ASSET
ALLOCATION FUND
PROSPECTUS--JUNE 29, 1995
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JUNE 29, 1995
DEAN WITTER
GLOBAL ASSET ALLOCATION
FUND
- -----------------------------------------------------------------------------
Dean Witter Global Asset Allocation Fund (the "Fund") is an open-end
diversified management investment company whose investment objective is to
seek long-term total return on its investments. The Fund seeks to meet its
investment objective by allocating its assets among U.S. and foreign
equities, fixed-income securities and money market instruments. (See
"Investment Practices and Policies.")
A Prospectus for the Fund dated June 29, 1995, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone number listed below
or from the Fund's Distributor, 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 Global Asset Allocation Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550
<PAGE>
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
The Fund and its Management ............................... 3
Trustees and Officers ..................................... 7
Investment Practices and Policies ......................... 13
Investment Restrictions ................................... 28
Portfolio Transactions and Brokerage ...................... 29
The Distributor ........................................... 30
Shareholder Services ...................................... 34
Redemptions and Repurchases ............................... 38
Dividends, Distributions and Taxes ........................ 40
Performance Information ................................... 42
Shares of the Fund ........................................ 42
Custodian and Transfer Agent .............................. 43
Independent Accountants ................................... 43
Reports to Shareholders ................................... 44
Legal Counsel ............................................. 44
Experts ................................................... 44
Registration Statement .................................... 44
Statement of Assets and Liabilities at January 31, 1995 .. 45
Report of Independent Accountants ......................... 47
Financial Statements at May 31, 1995 (unaudited) ......... 48
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on October 18, 1994.
THE INVESTMENT MANAGER
Dean Witter InterCapital Inc. (the "Investment Manager" or
"InterCapital"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's Investment Manager.
InterCapital is a wholly-owned subsidiary of Dean Witter, Discover & Co.
("DWDC"), a Delaware corporation. In an internal reorganization which took
place in January, 1993, InterCapital assumed the investment advisory,
administrative and management activities previously performed by the
InterCapital Division of Dean Witter Reynolds Inc. ("DWR"), a broker-dealer
affiliate of InterCapital. (As 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 portfolio of of the Fund is conducted by or
under the direction of officers of the Fund and of the Investment Manager and
Sub-Advisers, subject to review of investments by the Fund's Board of
Trustees. In addition, Trustees of the Fund provide guidance on economic
factors and interest rate trends. Information as to these Trustees and
Officers is contained under the caption "Trustees and Officers."
InterCapital is also the investment manager (or investment adviser and
administrator) of the following investment companies: Dean Witter Liquid
Asset Fund, Inc., InterCapital Income Securities Inc., Dean Witter High Yield
Securities Inc., Dean Witter Tax-Free Daily Income Trust, Dean Witter
Developing Growth Securities Trust, Dean Witter Tax-Exempt Securities Trust,
Dean Witter Dividend Growth Securities Inc., Dean Witter Natural Resource
Development Securities Inc., Dean Witter American Value Fund, Dean Witter
U.S. Government Money Market Trust, Dean Witter Variable Investment Series,
Dean Witter World Wide Investment Trust, Dean Witter Select Municipal
Reinvestment Fund, Dean Witter U.S. Government Securities Trust, Dean Witter
California Tax-Free Income Fund, Dean Witter 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,
Dean Witter Government Income Trust, InterCapital Insured Municipal Bond
Trust, Dean Witter Utilities Fund, Dean Witter Managed Assets Trust, High
Income Advantage Trust II, Dean Witter California Tax-Free Daily Income
Trust, Dean Witter Strategist Fund, High Income Advantage Trust III, Dean
Witter World Wide Income Trust, Dean Witter Intermediate Income Securities,
Dean Witter New York Municipal Money Market Trust, Dean Witter Capital Growth
Securities, Dean Witter European Growth Fund Inc., Dean Witter 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 Short-Term U.S. Treasury Trust, Dean Witter Premier Income Trust,
InterCapital Quality Municipal Investment Trust, InterCapital Insured
Municipal Trust, Dean Witter Diversified Income Trust, Dean Witter Health
Sciences Trust, Dean Witter Global Dividend Growth Securities, Dean Witter
Limited Term Municipal Trust, InterCapital Insured Municipal Securities,
InterCapital Insured California Municipal Securities, InterCapital Insured
Municipal Income Trust, InterCapital California Insured Municipal Income
Trust, InterCapital Quality Municipal Income Trust, InterCapital Quality
Municipal Securities, InterCapital California Quality Municipal Securities,
InterCapital New York Quality Municipal Securities, Active Assets Money
Trust, Active Assets Tax-Free Trust, Active Assets California Tax-Free Trust,
Active Assets Government Securities Trust, Municipal Income Trust, Municipal
Income Trust II, Municipal Income Trust III, Municipal Income Opportunities
Trust, Municipal Income Opportunities Trust II, Municipal Income
Opportunities Trust III, Prime Income Trust, Municipal Premium Income Trust,
Dean Witter Short-Term Bond Fund, Dean Witter High Income Securities, Dean
Witter Global Utilities Fund, Dean Witter National Municipal Trust, Dean
Witter International SmallCap Fund, Dean Witter Retirement Series, Dean
Witter Mid-Cap Growth Fund, Dean Witter Balanced Income Fund, Dean Witter
Balanced Growth Fund, Dean Witter Hawaii Municipal Trust and Dean Witter
Select Dimensions Investment Series. The foregoing investment companies,
together with the Fund, are collectively referred to as the Dean Witter
Funds. In
3
<PAGE>
addition, Dean Witter Services Company Inc. ("DWSC"), a wholly-owned
subsidiary of InterCapital, serves as manager for the following investment
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 Term Trust 2000, TCW/DW
Term Trust 2002, TCW/DW Term Trust 2003, TCW/DW North American Intermediate
Fund, TCW/DW Total Return Trust, TCW/DW Global Convertible Trust 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.
The Investment Manager also serves as an investment adviser for Dean
Witter World Wide Investment Fund, an investment company organized under the
laws of Luxembourg, shares of which are not available for purchase in the
United States or by American citizens outside the United States.
Pursuant to an Investment Management Agreement (the "Management
Agreement") with the Investment Manager, the Fund has retained the Investment
Manager to manage the investment of the Fund's U.S. assets, including the
placing of orders for the purchase and sale of portfolio securities and
supervise the investment of all of the Fund's assets. The Investment Manager
in conjunction with TCW Funds Management, Inc. ("TCW") and Morgan Grenfell
Investment Services Ltd. ("MGIS") (the "Sub-Advisers") 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.
The Management 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 Management Agreement
in no way restricts the Investment Manager from acting as investment manager
or adviser to others.
Under the terms of the Management Agreement, in addition to managing the
Fund's investments, the Investment Manager maintains certain of the Fund's
books and records and furnishes, at its own expense, such office space,
facilities, equipment, clerical help and bookkeeping and legal services as
the Fund may reasonably require in the conduct of its business, including the
preparation of prospectuses, statements of additional information, proxy
statements and reports required to be filed with federal and state securities
commissions (except insofar as the participation or assistance of independent
accountants and attorneys is, in the opinion of the Investment Manager,
necessary or desirable). In addition, the Investment Manager pays the
salaries of all personnel, including officers of the Fund, who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone service, heat, light, power and other utilities provided to the
Fund.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, the Sub-Advisers pursuant to the Sub-Advisory
Agreements (see below), or by Dean Witter Distributors Inc., the Distributor
of the Fund's shares ("Distributors" or "the Distributor") will be paid by
the Fund. The expenses borne by the Fund include, but are not limited to:
expenses of the Plan of Distribution pursuant to Rule 12b-1 (see "The
Distributor"); charges and expenses of any registrar; custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes;
engraving and printing of share certificates; registration costs of the Fund
and its shares under federal and state securities laws; the cost and expense
of printing, including typesetting, and distributing Prospectuses and
Statements of Additional Information of the Fund and supplements thereto to
the Fund's shareholders; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Manager or
Sub-Adviser or any corporate affiliate of the Investment Manager or
Sub-Adviser; 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;
4
<PAGE>
fees and expenses of legal counsel, including counsel to the Trustees who are
not interested persons of the Fund or of the Investment Manager or
Sub-Adviser (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 by applying the
annual rate of 1.0% to the Fund's daily net assets. The Investment Manager
has undertaken to assume all operating expenses (except for the Plan of
Distribution fee and any brokerage fees) and waive the compensation provided
for in the Management Agreement. For the period February 28, 1995
(commencement of the Fund's operations) through May 31, 1995, the Fund would
have accrued to the Investment Manager total compensation under the
Investment Management Agreement of $52,246.
Pursuant to a Sub-Advisory Agreement between the Investment Manager and
TCW, TCW has been retained, subject to the overall supervision of the
Investment Manager and the Trustees of the Fund, to assist the Investment
Manager in determining the asset allocations of the Fund, and to manage the
portion of the Fund's portfolio invested in securities issued by issuers
located in Canada and Latin America.
TCW is a wholly-owned subsidiary of The TCW Group, Inc., whose
subsidiaries, including Trust Company of the West and TCW Asset Management
Company, provide a variety of trust, investment management and investment
advisory services. As of March 31, 1995, TCW and its affiliates had over $47
billion under management or committed to management. Trust Company of the
West and its affiliates have managed equity securities portfolios for
institutional investors since 1971. TCW is headquartered at 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017 and is registered
as an investment adviser under the Investment Advisers Act of 1940.
Pursuant to a Sub-Advisory Agreement between the Investment Manager and
MGIS, MGIS has been retained, subject to the overall supervision of the
Investment Manager and the Trustees of the Fund, to assist the Investment
Manager in determining the asset allocations of the Fund, and to manage the
portion of the Fund's portfolio invested in securities issued by issuers
located outside of the Western Hemisphere.
MGIS was organized as a British corporation in 1972 and manages, as of
March 31, 1995, assets of approximately $10.4 billion for U.S. corporate and
public employee benefit plans, investment companies, endowments and
foundations. MGIS' principal office is located at 20 Finsbury Circus, London,
England. MGIS is a subsidiary of London based Morgan Grenfell Asset
Management Limited, which is itself a subsidiary of London-based Morgan
Grenfell Group plc (which is owned by Deutsche Bank AG, an international
commercial and investment banking group) and is registered as an investment
adviser under the Investment Advisers Act of 1940. In 1838, Morgan Grenfell
was founded to provide merchant banking services, primarily trade financing
between Great Britain and the United States. In 1958, its investment
management arm began operations. In recent years, Morgan Grenfell Group plc
has achieved a prominent position in the securities industry by providing
investment and commercial banking services, financial services, and
discretionary management and advisory services covering all of the world's
leading securities markets. Morgan Grenfell Asset Management Limited, through
its various investment management subsidiaries, which have extensive
experience in global investment management, is managing, as of March 31,
1995, in excess of $51.7 billion worldwide.
Both the Investment Manager and the Sub-Advisers have authorized any of
their directors, officers and employees who have been elected as Trustees or
officers of the Fund to serve in the capacities in which they have been
elected. Services furnished by the Investment Manager and the Sub-Advisers
may be furnished by directors, officers and employees of the Investment
Manager and the Sub-Advisers. In
5
<PAGE>
connection with the services rendered by the Sub-Advisers, the Sub-Advisers
bear the following expenses: (a) the salaries and expenses of their
personnel; and (b) all expenses incurred by them in connection with
performing the services provided by it as Sub-Advisers, as described above.
As full compensation for the services and facilities furnished to the Fund
and the Investment Manager and expenses of the Fund and the Investment
Manager assumed by the Sub-Advisers, the Investment Manager pays each
Sub-Adviser monthly compensation equal to 30% of the Investment Manager's
monthly compensation payable under the Management Agreement. For the period
ended May 31, 1995, the Investment Manager informed the Fund that but for the
fee waiver in effect for the period (see above), it would have accrued to
each Sub-Adviser total compensation of $15,674 under their respective
Sub-Advisory Agreements.
Pursuant to the Management Agreement, total operating expenses of the Fund
are subject to applicable limitations under rules and regulations of states
where the Fund is authorized to sell its shares. Therefore, operating
expenses are effectively subject to the most restrictive of such limitations
as the same may be amended from time to time. Presently, the most restrictive
limitation is as follows. If, in any fiscal year, the Fund's total operating
expenses, exclusive of taxes, interest, brokerage fees, distribution fees and
extraordinary expenses (to the extent permitted by applicable state
securities laws and regulations), exceed 2 1/2 % of the first $30,000,000 of
average daily net assets, 2% of the next $70,000,000 and 1 1/2 % of any
excess over $100,000,000, the Investment Manager will reimburse the Fund for
the amount of such excess. Pursuant to the Sub-Advisory Agreements, if any
such reimbursement is made by the Investment Manager, the Investment Manager
will, in turn, be reimbursed for 30% of such payments by each Sub-Adviser.
The reimbursement, if any, will be calculated daily and credited on a monthly
basis.
The Investment Manager will pay the organizational expenses of the Fund
incurred prior to the offering of the Fund's shares. The Fund agreed to bear
and reimburse the Investment Manager for such expenses, in an amount of up to
a maximum of $250,000. The Fund will defer and will amortize the reimbursed
expenses on the straight line method over a period not to exceed five years
from the date of commencement of the Fund's operations.
The Management Agreement and the Sub-Advisory Agreements were initially
approved by the Trustees on December 6, 1994 and by InterCapital as the sole
shareholder on December 7, 1994. The agreements may be terminated at any
time, without penalty, on thirty days' notice by the Trustees of the Fund, by
the holders of a majority of the outstanding shares of the Fund, as defined
in the Investment Company Act of 1940, as amended (the "Act"), or by the
Investment Manager and/or Sub-Adviser. The agreements will automatically
terminate in the event of their assignment (as defined in the Act).
Under their terms, the Management Agreement and the Sub-Advisory Agreement
will continue in effect until April 30, 1996, and from year to year
thereafter, provided their continuance is approved at least annually by the
vote of the holders of a majority of the outstanding shares of the Fund, as
defined in the Act, or by the Trustees of the Fund; provided that in either
event such continuance is approved annually by the vote of a majority of the
Trustees of the Fund who are not parties to the Agreement or "interested
persons" (as defined in the Act) of any such party (the "Independent
Trustees"), which vote must be cast in person at a meeting called for the
purpose of voting on such approval.
The Fund has acknowledged that the name "Dean Witter" is a property right
of DWDC. The Fund has agreed that DWDC may use, or at any time permit others
to use, the name "Dean Witter". The Fund has also agreed that in the event
the Management Agreement 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 DWDC shall so request.
6
<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 77 Dean Witter Funds and 13 TCW/DW Funds, are shown
below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------------- --------------------------------------------------------
<S> <C>
Jack F. Bennett (71)........................... Retired; Director or Trustee of the Dean Witter Funds; formerly
Trustee c/o Gordon Altman Butowsky Weitzen Senior Vice President and Director of Exxon Corporation
Shalov & Wein (1975-January, 1989) and Under Secretary of the U.S. Treasury
Counsel to the Independent Trustees for Monetary Affairs (1974-1975); Director of Philips
114 West 47th Street Electronics N.V., Tandem Computers Inc. and Massachusetts
New York, New York Mutual Insurance Company; director or trustee of various
not-for-profit and business organizations.
Michael Bozic (54)............................. President and Chief Executive Officer of Hills Department
Trustee Stores (since May, 1991); formerly Chairman and Chief Executive
c/o Hills Stores Inc. Officer (January, 1987-August, 1990) and President and Chief
15 Dan Road Operating Officer (August, 1990-February, 1991) of the Sears
Canton, Massachusetts Merchandise Group of Sears, Roebuck and Co.; Director or Trustee
of the Dean Witter Funds; Director of Eaglemark Financial
Services, Inc., the United Negro College Fund and Domain Inc.
(home decor retailer).
Charles A. Fiumefreddo* (62)................... Chairman, Chief Executive Officer and Director of InterCapital,
Chairman of the Board, DWSC and Distributors; Executive Vice President and Director
President, Chief Executive Officer of DWR; Chairman, Director or Trustee, President and Chief
and Trustee Executive Officer of the Dean Witter Funds; Chairman, Chief
Two World Trade Center Executive Officer and Trustee of the TCW/DW Funds; Chairman
New York, New York 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 (62)............................. Director or Trustee of the Dean Witter Funds; formerly United
Trustee States Senator (R-Utah) (1974- 1992) and Chairman, Senate
c/o Huntsman Chemical Corporation Banking Committee (1980-1986); formerly Mayor of Salt Lake
2000 Eagle Gate Tower City, Utah (1971-1974); formerly Astronaut, Space Shuttle
Salt Lake City, Utah Discovery (April 12-19, 1985); Vice Chairman, Huntsman Chemical
Corporation (since January, 1993); member of the board of
various civic and charitable organizations.
7
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------------- --------------------------------------------------------
<S> <C>
John R. Haire (70)............................. Chairman of the Audit Committee and Chairman of the Committee
Trustee of the Independent Directors or Trustees and Director or Trustee
Two World Trade Center of the Dean Witter Funds; Trustee of the TCW/DW Funds; formerly
New York, New York President, Council for Aid to Education (1978-October, 1989)
and Chairman and Chief Executive Officer of Anchor Corporation,
an Investment Advisor (1964-1978); Director of Washington
National Corporation (insurance).
Dr. Manuel H. Johnson (46)..................... Senior Partner, Johnson Smick International, Inc., a consulting
Trustee firm (since June, 1985); Koch Professor of International
c/o Johnson Smick International, Inc. Economics and Director of the Center for Global Market Studies
1133 Connecticut Avenue, N.W. at George Mason University (since September, 1990); Co-Chairman
Washington, DC and a 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 Greenwich Capital Markets Inc.
(broker- dealer); formerly Vice Chairman of the Board of
Governors of the Federal Reserve System (February, 1986-August,
1990) and Assistant Secretary of the U.S. Treasury (1982-1986).
Paul Kolton (71)............................... Director or Trustee of the Dean Witter Funds; Chairman of
Trustee the Audit Committee and Chairman of the Committee of the
c/o Gordon Altman Butowsky Weitzen Shalov & Independent Trustees and Trustee of the TCW/DW Funds; formerly
Wein Chairman of the Financial Accounting Standards Advisory Council
Counsel to the Independent Trustees and Chairman and Chief Executive Officer of the American Stock
114 West 47th Street Exchange; Director of UCC Investors Holding Inc. (Uniroyal
New York, New York Chemical Company, Inc.); director or trustee of various not-for-
profit organizations.
Michael E. Nugent (59)......................... General Partner, Triumph Capital, L.P., a private investment
Trustee partnership (since April, 1988); Director or Trustee of the
c/o Triumph Capital, L.P. Dean Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital Corporation
New York, New York (September, 1984-March, 1988); Director of various business
organizations.
Philip J. Purcell* (51)........................ Chairman of the Board of Directors and Chief Executive Officer
Trustee of DWDC, DWR and Novus Credit Services Inc.; Director of
Two World Trade Center InterCapital, DWSC and Distributors; Director or Trustee of
New York, New York the Dean Witter Funds; Director and/or officer of various
DWDC subsidiaries.
8
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ----------------------------------------------- --------------------------------------------------------
<S> <C>
John L. Schroeder (64)......................... Executive Vice President and Chief Investment Officer of the
Trustee Home Insurance Company (since August, 1991); Director or Trustee
c/o The Home Insurance Company of the Dean Witter Funds; Director of Citizens Utilities Company;
59 Maiden Lane formerly Chairman and Chief Investment Officer of Axe-Houghton
New York, New York Management and the Axe-Houghton Funds (April, 1983-June, 1991)
and President of USF&G Financial Services, Inc. (June,
1990-June, 1991).
Sheldon Curtis (63)............................ Senior Vice President, Secretary and General Counsel of
Vice President, InterCapital and DWSC; Senior Vice President and Secretary
Secretary and General Counsel of DWTC; Senior Vice President, Assistant Secretary and
Two World Trade Center Assistant General Counsel of Distributors; Assistant Secretary
New York, New York of DWR; Vice President, Secretary and General Counsel of the
Dean Witter Funds and the TCW/DW Funds.
Mark Bavoso (34)............................... Senior Vice President of InterCapital since June, 1993.
Vice President
Two World Trade Center
New York, New York
Thomas F. Caloia (49).......................... First Vice President (since May, 1991) and Assistant Treasurer
Treasurer (since April, 1988) of InterCapital; First Vice President
Two World Trade Center and Assistant Treasurer of DWSC; Treasurer of the Dean Witter
New York, New York Funds and the TCW/DW Funds.
<FN>
* Denotes Trustees of the Fund, as defined in the Act.
</TABLE>
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, David A. Hughey, Executive Vice President and Chief
Administrative Officer of InterCapital, DWSC and Distributors and Executive
Vice President, Chief Administrative Officer and Director of DWTC, and Edmund
C. Puckhaber, Executive Vice President of InterCapital and Director of DWTC,
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
Lawrence S. Lafer, Lou Anne D. McInnis and Ruth Rossi, Vice Presidents and
Assistant General Counsels of InterCapital and DWSC, are Assistant
Secretaries of the Fund.
BOARD OF TRUSTEES; RESPONSIBILITIES AND COMPENSATION OF INDEPENDENT TRUSTEES
As mentioned above under the caption "The Fund and its Management," the
Fund is one of the Dean Witter Funds, a group of investment companies managed
by InterCapital. As of the date of this Statement of Additional Information,
there are a total of 77 Witter Funds, comprised of 117 portfolios. As of May
31, 1995, the Dean Witter Funds had total net assets of approximately $70.3
billion and more than five million shareholders.
The Board of Directors or Trustees, consisting of ten (10) directors or
trustees, is the same for each of the Dean Witter Funds. Some of the Funds
are organized as business trusts, others as corporations, but the functions
and duties of directors and trustees are the same. Accordingly, directors and
trustees of the Dean Witter Funds are referred to in this section as
Trustees.
Eight Trustees, that is, 80% 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
9
<PAGE>
InterCapital's parent company, DWDC. These are the "disinterested" or
"independent" Trustees. Five of the eight Independent Trustees are also
Independent Trustees of the TCW/DW Funds. As of the date of this Statement of
Additional Information, there are a total of 13 TCW/DW Funds. Two of the
Funds' Trustees, that is, the management Trustees, are affiliated with
InterCapital.
As noted in a federal court ruling, "[T]he independent directors . . . are
expected to look after the interests of shareholders by 'furnishing an
independent check upon management,' especially with respect to fees paid to
the investment company's sponsor." In addition to their general "watchdog"
duties, the Independent Trustees are charged with a wide variety of
responsibilities under the Act. In order to perform their duties effectively,
the Independent Trustees are required to review and understand large amounts
of material, often of a highly technical and legal nature.
The Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; that is, people whose advice and counsel are valuable and in demand
by others and for whom there is often competition. To accept a position on
the Funds' Boards, such individuals may reject other attractive assignments
because of the demands made on their time by the Funds. Indeed, to serve on
the Funds' Boards, certain Trustees who would be qualified and in demand to
serve on bank boards would be prohibited by law from serving at the same time
as a director of a national bank and as a Trustee of a Fund.
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. Since most of the Dean Witter Funds have
such a plan, and since all of the Funds' Boards have the same members, the
Independent Trustees effectively control the selection of other Independent
Trustees of all the Dean Witter Funds.
GOVERNANCE STRUCTURE OF THE DEAN WITTER FUNDS
While the regulatory system establishes both general guidelines and
specific duties for the Independent Trustees, the governance arrangements
from one investment company group to another vary significantly. In some
groups the Independent Trustees perform their role by attendance at periodic
meetings of the board of directors with study of materials furnished to them
between meetings. At the other extreme, an investment company complex may
employ a full-time staff to assist the Independent Trustees in the
performance of their duties.
The governance structure of the Dean Witter Funds lies between these two
extremes. The Independent Trustees and the Funds' Investment Manager alike
believe that these arrangements are effective and serve the interests of the
Funds' shareholders. 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.
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 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; advising the independent accountants
and management personnel that they have direct access to the Committee at all
times; and preparing and submitting Committee meeting minutes to the full
Board.
10
<PAGE>
Finally, the Board of each Fund has established a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect
to derivative investments, if any, made by the Fund.
During the calendar year ended December 31, 1994, the three Committees
held a combined total of eleven meetings. The Committee meetings are
sometimes held away from the offices of InterCapital and sometimes in the
Board room of InterCapital. These meetings are held without management
directors or officers being present, unless and until they may be invited to
the meeting for purposes of furnishing information or making a report. These
separate meetings provide the Independent Trustees an opportunity to explore
in depth with their own independent legal counsel, independent auditors and
other independent consultants, as needed, the issues they believe should be
addressed and resolved in the interests of the Funds' shareholders.
DUTIES OF CHAIRMAN OF COMMITTEES
The Chairman of the Committees maintains an office at the Funds'
headquarters in New York. He is responsible for keeping abreast of regulatory
and industry developments and the Funds' operations and management. He
screens and/or prepares written materials and identifies critical issues for
the Independent Trustees to consider, develops agendas for Committee
meetings, determines the type and amount of information that the Committees
will need to form a judgment on the issues, and arranges to have the
information furnished. He also arranges for the services of independent
experts to be provided to the Committees and consults with them in advance of
meetings to help refine reports and to focus on critical issues. Members of
the Committees believe that the person who serves as Chairman of all three
Committees and guides their efforts is pivotal to the effective functioning
of the Committees.
The Chairman of the Committees also maintains continuous contact with the
Funds' management, with independent counsel to the Independent Trustees and
with the Funds' independent auditors. He arranges for a series of special
meetings involving the annual review of investment management and other
operating contracts of the Funds and, on behalf of the Committees, conducts
negotiations with the Investment Manager and other service providers. In
effect, the Chairman of the Committees serves as a combination of chief
executive and support staff of the Independent Trustees.
The Chairman of the Committees is not employed by any other organization
and devotes his time primarily to the services he performs as Committee
Chairman and Independent Trustee of the Dean Witter Funds and as an
Independent Trustee of the TCW/DW Funds. The current Committee Chairman has
had more than 35 years experience as a senior executive in the investment
company industry.
VALUE 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 is in the best
interests of all the Funds' shareholders. This arrangement 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. It is believed 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 likelihood 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, it is believed that 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 will pay each Independent Trustee an annual fee of $1,200 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 will pay the Chairman
of the Audit Committee an annual fee of $1,000 and will pay the
11
<PAGE>
Chairman of the Committee of the Independent Trustees an additional annual
fee of $2,400, in each case inclusive of the Committee meeting fees). The
Fund will also reimburse 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 will not receive any compensation
or expense reimbursement from the Fund. Payments will commence as of the time
the Fund begins paying management fees, which, pursuant to an undertaking by
the Investment Manager, will be at such time as the Fund has $50 million of
net assets or six months from the date of commencement of the Fund's
operations, whichever occurs first.
At such time as the Fund has been in operation, and has paid fees to the
Independent Trustees, for a full fiscal year, and assuming the same number of
Board and committee meetings as were held by the other Dean Witter Funds
during the calendar year ended December 31, 1994, it is estimated that
compensation paid to each Independent Trustee during such fiscal year will be
the amount shown in the following table.
FUND COMPENSATION (ESTIMATED)
<TABLE>
<CAPTION>
AGGREGATE
NAME OF INDEPENDENT COMPENSATION
TRUSTEE FROM THE FUND
- -------------------------- ---------------
<S> <C>
Jack F. Bennett ........... $ 1,950
Michael Bozic ............. 1,950
Edwin J. Garn ............. 1,950
John R. Haire ............. 4,900*
Dr. Manuel H. Johnson .... 1,950
Paul Kolton ............... 1,950
Michael E. Nugent ......... 1,950
John L. Schroeder ......... 1,950
<FN>
- ------------
* Of Mr. Haire's compensation from the Fund, $3,400 is paid to him as
Chairman of the Committee of the Independent Trustees ($2,400) and as
Chairman of the Audit Committee ($1,000).
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1994 for
services to the 73 Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Kolton and Nugent, the 13 TCW/DW Funds that were in operation at
December 31, 1994. With respect to Messrs. Haire, Johnson, Kolton and Nugent,
the TCW/DW Funds are included solely because of a limited exchange privilege
between those Funds and five Dean Witter Money Market Funds. Mr. Schroeder
was elected as a Trustee of the TCW/DW Funds on April 20, 1995.
CASH COMPENSATION FROM DEAN WITTER FUNDS AND TCW/DW FUNDS
</TABLE>
<TABLE>
<CAPTION>
FOR SERVICE AS
FOR SERVICE AS CHAIRMAN OF TOTAL CASH
DIRECTOR OR FOR SERVICE AS COMMITTEES OF COMPENSATION
TRUSTEE AND TRUSTEE AND INDEPENDENT FOR SERVICES TO
COMMITTEE MEMBER COMMITTEE MEMBER DIRECTORS/ 73 DEAN WITTER
NAME OF INDEPENDENT OF 73 DEAN WITTER OF 13 TCW/DW TRUSTEES AND FUNDS AND 13
TRUSTEE FUNDS FUNDS AUDIT COMMITTEES TCW/DW FUNDS
- -------------------------- ----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Jack F. Bennett ........... $125,761 -- -- $125,761
Michael Bozic ............. 82,637 -- -- 82,637
Edwin J. Garn ............. 125,711 -- -- 125,711
John R. Haire ............. 101,061 $66,950 $ 225,563** 393,574
Dr. Manuel H. Johnson .... 122,461 60,750 -- 183,211
Paul Kolton ............... 128,961 51,850 34,200*** 215,011
Michael E. Nugent ......... 115,761 52,650 -- 168,411
John L. Schroeder ......... 85,938 -- -- 85,938
<FN>
- ------------
** For the 73 Dean Witter Funds.
*** For the 13 TCW/DW Funds.
</TABLE>
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.
12
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- -----------------------------------------------------------------------------
Forward Foreign Currency Exchange Contracts. As discussed in the
Prospectus, the Fund may enter into forward foreign currency exchange
contracts ("forward contracts") as a hedge against fluctuations in future
foreign exchange rates. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or through entering into forward
contracts to purchase or sell foreign currencies. A forward contract involves
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency traders
(usually large, commercial and investment banks) and their customers. Such
forward contracts will only be entered into with United States banks and
their foreign branches or foreign banks whose assets total $1 billion or
more. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
When management of the Fund believes that the currency of a particular
foreign country may suffer a substantial movement against the U.S. dollar, it
may enter into a forward contract to purchase or sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund will not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of
the prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the management of the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will be served. The Fund's custodian bank will
place cash, U.S. Government securities or other appropriate liquid high grade
debt securities in a segregated account of the Fund in an amount equal to the
value of the Fund's total assets committed to the consummation of forward
contracts entered into under the circumstances set forth above. If the value
of the securities placed in the segregated account declines, additional cash
or securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Fund's commitments with
respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign securities denominated in a foreign currency against adverse exchange
rate moves vis-a-vis the U.S. dollar, at the maturity of the forward contract
for delivery by the Fund of a foreign currency, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency (however, the ability of the Fund to
terminate a contract is contingent upon the willingness of the currency
trader with whom the contract has been entered into to permit an offsetting
transaction). It is impossible to forecast the market value of portfolio
securities at the expiration of the contract. Accordingly, it may be
necessary for the Fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of
the foreign currency. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received upon the sale of the portfolio
securities if its market value exceeds the amount of foreign currency the
Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase
of the foreign currency, the Fund will realize a gain to the extent the price
of the currency
13
<PAGE>
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a security or the
currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a
greater extent than the value of the premium received for the option. The
Fund will maintain with its Custodian at all times, cash, U.S. Government
securities, or other appropriate high grade debt obligations in a segregated
account equal in value to all forward contract obligations and option
contract obligations entered into in hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. It will, however, do so from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do realize
a profit based on the spread between the prices at which they are buying and
selling various currencies. Thus a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.
OPTIONS AND FUTURES TRANSACTIONS
As stated in the Prospectus, the Fund may write covered call options
against securities held in its portfolio and covered put options on eligible
portfolio securities and stock indexes and purchase options of the same
series to effect closing transactions, and may hedge against potential
changes in the market value of investments (or anticipated investments) and
facilitate the reallocation of the Fund's assets into and out of equities and
fixed-income securities by purchasing put and call options on portfolio (or
eligible portfolio) securities and engaging in transactions involving futures
contracts and options on such contracts. The Fund may also hedge against
potential changes in the market value of the currencies in which its
investments (or anticipated investments) are denominated by purchasing put
and call options on currencies and engage in transactions involving currency
futures contracts and options on such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on exchanges and are written in over-the-counter
transactions ("OTC options"). Listed options are issued by the Options
Clearing Corporation ("OCC") and other clearing entities including foreign
exchanges. Ownership of a listed call option gives the Fund the right to buy
from the OCC the underlying security covered by the option at the stated
exercise price (the price per unit of the underlying security) by filing an
exercise notice prior to the expiration date of the option. The writer
(seller) of the option would then have the obligation to sell to the OCC the
underlying security at that exercise price prior to the expiration date of
the option, regardless of its then current market price. Ownership of a
listed put option would give the Fund the right to sell the underlying
security to the OCC at the stated exercise price. Upon notice of exercise of
the put option, the writer of the put would have the obligation to purchase
the underlying security from the OCC at the exercise price.
Options on Treasury Bonds and Notes. Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned
issues, the exchanges on which such securities trade will not continue
indefinitely to introduce options with new expirations to replace expiring
options on particular issues. Instead, the expirations introduced at the
commencement of options trading on a particular issue will be allowed to run
their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each issue of
bonds or notes will thus be
14
<PAGE>
phased out as new options are listed on more recent issues, and options
representing a full range of expirations will not ordinarily be available for
every issue on which options are traded.
Options on Treasury Bills. Because a deliverable Treasury bill changes
from week to week, writers of Treasury bill calls cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding
the underlying security. However, if the Fund holds a long position in
Treasury bills with a principal amount of the securities deliverable upon
exercise of the option, the position may be hedged from a risk standpoint by
the writing of a call option. For so long as the call option is outstanding,
the Fund will hold the Treasury bills in a segregated account with its
Custodian, so that they will be treated as being covered.
Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the
portfolio securities involved. As a result, the Fund would be enabled to sell
the foreign currency for a fixed amount of U.S. dollars, thereby "locking in"
the dollar value of the portfolio securities (less the amount of the premiums
paid for the options). Conversely, the Fund may purchase call options on
foreign currencies in which securities it anticipates purchasing are
denominated to secure a set U.S. dollar price for such securities and protect
against a decline in the value of the U.S. dollar against such foreign
currency. The Fund may also purchase call and put options to close out
written option positions.
The Fund may also write call options on foreign currency to protect
against potential declines in its portfolio securities which are denominated
in foreign currencies. If the U.S. dollar value of the portfolio securities
falls as a result of a decline in the exchange rate between the foreign
currency in which a security is denominated and the U.S. dollar, then a loss
to the Fund occasioned by such value decline would be ameliorated by receipt
of the premium on the option sold. At the same time, however, the Fund gives
up the benefit of any rise in value of the relevant portfolio securities
above the exercise price of the option and, in fact, only receives a benefit
from the writing of the option to the extent that the value of the portfolio
securities falls below the price of the premium received. The Fund may also
write options to close out long call option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. Although the Fund will not
purchase or write such options unless and until, in the opinion of the
management of the Fund, the market for them has developed sufficiently to
ensure that the risks in connection with such options are not greater than
the risks in connection with the underlying currency, there can be no
assurance that a liquid secondary market will exist for a particular option
at any specific time. In addition, options on foreign currencies are affected
by all of those factors which influence foreign exchange rates and
investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of
the option position may vary with changes in the value of either or both
currencies and have no relationship to the investment merits of a foreign
security, including foreign securities held in a "hedged" investment
portfolio. Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may be involved
in the use of foreign currency options, investors may be disadvantaged by
having to deal in an odd lot market (generally consisting of transactions of
less than $1 million) for the underlying foreign currencies at prices that
are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information available is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (i.e., less than $1 million) where rates may be less
favorable. The interbank market in foreign currencies is a global,
around-the-clock market. To the extent that the U.S. options markets are
closed while the markets for the underlying currencies remain open,
significant price and rate movements may take place in the underlying markets
that are not reflected in the options market.
15
<PAGE>
OTC Options. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which
have entered into direct agreements with the Fund. With OTC options, such
variables as expiration date, exercise price and premium will be agreed upon
between the Fund and the transacting dealer, without the intermediation of a
third party such as the OCC. If the transacting dealer fails to make or take
delivery of the securities underlying an option it has written, in accordance
with the terms of that option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Fund will
engage in OTC option transactions only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities and the U.S. dollar and foreign currencies, without
limit. Generally, a call option is "covered" if the Fund owns, or has the
right to acquire, without additional cash consideration (or for additional
cash consideration held for the Fund by its Custodian in a segregated
account) the underlying security (currency) subject to the option except that
in the case of call options on U.S. Treasury Bills, the Fund might own U.S.
Treasury Bills of a different series from those underlying the call option,
but with a principal amount and value corresponding to the exercise price and
a maturity date no later than that of the securities (currency) deliverable
under the call option. A call option is also covered if the Fund holds a call
on the same security (currency) as the underlying security (currency) of the
written option, where the exercise price of the call used for coverage is
equal to or less than the exercise price of the call written or greater than
the exercise price of the call written if the mark to market difference is
maintained by the Fund in cash, U.S. Government securities or other high
grade debt obligations which the Fund holds in a segregated account
maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these
premiums may better enable the Fund to achieve a greater total return than
would be realized from holding the underlying securities (currency) alone.
Moreover, the income received from the premium will offset a portion of the
potential loss incurred by the Fund if the securities (currency) underlying
the option are ultimately sold (exchanged) by the Fund at a loss. The premium
received will fluctuate with varying economic market conditions. If the
market value of the portfolio securities (or the currencies in which they are
denominated) upon which call options have been written increases, the Fund
may receive less total return from the portion of its portfolio upon which
calls have been written than it would have had such calls not been written.
As regards listed options and certain OTC options, during the option
period, the Fund may be required, at any time, to deliver the underlying
security (currency) against payment of the exercise price on any calls it has
written (exercise of certain listed and OTC options may be limited to
specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a
closing purchase transaction. A closing purchase transaction is accomplished
by purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option to prevent an underlying security (currency)
from being called, to permit the sale of an underlying security (or the
exchange of the underlying currency) or to enable the Fund to write another
call option on the underlying security (currency) with either a different
exercise price or expiration date or both. Also, effecting a closing purchase
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments by the
Fund. The Fund may realize a net gain or loss from a closing purchase
transaction depending upon whether the amount of the premium received on the
call option is more or less than the cost of effecting the closing purchase
transaction. Any loss incurred in a closing purchase transaction may be
wholly or partially offset by unrealized appreciation in the market value of
the underlying security (currency). Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part or exceeded
by a decline in the market value of the underlying security (currency).
The Fund may also purchase put options to close out written put positions
in a manner similar to call options closing purchase transactions. In
addition, the Fund may sell a put option which it has previously
16
<PAGE>
purchased prior to the sale of the securities (currency) underlying such
option. Such a sale would result in a net gain or loss depending on whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold. Any such gain or loss
could be offset in whole or in part by a change in the market value of the
underlying security (currency). If a put option purchased by the Fund expired
without being sold or exercised, the premium would be lost.
Covered Put Writing. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period,
at the purchaser's election (certain listed and OTC put options written by
the Fund will be exercisable by the purchaser only on a specific date). A put
is "covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other high grade obligations in an amount equal to at least the
exercise price of the option, at all times during the option period.
Similarly, a short put position could be covered by the Fund by its purchase
of a put option on the same security as the underlying security of the
written option, where the exercise price of the purchased option is equal to
or more than the exercise price of the put written or less than the exercise
price of the put written if the mark to market difference is maintained by
the Fund in cash, U.S. Government securities or other high grade debt
obligations which the Fund holds in a segregated account maintained at its
Custodian. In writing puts, the Fund assumes the risk of loss should the
market value of the underlying security decline below the exercise price of
the option (any loss being decreased by the receipt of the premium on the
option written). In the case of listed options, during the option period, the
Fund may be required, at any time, to make payment of the exercise price
against delivery of the underlying security. The operation of and limitations
on covered put options in other respects are substantially identical to those
of call options.
The Fund will write put options for two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the
Investment Manager wishes to purchase the security underlying the option at a
price lower than its current market price, in which case it will write the
covered put at an exercise price reflecting the lower purchase price sought.
The potential gain on a covered put option is limited to the premium received
on the option (less the commissions paid on the transaction) while the
potential loss equals the difference between the exercise price of the option
and the current market price of the underlying securities when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
Purchasing Call and Put Options. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund
may purchase call options in order to close out a covered call position (see
"Covered Call Writing" above) or purchase call options on securities they
intend to purchase. The Fund may also purchase a call option on foreign
currency to hedge against an adverse exchange rate move of the currency in
which the security it anticipates purchasing is denominated vis-a-vis the
currency in which the exercise price is denominated. The purchase of the call
option to effect a closing transaction or a call written over-the-counter may
be a listed or an OTC option. In either case, the call purchased is likely to
be on the same securities (currencies) and have the same terms as the written
option. If purchased over-the-counter, the option would generally be acquired
from the dealer or financial institution which purchased the call written by
the Fund.
The Fund may purchase put options on securities (currency) which it holds
(or has the right to acquire) in its portfolio only to protect itself against
a decline in the value of the security (currency), if the value of the
underlying security (currency) were to fall below the exercise price of the
put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. The Fund may also purchase put options
to close out written put positions in a manner similar to call options
closing purchase transactions. In addition, the Fund may sell a put option
which it has previously purchased prior to the sale of the securities
(currency) underlying such option. Such a sale would result in a net gain or
loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid on the put option which is
sold. Any such gain or loss could be offset in whole or in part by a change
in the market value of the underlying security (currency). If a put option
purchased by the Fund expired without being sold or exercised, the premium
would be lost.
17
<PAGE>
Risks of Options Transactions. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security (or the currency in which it is denominated)
increase, but has retained the risk of loss should the price of the
underlying security (currency) decline. The covered put writer also retains
the risk of loss should the market value of the underlying security
(currency) decline below the exercise price of the option less the premium
received on the sale of the option. In both cases, the writer has no control
over the time when it may be required to fulfill its obligation as a writer
of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities (currency) at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to
purchase an offsetting over-the-counter option, it cannot sell the underlying
security until the option expires or the option is exercised. Accordingly, a
covered call option writer may not be able to sell (exchange) an underlying
security (currency) at a time when it might otherwise be advantageous to do
so. A covered put option writer who is unable to effect a closing purchase
transaction or to purchase an offsetting over-the-counter option would
continue to bear the risk of decline in the market price of the underlying
security (currency) until the option expires or is exercised. In addition, a
covered put writer would be unable to utilize the amount held in cash or U.S.
Government or other high grade short-term debt obligations as security for
the put option for other investment purposes until the exercise or expiration
of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option
exchanges. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out
by entering into a closing purchase transaction with the purchasing dealer.
However, the Fund may be able to purchase an offsetting option which does not
close out its position as a writer but constitutes an asset of equal value to
the obligation under the option written. If the Fund is not able to either
enter into a closing purchase transaction or purchase an offsetting position,
it will be required to maintain the securities subject to the call, or the
collateral underlying the put, even though it might not be advantageous to do
so, until a closing transaction can be entered into (or the option is
exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes
or series of options or underlying securities; (iv) interruption of the
normal operations on an exchange; (v) inadequacy of the facilities of an
exchange or the Options Clearing Corporation ("OCC") to handle current
trading volume; or (vi) a decision by one or more exchanges to discontinue
the trading of options (or a particular class or series of options), in which
event the secondary market on that exchange (or in that class or series of
options) would cease to exist, although outstanding options on that exchange
that had been issued by the OCC as a result of trades on that exchange would
generally continue to be exercisable in accordance with their terms.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments
underlying interest rate futures contracts it holds at a time when it is
disadvantageous to do so. The inability to close out options and futures
positions could also have an adverse impact on the Fund's ability to
effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or options thereon, the Fund could
experience delays and/or losses in liquidating open
18
<PAGE>
positions purchased or sold through the broker and/or incur a loss of all or
part of its margin deposits with the broker. Similarly, in the event of the
bankruptcy of the writer of an OTC option purchased by the Fund, the Fund
could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Investment Manager.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written
on one or more accounts or through one or more brokers). An exchange may
order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. These position limits may
restrict the number of listed options which the Fund may write.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities is that the
prices of securities and indexes subject to futures contracts (and thereby
the futures contract prices) may correlate imperfectly with the behavior of
the cash prices of the Fund's portfolio securities. Another such risk is that
prices of interest rate futures contracts may not move in tandem with the
changes in prevailing interest rates against which the Fund seeks a hedge. A
correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between
a contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Stock Index Options. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at
a specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level
of the stock index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple (the "multiplier"). The multiplier for an index
option performs a function similar to the unit of trading for a stock option.
It determines the total dollar value per contract of each point in the
difference between the exercise price of an option and the current level of
the underlying index. A multiplier of 100 means that a one-point difference
will yield $100. Options on different indexes may have different multipliers.
The writer of the option is obligated, in return for the premium received, to
make delivery of this amount. Unlike stock options, all settlements are in
cash and a gain or loss depends on price movements in the stock market
generally (or in a particular segment of the market) rather than the price
movements in individual stocks. Currently, options are traded on the S&P 100
Index and the S&P 500 Index on the Chicago Board Options Exchange, the Major
Market Index and the Computer Technology Index, Oil Index and Institutional
Index on the American Stock Exchange and the NYSE Index and NYSE Beta Index
on the New York Stock Exchange, The Financial News Composite Index on the
Pacific Stock Exchange and the Value Line Index, National O-T-C Index and
Utilities Index on the Philadelphia Stock Exchange, each of which and any
similar index on which options are traded in the future which include stocks
that are not limited to any particular industry or segment of the market is
referred to as a "broadly based stock market index." Options on stock indexes
provide the Fund with a means of protecting the Fund against the risk of
market wide price movements. If the Investment Manager anticipates a market
decline, the Fund could purchase a stock index put option. If the expected
market decline materialized, the resulting decrease in the value of the
Fund's portfolio would be offset to the extent of the increase in the value
of the put option. If the Investment Manager anticipates a market rise, the
Fund may
19
<PAGE>
purchase a stock index call option to enable the Fund to participate in such
rise until completion of anticipated common stock purchases by the Fund.
Purchases and sales of stock index options also enable the Investment Manager
to more speedily achieve changes in the Fund's equity positions.
The Fund will write put options on stock indexes only if such positions
are covered by cash, U.S. Government securities or other high grade debt
obligations equal to the aggregate exercise price of the puts, which cover is
held for the Fund in a segregated account maintained for it by the Fund's
Custodian. All call options on stock indexes written by the Fund will be
covered either by a portfolio of stocks substantially replicating the
movement of the index underlying the call option or by holding a separate
call option on the same stock index with a strike price no higher than the
strike price of the call option sold by the Fund.
Risks of Options on Indexes. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the
underlying securities. A call writer can offset some of the risk of its
writing position by holding a diversified portfolio of stocks similar to
those on which the underlying index is based. However, most investors cannot,
as a practical matter, acquire and hold a portfolio containing exactly the
same stocks as the underlying index, and, as a result, bear a risk that the
value of the securities held will vary from the value of the index. Even if
an index call writer could assemble a stock portfolio that exactly reproduced
the composition of the underlying index, the writer still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in
writing index options. When an index option is exercised, the amount of cash
that the holder is entitled to receive is determined by the difference
between the exercise price and the closing index level on the date when the
option is exercised. As with other kinds of options, the writer will not
learn that it has been assigned until the next business day, at the earliest.
The time lag between exercise and notice of assignment poses no risk for the
writer or a covered call on a specific underlying security, such as a common
stock, because there the writer's obligation is to deliver the underlying
security, not to pay its value as of a fixed time in the past. So long as the
writer already owns the underlying security, it can satisfy its settlement
obligations by simply delivering it, and the risk that its value may have
declined since the exercise date is borne by the exercising holder. In
contrast, even if the writer of an index call holds stocks that exactly match
the composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those stocks against payment of the
exercise price. Instead, it will be required to pay cash in an amount based
on the closing index value on the exercise date; and by the time it learns
that it has been assigned, the index may have declined, with a corresponding
decrease in the value of its stock portfolio. This "timing risk" is an
inherent limitation on the ability of index call writers to cover their risk
exposure by holding stock positions.
A holder of an index option who exercises it before the closing index
value for that day is available runs the risk that the level of the
underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the exercising holder will be
required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the
assigned writer.
If dissemination of the current level of an underlying index is
interrupted, or if trading is interrupted in stocks accounting for a
substantial portion of the value of an index, the trading of options on that
index will ordinarily be halted. If the trading of options on an underlying
index is halted, an exchange may impose restrictions prohibiting the exercise
of such options.
Futures Contracts. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S. and
foreign commodity exchanges on such underlying securities as U.S. Treasury
bonds, notes and bills ("interest rate" futures), on the U.S. dollar and
foreign currencies, and such indexes as the S&P 500 Index, the Moody's
Investment-Grade Corporate Bond Index and the New York Stock Exchange
Composite Index ("index" futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of
the underlying obligation at a specified time in return for an agreed upon
price.
20
<PAGE>
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager or a Sub-Adviser anticipates that interest
rates may rise and, concomitantly, the price of fixed-income securities fall,
the Fund may sell an interest rate futures contract or a bond index futures
contract. If declining interest rates are anticipated, the Fund may purchase
an interest rate futures contract to protect against a potential increase in
the price of U.S. Government securities the Fund intends to purchase.
Subsequently, appropriate fixed-income securities may be purchased by the
Fund in an orderly fashion; as securities are purchased, corresponding
futures positions would be terminated by offsetting sales of contracts.
The Fund will purchase or sell futures contracts on the U.S. dollar and on
foreign currencies to hedge against an anticipated rise or decline in the
value of the U.S. dollar or foreign currency in which a portfolio security of
the Fund is denominated vis-a-vis another currency.
The Fund will purchase or sell stock index futures contracts for the
purpose of hedging its equity portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager or a Sub-Adviser
anticipates that the prices of stock held by the Fund may fall, the Fund may
sell a stock index futures contract. Conversely, if the Investment Manager or
a Sub-Adviser wishes to hedge against anticipated price rises in those stocks
which the Fund intends to purchase, the Fund may purchase stock index futures
contracts. In addition, interest rate and stock index futures contracts will
be bought or sold in order to close out a short or long position in a
corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open
or close of the last trading day of the contract and the futures contract
price. A futures contract sale is closed out by effecting a futures contract
and the futures contract price. A futures contract sale is closed out by
effecting a futures contract purchase for the same aggregate amount of the
specific type of equity security and the same delivery date. If the sale
price exceeds the offsetting purchase price, the seller would be paid the
difference and would realize a gain. If the offsetting purchase price exceeds
the sale price, the seller would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same aggregate amount of the specific type of equity
security and the same delivery date. If the offsetting sale price exceeds the
purchase price, the purchaser would realize a gain, whereas if the purchase
price exceeds the offsetting sale price, the purchaser would realize a loss.
There is no assurance that the Fund will be able to enter into a closing
transaction.
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or
other high grade short-term debt obligations equal to approximately 2% of the
contract amount. Initial margin requirements are established by the exchanges
on which futures contracts trade and may, from time to time, change. In
addition, brokers may establish margin deposit requirements in excess of
those required by the exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a broker's client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper
termination of the futures contract. The margin deposits made are marked to
market daily and the Fund may be required to make subsequent deposits called
"variation margin", with the Fund's Custodian, in the account in the name of
the broker, which are reflective of price fluctuations in the futures
contract. Currently, interest rates futures contracts can be purchased on
debt securities such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes
with maturities between 6 1/2 and 10 years, GNMA Certificates and Bank
Certificates of Deposit.
Index Futures Contracts. The Fund may invest in index futures contracts.
An index futures contract sale creates an obligation by the Fund, as seller,
to deliver cash at a specified future time. An index
21
<PAGE>
futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirement is approximately 5% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in
the form of variation margin payments. The Fund may be required to make
additional margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required
to be paid by or released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect
to, among others, the Standard & Poor's 500 Stock Price Index and the
Standard & Poor's 100 Stock Price Index on the Chicago Mercantile Exchange,
the New York Stock Exchange Composite Index on the New York Futures Exchange,
the Major Market Index on the American Stock Exchange, the Moody's
Investment-Grade Corporate Bond Index on the Chicago Board of Trade and the
Value Line Stock Index on the Kansas City Board of Trade.
Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect
to such options to terminate an existing position. An option on a futures
contract gives the purchaser the right (in return for the premium paid), and
the writer the obligation, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents
the amount by which the market price of the futures contract at the time of
exercise exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of
a futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
Investment Manager or a Sub-Adviser wished to protect against an increase in
interest rates and the resulting negative impact on the value of a portion of
its fixed-income portfolio, it might write a call option on an interest rate
futures contract, the underlying security of which correlates with the
portion of the portfolio the Investment Manager or Sub-Adviser seeks to
hedge. Any premiums received in the writing of options on futures contracts
may, of course, augment the total return of the Fund and thereby provide a
further hedge against losses resulting from price declines in portions of the
Fund's portfolio.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid
for premiums for unexpired options on futures contracts exceeds 5% of the
value of the Fund's total assets, after taking into account unrealized gains
and unrealized losses on such contracts it has entered into, provided,
however, that in the case of an option that is in-the-money (the exercise
price of the call (put), option is less (more) than the market price of the
underlying security) at the time of purchase, the in-the-money amount may be
excluded in calculating the 5%. However, there
22
<PAGE>
is no overall limitation on the percentage of the Fund's assets which may be
subject to a hedge position. In addition, in accordance with the regulations
of the Commodity Futures Trading Commission ("CFTC") under which the Fund is
exempted from registration as a commodity pool operator, the Fund may only
enter into futures contracts and options on futures contracts transactions
for purposes of hedging a part or all of its portfolio. If the CFTC changes
its regulations so that the Fund would be permitted to write options on
futures contracts for purposes other than hedging the Fund's investments
without CFTC registration, the Fund may engage in such transactions for those
purposes. Except as described above, there are no other limitations on the
use of futures and options thereon by the Fund.
Risks of Transactions in Futures Contracts and Related Options. The Fund
may sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible that the futures market
may advance and the value of securities held in the portfolio of the Fund may
decline. If this occurred, the Fund would lose money on the futures contract
and also experience a decline in value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree,
over time the value of a diversified portfolio will tend to move in the same
direction as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Fund may determine not to invest in the securities as
planned and will realize a loss on the futures contract that is not offset by
a reduction in the price of the securities.
In addition, if the Fund holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S.
Government securities or other high grade debt obligations equal to the
purchase price of the contract or the exercise price of the put option (less
the amount of initial or variation margin on deposit) in a segregated account
maintained for the Fund by its Custodian. Alternatively, the Fund could cover
its long position by purchasing a put option on the same futures contract
with an exercise price as high or higher than the price of the contract held
by the Fund.
If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in
a segregated account maintained at its Custodian, cash, U.S. Government
securities or other high grade debt obligations equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the
option. Such a position may also be covered by owning the securities
underlying the futures contract (in the case of a stock index futures
contract a portfolio of securities substantially replicating the relevant
index), or by holding a call option permitting the Fund to purchase the same
contract at a price no higher than the price at which the short position was
established.
Exchanges may limit the amount by which the price of futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the
Fund's intention to qualify as such. See "Dividends, Distributions and Taxes"
in the Prospectus and the Statement of Additional Information.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of
the securities whcih are the subject of the hedge. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the debt securities and futures markets could
result. Price distortions could also result if investors in futures contracts
opt to make or take delivery of underlying securities rather than engage in
closing transactions due to the resultant reduction in the liquidity of the
futures market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions.
Due to the possibility of price distortions in the
23
<PAGE>
futures market and because of the imperfect correlation between movements in
the prices of securities and movements in the prices of futures contracts, a
correct forecast of interest rate trends by the Investment Manager may still
not result in a successful hedging transaction.
There is no assurance that a liquid secondary market will exist for
futures contracts and related options in which the Fund may invest. In the
event a liquid market does not exist, it may not be possible to close out a
futures position, and in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin. In
addition, limitations imposed by an exchange or board of trade on which
futures contracts are traded may compel or prevent the Fund from closing out
a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to
make or take delivery of the underlying securities at a time when it may be
disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the
purchase of a call or put option on a futures contract would result in a loss
to the Fund notwithstanding that the purchase or sale of a futures contract
would not result in a loss, as in the instance where there is no movement in
the prices of the futures contract or underlying securities.
OTHER INVESTMENT PRACTICES
Zero Coupon Securities. As discussed in the Prospectus, a portion of the
U.S. Government securities purchased by the Fund may be "zero coupon"
Treasury securities. These are U.S. Treasury bills, notes and bonds which
have been stripped of their unmatured interest coupons and receipts or which
are certificates representing interests in such stripped debt obligations and
coupons. In addition, a portion of the fixed-income securities purchased by
the Fund may be "zero coupon" securities. "Zero coupon" securities are
purchased at a discount from their face amount, giving the purchaser the
right to receive their full value at maturity. A zero coupon security pays no
interest to its holder during its life. Its value to an investor consists of
the difference between its face value at the time of maturity and the price
for which it was acquired, which is generally an amount significantly less
than its face value (sometimes referred to as a "deep discount" price).
The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant
rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received if prevailing interest rates rise. For this reason, zero
coupon securities are subject to substantially greater market price
fluctuations during periods of changing prevailing interest rates than are
comparable debt securities which make current distributions of interest.
Current federal tax law requires that a holder (such as the Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the Fund receives no interest
payments in cash on the security during the year.
Currently, the only U.S. Treasury security issued without coupons is the
Treasury bill. However, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
Warrants and Rights. The Fund may invest up to 5% of the value of its net
assets in warrants, including not more than 2% in warrants not listed on
either the New York or American Stock Exchange. Warrants are, in effect, an
option to purchase equity securities at a specific price, generally valid for
a specific period of time, and have no voting rights, pay no dividends and
have no rights with respect to the corporations issuing them. The Fund may
acquire warrants attached to other securities without reference to the
foregoing limitations.
The Fund may also invest up to 5% of the value of its net assets in stock
rights.
24
<PAGE>
Repurchase Agreements. As discussed in the Prospectus, 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") at a specified price
and at a fixed time in the future, usually not more than seven days from the
date of purchase. The collateral will be maintained in a segregated account
and will be marked to market daily to determine that the value of the
collateral, as specified in the agreement, does not decrease below the
purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although such
date is deemed by the Fund to be the maturity date of a repurchase agreement,
the maturities of securities subject ot repurchase agreements are not subject
to any limits.
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 and Sub- Advisers subject to procedures established by the
Board of Trustees of the Fund. In addition, as described above, the value of
the collateral underlying the repurchase agreement will be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, the Fund will seek to liquidate such collateral. However, the
exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price,
the Fund could suffer a loss. 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, tax or other considerations warrant.
Reverse Repurchase Agreements and Dollar Rolls. As discussed in the
Prospectus, the Fund may also use reverse repurchase agreements and dollar
rolls as part of its investment strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an agreement
by the Fund to repurchase the same assets at a later date at a fixed price.
Generally, the effect of such a transaction is that the Fund can recover all
or most of the cash invested in the portfolio securities involved during the
term of the reverse repurchase agreement, while it will be able to keep the
interest income associated with those portfolio securities. Such transactions
are only advantageous if the interest cost to the Fund of the reverse
repurchase transaction is less than the cost of obtaining the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells securities
for delivery in the current months and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale.
The Fund will establish a segregated account with its custodian bank in
which it will maintain cash, U.S. Government Securities or other liquid high
grade debt obligations equal in value to its obligations in respect of
reverse repurchase agreements and dollar rolls. Reverse repurchase agreements
and dollar rolls involve the risk that the market value of the securities the
Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement or dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver,
whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage, and are considered borrowings by the Fund.
25
<PAGE>
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to notice provisions described below), and are
at all times secured by cash or cash equivalents, which are maintained in a
segregated account pursuant to applicable regulations and that are equal to
at least the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Fund continues to receive the income on
the loaned securities while at the same time earning interest on the cash
amounts deposited as collateral, which will be invested in short-term
obligations. The Fund will not lend its portfolio securities if such loans
are not permitted by the laws or regulations of any state in which its shares
are qualified for sale and will not lend more than 25% of the value of its
total assets. A loan may be terminated by the borrower on one business day's
notice, or by the Fund on four business days' notice. If the borrower fails
to deliver the loaned securities within four days after recepit of notice,
the Fund could use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. As with
any extensions of credit, there are risks of delay in recovery and in some
cases even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities
will only be made to firms deemed by the Fund's management to be creditworthy
and when the income which can be earned from such loans justifies the
attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price
during the loan period would inure to the Fund. The creditworthiness of firms
to which the Fund lends its portfolio securities will be monitored on an
ongoing basis by the Investment Manager and Sub-Advisers pursuant to
procedures adopted and reviewed, on an ongoing basis, by the Board of
Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned
securities, to be delivered within one day after notice, to permit the
exercise of such rights if the matters involved would have a material effect
on the Fund's investment in such loaned securities. The Fund will pay
reasonable finder's, administrative and custodial fees in connection with a
loan of its securities. However, the Fund has no intention of lending any of
its portfolio securities during its fiscal year ending January 31, 1996.
When-Issued and Delayed Delivery Securities and Forward Commitments. As
discussed in the Prospectus, from time to time the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of commitment.
While the Fund will only purchase securities on a when-issued, delayed
delivery or forward commitment basis with the intention of acquiring the
securities, the Fund may sell the securities before the settlement date, if
it is deemed advisable. The securities so purchased or sold are subject to
market fluctuation and no interest or dividends accrue to the purchaser prior
to the settlement date. At the time the Fund makes the commitment to purchase
or sell securities on a when-issued, delayed delivery or forward commitment
basis, it will record the transaction and thereafter reflect the value, each
day, of such security purchased, or if a sale, the proceeds to be received,
in determining its net asset value. At the time of delivery of the
securities, the value may be more or less than the purchase or sale price.
The Fund will also establish a segregated account with its custodian bank in
which it will continually maintain cash or cash equivalents or other high
grade debt portfolio securities equal in value to commitments to purchase
securities on a when-issued, delayed delivery or forward commitment basis.
Subject to the foregoing restrictions, the Fund may purchase securities on
such basis without limit. The Investment Manager and the Board of Trustees do
not believe that the Fund's net asset value will be adversely affected by the
purchase of securities on such basis.
When, As and If Issued Securities. As discussed in the Prospectus, the
Fund may purchase securities on a "when, as and if issued" basis under which
the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization, leveraged
buyout or debt restructuring. The commitment for the purchase of any such
security will not be recognized in the portfolio of the Fund until the
Investment Manager or Sub-Adviser determines that issuance of the security is
probable. At such time, the Fund will record the transaction and, in
determining its net asset value, will reflect the value of the security
daily. At such time, the Fund will also establish a
26
<PAGE>
segregated account with its custodian bank in which it will maintain cash or
cash equivalents or other high grade debt portfolio securities equal in value
to recognized commitments for such securities. Once a segregated account has
been established, if the anticipated event does not occur and the securities
are not issued, the Fund will have lost an investment opportunity. The value
of the Fund's commitments to purchase the securities of any one issuer,
together with the value of all securities of such issuer owned by the Fund,
may not exceed 5% of the value of the Fund's total assets at the time the
initial commitment to purchase such securities is made (see "Investment
Restrictions"). Subject to the foregoing restrictions, the Fund may purchase
securities on such basis without limit. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value. The
Investment Manager and the Trustees do not believe that the net asset value
of the Fund will be adversely affected by its purchase of securities on such
basis. The Fund may also sell securities on a "when, as and if issued" basis
provided that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Fund at the time of the
sale.
Private Placements. As discussed in the Prospectus, the Fund may invest up
to 5% of its total assets in securities which are subject to restrictions on
resale because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), or which are otherwise not readily
marketable. (Securities eligible for resale pursuant to Rule 144A of the
Securities Act, and determined to be liquid pursuant to the procedures
discussed in the following paragraph, are not subject to the foregoing
restriction.) Limitations on the resale of such securities may have an
adverse effect on their marketability, and may prevent the Fund from
disposing of them promptly at reasonable prices. The Fund may have to bear
the expense of registering such securities for resale and the risk of
substantial delays in effecting such registration.
The Securities and Exchange Commission ("SEC") has adopted Rule 144A under
the Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by
the Fund. The procedures require that the following factors be taken into
account in making a liquidity determination: (1) the frequency of trades and
price quotes for the security; (2) the number of dealers and other potential
purchasers who have issued quotes on the security; (3) any dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (the time needed to dispose
of the security, the method of soliciting offers, and the mechanics of
transfer). If a restricted security is determined to be "liquid", such
security will not be included within the category "illiquid securities",
which under the SEC's current policies may not exceed 15% of the Fund's net
assets, and will not be subject to the 5% limitation set out in the preceding
paragraph.
The Rule 144A marketplace of sellers and qualified institutional buyers is
new and still developing and may take a period of time to develop into a
mature liquid market. As such, the market for certain private placements
purchased pursuant to Rule 144A may be initially small or may, subsequent to
purchase, become illiquid. Furthermore, the Investment Manager may not posses
all the information concerning an issue of securities that it wishes to
purchase in a private placement to which it would normally have had access,
had the registration statement necessitated by a public offering been filed
with the Securities and Exchange Commission.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate will not exceed
200%. A 200% turnover rate would occur, for example, if 200% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced
within one year.
27
<PAGE>
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at
a meeting of Shareholders, if the holders of 50% of the outstanding shares of
the Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund. For purposes of the following restrictions:
(i) all percentage limitations apply immediately after a purchase or initial
investment; and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets
does not require elimination of any security from the portfolio.
The Fund may not:
1. Purchase or sell real estate or interests therein, including
investments in limited partnerships the sole purpose of which is investing
in real estate, although the Fund may purchase securities of issuers which
engage in real estate operations and securities secured by real estate or
interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
3. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed), and (ii) may engage in reverse repurchase agreements and
dollar rolls.
4. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(3). For the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial or variation margin for futures are not deemed to be pledges of
assets.
5. Issue senior securities as defined in the Act, except insofar as
the Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase or reverse repurchase agreement; (b)
purchasing any securities on a when-issued or delayed delivery basis; (c)
purchasing or selling futures contracts, forward foreign exchange
contracts or options; (d) borrowing money in accordance with restrictions
described above; or (e) lending portfolio securities.
6. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objective and policies; (b) by investment
in repurchase agreements; or (c) by lending its portfolio securities.
7. Make short sales of securities.
8. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the
purchase of a security on margin.
9. Engage in the underwriting of securities, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.
10. Purchase or sell commodities or commodities contracts except that
the Fund may purchase or sell futures contracts or option on futures.
In addition, as a nonfundamental policy, the Fund may not 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 Investment Manager owns
more than 1/2 of 1% of the outstanding securities of such issuer, and such
officers, trustees and directors who own more than 1/2 of 1% own in the
aggregate more than 5% of the outstanding securities of such issuers.
28
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
- -----------------------------------------------------------------------------
Subject to the general supervision of the Board of Trustees, the
Investment Manager and the Sub-Advisers are responsible for decisions to buy
and sell securities for the Fund, the selection of brokers and dealers to
effect the transactions, and the negotiation of brokerage commissions, if
any. Purchases and sales of securities on a stock exchange are effected
through brokers who charge a commission for their services. In the
over-the-counter market, securities are generally traded on a "net" basis
with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to
the dealer. 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. Options and futures transactions will usually be effected through a
broker and a commission will be charged. On occasion, the Fund may also
purchase certain money market instruments directly from an issuer, in which
case no commissions or discounts are paid.
The Investment Manager and the Sub-Advisers currently serve as investment
manager to a number of clients, including other investment companies, and may
in the future act as investment adviser to others. It is the practice of the
Investment Manager and the Sub-Advisers to cause purchase and sale
transactions to be allocated among the Fund and others whose assets it
manages in such manner as it deems equitable. In making such allocations
among the Fund and other client accounts, the main factors considered are the
respective investment objectives, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment,
the size of investment commitments generally held and the opinions of the
persons responsible for managing the portfolios of the Fund and other client
accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange,
the Fund's policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a
requirement always to seek the lowest possible commission cost could impede
effective portfolio management and preclude the Fund and the Investment
Manager and Sub-Advisers 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 and Sub-Advisers
rely upon their experience and knowledge regarding commissions generally
charged by various brokers and on their judgment in evaluating the brokerage
and research services received from the broker effecting the transaction.
Such determinations are necessarily subjective and imprecise, as in most
cases an exact dollar value for those services is not ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed
commissions on such transactions are generally higher than negotiated
commissions on domestic transactions. There is also generally less government
supervision and regulation of foreign securities exchanges and brokers than
in the United States.
In seeking to implement the Fund's policies, the Investment Manager and
Sub-Advisers effect transactions with those brokers and dealers who the
Investment Manager and Sub-Advisers believe provide the most favorable prices
and are capable of providing efficient executions. If the Investment Manager
and/or Sub-Advisers believe such prices and executions are obtainable from
more than one broker or dealer, they 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 and/or
Sub-Advisers. 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. During the period from commencement of the Fund's operations
through May 31, 1995, the Fund paid $20,858 in brokerage commissions.
29
<PAGE>
The information and services received by the Investment Manager and
Sub-Advisers from brokers and dealers may be of benefit to them in the
management of accounts of some of their 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/or
Sub-Advisers and thereby reduce their expenses, it is of indeterminable value
and the management fee paid to the Investment Manager is not reduced by any
amount that may be attributable to the value of such services.
Pursuant to an order of the Securities and Exchange Commission, the Fund
may effect principal transactions in certain money market instruments with
DWR. The Fund will limit its transactions with DWR to U.S. Government and
Government Agency Securities, Bank Money Instruments (i.e., Certificates of
Deposit and Bankers' Acceptances) and Commercial Paper. Such transactions
will be effected with DWR only when the price available from DWR is better
than that available from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to the unlisted trading privileges
may be effected through DWR and/or affiliated broker- dealers of a
Sub-Adviser. In order for these broker-dealers to effect any portfolio
transactions for the Fund, the commissions, fees or other remuneration
received by them 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 Board of Trustees of the Fund, including a
majority of the Trustees who are not "interested" persons of the Fund, as
defined in the Act, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to DWR and
affiliates of the Sub-Adviser are consistent with the foregoing standard. The
Fund does not reduce the management fee it pays to the Investment Manager by
any amount of the brokerage commissions it may pay to DWR. The Fund paid DWR
$6,525 in brokerage commissions (21.69% of all commissions) during the period
ended May 31, 1995 to effect 26.38% of all transactions entered into by the
Fund during the period in which brokerage commissions were incurred.
At May 31, 1995, the Fund held in its portfolio 8,000 shares of common
stock of Nomura Securities, with a market value of $144,008. Nomura
Securities was one of ten broker-dealers which effected the largest amount of
agency transactions on behalf of the Fund during the period ended May 31,
1995.
THE DISTRIBUTOR
- -----------------------------------------------------------------------------
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 a wholly-owned subsidiary of DWDC.
The Board of 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 December 6, 1994, a 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 their meeting held on April 20, 1995, the Trustees
of the Fund, including all of the Independent Trustees, approved the
continuation of the Distribution Agreement until April 30, 1996.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
account executives. The Distributor also pays certain expenses in connection
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears
30
<PAGE>
the costs of initial typesetting, printing and distribution of prospectuses
and supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal and state securities laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. Under the Distribution Agreement, the Distributor uses its best
efforts in rendering services to the Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, the Distributor is not liable to the Fund or any of its
shareholders for any error of judgment or mistake of law or for any act or
omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
To compensate the Distributor for the services it or any selected dealer
provides and for the expenses it bears 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 1.0% 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
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. The Distributor has informed the Fund that it and/or
DWR received approximately $10,000 in contingent deferred sales charges
during the period from commencement of the Fund's operations through May 31,
1995.
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 0.25% 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.
The Plan was adopted by a vote of the Trustees of the Fund on December 6,
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 December
7, 1994, whereupon the Plan went into effect.
Under its terms, the Plan continued until April 30, 1995 and provides that
it will remain in effect from year to year thereafter, provided such
continuance is approved annually by a vote of the Trustees in the manner
described above. 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.
Continuance of the Plan for one year, until April 30, 1996, was approved
by the Trustees of the Fund, including a majority of the Independent 12b-1
Trustees, at their meeting held on April 20, 1995. Prior to approving the
continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to
continue the Plan, the Trustees considered: (1) the Fund's experience under
the Plan and whether such experience indicates that the Plan is operating as
anticipated; (2) the
31
<PAGE>
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 to the Fund and its
stockholders. 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.
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. The Fund
accrued $50,936 payable to the Distributor, pursuant to the Plan, for the
period ended May 31, 1995. This is an accrual at an annual rate of 0.98% of
the average daily net assets of the Fund. 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 six years after their purchase. DWR compensates its account
executives by paying them, from its own funds, commissions for the sale of
the Fund's shares, currently a gross sales credit of up to 5% of the amount
sold and an annual residual commission of up to 0.25 of 1% of the current
value (not including reinvested dividends or distributions) of the amount
sold. The gross sales credit is a charge which reflects commissions paid by
DWR to its account executives and Fund associated distribution-related
expenses, including sales compensation and overhead. The distribution fee
that the Distributor receives from the Fund under the Plan, in effect,
offsets distribution expenses incurred on behalf of the Fund and 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 $50,936 accrued under the Plan for the period
ended May 31, 1995, to the Distributor and DWR. The Distributor and DWR
estimate that they have spent, pursuant to the Plan, $1,780,692 on behalf of
the Fund since the inception of the Plan. It is estimated that this amount
was spent in approximately the following ways: (i) 29.75%
($529,841)--advertising and promotional expenses; (ii) 6.21%
($110,604)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 64.04% ($1,140,247)--other expenses, including the
gross sales credit and the carrying charge, of which 0.49% ($5,573)
represents carrying charges, 39.70% ($452,735) represents commission credits
to DWR branch offices for payments of commissions to account executives and
59.81% ($681,939) represents overhead and other branch office
distribution-related expenses. The term "overhead and other branch office
distribution-related expenses" represents (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery
and supplies; (b) the costs of client sales seminars; (c) travel expenses of
mutual fund sales coordinators to promote the sale of Fund shaes; and (d)
other expenses relating to branch promotion of Fund share sales.
At any given time, the expenses in 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 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 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 $1,719,431 as of
May 31, 1995. Because there is no requirement under the Plan that the
Distributor be reimbursed for all expenses or
32
<PAGE>
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 distribution expenses in excess of
payments made 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
As stated in the Prospectus, short-term securities with remaining
maturities of sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Listed options on debt securities are valued at the latest sale
price on the exchange on which they are listed unless no sales of such
options have taken place that day, in which case they will be valued at the
mean between their latest bid and asked prices. Unlisted options on debt
securities and all options on equity securities are valued at the mean
between their latest bid and asked prices. Futures are valued at the latest
sale price on the commodities exchange on which they trade unless the
Trustees determine such price does not reflect their market value, in which
case they will be valued at their fair value as determined by the Trustees.
All other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
The net asset value per share of the Fund is determined once daily at 4:00
p.m. New York 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.
Generally, trading in foreign securities, as well as corporate bonds,
United States government securities and money market instruments, is
substantially completed each day at various times prior to 4:00 p.m., New
York time. The values of such securities used in computing the net asset
value of the Fund's shares are determined as of such times. Foreign currency
exchange rates are also generally determined prior to 4:00 p.m., New York
time. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined
and 4:00 p.m., New York time, and will therefore not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees.
33
<PAGE>
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by 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 from DWR or other selected broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the Fund, unless the
shareholder requests that they be paid in cash. Each purchase of shares of
the Fund is made upon the condition that the Transfer Agent is thereby
automatically appointed as agent of the investor to receive all dividends and
capital gains distributions on shares owned by the investor. Such dividends
and distributions will be paid, at the net asset value per share, in shares
of the Fund (or in cash if the shareholder so requests) as of the close of
business on the record date. At any time an investor may request the Transfer
Agent, in writing, to have subsequent dividends and/or capital gains
distributions paid to him or her in cash rather than shares. To assure
sufficient time to process the change, such request should be received by the
Transfer Agent at least five business days prior to the record date of the
dividend or distribution. In the case of recently purchased shares for which
registration instructions have not been received on the record date, cash
payments will be made to DWR or other selected broker-dealer, and will be
forwarded to the shareholder, upon the receipt of proper instructions.
Targeted Dividends.(Service Mark) In states where it is legally
permissible, shareholders may also have all income dividends and capital
gains distributions automatically invested in shares of an open-end Dean
Witter Fund other than Dean Witter Global Asset Allocation Fund. Such
investment will be made as described above for automatic investment in shares
of the Fund, at the net asset value per share of the selected Dean Witter
Fund as of the close of business on the payment date of the dividend or
distribution and will begin to earn dividends, if any, in the selected Dean
Witter Fund the next business day. To participate in the Targeted Dividends
program, shareholders should contact their DWR or other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the
Fund must be shareholders of the Dean Witter Fund targeted to receive
investments from dividends at the time they enter the Targeted Dividends
program. Investors should review the prospectus of the targeted Dean Witter
Fund before entering the program.
EasyInvest.(Service Mark) Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund. Shares purchased through EasyInvest will be
added to the shareholder's existing account at the net asset value calculated
the same business day the transfer of funds is effected. For further
information or to subscribe to EasyInvest, shareholders should contact their
DWR or other selected broker-dealer account executive or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution at net
asset value, without the imposition of a contingent deferred sales charge
upon redemption, by returning the check or the proceeds to the Transfer Agent
within 30 days after the payment date. If the shareholder returns the
proceeds of a dividend or distribution, such funds must be accompanied by a
signed statement indicating that the proceeds constitute a dividend or
distribution to be invested. Such investment will be made at the net asset
value per share next determined after receipt of the check or proceeds by the
Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own
or purchase shares of the Fund having a
34
<PAGE>
minimum value of $10,000 based upon the then current net asset value. The
Withdrawal Plan provides for monthly or quarterly (March, June, September and
December) checks in any dollar amount, not less then $25, or in any whole
percentage of the account balance, on an annualized basis.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment designated in the application. The
shares will be redeemed at their net asset value determined, at the
shareholder's option, on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent, or amounts credited to a
shareholder's brokerage account, within five business days after the date of
redemption. The Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the share- holder'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 contact the Transfer Agent for a
determination as to whether a particular institution is such an eligible
guarantor). A shareholder may, at any time, change the amount and interval of
withdrawal payments through his or her Account Executive or by written
notification to the Transfer Agent. In addition, the party and/or the address
to which checks are mailed may be changed by written notification to the
Transfer Agent, with signature guarantees required in the manner described
above. The shareholder may also terminate the Withdrawal Plan at any time by
written notice to the Transfer Agent. In the event of such termination, the
account will be continued as a regular shareholder investment account. The
shareholder may also redeem all or part of the shares held in the Withdrawal
Plan account (see "Redemptions and Repurchases" in the Prospectus) at any
time.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
a shareholder may make additional investments in Fund shares at any time by
sending a check in any amount, not less than $100, payable to Dean Witter
Global Asset Allocation Fund, 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 computed after receipt of the check or purchase payment by the
Transfer Agent. The shares so purchased will be credited to the investor's
account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of the Fund may
exchange their shares for shares of other Dean Witter Funds sold with a
contingent deferred sales charge ("CDSC funds") and for shares of Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust,
Dean Witter Short-Term Bond Fund, Dean Witter Balanced Income Fund, Dean
Witter Balanced Growth Fund and five Dean Witter Funds which are money market
funds (the foregoing ten non-CDSC Funds are hereinafter referred to as
"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.
35
<PAGE>
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, the
Exchange Fund is executed at no charge to the shareholder, without the
imposition of the CDSC at the time of the exchange. During the period of time
the shareholder remains in the Exchange Fund (calculated from the last day of
the month in which the Exchange Fund shares were acquired), the investment
period or "year since purchase payment made" is frozen. When shares are
redeemed out of the Exchange Fund, they will be subject to a CDSC which would
be based upon the period of time the shareholder held shares in a CDSC fund.
However, in the case of shares of the Fund exchanged into the 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, if any, incurred on or after that
date which are attributable to those shares. Shareholders acquiring shares of
an Exchange Fund pursuant to this exchange privilege may exchange those
shares back into a CDSC fund from the Exchange Fund, with no CDSC being
imposed on such exchange. The investment period previously frozen when shares
were first exchanged for shares of the Exchange Fund resumes on the last day
of the month in which shares of a CDSC fund are reacquired. A CDSC is imposed
only upon an ultimate redemption, based upon the time (calculated as
described above) the shareholder was invested in a CDSC fund.
In addition, shares of the Fund may be acquired in exchange for shares of
Dean Witter Funds sold with a front-end sales charge ("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 CSDC, the amount which represents the
current net asset value of shares at the time of the exchange which were (i)
purchased more than three or six years (depending on the CDSC schedule
applicable to the shares) prior to the exchange, (ii) originally acquired
through reinvestment of dividends or distributions and (iii) acquired in
exchange for shares of 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 Dividend Growth Securities Inc. and Dean Witter Natural
Resource Development Securities Inc. acquired prior to July 2, 1984, and
shares of Dean Witter Strategist Fund acquired prior to November 8, 1989, are
also considered Free Shares and will be the first Free Shares to be
exchanged. After an exchange, all dividends earned on shares in an Exchange
Fund will be considered Free Shares. If the exchanged amount exceeds the
value of such Free Shares, an exchange is made, on a block-by-block basis, of
non-Free Shares held for the longest period of time (except that if shares
held for identical periods of time but subject to different CDSC schedules
are held in the same Exchange Privilege account, the shares of that block
that are subject to a lower CDSC rate will be exchanged prior to the shares
of that block that are subject to a higher CDSC rate). Shares equal to any
appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free
36
<PAGE>
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 purchaser payment for, or (b)
the current net asset value of, those exchanged in 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.
The Transfer Agent acts as agent for shareholders of the Fund in effecting
redemptions of Fund shares and in applying the proceeds to the purchase of
other fund shares. In the absence of negligence on its part, neither the
Transfer Agent nor the Fund shall be liable for any redemption of Fund shares
caused by unauthorized telephone instructions. Accordingly, in such event the
investor shall bear the risk of loss. The staff of the Securities and
Exchange Commission is currently considering the propriety of such a policy.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any
other of the funds and the general administration of the Exchange Privilege,
the Transfer Agent acts as agent for the Distributor and for the
shareholder's selected broker-dealer, if any, in the performance of such
functions.
With respect to exchanges, redemptions or repurchases, the Transfer Agent
shall be liable for its own negligence and not for the default or negligence
of its correspondents or for losses in transit. The Fund shall not be liable
for any default or negligence of the Transfer Agent, the Distributor or any
selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment is $5,000
for Dean Witter Liquid Asset Fund Inc., Dean Witter Tax-Free Daily Income
Trust, Dean Witter California Tax-Free Daily Income Trust and Dean Witter New
York Municipal Money Market Trust although those funds may, at their
discretion, accept initial investments of as low as $1,000. The minimum
initial investment is $10,000 for Dean Witter Short-Term U.S. Treasury Trust,
although that fund, in its discretion, may accept initial purchases of as low
as $5,000. The minimum initial investment for all other Dean Witter Funds for
which the Exchange Privilege is available is $1,000.) Upon exchange into an
Exchange Fund, the shares of that fund will be held in a special Exchange
Privilege Account separately from accounts of those shareholders who have
acquired their shares directly from that fund. As a result, certain services
normally available to shareholders of money market funds, including the check
writing feature, will not be available for funds held in that account.
The Fund and each of the other 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 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
37
<PAGE>
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, 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") after it receives the
request, and certificate, if any, in good order. Any redemption request
received after such computation will be redeemed at the next determined net
asset value. The term "good order" means that the share certificate, if any,
and request for redemption are properly signed, accompanied by any
documentation required by the Transfer Agent, and bear signature guarantees
when required by the Fund or the Transfer Agent. If redemption is requested
by a corporation, partnership, trust or fiduciary, the Transfer Agent may
require that written evidence of authority acceptable to the Transfer Agent
be submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other
than the record owner, or if the proceeds are to be paid to a corporation
(other than the Distributor or a selected broker-dealer for the account of
the shareholder), partnership, trust or fiduciary, or sent to the shareholder
at an address other than the registered address, signatures must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A stock
power may be obtained from any dealer or commercial bank. The Fund may change
the signature guarantee requirements from time to time upon notice to
shareholders, which may be by means of a new prospectus.
Contingent Deferred Sales Charge. As stated in the Prospectus, a
contingent deferred sales charge ("CDSC") will be imposed on any redemption
by an investor if after such redemption the current value of the investor's
shares of the Fund is less than the dollar amount of all payments by the
shareholder for the purchase of Fund shares during the preceding six years.
However, no CDSC will be imposed to the extent that the net asset value of
the shares redeemed does not exceed: (a) the current net asset value of
shares purchased more than six years prior to the redemption, plus (b) the
current net asset value of shares purchased through reinvestment of dividends
or distributions of the Fund or another Dean Witter Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) the current net asset value of
shares acquired in exchange for (i) shares of Dean Witter front-end sales
charge funds, or (ii) shares of other Dean Witter Funds for which shares of
front-end sales charge funds have been exchanged (see "Shareholder
Services--Exchange Privilege"), plus (d) increases in the net asset value of
the investor's shares above the total amount of payments for the purchase of
Fund shares made during the preceding six years. The CDSC will be paid to the
Distributor.
38
<PAGE>
In determining the applicability of a CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will
be the amount which represents the net asset value of the Investor's shares
purchased more than six years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
exchange for shares of Dean Witter front-end sales charge funds, or for
shares of other Dean Witter funds for which shares of front-end sales charge
funds have been exchanged. A portion of the amount redeemed which exceeds an
amount which represents both such increase in value and the value of shares
purchased more than six years prior to the redemption and/or shares purchased
through reinvestment of dividends or distributions and/or shares acquired in
the above-described exchanges will be subject to a CDSC.
The amount of 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 payments for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last
day of the month. The following table sets forth the rates of the CDSC:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
YEAR SINCE PURCHASE PAYMENT PERCENTAGE OF AMOUNT
MADE REDEEMED
- --------------------------- -----------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year period. This will result in any such CDSC being
imposed at the lowest possible rate. Accordingly, shareholders may redeem,
without incurring any CDSC, amounts equal to any net increase in the value of
their shares above the amount of their purchase payments made within the past
six years and amounts equal to the current value of shares purchased more
than six years prior to the redemption and shares purchased through
reinvestment of dividends or distributions or acquired in exchange for shares
of Dean Witter front-end sales charge funds, or for shares of other Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged. The CDSC will be imposed, in accordance with the table shown
above, on any redemptions within six years of purchase which are in excess of
these amounts and which redemptions are not (a) requested within one year of
death or initial determination of disability of a shareholder, or (b) made
pursuant to certain taxable distributions from retirement plans or retirement
accounts, as described in the Prospectus.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares presented for repurchase or redemption will be
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. The term good order means
that the share certificate, if any, and request for redemption are properly
signed, accompanied by any documentation required by the Transfer Agent, and
bear signature guarantees when required by the Fund or 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
39
<PAGE>
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, payment of the redemption proceeds may be delayed
for the minimum time needed to verify that the check used for investment has
been honored (not more than fifteen days from the time of receipt of the
check by the Transfer Agent). Shareholders maintaining margin accounts with
DWR or another selected broker-dealer are referred to their account executive
regarding restrictions on redemption of shares of the Fund pledged in the
margin account.
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 discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within thirty days after the date
of redemption or repurchase, reinstate any portion or all of the proceeds of
such redemption or repurchase in shares of the Fund at the net asset value
next determined after a reinstatement request, together with the proceeds, is
received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and
reinstatement is made in shares of the Fund, some or all of the loss,
depending on the amount reinstated, will not be allowed as a deduction for
federal income tax purposes but will be applied to adjust the cost basis of
the shares acquired upon reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment. If any such gains are retained, the Fund will pay
federal income tax thereon, and, if the Fund makes an election, the
shareholders would include such undistributed gains in their income and
shareholders will be able to claim their share of the tax paid by the Fund as
a credit against their individual federal income tax.
Any dividends declared in the last quarter of any calendar year which are
paid in the following year prior to February 1 will be deemed received by the
shareholder in the prior year.
Gains or losses on sales of securities by the Fund will generally be
long-term capital gains or losses if the securities have been held by the
Fund for more than twelve months. Gains or losses on the sale of securities
held for twelve months or less will be generally short-term capital gains or
losses.
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). If so
qualified, the Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, realized during any fiscal year
if it distributes such income and capital gains to its shareholders. In
addition, the Fund intends to distribute to its shareholders each calendar
year a sufficient amount of ordinary income and capital gains to avoid the
imposition of a 4% excise tax.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as long-term capital gains, and the amount of dividends
eligible for the Federal dividends received deduction available to
corporations. To avoid being subject to a 31% Federal backup withholding tax
on taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers
must be furnished and certified as to their accuracy.
40
<PAGE>
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value
of the shareholder's stock in that company by the exact amount of the
dividend or capital gains distribution. Furthermore, capital gains
distributions and dividends are subject to federal income taxes. If the net
asset value of the shares should be reduced below a shareholder's cost as a
result of the payment of dividends or the distribution of realized net
long-term capital gains, such payment or distribution would be in part a
return of the shareholder's investment to the extent of such reduction below
the shareholder's cost, but nonetheless would be fully taxable. Therefore, an
investor should consider the tax implications of purchasing Fund shares
immediately prior to a distribution record date.
The Fund may elect to retain net capital gains and pay corporate income
tax thereon. In such event, each shareholder of record on the last day of the
Fund's taxable year would be required to include in income for tax purposes
such shareholder's proportionate share of the Fund's undistributed net
capital gain. In addition, each shareholder would be entitled to credit such
shareholder's proportionate share of the tax paid by the Fund against federal
income tax liabilities, to claim refunds to the extent that the credit
exceeds such liabilities, and to increase the basis of his shares held for
federal income tax purposes by an amount equal to 65% of such shareholder's
proportionate share of the undistributed net capital gain.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains during
the six-month period.
Dividends, interest and capital gains received by the Fund may give rise
to withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits
or deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% of the Fund's total
assets at the close of its fiscal year consist of securities of foreign
corporations, the Fund would be eligible and would determine whether or not
to file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their respective pro
rata portions of such withholding taxes in their United States income tax
returns as gross income, treat such respective pro rata portions as taxes
paid by them, and deduct such respective pro rata portions in computing their
taxable income or, alternatively, use them as foreign tax credits against
their United States income taxes. If the Fund does elect to file the election
with the Internal Revenue Service, the Fund will report annually to its
shareholders the amount per share of such withholding.
Special Rules for Certain Foreign Currency Transactions. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in
stock, securities or foreign currencies are currently considered to be
qualifying income for purposes of determining whether the Fund qualifies as a
regulated investment company. It is currently unclear, however, who will be
treated as the issuer of certain foreign currency instruments or how foreign
currency options, futures, or forward foreign currency contracts will be
valued for purposes of the regulated investment company diversification
requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's function
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from forward
contracts, from futures contracts that are not "regulated futures contracts",
and from unlisted options will be treated as ordinary income or loss under
Code Section 988. Also, certain foreign exchange gains or losses derived with
respect to foreign fixed-income securities are also subject to Section 988
treatment. In general, therefore, Code Section 988 gains or losses will
increase or decrease the amount of the Fund's investment company taxable
income available to be distributed to shareholders as ordinary income, rather
than increasing or decreasing the amount of the Fund's net capital gain.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
ordinary dividend distributions.
41
<PAGE>
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of
certain technical tax provisions applying to such companies could result in
the imposition of federal income tax with respect to such investments at the
Fund level which could not be eliminated by distributions to shareholders.
The U.S. Treasury issued proposed regulation section 1.1291-8 which
establishes a mark-to-market regime which allows invesmtent companies
investing in PFIC's to avoid most, if not all, of the difficulties posed by
the PFIC rules. In any event, it is not anticipated that any taxes on the
Fund wilth respect to investments in PFIC's would be significant.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. 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 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.
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 to total return figures. Such calculations may or may not reflect
the deduction of the contingent deferred sales charge which, if reflected,
would reduce the performance quoted. For example, the average annual total
return of the Fund may be calculated in the manner described above, but
without deduction for any applicable contingent deferred sales charge.
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 period from commencement of the
Fund's operations through May 31, 1995 was 7.50%. Had their been no waiver of
management fee or assumption of expenses, the total return for the period
would have been 7.0%. The reduction of the contingent deferred sales charge
would result in a total return of 2.00% for the period.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return to date (expressed as a decimal and without taking
into account the effect of any applicable CDSC) and multiplying by $10,000,
$50,000 or $100,000, as the case may be. Investments of $10,000, $50,000 and
$100,000 in the Fund at inception would have grown to $10,750, $53,750 and
$107,500, respectively, at May 31, 1995.
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent
organizations.
SHARES OF THE FUND
- -----------------------------------------------------------------------------
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
42
<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 proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). However, the Trustees have
not authorized any such additional series or classes of shares and the Fund
has no present intention to add 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/her or its 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, the Declaration of Trust provides that a Trustee, officer, employee
or agent is entitled to be indemnified against all liability in connection
with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest.
The Fund shall be of unlimited duration subject to the provisions in the
Declaration of Trust concerning termination by action of the shareholders or
the Trustees.
CUSTODIAN AND TRANSFER AGENT
- -----------------------------------------------------------------------------
The Chase Manhattan Bank N.A., One Chase Plaza, New York, New York 10005
is the Custodian of the Fund's assets in the United States and around the
world. As Custodian, The Chase Manhattan Bank has contracted with various
foreign banks and depositaries to hold portfolio securities of non-U.S.
issuers on behalf of the Fund. Any 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.
43
<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 account- ants, will be
sent to shareholders each year.
The Fund's fiscal year ends on January 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- -----------------------------------------------------------------------------
Sheldon Curtis, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The Statement of Assets and Liabilities of the Fund included in this
Statement of Additional Information and incorporated by reference in the
Prospectus has 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.
44
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
Statement of Assets and Liabilities at January 31, 1995
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS: Cash .........................................................................$100,000
Deferred organizational expenses (Note 1) ........................................... 180,000
----------
Total Assets ....................................................................... 280,000
LIABILITIES: Organizational expenses payable (Note 1) ................................ 180,000
Commitments (Notes 1 and 2) .........................................................
----------
Net Assets ......................................................................... $100,000
==========
Net Asset Value Per Share (10,000 shares of beneficial interest outstanding;
unlimited authorized shares of beneficial interest of $.01 par value) .............. $10.00
==========
</TABLE>
NOTE 1 -- Dean Witter Global Asset Allocation Fund (the "Fund") was
organized as a Massachusetts business trust on October 18, 1994. To date the
Fund has had no transactions other than those relating to organizational
matters and the sale of 10,000 shares of beneficial interest for $100,000 to
Dean Witter InterCapital Inc. (the "Investment Manager"). The Fund is
registered under the Investment Company Act of 1940, as amended (the "Act"),
as a diversified, open-end management investment company. Organizational
expenses of the Fund incurred prior to the offering of the Fund's shares will
be paid by the Investment Manager. It is currently estimated that the
Investment Manager will incur, and be reimbursed by the Fund for
approximately $180,000 in organizational expenses. These expenses will be
deferred and amortized by the Fund on the straight-line method over a period
not to exceed five years from the date of commencement of the Fund's
operations. In the event that, at any time during the five year period
beginning with the date of the commencement of operations, the initial shares
acquired by the Investment Manager prior to such date are redeemed, by any
holder thereof, the redemption proceeds payable in respect of such shares
will be reduced by the pro rata share (based on the proportionate share of
the initial shares redeemed to the total number of original shares
outstanding at the time of redemption) of the then unamortized deferred
organizational expenses as of the date of such redemption. In the event that
the Fund liquidates before the deferred organizational expenses are fully
amortized, the Investment Manager shall bear such unamortized deferred
organizational expenses.
NOTE 2 -- The Fund has entered into an investment management agreement
with the Investment Manager. The Investment Manager has entered into
Sub-Advisory Agreements with TCW Funds Management, Inc. ("TCW") and Morgan
Grenfell Investment Services Limited ("MGIS"). TCW and MGIS will provide
investment advice and portfolio management relating to the Fund's investments
in securities, issued by issuers located in Canada and Latin America (TCW)
and outside the Western Hemisphere (MGIS), subject to the overall supervision
of the Investment Manager. Certain officers and/or trustees of the Fund are
officers and/or directors of the Investment Manager. The Fund has retained
the Investment Manager to manage the investment of the Fund's U.S. assets and
supervise the investment of all the Fund's assets. Under the terms of the
investment management agreement, the Investment Manager maintains certain of
the Fund's books and records and furnishes, at its own expense, such office
space, facilities, equipment, supplies, clerical help and bookkeeping and
certain legal services as the Fund may reasonably require in the conduct of
its business. 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 the Fund's
telephone service, heat, light, power and other utilities provided to the
Fund.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund will pay
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 1.0% to the Fund's daily net assets. As full compensation for
their services to be provided pursuant to the Sub-Advisory Agreements, the
Investment Manager will pay each Sub-Advisor monthly compensation equal to
30% of its monthly compensation.
45
<PAGE>
Shares of the Fund will be distributed by Dean Witter Distributors Inc.
(the "Distributor"), a wholly-owned subsidiary of Dean Witter, Discover & Co.
and an affiliate of the Investment Manager. The Fund has adopted a Plan of
Distribution pursuant to Rule 12b-1 under the Act (the "Plan"). The Plan
provides that the Distributor will bear the expense of all promotional and
distribution related activities on behalf of the Fund, including the payment
of commissions for sales of the Fund's shares and incentive compensation to
and expenses of Dean Witter Reynolds Inc. ("DWR") account executives and
others who engage in or support distribution of 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 utilize fees paid pursuant to the Plan to
compensate DWR and others for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed distribution expenses incurred.
To compensate the Distributor for the services provided and for the
expenses borne by the Distributor and others under the Plan, the Fund will
pay the Distributor compensation accrued daily and payable monthly at the
annual rate of 1.0% 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.
Dean Witter Trust Company (the "Transfer Agent"), an affiliate of the
Investment Manager and the Distributor, is the transfer agent of the Fund's
shares, dividend disbursing agent for payment of dividends and distributions
on Fund shares and agent for shareholders under various investment plans.
The Investment Manager has undertaken to assume all operating expenses
(except for the Plan fee and any brokerage fees) and waive the compensation
provided for in its investment management agreement for services rendered
until such time as the Fund has $50 million of net assets or until six months
from the date of commencement of the Fund's operations, whichever occurs
first.
46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -----------------------------------------------------------------------------
To the Shareholder and Trustees of
Dean Witter Global Asset Allocation Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of Dean Witter
Global Asset Allocation Fund ("the Fund") at January 31, 1995, in conformity
with generally accepted accounting principles. This financial statement is
the responsibility of the Fund's management; our responsibility is to express
an opinion on this financial statement based on our audit. We conducted our
audit of this financial statement in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 27, 1995
47
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS May 31, 1995 (unaudited)
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT Value
- ---------------- -------------------------------- -------------
<S> <C> <C>
COMMON STOCKS, PREFERRED STOCKS AND BONDS
(87.1%)
BELGIUM (0.8%)
Chemicals
200 Solvay S.A. (A Shares)......... $ 111,364
-------------
Steel & Iron
640 Arbed S.A. .................... 93,401
-------------
TOTAL BELGIUM ................. 204,765
-------------
BRAZIL (0.7%)
Utilities - Electric
12,000 Centrais Eletricas Bras (ADR).. 164,256
-------------
CHILE (0.8%)
Telecommunications
Compania de Telefonos de Chile
2,300 S.A. (ADR) ..................... 203,550
-------------
DENMARK (1.5%)
Banking
1,750 Den Danske Bank ................ 111,604
-------------
Foreign Government Bonds
Kingdom of Denmark 9.00% due
DKK 800K 11/15/00 ....................... 153,289
Kingdom of Denmark 7.00% due
DKK 650K 12/15/04 ....................... 109,262
-------------
262,551
-------------
TOTAL DENMARK 374,155
-------------
FINLAND (0.5%)
Electronics
2,800 Nokia AB (Series K)............. 127,948
-------------
FRANCE (7.4%)
Banking
2,000 Societe Generale ............... 235,057
-------------
Building Materials
1,150 Compagnie de Saint Gobain ...... 143,967
-------------
Financial Services
650 Cetelem Group .................. 152,525
3,200 Credit Local de France ......... 281,197
-------------
433,722
-------------
Foods & Beverages
1,480 LVMH Moet-Hennessy Louis Vuitton 281,351
-------------
Foreign Government Bonds
France (Govt of) 8.50% due
FRF 1,300K 04/25/03 ....................... $ 279,681
-------------
Multi-Industry
1,300 Compagnie Generale des Eaux .... 144,139
-------------
Oil Related
1,400 Societe National Elf Aquitaine 113,174
-------------
Retail
280 Carrefour Supermarche .......... 138,462
600 Castorama Dubois ............... 96,039
-------------
234,501
-------------
TOTAL FRANCE ................... 1,865,592
-------------
GERMANY (8.4%)
Business Services
121 Sap AG (Pref.) ................. 141,673
-------------
Chemicals
<PAGE>
120 Schering AG .................... 83,368
-------------
Cosmetics
230 Wella AG (Pref.) ............... 180,615
-------------
Foreign Government Bonds
Bundesobligation Ser 110 5.375%
DEM 500K due 02/22/99 ................... 351,944
Bundrepub. Deutschland 8.375%
DEM 500K due 05/21/01 ................... 391,617
German Unity Fund 8.00% due
DEM 400K 01/21/02 ....................... 306,134
Germany (Fed Rep) 8.25% due
DEM 500K 09/20/01 ....................... 388,964
Treuhand-Obligation 5.00% due
DEM 400K 12/17/98 ....................... 279,335
-------------
1,717,994
-------------
TOTAL GERMANY .................. 2,123,650
-------------
HONG KONG (2.0%)
Conglomerates
14,000 Citic Pacific, Ltd. ............ 36,380
44,000 First Pacific Co. Ltd. ......... 41,241
30,000 Hutchison Whampoa, Ltd. ........ 151,648
6,800 Jardine Matheson Holdings Ltd. 53,380
-------------
282,649
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS May 31, 1995 (unaudited) continued
<TABLE>
<CAPTION>
<S> <C> <C>
Real Estate
18,000 Cheung Kong (Holdings) Ltd. ... $ 88,662
27,000 Hong Kong Land Holdings Ltd. .. 55,890
9,000 Sun Hung Kai Properties, Ltd. . 65,158
-------------
209,710
-------------
TOTAL HONG KONG ................ 492,359
-------------
ITALY (1.2%)
Foreign Government Bonds
Italy (Republic of) 6.875% due
ITL 50K 09/27/23 ....................... 44,690
-------------
Telecommunications
95,000 Telecom Italia SpA ............. 249,237
-------------
TOTAL ITALY .................... 293,927
-------------
JAPAN (24.2%)
Auto Parts
1,000 Autobacs Seven Co. ............. 100,426
-------------
Banking
13,000 Asahi Bank, Ltd. ............... 161,653
Japan Development Bank 6.50% due
yen 25,000K 09/20/01 ....................... 364,608
11,000 Mitsubishi Trust & Banking ..... 178,470
8,000 Sanwa Bank, Ltd. ............... 171,483
13,000 Sumitomo Trust & Banking ....... 178,588
yen 20,000K World Bank 4.50% due 03/20/03 .. 266,935
yen 25,000K World Bank 5.25% due 03/20/02 .. 346,459
-------------
1,668,196
-------------
Building & Construction
2,000 Kyocera Corp. .................. 152,297
11,000 Nishimatsu Construction Co. .... 127,534
9,000 Sekisui House Ltd. ............ 114,046
-------------
393,877
-------------
Chemicals
9,000 Shin-Etsu Chemical Co. ......... 162,009
21,000 Teisan K.K. .................... 116,390
-------------
278,399
-------------
Electronics
9,000 Canon, Inc. .................... 140,692
14,000 Hitachi, Ltd. .................. 135,457
9,000 Sharp Corp. .................... 127,901
-------------
404,050
-------------
Engineering & Construction
7,600 Kandenko Co., , Ltd. ........... 113,406
-------------
Financial Services
KRW International Finance 6.00%
yen 34,000K due 11/29/99 ................... $ 469,090
8,000 Nomura Securities Co., Ltd. .... 144,008
3,400 Promise Co., Ltd................ 151,800
-------------
764,898
-------------
Health & Personal Care
7,000 Yamanouchi Pharmaceutical ..... 156,679
-------------
Insurance
Tokio Marine & Fire Insurance
11,000 Co. ............................ 126,362
-------------
International Trade
11,000 Mitsubishi Corp. ............... 126,101
-------------
Machinery - Diversified
9,000 Daifuku ........................ 111,914
4,000 Fanuc, Ltd. .................... 173,851
1,000 Keyence Corp. .................. 105,400
16,000 Komatsu Ltd. ................... 124,870
<PAGE>
Mitsubishi Heavy Industries,
28,000 Ltd. ........................... 192,658
19,000 NSK Limited .................... 112,506
-------------
821,199
-------------
Real Estate
11,000 Mitsui Fudosan Co. ............. 123,626
Retail
3,000 Ito Yokado Co. Ltd. ............ 159,166
6,000 Joshin Denki ................... 70,985
-------------
230,151
-------------
Steel & Iron
50,000 NKK Corporation ............... 126,125
-------------
Telecommunications
Nippon Telegraph & Telephone
12 (ADR) ......................... 99,479
-------------
Textiles
13,000 Kuraray Co. Ltd. .............. 144,256
6,000 Tokyo Style ................... 90,242
-------------
234,498
-------------
Transportation
27 East Japan Railway Co. ........ 139,413
-------------
Utilities - Electric
7,000 Kyushu Electric Power ......... 198,958
-------------
TOTAL JAPAN ................... 6,105,843
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS May 31, 1995 (unaudited) continued
<TABLE>
<CAPTION>
<S> <C> <C>
MALAYSIA (1.2%)
Banking
8,000 Malayan Banking Berhad ......... $ 65,882
-------------
Entertainment
12,000 Genting Berhad.................. 126,572
-------------
Miscellaneous
Technology Resource Industries
20,000 Berhad ......................... 65,314
-------------
Utilities - Electric
13,000 Tenaga Nasional Berhad ......... 53,793
-------------
TOTAL MALAYSIA ................. 11,561
-------------
MEXICO (0.5%)
Beverages
4,525 Panamerican Beverages, Inc. .... 123,306
-------------
NETHERLANDS (1.3%)
Publishing
900 Ver Ned Uitgev ................. 106,896
-------------
Retail
6,725 Koninklijke Ahold NV ........... 231,677
-------------
TOTAL NETHERLANDS .............. 338,573
-------------
SINGAPORE (1.1%)
Banking
Overseas Chinese Banking Corp.,
9,000 Ltd. ........................... 110,680
-------------
Machinery - Diversified
8,000 Keppel Corp., Ltd. ............. 73,067
-------------
Real Estate
13,000 City Developments, Ltd. ........ 86,947
-------------
TOTAL SINGAPORE ................ 270,694
-------------
SPAIN (0.9%)
Banking
3,700 Banco Bilbao Vizcaya ........... 106,513
-------------
Oil Related
1,200 Gas Natural .................... 130,437
-------------
TOTAL SPAIN .................... 236,950
-------------
SWEDEN (1.3%)
Commercial Services
3,680 Securitas AB (Series B Free) ... 125,264
-------------
Forest Products, Paper &
Packaging
Stora Kopparbergs (Series B
1,500 Free) .......................... $ 94,050
-------------
Miscellaneous
22,000 Assa Abloy AB (Series B) ....... 100,647
-------------
TOTAL SWEDEN ................... 319,961
-------------
SWITZERLAND (1.4%)
Conglomerates
160 BBC Brown Boveri AG ............ 163,293
-------------
Health & Personal Care
30 Roche Holdings AG .............. 184,863
-------------
TOTAL SWITZERLAND .............. 348,156
-------------
UNITED KINGDOM (8.3%)
Banking
10,000 National Westminster Bank PLC .. 85,434
-------------
Broadcast Media
British Sky Broadcasting Group
20,000 PLC* ........................... 84,482
-------------
<PAGE>
Building & Construction
19,000 Blue Circle Industries PLC ..... 91,119
-------------
Electronics
17,000 General Electric Company PLC ... 85,847
-------------
Environmental Control
7,000 Severn Trent PLC................ 63,361
-------------
Financial Services
7,000 HSBC Holdings PLC .............. 91,929
-------------
Food Processing
4,000 Unilever PLC ................... 77,494
-------------
Foods & Beverages
19,000 Grand Metropolitan PLC ......... 118,878
-------------
Foreign Government Bonds
pounds
sterling 185 Try 10.00% due 09/08/03 ........ 329,584
-------------
Health & Personal Care
20,000 Smithkline Beecham (Units)+ .... 153,401
-------------
Insurance
17,000 Prudential Corp. PLC ........... 91,786
-------------
Leisure
10,000 Granada Group PLC .............. 93,216
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS May 31, 1995 (unaudited) continued
<TABLE>
<CAPTION>
<S> <C> <C>
Multi-Industry
15,000 Williams Holdings PLC ......... $ 79,321
-------------
Oil Related
23,000 British Petroleum Co. PLC ..... 161,801
-------------
Pharmaceuticals
11,000 Glaxo Wellcome PLC ........... 126,643
-------------
Retail
9,000 Great Universal Stores PLC .... 87,610
-------------
Telecommunications
24,000 British Telecommunications PLC 150,161
-------------
Tobacco
Rothmans International PLC
11,000 (Units)+ ...................... 106,205
-------------
TOTAL UNITED KINGDOM .......... 2,078,272
-------------
UNITED STATES (23.6%)
Aircraft & Aerospace
2,800 Boeing Co. .................... 164,850
-------------
Automotive
7,000 Ford Motor Co. ................ 204,750
-------------
Bank Holding Companies
7,000 Bank of Boston Corp. .......... 255,500
2,500 First Interstate Bancorp ...... 210,000
-------------
465,500
-------------
Banking
Bco Commercio Exterior - 144A**
$ 50K 8.625% due 06/02/00 ........... 50,750
Midland Bank PLC 7.65% due
$ 50K 05/01/25 ...................... 51,371
PNC Bank N.A. 7.875% due
$ 50K 04/15/05 ...................... 52,511
Santander Financial Issuances
$ 50K 7.75% due 05/15/05 ............ 52,636
-------------
207,268
-------------
Beverages
4,600 PepsiCo Inc. .................. 225,400
-------------
Communications - Equipment &
Software
4,600 Cisco Systems, Inc.* .......... 200,675
-------------
Computer Equipment
International Business Machines
1,800 Corp. ......................... 167,850
-------------
Drugs & Healthcare
3,000 Johnson & Johnson ............. $ 198,750
-------------
Electronics
2,500 General Electric Co. .......... 145,000
2,000 Intel Corp. ................... 224,250
-------------
369,250
-------------
Entertainment
7,000 Circus Circus Enterprises, Inc.* 233,625
-------------
Financial Services
$ 50K Salomon, Inc. 7.75% due 05/15/00 50,780
5,000 Travelers, Inc................. 211,250
-------------
262,030
-------------
Foods & Beverages
3,800 Campbell Soup Co. ............. 186,675
-------------
Health Equipment & Services
Mid Atlantic Medical Services,
8,700 Inc.* ......................... 180,525
-------------
<PAGE>
Industrials
Aramark Services 8.15% due
$ 50K 05/01/05 ...................... 52,401
Caterpillar Tractor Co. 6.00%
$ 50K due 05/01/07 .................. 46,407
News American Holdings, Inc.
$ 50K 8.25% due 08/10/18 ............ 50,927
Price/Costco Inc. 7.125% due
$ 50K 06/15/05 ...................... 49,875
RJR Nabisco, Inc. 8.625% due
$ 50K 12/01/02 ...................... 50,952
Time Warner Entertainment Co.
$ 50K 8.375% due 07/15/33 ........... 48,358
-------------
298,920
-------------
Manufacturing - Consumer &
Industrial Products
11,000 Maytag Corp. .................. 178,750
-------------
Natural Resources
2,800 Texaco, Inc. .................. 191,800
-------------
Oil - Domestic
2,800 Exxon Corp. ................... 199,850
-------------
Restaurants
5,200 McDonald's Corp. .............. 196,950
-------------
Semiconductors
3,000 Applied Materials, Inc.* ...... 230,250
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
PORTFOLIO OF INVESTMENTS May 31, 1995 (unaudited) continued
<TABLE>
<CAPTION>
<S> <C> <C>
Steel & Iron
9,000 Bethlehem Steel Corp.* ........ $ 132,750
-------------
Telecommunications
4,000 Bell Atlantic Corp. ........... 223,000
-------------
Transportation
United Air Lines, Inc. 9.56% due
$ 50K 10/19/18 ...................... 51,438
-------------
U.S. Government & Agency Obligations
Federal Home Loan Banks 7.78%
$ 50K due 01/30/97 .................. 50,453
U.S. Treasury Bond 7.50% due
$ 200K 11/15/24 ...................... 219,969
U.S. Treasury Note 6.25% due
$ 125K 02/15/03 ...................... 124,902
U.S. Treasury Note 6.50% due
$ 275K 04/30/99 ...................... 279,469
U.S. Treasury Note 6.625% due
$ 250K 03/31/97 ...................... 253,281
U.S. Treasury Note 6.75% due
$ 50K 04/30/00 ...................... 51,422
U.S. Treasury Note 6.875% due
$ 50K 08/31/99 ...................... 51,539
U.S. Treasury Note 7.50% due
$ 125K 11/15/01 ...................... 133,809
-------------
1,164,844
-------------
TOTAL UNITED STATES ........... 5,935,700
-------------
TOTAL COMMON STOCKS, PREFERRED
STOCKS AND BONDS (Identified
Cost $20,310,507) ............. 21,919,218
-------------
SHORT-TERM INVESTMENT (a) (11.9%)
U.S. GOVERNMENT AGENCY
Federal Home Loan Mortgage Corp.
$ 3,000K 6.10% due 06/01/95
(Amortized Cost $3,000,000) ... 3,000,000
-------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENCY
AMOUNT (IN
THOUSANDS) Value
- -------------- -------------------------- ---------
PURCHASED PUT OPTIONS ON
FOREIGN CURRENCY (0.5%)
yen 36,000K June 10, 1995/yen 84.19 ..... $ 72,360
yen 15,000K November 28, 1995/FRF 4.87 .. 55,500
---------
TOTAL PURCHASED PUT OPTIONS
ON FOREIGN CURRENCY
(Identified Cost $153,690) .. 127,860
---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS (Identified
Cost $23,464,467) (b) ........... 99.5% 25,047,078
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES .................. 0.5 127,990
-------- ------------
NET ASSETS ....................... 100.0% $25,175,068
======== ============
</TABLE>
[FN]
ADR American Depository Receipt.
K In thousands.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
+ Consists of more than one class of securities traded together as a unit;
generally stocks with attached common and preferred stocks.
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes is $23,464,467; the
aggregate gross unrealized appreciation is $1,717,305 and the aggregate
gross unrealized depreciation is $134,694, resulting in net unrealized
appreciations of $1,582,611.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT MAY 31, 1995:
<TABLE>
<CAPTION>
CONTRACTS TO IN EXCHANGE DELIVERY UNREALIZED
RECEIVE FOR DATE DEPRECIATION
- -------------- ------------ ---------- --------------
<S> <C> <C> <C>
DEM 173,118 $ 124,860 06/01/95 $(2,385)
yen 10,722,000 $ 129,259 06/01/95 (2,281)
--------------
Unrealized depreciation................... $(4,666)
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
SUMMARY OF INVESTMENTS May 31, 1995 (unaudited)
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ---------------------------- ------------- ------------
<S> <C> <C>
Aircraft & Aerospace $ 164,850 0.6%
Auto Parts 100,426 0.4
Automotive 204,750 0.8
Bank Holding Companies 465,500 1.8
Banking 2,590,634 10.3
Beverages 348,706 1.4
Broadcast Media 84,482 0.3
Building & Construction 484,996 1.9
Building Materials 143,967 0.6
Business Services 141,673 0.5
Chemicals 473,131 1.9
Commercial Services 125,264 0.5
Communications - Equipment &
Software 200,675 0.8
Computer Equipment 167,850 0.7
Conglomerates 445,942 1.8
Cosmetics 180,615 0.7
Currency Options 127,860 0.5
Drugs & Healthcare 198,750 0.8
Electronics 987,095 3.9
Engineering & Construction 113,406 0.5
Entertainment 360,197 1.4
Environmental Control 63,361 0.3
Financial Services 1,552,579 6.2
Food Processing 77,494 0.3
Foods & Beverages 586,904 2.3
Foreign Government Bonds 2,634,500 10.6
Forest Products, Paper &
Packaging 94,050 0.4
Health & Personal Care 494,943 2.0
Health Equipment & Services 180,525 0.7
Industrials 298,920 1.2
Insurance 218,148 0.9
International Trade 126,101 0.5
Leisure 93,216 0.4
Machinery - Diversified 894,266 3.5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ---------------------------- ------------- ------------
Manufacturing - Consumer &
Industrial Products $ 178,750 0.7%
Miscellaneous 165,961 0.7
Multi-Industry 223,460 0.9
Natural Resources 191,800 0.8
Oil - Domestic 199,850 0.8
Oil Related 405,412 1.6
Pharmaceuticals 126,643 0.5
Publishing 106,896 0.4
Real Estate 420,283 1.7
Restaurants 196,950 0.8
Retail 783,939 3.0
Semiconductors 230,250 0.9
Steel & Iron 352,276 1.4
Telecommunications 925,427 3.7
Textiles 234,498 0.9
Tobacco 106,205 0.4
Transportation 190,851 0.8
U.S. Government & Agency
Obligations 4,164,844 16.5
Utilities - Electric 417,007 1.6
------------- ------------
$25,047,078 99.5%
============= ============
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ------------------------- ------------- ------------
<S> <C> <C>
Common Stocks ........... $15,742,088 62.5%
Corporate Bonds.......... 2,055,498 8.2
Foreign Government Bonds. 2,634,500 10.5
Preferred Stocks......... 322,288 1.3
Put Options ............. 127,860 0.5
U.S. Government Agency &
Obligations ............ 4,164,844 16.5
------------- ------------
$25,047,078 99.5%
============= ============
</TABLE>
- ---------------
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost $23,464,467) .. $25,047,078
Cash ................................................................ 17,090
Receivable for:
Investments sold .................................................. 344,479
Shares of beneficial interest sold ................................ 323,925
Interest .......................................................... 108,982
Dividends ......................................................... 41,745
Foreign withholding taxes reclaimed ............................... 5,580
Deferred organizational expenses .................................... 170,832
Prepaid expenses and other assets ................................... 14,024
Receivable from Investment Manager .................................. 121,104
-------------
TOTAL ASSETS ...................................................... 26,194,839
-------------
LIABILITIES:
Payable for:
Investments purchased ............................................. 701,459
Investment management fees ........................................ 21,319
Plan of distribution fee .......................................... 20,339
Shares of beneficial interest repurchased ......................... 1,225
Accrued expenses and other payables ................................. 95,429
Organizational expenses payable ..................................... 180,000
-------------
TOTAL LIABILITIES ................................................. 1,019,771
-------------
NET ASSETS:
Paid-in-capital ..................................................... 23,667,566
Net unrealized appreciation ......................................... 1,570,342
Undistributed net investment income ................................. 175,212
Net realized loss ................................................... (238,052)
-------------
NET ASSETS ........................................................ $25,175,068
=============
NET ASSET VALUE PER SHARE, 2,343,194 shares outstanding (unlimited
shares authorized of $.01 par value) ............................... $ 10.74
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the period February 28, 1995 (Note 1) through May 31, 1995 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest ............................................................ $ 149,061
Dividends (net of $9,614 foreign withholding tax) ................... 77,087
-----------
TOTAL INCOME ...................................................... 226,148
-----------
EXPENSES
Investment management fee ........................................... 52,246
Plan of distribution fee ............................................ 50,936
Custodian fees ...................................................... 47,805
Professional fees ................................................... 17,340
Transfer agent fees and expenses .................................... 14,273
Registration fees ................................................... 10,184
Organizational expenses ............................................. 9,168
Trustees' fees and expenses ......................................... 8,352
Shareholder reports and notices ..................................... 4,717
Other ............................................................... 78
-----------
TOTAL EXPENSES BEFORE AMOUNTS
WAIVED/ASSUMED ................................................... 215,099
LESS: AMOUNTS WAIVED/ASSUMED ...................................... (164,163)
-----------
TOTAL EXPENSES AFTER AMOUNTS
WAIVED/ASSUMED ................................................... 50,936
-----------
NET INVESTMENT INCOME ............................................. 175,212
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ....................................................... 146,728
Foreign exchange transactions ..................................... (384,780)
-----------
TOTAL LOSS ........................................................ (238,052)
-----------
Net unrealized appreciation on:
Investments ....................................................... 1,582,611
Translation of forward foreign exchange contracts, other assets
and liabilities denominated in foreign currencies ................ (12,269)
-----------
TOTAL APPRECIATION ................................................ 1,570,342
-----------
NET GAIN .......................................................... 1,332,290
-----------
NET INCREASE ........................................................ $1,507,502
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C>
FOR THE PERIOD
FEBRUARY 28, 1995*
THROUGH MAY 31, 1995
- ------------------------------------------------------------------ ----------------------
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................................. $ 175,212
Net realized loss ................................................. (238,052)
Net unrealized appreciation ....................................... 1,570,342
----------------------
NET INCREASE .................................................... 1,507,502
Net increase from transactions in shares of beneficial interest .. 23,567,566
----------------------
TOTAL INCREASE .................................................. 25,075,068
NET ASSETS:
Beginning of period ............................................... 100,000
----------------------
END OF PERIOD
(Including undistributed net investment income of
$175,212) ....................................................... $25,175,068
======================
</TABLE>
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1995 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Global Asset Allocation Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund was organized as a
Massachusetts business trust on October 18, 1994 and had no operations other
than those relating to organizational matters and the issuance of 10,000
shares of beneficial interest for $100,000 to Dean Witter InterCapital Inc.
(the "Investment Manager"). The Fund commenced operations on February 28,
1995.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on
the New York, American Stock Exchange or other domestic or foreign stock
exchanges is valued at its latest sale price on that exchange prior to the
time when assets are valued; if there were no sales that day, the security is
valued at the latest bid price (in cases where securities are traded on more
than one exchange; the securities are valued on the exchange designated as
the primary market by the Trustees); (2) all other portfolio securities for
which over-the-counter market quotations are readily available are valued at
the latest available bid price prior to the time of valuation; (3) when
market quotations are not readily available, including circumstances under
which it is determined by the Investment Manager or Sub-Advisers that sale
and bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain of the Fund's portfolio securities may be
valued by an outside pricing service approved by the Trustees. The pricing
service utilizes a matrix system incorporating security quality, maturity and
coupon as the evaluation model parameters, and/or research and evaluations by
its staff, including review of broker-dealer market price quotations, if
available, in determining what it believes is the fair valuation of the
portfolio securities valued by such pricing service; and (5) 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
57
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1995 (unaudited) continued
determined by the identified cost method. Dividend income is recorded on the
ex-dividend date except certain dividends from foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date. Interest
income is accrued daily and includes amortization of discounts of certain
short-term securities.
C. OPTION ACCOUNTING PRINCIPLES -- When the Fund writes a call option, an
amount equal to the premium received is included in the Fund's Statement of
Assets and Liabilities as a liability which is subsequently marked-to-market
to reflect the current market value of the option written. If a written
option either expires or the Fund enters into a closing purchase transaction,
the Fund realizes a gain or loss without regard to any unrealized gain or
loss on the underlying security or currency and the liability related to such
option is extinguished. If a written call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security or currency
and the proceeds from such sale are increased by the premium originally
received.
When the Fund purchases a call or put option, the premium paid is recorded as
an investment which is subsequently marked-to-market to reflect the current
market value. If a purchased option expires, the Fund will realize a loss to
the extent of the premium paid. If the Fund enters into a closing sale
transaction, a gain or loss is realized for the difference between the
proceeds from the sale and the cost of the option. If a put option is
exercised, the cost of the security or currency sold upon exercise will be
increased by the premium originally paid. If a call option is exercised, the
cost of the security purchased upon exercise will be increased by the premium
originally paid.
D. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value
of investment securities, other assets and liabilities and forward contracts
are translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the exchange
rates prevailing on the respective dates of such transactions. The resultant
exchange gains and losses are included in the Statement of Operations as
realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a
reduction of ordinary income for federal income tax purposes. The Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the changes in the market prices
of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains
58
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1995 (unaudited) continued
and losses are included in the Statement of Operations as unrealized foreign
currencies gain or loss. The Fund records realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.
F. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
H. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $180,000. The Fund will
reimburse the Investment Manager for such expenses, exclusive of amounts
waived. Such expenses have been deferred and are being amortized by the Fund
on the straight-line method over a period not to exceed five years from the
commencement of operations.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays its Investment
Manager a management fee, calculated daily and payable monthly, by applying
the annual rate of 1.0% to the net assets of the Fund determined as of the
close of each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all
59
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1995 (unaudited) continued
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.
Under Sub-Advisory Agreements between TCW Funds Management, Inc. and Morgan
Grenfell Investment Services Ltd. (the "Sub-Advisers") and the Investment
Manager, the Sub-Advisers provide the Fund with investment advice and
portfolio management relating to the Fund's investments in securities,
subject to the overall supervision of the Investment Manager. As compensation
for the services provided pursuant to the Sub-Advisory Agreements, the
Investment Manager pays each Sub-Adviser monthly compensation equal to 30% of
its monthly compensation.
The Investment Manager had undertaken to assume and will continue to assume
all operating expenses (except for the Plan of Distribution fee and brokerage
fees) and waive the compensation provided for in its Investment Management
Agreement and the Sub-Advisers had undertaken to waive and will continue to
waive their respective compensation provided for in the Advisory Agreement,
until such time as the Fund had $50 million of net assets or until December
31, 1995, whichever occurs first.
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 1.0% 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 gain
distributions) less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or
(b) the Fund's average daily net assets. Amounts paid under the Plan are paid
to the Distributor to compensate it for the services provided and the
expenses borne by it and others in the distribution of the Fund's shares,
including the payment of commissions for sales of the Fund's shares and
incentive compensation to, and expenses of, the account executives of Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and other employees or selected 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.
60
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1995 (unaudited) continued
Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered by the Distributor, may be recovered through future
distribution fees from the Fund and contingent deferred sales charges from
the Fund's shareholders.
The Distributor has informed the Fund that for the period ended May 31, 1995,
it received approximately $10,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares. The Fund's shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the period ended May 31, 1995
aggregated $25,784,683 and $5,611,323, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$1,507,928 and $398,806, respectively.
For the period ended May 31, 1995, the Fund incurred brokerage commissions of
$6,525 with DWR for portfolio transactions executed on behalf of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At May 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $12,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE PERIOD FEBRUARY
28, 1995* THROUGH MAY 31,
1995
--------------------------
SHARES AMOUNT
----------- -------------
Sold ........... 2,429,375 $24,556,642
Repurchased ... (96,181) (989,076)
----------- -------------
Net increase .. 2,333,194 $23,567,566
=========== =============
</TABLE>
- ------------
* Commencement of operations.
61
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1995 (unaudited) continued
6. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated
portfolio transactions or to manage foreign currency exposure associated with
foreign currency denominated securities. Additionally, as a hedge against
adverse foreign currency and market risk, the Fund may purchase options on
foreign currency ("derivative instruments").
At May 31, 1995, there were no outstanding forward contracts other than those
used to facilitate settlement of foreign currency denominated portfolio
transactions.
Derivative instruments involve elements of market risk in excess of the
amounts reflected in the Statement of Assets and Liabilities. The Fund bears
the risk of an unfavorable change in the foreign exchange rates underlying
the forward contracts. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the
terms of their contracts.
62
<PAGE>
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
<S> <C>
FOR THE PERIOD
FEBRUARY 28, 1995*
THROUGH
MAY 31, 1995
- ----------------------------------------- ----------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $10.00
----------------------
Net investment income ................... 0.07
Net realized and unrealized gain ........ 0.67
----------------------
Total from investment operations ........ 0.74
----------------------
Net asset value, end of period .......... $10.74
======================
TOTAL INVESTMENT RETURN ................. 7.50%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 0.98%(2)(3)
Net investment income ................... 3.35%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $25,175
Portfolio turnover rate ................. 30%(1)
</TABLE>
[FN]
* Commencement of operations.
Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
(3) The Investment Manager had undertaken to assume and will continue to
assume all operating expenses (except for any 12b-1 and brokerage fees)
and waive the compensation provided for in its Investment Management
Agreement and the Sub-Advisers had undertaken to waive and will
continue to waive their respective compensation provided for in the
Advisory Agreement, until such time as the Fund had $50 million of net
assets or until December 31, 1995, whichever occurs first. If the Fund
had borne all expenses, after application of the expense limitation,
the above annualized expense and net investment income ratios would
have been 3.48% and .85%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
63
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
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 February 28,
1995 through May 31, 1995............................ 4
(2) Financial statements included in the Statement of
Additional Information (Part B): Page in
SAI
Statement of Assets and Liabilities at January 31,
1995................................................. 45
Portfolio of Investments at May 31, 1995
(unaudited).......................................... 48
Statement of Assets and Liabilities at
May 31, 1995 (unaudited)............................. 54
Statement of Operations for the period February 28,
1995 through May 31, 1995 (unaudited)................ 55
Statement of Changes in Net Assets for the
period February 28, 1995 through May 31, 1995
(unaudited).......................................... 56
Notes to Financial Statements (unaudited)............ 57
Financial Highlights for the period February 28,
1995 through May 31, 1995............................ 63
(3) Financial statements included in Part C:
None
(b) Exhibits:
2. -- Amended and Restated By-Laws of the Registrant
9. -- Form of Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services Company
Inc.
11. -- Consent of Independent Accountants
16. -- Schedules for Computation of Performance Quotations
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 June 7, 1995
Shares of Beneficial Interest 2,730
Item 27. Indemnification
Pursuant to Section 5.3 of the Registrant's Declaration of
Trust and under Section 4.8 of the Registrant's By-Laws, the
indemnification of the Registrant's trustees, officers, employees and
agents is permitted if it is determined that they acted under the belief
that their actions were in or not opposed to the best interest of the
Registrant, and, with respect to any criminal proceeding, they had
reasonable cause to believe their conduct was not unlawful. In addition,
indemnification is permitted only if it is determined that the actions in
question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason
of reckless disregard of their obligations and duties to the Registrant.
Trustees, officers, employees and agents will be indemnified for the
expense of litigation if it is determined that they are entitled to
indemnification against any liability established in such litigation. The
Registrant may also advance money for these expenses provided that they
give their undertakings to repay the Registrant unless their conduct is
later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust
and paragraph 8 of the Registrant's Investment Management Agreement,
neither the Investment Manager nor any trustee, officer, employee or agent
of the Registrant shall be liable for any action or failure to act, except
in the case of bad faith, willful misfeasance, gross negligence or reckless
disregard of duties to the Registrant.
2
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer, or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding)
is asserted against the Registrant by such trustee, officer or controlling
person in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act, and will be governed by the final adjudication of
such issue.
The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent with
Release 11330 of the Securities and Exchange Commission under the
Investment Company Act of 1940, so long as the interpretation of Sections
17(h) and 17(i) of such Act remains in effect.
Registrant, in conjunction with the Investment Manager,
Registrant's Trustees, and other registered investment management companies
managed by the Investment Manager, maintains insurance on behalf of any
person who is or was a Trustee, officer, employee, or agent of Registrant,
or who is or was serving at the request of Registrant as a trustee,
director, officer, employee or agent of another trust or corporation,
against any liability asserted against him and incurred by him or arising
out of his position. However, in no event will Registrant maintain
insurance to indemnify any such person for any act for which Registrant
itself is not permitted to indemnify him.
Item 28. Business and Other Connections of Investment Adviser.
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment adviser. The following information is given
regarding officers of Dean Witter InterCapital Inc. InterCapital is a
wholly-owned subsidiary of Dean Witter, Discover & Co. The principal
address of the Dean Witter Funds is Two World Trade Center, New York, New
York 10048.
The term "Dean Witter Funds" used below refers to the following
registered investment companies:
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
3
(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 Managed Assets Trust
(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
(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
4
(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 Global Asset Allocation Fund
(51) Dean Witter Balanced Growth Fund
(52) Dean Witter Balanced Income Fund
(53) Dean Witter Hawaii Municipal Trust
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 North American Intermediate Income Trust
(8) TCW/DW Global Convertible Trust
(9) TCW/DW Total Return Trust
Closed-End Investment Companies
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003
(4) TCW/DW Emerging Markets Opportunities Trust
5
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.
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.
Robert M. Scanlan President and Chief Operating Officer of DWSC,
President and Chief Executive Vice President of Distributors;
Operating Officer Executive Vice President and Director of DWTC;
Vice President of the Dean Witter Funds and the
TCW/DW Funds.
David A. Hughey Executive Vice President and Chief Administrative
Executive Vice Officer of DWSC, Distributors and DWTC; Director
President and Chief of DWTC; Vice President of the Dean Witter Funds
Administrative Officer and the TCW/DW Funds.
6
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- --------------------- -------------------------------------------------
Edmund C. Puckhaber Director of DWTC; Vice President of the Dean
Executive Vice Witter Funds.
President
John Van Heuvelen President, Chief Operating Officer and Director
Executive Vice of DWTC.
President
Sheldon Curtis Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary and General Counsel of DWSC; Senior Vice
General Counsel and President, Assistant General Counsel and Assistant
Secretary Secretary of Distributors; Senior Vice President
and Secretary of DWTC; Vice President, Secretary
and General Counsel of the Dean Witter Funds and
the TCW/DW Funds.
Peter M. Avelar
Senior Vice President Vice President of various Dean Witter Funds.
Mark Bavoso
Senior Vice President Vice President of various Dean Witter Funds.
Thomas H. Connelly
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.
Rajesh K. Gupta
Senior Vice President Vice President of various Dean Witter Funds.
Kenton J. Hinchcliffe
Senior Vice President Vice President of various Dean Witter Funds.
Kevin Hurley
Senior Vice President Vice President of various Dean Witter Funds.
John B. Kemp, III Director of the Provident Savings Bank, Jersey
Senior Vice President City, New Jersey.
Anita Kolleeny
Senior Vice President Vice President of various Dean Witter Funds.
Joseph McAlinden
Senior Vice President
7
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- --------------------- -------------------------------------------------
Jonathan R. Page
Senior Vice President Vice President of various Dean Witter Funds.
Ira Ross
Senior Vice President Vice President of various Dean Witter Funds.
Rochelle G. Siegel
Senior Vice President Vice President of various Dean Witter Funds.
Paul D. Vance
Senior Vice President Vice President of various Dean Witter Funds.
Elizabeth A. Vetell
Senior Vice President
James F. Willison
Senior Vice President Vice President of various Dean Witter Funds.
Ronald J. Worobel
Senior Vice President Vice President of various Dean Witter Funds.
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President DWSC, Assistant Treasurer of Distributors;
and Assistant Treasurer of the Dean Witter Funds and the TCW/DW
Treasurer 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; Assistant Secretary of DWR.
Barry Fink First Vice President and Assistant Secretary of
First Vice President DWSC; Assistant Secretary of the Dean Witter
and Assistant Secretary Funds and the TCW/DW Funds.
Michael Interrante First Vice President and Controller of DWSC;
First Vice President Assistant Treasurer of Distributors;First Vice
and Controller President and Treasurer of DWTC.
Robert Zimmerman
First Vice President
Joan Allman
Vice President
Joseph Arcieri
Vice President Vice President of various Dean Witter Funds.
Terence P. Brennan, II
Vice President
8
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- --------------------- -------------------------------------------------
Stephen Brophy
Vice President
Douglas Brown
Vice President
Thomas Chronert
Vice President
Rosalie Clough
Vice President
Patricia A. Cuddy
Vice President Vice President of various Dean Witter Funds.
B. Catherine Connelly
Vice President
Salvatore DeSteno
Vice President Vice President of DWSC.
Frank J. DeVito
Vice President Vice President of DWSC.
Dwight Doolan
Vice President
Bruce Dunn
Vice President
Jeffrey D. Geffen
Vice President
Deborah Genovese
Vice President
Peter W. Gurman
Vice President
Russell Harper
Vice President
John Hechtlinger
Vice President
Peter Hermann
Vice President Vice President of Dean Witter Mid-Cap Growth Fund.
David Hoffman
Vice President
9
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- --------------------- -------------------------------------------------
David Johnson
Vice President
Christopher Jones
Vice President
Stanley Kapica
Vice President
Michael Knox Vice President of Dean Witter Convertible
Vice President Securities Trust.
Konrad J. Krill
Vice President Vice President of various Dean Witter Funds.
Paul LaCosta
Vice President Vice President of various Dean Witter Funds.
Lawrence S. Lafer Vice President and Assistant Secretary of DWSC;
Vice President and Assistant Secretary of the Dean Witter Funds and
Assistant Secretary the TCW/DW Funds.
Thomas Lawlor
Vice President
Gerard Lian
Vice President Vice President of various Dean Witter Funds.
Lou Anne 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
David Myers
Vice President
James Nash
Vice President
Richard Norris
Vice President
Hugh Rose
Vice President
10
Name and Position Other Substantial Business, Profession, Vocation
with Dean Witter or Employment, including Name, Principal Address
InterCapital Inc. and Nature of Connection
- --------------------- -------------------------------------------------
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
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.
Jayne M. Wolff
Vice President Vice President of various Dean Witter Funds.
Marianne Zalys
Vice President
Item 29. Principal Underwriters
(a) Dean Witter Distributors Inc. ("Distributors"), a Delaware
corporation, is the principal underwriter of the Registrant.
Distributors is also the principal underwriter of the following
investment companies:
(1) Dean Witter Liquid Asset Fund Inc.
(2) Dean Witter Tax-Free Daily Income Trust
(3) Dean Witter California Tax-Free Daily Income Trust
(4) Dean Witter Retirement Series
(5) Dean Witter Dividend Growth Securities Inc.
(6) Dean Witter Natural Resource Development Securities Inc.
(7) Dean Witter World Wide Investment Trust
(8) Dean Witter Capital Growth Securities
(9) Dean Witter Convertible Securities Trust
(10) Active Assets Tax-Free Trust
(11) Active Assets Money Trust
(12) Active Assets California Tax-Free Trust
(13) Active Assets Government Securities Trust
(14) Dean Witter Short-Term Bond Fund
(15) Dean Witter Mid-Cap Growth Fund
(16) Dean Witter U.S. Government Securities Trust
11
(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 Managed Assets Trust
(22) Dean Witter Limited Term Municipal Trust
(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 Natural Resource Development Securities Inc.
(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 Premium 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
(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 North American Intermediate Income Trust
(8) TCW/DW Global Convertible Trust
(9) TCW/DW Total Return 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
12
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.
13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State
of New York on the 28th day of June, 1995.
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
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. 1 has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 6/28/95
------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 6/28/95
------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Sheldon Curtis 6/28/95
-----------------------------
Sheldon Curtis
Attorney-in-Fact
Jack F. Bennett Manuel H. Johnson
Michael Bozic Paul Kolton
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
By /s/ David M. Butowsky 6/28/95
----------------------------
David M. Butowsky
Attorney-in-Fact
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2. -- Amended and Restated By-Laws of the Registrant
9. -- Form of Services Agreement between Dean Witter
InterCapital Inc. and Dean Witter Services Company
Inc.
11. -- Consent of Independent Accountants
16. -- Schedules for Computation of Performance Quotations
27. -- Financial Data Schedule
kp:\glodiv\exhibit.95
<PAGE>
BY-LAWS
OF
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
(AMENDED AND RESTATED AS OF JANUARY 25, 1995)
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Distributor", "Investment
Adviser", "Majority Shareholder Vote", "1940 Act", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property", and "Trustees" have the
respective meanings given them in the Declaration of Trust of Dean Witter
Global Asset Allocation Fund dated October 18, 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.
<PAGE>
SECTION 3.4. Quorum and Adjournment of Meetings. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy,
shall be requisite and shall constitute a quorum for the transaction of
business. In the absence of a quorum, the Shareholders present or represented
by proxy and entitled to vote thereat shall have power to adjourn the meeting
from time to time. Any adjourned meeting may be held as adjourned without
further notice. At any adjourned meeting at which a quorum shall be present,
any business may be transacted as if the meeting had been held as originally
called.
SECTION 3.5. Voting Rights, Proxies. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his
duly authorized attorney-in-fact, for each Share of beneficial interest of
the Trust and for the fractional portion of one vote for each fractional
Share entitled to vote so registered in his name on the records of the Trust
on the date fixed as the record date for the determination of Shareholders
entitled to vote at such meeting. No proxy shall be valid after eleven months
from its date, unless otherwise provided in the proxy. At all meetings of
Shareholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting. Pursuant to a resolution of a majority of the Trustees, proxies may
be solicited in the name of one or more Trustees or Officers of the Trust.
SECTION 3.6. Vote Required. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority
Shareholder Vote.
SECTION 3.7. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election
of the meeting. In case any person appointed as Inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies,
shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results,
and do such other acts as may be proper to conduct the election or vote with
fairness to all Shareholders. On request of the chairman of the meeting, or
of any Shareholder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them
and shall execute a certificate of any facts found by them.
SECTION 3.8. Inspection of Books and Records. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under 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.
ARTICLE IV
TRUSTEES
SECTION 4.1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall
be called by the President or the Secretary upon the written request of any
two (2) Trustees.
2
<PAGE>
SECTION 4.2. Notice of Special Meetings. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage prepaid,
directed to the Trustee at his address as it appears on the records of the
Trust. Subject to the provisions of the 1940 Act, notice or waiver of notice
need not specify the purpose of any special meeting.
SECTION 4.3. Telephone Meetings. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such
committee, as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. Quorum, Voting and Adjournment of Meetings. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act
of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall have been
obtained.
SECTION 4.5. Action by Trustees Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of the Trustees may be taken without a meeting if a consent in
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.
SECTION 4.6. Expenses and Fees. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of
said persons shall receive for services rendered as a Trustee of the Trust
such compensation as may be fixed by the Trustees. Nothing herein contained
shall be construed to preclude any Trustee from serving the Trust in any
other capacity and receiving compensation therefor.
SECTION 4.7. Execution of Instruments and Documents and Signing of Checks
and Other Obligations and Transfers. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all
checks, notes, drafts and other obligations for the payment of money by the
Trust shall be signed, and all transfer of securities standing in the name of
the Trust shall be executed, by the Chairman, the President, any Vice
President or the Treasurer or by any one or more officers or agents of the
Trust as shall be designated for that purpose by vote of the Trustees;
notwithstanding the above, nothing in this Section 4.7 shall be deemed to
preclude the electronic authorization, by designated persons, of the Trust's
Custodian (as described herein in Section 9.1) to transfer assets of the
Trust, as provided for herein in Section 9.1.
SECTION 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement, actually
and reasonably incurred by him in connection with the action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
3
<PAGE>
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or on behalf of the Trust to obtain a judgment or decree in its
favor by reason of the fact that he is or was a Trustee, officer, employee,
or agent of the Trust. The indemnification shall be against expenses,
including attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust; except that no indemnification shall be
made in respect of any claim, issue, or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Trust, except to the extent that the court in which the
action or suit was brought, or a court of equity in the county in which the
Trust has its principal office, determines upon application that, despite the
adjudication of liability but in view of all circumstances of the case, the
person is fairly and reasonably entitled to indemnity for those expenses
which the court shall deem proper, provided such Trustee, officer, employee
or agent is not adjudged to be liable by reason of his willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) or (b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which consists
of Trustees who were not parties to the action, suit or proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person
shall be entitled to indemnification for any liability, whether or not
there is an adjudication of liability, arising by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duties
as described in Section 17(h) and (i) of the Investment Company Act of
1940 ("disabling conduct"). A person shall be deemed not liable by reason
of disabling conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("indemnitee") was not liable by reason of disabling conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable by
reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in Section 2(a)(19) of
the Investment Company Act of 1940, nor parties to the action, suit
or proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit
or proceeding may be paid by the Trust in advance of the final disposition
thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the
Trustee, officer, employee or agent of the Trust to repay the advance if
it is not ultimately determined that such person is entitled to be
indemnified by the Trust; and
4
<PAGE>
(3) either, (i) such person provides a security for his
undertaking, or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately
will be found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Trust, as defined in Section
2(a)(19) of the 1940 Act, nor parties to the action, suit or
proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to a person
who has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. Executive and Other Committees. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the
Trustees of the Trust and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Trust. In the absence of
any member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in
place of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in
any other capacity and which shall have advisory functions with respect to
the investments of the Trust but which shall have no power to determine that
any security or other investment shall be purchased, sold or otherwise
disposed of by the Trust. The number of persons constituting any such
advisory committee shall be determined from time to time by the Trustees. The
members of any such advisory committee may receive compensation for their
services and may be allowed such fees and expenses for the attendance at
meetings as the Trustees may from time to time determine to be appropriate.
5
<PAGE>
SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Trustees appointed pursuant to Section
5.1 of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. Executive Officers. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more
than one capacity. The executive officers of the Trust shall be elected
annually by the Trustees and each executive officer so elected shall hold
office until his successor is elected and has qualified.
SECTION 6.2. Other Officers and Agents. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the President the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.
SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any
officer or agent of the Trust may be removed by the Trustees whenever, in
their judgment, the best interests of the Trust will be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed.
SECTION 6.4. Compensation of Officers. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the President to
the extent provided by the Trustees with respect to officers appointed by the
President.
SECTION 6.5. Power and Duties. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
SECTION 6.6. The Chairman. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees; 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.
SECTION 6.7. The President. (a) The President shall be the chief executive
officer of the Trust; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the
Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by
the Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President,
and he or they shall perform such other duties as the Trustees or the
President may from time to time prescribe.
6
<PAGE>
SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the President.
SECTION 6.10. The Secretary. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or
by the signature of an Assistant Secretary.
SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
SECTION 6.12. The Treasurer. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and
he shall render to the Trustees and the President, whenever any of them
require it, an account of his transactions as Treasurer and of the financial
condition of the Trust; and he shall perform such other duties as the
Trustees, or the President, may from time to time prescribe.
SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order
determined by the Trustees or the President, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers
as the Trustees, or the President, may from time to time prescribe.
SECTION 6.14. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from
time to time determine.
Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary
from the computation thereof on the records of the Trust, the Trustees shall
have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the
Trust to avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. Certificates of Shares. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of
7
<PAGE>
the Trust by the President, the President, or a Vice President, and
countersigned by the Secretary or an Assistant Secretary or the Treasurer and
an Assistant Treasurer of the Trust; shall be sealed with the seal; and shall
contain such recitals as may be required by law. Where any certificate is
signed by a Transfer Agent or by a Registrar, the signature of such officers
and the seal may be facsimile, printed or engraved. The Trust may, at its
option, determine not to issue a certificate or certificates to evidence
Shares owned of record by any Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Trust, such certificate or certificates
shall, nevertheless, be adopted by the Trust and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures shall appear therein had not ceased
to be such officer or officers of the Trust.
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. Lost, Stolen, Destroyed and Mutilated Certificates. The
Trustees may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Trust alleged to
have been lost, stolen or destroyed, upon satisfactory proof of such loss,
theft, or destruction; and the Trustees may, in their discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal
representative, to give to the Trust and to such Registrar, Transfer Agent
and/or Transfer Clerk as may be authorized or required to countersign such
new certificate or certificates, a bond in such sum and of such type as they
may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be against them or any of them on
account of or in connection with the alleged loss, theft or destruction of
any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. Appointment and Duties. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at
least five million dollars ($5,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver the
same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and deposit the
same in its own banking department or elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it
as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery
of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.
8
<PAGE>
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting of
shareholders, Trustees or committee, as the case may be, in person, shall be
deemed equivalent to the giving of such notice to such person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Location of Books and Records. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2. Record Date. The Trustees may fix in advance a date as the
record date for the purpose of determining Shareholders entitled to notice
of, or to vote at, any meeting of Shareholders, or Shareholders entitled to
receive payment of any dividend or the allotment of any rights, or in order
to make a determination of Shareholders for any other proper purpose. Such
date, in any case, shall be not more than ninety (90) days, and in case of a
meeting of Shareholders not less than ten (10) days, prior to the date on
which particular action requiring such determination of Shareholders is to be
taken. In lieu of fixing a record date the Trustees may provide that the
transfer books shall be closed for a stated period but not to exceed, in any
case, twenty (20) days. If the transfer books are closed for the purpose of
determining Shareholders entitled to notice of a vote at a meeting of
Shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting.
SECTION 11.3. Seal. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from
time to time provide. The seal of the Trust may be affixed to any document,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation under Massachusetts law.
SECTION 11.4. Fiscal Year. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. Orders for Payment of Money. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement
between the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
9
<PAGE>
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees;
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration, or these By-Laws, a vote of the Shareholders. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration, and any
apparent inconsistency shall be construed in favor of the related provisions
in the Declaration.
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Dean Witter Global Asset Allocation
Fund, dated October 18, 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 Global Asset Allocation Fund refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally;
and no Trustee, Shareholder, officer, employee or agent of Dean Witter Global
Asset Allocation Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any
obligation or claim or otherwise, in connection with the affairs of said Dean
Witter Global Asset Allocation Fund, but the Trust Estate only shall be
liable.
10
<PAGE>
SERVICES AGREEMENT
AGREEMENT made as of the 17th day of April, 1995 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a Delaware
corporation (herein referred to as "DWS").
WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement")
with certain investment companies as set forth on Schedule A (each such
investment company being herein referred to as a "Fund" and, collectively, as
the "Funds") pursuant to which InterCapital is to perform, or supervise the
performance of, among other services, administrative services for the Funds
(and, in the case of Funds with multiple portfolios, the Series or Portfolios
of the Funds (such Series and Portfolio being herein individually referred to
as "a Series" and, collectively, as "the Series"));
WHEREAS, InterCapital desires to retain DWS to perform the administrative
services as described below; and
WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:
Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DWS agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, DWS
shall (i) administer the Fund's business affairs and supervise the overall
day-to-day operations of the Fund (other than rendering investment advice);
(ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts
and other records required under the Investment Company Act of 1940, as
amended (the "Act"), the notification to the Fund and InterCapital of
available funds for investment, the reconciliation of account information and
balances among the Fund's custodian, transfer agent and dividend disbursing
agent and InterCapital, and the calculation of the net asset value of the
Fund's shares; (iii) provide the Fund with the services of persons competent
to perform such supervisory, administrative and clerical functions as are
necessary to provide effective operation of the Fund; (iv) oversee the
performance of administrative and professional services rendered to the Fund
by others, including its custodian, transfer agent and dividend disbursing
agent, as well as accounting, auditing and other services; (v) provide the
Fund with adequate general office space and facilities; (vi) assist in the
preparation and the printing of the periodic updating of the Fund's
registration statement and prospectus (and, in the case of an open-end Fund,
the statement of additional information), tax returns, proxy statements, and
reports to its shareholders and the Securities and Exchange Commission; and
(vii) monitor the compliance of the Fund's investment policies and
restrictions.
In the event that InterCapital enters into an Investment Management
Agreement with another investment company, and wishes to retain DWS to
perform administrative services hereunder, it shall notify DWS in writing. If
DWS is willing to render such services, it shall notify InterCapital in
writing, whereupon such other Fund shall become a Fund as defined herein.
2. DWS shall, at its own expense, maintain such staff and employ or retain
such personnel and consult with such other persons as it shall from time to
time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of DWS shall be deemed to include officers
of DWS and persons employed or otherwise retained by DWS (including officers
and employees of InterCapital, with the consent of InterCapital) to furnish
services, statistical and other factual data, information with respect to
technical and scientific developments, and such other information, advice and
assistance as DWS may desire. DWS shall maintain each Fund's records and
books of account (other than those maintained by the Fund's transfer agent,
registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, DWS
shall surrender to InterCapital or to the Fund such of the books and records
so requested.
3. InterCapital will, from time to time, furnish or otherwise make
available to DWS such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as DWS may
reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation
or request of the Board of Directors/Trustees of the Fund.
1
<PAGE>
4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or weekly (in the case of
a closed-end Fund) by applying the annual rate or rates set forth on Schedule
B to the net assets of each Fund. Except as hereinafter set forth, (i) in the
case of an open-end Fund, compensation under this Agreement shall be
calculated by applying 1/365th of the annual rate or rates to the Fund's or
the Series' daily net assets determined as of the close of business on that
day or the last previous business day and (ii) in the case of a closed-end
Fund, compensation under this Agreement shall be calculated by applying the
annual rate or rates to the Fund's average weekly net assets determined as of
the close of the last business day of each week. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before
the last day of a month, compensation for that part of the month this
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fees as set forth on Schedule B. Subject to the provisions
of paragraph 5 hereof, payment of DWS' compensation for the preceding month
shall be made as promptly as possible after completion of the computations
contemplated by paragraph 5 hereof.
5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to InterCapital pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof
imposed by state securities laws or regulations thereunder, as such
limitations may be raised or lowered from time to time, or, in the case of
InterCapital Income Securities Inc. or Dean Witter Variable Investment Series
or any Series thereof, the expense limitation specified in the Fund's
Investment Management Agreement, the fee payable hereunder shall be reduced
on a pro rata basis in the same proportion as the fee payable by the Fund
under the Investment Management Agreement is reduced.
6. DWS shall bear the cost of rendering the administrative services to be
performed by it under this Agreement, and shall, at its own expense, pay the
compensation of the officers and employees, if any, of the Fund employed by
DWS, and such clerical help and bookkeeping services as DWS shall reasonably
require in performing its duties hereunder.
7. DWS will use its best efforts in the performance of administrative
activitives on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, DWS shall not be liable to the Fund or any of its
investors for any error of judgment or mistake of law or for any act or
omission by DWS or for any losses sustained by the Fund or its investors. It
is understood that, subject to the terms and conditions of the Investment
Management Agreement between each Fund and InterCapital, InterCapital shall
retain ultimate responsibility for all services to be performed hereunder by
DWS. DWS shall indemnify InterCapital and hold it harmless from any liability
that InterCapital may incur arising out of any act or failure to act by DWS
in carrying out its responsibilities hereunder.
8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person
controlling, controlled by or under common control with DWS, and that DWS and
any person controlling, controlled by or under common control with DWS may
have an interest in the Fund. It is also understood that DWS and any
affiliated persons thereof or any persons controlling, controlled by or under
common control with DWS have and may have advisory, management,
administration service or other contracts with other organizations and
persons, and may have other interests and businesses, and further may
purchase, sell or trade any securities or commodities for their own accounts
or for the account of others for whom they may be acting.
9. This Agreement shall continue until April 30, 1995, and thereafter
shall continue automatically for successive periods of one year unless
terminated by either party by written notice delivered to the other party
within 30 days of the expiration of the then-existing period. Notwithstanding
the foregoing, this Agreement may be terminated at any time, by either party
on 30 days' written notice delivered to the other party. In the event that
the Investment Management Agreement between any Fund and InterCapital is
terminated, this Agreement will automatically terminate with respect to such
Fund.
10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.
2
<PAGE>
11. This Agreement may be assigned by either party with the written
consent of the other party.
12. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.
DEAN WITTER INTERCAPITAL INC.
By:
................................
Attest:
.................................
DEAN WITTER SERVICES COMPANY INC.
By:
.................................
Attest:
..................................
3
<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
AT APRIL 17, 1995
<TABLE>
<CAPTION>
<S> <C>
OPEN-END FUNDS
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter American Value Fund
6. Dean Witter Balanced Growth Fund
7. Dean Witter Balanced Income Fund
8. Dean Witter California Tax-Free Daily Income Trust
9. Dean Witter California Tax-Free Income Fund
10. Dean Witter Capital Growth Securities
11. Dean Witter Convertible Securities Trust
12. Dean Witter Developing Growth Securities Trust
13. Dean Witter Diversified Income Trust
14. Dean Witter Dividend Growth Securities Inc.
15. Dean Witter European Growth Fund Inc.
16. Dean Witter Federal Securities Trust
17. Dean Witter Global Asset Allocation Fund
18. Dean Witter Global Dividend Growth Securities
19. Dean Witter Global Short-Term Income Fund Inc.
20. Dean Witter Global Utilities Fund
21. Dean Witter Health Sciences Trust
22. Dean Witter High Income Securities
23. Dean Witter High Yield Securities Inc.
24. Dean Witter Intermediate Income Securities
25. Dean Witter International Small Cap Fund
26. Dean Witter Limited Term Municipal Trust
27. Dean Witter Liquid Asset Fund Inc.
28. Dean Witter Managed Assets Trust
29. Dean Witter Mid-Cap Growth Fund
30. Dean Witter Multi-State Municipal Series Trust
31. Dean Witter National Municipal Trust
32. Dean Witter Natural Resource Development Securities Inc.
33. Dean Witter New York Municipal Money Market Trust
34. Dean Witter New York Tax-Free Income Fund
35. Dean Witter Pacific Growth Fund Inc.
36. Dean Witter Precious Metals and Minerals Trust
37. Dean Witter Premier Income Trust
38. Dean Witter Retirement Series
39. Dean Witter Select Dimensions Series
40. Dean Witter Select Municipal Reinvestment Fund
41. Dean Witter Short-Term Bond Fund
42. Dean Witter Short-Term U.S. Treasury Trust
43. Dean Witter Strategist Fund
44. Dean Witter Tax-Exempt Securities Trust
45. Dean Witter Tax-Free Daily Income Trust
46. Dean Witter U.S. Government Money Market Trust
47. Dean Witter U.S. Government Securities Trust
48. Dean Witter Utilities Fund
49. Dean Witter Value-Added Market Series
50. Dean Witter Variable Investment Series
51. Dean Witter World Wide Income Trust
52. Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
53. High Income Advantage Trust
54. High Income Advantage Trust II
55. High Income Advantage Trust III
56. InterCapital Income Securities Inc.
57. Dean Witter Government Income Trust
58. InterCapital Insured Municipal Bond Trust
59. InterCapital Insured Municipal Trust
60. InterCapital Insured Municipal Income Trust
61. InterCapital California Insured Municipal Income Trust
62. InterCapital Insured Municipal Securities
63. InterCapital Insured California Municipal Securities
64. InterCapital Quality Municipal Investment Trust
65. InterCapital Quality Municipal Income Trust
66. InterCapital Quality Municipal Securities
67. InterCapital California Quality Municipal Securities
68. InterCapital New York Quality Municipal Securities
</TABLE>
4
<PAGE>
SCHEDULE B
DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES--APRIL 17, 1995
Monthly compensation calculated daily by applying the following annual
rates to a fund's net assets:
FIXED INCOME FUNDS
<TABLE>
<CAPTION>
<S> <C>
Dean Witter Balanced Income Fund 0.60% to the net assets.
Dean Witter California Tax-Free 0.055% of the portion of daily net assets
Income Fund not exceeding $500 million; 0.0525% of the
portion exceeding $500 million but not
exceeding $750 million; 0.050% of the
portion exceeding $750 million but not
exceeding $1 billion; and 0.0475% of the
portion of the daily net assets exceeding $1
billion.
Dean Witter Convertible 0.060% of the portion of the daily net
Securities assets not exceeding $750 million; .055% of
Securities Trust the portion of the daily net assets
exceeding $750 million but not exceeding $1
billion; 0.050% of the portion of the daily
net assets of the exceeding $1 billion but
not exceeding $1.5 billion; 0.0475% of the
portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion;
0.045% of the portion of the daily net
assets exceeding $2 billion but not
exceeding $3 billion; and 0.0425% of the
portion of the daily net assets exceeding $3
billion.
Dean Witter Diversified 0.040% of the net assets.
Income Trust
Dean Witter Federal Securities 0.055% of the portion of the daily net
Trust assets not exceeding $1 billion; 0.0525% of
the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5
billion; 0.050% of the portion of the daily
net assets exceeding $1.5 billion but not
exceeding $2 billion; 0.0475% of the portion
of the daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.045% of
the portion of daily net assets exceeding
$2.5 billion but not exceeding $5 billion;
0.0425% of the portion of the daily net
assets exceeding $5 billion but not
exceeding $7.5 billion; 0.040% of the
portion of the daily net assets exceeding
$7.5 billion but not exceeding $10 billion;
0.0375% of the portion of the daily net
assets exceeding $10 billion but not
exceeding $12.5 billion; and 0.035% of the
portion of the daily net assets exceeding
$12.5 billion.
Dean Witter Global Short-Term 0.055% of the portion of the daily net
Income Fund assets not exceeding $500 million; and
0.050% of the portion of the daily net
assets exceeding $500 million.
Dean Witter High Income 0.050% to the net assets.
Securities
Dean Witter High Yield 0.050% of the portion of the daily net
Securities Inc. assets not exceeding $500 million; 0.0425%
of the portion of the daily net assets
exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the
daily net assets exceeding $750 million but
not exceeding $1 billion; 0.035% of the
portion of
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
the daily net assets exceeding $1 billion
but not exceeding $2 billion; 0.0325% of the
portion of the daily net assets exceeding $2
billion but not exceeding $3 billion; and
0.030% of the portion of daily net assets
exceeding $3 billion.
Dean Witter Intermediate 0.060% of the portion of the daily net
Income Securities assets not exceeding $500 million; 0.050% of
the portion of the daily net assets
exceeding $500 million but not exceeding
$750 million; 0.040% of the portion of the
daily net assets exceeding $750 million but
not exceeding $1 billion; and 0.030% of the
portion of the daily net assets exceeding $1
billion.
Dean Witter Limited Term 0.050% to the net assets.
Municipal Trust
Dean Witter Multi-State Municipal 0.035% to the net assets.
Series Trust (10)
Dean Witter National 0.035% to the net assets.
Municipal Trust
Dean Witter New York Tax-Free 0.055% to the net assets not exceeding $500
Income Fund million and 0.0525% of the net assets
exceeding $500 million.
Dean Witter Premier 0.050% to the net assets.
Income Trust
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities
Trust
Dean Witter Select Dimensions 0.65% to the net assets.
Series-North American
Government
Securities Portfolio
Dean Witter Short-Term 0.070% to the net assets.
Bond Fund
Dean Witter Short-Term U.S. 0.035% to the net assets.
Treasury Trust
Dean Witter Tax-Exempt 0.050% of the portion of the daily net
Securities Trust assets not exceeding $500 million; 0.0425%
of the portion of the daily net assets
exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the
daily net assets exceeding $750 million but
not exceeding $1 billion; and 0.035% of the
portion of the daily net assets exceeding $1
billion but not exceeding $1.25 billion;
.0325% of the portion of the daily net
assets exceeding $1.25 billion.
Dean Witter U.S. Government 0.050% of the portion of such daily net
Securities Trust assets not exceeding $1 billion; 0.0475% of
the portion of such daily net assets
exceeding $1 billion but not exceeding $1.5
billion; 0.045% of the portion of such daily
net assets exceeding $1.5 billion but not
exceeding $2 billion; 0.0425% of the portion
of such daily net assets exceeding $2
billion but not exceeding $2.5 billion;
0.040% of that portion of such daily net
assets exceeding $2.5 billion but not
exceeding $5 billion; 0.0375% of that
portion
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
of such daily net assets exceeding $5
billion but not exceeding $7.5 billion;
0.035% of that portion of such daily net
assets exceeding $7.5 billion but not
exceeding $10 billion; 0.0325% of that
portion of such daily net assets exceeding
$10 billion but not exceeding $12.5 billion;
and 0.030% of that portion of such daily net
assets exceeding $12.5 billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-High Yield
Dean Witter Variable Investment
Series-Quality Income
0.050% to the net assets.
Dean Witter World Wide Income 0.075% of the daily net assets up to $250
Trust million; 0.060% of the portion of the daily
net assets exceeding $250 million but not
exceeding $500 million; 0.050% of the
portion of the daily net assets of the
exceeding $500 million but not exceeding
$750 milliion; 0.040% of the portion of the
daily net assets exceeding $750 million but
not exceeding $1 billion; and 0.030% of the
daily net assets exceeding $1 billion.
Dean Witter Select Municipal 0.050% to the net assets.
Reinvestment Fund
EQUITY FUNDS
Dean Witter American Value 0.0625% of the portion of the daily net
Fund assets not exceeding $250 million and 0.050%
of the portion of the daily net assets
exceeding $250 million.
Dean Witter Balanced Growth Fund
0.60% to the net assets.
Dean Witter Capital Growth 0.065% to the portion of daily net assets
Securities not exceeding $500 million; 0.055% of the
portion exceeding $500 million but not
exceeding $1 billion; 0.050% of the portion
exceeding $1 billion but not exceeding $1.5
billion; and 0.0475% of the net assets
exceeding $1.5 billion.
Dean Witter Developing Growth 0.050 of the portion of daily net assets not
Securities Trust exceeding $500 million; and 0.0475% of the
portion of daily net assets exceeding $500
million.
Dean Witter Dividend Growth 0.0625% of the portion of the daily net
Securities Inc. assets not exceeding $250 million; 0.050% of
the portion exceeding $250 million but not
exceeding $1 billion; 0.0475% of the portion
of daily net assets exceeding $1 billion but
not exceeding $2 billion; 0.045% of the
portion of daily net assets exceeding $2
billion but not exceeding $3 billion;
0.0425% of the portion of daily net assets
exceeding $3 billion but not exceeding $4
billion; 0.040% of the portion of daily net
assets exceeding $4 billion but not
exceeding $5 billion; 0.0375% of the portion
of the daily net assets exceeding $5 billion
but not exceeding $6 billion; 0.035% of the
portion of the daily net assets exceeding $6
billion but not exceeding $8 billion; and
0.0325% of the portion of the daily net
assets exceeding $8 billion.
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dean Witter European Growth 0.060% of the portion of daily net assets
Fund Inc. not exceeding $500 million; and 0.057% of
the portion of daily net assets exceeding
$500 million.
Dean Witter Global Asset 1.0% to the net assets.
Allocation Fund
Dean Witter Global Dividend 0.075% to the net assets.
Growth Securities
Dean Witter Global Utilities Fund 0.065% to the net assets.
Dean Witter Health Sciences Trust 0.10% to the net assets.
Dean Witter International 0.075% to the net assets.
Small Cap Fund
Dean Witter Managed Assets Trust 0.060% to the daily net assets not exceeding
$500 million and 0.055% to the daily net
assets exceeding $500 million.
Dean Witter Mid-Cap Growth Fund 0.75% to the net assets.
Dean Witter Natural Resource 0.0625% of the portion of the daily net
Development Securities Inc. assets not exceeding $250 million and 0.050%
of the portion of the daily net assets
exceeding $250 million.
Dean Witter Pacific Growth 0.060% of the portion of daily net assets
Fund Inc. not exceeding $1 billion; and 0.057% of the
portion of daily net assets exceeding $1
billion.
Dean Witter Precious Metals 0.080% to the net assets.
and Minerals Trust
Dean Witter Retirement Series 0.085% to the net assets.
American Value
Dean Witter Retirement Series 0.085% to the net assets.
Capital Growth
Dean Witter Retirement Series 0.075% to the net assets.
Dividend Growth
Dean Witter Retirement Series 0.10% to the net assets.
Global Equity
Dean Witter Retirement Series 0.065% to the net assets.
Intermediate Income Securities
Dean Witter Retirement Series 0.050% to the net assets.
Liquid Asset
Dean Witter Retirement Series 0.085% to the net assets.
Strategist
Dean Witter Retirement Series 0.050% to the net assets.
U.S. Government Money Market
Dean Witter Retirement Series 0.065% to the net assets.
U.S. Government Securities
Dean Witter Retirement Series 0.075% to the net assets.
Utilities
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dean Witter Retirement Series 0.050% to the net assets.
Value Added
Dean Witter Select Dimensions
Series-
American Value Portfolio 0.625% to the net assets.
Balanced Portfolio 0.75% to the net assets.
Core Equity Portfolio 0.85% to the net assets.
Developing Growth Portfolio 0.50% to the net assets.
Diversified Income Portfolio 0.40% to the net assets.
Dividend Growth Portfolio 0.625% to the net assets.
Emerging Markets Portfolio 1.25% to the net assets.
Global Equity Portfolio 1.0% to the net assets.
Utilities Portfolio 0.65% to the net assets.
Value-Added Market Portfolio 0.50% to the net assets.
Dean Witter Strategist Fund 0.060% of the portion of daily net assets
not exceeding $500 million; 0.055% of the
portion of the daily net assets exceeding
$500 million but not exceeding $1 billion;
and 0.050% of the portion of the daily net
assets exceeding $1 billion.
Dean Witter Utilities Fund 0.065% of the portion of daily net assets
not exceeding $500 million; 0.055% of the
portion exceeding $500 million but not
exceeding $1 billion; 0.0525% of the portion
exceeding $1 billion but not exceeding $1.5
billion; 0.050% of the portion exceeding
$1.5 billion but not exceeding $2.5 billion;
0.0475% of the portion exceeding $2.5
billion but not exceeding $3.5 billion;
0.045% of the portion of the daily net
assets exceeding $3.5 but not exceeding $5
billion; and 0.0425% of the portion of daily
net assets exceeding $5 billion.
Dean Witter Value-Added Market 0.050% of the portion of daily net assets
Series not exceeding $500 million; and 0.45% of the
portion of daily net assets exceeding $500
million.
Dean Witter Variable Investment 0.065% to the net assets.
Series-Capital Growth
Dean Witter Variable Investment 0.0625% of the portion of daily net assets
Series-Dividend Growth not exceeding $500 million; and 0.050% of
the portion of daily net assets exceeding
$500 million.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Equity
Dean Witter Variable Investment 0.060% to the net assets.
Series-European Growth
Dean Witter Variable Investment 0.050% to the net assets.
Series-Managed
Dean Witter Variable Investment 0.065% of the portion of daily net assets
Series-Utilities exceeding $500 million and 0.055% of the
portion of daily net assets exceeding $500
million.
Dean Witter World Wide 0.055% of the portion of daily net assets
Investment Trust not exceeding $500 million; and 0.05225% of
the portion of daily net assets exceeding
$500 million.
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MONEY MARKET FUNDS
Active Assets Account (4) 0.050% of the portion of the daily net
assets not exceeding $500 million; 0.0425%
of the portion of the daily net assets
exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the
daily net assets exceeding $750 million but
not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1
billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net
assets exceeding $1.5 billion but not
exceeding $2 billion; 0.030% of the portion
of the daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275% of
the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3
billion; and 0.025% of the portion of the
daily net assets exceeding $3 billion.
Dean Witter California Tax-Free 0.050% of the portion of the daily net
Daily Income Trust assets not exceeding $500 million; 0.0425%
of the portion of the daily net assets
exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the
daily net assets exceeding $750 million but
not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1
billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net
assets exceeding $1.5 billion but not
exceeding $2 billion; 0.030% of the portion
of the daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275% of
the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3
billion; and 0.025% of the portion of the
daily net assets exceeding $3 billion.
Dean Witter Liquid Asset 0.050% of the portion of the daily net
Fund Inc. assets not exceeding $500 million; 0.0425%
of the portion of the daily net assets
exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the
daily net assets exceeding $750 million but
not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1
billion but not exceeding $1.35 billion;
0.0325% of the portion of the daily net
assets exceeding $1.35 billion but not
exceeding $1.75 billion; 0.030% of the
portion of the daily net assets exceeding
$1.75 billion but not exceeding $2.15
billion; 0.0275% of the portion of the daily
net assets exceeding $2.15 billion but not
exceeding $2.5 billion; 0.025% of the
portion of the daily net assets exceeding
$2.5 billion but not exceeding $15 billion;
0.0249% of the portion of the daily net
assets exceeding $15 billion but not
exceeding $17.5 billion; and 0.0248% of the
portion of the daily net assets exceeding
$17.5 billion.
Dean Witter New York Municipal 0.050% of the portion of the daily net
Money Market Trust assets not exceeding $500 million; 0.0425%
of the portion of the daily net assets
exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the
daily net assets exceeding $750 million but
not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1
billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net
assets exceeding $1.5 billion but not
exceeding $2 billion; 0.030% of the portion
of the daily net assets exceeding $2 bil-
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
lion but not exceeding $2.5 billion; 0.0275%
of the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3
billion; and 0.025% of the portion of the
daily net assets exceeding $3 billion.
Dean Witter Retirement Series 0.050% of the net assets.
Liquid Assets
Dean Witter Retirement Series 0.050% of the net assets.
U.S. Government Money Market
Dean Witter Select Dimensions 0.50% to the net assets.
Series-Money Market Portfolio
Dean Witter Tax-Free Daily 0.050% of the portion of the daily net
Income Trust assets not exceeding $500 million; 0.0425%
of the portion of the daily net assets
exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the
daily net assets exceeding $750 million but
not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1
billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net
assets exceeding $1.5 billion but not
exceeding $2 billion; 0.030% of the portion
of the daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275% of
the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3
billion; and 0.025% of the portion of the
daily net assets exceeding $3 billion.
Dean Witter U.S. Government 0.050% of the portion of the daily net
Money Market Trust assets not exceeding $500 million; 0.0425%
of the portion of the daily net assets
exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the
daily net assets exceeding $750 million but
not exceeding $1 billion; 0.035% of the
portion of the daily net assets exceeding $1
billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net
assets exceeding $1.5 billion but not
exceeding $2 billion; 0.030% of the portion
of the daily net assets exceeding $2 billion
but not exceeding $2.5 billion; 0.0275% of
the portion of the daily net assets
exceeding $2.5 billion but not exceeding $3
billion; and 0.025% of the portion of the
daily net assets exceeding $3 billion.
Dean Witter Variable Investment 0.050% to the net assets.
Series-Money Market
Monthly compensation calculated weekly by applying the following annual rates
to the weekly net assets.
CLOSED-END FUNDS
Dean Witter Government Income 0.060% to the average weekly net assets.
Trust
High Income Advantage Trust 0.075% of the portion of the average weekly
net assets not exceeding $250 million;
0.060% of the portion of average weekly net
assets exceeding $250 million and not
exceeding $500 million; 0.050% of the
portion of average weekly net assets
exceeding $500 million and not exceeding
$750 million; 0.040% of the portion of
average weekly net assets exceeding
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
$750 million and not exceeding $1 billion;
and 0.030% of the portion of average weekly
net assets exceeding $1 billion.
High Income Advantage Trust II 0.075% of the portion of the average weekly
net assets not exceeding $250 million;
0.060% of the portion of average weekly net
assets exceeding $250 million and not
exceeding $500 million; 0.050% of the
portion of average weekly net assets
exceeding $500 million and not exceeding
$750 million; 0.040% of the portion of
average weekly net assets exceeding $750
million and not exceeding $1 billion; and
0.030% of the portion of average weekly net
assets exceeding $1 billion.
High Income Advantage Trust III 0.075% of the portion of the average weekly
net assets not exceeding $250 million;
0.060% of the portion of average weekly net
assets exceeding $250 million and not
exceeding $500 million; 0.050% of the
portion of average weekly net assets
exceeding $500 million and not exceeding
$750 million; 0.040% of the portion of the
average weekly net assets exceeding $750
million and not exceeding $1 billion; and
0.030% of the portion of average weekly net
assets exceeding $1 billion.
InterCapital Income Securities 0.050% to the average weekly net assets.
Inc.
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Bond Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Trust
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital California Insured 0.035% to the average weekly net assets.
Municipal Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Investment Trust
InterCapital New York Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Income Trust
InterCapital Quality Municipal 0.035% to the average weekly net assets.
Securities
InterCapital California Quality 0.035% to the average weekly net assets.
Municipal Securities
InterCapital Insured Municipal 0.035% to the average weekly net assets.
Securities
InterCapital Insured California 0.035% to the average weekly net assets.
Municipal Securities
</TABLE>
B-8
[INSERT EXHIBIT DOCUMENT HERE]
SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
DEAN WITTER GLOBAL ASSET ALLOCATION FUND
(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
<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL CUMULATIVE
INVESTED - P 31-May-95 YEARS - n COMPOUND RETURN - T TOTAL RETURN
- ------------ ----------- ----------- -------------------- -----------------
<S> <C> <C> <C> <C>
28-Feb-95 $1,025.00 0.25 N/A 2.50%
</TABLE>
(B) CUMULATIVE TOTAL RETURNS (STANDARIZED COMPUTATIONS) WITHOUT WAIVER OF
FEES AND ASSUMPTION OF EXPENSES.
<TABLE>
<CAPTION>
(B)
$1,000 EVb AS OF NUMBER OF CUMULATIVE
INVESTED - P 31-May-95 YEARS - n TOTAL RETURN
- ------------- ----------- ----------- ----------------
<S> <C> <C> <C>
28-Feb-95 $1,020.00 0.25 2.00%
</TABLE>
(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 31-May-95 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------- ----------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C>
28-Feb-95 $1,075.00 7.50% 0.25 N/A
</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>
28-Feb-95 7.50 $10,750 $53,750 $107,500
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 23,464,467
<INVESTMENTS-AT-VALUE> 25,047,078
<RECEIVABLES> 945,815
<ASSETS-OTHER> 201,946
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,194,839
<PAYABLE-FOR-SECURITIES> 701,459
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 318,312
<TOTAL-LIABILITIES> 1,019,771
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,667,566
<SHARES-COMMON-STOCK> 2,343,194
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 175,212
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (238,052)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,570,342
<NET-ASSETS> 25,175,068
<DIVIDEND-INCOME> 77,087
<INTEREST-INCOME> 149,179
<OTHER-INCOME> 0
<EXPENSES-NET> 51,054
<NET-INVESTMENT-INCOME> 175,212
<REALIZED-GAINS-CURRENT> (238,052)
<APPREC-INCREASE-CURRENT> 1,570,342
<NET-CHANGE-FROM-OPS> 1,507,502
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,429,375
<NUMBER-OF-SHARES-REDEEMED> (96,181)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25,075,068
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52,246
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 215,099
<AVERAGE-NET-ASSETS> 20,505,031
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> .67
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.74
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
