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Filed Pursuant to Rule 497(e)
Registration File No.: 33-58175
DEAN WITTER
HAWAII MUNICIPAL TRUST
PROSPECTUS --JANUARY 31, 1997
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Dean Witter Hawaii Municipal Trust (the "Fund") is an open-end,
non-diversified management investment company, whose investment objective is
to provide a high level of current income exempt from both federal and State
of Hawaii income taxes, consistent with the preservation of capital. The Fund
seeks to achieve its investment objective by investing principally in
tax-exempt, investment grade municipal obligations of issuers in the State of
Hawaii and in U.S. governmental territories and possessions. (See "Investment
Objective and Policies.")
Shares of the Fund are offered at net asset value plus a sales charge of 3.0%
of the offering price, scaled down on purchases of $100,000 or more. In
addition, pursuant to a Rule 12b-1 Plan of Distribution under the Investment
Company Act of 1940, the Fund may reimburse the Distributor, in an amount
equal to payments not exceeding the annual rate of 0.20 of 1% of the average
daily net assets of the Fund, for specific expenses incurred in promoting the
distribution of the Fund's shares.
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated January 31, 1997, 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.
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
Financial Highlights .................................................. 4
The Fund and its Management ........................................... 5
Investment Objective and Policies ..................................... 5
Risk Considerations and
Investment Practices ................................................ 8
Investment Restrictions ............................................... 10
Purchase of Fund Shares ............................................... 10
Shareholder Services .................................................. 12
Redemptions and Repurchases ........................................... 14
Dividends, Distributions and Taxes .................................... 15
Performance Information ............................................... 16
Additional Information ................................................ 17
Appendix .............................................................. 18
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.
DEAN WITTER
HAWAII MUNICIPAL TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR
(800) 869-NEWS (TOLL FREE)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Dean Witter Distributors Inc., Distributor
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PROSPECTUS SUMMARY
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The Fund The Fund is organized as a Trust, commonly known as a Massachusetts
business trust, and is an open-end, non-diversified management investment
company investing principally in tax-exempt, investment grade municipal
obligations of issuers in the State of Hawaii and in U.S. governmental
territories and possessions (see page 4).
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Shares Offered Shares of beneficial interest with $0.01 par value (see page 17).
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Offering Price The price of the shares offered by this prospectus varies with the changes
in the value of the Fund's investments. The offering price, determined once
daily as of 4:00 p.m., New York time, on each day that the New York Stock
Exchange is open, is equal to the net asset value plus a sales charge of
3.0% of the offering price, scaled down on purchases of $100,000 or over
(see pages 10-11).
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Minimum Minimum initial purchase is $1,000; minimum subsequent purchase is $100
Purchase (see page 10).
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Investment The investment objective of the Fund is to provide a high level of current
Objective income exempt from both federal and State of Hawaii income taxes,
consistent with the preservation of capital (see page 5).
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of
Manager the Fund, and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 101 investment companies and other portfolios
with assets of approximately $90 billion at December 31, 1996 (see page 5).
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Management The Investment Manager receives a monthly fee at the annual rate of 0.35% of
Fee average daily net assets of the Fund (see page 5).
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Dividends and Income dividends are declared daily and paid monthly; capital gains, if
Capital Gains any, may be distributed annually or retained for reinvestment by the Fund.
Distributions Dividends and distributions are automatically reinvested in additional
shares at net asset value (without sales charge), unless the shareholder
elects to receive cash (see page 15).
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Plan of The Fund is authorized to reimburse Dean Witter Distributors Inc. (the
Distribution "Distributor") for specific expenses incurred in promoting the distribution
of the Fund's shares pursuant to a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940. Reimbursement may in no
event exceed an amount equal to payments at the annual rate of 0.20 of 1%
of average daily net assets. (see page 11).
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Sales Charge 3.0% of offering price (3.09% of amount invested); reduced charges on
purchases of $100,000 or more (see pages 10-11).
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Redemption Shares redeemable by the shareholder at net asset value. An account may be
involuntarily redeemed if shares owned have a net asset value of less than
$100 or, if the account was opened through EasyInvest (Service Mark), if
after twelve months the shareholder has invested less than $1,000 in the
account (see pages 14-15).
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Risks The value of the Fund's portfolio securities, and therefore the Fund's net
asset value per share, may increase or decrease due to various factors,
principally changes in prevailing interest rates and the ability of the
issuers of the Fund's portfolio securities to pay interest and principal on
such obligations. Additionally, because the Fund is a non-diversified
investment company, a relatively high percentage of the Fund's assets may
be invested in a limited number of issuers within the State of Hawaii,
thereby causing a greater fluctuation of the Fund's net asset value as a
result of changes in the financial condition or in the market's assessment
of the various issuers. Also, since the Fund concentrates its investments
in tax-exempt securities of municipal issuers in the State of Hawaii, the
Fund will be affected by any political, economic or regulatory developments
affecting the ability of the issuers in the State to pay interest or repay
principal. During periods of significant economic slowdowns, the securities
of certain municipal issuers in the State may be subject to a greater
degree of credit risk in which the ratings of such securities have been or
may be downgraded or placed on a credit watch, thereby affecting their
market value (see page 6 and the Appendix). The Fund may purchase
when-issued and delayed delivery securities (see page 8). The Fund may also
invest in futures and options, which may be considered speculative in
nature and which may involve greater risks than those customarily assumed
by certain other investment companies which do not invest in such
instruments (see pages 8-9). Certain of the tax-exempt securities in which
the Fund may invest without limit may subject certain investors to the
federal and any State of Hawaii alternative minimum tax.
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</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in the Prospectus
and in the Statement of Additional Information.
2
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended November 30, 1996.
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<CAPTION>
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases ................................ 3.0%
(as a percentage of offering price)
Maximum Sales Charge Imposed on Reinvested Dividends ..................... None
Deferred Sales ........................................................... None
Redemption Fees .......................................................... None
Exchange Fee ............................................................. None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee* .......................................................... 0.00%
12-1 Fee** ............................................................... 0.19%
Other Expenses ........................................................... 0.00%
Total Fund Operating Expenses* ........................................... 0.19%
</TABLE>
"Management Fees" (after fee waiver), "12b-1 fees" and "Other Expenses"
(after expense assumptions) as shown above are based upon estimated amounts of
management fees, 12b-1 fees and other expenses of the Fund for the fiscal year
ending November 30, 1996.
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* The Investment Manager had undertaken to assume all expenses (except for
any brokerage and 12b-1 fees) and to waive the compensation provided for
in its Management Agreement from the date of commencement of the Fund's
operations until December 31, 1996. The Investment Manager has
undertaken to continue to assume all expenses (except for brokerage and
12b-1 fees) and to waive the compensation provided for in its Management
Agreement until June 30, 1997. "Total Fund Operating Expenses," as shown
above, is based upon the sum of the 12b-1 Fee, Management Fee and
estimated "Other Expenses," which may be incurred by the Fund. For the
fiscal period ended November 30, 1996, the Fund's total operating
expenses, consisting only of 12b-1 fees, amounted to 0.19% of the Fund's
daily net assets.
** The 12b-1 fee is characterized as a service fee within the meaning of
National Association of Securities Dealers, Inc. ("NASD") guidelines
(see "Purchase of Fund Shares").
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EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period: $32 $36 $40 $54
</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.
It is estimated that Total Fund Operating Expenses for the Fund for the
fiscal year ending November 30, 1996, assuming no waiver of management fees or
assumption of expenses would have been:
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Management Fees ............... 0.35%
12b-1 Fees .................... 0.19%
Other Expenses ................ 2.15%
Total Fund Operating Expenses 2.69%
</TABLE>
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management" and "Purchase of Fund Shares." There are reduced
sales charges on purchases of $100,000 or more (see "Purchase of Fund
Shares").
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
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements, notes thereto and the unqualified
report of independent accountants which are contained in the Statement of
Additional Information. Further information about the performance of the Fund
is contained in the Fund's Annual Report to Shareholders, which may be
obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JUNE 16, 1995*
ENDED THROUGH
NOVEMBER 30, 1996 NOVEMBER 30, 1995
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PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........................... $ 9.91 $ 9.70
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Net investment income .......................................... 0.50 0.19
Net realized and unrealized gain ............................... 0.04 0.21
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Total from investment operations ............................... 0.54 0.40
Less dividends from net investment income ...................... (0.50) (0.19)
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Net asset value, end of period ................................. $ 9.95 $ 9.91
================= =================
TOTAL INVESTMENT RETURN+ ...................................... 5.64% 4.21%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses before expense offset and after amounts waived/assumed 0.19%(4) 0.20%(2)(3)
Net investment income .......................................... 5.09%(4) 4.69%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........................ $3,225 $ 1,510
Portfolio turnover rate ........................................ 51% 14%(1)
</TABLE>
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* Commencement of operations.
+ Does not reflect the deduction of sales load. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Investment Manager had not assumed expenses and waived the
management fee, the expense and net investment income ratios, after
application of the Fund's state expense limitation, would have been
2.70% and 2.19%, respectively, which reflect the effect of expense
offsets of 0.10%.
(4) If the Investment Manager had not assumed expenses and waived the
management fee, the expense and net investment income ratios, after
application of the Fund's state expense limitation, would have been
2.69% and 2.59%, respectively, which reflect the effect of expense
offsets of 0.03%.
4
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THE FUND AND ITS MANAGEMENT
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Dean Witter Hawaii Municipal Trust (the "Fund") is an open-end,
non-diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of the Commonwealth of Massachusetts on March 14, 1995.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the
Fund's Investment Manager. The Investment Manager, which was incorporated in
July, 1992, is a wholly-owned subsidiary of Dean Witter, Discover & Co.
("DWDC"), a balanced financial services organization providing a broad range
of nationally marketed credit and investment products.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to a total of 101 investment companies, thirty of
which are listed on the New York Stock Exchange, with combined total net
assets of approximately $86.9 billion as of December 31, 1996. The Investment
Manager also manages portfolios of pension plans, other institutions and
individuals which aggregated approximately $3.1 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general
investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory
manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily at an annual rate
of 0.35% of the daily net assets of the Fund.
The Fund's expenses include: the fee of the Investment Manager; 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 had undertaken to assume all expenses
(except for brokerage and 12b-1 fees) and waive the compensation provided for
in its Investment Management Agreement from the date of commencement of the
Fund's operations until December 31, 1996. The Investment Manager has
undertaken to continue to assume all expenses (except for brokerage and 12b-1
fees) and to waive the compensation provided from its Management Agreement
until June 30, 1997.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide a high level of current
income exempt from both federal and State of Hawaii income taxes consistent
with preservation of capital. This investment objective may not be changed
without the approval of the holders of a majority of the shares of the Fund.
There is no assurance that the Fund's investment objective will be achieved.
The Fund seeks to achieve its investment objective by investing, under
normal circumstances, at least 80% of its total assets in tax-exempt,
investment grade securities the interest on which is exempt from both federal
and State of Hawaii income taxes. The Fund's assets will be principally
invested in investment grade municipal obligations of issuers in the State of
Hawaii and in U.S. governmental entities and territories such as Puerto Rico,
Guam, Northern Mariana Islands and the Virgin Islands, the interest on which
is exempt from both federal and State of Hawaii income taxes. Tax-exempt
Municipal Obligations primarily consist of Municipal Bonds, Municipal Notes
and Municipal Commercial Paper.
The Fund may only invest in (a) Municipal Bonds which are rated at the time
of purchase within the four highest grades by either Moody's Investors Service
Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"); (b) Municipal Notes
which at the time of purchase are rated in the two highest grades by either
Moody's or S&P, or, if not rated, have outstanding one or more issues of
Municipal Bonds rated as set forth in clause (a) above; (c) Municipal
Commercial Paper which at the time of purchase is rated P-1 by Moody's or A-1
by S&P; and (d) unrated securities which at the time of purchase are judged by
the Investment Manager to be of comparable quality to the securities described
in this paragraph. A
5
<PAGE>
description of the ratings referred to above is contained in the Appendix to
the Statement of Additional Information.
Certain of the tax-exempt securities in which the Fund may invest without
limit may subject certain investors to the federal alternative minimum tax or
any applicable state alternative minimum tax and, therefore, a substantial
portion of the income produced by the Fund may be taxable to such investors
under any federal or any applicable state alternative minimum tax. The Fund,
therefore, may not be a suitable investment for investors who are subject to
the alternative minimum tax. The suitability of the Fund for these investors
will depend upon a comparison of the after-tax yield likely to be provided
from the Fund to comparable tax-exempt investments not subject to such tax and
also to comparable fully taxable investments in light of each investor's tax
position. See "Dividends, Distributions and Taxes."
Up to 20% of the total assets of the Fund may be invested in taxable money
market instruments, tax-exempt securities of other states and municipalities
and options and futures. With respect to tax-exempt securities of other
states, only investment grade securities which satisfy the standards
enumerated above for Municipal Bonds, Notes and Paper, will be purchased. The
Fund may invest more than 20% of its total assets in taxable money market
instruments and the tax-exempt securities of other states and municipalities
in order to maintain a temporary "defensive" position, when, in the opinion of
the Investment Manager, prevailing market or financial conditions (including
unavailability of securities of requisite quality) so warrant. With respect to
the purchase of tax-exempt securities of other states for defensive purposes,
only the highest grade Municipal Bonds, Notes and Paper, will be purchased.
The types of taxable money market instruments in which the Fund may invest are
limited to the following short-term fixed income securities (maturing in one
year or less from the time of purchase): (i) obligations of the United States
Government, its agencies, instrumentalities or authorities (including zero
coupon securities); (ii) commercial paper rated P-1 by Moody's or A-1 by S&P;
(iii) certificates of deposit of domestic banks with assets of $1 billion or
more; and (iv) repurchase agreements with respect to any of the securities in
which the Fund may invest.
Municipal Bonds and Municipal Notes are debt obligations of a state, and
its agencies and municipalities which generally have maturities, at the time
of their issuance, of either one year or more (Bonds) or from six months to
three years (Notes). Municipal Commercial Paper refers to short-term
obligations of municipalities which may be issued at a discount and are
sometimes referred to as Short-Term Discount Notes. Any Municipal Bond or
Municipal Note which depends directly or indirectly on the credit of the
Federal Government, its agencies or instrumentalities shall be considered to
have a Moody's rating of Aaa. An obligation shall be considered a Municipal
Bond, Municipal Note or Municipal Commercial Paper only if, in the opinion of
bond counsel to the issuer at the time of issuance, the interest payable
therefrom is exempt from both regular federal income tax and the regular
personal income tax of a designated State. The Fund may also purchase
Municipal Obligations which had originally been issued by the same issuer as
two separate series of the same issue with different interest rates, but which
are now linked together to form one series.
The foregoing percentage and rating limitations apply at the time of
acquisition of a security based on the last previous determination of the
Fund's net asset value. Any subsequent change in any rating by a rating
service or change in percentages resulting from market fluctuations or other
changes in total assets of the Fund will not require elimination of any
security from the Fund's portfolio. Therefore, the Fund may hold securities
which have been downgraded to ratings of Ba or BB or lower by Moody's or S&P.
However such investments may not exceed 5% of the Fund's net assets. Any
investments which exceed this limitation will be eliminated from the portfolio
within a reasonable period of time (such time as the Investment Manager
determines that it is practicable to sell the investment without undue market
or tax consequences to the Fund). Municipal Obligations rated below investment
grade by Moody's or S&P are considered to be speculative investments, some of
which may not be currently paying any interest and may have extremely poor
prospects of ever attaining any real investment standing.
Investments in Municipal Bonds rated either BBB by S&P or Baa by Moody's
(investment grade bonds--the lowest rated permissible investments by the Fund)
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.
The ratings assigned by Moody's and S&P represent their opinions as to the
quality of the securities which they undertake to rate (see the Appendix to
the Statement of Additional Information). It should be emphasized, however,
that the ratings are general and not absolute standards of quality.
There are no restrictions on the maturities of most of the tax-exempt
securities that may be purchased by the Fund and therefore the average
portfolio maturity of the Fund is not subject to any limit. As a general
matter, the longer the average portfolio maturity, the greater will be
6
<PAGE>
the impact of fluctuations in interest rates on the value of the Fund's
portfolio securities and the Fund's net asset value per share.
The Fund is classified as a non-diversified investment company under the
Investment Company Act of 1940 ("the Act") and as such is not limited by the
Act in the proportion of its assets that it may invest in the obligations of a
single issuer. However, the Fund intends to conduct its operations so as to
qualify as a "regulated investment company" under Subchapter M of the Internal
Revenue Code (the "Code"). See "Dividends, Distributions and Taxes." In order
to qualify, among other requirements, the Fund will limit its investments so
that at the close of each quarter of the taxable year, (i) not more than 25%
of the market value of the total assets of the Fund will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market
value of its total assets not more than 5% of the value of its total assets
will be invested in the securities of a single issuer, and the Fund will not
own more than 10% of the outstanding voting securities of a single issuer.
(Since the types of securities ordinarily purchased by the Fund are nonvoting
securities, there is generally no limit on the percentage of an issuer's
obligations that the Fund may own.) To the extent that these requirements
permit a relatively high percentage of the Fund's assets to be invested in the
obligations of a limited number of issuers within the State of Hawaii, the
value of the Fund's portfolio securities will be more susceptible to any
single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company. Additionally, the Fund's net
asset value will fluctuate to a greater extent than that of a diversified
investment company as a result of changes in the financial condition or in the
market's assessment of the various issuers. The tax limitations described in
this paragraph are not fundamental policies and may be revised to the extent
applicable Federal income tax requirements are revised.
The Fund may invest more than 25% of the total assets in Municipal
Obligations known as private activity bonds. Such Obligations include health
facility obligations, housing obligations, industrial revenue obligations
(including pollution control obligations), electric utility obligations and
water and sewer obligations, provided that the percentage of the Fund's total
assets in private activity bonds in any one category does not exceed 25% of
the total assets of the Fund. The ability of issuers of such obligations to
make timely payments of principal and interest will be affected by events and
conditions affecting these projects such as cyclicality of revenues and
earnings, regulatory and environmental restrictions and economic downturns,
which may result generally in a lowered need for such facilities and a lowered
ability of such users to pay for the use of such facilities. The Fund may
purchase Municipal Obligations which had originally been issued by the same
issuer as two separate series of the same issue with different interest rates,
but which are now linked together to form one series.
The two principal classifications of Municipal Obligations are "general
obligation" and "revenue" bonds, notes or commercial paper. General obligation
bonds, notes or commercial paper are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Issuers of general obligation bonds, notes or commercial paper include a
state, its counties, cities, towns and other governmental units. Revenue
bonds, notes or commercial paper are payable from the revenues derived from a
particular facility or class of facilities or, in some cases, from specific
revenue sources. Revenue bonds, notes or commercial paper are issued for a
wide variety of purposes, including the financing of electric, gas, water and
sewer systems and other public utilities; industrial development and pollution
control facilities; single and multi-family housing units; public buildings
and facilities; air and marine ports, transportation facilities such as toll
roads, bridges and tunnels; and health and educational facilities such as
hospitals and dormitories. They rely primarily on user fees to pay debt
service, although the principal revenue source is often supplemented by
additional security features which are intended to enhance the
creditworthiness of the issuer's obligations.
Included within the revenue bonds category are participations in lease
obligations or installment purchase contracts (hereinafter collectively called
"lease obligations") of municipalities. State and local agencies or
authorities issue lease obligations to acquire equipment and facilities.
Lease obligations may have risks not normally associated with general
obligation or other revenue bonds. Leases, and installment purchase or
conditional sale contracts (which may provide for title to the leased asset to
pass eventually to the issuer), have developed as a means for governmental
issuers to acquire property and equipment without the necessity of complying
with the constitutional and statutory requirements generally applicable for
the issuance of debt. Certain lease obligations contain "non-appropriation"
clauses that provide that the governmental issuer has no obligation to make
future payments under the lease or contract unless money is appropriated for
such purpose by the appropriate legislative body on an annual or other
periodic basis. Consequently, continued lease payments on those lease
obligations containing "non-appropriation" clauses are dependent on future
legislative actions. If such legislative actions do not occur, the holders of
the lease obligation may experience difficulty in exercising their rights,
including disposition of the property.
7
<PAGE>
In addition, lease obligations represent a relatively new type of financing
that has not yet developed the depth of marketability associated with more
conventional municipal obligations, and, as a result, certain of such lease
obligations may be considered illiquid securities. To determine whether or not
the Fund will consider such securities to be illiquid (the Fund may not invest
more than 15% of its net assets in illiquid securities), the Trustees of the
Fund have established guidelines to be utilized by the Fund in determining the
liquidity of a lease obligation. The factors to be considered in making the
determination include: 1) the frequency of trades and quoted prices for the
obligation; 2) the number of dealers willing to purchase or sell the security
and the number of other potential purchasers; 3) the willingness of dealers to
undertake to make a market in the security; and 4) the nature of the
marketplace trades, including, the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer.
VARIABLE RATE OBLIGATIONS. The interest rates payable on certain Municipal
Bonds and Municipal Notes are not fixed and may fluctuate based upon changes
in market rates. Municipal obligations of this type are called "variable rate"
obligations. The interest rate payable on a variable rate obligation is
adjusted either at predesigned periodic intervals or whenever there is a
change in the market rate of interest on which the interest rate payable is
based.
Since the Fund concentrates its investments in Municipal Obligations of the
State of Hawaii and its authorities and municipalities, the Fund is affected
by any political, economic or regulatory developments affecting the ability of
issuers in the State of Hawaii to make timely payments of interest and
principal. For a more detailed discussion of the risks associated with
investments in the State of Hawaii, see "Special Considerations Relating to
the State of Hawaii" in the Appendix at the back of this Prospectus and in the
Statement of Additional Information.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
The value of the Fund's portfolio securities and, therefore, the Fund's net
asset value per share, may increase or decrease due to various factors,
principally changes in prevailing interest rates and the ability of the
issuers of the Fund's portfolio securities to pay interest and principal on
such obligations on a timely basis. Generally, a rise in interest rates will
result in a decrease in the Fund's net asset value per share, while a drop in
interest rates will result in an increase in the Fund's net asset value per
share. The Fund's yield will also vary based on the yield of the Fund's
portfolio securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase tax-exempt
securities on a when-issued or delayed delivery basis; i.e., the price is
fixed at the time of commitment but delivery and payment can take place a
month or more after the date of the transaction. These securities are subject
to market fluctuation and no interest accrues to the purchaser prior to
settlement. At the time the Fund makes the commitment to purchase such
securities, it will record the transaction and thereafter reflect the value
each day of such security in determining its net asset value. 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.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased by
the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as income
each year even though the Fund receives no interest payments in cash on the
security during the year.
FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may enter into
financial futures contracts ("futures contracts"), options on such futures and
municipal bond index futures contracts for hedging purposes. The Fund may sell
a futures contract or a call option thereon or purchase a put option on such
futures contract, if the Investment Manager anticipates interest rates to
rise, as a hedge against a decrease in the value of the Fund's portfolio
securities. If the Investment Manager anticipates that interest rates will
decline, the Fund may purchase a
8
<PAGE>
futures contract or a call option thereon or sell a put option on such futures
contract to protect against an increase in the price of the securities the
Fund intends to purchase. These futures contracts and related options thereon
will be used only as a hedge against anticipated interest rate changes.
Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on such a futures contract entitles its
holder to decide on or before a future date whether to enter into such a
contract (a long position in the case of a call option and a short position in
the case of a put option). If the holder decides not to enter into the
contract, the premium paid for the option on the contract is lost. Since the
value of the option is fixed at the point of sale, there are no daily payments
of cash to reflect the change in the value of the underlying contract as there
is by a purchaser or seller of a futures contract. The value of the option
does change and is reflected in the Fund's net asset value.
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities subject to
such futures contracts may correlate imperfectly with the behavior of the cash
prices of the Fund's portfolio securities. The risk of imperfect correlation
will be increased by the fact that the futures contracts in which the Fund may
invest are on taxable securities rather than tax-exempt securities, and there
is no guarantee that the prices of taxable securities will move in a similar
manner to the prices of tax-exempt securities.
Another risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements
or the time span within which the movements take place. For example, if the
Fund sold futures contracts for the sale of securities in anticipation of an
increase in interest rates, and then interest rates went down instead, causing
bond prices to rise, the Fund would lose money on the sale.
In addition to the risks that apply to all options transactions (see the
Statement of Additional Information for a description of the characteristics
of, and the risks of investing in, options on debt securities), there are
several special risks relating to options on futures. In particular, the
ability to establish and close out positions on such options will be subject
to the development and maintenance of a liquid secondary market. It is not
certain that this market will develop or be maintained.
MUNICIPAL BOND INDEX FUTURES. The Fund may utilize municipal bond index
futures contracts for hedging purposes. The strategies in employing such
contracts will be similar to that discussed above with respect to financial
futures and options thereon. A municipal bond index is a method of reflecting
in a single number the market value of many different municipal bonds and is
designed to be representative of the municipal bond market generally. The
index fluctuates in response to changes in the market values of the bonds
included within the index. Unlike futures contracts on particular financial
instruments, transactions in futures on a municipal bond index will be settled
in cash, if held until the close of trading in the contract. However, like any
other futures contract, a position in the contract may be closed out by a
purchase or sale of an offsetting contract for the same delivery month prior
to expiration of the contract.
The Fund may not enter into futures contracts or related options thereon if
immediately thereafter the amount committed to margin plus the amount paid for
option premiums exceeds 5% of the value of the Fund's total assets. The Fund
may not purchase or sell futures contracts or related options if immediately
thereafter more than one-third of the Fund's net assets would be hedged.
PORTFOLIO MANAGEMENT
The Fund's portfolio is managed by the Investment Manager with a view to
achieving its investment objective. The Fund is managed within InterCapital's
Tax-Exempt Fixed Income Group, which manages 40 tax-exempt municipal funds and
fund portfolios, with approximately $10.6 billion in assets as of December 31,
1996. James F. Willison, Senior Vice President of InterCapital and Manager of
InterCapital's Tax-Exempt Fixed Income Group, has been the primary portfolio
manager of the Fund since its inception and has been a portfolio manager at
InterCapital for over five years. Securities are purchased and sold
principally in response to the Investment Manager's current evaluation of an
issuer's ability to meet its debt obligations in the future, and the
Investment Manager's current assessment of future changes in the levels of
interest rates on tax-exempt securities of varying maturities.
Securities purchased by the Fund are, generally, sold by dealers acting as
principal for their own accounts. Pursuant to an order issued by the
Securities and Exchange Commission, the Fund may effect principal transactions
in certain taxable money market instruments with Dean Witter Reynolds Inc.
("DWR"), a broker-dealer affiliate of the Investment Manager. In addition, the
Fund may incur brokerage commissions on transactions conducted through DWR.
Brokerage commissions are not normally charged on purchases and sales of
municipal obligations, but such transactions may involve transaction costs in
the form of spreads between bid and asked prices. It is anticipated that the
Fund's annual portfolio turnover rate will not exceed 100%.
9
<PAGE>
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "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 investment policies and restrictions of the Fund: (a)
an "issuer" of a security is the entity whose assets and revenues are
committed to the payment of interest and principal on that particular
security, provided that the guarantee of a security will be considered a
separate security; (b) a "taxable security" is any security the interest on
which is subject to regular federal income tax; and (c) all percentage
limitations apply immediately after a purchase or initial investment, and any
subsequent change in any applicable percentage resulting from market
fluctuations or other changes in total assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements; and
(c) by lending its portfolio securities.
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 or to municipal obligations, including those
issued by the State of Hawaii or its political subdivisions.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
The Fund offers its shares for sale to the public on a continuous basis.
Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers who have entered into agreements with the Distributor ("Selected
Broker-Dealers"). The principal executive office of the Distributor is located
at Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000. Subsequent purchases of $100 or
more may be made by sending a check, payable to Dean Witter Hawaii Municipal
Trust, directly to Dean Witter Trust Company (the "Transfer Agent") at P.O.
Box 1040, Jersey City, N.J. 07303 or by contacting a DWR or other Selected
Broker-Dealer account executive.
In the case of purchases made pursuant to systematic payroll deduction
plans (including individual retirement plans), the Fund, in its discretion,
may accept such purchases without regard to any minimum amounts which would
otherwise be required if the Fund has reason to believe that additional
purchases will increase the amount of the purchase of shares in all accounts
under such plans to at least $1,000. Certificates for shares purchased will
not be issued unless a request is made by the shareholder in writing to the
Transfer Agent. The offering price will be the net asset value per share next
determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
-------------------------------
PERCENTAGE APPROXIMATE
OF PERCENTAGE OF
AMOUNT OF PUBLIC AMOUNT
SINGLE TRANSACTION OFFERING PRICE INVESTED
- ------------------------ -------------- ---------------
<S> <C> <C>
Less than $100,000 ...... 3.00% 3.09%
$100,000 but less than
$250,000 ............... 2.50 2.56
$250,000 but less than
$500,000 ............... 2.00 2.04
$500,000 but less than
$1,000,000 ............. 1.25 1.27
$1,000,000 but less than
$2,500,000 ............. 0.50 0.50
$2,500,000 but less than
$5,000,000 ............. 0.25 0.25
$5,000,000 and over .... -0- -0-
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when substantially the entire
sales charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933, as
amended.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his or her
own accounts; (c) a trustee or other fiduciary purchasing shares for a single
trust estate or a single fiduciary account; (d) a pension, profit-sharing or
other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code
10
<PAGE>
of a single employer or of employers who are "affiliated persons" of each
other within the meaning of Section 2(a)(3)(c) of the Act; or (g) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
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.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment generally is due on or before
the third business day after the order is placed with the Distributor. Shares
of the Fund purchased through the Distributor are entitled to dividends
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 where payment is made
prior thereto. Shares purchased through the Transfer Agent are entitled to
dividends beginning on the next business day following receipt of an order. As
noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive capital gains
distributions if their order is received by the close of business on the day
prior to the record date for such distributions. The Fund and/or the
Distributor reserve the right to reject any purchase order.
REDUCED SALES CHARGES
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced sales
charges in accordance with the above schedule by combining purchases of shares
of the Fund in single transactions with the purchase of shares of Dean Witter
Tax-Exempt Securities Trust, Dean Witter High Yield Securities Inc. and of
Dean Witter Funds which are sold with a contingent deferred sales charge
("CDSC funds"). The sales charge payable on the purchase of shares of the
Fund, Dean Witter Tax-Exempt Securities Trust, and Dean Witter High Yield
Securities Inc. will be at their respective rates applicable to the total
amount of the combined concurrent purchases of the Fund, Dean Witter
Tax-Exempt Securities Trust, Dean Witter High Yield Securities Inc. and CDSC
funds.
RIGHT OF ACCUMULATION. Investors may benefit from a reduction of the sales
charges in accordance with the above schedule if the cumulative net asset
value of shares of the Fund purchased in a single transaction, together with
shares previously purchased which are held at the time of such transaction,
amounts to $100,000 or more.
The Distributor must be notified by the shareholder at the time a purchase
order is placed that the purchase qualifies for the reduced charge under the
Right of Accumulation. Similar notification must be made in writing by the
shareholder when such an order is placed by mail. The reduced sales charge
will not be granted if: (a) such notification is not furnished at the time of
the order; or (b) a review of the records of the Distributor or the Transfer
Agent fails to confirm the investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also be
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of shares of the Fund from the
Distributor. The cost of shares of the Fund which were previously purchased at
a price including a front-end sales charge during the 90-day period prior to
the date of receipt by the Distributor of the Letter of Intent, which are
still owned by the shareholder, may also be included in determining the
applicable reduction.
PLAN OF DISTRIBUTION
The Fund has entered into a Plan of Distribution pursuant to Rule 12b-1 under
the Act, whereby the expenses of certain activities and services by DWR and
others who engage in or support distribution of Fund Shares or who service
shareholder accounts, including overhead and telephone expenses incurred in
connection with the distribution of the Fund's shares, are reimbursed.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed an amount equal to a payment
at the annual rate of 0.20 of 1% of the average daily net assets of the Fund.
Expenses incurred by the Distributor pursuant to the Plan in any fiscal year
will not be reimbursed by the Fund through payments accrued in any subsequent
fiscal year. No interest or other financing charges will be incurred on any
distribution expense incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan. The fee
payable pursuant to the Plan, equal to 0.20% 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. For the fiscal year ended November 30,
1996, the Fund accrued a total of $4,594 under the Plan. This accrual is an
amount equal to 0.19% of the daily net assets of the Fund.
11
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open by taking the value of all assets of the Fund, subtracting
its liabilities, dividing by the number of shares outstanding and adjusting to
the nearest cent. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by
the New York Stock Exchange.
Portfolio securities (other than short-term taxable debt securities,
futures and options) are valued for the Fund by an outside independent pricing
service approved by the Fund's Trustees. The service may utilize a
computerized grid matrix of tax-exempt securities and evaluations by its staff
in determining what it believes is the fair value of the Fund's portfolio
securities. The Board believes that timely and reliable market quotations are
generally not readily available to the Fund for purposes of valuing tax-exempt
securities and that the valuations supplied by the pricing services are more
likely to approximate the fair value of such securities.
Short-term taxable debt securities with remaining maturities of 60 days or
less at time of purchase are valued at amortized cost, unless the Board
determines such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the Board
of Trustees. Other taxable short-term debt securities with maturities of more
than 60 days will be valued on a mark to market basis until such time as they
reach a maturity of 60 days, whereupon they will be valued at amortized cost
using their value on the 61st day unless the Trustees determine such does not
reflect the securities' fair value, in which case these securities will be
valued at their fair market value as determined by the Board of Trustees.
Listed options on debt securities are valued at the latest sale price on the
exchange on which they are listed unless no sales of such options have taken
place that day, in which case, they will be valued at the mean between their
closing bid and asked prices. Unlisted options on debt securities are valued
at the mean between their latest bid and asked price. Futures are valued at
the latest sale price on the commodities exchange on which they trade unless
the Board of Trustees determines that such price does not reflect their fair
value, in which case they will be valued at their fair market value as
determined by the Board of Trustees. All other securities and other assets are
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Board of Trustees.
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. Each purchase of shares of the
Fund is made upon the condition that the Transfer Agent is thereby
automatically appointed as agent of the investor to receive all dividends and
capital gains distributions on shares owned by the investor. Such dividends
and distributions will be paid in shares of the Fund (or in cash if the
shareholder so requests) at the net asset value per share (without sales
charge) on the monthly payment date, which will be no later than the last
business day of the month for which the dividend or distribution is payable.
Processing of dividend checks begins immediately following the monthly payment
date. Shareholders who have requested to receive dividends in cash will
normally receive their monthly dividend checks during the first ten days of
the following month.
EASYINVEST.SM Shareholders may subscribe to EasyInvest, an automatic purchase
plan which provides for any amount from $100 to $5,000 to be transferred
automatically from a checking or savings account, on a semi-monthly, monthly
or quarterly basis, to the Transfer Agent for investment in shares of the
Fund.
SYSTEMATIC WITHDRAWAL PLAN. A withdrawal plan is available for shareholders
who own or purchase shares of the Fund having a minimum value of $10,000 based
upon the then current net asset value. The plan provides for monthly or
quarterly (March, June, September, December) checks in any dollar amount, not
less than $25, or in any whole percentage of the account balance, on an
annualized basis.
Withdrawal plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the shareholder's original investment
will be correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Systematic Withdrawal Plan, withdrawals made
12
<PAGE>
concurrently with purchases of additional shares are inadvisable because of
the sales charges applicable to the purchase of additional shares.
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.
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 front-end (at time of purchase) sales charge
("FESC" funds), Dean Witter Funds sold with a contingent deferred sales charge
("CDSC funds"), five Dean Witter Funds which are money market funds and Dean
Witter Short-Term U.S. Treasury Trust, Dean Witter Short-Term Bond Fund, Dean
Witter Limited Term Municipal Trust, Dean Witter Balanced Income Fund, Dean
Witter Balanced Growth Fund and Dean Witter Intermediate Term U.S. Treasury
Trust (the foregoing eleven non-CDSC or FESC 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 holding
period for exchanges of shares acquired by exchange or dividend reinvestment.
However, shares of CDSC funds, including shares acquired in exchange for
shares of FESC funds, may not be exchanged for shares of FESC funds. Thus,
shareholders who exchange their Fund shares for shares of CDSC funds may
subsequently exchange those shares for shares of other CDSC funds or money
market funds but may not reacquire FESC fund shares by exchange.
An exchange to another FESC fund, to a CDSC fund, or to 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 business day.
Subsequent exchanges between any of the Exchange Funds, FESC funds and CDSC
funds can be effected on the same basis (except that CDSC fund shares may not
be exchanged for shares of FESC funds). Shares of a CDSC fund acquired in
exchange for shares of an FESC fund (or in exchange for shares of other Dean
Witter Funds for which shares of an FESC fund have been exchanged) are not
subject to any contingent deferred sales charge upon their redemption.
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Fund's other shareholders
and, at the Investment Manager's discretion, may be limited by the Fund's
refusal to accept additional purchases and/or exchanges from the investor.
Although the Fund does not have any specific definition of what constitutes a
pattern of frequent exchanges, and will consider all relevant factors in
determining whether a particular situation is abusive and contrary to the best
interests of the Fund and its other shareholders, investors should be aware
that the Fund and each of the other Dean Witter Funds may in their discretion
limit or otherwise restrict the number of times this Exchange Privilege may be
exercised by any investor. Any such restriction will be made by the Fund on a
prospective basis only, upon notice to the shareholder not later than ten days
following such shareholder's most recent exchange.
The Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such Dean Witter Funds for which shares of the Fund may be
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another
Selected Broker-Dealer are referred to their account executive regarding
restrictions on exchange of shares of the Fund pledged in their margin
account.
The current prospectus for each fund describes its investment objectives
and policies, and shareholders should obtain one and read it carefully before
investing. Exchanges are subject to the minimum investment requirement and
other conditions imposed by each fund. In the case of any shareholder holding
a share certificate or certificates, no exchanges may be made until the share
certificate(s) have been received by the Transfer Agent and deposited in the
shareholder's account. An exchange will be treated for federal income tax
purposes as a redemption or repurchase of shares, on which the shareholder may
realize a capital gain or loss. However, the ability to deduct capital losses
on an exchange is limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. There are also limits on
the deduction of losses after the payment of exempt-interest dividends for
shares held for less than six months (see "Dividends, Distributions and
Taxes"). The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their DWR or other Selected Broker-Dealer
account executive (no Exchange Privilege Authorization
13
<PAGE>
Form is required). Other shareholders (and those shareholders who are clients
of DWR or another Selected Broker-Dealer but who wish to make exchanges
directly by writing or telephoning the Transfer Agent) must complete and
forward to the Transfer Agent an Exchange Privilege Authorization form, copies
of which may be obtained from the Transfer Agent, to initiate an exchange. If
the Authorization Form is used, exchanges may be made by contacting the
Transfer Agent at (800) 869-NEWS (toll-free). The Fund will employ reasonable
procedures to confirm that exchange instructions communicated over the
telephone are genuine. Such procedures may include requiring various forms of
personal identification such as name, mailing address, social security or
other tax identification number and DWR or other Selected Broker-Dealer
account number (if any). Telephone instructions may also be recorded. If such
procedures are not employed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request (see "Redemptions and Repurchases"). Shareholders are advised
that during periods of drastic economic or market changes, it is possible that
the telephone exchange procedures may be difficult to implement, although this
has not been the case with the Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their DWR or other Selected Broker-Dealer account executive or
the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
REDEMPTION. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined (without any redemption or other
charge). If shares are held in a shareholder's account without a share
certificate, a written request for redemption is required. If certificates are
held by the shareholder(s), the shares may be redeemed by surrendering the
certificate(s) with a written request for redemption, along with any
additional information required by the Transfer Agent.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to repurchase
shares represented by a share certificate which is delivered to any of their
offices. Shares held in a shareholder's account without a share certificate
may also be repurchased by DWR and other Selected Broker-Dealers upon the
telephonic request of the shareholder. The repurchase price is the net asset
value next determined (see "Purchase of Fund Shares--Determination of Net
Asset Value") after such repurchase order is received by DWR or other Selected
Broker-Dealer. Payment for shares repurchased may be made by the Fund to the
Distributor for the account of the shareholder. The offers by DWR and other
Selected Broker-Dealers to repurchase shares from shareholders may be
suspended by them at any time. In that event, shareholders may redeem their
shares through the Fund's Transfer Agent as set forth 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 at times
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 investment of the check by the Transfer Agent). Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their account executive regarding restrictions on redemption of
shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares redeemed
or repurchased and has not previously exercised this reinstatement privilege
may, within 30 days after the date of the redemption or repurchase, reinstate
any portion or all of the proceeds of such redemption or repurchase in shares
of the Fund at their net asset value (without a sales charge) next determined
after a reinstatement request, together with the proceeds, is received by the
Transfer Agent.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on sixty days notice, to
redeem at their 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 or, in the case of
an account opened through EasyInvest (Service Mark), if after twelve months
the shareholder has invested less than $1,000 in the account. However, before
the Fund redeems such shares and
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sends the proceeds to the shareholder, it will notify the shareholder that the
value of the shares is less than the applicable amount and allow the
shareholder to make an additional investment in an amount which will increase
the value of the account to at least the applicable amount or more before the
redemption is processed. No charge will be imposed on any involuntary
redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends from net
investment income on each day the New York Stock Exchange is open for business
(see "Purchase of Fund Shares"). Such dividends are paid monthly. The Fund
intends to distribute all of the Fund's net investment income on an annual
basis.
The Fund will distribute at least once each year all net realized
short-term capital gains in excess of any realized net long-term capital
losses, if any. The Fund intends to distribute all of its realized net
long-term capital gains, if any, in excess of any realized net short-term
capital losses and any available net capital loss carryovers, at least once
per fiscal year, although it may elect to retain all or part of such gains for
reinvestment. Taxable capital gains may be generated by the sale of portfolio
securities and by transactions in options and futures contracts engaged in by
the Fund. All dividends and capital gains distributions will be paid in
additional Fund shares (without sales charge) and automatically credited to
the shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends be paid in cash and such
request is received by the close of business on the day prior to the record
date for such distributions (see "Shareholder Services--Automatic Investment
of Dividends and Distributions"). Any dividends declared in the last quarter
of any calendar year which are paid in the following calendar year prior to
February 1 will be deemed received by the shareholder in the prior year.
TAXES--FEDERAL. Because the Fund intends to distribute all of its net
investment income and capital gains to shareholders and intends to otherwise
continue to qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code, it is not expected that the Fund will be required
to pay any federal income tax.
The Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders by maintaining, as of the close of each quarter of its taxable
year, at least 50% of the value of its total assets in tax-exempt securities.
If the Fund satisfies such requirement, distributions from net investment
income to shareholders, whether taken in cash or reinvested in additional
shares, will be excludable from gross income for federal income tax purposes
to the extent net investment income is represented by interest on tax-exempt
securities. Exempt-interest dividends are included, however, in determining
what portion, if any, of a person's Social Security benefits are subject to
federal income tax. The Internal Revenue Code may subject interest received on
certain otherwise tax-exempt securities to an alternative minimum tax. This
alternative minimum tax may be incurred due to interest received on certain
"private activity bonds" (in general, bonds that benefit non-government
entities) issued after August 7, 1986 which, although tax-exempt, are used for
purposes other than those generally performed by government units (e.g., bonds
used for commercial or housing purposes). Income received on such bonds is
classified as a "tax preference item," under the alternative minimum tax, for
both individual and corporate investors. The Fund anticipates that a portion
of its investments will be made in such "private activity bonds," with the
result that a portion of the exempt-interest dividends paid by the Fund will
be an item of tax preference to shareholders subject to the alternative
minimum tax. In addition, certain corporations which are subject to the
alternative minimum tax may also have to include exempt-interest dividends in
calculating their alternative minimum taxable income in situations where the
"adjusted current earnings" of the corporation exceeds its alternative minimum
taxable income.
Under the Revenue Reconciliation Act of 1993, all or a portion of the
Fund's gain from the sale or redemption of tax-exempt obligations purchased at
a market discount after April 30, 1993 will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary income
dividends received by shareholders.
Within sixty days after the end of its fiscal year, the Fund will mail to
its shareholders a statement indicating the percentage of the dividend
distributions for such fiscal year which constitutes exempt-interest dividends
and the percentage, if any, that is taxable, and the percentage, if any, of
the exempt-interest dividends which constitutes an item of tax preference.
Shareholders will normally be subject to federal income tax on dividends
paid from interest income derived from taxable securities and on distributions
of net short-term capital gains, if any. Distributions of long-term capital
gains, if any, are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund shares and regardless of whether the
distribution is received in additional shares or in cash. To avoid being
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subject to a 31% federal backup withholding tax on taxable dividends, capital
gains distributions and proceeds of redemptions or repurchases, shareholders'
taxpayer identification numbers must be furnished and certified as to
accuracy.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return
of a portion of each shareholder's investment. All, or a portion, of such
payments will not be taxable to shareholders.
Any loss on the sale or exchange of shares of the Fund which are held for
six months or less is disallowed to the extent of the amount of any
exempt-interest dividend paid with respect to such shares. Treasury
Regulations may provide for a reduction in such required holding periods. If a
shareholder receives a distribution that is taxed as a long-term capital gain
on shares held for six months or less and sells those shares at a loss, the
loss will be treated as a long-term capital loss.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of an investment company paying exempt-interest dividends, such as the
Fund, will not be deductible by the investor for federal income tax purposes.
The exemption of interest income for federal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any
state or local taxing authority. Thus, shareholders of the Fund may be subject
to state and local taxes on exempt-interest dividends.
TAXES--STATE OF HAWAII
The Fund, and dividends and distributions made by the Fund to Hawaii
residents, will generally be treated for Hawaii income tax purposes in the
same manner as they are treated under the Code for Federal income tax
purposes. Under Hawaii law, however, interest derived from obligations of
states (and their political subdivisions) other than Hawaii will not be exempt
from Hawaii income taxation. (Interest derived from bonds or obligations
issued by or under the authority of the following is exempt from Hawaii income
taxation: Guam, Northern Mariana Islands, Puerto Rico, and the Virgin
Islands).
Interest on Hawaii obligations, tax-exempt obligations of states other than
Hawaii and their political subdivisions, and obligations of the United States
or its possessions is not exempt from the Hawaii Franchise Tax, which applies
to banks, building and loan associations, financial services loan companies,
financial corporations, and small business investment companies.
Persons or entities who are not Hawaii residents should not be subject to
Hawaii income taxation on dividends and distributions made by the Fund but may
be subject to other state and local taxes.
Shareholders should consult their tax advisers as to the applicability of
the above to their own tax situation.
PERFORMANCE INFORMATION
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From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return of
the Fund are based on historical earnings and are not intended to indicate
future performance. The yield of the Fund is computed by dividing the Fund's
net investment income over a 30-day period by an average value (using the
average number of shares entitled to receive dividends and the maximum
offering price per share at the end of the period), all in accordance with
applicable regulatory requirements. Such amount is compounded for six months
and then annualized for a twelve-month period to derive the Fund's yield. The
Fund may also quote tax-equivalent yield, which is calculated by determining
the pre-tax yield which, after being taxed at a stated rate, would be
equivalent to the yield determined as described above.
The "average annual total return" of the Fund refers to a figure reflecting
the average annualized percentage increase (or decrease) in the value of an
initial investment of $1,000 over periods of one, five and ten years, or over
the life of the Fund, if less than any of the foregoing. Average annual total
return reflects all income earned by the Fund, any appreciation or
depreciation of the Fund's assets, all expenses incurred by the Fund and all
sales charges incurred by shareholders, for the stated periods. It also
assumes reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or
other types of total return figures. Such calculations may or may not reflect
the imposition of the front-end sales charge which, if reflected, would reduce
the performance quoted. The Fund may also advertise the growth of hypothetical
investments of $10,000, $50,000 or $100,000 in shares of the Fund by adding 1
to the Fund's aggregate total return to date and multiplying by $9,700,
$48,500 or $97,500 ($10,000, $50,000 or $100,000 adjusted for 3.00%, 3.00% and
2.50% sales charges, respectively). The Fund fromtime 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.).
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ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that Fund obligations include such disclaimer, and provides for
indemnification and reimbursement of expenses out of the Fund's property for
any shareholder held personally liable for the obligations of the Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be unable
to meet its obligations. Given the above limitations on shareholder personal
liability and the nature of the Fund's assets and operations, the possibility
of the Fund's being unable to meet its obligations is remote and, in the
opinion of Massachusetts counsel to the Fund, the risk to Fund shareholders of
personal liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean Witter
Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure
that the interests of shareholders and other clients are placed ahead of any
personal interest, that no undue personal benefit is obtained from a person's
employment activities and that actual and potential conflicts of interest are
avoided. To achieve these goals and comply with regulatory requirements, the
Code of Ethics requires, among other things, that personal securities
transactions by employees of the companies be subject to an advance clearance
process to monitor that no Dean Witter Fund is engaged at the same time in a
purchase or sale of the same security. The Code of Ethics bans the purchase of
securities in an initial public offering, and also prohibits engaging in
futures and options transactions and profiting on short-term trading (that is,
a purchase within 60 days of a sale or a sale within 60 days of a purchase) of
a security. In addition, investment personnel may not purchase or sell a
security for their personal account within 30 days before or after any
transaction in any Dean Witter Fund managed by them. Any violations of the
Code of Ethics are subject to sanctions, including reprimand, demotion or
suspension or termination of employment. The Code of Ethics comports with
regulatory requirements and the recommendations in the 1994 report by the
Investment Company Institute Advisory Group on Personal Investing.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed to
the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
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APPENDIX
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SPECIAL CONSIDERATIONS RELATING TO THE STATE OF HAWA
The Fund will be affected by any political, economic, or regulatory
developments having a bearing on the ability of Hawaii issuers to pay interest
or repay principal on their obligations.
The information set forth herein is derived from official statements
prepared in connection with the issuance of obligations of the State of Hawaii
("State") and its political subdivisions and other sources that are generally
available to investors. The information is provided as general information
intended to give a recent historical description and is not intended to
indicate further or continuing trends in the financial or other positions of
the State and its political subdivisions.
Hawaii was admitted as the 50th state on August 21, 1959 and is an
archipelago of eight major islands, seven of which are inhabited, plus 124
named islets, totalling 6,425 square miles in land area. It is located in the
Pacific Ocean in the northern hemisphere about 2,400 statute miles from San
Francisco. In terms of area, Hawaii is the 47th of the 50 states. According to
the 1990 U.S. Census, the total population was 1,115,274, making Hawaii the
41st most populous state of the United States. According to the 1990 U.S.
Census, about 75% of the population of Hawaii lives on the island of Oahu. The
City and County of Honolulu consists of the island of Oahu, plus some minor
islets; its land area is 596.3 square miles; and it is the capital of the
State and its principal port.
Hawaii's economy experienced an expansion in the latter part of the 1980s
due in part to extensive Japanese investment. Since 1990, however, Hawaii's
economy has experienced marginal growth. As a result, construction spending
has decreased, real estate prices have dropped, and personal income in 1995
after adjusting for inflation was just 1.4% higher than that for 1991.
The State Constitution empowers the Legislature to authorize the issuance
of four types of bonds: general obligation bonds; bonds issued under special
improvement statutes; revenue bonds; and special purpose revenue bonds.
Under the Constitution general obligation bonds may be issued by the State
if such bonds at the time of issuance would not cause the total amount of
principal and interest payable on such bonds to exceed a level that is related
to the General Fund revenues of the State in the three fiscal years
immediately preceding such issuance. The Constitution provides that the
Legislature must establish a General Fund expenditure ceiling that limits the
rate of growth of General Fund appropriations to the estimated rate of growth
of the State's economy. Appropriations from the General Fund for each year of
the fiscal biennium or each supplementary budget fiscal year are not to exceed
the expenditure ceiling for the fiscal year.
Maximum limits for operating expenditures are established for each fiscal
year by legislative appropriations, but monies can be withheld by the
Department of Budget and Finance to insure solvency.
The Constitution requires a Council of Revenues to prepare revenue
estimates for State government and report such estimates to the Governor and
the Legislature.
In a report dated September 6, 1996, the Council on Revenues forecast a
2.1% increase in General Fund tax revenues for fiscal year 1997 over that of
fiscal year 1996, but subsequently, on December 12, 1996, the Council on
Revenues revised its estimate down to an increase of 1.2%. From September 1994
through December 1995, the Council on Revenues had reduced General Fund
revenue forecasts by a total of $619 million for the period from December 1994
through June 1997. The impact of the revised revenue estimates on the budget
prompted the State administration to pursue additional measures to reduce
expenditures and enhance revenues. Executive departments were required to cut
$139 million in fiscal year 1996. A permanent reduction in the size of the
State government was undertaken in fiscal year 1996, which included employee
layoffs, elimination of vacant permanent and temporary positions, and
abolition of certain state programs. The State administration has indicated
that additional savings and revenues may be realized from an early retirement
program instituted in fiscal year 1995, transfers of excess funds from special
and revolving funds, and the resolution of protested insurance premium taxes.
At the end of fiscal year 1996, revenue collections totaled $3.194 billion and
exceeded expenditures by $70 million. For fiscal year 1997 the State
administration has proposed that Executive departments carry their fiscal year
1996 cuts over to fiscal year 1997. The cuts, together with other reductions
to the fiscal year 1997 budget, have resulted in the fiscal year 1997 General
Fund budget being reduced by $172 million from $3.247 billion to $3.075
billion.
The Legislature convened on January 15, 1997. It is uncertain what form of
budget and what revenue measures or combination of measures will ultimately be
enacted. The State administration has indicated that it is committed to
developing and maintaining financial policies and budgetary action to insure a
positive General Fund balance and financial plan.
Funds for State expenditures are also affected by State obligations for the
benefit of native Hawaiians.
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The State has agreed to resolve a dispute concerning the wrongful use or
withdrawal by Territorial and State Executive actions of lands set aside
originally for the rehabilitation of native Hawaiians by the transfer of
certain usable State-owned lands to the Department of Hawaiian Home Lands and
the funding of $600 million in equal amounts over a period of 20 years to
allow for the appropriate planning and development of such lands. Legislation
has been enacted to implement the settlement, with funds authorized and
appropriated for the first two years of the settlement.
In a separate process to resolve claims unique to individual beneficiaries
of such Hawaiian Home Lands, a panel is reviewing such claims and rendering
advisory opinions to the Legislature thereon. Claimants not satisfied with the
advisory opinions or the Legislature's response thereto may file civil actions
between October 1, 1997 and September 30, 1998. It is uncertain what monetary
amounts may ultimately be recommended by the panel, proffered by the
Legislature, or awarded by any court.
In addition, 20 percent of the gross proprietary revenues derived from
"ceded lands" (defined below) that are utilized by the State are required by
State law to be paid to the Office of Hawaiian Affairs, which administers such
funds for the benefit of native Hawaiians. "Ceded lands" are those portions of
lands now constituting State-owned lands that were ceded by the Republic of
Hawaii to the United States and subsequently conveyed by the United States to
the State following the State's admission to the Union. The payments to the
Office of Hawaiian Affairs are made directly out of State revenues, including
revenues from revenue producing activities such as the Harbors and Airports
Divisions of the Department of Transportation.
The Office of Hawaiian Affairs has initiated litigation against the State
alleging that the State has failed to account for and pay to the Office of
Hawaiian Affairs its proper pro rata share of proceeds and income. The trial
court has initially ruled in favor of the Office of Hawaiian Affairs. Although
it is unclear what dollar amount of claims may be involved, the State has
conceded that an ultimate decision against the State could have a material
adverse effect on the State's financial condition.
The Office of Inspector General of the U.S. Department of Transportation
has questioned the use of airport revenues to make payments to the Office of
Hawaiian Affairs. The State has defended its action on the basis that the
payments represent airport operating expenses, but it has placed all such
payments since June 1996 into an escrow account pending resolution of this
dispute.
For further discussion of special considerations relating to the State of
Hawaii, see the Statement of Additional Information.
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DEAN WITTER
HAWAII MUNICIPAL TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
