<PAGE>
Filed Pursuant to Rule 497(c)
Registration File No.: 33-63685
PROSPECTUS
JULY 1, 1996
TCW/DW Mid-Cap Equity Trust (the "Fund") is an open-end, diversified
management investment company, whose investment objective is long-term capital
appreciation. The Fund seeks to achieve its investment objective by investing
primarily in equity securities issued by medium-sized companies whose market
capitalizations, at the time of acquisition, are in the $300 million to $2
billion range and that, in the opinion of the Fund's Adviser, exhibit superior
earnings growth prospects and attractive stock market valuations. See
"Investment Objective and Policies."
Shares of the Fund will be priced at the net asset value per share next
determined following receipt of an order without imposition of a sales charge.
However, repurchases and/or redemptions of shares are subject in most cases to
a contingent deferred sales charge, scaled down from 5% to 1% of the amount
redeemed, if made within six years of purchase, which charge will be paid to
the Fund's Distributor, Dean Witter Distributors Inc. See "Repurchases and
Redemptions--Contingent Deferred Sales Charge". In addition, the Fund pays the
Distributor a Rule 12b-1 distribution fee pursuant to a Plan of Distribution
at the annual rate of 1% of the lesser of the (i) average daily aggregate net
sales or (ii) average daily net assets of the Fund. See "Purchase of Fund
Shares--Plan of Distribution."
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 3
Financial Highlights (unaudited) ...................................... 4
The Fund and its Management ........................................... 5
Investment Objective and Policies ..................................... 6
Risk Considerations and Investment Practices .......................... 7
Investment Restrictions ............................................... 12
Purchase of Fund Shares ............................................... 12
Shareholder Services .................................................. 15
Repurchases and Redemptions ........................................... 17
Dividends, Distributions and Taxes .................................... 19
Performance Information ............................................... 20
Additional Information ................................................ 20
Financial Statements (unaudited)--May 31, 1996 ........................ 22
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 July 1, 1996, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
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.
TCW/DW MID-CAP EQUITY TRUST
Two World Trade Center
New York, New York 10048
(212) 392-2550 or (800) 869-NEWS
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.
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
<CAPTION>
<S> <C>
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THE The Fund is organized as a Trust, commonly known as a
FUND Massachusetts business Fund trust, and is an open-end,
diversified management investment company investing primarily
in equity securities issued by medium-sized companies whose
market capitalizations, at the time of acquisition, are in
the $300 million to $2 billion range and that, in the opinion
of the Adviser exhibit superior earnings growth prospects and
attractive stock market valuations.
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SHARES Shares of beneficial interest with $.01 par
OFFERED value (see page 20).
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OFFERING At net asset value (see page 13). Shares redeemed within six
PRICE years of purchase are subject to a contingent deferred sales
charge under most circumstances (see page 17).
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MINIMUM Minimum initial investment, $1,000 ($100 if the account is
PURCHASE opened through EasyInvest (Service Mark) ); minimum
subsequent investment, $100 (see page 12).
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INVESTMENT The investment objective of the Fund is long-term capital
OBJECTIVE appreciation.
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MANAGER Dean Witter Services Company Inc. (the "Manager"), a
wholly-owned subsidiary of Dean Witter InterCapital Inc.
("InterCapital"), is the Fund's manager. The Manager also
serves as manager to twelve other investment companies
advised by TCW Funds Management, Inc. (the "TCW/DW Funds").
The Manager and InterCapital serve in various investment
management, advisory, management and administrative
capacities to a total of ninety-eight investment companies
and other portfolios with assets of approximately $84.6
billion at May 31, 1996 (see page 5).
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ADVISER TCW Funds Management, Inc. (the "Adviser") is the Fund's
investment adviser. In addition to the Fund, the Adviser
serves as investment adviser to twelve other TCW/DW Funds. As
of March 31, 1996, the Adviser and its affiliates had
approximately $53 billion under management or committed to
management in various fiduciary or advisory capacities,
primarily to institutional investors (see page 5).
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MANAGEMENT The Manager receives a monthly fee at the annual rate of
AND ADVISORY 0.60% of daily net assets. The Adviser receives a monthly fee
FEES at an annual rate of 0.40% of daily net assets (see page 5).
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DIVIDENDS Income dividends and capital gains, if any, will be
distributed no less than annually. Dividends and capital
gains distributions are automatically reinvested in
additional shares at net asset value unless the shareholder
elects to receive cash (see page 15).
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DISTRIBUTOR Dean Witter Distributors Inc. (the "Distributor"). The
Distributor receives from the Fund a distribution fee accrued
daily and payable monthly at the rate of 1.0% per annum of
the lesser of (i) the average daily aggregate net sales or
(ii) the Fund's average daily net assets. This fee
compensates the Distributor for services provided in
distributing shares of the Fund and for sales-related
expenses. The Distributor also receives the proceeds of any
contingent deferred sales charges (see page 13).
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REDEMPTION Shares are redeemable by the shareholder at net asset value.
CONTINGENT An account may be involuntarily redeemed if the total value
DEFERRED of the account is less than $100 or, if the account was
SALES opened through EasyInvest (Service Mark) , if after twelve
CHARGE months the shareholder has invested less than $1,000 in the
account. Although no commission or sales load is imposed upon
the purchase of shares, a contingent deferred sales charge
(scaled down from 5% to 1%) is imposed on any redemption of
shares if, after such redemption, the aggregate current value
of an account with the Fund falls below the aggregate amount
of the investor's purchase payments made during the six years
preceding the redemption. However, there is no charge imposed
on redemption of shares purchased through reinvestment of
dividends or distributions (see page 18).
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RISK The net asset value of the Fund's shares will fluctuate with
CONSIDERATIONS changes in the market value of the Fund's portfolio
securities. The market value of the Fund's portfolio
securities will increase or decrease due to a variety of
economic, market or political factors which cannot be
predicted. The Fund is intended for long-term investors who
can accept the risks involved in seeking long-term capital
appreciation through the investment in securities of
medium-sized companies whose equity capitalizations are in
the $300 million to $2 billion range which involve greater
risk of volatility in the Fund's net asset value than is
associated with the investment in larger, more established
companies. The Fund may invest in foreign securities and may
purchase securities on a when-issued, delayed delivery or
"when, as and if issued" basis, which may involve certain
special risks. An investment in shares of the Fund should not
be considered a complete investment program and is not
appropriate for all investors. Investors should carefully
consider their ability to assume these risks and the risks
outlined under the heading "Risk Considerations and
Investment Practices," (p. 7) before making an investment in
the Fund.
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</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus
and in the Statement of Additional Information.
2
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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 estimated fees and expenses set forth in the table
are for the fiscal period ending November 30, 1996.
Shareholder Transaction Expenses
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<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases .............................................None
Maximum Sales Charge Imposed on Reinvested Dividends .................................. None
Contingent Deferred Sales Charge
(as a percentage of the lesser of original purchase price or redemption proceeds) .. 5.0%
</TABLE>
A contingent deferred sales charge is imposed at the following
declining rates:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE PERCENTAGE
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<S> <C>
First .............................. 5.0%
Second ............................. 4.0%
Third .............................. 3.0%
Fourth ............................. 2.0%
Fifth .............................. 2.0%
Sixth .............................. 1.0%
Seventh and thereafter ............. None
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Redemption Fees ..........................................................None
Exchange Fee ............................................................. None
Annual Fund Operating Expenses (as a Percentage of Average Net Assets)
Management and Advisory Fees ............................................. 1.00%
12b-1 Fees* .............................................................. 0.94%
Other Expenses ........................................................... 0.58%
Total Fund Operating Expenses** .......................................... 2.52%
</TABLE>
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* The 12b-1 fee is accrued daily and payable monthly, at an annual rate
of 1.00% of the lesser of: (a) the average daily aggregate gross sales
of the Fund's shares since inception (not including reinvestment of
dividends or distributions), less the average daily aggregate net asset
value of the Fund's shares redeemed since the Fund's inception upon
which a contingent deferred sales charge has been imposed or waived, or
(b) the Fund's daily net assets. A portion of the 12b-1 fee equal to
0.25% of the Fund's average daily net assets is characterized as a
service fee within the meaning of National Association of Securities
Dealers, Inc. ("NASD") guidelines and is a payment made to the selling
broker for personal service and/or maintenance of shareholder accounts.
The remainder of the 12b-1 fee is an asset based sales charge and is a
distribution fee paid to the Distributor to compensate it for the
services provided and the expenses borne by the Distributor and others
in the distribution of the Fund's shares (see "Purchase of Fund
Shares").
** "Total Fund Operating Expenses," as shown above, is based upon the sum
of the 12b-1 Fees, Management and Advisory Fees and estimated "Other
Expenses," which may be incurred by the Fund for the fiscal period
ending November 30, 1996.
<TABLE>
<CAPTION>
Example 1 year 3 years
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<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period: ............................................. $76 $108
You would pay the following expenses on the same investment, assuming no redemption: ....... $26 $78
</TABLE>
The above example should not be considered a representation of past or
future expenses or performance. Actual expenses of the Fund may be greater or
less than those shown.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Plan of Distribution" and "Repurchases and
Redemptions" in this Prospectus.
Long-term shareholders of the Fund may pay more in sales charges including
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 the period has been taken from the records of the Fund
without examination by independent accountants. The financial highlights
should be read in conjunction with the unaudited financial statements and
notes thereto. The related unaudited financial statements are contained in
this Prospectus commencing on page 22.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 27, 1996*
THROUGH MAY 31,
1996
------------------
(UNAUDITED)
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 10.00
------------------
Net investment loss .................... (0.04)
Net realized and unrealized gain ...... 1.74
------------------
Total from investment operations ...... 1.70
------------------
Net asset value, end of period ......... $ 11.70
==================
TOTAL INVESTMENT RETURN+ ............... 17 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 2.52 %(2)
Net investment loss .................... (1.53)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $182,403
Portfolio turnover rate ................ 3 %(1)
Average commission rate paid ........... $ 0.0576
</TABLE>
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* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
See Notes to Financial Statements
4
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THE FUND AND ITS MANAGEMENT
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TCW/DW Mid-Cap Equity Trust (the "Fund") is an open-end, diversified
management investment company. The Fund is a trust of the type commonly known
as a "Massachusetts business trust" and was organized under the laws of
Massachusetts on October 17, 1995.
Dean Witter Services Company Inc. (the "Manager"), whose address is Two
World Trade Center, New York, New York 10048, is the Fund's Manager. The
Manager is a wholly-owned subsidiary of Dean Witter InterCapital Inc.
("InterCapital"). InterCapital is a wholly-owned subsidiary of Dean Witter,
Discover & Co. ("DWDC"), a balanced financial services organization providing
a broad range of nationally marketed credit and investment products.
The Manager acts as manager to twelve other TCW/DW Funds. The Manager and
InterCapital serve in various investment management, advisory, management and
administrative capacities to a total of ninety-eight investment companies,
thirty of which are listed on the New York Stock Exchange, with combined
assets of approximately $81.8 billion as of May 31, 1996. InterCapital also
manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $2.8 billion at such date.
The Fund has retained the Manager to manage its business affairs, supervise
its overall day-to-day operations (other than providing investment advice) and
provide all administrative services.
TCW Funds Management, Inc. (the "Adviser"), whose address is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017, is the Fund's
investment adviser. The Adviser was organized in 1987 as a wholly-owned
subsidiary of The TCW Group, Inc. ("TCW"), whose subsidiaries, including Trust
Company of the West and TCW Asset Management Company, provide a variety of
trust, investment management and investment advisory services. Robert A. Day,
who is Chairman of the Board of Directors of TCW, may be deemed to be a
control person of the Adviser by virtue of the aggregate ownership by Mr. Day
and his family of more than 25% of the outstanding voting stock of TCW. The
Adviser serves as investment adviser to twelve other TCW/DW Funds in addition
to the Fund. As of March 31, 1996, the Adviser and its affiliated companies
had approximately $53 billion under management or committed to management,
primarily from institutional investors.
The Fund has retained the Adviser to invest the Fund's assets.
The Fund's Trustees review the various services provided by the Manager and
the Adviser 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 Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the annual rate of 0.60% to
the Fund's net assets. As compensation for its investment advisory services,
the Fund pays the Adviser monthly compensation calculated daily by applying an
annual rate of 0.40% to the Fund's net assets. The total fees paid by the Fund
to the Manager and the Adviser are higher than the fees paid by most other
investment companies for similar services.
The Fund's expenses include: the fees of the Manager and the Adviser; the
fee pursuant to the Plan of Distribution (see "Purchase of Fund Shares");
taxes; legal, transfer agent, custodian and auditing fees; federal and state
registration fees; and printing and other expenses relating to the Fund's
operations which are not expressly assumed by the Manager or Adviser under
their respective Agreements with the Fund.
5
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INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is long- term capital appreciation.
This objective is fundamental and may not be changed without shareholder
approval. There is no assurance that the objective will be achieved.
The Fund seeks to achieve its investment objective by investing under
normal circumstances at least 65% of its total assets in equity securities
issued by medium-sized companies whose market capitalizations, at the time of
acquisition, are in the $300 million to $2 billion range and that, in the
opinion of the Adviser, exhibit superior earnings growth prospects and
attractive stock market valuations. The equity securities in which the Fund
may invest include common stocks and convertible securities such as investment
grade convertible bonds, notes, debentures, preferred stocks or other
securities convertible into common stock.
The Adviser intends to pursue a "bottom-up" investment philosophy in
investing the Fund's assets. The "bottom-up" investment process is
characterized by the Adviser's proprietary research process which is to be
used in the selection of investments. Quantitative and qualitative criteria
also will be used to screen the more than 1,000 medium-sized companies within
the $300 million to $2 billion market capitalization range thereby providing
the Adviser with a list of potential investment securities. This list of
securities is then subjected to fundamental analysis. The Adviser will
consider certain criteria which include, amongst other things, a demonstrated
record of consistent earnings growth or the potential to grow earnings; an
ability to earn an attractive return on equity; the Adviser's expectation that
earnings will exceed Wall Street research analysts' earnings estimates (i.e.,
potential for earnings surprises); a price/earnings ratio which is less than
the Adviser's internally estimated three-year earnings growth rate; a large
and growing market share; a strong balance sheet (i.e., low debt to
capitalization ratio); a significant ownership interest by management and a
strong management team. Under normal market conditions, the Fund intends to
hold a portfolio containing approximately 40 to 60 issues. Subject to the
Fund's investment objective, the Adviser may modify the foregoing criteria and
analysis without notice.
Up to 25% of the Fund's total assets may be invested in equity securities
of foreign issuers. Such foreign investments may be in the form of direct
investments in securities of foreign issuers or in the form of American
Depository Receipts (ADRs), European Depository Receipts (EDRs) or other
similar securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of the
underlying securities. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets and EDRs, in bearer form, are designed for
use in European securities markets. The Fund's investments in unlisted foreign
securities are subject to the Fund's overall policy limiting its investment in
illiquid securities to 15% or less of its net assets.
Up to 35% of the Fund's total assets may be invested in investment grade
fixed-income securities consisting of securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, corporate debt securities
and money market instruments. With respect to corporate debt securities, the
term "investment grade" means securities which are rated Baa or higher by
Moody's Investors Services, Inc. ("Moody's") or BBB or higher by Standard &
Poor's Corporation ("S&P") or, if not rated, are deemed by the Adviser to be
of comparable quality. See the Appendix to the Statement of Additional
Information for a discussion of ratings of fixed-income securities.
Investments in fixed-income securities rated either BBB by S&P or Baa by
Moody's (the lowest credit ratings designated "investment grade") have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more
6
<PAGE>
likely to weaken their capacity to make principal and interest payments than
would be the case with investments in securities with higher credit ratings.
If a fixed-income or convertible security held by the Fund is rated BBB or Baa
and is subsequently downgraded by a rating agency, or otherwise falls below
investment grade, the Fund will sell such securities as soon as is practicable
without undue market or tax consequences to the Fund.
The Fund may also invest up to 5% of its assets in convertible securities
and other fixed-income securities rated below investment grade. Securities
below investment grade are the equivalent of high yield, high risk bonds
(commonly known as "junk bonds"). However, the Fund will not invest in
convertible and other fixed-income securities that are rated lower than B by
S&P or Moody's or, if not rated, determined to be of comparable quality by the
Adviser. The Fund will not invest in fixed-income securities that are in
default in payment of principal or interest. A description of fixed-income
securities ratings is contained in the Appendix to the Statement of Additional
Information. A convertible security is a bond, debenture, note, preferred
stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The
value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its "conversion
value" (the security's worth if it were to be exchanged for the underlying
security, at market value, pursuant to its conversion privilege). To the
extent that a convertible security's investment value is greater than its
conversion value, its price will be primarily a reflection of such investment
value and its price will be likely to increase when interest rates fall and
decrease when interest rates rise, as with a fixed-income security (the credit
standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, may sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege). At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
Money market instruments in which the Fund may invest are securities issued
or guaranteed by the U.S. Government or its agencies (Treasury Bills, Notes
and Bonds); obligations of banks subject to regulation by the U.S. Government
and having total assets of $1 billion or more; Eurodollar certificates of
deposit; obligations of savings banks and savings and loan associations having
total assets of $1 billion or more; fully insured certificates of deposit; and
commercial paper rated within the two highest grades by Moody's or S&P or, if
not rated, issued by a company having an outstanding debt issue rated AAA by
S&P or Aaa by Moody's.
There may be periods during which, in the opinion of the Adviser, market
conditions warrant reduction of some or all of the Fund's securities holdings.
During such periods, the Fund may adopt a temporary "defensive" posture in
which up to 100% of its total assets may be invested in money market
instruments or cash.
The Fund will not invest in options and futures contracts.
RISK CONSIDERATIONS AND
INVESTMENT PRACTICES
Given the investment risks described below, an investment in shares of the
Fund should not be considered a complete investment program and is not
appropriate for all investors. Investors should carefully consider their
ability to assume these risks before making an investment in the Fund.
The net asset value of the Fund's shares will fluctuate with changes in the
market value of the Fund's portfolio securities. The market value of the
Fund's portfolio securities will increase or decrease due to a variety of
economic, market or political
7
<PAGE>
factors which cannot be predicted. Additionally, the net asset value of the
Fund's shares may increase or decrease due to changes in prevailing interest
rates. Generally, a rise in interest rates will result in a decrease in the
value of the Fund's fixed-income securities, while a drop in interest rates
will result in an increase in the value of those securities.
Mid-Cap Stocks. The Fund is intended for long- term investors who can
accept the risks involved in seeking long-term capital appreciation through
the investment in securities of medium-sized companies whose market
capitalizations, at the time of acquisition, are in the $300 million to $2
billion range which may involve greater risk of volatility of the Fund's net
asset value than is customarily associated with investing in larger, more
established companies. Often mid-size companies and the industries in which
they are focused are still evolving and while this may offer better growth
potential than larger, established companies, it also may make them more
sensitive to changing market conditions. Because prices of stocks, including
mid-cap stocks, fluctuate from day to day, the value of an investment in the
Fund will vary based upon the Fund's investment performance.
Convertible Securities. The Fund may acquire, through purchase or a
distribution by the issuer of a security held in its portfolio, a fixed-income
security which is convertible into common stock of the issuer. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The
value of a convertible security is a function of its "investment value" (its
value as if it did not have a conversion privilege), and its "conversion
value" (the security's worth if it were to be exchanged for the underlying
security, at market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect
on the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, may sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a possibility
of capital appreciation due to the conversion privilege.) At such times the
price of the convertible security will tend to fluctuate directly with the
price of the underlying equity security. In addition, see "High Yield, High
Risk Securities" below for a discussion of the risks of investing in
convertible and other fixed- income securities below investment grade.
Foreign securities. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United
States and abroad) or changed circumstances in dealings between nations.
Fluctuations in the relative rates of exchange between the currencies of
different nations will affect the value of the Fund's investments denominated
in foreign currency. Changes in foreign currency exchange rates relative to
the U.S. dollar will affect the U.S. dollar value of the Fund's assets
denominated in that currency and thereby impact upon the Fund's total return
on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected
by the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly
8
<PAGE>
available information about such companies. Moreover, foreign companies are
not subject to uniform accounting, auditing and financial reporting standards
and requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to
less government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition,
differences in clearance and settlement procedures on foreign markets may
occasion delays in settlements of the Fund's trades effected in such markets.
As such, the inability to dispose of portfolio securities due to settlement
delays could result in losses to the Fund due to subsequent declines in value
of such securities and the inability of the Fund to make intended security
purchases due to settlement problems could result in a failure of the Fund to
make potentially advantageous investments. To the extent the Fund purchases
Eurodollar certificates of deposit issued by foreign branches of domestic
United States banks, consideration will be given to their domestic
marketability, the lower reserve requirements normally mandated for overseas
banking operations, the possible impact of interruptions in the flow of
international currency transactions and future international political and
economic developments which might adversely affect the payment of principal or
interest.
Repurchase Agreements. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. While repurchase agreements involve
certain risks not associated with direct investments in debt securities, the
Fund follows procedures designed to minimize those risks. See the Statement of
Additional Information for a further discussion of such investments.
Private Placements. The Fund may invest up to 15% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are
not subject to the foregoing restriction). These securities are generally
referred to as private placements or restricted securities. Limitations on the
resale of such securities may have an adverse effect on their marketability,
and may prevent the Fund from disposing of them promptly at reasonable prices.
The Fund may have to bear the expense of registering such securities for
resale and the risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Adviser, pursuant to
procedures adopted by the Trustees of the Fund, will make a determination as
to the liquidity of each such restricted security purchased by the Fund. If
such Rule 144A security is determined to be "liquid," such security will not
be included within the category "illiquid securities," which under current
policy may not exceed 15% of the Fund's net assets. However, investing in Rule
144A securities could have the effect of increasing the level of Fund
illiquidity to the extent the Fund, at a particular point in time, may be
unable to find qualified institutional buyers interested in purchasing such
securities.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commit-
9
<PAGE>
ment, but delivery and payment can take place a month or more after the date
of the commitment. 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. See the Statement of Additional Information for a further discussion of
such investments.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value. See
the Statement of Additional Information for a further discussion of such
investments.
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.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in a real estate investment trust, the
Fund would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time the
Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will be
absorbing duplicate levels of fees with respect to investments in real estate
investment trusts.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at any
time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account
pursuant to applicable regulations and that are equal to at least the market
value, determined daily, of the loaned securities. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities will only be made to firms
deemed by the Adviser to be creditworthy and when the income which can be
earned from such loans justifies the attendant risks.
High Yield, High Risk Securities. Because of the ability of the Fund to
invest in certain high yield, high risk convertible and other fixed-income
securities (commonly known as "junk bonds"), the Adviser must take into
account the special nature of such securities
10
<PAGE>
and certain special considerations in assessing the risks associated with such
investments. Although the growth of the high yield securities market in the
1980s had paralleled a long economic expansion, since that time many issuers
have been affected by adverse economic and market conditions. It should be
recognized that an economic downturn or increase in interest rates is likely
to have a negative effect on the high yield bond market and on the value of
the high yield securities held by the Fund, as well as on the ability of the
securities' issuers to repay principal and interest on their borrowings.
The prices of high yield securities have been found to be less sensitive to
changes in prevailing interest rates than higher-rated investments but more
sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. If the issuer of a fixed-income security owned by the Fund
defaults, the Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and change can be expected to result
in an increased volatility of market prices of high yield securities and a
concomitant volatility in the net asset value of a share of the Fund.
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the
market may also adversely affect the ability of the Fund's Trustees to arrive
at a fair value for certain high yield securities at certain times and could
make it difficult for the Fund to sell certain securities. In addition, new
laws and potential new laws may have an adverse effect upon the value of high
yield securities and a concomitant negative impact upon the net asset value of
a share of the Fund.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Adviser with a view to
achieving the Fund's investment objective. Douglas S. Foreman, Managing
Director of the Adviser, has been designated as the Fund's primary portfolio
manager and Christopher J. Ainley, Managing Director of the Adviser, will
assist Mr. Foreman in managing the Fund's assets. Mr. Foreman and Mr. Ainley
have been portfolio managers with affiliates of The TCW Group, Inc. since
1994, prior to which they were portfolio managers with Putnam Investments.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Adviser will rely on information from various sources,
including research, analysis and appraisals of brokers and dealers, including
Dean Witter Reynolds Inc. ("DWR"), a broker-dealer affiliate of the Manager,
and others regarding economic developments and interest rate trends, and the
Adviser's own analysis of factors it deems relevant.
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including DWR. The Fund may
incur brokerage commissions on transactions conducted through DWR. The Fund
intends to buy and hold securities for capital appreciation. Although the Fund
does not intend to engage in substantial short- term trading as a means of
achieving its investment objective, the Fund may sell portfolio securities
without regard to the length of time that they have been held, in order to
take advantage of new investment opportunities or yield differentials, or
because the Fund desires to preserve gains or limit losses due to changing
economic conditions, interest rate trends, or the financial condition of the
issuer. It is not anticipated that the Fund's portfolio turnover rate will
exceed 150% in any one year. The Fund will incur underwriting discount costs
(on underwritten securities) and brokerage costs commensurate with its
portfolio turnover rate, and thus a higher level (over 100%) of portfolio
transactions will increase the Fund's overall brokerage expenses. Short term
gains and losses may result from such portfolio transactions. See "Dividends,
Distributions and Taxes" for a discussion of the tax implications of the
Fund's transactions.
The expenses of the Fund relating to its portfolio management are likely
to be greater than those in-
11
<PAGE>
curred by other investment companies investing only in securities issued by
domestic issuers, as custodial costs, brokerage commissions and other
transaction charges related to investing on foreign markets are generally
higher than in the United States.
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies ofthe Fund and thus may be
changed without shareholder approval.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended, (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations:
(i) all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets
does not require elimination of any security from the portfolio.
The Fund may not:
1. As to 75% of its assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations
issued, or guaranteed by, the United States Government, its agencies or
instrumentalities).
2. As to 75% of its assets, purchase more than 10% of all outstanding
voting securities or more than 10% of any class of securities of any one
issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
The Fund offers its shares 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 Manager, shares of the Fund are
distributed by the Distributor and offered by DWR and other dealers (which may
include TCW Brokerage Services, an affiliate of the Adviser) who have entered
into selected broker-dealer 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 and subsequent purchases of $100 or
more may be made by sending a check, payable to TCW/DW Mid-Cap Equity Trust,
directly to Dean Witter Trust Company (the "Transfer Agent") at P.O. Box 1040,
Jersey City, NJ 07303, or by contacting an account executive of DWR or other
Selected Broker-Dealer. The minimum initial purchase in the case of
investments through EasyInvest (Service Mark) , an automatic purchase plan
(see "Shareholder Services"), is $100, provided that the schedule of automatic
investments will result in investments totalling at least $1,000 within the
first twelve months. In the case of investments pursuant to Systematic Payroll
Deduction Plans (including Individual Retirement Plans), the Fund, in its
discretion, may accept investments without regard to any minimum amounts which
would otherwise be required if the Fund has reason to believe that additional
investments will increase the investment in all accounts under such Plans to
at least $1,000. Certificates for
12
<PAGE>
shares purchased will not be issued unless a request is made by the
shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since
DWR and other Selected Broker- Dealers forward investors' funds on settlement
date, they will benefit from the temporary use of the funds if payment is made
prior thereto. As noted above, orders placed directly with the Transfer Agent
must be accompanied by payment. Investors will be entitled to receive income
dividends and capital gains distributions if their order is received by the
close of business on the day prior to the record date for such dividends and
distributions.
The offering price will be the net asset value per share next determined
following receipt of an order by the Transfer Agent (see "Determination of Net
Asset Value"). While no sales charge is imposed at the time shares are
purchased, a contingent deferred sales charge may be imposed at the time of
redemption (see "Repurchases and Redemptions"). Sales personnel of a Selected
Broker-Dealer 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 or special sales incentives, including trips,
educational and/or business seminars and merchandise. The Fund and the
Distributor reserve the right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan"), under which the Fund pays the Distributor a fee, which
is accrued daily and payable monthly, at an annual rate of 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Fund (not including reinvestments of dividends or capital
gains distributions), less the average daily aggregate net asset value of the
Fund's shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the Fund's average
daily net assets. This fee is treated by the Fund as an expense in the year it
is accrued.
For the fiscal period February 27, 1996 (commencement of operations)
through May 31, 1996, the Fund accrued payments under the Plan amounting to
$351,633, which amount is equal to the annualized rate of 0.94% of the Fund's
average daily net assets for the fiscal period. The payments accrued under the
Plan were calculated pursuant to clause (a) of the compensation formula under
the Plan.
A portion of the fee payable pursuant to the Plan, equal to 0.25% of the
Fund's average daily net assets, is characterized as a service fee within the
meaning of NASD guidelines. The service fee is a payment made for personal
service and/or the maintenance of shareholder accounts.
Amounts paid under the Plan are paid to the Distributor to compensate it
for the services provided and the expenses borne by the Distributor and others
in the distribution of the Fund's shares, including the payment of commissions
for sales of the Fund's shares and compensation to and expenses of DWR account
executives and others who engage in or support distribution of shares or who
service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed distribution expenses.
At any given time, the expenses in distributing shares of the Fund may be
in excess of the total of (i) the payments made by the Fund pursuant to the
Plan, and (ii) the proceeds of contingent deferred sales charges paid by
investors upon the redemption of shares (see "Repurchases and
Redemptions--Contingent Deferred Sales Charge"). For example, if $1 million in
expenses in distributing shares of the
13
<PAGE>
Fund had been incurred and $750,000 had been received as described in (i) and
(ii) above, the excess expense would amount to $250,000. The Distributor has
advised the Fund that the excess distribution expenses (including the carrying
charge described above) totalled $7,941,216 at May 31, 1996, which was equal
to 4.35% of the Fund's net assets on such date.
Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses or any requirement that the Plan be
continued from year to year, such excess amount, if any, does not constitute a
liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred but not yet recovered through
distribution fees of contingent deferred sales charges, may or may not be
recovered through future distribution fees or contingent deferred sales
charges.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes prior
to 4:00 p.m., at such earlier time), on each day that the New York Stock
Exchange is open by taking the value of all assets of the Fund, subtracting
all its liabilities, dividing by the number of shares outstanding and
adjusting to the nearest cent. The net asset value per share will not be
determined on Good Friday and on such other federal and non-federal holidays
as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange or quoted by NASDAQ is valued at its latest
sale price on that exchange or quotation service (if there were no sales that
day, the security is valued at the latest bid price); and (2) all other
portfolio securities for which over- the-counter market quotations are readily
available are valued at the latest bid price. When market quotations are not
readily available, including circumstances under which it is determined by the
Adviser that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in
good faith under procedures established by and under the general supervision
of the Board of Trustees. For valuation purposes, quotations of foreign
portfolio securities, other assets and liabilities and forward contracts
stated in foreign currency are translated into U.S. dollar equivalents at the
prevailing market rates prior to the close of the New York Stock Exchange as
of the morning of valuation. Dividends receivable are accrued as of the
ex-dividend date or as of the time that the relevant ex-dividend date and
amounts become known.
Short-term debt securities with remaining maturities of 60 days or less at
the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Other short- term debt securities will be valued on a mark-to-market
basis until such time as they reach a remaining maturity of 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' market value, in
which case these securities will be valued at their fair value as determined
by the Trustees. All other securities and other assets are valued at their
fair value as determined in good faith under procedures established by and
under the supervision of the Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
the pricing service believes is the fair valuation of such portfolio
securities.
14
<PAGE>
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Automatic Investment of Dividends and Distribu- tions. 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 TCW/DW
Fund), unless the shareholder requests that they be paid in cash.
Investment of Dividends or Distributions Received in Cash. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution at the net asset value
per share next determined after receipt by the Transfer Agent, by returning
the check or the proceeds to the Transfer Agent within 30 days after the
payment date. Shares so acquired are not subject to the imposition of a
contingent deferred sales charge upon their redemption (see "Repurchases and
Redemptions").
EasyInvest (Service Mark) . Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, on a
semi-monthly, monthly or quarterly basis, to the Fund's Transfer Agent for
investment in shares of the Fund. Shares purchased through EasyInvest will be
added to the shareholder's existing account at the net asset value calculated
the same business day the transfer of funds is effected. For further
information or to subscribe to EasyInvest, shareholders should contact their
DWR or other Selected Broker-Dealer account executive or the Transfer Agent.
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable
contingent deferred sales charge will be imposed on shares redeemed under the
Withdrawal Plan (See "Repurchases and Redemptions--Contingent Deferred Sales
Charge"). Therefore, any shareholder participating in the Withdrawal Plan will
have sufficient shares redeemed from his or her account so that the proceeds
(net of any applicable contingent deferred sales charge) to the shareholder
will be the designated monthly or quarterly amount.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for information about any of the above
services.
Tax Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of
such plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their account executive or the
Transfer Agent.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders an "Exchange Privilege"
allowing the exchange of shares of the Fund for shares of any other TCW/DW
Fund sold with a contingent deferred sales charge ("CDSC Funds"), for shares
of TCW/DW North American Government Income Trust, TCW/DW Income and Growth
Fund and TCW/DW Balanced Fund and for shares of five money market funds for
which InterCapital serves as investment manager: Dean Witter Liquid Asset Fund
Inc., Dean Witter U.S. Government Money Market Trust, Dean Witter Tax-Free
Daily Income Trust, Dean Witter California Tax-Free Daily Income Trust and
Dean Witter New York Municipal Money Market Trust (the foregoing eight funds
are hereinafter collectively referred to as the "Exchange Funds"). Exchanges
may be made after the shares of the Fund acquired by purchase (not by exchange
or dividend reinvestment) have been held for thirty days. There is no waiting
period for exchanges of shares acquired by exchange or dividend reinvestment.
Shareholders utilizing the Fund's Exchange Privilege may subsequently
re-exchange such shares back
15
<PAGE>
to the Fund. However, no exchange privilege is available between the Fund and
any other fund managed by the Manager or InterCapital, other than the TCW/DW
Funds and the five money market funds listed above.
An exchange to another 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 or any other TCW/DW Fund, shares of the Fund
are redeemed out of the Fund at their next calculated net asset value and the
proceeds of the redemption are used to purchase shares of the money market
fund at their net asset value determined the following day. Subsequent
exchanges between any of the money market funds and any TCW/DW Fund can be
effected on the same basis. No contingent deferred sales charge ("CDSC") is
imposed at the time of any exchange, although any applicable CDSC will be
imposed upon ultimate redemption. During the period of time the shareholder
remains in the Exchange Fund (calculated from the last day of the month in
which the Exchange Fund shares were acquired), the holding period (for the
purpose of determining the rate of the CDSC) is frozen. If those shares are
subsequently reexchanged for shares of a CDSC Fund, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a CDSC Fund are reacquired. Thus, the CDSC is
based upon the time (calculated as described above) the shareholder was
invested in a CDSC Fund (see "Repurchases and Redemptions--Contingent Deferred
Sales Charge"). However, in the case of shares of the Fund exchanged into an
Exchange Fund, upon a redemption of shares which results in a CDSC being
imposed, a credit (not to exceed the amount of the CDSC) will be given in an
amount equal to the Exchange Fund 12b-1 distribution fees which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.)
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Manager to be abusive and
contrary to the best interests of the Fund's other shareholders and, at the
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, each of the other TCW/DW Funds and each of the money market funds may in
its 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. Also,
the Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such other TCW/DW Funds or money market funds for which shares
of the Fund have been 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 the margin
account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement
and any other conditions imposed by each fund. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares,
on which the shareholder may realize a capital gain or loss. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an
exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of
16
<PAGE>
any of the money market funds for which the Exchange Privilege is available
pursuant to this Exchange Privilege by contacting their DWR or other Selected
Broker-Dealer account executive (no Exchange Privilege Authorization Form is
required). Other shareholders (and those shareholders who are clients of DWR
or another Selected Broker-Dealer but who wish to make exchanges directly by
writing or telephoning the Transfer Agent) must complete and forward to the
Transfer Agent an Exchange Privilege Authorization Form, copies of which may
be obtained from the Transfer Agent, to initiate an exchange. If the
Authorization Form is used, exchanges may be made in writing or by contacting
the Transfer Agent at (800) 869-NEWS (toll-free). The Fund will employ
reasonable procedures to confirm that exchange instructions communicated over
the telephone are genuine. Such procedures 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 will also be recorded. If such
procedures are not employed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her DWR or other
Selected Broker-Dealer account executive, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
in the past with other funds managed by the Manager.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REPURCHASES AND REDEMPTIONS
- -----------------------------------------------------------------------------
Repurchase. DWR and other Selected 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 or telegraphic request of the shareholder. The repurchase price is
the net asset value per share next computed (see "Purchase of Fund Shares")
after such repurchase order is received by DWR or other Selected
Broker-Dealer, reduced by any applicable CDSC (see below).
The CDSC, if any, will be the only fee imposed by the Fund, the
Distributor, DWR or other Selected Broker-Dealer. The offers by DWR and other
Selected Broker-Dealers to repurchase shares may be suspended without notice
by them at any time. In that event, shareholders may redeem their shares
through the Fund's Transfer Agent as set forth below under "Redemption."
Redemption. Shares of the Fund can be redeemed for cash at any time at the
net asset value per share next determined; however, such redemption proceeds
will be reduced by the amount of any applicable contingent deferred sales
charge (see below). If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption along with any additional
documentation required by the Transfer Agent.
Contingent Deferred Sales Charge. Shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any charge upon
redemption. Shares redeemed sooner than six years after purchase may, however,
be subject to a charge upon redemption. This charge is called a "contingent
deferred sales charge" ("CDSC"), which will be a percentage of the dollar
amount of shares redeemed and will be assessed on an amount
17
<PAGE>
equal to the lesser of the current market value or the cost of the shares
being redeemed. The size of this percentage will depend upon how long the
shares have been held, as set forth in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
YEAR SINCE SALES CHARGE AS A
PURCHASE PERCENTAGE OF AMOUNT
PAYMENT MADE REDEEMED
- --------------------------- -----------------------
<S> <C>
First ...................... 5.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 2.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Seventh and thereafter .... None
</TABLE>
A CDSC will not be imposed on: (i) any amount which represents an increase
in value of shares purchased within the six years preceding the redemption;
(ii) the current net asset value of shares purchased more than six years prior
to the redemption; and (iii) the current net asset value of shares purchased
through reinvestment of dividends or distributions. Moreover, in determining
whether a CDSC is applicable it will be assumed that amounts described in (i),
(ii) and (iii) above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in
a qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination
of disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified corporate
or self- employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2 );
(b) distributions from an IRA or 403(b) Custodial Account following attainment
of age 59 1/2 ; or (c) a tax-free return of an excess contribution to an IRA;
and
(3) all redemptions of shares held for the benefit of a participant in a
corporate or self-employed retirement plan qualified under Section 401(k) of
the Internal Revenue Code which offers investment companies managed by the
Manager or its parent, Dean Witter InterCapital Inc., as self-directed
investment alternatives and for which Dean Witter Trust Company, an affiliate
of the Manager, serves as recordkeeper or Trustee ("Eligible 401(k) Plan"),
provided that either: (a) the plan continues to be an Eligible 401(k) Plan
after the redemption; or (b) the redemption is in connection with the complete
termination of the plan involving the distribution of all plan assets to
participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to
engage in gainful employment. With reference to (2) above, the term
"distribution" does not encompass a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee. All
waivers will be granted only following receipt by the Distributor of
confirmation of the shareholder's entitlement.
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption suspended
under unusual circumstances; e.g., when normal trading is not taking place on
the New York Stock Exchange. If the shares to be redeemed have recently been
purchased by check, payment of the redemption proceeds may be delayed for the
minimum time needed to verify that the check used for investment has been
honored (not more than fifteen days from the time of receipt of the check by
the Transfer Agent). Shareholders maintaining margin accounts with DWR or
another Selected Broker-Dealer
18
<PAGE>
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
repurchased or redeemed and has not previously exercised this reinstatement
privilege may, within thirty days after the date of the repurchase or
redemption, reinstate any portion or all of the proceeds of such repurchase or
redemption in shares of the Fund at net asset value next determined after a
reinstatement request, together with the proceeds, is received by the Transfer
Agent and receive a pro-rata credit for any CDSC paid in connection with such
repurchase or redemption.
Involuntary Redemption. The Fund reserves the right, on sixty days' notice,
to redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to
redemptions by the shareholder have a value of less than $100 or such lesser
amount as may be fixed by the Trustees or, in the case of an account opened
through EasyInvest (Service Mark) , if after twelve months the shareholder has
invested less than $1,000 in the account. However, before the Fund redeems
such shares and sends the proceeds to the shareholder, it will notify the
shareholder that the value of the shares is less than the applicable amount
and allow him or her sixty days to make an additional investment in an amount
which will increase the value of his or her account to at least the applicable
amount before the redemption is processed. No CDSC will be imposed on any
involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
Dividends and Distributions. The Fund intends to pay dividends and to
distribute substantially all of the Fund's net investment income and net
short-term and net long-term capital gains, if any, at least once each year.
The Fund may, however, determine to retain all or part of any net long-term
capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional Fund shares and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash. (See
"Shareholder Services--Automatic Investment of Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and capital gains to shareholders and otherwise qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code, it is not
expected that the Fund will be required to pay any federal income tax.
Shareholders who are required to pay taxes on their income will normally have
to pay federal income taxes, and any state income taxes, on the dividends and
distributions they receive from the Fund. Such dividends and distributions, to
the extent that they are derived from net investment income or net short-term
capital gains, are taxable to the shareholder as ordinary income regardless of
whether the shareholder receives such payments in additional shares or in
cash. Any dividends declared with a record date in the last quarter of any
calendar year which are paid in the following year prior to February 1 will be
deemed received by the shareholder in the prior calendar year. Dividend
payments will be eligible for the federal dividends received deduction
available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction
if the Fund were the shareholder claiming the dividends received deduction. In
this regard, a 46-day holding period generally must be met by the Fund and the
shareholder.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. The Fund is subject to foreign
withholding taxes and the pass through of such taxes may not be available to
shareholders.
19
<PAGE>
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes. To avoid being subject to a 31% federal backup withholding tax on
taxable dividends, capital gains distributions and the proceeds of redemptions
and repurchases, shareholders' taxpayer identification numbers must be
furnished and certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. The total return of the Fund is based on historical
earnings and is not intended to indicate future performance. The "average
annual total return" of the Fund refers to a figure reflecting the average
annualized percentage increase (or decrease) in the value of an initial
investment in the Fund of $1,000 over one, five and ten years or the life of
the Fund, if less than any of the foregoing. Average annual total return
reflects all income earned by the Fund, any appreciation or depreciation of
the Fund's assets, all expenses incurred by the Fund and all sales charges
which would be incurred by redeeming shareholders, for the stated periods. It
also assumes reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, and year-by-year or
other types of total return figures. Such calculations may or may not reflect
the deduction of the contingent deferred sales charge which, if reflected,
would reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the
Fund. The Fund from time to time may also advertise its performance relative
to certain performance rankings and indexes compiled by independent
organizations (such as mutual fund performance rankings of Lipper Analytical
Services, Inc.).
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of $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 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 limitation on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
Code of Ethics. The Adviser is subject to a Code of Ethics with respect to
investment transactions in which the Adviser's officers, directors and certain
other persons have a beneficial interest to avoid any actual or potential
conflict or abuse of their fiduciary position. The Code of Ethics, as it
pertains to the TCW/DW Funds, contains several restrictions and procedures
designed to eliminate conflicts of interest including: (a) pre-clearance of
per-
20
<PAGE>
sonal investment transactions to ensure that personal transactions by
employees are not being conducted at the same time as the Adviser's clients;
(b) quarterly reporting of personal securities transactions; (c) a prohibition
against personally acquiring securities in an initial public offering,
entering into uncovered short sales and writing uncovered options; (d) a seven
day "blackout period" prior or subsequent to a TCW/DW Fund transaction during
which portfolio managers are prohibited from making certain transactions in
securities which are being purchased or sold by a TCW/DW Fund; (e) a
prohibition, with respect to certain investment personnel, from profiting in
the purchase and sale, or sale and purchase, of the same (or equivalent)
securities within 60 calendar days; and (f) a prohibition against acquiring
any security which is subject to firm wide or, if applicable, a department
restriction of the Adviser. The Code of Ethics provides that exemptive relief
may be given from certain of its requirements, upon application. The Adviser's
Code of Ethics complies with regulatory requirements and, insofar as it
relates to persons associated with registered investment companies, the Report
of the Advisory Group on Personal Investing of the Investment Company
Institute.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover
of this Prospectus.
21
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
Portfolio of Investments May 31, 1996 (unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- -------------------------------------- --------------
<S> <C> <C>
COMMON STOCKS (96.6%)
AUTO PARTS (1.1%) 40,100 Magna International, Inc. (Class A)
(Canada) .............................. $ 1,934,825
--------------
BROADCAST MEDIA (8.9%)
32,800 Cablevision Systems Corp. (Class A)* . 1,574,400
59,000 Clear Channel Communications, Inc.* .. 4,793,750
102,300 Gartner Group, Inc. (Class A)* ....... 3,657,225
116,550 Infinity Broadcasting Corp. (Class A)* 3,175,987
38,600 Lin Television Corp.* ................. 1,225,550
106,300 Westwood One, Inc.* ................... 1,846,962
--------------
16,273,874
--------------
COMMERCIAL SERVICES (13.6%)
108,200 AccuStaff, Inc.* ...................... 3,408,300
63,200 Alternative Resources Corp.* .......... 2,433,200
37,900 America Online, Inc.* ................. 2,141,350
62,550 Apollo Group, Inc. (Class A)* ......... 2,939,850
28,200 Corrections Corp. of America* ......... 2,086,800
111,600 CUC International, Inc.* .............. 4,129,200
66,000 Medaphis Corp.* ....................... 2,475,000
39,900 Paychex, Inc. ......................... 1,745,625
44,400 Robert Half International, Inc.* ..... 2,491,950
35,400 Romac International, Inc.* ............ 991,200
--------------
24,842,475
--------------
COMMUNICATIONS -
EQUIPMENT & SOFTWARE (7.0%)
76,100 Ascend Communications, Inc.* .......... 5,079,675
93,500 Cascade Communications Corp.* ......... 5,271,062
26,600 U.S. Robotics Corp.* .................. 2,420,600
--------------
12,771,337
--------------
COMPUTER SOFTWARE &
SERVICES (19.5%)
75,200 Baan Company NV* (Netherlands) ....... 2,707,200
35,900 Broderbund Software, Inc.* ............ 1,498,825
61,700 Cerner Corp.* ......................... 1,519,362
47,800 Danka Business Systems PLC (ADR)
(United Kingdom) ...................... 2,360,125
55,200 DST Systems, Inc.* .................... 1,925,100
42,900 I2 Technologies, Inc.* ................ 1,705,275
30,100 Inso Corp.* ........................... 1,670,550
49,400 Macromedia, Inc.* ..................... 2,099,500
31,700 Medic Computer Systems, Inc.* ......... 2,932,250
50,100 Netscape Communications Corp.* ....... 3,406,800
46,300 Peoplesoft, Inc.* ..................... 3,252,575
28,750 Remedy Corp.* ......................... 2,206,562
49,900 Security Dynamics Technologies, Inc.* 4,428,625
55,500 Sterling Commerce, Inc.* .............. 2,435,062
22,000 Xylan Corp.* .......................... 1,391,500
--------------
35,539,311
--------------
DRUGS (1.3%)
38,100 Biogen, Inc.* ......................... $ 2,295,525
--------------
ELECTRICAL EQUIPMENT (0.5%)
42,600 Baldor Electric Co. ................... 942,525
--------------
Electronics -
Semiconductors/Components (3.0%)
41,100 Altera Corp.* ......................... 1,977,937
103,300 Maxim Integrated Products, Inc.* ..... 3,512,200
--------------
5,490,137
--------------
ENTERTAINMENT (2.0%)
75,285 Gaylord Entertainment Co. (Class A) .. 1,966,821
29,300 Mirage Resorts, Inc.* ................. 1,666,438
--------------
3,633,259
--------------
FINANCIAL SERVICES (0.9%)
86,300 Credit Acceptance Corp.* .............. 1,726,000
--------------
HOSPITAL MANAGEMENT (4.1%)
47,200 American Oncology Resources, Inc.* ... 2,206,600
52,500 Health Management Associates, Inc.* .. 1,811,250
62,200 Phycor, Inc.* ......................... 3,374,350
--------------
7,392,200
--------------
HOTELS/MOTELS (2.0%)
59,400 HFS, Inc.* ............................ 3,705,075
--------------
INSURANCE (2.5%)
60,300 Gallagher (Arthur J.) & Co. ........... 1,937,138
55,200 Progressive Corp. ..................... 2,553,000
--------------
4,490,138
--------------
MANUFACTURING (1.5%)
54,200 Oakley, Inc.* ......................... 2,757,425
--------------
MEDICAL PRODUCTS & SUPPLIES (1.7%)
35,600 Safeskin Corp.* ....................... 1,277,150
36,750 Thermo Cardiosystems, Inc.* ........... 1,874,250
--------------
3,151,400
--------------
MEDICAL SERVICES (3.2%)
79,600 Healthsource, Inc.* ................... 1,800,950
96,100 Medpartners/Mullikin, Inc.* ........... 2,246,338
38,500 Oxford Health Plans, Inc.* ............ 1,814,313
--------------
5,861,601
--------------
OFFICE EQUIPMENT & SUPPLIES (4.7%)
139,000 Corporate Express, Inc.* .............. 5,820,625
96,300 Viking Office Products, Inc.* ......... 2,744,550
--------------
8,565,175
--------------
</TABLE>
22
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
Portfolio of Investments May 31, 1996 (unaudited) (continued)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- --------------------------------- ------------
<S> <C> <C>
RESTAURANTS (3.0%)
113,600 Boston Chicken, Inc.* ............ $ 3,692,000
66,500 Starbucks Corp.* ................. 1,787,188
------------
5,479,188
------------
Retail - Specialty (11.5%)
98,800 Bed Bath & Beyond, Inc.* ......... 2,778,750
49,400 Global DirectMail Corp.* ......... 2,216,825
120,900 Heilig-Meyers Co. ................ 2,493,563
71,000 Just For Feet, Inc.* ............. 3,789,625
123,200 Officemax, Inc.* ................. 3,218,600
93,200 PetSmart, Inc.* .................. 4,100,800
83,500 Sunglass Hut International, Inc.* 2,296,250
------------
20,894,413
------------
TELECOMMUNICATIONS (4.1%)
86,700 LCI International, Inc.* ......... 2,763,563
83,300 Premisys Communications, Inc.* .. 4,748,100
------------
7,511,663
------------
TEXTILES (0.5%)
19,900 Mossimo, Inc.* ................... 975,100
------------
TOTAL COMMON STOCKS (IDENTIFIED
COST $152,348,258) .............. 176,232,646
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- --------------
<S> <C> <C>
SHORT-TERM INVESTMENT (3.1%)
REPURCHASE AGREEMENT
$5,622 The Bank of New York 5.25% due
06/03/96 (dated 05/31/96;
proceeds $5,624,761;
collateralized by $3,968,276 U.S.
Treasury Bond 7.25% due 08/15/22
valued at $4,114,061 and
$1,587,634 U.S. Treasury Note
5.625% due 06/30/97 valued at
$1,620,686) (Identified Cost
$5,622,301) ...................... $ 5,622,301
--------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST
$157,970,559)
(A) ............. 99.7% 181,854,947
OTHER ASSETS IN
EXCESS OF
LIABILITIES ..... 0.3 547,635
-------- -------------
NET ASSETS ....... 100.0% $182,402,582
======== =============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation was
$28,548,674 and the aggregate gross unrealized depreciation was
$4,664,286, resulting in net unrealized appreciation of $23,884,388.
See Notes to Financial Statements
23
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
Financial Statements
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996 (unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $157,970,559) .......... $181,854,947
Receivable for:
Shares of beneficial interest sold ..... 2,161,398
Dividends ............................... 6,453
Interest ................................ 820
Deferred organizational expenses ........ 194,809
Prepaid expenses ......................... 11,444
--------------
TOTAL ASSETS ........................... 184,229,871
--------------
LIABILITIES:
Payable for:
Investments purchased ................... 1,181,579
Plan of distribution fee ................ 127,625
Management fee .......................... 86,911
Investment advisory fee ................. 57,940
Shares of beneficial interest
repurchased ............................ 21,619
Organizational expenses .................. 205,500
Accrued expenses ......................... 146,115
--------------
TOTAL LIABILITIES ...................... 1,827,289
--------------
NET ASSETS:
Paid-in-capital .......................... 159,423,828
Net unrealized appreciation .............. 23,884,388
Net investment loss ...................... (568,967)
Net realized loss ........................ (336,667)
--------------
NET ASSETS ............................. $182,402,582
==============
NET ASSET VALUE PER SHARE, 15,590,485
shares outstanding (unlimited shares
authorized of $.01 par value) ........... $ 11.70
==============
</TABLE>
STATEMENT OF OPERATIONS For the period February 27, 1996* through May 31, 1996
(unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest ...................... $ 328,755
Dividends (net of $442 foreign
withholding tax) ............. 41,474
------------
TOTAL INCOME ................. 370,229
------------
EXPENSES
Plan of distribution fee ..... 351,633
Management fee ................ 223,568
Investment advisory fee ...... 149,046
Professional fees ............. 67,612
Registration fees ............. 54,816
Transfer agent fees and
expenses ..................... 52,854
Shareholder reports and
notices ...................... 19,910
Organizational expenses ...... 10,691
Trustees' fees and expenses .. 5,231
Custodian fees ................ 3,472
Other ......................... 363
------------
TOTAL EXPENSES ............... 939,196
------------
NET INVESTMENT LOSS .......... (568,967)
------------
NET REALIZED AND UNREALIZED
GAIN (LOSS):
Net realized loss ............. (336,667)
Net unrealized appreciation .. 23,884,388
------------
NET GAIN ..................... 23,547,721
------------
NET INCREASE ................. $22,978,754
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 27, 1996*
THROUGH MAY 31, 1996
--------------------
<S> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment loss ......................................... $ (568,967)
Net realized loss ........................................... (336,667)
Net unrealized appreciation ................................. 23,884,388
--------------------
Net increase ............................................... 22,978,754
Net increase from transactions in shares of beneficial
interest .................................................... 159,323,828
--------------------
Total increase ............................................. 182,302,582
NET ASSETS:
Beginning of period .......................................... 100,000
--------------------
END OF PERIOD (including a net investment loss of $568,967) . $182,402,582
====================
</TABLE>
- ------------
* Commencement of operations.
See Notes to Financial Statements
24
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
Notes to Financial Statements May 31, 1996 (unaudited)
- -----------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- TCW/DW Mid-Cap Equity Trust (the
"Fund") is registered under the Investment Company Act of 1940, as amended
(the "Act"), as a diversified, open-end management investment company. The
Fund's investment objective is to seek long-term capital appreciation. The
Fund seeks to achieve its objective by investing primarily in equity
securities, including common stocks and securities convertible into common
stock, issued by medium-sized companies. The Fund was organized as a
Massachusetts business trust on October 17, 1995 and had no operations other
than those relating to organizational matters and the issuance of 10,000
shares of beneficial interest for $100,000 to Dean Witter InterCapital Inc.
("InterCapital"), an affiliate of Dean Witter Services Company Inc. (the
"Manager"), to effect the Fund's initial capitalization. The Fund commenced
operations on February 27, 1996.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies:
A. Valuation of Investments -- (1) an equity security listed or traded on
the New York, American or other domestic or foreign stock exchange is
valued at its latest sale price on that exchange prior to the time when
assets are valued; if there were no sales that day, the security is valued
at the latest bid price (in cases where securities are traded on more than
one exchange; the securities are valued on the exchange designated as the
primary market by the Adviser); (2) all other portfolio securities for
which over-the-counter market quotations are readily available are valued
at the latest available bid price prior to the time of valuation; (3) when
market quotations are not readily available, including circumstances under
which it is determined by the Adviser that sale and bid prices are not
reflective of a security's market value, portfolio securities are valued
at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees; (4)
certain portfolio securities may be valued by an outside pricing service
approved by the Trustees. The pricing service utilizes a matrix system
incorporating security quality, maturity and coupon as the evaluation
model parameters, and/or research and evaluations by its staff, including
review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio
securities valued by such pricing service; and (5) short-term debt
securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. Accounting for Investments -- Security transactions are accounted for
on the trade date (date the order to buy or sell is executed). Realized
gains and losses on security transactions are determined by the identified
cost method. Dividend income and other distributions are recorded on the
ex-dividend date except for certain dividends from foreign securities
which are recorded as soon as the Fund is informed after the ex-dividend
date. Discounts are accreted over the life of the respective securities.
Interest income is accrued daily.
C. Foreign Currency Translation -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market
value of investment securities, other assets and liabilities and forward
contracts are translated at the exchange rates prevailing at the end of
the period; and (2) purchases, sales, income and expenses are translated
at the exchange rates prevailing on the
25
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
Notes to Financial Statements May 31, 1996 (unaudited) (continued)
- -----------------------------------------------------------------------------
respective dates of such transactions. The resultant exchange gains and
losses are included in the Statement of Operations. Pursuant to U.S.
Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a
reduction of ordinary income for federal income tax purposes. The Fund
does not isolate that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the changes in the
market prices of the securities.
D. Forward Foreign Currency Exchange Contracts -- The Fund may enter into
forward foreign currency contracts which are valued daily at the
appropriate exchange rates. The resultant unrealized exchange gains or
losses are included in the Statement of Operations as unrealized gain/loss
on foreign exchange transactions. The Fund records realized gains or
losses on delivery of the currency or at the time the forward contract is
extinguished (compensated) by entering into a closing transaction prior to
delivery.
E. Federal Income Tax Status -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, no federal income tax provision is required.
F. Dividends and Distributions to Shareholders -- The Fund records
dividends and distributions to its shareholders on the record date. The
amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary
or permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial reporting purposes but
not for tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized capital gains. To the
extent they exceed net investment income and net realized capital gains
for tax purposes, they are reported as distributions of paid-in-capital.
G. Organizational Expenses -- InterCapital paid the organizational
expenses of the Fund in the amount of approximately $205,500 which will be
reimbursed for the full amount thereof. Such expenses have been deferred
and are being amortized on the straight-line method over a period not to
exceed five years from the commencement of operations.
2. MANAGEMENT AGREEMENT -- Pursuant to a Management Agreement, the Fund pays
the Manager a management fee, accrued daily and payable monthly, by applying
the annual rate of 0.60% to the net assets of the Fund determined as of the
close of each business day.
Under the terms of the Management Agreement, the Manager maintains certain
of the Fund's books and records and furnishes, at its own expense, office
space, facilities, equipment, clerical, bookkeeping and certain legal services
and pays the salaries of all personnel, including officers of the Fund who are
employees of the Manager. The Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
26
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
Notes to Financial Statements May 31, 1996 (unaudited) (continued)
- -----------------------------------------------------------------------------
3. INVESTMENT ADVISORY AGREEMENT -- Pursuant to an Investment Advisory
Agreement with TCW Funds Management, Inc. (the "Adviser"), the Fund pays an
advisory fee, accrued daily and payable monthly, by applying the annual rate
of 0.40% to the net assets of the Fund determined as of the close of each
business day.
Under the terms of the Investment Advisory Agreement, the Fund has retained
the Adviser to invest the Fund's assets, including placing orders for the
purchase and sale of portfolio securities. The Adviser obtains and evaluates
such information and advice relating to the economy, securities markets, and
specific securities as it considers necessary or useful to continuously manage
the assets of the Fund in a manner consistent with its investment objective.
In addition, the Adviser pays the salaries of all personnel, including
officers of the Fund, who are employees of the Adviser.
4. PLAN OF DISTRIBUTION -- Shares of the Fund are distributed by Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Manager. The Fund
has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under
the Act pursuant to which the Fund pays the Distributor compensation, accrued
daily and payable monthly, at an annual rate of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's shares since the Fund's
inception (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or
(b) the Fund's average daily net assets. Amounts paid under the Plan are paid
to the Distributor to compensate it for the services provided and the expenses
borne by it and others in the distribution of the Fund's shares, including the
payment of commissions for sales of the Fund's shares and incentive
compensation to, and expenses of, the account executives of Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Manager and Distributor, and other
employees or selected broker-dealers who engage in or support distribution of
the Fund's shares or who service shareholder accounts, including overhead and
telephone expenses, printing and distribution of prospectuses and reports used
in connection with the offering of the Fund's shares to other than current
shareholders and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may be compensated
under the Plan for its opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses
incurred but not yet recovered may be recovered through future distribution
fees from the Fund and contingent deferred sales charges from the Fund's
shareholders.
The Distributor has informed the Fund that for the period ended May 31,
1996, it received approximately $70,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the period ended May 31, 1996 aggregated
$155,878,477 and $3,193,902, respectively.
For the period ended May 31, 1996, the Fund incurred $150 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the
Fund.
Dean Witter Trust Company, an affiliate of the Manager and Distributor, is
the Fund's transfer agent. At May 31, 1996, the Fund had transfer agent fees
and expenses payable of approximately $18,000.
27
<PAGE>
TCW/DW MID-CAP EQUITY TRUST
Notes to Financial Statements May 31, 1996 (unaudited) (continued)
- -----------------------------------------------------------------------------
6. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 27, 1996* THROUGH
MAY 31, 1996
----------------------------
(UNAUDITED)
SHARES AMOUNT
------------ --------------
<S> <C> <C>
Sold ........... 15,874,040 $162,610,186
Repurchased ... (293,555) (3,286,358)
------------ --------------
Net increase .. 15,580,485 $159,323,828
============ ==============
</TABLE>
* Commencement of operations.
28
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TCW/DW Mid-Cap Equity Trust
Two World Trade Center
New York, New York 10048
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Sheldon Curtis
Senior Vice President, Secretary and
General Counsel
Douglas S. Foreman
Vice President
Christopher J. Ainley
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
MANAGER
Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
TCW/DW
MID-CAP EQUITY
TRUST
PROSPECTUS
JULY 1, 1996
