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DEAN WITTER
JAPAN FUND
PROSPECTUS--JULY 28, 1997
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DEAN WITTER JAPAN FUND (THE "FUND") IS AN OPEN-END, NON-DIVERSIFIED MANAGEMENT
INVESTMENT COMPANY WHOSE INVESTMENT OBJECTIVE IS TO SEEK LONG-TERM CAPITAL
APPRECIATION. THE FUND SEEKS TO MEET ITS INVESTMENT OBJECTIVE BY INVESTING
PRIMARILY IN SECURITIES OF ISSUERS LOCATED IN JAPAN. (SEE "INVESTMENT OBJECTIVE
AND POLICIES.")
The Fund offers four classes of shares (each, a "Class"), each with a different
combination of sales charges, ongoing fees and other features. The different
distribution arrangements permit an investor to choose the method of purchasing
shares that the investor believes is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and other
relevant circumstances. Shares of the Fund held prior to July 28, 1997 have been
designated Class B shares. (See "Purchase of Fund Shares--Alternative Purchase
Arrangements.")
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 28, 1997, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
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TABLE OF CONTENTS
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Prospectus Summary................................ 2
Summary of Fund Expenses.......................... 4
Financial Highlights.............................. 5
The Fund and its Management....................... 6
Investment Objective and Policies................. 6
Risk Factors and Special Considerations......... 7
Investment Restrictions........................... 13
Purchase of Fund Shares........................... 14
Shareholder Services.............................. 21
Redemptions and Repurchases....................... 23
Dividends, Distributions and Taxes................ 24
Performance Information........................... 25
Additional Information............................ 25
</TABLE>
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
DEAN WITTER
JAPAN FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 or (800) 869-NEWS (toll-free)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DEAN WITTER DISTRIBUTORS INC., DISTRIBUTOR
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PROSPECTUS SUMMARY
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THE FUND The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and
is an open-end, non-diversified management investment company. The Fund invests
primarily in securities of issuers located in Japan.
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SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page 25). The Fund offers four
Classes of shares, each with a different combination of sales charges, ongoing fees and
other features (see pages 14-21).
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MINIMUM The minimum initial investment for each Class is $1,000 ($100 if the account is opened
PURCHASE through EasyInvest-SM-). Class D shares are only available to persons investing $5
million or more and to certain other limited categories of investors. For the purpose of
meeting the minimum $5 million investment for Class D shares, and subject to the $1,000
minimum initial investment for each Class of the Fund, an investor's existing holdings
of Class A shares and shares of funds for which Dean Witter InterCapital Inc. serves as
investment manager ("Dean Witter Funds") that are sold with a front-end sales charge,
and concurrent investments in Class D shares of the Fund and other Dean Witter Funds
that are multiple class funds, will be aggregated. The minimum subsequent investment is
$100 (see page 14).
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INVESTMENT The investment objective of the Fund is to seek long-term capital appreciation (see page
OBJECTIVE 6).
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INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its wholly-owned
MANAGER AND subsidiary, Dean Witter Services Company Inc., serve in various investment management,
SUB-ADVISER advisory, management and administrative capacities to 100 investment companies and other
portfolios with net assets under management of approximately $96.6 billion at June 30,
1997. Morgan Grenfell Investment Services Ltd. has been retained by the Investment
Manager as Sub-Adviser to provide investment advice and manage the Fund's portfolio.
Morgan Grenfell Investment Services Ltd. currently serves as investment adviser for
primarily U.S. corporate and public employee benefit plans, investment companies,
endowments and foundations with assets of approximately $15 billion at June 30, 1997
(see page 6).
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MANAGEMENT The Investment Manager receives a monthly fee at the annual rate of 1.0% of the Fund's
FEE daily net assets, of which the Sub-Adviser receives 40% (see page 6).
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DISTRIBUTOR Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution
AND plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with
DISTRIBUTION respect to the distribution fees paid by the Class A, Class B and Class C shares of the
FEE Fund to the Distributor. The entire 12b-1 fee payable by Class A and a portion of the
12b-1 fee payable by each of Class B and Class C equal to 0.25% of the average daily net
assets of the Class are currently each characterized as a service fee within the meaning
of the National Association of Securities Dealers, Inc. guidelines. The remaining
portion of the 12b-1 fee, if any, is characterized as an asset-based sales charge (see
pages 14 and 20).
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ALTERNATIVE Four classes of shares are offered:
PURCHASE
ARRANGEMENTS - Class A shares are offered with a front-end sales charge, starting at 5.25% and
reduced for larger purchases. Investments of $1 million or more (and investments by
certain other limited categories of investors) are not subject to any sales charge at
the time of purchase but a contingent deferred sales charge ("CDSC") of 1.0% may be
imposed on redemptions within one year of purchase. The Fund is authorized to reimburse
the Distributor for specific expenses incurred in promoting the distribution of the
Fund's Class A shares and servicing shareholder accounts pursuant to the Fund's 12b-1
Plan. Reimbursement may in no event exceed an amount equal to payments at an annual rate
of 0.25% of average daily net assets of the Class (see pages 14, 16 and 20).
- Class B shares are offered without a front-end sales charge, but will in most cases be
subject to a CDSC (scaled down from 5.0% to 1.0%) if redeemed within six years after
purchase. The CDSC will be imposed on any redemption of shares if after such redemption
the aggregate current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments made during the six years preceding the
redemption. A different CDSC schedule applies to investments by certain qualified plans.
Class B shares are also subject to a 12b-1 fee assessed at the annual rate of 1.0% of
the lesser of: (a) the average daily net sales of the Fund's Class B shares or (b) the
average daily net assets of Class B. All shares of the Fund held prior to July 28, 1997
have been designated Class B shares. Shares held before May 1, 1997 will convert to
Class A shares in May, 2007. In all other instances, Class B shares convert to Class A
shares approximately ten years after the date of the original purchase (see pages 14, 18
and 20).
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2
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- Class C shares are offered without a front-end sales charge, but will in most cases be
subject to a CDSC of 1.0% if redeemed within one year after purchase. The Fund is
authorized to reimburse the Distributor for specific expenses incurred in promoting the
distribution of the Fund's Class C shares and servicing shareholder accounts pursuant to
the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments
at an annual rate of 1.0% of average daily net assets of the Class (see pages 14, 19 and
20).
- Class D shares are offered only to investors meeting an initial investment minimum of
$5 million and to certain other limited categories of investors. Class D shares are
offered without a front-end sales charge or CDSC and are not subject to any 12b-1 fee
(see pages 14, 19 and 20).
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DIVIDENDS Dividends from net investment income and distributions from net capital gains, if any,
AND are paid annually. The Fund may, however, determine to retain all or part of any net
CAPITAL GAINS long-term capital gains in any year for reinvestment. Dividends and capital gains
DISTRIBUTIONS distributions paid on shares of a Class are automatically reinvested in additional
shares of the same Class at net asset value unless the shareholder elects to receive
cash. Shares acquired by dividend and distribution reinvestment will not be subject to
any sales charge or CDSC (see pages 21 and 24).
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REDEMPTION Shares are redeemable by the shareholder at net asset value less any applicable CDSC on
Class A, Class B or Class C shares. An account may be involuntarily redeemed if the
total value of the account is less than $100 or, if the account was opened through
EasyInvest-SM-, if after twelve months the shareholder has invested less than $1,000 in
the account (see page 23).
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RISKS The net asset value of the Fund's shares will fluctuate with changes in market value of
portfolio securities. The concentration of the Fund's assets in Japanese issuers will
subject the Fund to the risks of adverse social, political or economic events which
occur in or affect Japan. It should be recognized that the foreign securities and
markets in which the Fund invests pose different and greater risks than those
customarily associated with domestic securities and their markets. The Fund may also
invest in options and futures transactions which may be considered speculative in nature
and may involve greater risks than those customarily assumed by other investment
companies which do not invest in such instruments (see pages 7-13). The Fund is a
non-diversified investment company and, as such, is not subject to the diversification
requirements of the Investment Company Act of 1940. As a result, a relatively high
percentage of the Fund's assets may be invested in a limited number of issuers. However,
the Fund intends to qualify as a regulated investment company under the federal income
tax laws and, as such, will be subject to the diversification requirements of the
Internal Revenue Code (see page 11).
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL INFORMATION
3
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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
based on the expenses and fees for the fiscal year ended May 31, 1997.
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<CAPTION>
CLASS A CLASS B CLASS C CLASS D
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<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price)........................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments........... None None None None
Maximum Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption proceeds)...... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees.......................................... None None None None
Exchange Fee............................................. None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees.......................................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (5) (6)....................................... 0.25% 1.00% 1.00% None
Other Expenses........................................... 0.43% 0.43% 0.43% 0.43%
Total Fund Operating Expenses (7)........................ 1.68% 2.43% 2.43% 1.43%
</TABLE>
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(1) REDUCED FOR PURCHASES OF $25,000 AND OVER (SEE "PURCHASE OF FUND
SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES").
(2) INVESTMENTS THAT ARE NOT SUBJECT TO ANY SALES CHARGE AT THE TIME OF PURCHASE
ARE SUBJECT TO A CDSC OF 1.00% THAT WILL BE IMPOSED ON REDEMPTIONS MADE
WITHIN ONE YEAR AFTER PURCHASE, EXCEPT FOR CERTAIN SPECIFIC CIRCUMSTANCES
(SEE "PURCHASE OF FUND SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A
SHARES").
(3) THE CDSC IS SCALED DOWN TO 1.00% DURING THE SIXTH YEAR, REACHING ZERO
THEREAFTER.
(4) ONLY APPLICABLE TO REDEMPTIONS MADE WITHIN ONE YEAR AFTER PURCHASE (SEE
"PURCHASE OF FUND SHARES--LEVEL LOAD ALTERNATIVE--CLASS C SHARES").
(5) THE 12b-1 FEE IS ACCRUED DAILY AND PAYABLE MONTHLY. THE ENTIRE 12b-1 FEE
PAYABLE BY CLASS A AND A PORTION OF THE 12b-1 FEE PAYABLE BY EACH OF CLASS B
AND CLASS C EQUAL TO 0.25% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS ARE
CURRENTLY EACH CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES AND ARE PAYMENTS
MADE FOR PERSONAL SERVICE AND/OR MAINTENANCE OF SHAREHOLDER ACCOUNTS. THE
REMAINDER OF THE 12b-1 FEE, IF ANY, 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--PLAN OF
DISTRIBUTION").
(6) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12b-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 1.00% DISTRIBUTION FEE (SEE "PURCHASE OF FUND
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
(7) THERE WERE NO OUTSTANDING SHARES OF CLASS A, CLASS C OR CLASS D PRIOR TO THE
DATE OF THIS PROSPECTUS. ACCORDINGLY, "TOTAL FUND OPERATING EXPENSES," AS
SHOWN ABOVE WITH RESPECT TO THOSE CLASSES, ARE BASED UPON THE SUM OF 12b-1
FEES, MANAGEMENT FEES AND ESTIMATED "OTHER EXPENSES."
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EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) a 5% annual return and (2) redemption at the end of each time
period:
Class A.......................................................... $ 69 $ 103 $ 139 $ 241
Class B.......................................................... $ 75 $ 106 $ 150 $ 277
Class C.......................................................... $ 35 $ 76 $ 130 $ 277
Class D.......................................................... $ 15 $ 45 $ 78 $ 171
You would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of the period:
Class A.......................................................... $ 69 $ 103 $ 139 $ 241
Class B.......................................................... $ 25 $ 76 $ 130 $ 277
Class C.......................................................... $ 25 $ 76 $ 130 $ 277
Class D.......................................................... $ 15 $ 45 $ 78 $ 171
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THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS 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," "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
4
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, the notes thereto and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares.
<TABLE>
<CAPTION>
FOR THE
PERIOD
APRIL
FOR THE 26,
YEAR 1996*
ENDED THROUGH
MAY 31, MAY 31,
1997 1996
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<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $9.61 $10.00
------- -------
Net investment loss.............. (0.16 ) --
Net realized and unrealized
loss............................ (0.66 ) (0.39 )
------- -------
Net asset value, end of period... $8.79 $9.61
------- -------
------- -------
TOTAL INVESTMENT RETURN+........... (8.53 )% (3.90 )%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses......................... 2.43 % 2.84 %(2)
Net investment loss.............. (1.77 )% (0.52 )%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands....................... $239,719 $273,544
Portfolio turnover rate.......... 25 % --
Average commission rate paid..... $0.0227 $0.0424
</TABLE>
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* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
5
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THE FUND AND ITS MANAGEMENT
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Dean Witter Japan Fund (the "Fund") is an open-end, non-diversified, management
investment company. The Fund is a trust of the type commonly known as a
"Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on January 22, 1996.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover &
Co., a preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset management
and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to ninety-eight investment companies, thirty of which
are listed on the New York Stock Exchange, with combined assets of approximately
$93.1 billion at June 30, 1997. The Investment Manager also manages portfolios
of pension plans, other institutions and individuals which aggregated
approximately $3.5 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and supervise the investment of the Fund's
assets. InterCapital has retained Dean Witter Services Company Inc. to perform
the aforementioned administrative services for the Fund.
Under a Sub-Advisory Agreement between Morgan Grenfell Investment Services
Limited (the "Sub-Adviser") and the Investment Manager, the Sub-Adviser provides
the Fund with investment advice and portfolio management relating to the Fund's
investments, subject to the overall supervision of the Investment Manager. The
Fund's Trustees review the various services provided by the Investment Manager
and the Sub-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.
The Sub-Adviser, whose address is 20 Finsbury Circus, London, England,
manages, as of June 30, 1997, assets of approximately $15 billion for primarily
U.S. corporate and public employee benefit plans, investment companies,
endowments and foundations. The Sub-Adviser is an indirect subsidiary of
Deutsche Bank AG, the largest commercial bank in Germany.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 1.0% to the Fund's net assets. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Adviser monthly compensation equal to 40% of its monthly compensation.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to seek long-term capital appreciation.
There is no assurance that the objective will be achieved. The objective is a
fundamental policy of the Fund and may not be changed without shareholder
approval.
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 issuers located in Japan. Such issuers will include companies (i)
which are organized under the laws of Japan and have a principal office in
Japan; (ii) which derive 50% or more of their total revenues from operating
business(es) in Japan; or (iii) the equity securities of which are traded
principally on a stock exchange in Japan. Equity securities in which the Fund
may invest include common and preferred stocks and rights or warrants to
purchase common stocks.
The Fund may invest up to 25% of its total assets in equity securities of
Japanese companies traded on the Second Sections of the Main Japanese exchanges
and in the over-the-counter market. These would generally be smaller companies
with above-average growth potential. (See "Risk Factors and Special
Considerations.")
As a "single country" mutual fund, the Fund may exhibit certain speculative
characteristics and thus should not constitute a complete investment program.
Investing internationally involves certain risks, such as economic and political
risk, and therefore poses different and greater risks than those customarily
associated with domestic securities and their markets. The concentration of the
Fund's assets in Japanese issuers will subject the Fund to the risks of adverse
social, political or economic events which occur in Japan (see "Risk Factors and
Special Considerations").
The remainder of the Fund's portfolio equalling, at times, up to 35% of the
Fund's total assets, may be invested in fixed-income and convertible securities
of issuers located in Japan or guaranteed by the Japanese government when it is
deemed that such investments are consistent with the Fund's investment
objective. This remainder may also include equity, government, fixed-income and
convertible securities issued by issuers located in developed
6
<PAGE>
economies in Asia, Europe and North America, including the United States,
subject to the Fund's investment objective. Although the Fund may invest up to
35% of its net assets in fixed-income and convertible securities which are
either not rated or rated below investment grade, the Fund has no current
intention of investing in excess of 10% of its net assets in unrated or lower
rated convertible securities nor in excess of 5% of its net assets in unrated or
lower rated non-convertible debt securities (see "Lower Rated Convertible and
Fixed-Income Securities" below). In addition, this portion of the Fund's
portfolio will consist of various other financial instruments such as forward
foreign exchange contracts, futures contracts and options.
The Fund may also invest in securities of Japanese and other foreign issuers
in the form of American Depository Receipts (ADRs), European Depository Receipts
(EDRs) or other similar securities convertible into securities of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a United States bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets and EDRs, in bearer form, are designed for use
in European securities markets.
The Sub-Adviser will use a "bottom-up" approach, whereby the identification
of earnings growth and attractively priced stocks drives the Sub-Adviser's
investment process. However, no investments will be made without assessing
future country risk (including politics, monetary policy and currency) that
might adversely affect stock selection. The Sub-Adviser believes that strong
growth will be reflected in superior investment returns. A company's ability to
grow earnings leads to the accumulation of assets, increased dividend payments
and, ultimately, drives share prices higher.
Because market inefficiency can lead to "over" as well as "under" pricing,
the Sub-Adviser believes that an assessment of company growth prospects must be
combined with an understanding of how the stock is priced. A series of multiples
is used for this purpose and evaluated against the stock's history. Stocks that
are trading significantly above their historic norm are disqualified from
inclusion in the portfolio. In addition, the Fund will maintain a disciplined
sell process for liquidating portfolio holdings.
There may be periods during which, in the opinion of the Investment Manager
or Sub-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 greater than 35% and, in some circumstances up to
100%, of its net assets are invested in cash or money market instruments. Money
market instruments in which the Fund may invest are securities issued or
guaranteed by the U.S. Government (Treasury bills, notes and bonds, including
zero coupon securities); bank obligations (such as certificates of deposit and
bankers' acceptances); Yankee instruments; Eurodollar certificates of deposit;
obligations of savings institutions; 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 at least
AA by S&P or Aa by Moody's.
To hedge against adverse price movements in the securities held in its
portfolio and the currencies in which they are denominated (as well as in the
securities it might wish to purchase and their denominated currencies) the Fund
may engage in transactions in forward foreign currency contracts, options on
securities and currencies, and futures contracts and options on futures
contracts on securities, currencies and indexes. The Fund may also purchase
options on securities to facilitate its participation in the potential
appreciation of the value of the underlying securities. A discussion of these
transactions follows below under "Risk Factors and Special Considerations" and
is supplemented by further disclosure in the Statement of Additional
Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investing in Japanese equity securities involves certain risks and special
considerations as follows:
THE JAPANESE SECURITIES MARKETS
(a) The Exchange Market. The Japanese exchange market is a highly systemized,
government regulated market currently consisting of eight stock exchanges. The
three Main Japanese Exchanges (Tokyo, Osaka and Nagoya) are comprised of First
and Second Sections. The First Sections have more stringent listing standards
with respect to a company's number of years in existence, number of outstanding
shares and trading volume and, accordingly, list larger, more established
companies than the Second Sections. The Fund intends to invest primarily in the
securities of companies listed on the First Section of the Tokyo Stock Exchange
("TSE"). The TSE is the largest exchange and, as of April 30, 1997, listed 1,296
companies with market capitalization of approximately U.S.$2.9 trillion and
average monthly trading volume of approximately U.S.$60 billion. The Fund may
invest up to 25% of its net assets in securities which are traded on the Second
Sections of the Main Japanese Exchanges (primarily, the TSE) and in the over-
the-counter market, described below. These are generally smaller, less
capitalized companies than those traded on the First Sections. As of April 30,
1997, the Second Section of the TSE listed approximately 487 companies with
market capitalization of approximately U.S.$92 billion and average monthly
trading volume of approximately U.S.$2.5 billion. There are also five regional
exchanges in which the Fund does not currently intend to invest.
7
<PAGE>
(b) The OTC Market. The Japanese OTC market is less systemized than the
stock exchanges. Trading of equity securities in the Japanese OTC market is
conducted by securities firms in Japan, primarily through an organization which
acts as a "matching agent" by matching buy and sell orders. As of April 30,
1997, 780 companies with market capitalization of approximately U.S.$114 billion
and average monthly trading volume of approximately U.S.$2 billion were traded
through the Japanese OTC market.
MARKET RISKS. Although the market for Japanese equities traded on the First
Section of the TSE is substantial in terms of trading volume and liquidity, the
TSE has nonetheless exhibited significant market volatility in the past several
years. With respect to the OTC market, trades of certain stocks may not be
effected on days when the matching of buy and sell orders for such stocks does
not occur. The liquidity of the Japanese OTC market, as well as that of the
Second Sections of the exchanges, although increasing in recent years, is
limited by the small number of publicly held shares which trade on a regular
basis. Overall, Japanese securities markets have declined significantly since
1989 which has contributed to a weakness in the Japanese economy and the impact
of a further decline cannot be ascertained. The common stocks of many Japanese
companies continue, as they have historically, to trade at high price-earnings
ratios in comparison with those in the U.S., even after the recent market
decline. Differences in accounting methods make it difficult to compare the
earnings of Japanese companies with those of companies in other countries,
especially the United States.
POLITICAL RISKS. Japan has a parliamentary form of government. Triggered by
successive revelations of political scandals, one-party domination by the
Liberal Democratic Party which was established in 1955, was terminated in
mid-1993. Since then, political instability has resulted from frequent turnover
of coalition governments and prime ministers. What, if any, effect the current
political situation will have on prospective regulatory reforms of the economy
in Japan cannot be predicted. Recent and future developments in Japan and
neighboring Asian countries may lead to changes in policy that might adversely
affect the Fund.
JAPANESE GOVERNMENT REGULATION. A foreign investor may not directly or
indirectly acquire 10% or more of the total outstanding shares of a Japanese
corporation without prior notification to the Ministry of Finance ("MOF") and
any other ministry with proper jurisdiction. Such ministries may make a
recommendation to modify or prohibit the proposed acquisition if they consider
that such acquisition falls under certain limited conditions specified in the
Foreign Exchange Controls. If the foreign investor does not accept the
recommendation, such ministries may issue an order modifying or prohibiting the
acquisition. The Fund will be considered a foreign investor for this purpose.
ECONOMIC FACTORS. The Japanese economy experienced its worst recession since
World War II in the 1990s. Japan's Economic Planning Agency claims the recession
ended in October 1993 and the economy has been growing since then. However,
asset deflation, in both the financial and real estate sectors has, exerted a
continuous drag on the economy. The Japanese government has called for a
transformation of the economy away from its high dependency on export-led growth
towards greater stimulation of the domestic economy through extensive
deregulation plans, including a fundamental overhaul of Japan's financial
industry. It is difficult to predict how successful these regulatory changes
will be at this early stage.
Strains in the financial system have also been one of the major causes of
Japan's economic weakness. The non-performing loans of financial institutions
have hampered their ability to take on risks, thus obstructing the flow of funds
into capital outlays as well as equities. At the end of 1995, Japan's financial
institutions were estimated by the government to have at least yen 40 trillion
(U.S.$400 billion) in outstanding loans, including uncollectible loans estimated
at yen 10-15 trillion. While the banking system appears to be making some
progress in its attempt to deal with non-performing assets, it is extremely
difficult to gauge the true extent of the bad-debt problem which could lead to a
crisis in the banking system. The government is very aware of the issues at
stake, and the current ultra-low interest rate environment is effectively in
place to aid the financial industry. Analysts therefore now believe that the
risk of a full scale financial crisis is currently remote.
INTERNATIONAL TRADE. Japan is largely dependent upon foreign economies for raw
materials. International trade is important to Japan's economy, as exports
provide the means to pay for many of the raw materials it must import. Because
of the concentration of Japanese exports in highly visible products such as
automobiles, machine tools and semiconductors, and the large trade surpluses
ensuing therefrom, Japan has entered a difficult phase in its relations with its
trading partners, particularly with respect to the United States, with whom the
trade imbalance is the greatest. It is possible that differences over trade
policy may lead the U.S. to take actions which may have an adverse effect on the
Japanese economy.
CURRENCY FACTORS. Securities in Japan are denominated and quoted in "yen." Yen
are fully convertible and transferable based on floating exchange rates into all
currencies, without administrative or legal restrictions for both non-residents
and residents of Japan. In determining the net asset value of shares of the
Fund, assets or liabilities initially expressed in terms of Japanese yen will be
translated into U.S. dollars at the current selling rate of Japanese yen against
U.S. dollars. As a result, in the absence of a successful currency hedge, the
value of the Fund's assets as measured in U.S. dollars may be affected favorably
or unfavorably by fluctuations in the value of Japanese yen relative to the U.S.
dollar.
NATURAL DISASTERS. In the past, Japan has experienced earthquakes and tidal
waves varying in degrees of severity,
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and the risks of such phenomena, and damage resulting therefrom, continue to
exist.
GENERAL RISKS OF INVESTING IN JAPANESE AND OTHER 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. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward foreign currency
exchange contracts (described below). The Fund will incur certain costs in
connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of the Fund's trades effected in such markets. As such, the
inability to dispose of portfolio securities due to settlement delays could
result in losses to the Fund due to subsequent declines in value of such
securities and the inability of the Fund to make intended security purchases due
to settlement problems could result in a failure of the Fund to make potentially
advantageous investments.
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, including the risks of default or
bankruptcy of the selling financial institution, the Fund follows procedures to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
and maintaining adequate collateralization.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may also use reverse
repurchase agreements and dollar rolls as part of its investment strategy.
Reverse repurchase agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. The Fund may enter into dollar rolls in which the
Fund sells securities and simultaneously contracts to repurchase substantially
similar (same type and coupon) securities on a specified future date. Reverse
repurchase agreements and dollar rolls involve the risk that the market value of
the securities the Fund is obligated to repurchase under the agreement may
decline below the repurchase price. In the event the buyer of securities under a
reverse repurchase agreement or dollar roll files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the agreement may be restricted pending
a determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. Reverse repurchase
agreements and dollar rolls are speculative techniques involving leverage, and
are considered borrowings by the Fund.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From time
to time, in the ordinary course of business, the Fund may purchase securities on
a when-issued or delayed delivery basis or may purchase or sell securities on a
forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
month or more after the date of the commitment. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a when-issued, delayed delivery or forward commitment basis. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued, delayed delivery or forward commitment basis may
increase the volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a "when,
as and if issued" basis under
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which the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization, leveraged buyout
or debt restructuring. If the anticipated event does not occur and the
securities are not issued, the Fund will have lost an investment opportunity.
There is no overall limit on the percentage of the Fund's assets which may be
committed to the purchase of securities on a "when, as and if issued" basis. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value.
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.
PRIVATE PLACEMENTS. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, 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 Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which under current
policy may not exceed 15% of the Fund's net assets. 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.
OPTIONS AND FUTURES TRANSACTIONS. The Fund may purchase and sell (write) call
and put options on (i) portfolio securities which are denominated in either U.S.
dollars or foreign currencies; (ii) stock indexes; and (iii) the U.S. dollar and
foreign currencies. Such options are or may in the future be listed on several
U.S. and foreign securities exchanges or may be traded in over-the-counter
transactions ("OTC options"). OTC options are purchased from or sold (written)
to dealers or financial institutions which have entered into direct agreements
with the Fund.
The Fund is permitted to write covered call options on portfolio securities
and the U.S. dollar and foreign currencies, without limit, in order to hedge
against the decline in the value of a security or currency in which such
security is denominated (although such hedge is limited to the value of the
premium received) and to close out long call option positions. The Fund may
write covered put options, under which the Fund incurs an obligation to buy the
security (or currency) underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options to
close out a covered call position or to protect against an increase in the price
of a security it anticipates purchasing or, in the case of call options on a
foreign currency, to hedge against an adverse exchange rate change of the
currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The Fund may
purchase put options on securities which it holds in its portfolio to protect
itself against a decline in the value of the security and to close out written
put positions in a manner similar to call option closing purchase transactions.
There are no limits on the Fund's ability to purchase call and put options other
than compliance with the foregoing policies.
The Fund may purchase and sell futures contracts that are currently traded,
or may in the future be traded, on U.S. and foreign commodity exchanges on
underlying portfolio securities, on any currency ("currency" futures), on U.S.
and foreign fixed-income securities ("interest rate" futures) and on such
indexes of U.S. or foreign equity or fixed-income securities as may exist or
come into being ("index" futures). The Fund may purchase or sell interest rate
futures contracts for the purpose of hedging some or all
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of the value of its portfolio securities (or anticipated portfolio securities)
against changes in prevailing interest rates. The Fund may purchase or sell
index futures contracts for the purpose of hedging some or all of its portfolio
securities (or anticipated portfolio securities) against changes in their
prices. The Fund may purchase or sell currency futures contracts to hedge
against an anticipated rise or decline in the value of the currency in which a
portfolio security is denominated vis-a-vis another currency. As a futures
contract purchaser, the Fund incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. As a seller of a futures contract, the Fund
incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its position
as writer of an option, or as a buyer or seller of a futures contract, only if a
liquid secondary market exists for options or futures contracts of that series.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options may generally only be closed out by entering into a
closing purchase transaction with the purchasing dealer. Also, exchanges may
limit the amount by which the price of many futures contracts may move on any
day. If the price moves equal the daily limit on successive days, then it may
prove impossible to liquidate a futures position until the daily limit moves
have ceased.
Futures contracts and options transactions may be considered speculative in
nature and may involve greater risks than those customarily assumed by other
investment companies which do not invest in such instruments. One such risk is
that the Investment Manager or Sub-Adviser could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale. Another risk
which will arise in employing futures contracts to protect against the price
volatility of portfolio securities is that the prices of securities, currencies
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the U.S. dollar cash
prices of the Fund's portfolio securities and their denominated currencies. See
the Statement of Additional Information for a further discussion of risks.
NON-DIVERSIFIED STATUS. The Fund is a non-diversified investment company and,
as such, is not subject to the diversification requirements of the Investment
Company Act of 1940, as amended (the "Investment Company Act"). As a
non-diversified investment company, the Fund may invest a greater portion of its
assets in the securities of a single issuer and thus is subject to greater
exposure to risks such as a decline in the credit rating of that issuer.
However, the Fund anticipates that it will qualify as a regulated investment
company under the federal income tax laws and, if so qualified, will be subject
to the applicable diversification requirements of the Internal Revenue Code, as
amended (the "Code"). As a regulated investment company under the Code, the Fund
may not, as of the end of any of its fiscal quarters, have invested more than
25% of its total assets in the securities of any one issuer (including a foreign
government), or as to 50% of its total assets, have invested more than 5% of its
total assets in the securities of a single issuer.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") in connection with its
foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency at
a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
The Fund may enter into forward contracts as a hedge against fluctuations in
future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase (by the Fund or the
counterparty) and the foreign currency in which the security is denominated
during the period between the date on which the security is purchased or sold
and the date on which payment is made or received.
At other times, when, for example, the Fund's Investment Manager or
Sub-Adviser believe that the currency of a particular foreign country may suffer
a substantial decline against the U.S. dollar or some other foreign currency,
the Fund may enter into a forward contract to sell, for a fixed
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amount of dollars or other currency, the amount of foreign currency
approximating the value of some or all of the Fund's securities holdings (or
securities which the Fund has purchased for its portfolio) denominated in such
foreign currency. Under identical circumstances, the Fund may enter into a
forward contract to sell, for a fixed amount of U.S. dollars or other currency,
an amount of foreign currency other than the currency in which the securities to
be hedged are denominated approximating the value of some or all of the
portfolio securities to be hedged. This method of hedging, called
"cross-hedging," will be selected by the Investment Manager or Sub-Adviser when
it is determined that the foreign currency in which the portfolio securities are
denominated has insufficient liquidity or is trading at a discount as compared
with some other foreign currency with which it tends to move in tandem.
In addition, when the Fund's Investment Manager or Sub-Adviser anticipate
purchasing securities at some time in the future, and wish to lock in the
current exchange rate of the currency in which those securities are denominated
against the U.S. dollar or some other foreign currency, the Fund may enter into
a forward contract to purchase an amount of currency equal to some or all of the
value of the anticipated purchase, for a fixed amount of U.S. dollars or other
currency. The Fund may, however, close out the forward contract without
purchasing the security which was the subject of the "anticipatory" hedge.
In all of the above circumstances, if the currency in which the Fund's
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), the
Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager or Sub-Adviser. The Fund generally will not enter into a
forward contract with a term of greater than one year, although it may enter
into forward contracts for periods of up to five years. The Fund may be limited
in its ability to enter into hedging transactions involving forward contracts by
the Internal Revenue Code requirements relating to qualification as a regulated
investment company (see "Dividends, Distributions and Taxes").
RIGHTS AND WARRANTS. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting rights,
pay no dividends and have no rights with respect to the corporation issuing
them.
LOWER RATED CONVERTIBLE AND FIXED-INCOME 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, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
A portion of the fixed-income and convertible securities in which the Fund
may invest are not rated; when rated, such ratings will generally be below
investment grade. Securities below investment grade are the equivalent of high
yield, high risk bonds, commonly known as "junk bonds." Investment grade is
generally considered to be debt securities rated BBB or higher by Standard &
Poor's Corporation ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's"). However, the Fund will not invest in debt securities that are in
default in payment of principal or interest.
Because of the special nature of the Fund's permitted investments in lower
rated debt securities, the Investment Manager and Sub-Adviser must take account
of certain special considerations in assessing the risks associated with such
investments. The prices of lower rated securities have been found to be less
sensitive to changes in prevailing interest rates than higher rated investments,
but are likely to be more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
which would adversely affect their ability to service their principal and
interest payment obligations, to meet their projected business goals or to
obtain additional financing. If the issuer of a fixed-income security owned by
the Fund
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defaults, the Fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and change can be expected to result in an
increased volatility of market prices of lower rated securities and a
corresponding volatility in the net asset value of a share of the Fund.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager and the
Sub-Adviser with a view to achieving the Fund's investment objective. In
determining which securities to purchase for the Fund or hold in the Fund's
portfolio, the Investment Manager and the Sub-Adviser will rely on information
from various sources, including research, analysis and appraisals of brokers and
dealers, including Dean Witter Reynolds Inc. ("DWR") and other affiliated
broker-dealers and others regarding economic developments and interest rate
trends, and the Investment Manager's and Sub-Adviser's own analysis of factors
they deem relevant. The Fund's primary portfolio manager is William G.M. Thomas,
an Investment Director of the Sub-Adviser. Mr. Thomas has been managing equity
portfolios for the Sub-Adviser for over ten years.
Personnel of the Investment Manager and Sub-Adviser have substantial
experience in the use of the investment techniques described above under the
heading "Options and Futures Transactions," which techniques require skills
different from those needed to select the portfolio securities underlying
various options and futures contracts.
Orders for transactions in portfolio securities and commodities may be
placed for the Fund with a number of brokers and dealers, including DWR, other
broker-dealer affiliates of the Investment Manager and two affiliated
broker-dealers of the Sub-Adviser (Morgan Grenfell Asia and Partners Securities
Pte. Limited and Morgan Grenfell Asia Securities (Hong Kong) Limited). Pursuant
to an order of the Securities and Exchange Commission, the Fund may effect
principal transactions in certain money market instruments with DWR. In
addition, the Fund may incur brokerage commissions on transactions conducted
through DWR, other broker-dealers that are affiliates of the Investment Manager
and the two above-mentioned affiliated broker-dealers of the Sub-Adviser.
Although the Fund does not intend to engage in short-term trading, it may
sell portfolio securities without regard to the length of time they have been
held when such sale will, in the opinion of the Investment Manager or Sub-
Adviser, contribute to the Fund's investment objective. It is not anticipated
that the Fund's portfolio turnover rate will exceed 100% in any one year.
The expenses of the Fund relating to its portfolio management are likely to
be greater than those incurred by other investment companies investing primarily
in securities issued by domestic issuers as custodial costs, brokerage
commissions and other transaction charges related to investing in Japan and
other foreign markets are generally higher than in the United States.
INVESTMENT RESTRICTIONS
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The investment restrictions listed below are among the restrictions which have
been adopted by the Fund as fundamental policies. Under the Investment Company
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. 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.
2. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction shall not apply to any
obligation issued or guaranteed by the United States Government, its
agencies or instrumentalities.
In addition, as a non-fundamental policy, the Fund may not, as to 75% of its
total assets, purchase more than 10% of the voting securities of any issuer.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
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PURCHASE OF FUND SHARES
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GENERAL
The Fund offers each class of its shares for sale to the public on a continuous
basis. Pursuant to a Distribution Agreement between the Fund and Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager,
shares of the Fund are distributed by the Distributor and offered by DWR and
other dealers who have entered into selected 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 Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a CDSC scaled down from 2.0% to
1.0% if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold without
an initial sales charge or CDSC and are available only to investors meeting an
initial investment minimum of $5 million, and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the Fund,
Class A shares may be sold to categories of investors in addition to those set
forth in this prospectus at net asset value without a front-end sales charge,
and Class D shares may be sold to certain other categories of investors, in each
case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements-- Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million or more and to
certain other limited categories of investors. For the purpose of meeting the
minimum $5 million initial investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares of the Fund and other Dean Witter Funds that
are multiple class funds ("Dean Witter Multi-Class Funds") and shares of Dean
Witter Funds sold with a front-end sales charge ("FSC Funds") and concurrent
investments in Class D shares of the Fund and other Dean Witter Multi-Class
Funds will be aggregated. Subsequent purchases of $100 or more may be made by
sending a check, payable to Dean Witter Japan Fund, directly to Dean Witter
Trust Company (the "Transfer Agent") at P.O. Box 1040, Jersey City, NJ 07303 or
by contacting an account executive of DWR or other Selected Broker-Dealer. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B, Class C or Class D shares. If no Class is specified, the
Transfer Agent will not process the transaction until the proper Class is
identified. The minimum initial purchase in the case of investments through
EasyInvest-SM-, an automatic purchase plan (see "Shareholder Services"), is
$100, provided that the schedule of automatic investments will result in
investments totalling at least $1,000 within the first twelve months. 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 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. Shares of the
Fund purchased through the Distributor are entitled to any dividends declared
beginning on the next business day following settlement date. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. Shares purchased through the Transfer Agent are entitled to any
dividends declared beginning on the next business day following receipt of an
order. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive 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 distributions. Sales personnel of a
Selected Broker-Dealer are compensated for selling shares of the Fund at the
time of their sale by the Distributor or any of its affiliates and/or the
Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation as special
sales incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide them
with the flexibility of selecting an investment best suited to their needs. The
general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms
14
<PAGE>
of sales charges and rate of expenses to which they are subject. A fourth Class
of shares, Class D shares, is offered only to limited categories of investors
(see "No Load Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no initial
sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%) if
redeemed within six years of purchase. (Class B shares purchased by certain
qualified employer-sponsored benefit plans are subject to a CDSC scaled down
from 2.0% to 1.0% if redeemed within three years after purchase.) This CDSC may
be waived for certain redemptions. Class B shares are also subject to an annual
12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate gross sales
of the Fund's Class B 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 Class B shares redeemed since the
Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B. The Class B shares' distribution fee will
cause that Class to have higher expenses and pay lower dividends than Class A or
Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative-- Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative-- Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B
15
<PAGE>
shares may be more attractive than Class C shares to investors with longer term
investment outlooks. Other investors, however, may elect to purchase Class C
shares if, for example, they determine that they do not wish to be subject to a
front-end sales charge and they are uncertain as to the length of time they
intend to hold their shares.
For the purpose of meeting the $5 million minimum investment amount for
Class D shares, holdings of Class A shares in all Dean Witter Multi-Class Funds,
shares of FSC Funds and shares of Dean Witter Funds for which such shares have
been exchanged will be included together with the current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
<C> <S> <C> <C>
A Maximum 5.25% initial 0.25% No
sales charge reduced for
purchases of $25,000 and
over; shares sold without
an initial sales charge
generally subject to a
1.0% CDSC during first
year.
B Maximum 5.0% CDSC during 1.0% B shares
the first year decreasing convert to A
to 0 after six years shares
automatically
after
approximately
ten years
C 1.0% CDSC during first 1.0% No
year
D None None No
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE-- CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In some
cases, reduced sales charges may be available, as described below. Investments
of $1 million or more (and investments by certain other limited categories of
investors) are not subject to any sales charges at the time of purchase but are
subject to a CDSC of 1.0% on redemptions made within one year after purchase
(calculated from the last day of the month in which the shares were purchased),
except for certain specific circumstances. The CDSC will be assessed on an
amount equal to the lesser of the current market value or the cost of the shares
being redeemed. The CDSC will not be imposed (i) in the circumstances set forth
below in the section "Contingent Deferred Sales Charge Alternative--Class B
Shares-- CDSC Waivers," except that the references to six years in the first
paragraph of that section shall mean one year in the case of Class A shares, and
(ii) in the circumstances identified in the section "Additional Net Asset Value
Purchase Options" below. Class A shares are also subject to an annual 12b-1 fee
of up to 0.25% of the average daily net assets of the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
-------------------------------------
PERCENTAGE APPROXIMATE
AMOUNT OF OF PUBLIC PERCENTAGE OF
SINGLE TRANSACTION OFFERING PRICE AMOUNT INVESTED
- --------------------------- ----------------- ------------------
<S> <C> <C>
Less than $25,000.......... 5.25% 5.54%
$25,000 but less
than $50,000............. 4.75% 4.99%
$50,000 but less
than $100,000............ 4.00% 4.17%
$100,000 but less
than $250,000............ 3.00% 3.09%
$250,000 but less
than $1 million.......... 2.00% 2.04%
$1 million and over........ 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts
16
<PAGE>
of employees of a single employer through Systematic Payroll Deduction plans; or
(g) any other organized group of persons, whether incorporated or not, provided
the organization has been in existence for at least six months and has some
purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced sales
charges in accordance with the above schedule by combining purchases of Class A
shares of the Fund in single transactions with the purchase of Class A shares of
other Dean Witter Multi-Class Funds and shares of FSC Funds. The sales charge
payable on the purchase of the Class A shares of the Fund, the Class A shares of
the other Dean Witter Multi-Class Funds and the shares of the FSC Funds will be
at their respective rates applicable to the total amount of the combined
concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Dean Witter Funds previously
purchased at a price including a front-end sales charge (including shares of the
Fund and other Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of shares of
FSC Funds and Class A and Class D shares equal to at least $5 million, such
investor is eligible to purchase Class D shares subject to the $1,000 minimum
initial investment requirement of that Class of the Fund. See "No Load
Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also be
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
DWR or other Selected Broker-Dealers. The cost of Class A shares of the Fund or
shares of other Dean Witter Funds which were previously purchased at a price
including a front-end sales charge during the 90-day period prior to the date of
receipt by the Distributor of the Letter of Intent, or of Class A shares of the
Fund or shares of other Dean Witter Funds acquired in exchange for shares of
such funds purchased during such period at a price including a front-end sales
charge, which are still owned by the shareholder, may also be included in
determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of $1
million or more, Class A shares also may be purchased at net asset value by the
following:
(1) trusts for which Dean Witter Trust Company ("DWTC") or Dean Witter Trust
FSB ("DWTFSB") (each of which is an affiliate of the Investment Manager)
provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (such
investments are subject to all of the terms and conditions of such programs,
which may include termination fees and restrictions on transferability of Fund
shares);
(3) retirement plans qualified under Section 401(k) of the Internal Revenue
Code ("401(k) plans") and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code with at least 200 eligible employees and for
which DWTC or DWTFSB serves as Trustee or the 401(k) Support Services Group of
DWR serves as recordkeeper;
(4) 401(k) plans and other employer-sponsored plans qualified under Section
401(a) of the Internal Revenue Code for which DWTC or DWTFSB serves as Trustee
or the 401(k) Support Services Group of DWR serves as recordkeeper whose Class B
shares have converted to Class A shares, regardless of the plan's asset size or
number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Fund shares by such investors, if the shares are being purchased
with the proceeds from a redemption of shares of an open-end proprietary mutual
fund of the account executive's previous firm which imposed either a front-end
or deferred sales charge, provided such purchase was made within sixty days
after the redemption and the proceeds of the redemption had been maintained in
the interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
17
<PAGE>
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an initial
sales charge so that the full amount s of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, will be imposed on most Class
B shares redeemed within six years after purchase. The CDSC will be imposed on
any redemption of shares if after such redemption the aggregate current value of
a Class B account with the Fund falls below the aggregate amount of the
investor's purchase payments for Class B shares made during the six years (or,
in the case of shares held by certain employer-sponsored benefit plans, three
years) preceding the redemption. In addition, Class B shares are subject to an
annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate gross
sales of the Fund's Class B 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 Class B shares redeemed
since the Fund's inception upon which a CDSC has been imposed or waived, or (b)
the average daily net assets of Class B.
Except as noted below, Class B 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 CDSC upon redemption.
Shares redeemed earlier than six years after purchase may, however, be subject
to a CDSC which will be a percentage of the dollar amount of shares redeemed and
will be assessed on an amount equal to the lesser of the current market value or
the cost of the shares being redeemed. The size of this percentage will depend
upon how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE CDSC AS A PERCENTAGE
PURCHASE PAYMENT MADE OF AMOUNT REDEEMED
- ---------------------------------------- ---------------------
<S> <C>
First................................... 5.0%
Second.................................. 4.0%
Third................................... 3.0%
Fourth.................................. 2.0%
Fifth................................... 2.0%
Sixth................................... 1.0%
Seventh and thereafter.................. None
</TABLE>
In the case of Class B shares of the Fund held by 401 (k) plans or other
employer-sponsored plans qualified under Section 401(a) of the Internal Revenue
Code for which DWTC or DWTFSB serves as trustee or the 401(k) Support Services
Group of DWR serves as recordkeeper and whose accounts are opened on or after
July 28, 1997, shares held for three years or more after purchase (calculated as
described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase may
be subject to a CDSC (calculated as described in the paragraph above), the
percentage of which will depend on how long the shares have been held, as set
forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ---------------------------------------- ---------------------
<S> <C>
First................................... 2.0%
Second.................................. 2.0%
Third................................... 1.0%
Fourth and thereafter................... None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which represents an
increase in value of shares purchased within the six years (or, in the case of
shares held by certain employer-sponsored benefit plans, three years) preceding
the redemption; (ii) the current net asset value of shares purchased more than
six years (or, in the case of shares held by certain employer-sponsored benefit
plans, three years) prior to the redemption; and (iii) the current net asset
value of shares purchased through reinvestment of dividends or distributions
and/or shares acquired in exchange for shares of FSC Funds or of other Dean
Witter Funds acquired in exchange for such shares. Moreover, in determining
whether a CDSC is applicable it will be assumed that amounts described in (i),
(ii) and (iii) above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (B)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
401(k) plan or other employer-sponsored plan qualified under Section 401(a) of
the Internal Revenue Code which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWTC or DWTFSB serves as
Trustee or the 401(k) Support Services Group of DWR serves as recordkeeper
("Eligible Plan"), provided that
18
<PAGE>
either: (A) the plan continues to be an Eligible 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.
CONVERSION TO CLASS A SHARES. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares. Shares held before May 1, 1997 will
convert to Class A shares in May, 2007. In all other instances Class B shares
will convert automatically to Class A shares, based on the relative net asset
values of the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange or
a series of exchanges, from the last day of the month in which the original
Class B shares were purchased, provided that shares originally purchased before
May 1, 1997 will convert to Class A shares in May, 2007. The conversion of
shares purchased on or after May 1, 1997 will take place in the month following
the tenth anniversary of the purchase. There will also be converted at that time
such proportion of Class B shares acquired through automatic reinvestment of
dividends and distributions owned by the shareholder as the total number of his
or her Class B shares converting at the time bears to the total number of
outstanding Class B shares purchased and owned by the shareholder. In the case
of Class B shares held by a 401(k) plan or other employer-sponsored plan
qualified under Section 401(a) of the Internal Revenue Code and for which DWTC
or DWTFSB serves as Trustee or the 401(k) Support Services Group of DWR serves
as recordkeeper, the plan is treated as a single investor and all Class B shares
will convert to Class A shares on the conversion date of the first shares of a
Dean Witter Multi-Class Fund purchased by that plan. In the case of Class B
shares previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in the
Exchange Fund (calculated from the last day of the month in which the Exchange
Fund shares were acquired) is excluded from the holding period for conversion.
If those shares are subsequently re-exchanged for Class B shares of a Dean
Witter Multi-Class Fund, the holding period resumes on the last day of the month
in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
Class B shares purchased before July 28, 1997 by trusts for which DWTC or
DWTFSB provides discretionary trustee services will convert to Class A shares on
or about August 29, 1997. The CDSC will not be applicable to such shares.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an initial
sales charge but are subject to a CDSC of 1.0% on most redemptions made within
one year after purchase (calculated from the last day of the month in which the
shares were purchased). The CDSC will be assessed on an amount equal to the
lesser of the current market value or the cost of the shares being redeemed. The
CDSC will not be imposed in the circumstances set forth above in the section
"Contingent Deferred Sales Charge Alternative-- Class B Shares--CDSC Waivers,"
except that the references to six years in the first paragraph of that section
shall mean one year in the case of Class C shares. Class C shares are subject to
an annual 12b-1 fee of up to 1.0% of the average daily net assets of the Class.
Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or redemption
and without any 12b-1 fee. Class D shares are offered only to investors meeting
an initial investment minimum of $5 million and the following categories of
investors: (i) investors participating in the
19
<PAGE>
InterCapital mutual fund asset allocation program pursuant to which such persons
pay an asset based fee; (ii) persons participating in a fee-based program
approved by the Distributor, pursuant to which such persons pay an asset based
fee for services in the nature of investment advisory or administrative services
(subject to all of the terms and conditions of such programs, which may include
termination fees and restrictions on transferability of Fund shares); (iii)
401(k) plans established by DWR and SPS Transaction Services, Inc. (an affiliate
of DWR) for their employees; (iv) certain Unit Investment Trusts sponsored by
DWR; (v) certain other open-end investment companies whose shares are
distributed by the Distributor; and (vi) other categories of investors, at the
discretion of the Board, as disclosed in the then current prospectus of the
Fund. Investors who require a $5 million minimum initial investment to qualify
to purchase Class D shares may satisfy that requirement by investing that amount
in a single transaction in Class D shares of the Fund and other Dean Witter
Multi-Class Funds, subject to the $1,000 minimum initial investment required for
that Class of the Fund. In addition, for the purpose of meeting the $5 million
minimum investment amount, holdings of Class A shares in all Dean Witter Multi-
Class Funds, shares of FSC Funds and shares of Dean Witter Funds for which such
shares have been exchanged will be included together with the current investment
amount. If a shareholder redeems Class A shares and purchases Class D shares,
such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Act
with respect to the distribution of Class A, Class B and Class C shares of the
Fund. In the case of Class A and Class C shares, the Plan provides that the Fund
will reimburse the Distributor and others for the expenses of certain activities
and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 1.0% of the average daily net assets of Class A
and Class C, respectively. In the case of Class B shares, the Plan provides that
the Fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B 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 Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B. The fee is treated by
the Fund as an expense in the year it is accrued. In the case of Class A shares,
the entire amount of the fee currently represents a service fee within the
meaning of the NASD guidelines. In the case of Class B and Class C shares, a
portion of the fee payable pursuant to the Plan, equal to 0.25% of the average
daily net assets of each of these Classes, is currently characterized as a
service fee. A service fee is a payment made for personal service and/or the
maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of DWR's account executives
and others who engage in or support distribution of shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
the Fund's shares to other than current shareholders; and preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan in the case of Class B
shares to compensate DWR and other Selected Broker-Dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
For the fiscal year ended May 31, 1997, Class B shares of the Fund accrued
payments under the Plan amounting to $2,415,212, which amount is equal to 1.0%
of the Fund's average daily net assets for the fiscal year. The payments accrued
under the Plan were calculated pursuant to clause (b) of the compensation
formula under the Plan. All shares held prior to July 28, 1997 have been
designated Class B shares.
In the case of Class B shares, at any given time, the expenses in
distributing Class B 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 CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B shares of the Fund had been incurred
and $750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that such
excess amounts, including the carrying charge described above, totalled
$16,474,444 at May 31, 1997, which was equal to 6.87% of the net assets of the
Fund 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 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 CDSCs paid by investors upon redemption of shares, if
for any reason the Plan is terminated the Trustees will consider at that time
the manner in which to treat such expenses. Any cumulative expenses incurred,
but not yet recovered through distribution fees or CDSCs,
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may or may not be recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses due
to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New York
time, on each day that the New York Stock Exchange is open (or, on days when the
New York Stock Exchange closes prior to 4:00 p.m., at such earlier time) by
taking the net assets of the Fund, dividing by the number of shares outstanding
and adjusting to the nearest cent. The assets belonging to the Class A, Class B,
Class C and Class D shares will be invested together in a single portfolio. The
net asset value of each Class, however, will be determined separately by
subtracting each Class's accrued expenses and liabilities. The net asset value
per share will not be determined on Good Friday and on such other federal and
non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange or quotation service, prior to the time assets are valued; if there
were no sales that day, the security is valued at the latest bid price (in cases
where a security is traded on more than one exchange, the security is valued on
the exchange designated as the primary market pursuant to procedures adopted by
the Trustees); and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest bid price. When
market quotations are not readily available, including circumstances under which
it is determined by the Investment Manager that sale and bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the 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. Dividends receivable are accrued as of the ex-dividend date or
as of the time that the relevant ex-dividend date and amounts become known.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
SHAREHOLDER SERVICES
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AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends and
capital gains distributions are automatically paid in full and fractional shares
of the applicable Class of the Fund (or, if specified by the shareholder, in
shares of any other open-end Dean Witter Fund), unless the shareholder requests
that they be paid in cash. Shares so acquired are acquired at net asset value
and are not subject to the imposition of a front-end sales charge or a CDSC (see
"Redemptions and Repurchases").
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder who
receives a cash payment representing a dividend or capital gains distribution
may invest such dividend or distribution in shares of the applicable Class 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
thirty days after the payment date. Shares so acquired are acquired at net asset
value and are not subject to the imposition of a front-end sales charge or a
CDSC (see "Redemptions and Repurchases").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic purchase
plan which provides for any amount from $100 to $5,000 to be transferred
automatically from a checking or savings account or following redemption of a
Dean Witter money market fund, on a semi-monthly, monthly or quarterly basis, to
the Transfer Agent for investment in shares of the Fund (see "Purchase of Fund
Shares" and "Redemptions and Repurchases--Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum
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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 CDSC will be imposed
on shares redeemed under the Withdrawal Plan (see "Purchase of Fund Shares").
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 CDSC) to the shareholder will be the designated monthly or
quarterly amount. Withdrawal plan payments should not be considered as
dividends, yields or income. If periodic withdrawal plan payments continuously
exceed net investment income and net capital gains, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. Each
withdrawal constitutes a redemption of shares and any gain or loss realized must
be recognized for federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected Dealer
account executive or the Transfer Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any other
Dean Witter Multi-Class Fund without the imposition of any exchange fee. Shares
may also be exchanged for shares of the following funds: Dean Witter Short-Term
U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean Witter
Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust and five
Dean Witter funds which are money market funds (the "Exchange Funds"). Class A
shares may also be exchanged for shares of Dean Witter Multi-State Municipal
Series Trust and Dean Witter Hawaii Municipal Trust, which are Dean Witter Funds
sold with a front-end sales charge ("FSC Funds"). Class B shares may also be
exchanged for shares of Dean Witter Global Short-Term Income Fund Inc., Dean
Witter High Income Securities and Dean Witter National Municipal Trust, which
are Dean Witter Funds offered with a CDSC ("CDSC Funds"). Exchanges may be made
after the shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, any CDSC
Fund or any Exchange Fund that is not a money market fund is on the basis of the
next calculated net asset value per share of each fund after the exchange order
is received. When exchanging into a money market fund from the Fund, shares of
the Fund are redeemed out of the Fund at their next calculated net asset value
and the proceeds of the redemption are used to purchase shares of the money
market fund at the net asset value determined the following business day.
Subsequent exchanges between any of the money market funds and any of the Dean
Witter Multi-Class Funds, FSC Funds or CDSC Funds or any Exchange Fund that is
not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an 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 re-exchanged for shares of a Dean Witter Multi-Class
Fund or 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 Dean Witter Multi-Class Fund or shares of a CDSC Fund are reacquired. Thus,
the CDSC is based upon the time (calculated as described above) the shareholder
was invested in shares of a Dean Witter Multi-Class Fund or in shares of a CDSC
Fund (see "Purchase of Fund Shares"). In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a FSC
Fund. However, in the case of shares exchanged into an Exchange Fund, upon a
redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 distribution fees incurred on or after that date which are
attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for Class B shares of another Dean Witter Multi-Class Fund
or shares of a CDSC Fund having a different CDSC schedule than that of this Fund
will be subject to the higher CDSC schedule, even if such shares are
subsequently re-exchanged for shares of the fund with the lower CDSC schedule.
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should be
made for investment purposes only. A pattern of frequent exchanges may be deemed
by the Investment Manager to be abusive and contrary to the best interests of
the Fund's other shareholders and, at the Investment Manager's discretion, may
be limited by the Fund's refusal to accept additional purchases and/or
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exchanges from the investor. Although the Fund does not have any specific
definition of what constitutes a pattern of frequent exchanges, and will
consider all relevant factors in determining whether a particular situation is
abusive and contrary to the best interests of the Fund and its other
shareholders, investors should be aware that the Fund and each of the other Dean
Witter Funds may in their discretion limit or otherwise restrict the number of
times this Exchange Privilege may be exercised by any investor. Any such
restriction will be made by the Fund on a prospective basis only, upon notice of
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 Dean Witter 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 of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the Shareholder's account. An exchange will be
treated for federal income tax purposes the same as a repurchase or redemption
of shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Dean Witter
Funds (for which the Exchange Privilege is available) pursuant to this Exchange
Privilege by contacting their 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 may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the experience with the Dean
Witter Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
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REDEMPTION. Shares of each Class of the Fund can be redeemed for cash at any
time at the net asset value per share next determined less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account without a share
certificate, a written request for redemption sent to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder(s), the shares may be redeemed by surrendering the certificates
with a written request for redemption, along with any additional information
required by the Transfer Agent.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to repurchase
shares represented by a share certificate which is delivered to any of their
offices. Shares held in a shareholder's account without a share certificate may
also be repurchased by DWR and other Selected Broker-Dealers upon the telephonic
request of the shareholder. The repurchase price is the net asset value next
computed (see "Purchase of Fund Shares") after such repurchase
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order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offers by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented for
repurchase or redemption will be made by check within seven days after receipt
by the Transfer Agent of the certificate and/or written request in good order.
Such payment may be postponed or the right of redemption suspended under unusual
circumstances; 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 are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares redeemed
or repurchased and has not previously exercised this reinstatement privilege
may, within 35 days after the date of the redemption or repurchase, reinstate
any portion or all of the proceeds of such redemption or repurchase in shares of
the Fund in the same Class from which such shares were redeemed or repurchased,
at their net asset value next determined after a reinstatement request, together
with the proceeds, is received by the Transfer Agent and receive a pro rata
credit for any CDSC paid in connection with such redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on sixty days'
notice and at net asset value, the shares of any shareholder (other than shares
held in an Individual Retirement Account or Custodial Account under Section
403(b)(7) of the 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-SM-, if
after twelve months the shareholder has invested less than $1,000 in the
account. However, before the Fund redeems such shares and sends the proceeds to
the shareholder, it will notify the shareholder that the value of the shares is
less than the applicable amount and allow 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
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DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for each
Class of shares and intends to pay dividends and to distribute substantially all
of its net investment income and distribute capital gains, if any, once each
year. The Fund may, however, determine either to distribute or to retain all or
part of any long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class 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. Shares acquired
by dividend and distribution reinvestments will not be subject to any front-end
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (see "Shareholder Services--Automatic Investment of
Dividends and Distributions").
TAXES. Because the Fund intends to distribute all of its net investment income
and net short-term capital gains to shareholders and otherwise 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 on
any such income and capital gains. Shareholders will normally have to pay
Federal income taxes, and any state and local income taxes, on the dividends and
distributions they receive from the Fund.
Distributions of net investment income and net short-term capital gains are
taxable to the shareholder as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares or in cash. Some
part of such dividends and distributions may be eligible for the Federal
dividends received deduction available to the Fund's corporate shareholders.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction. Any dividends declared in the last quarter of
any calendar year which are paid in the following year prior to February 1 will
be deemed, for tax purposes, to have been received by the shareholder in the
prior year.
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The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources would, in effect, represent a return
of a portion of each shareholder's investment. All, or a portion, of such
payments would not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
To avoid being subject to a 31% Federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and makes the appropriate election with the Internal Revenue Service, the Fund
will report annually to its shareholders the amount per share of such taxes to
enable shareholders to claim United States foreign tax credits or deductions
with respect to such taxes. In the absence of such an election, the Fund would
deduct foreign tax in computing the amount of its distributable income.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
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From time to time the Fund may quote its "total return" in advertisements and
sales literature. These figures are computed separately for Class A, Class B,
Class C and Class D shares. 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 a
Class of the Fund of $1,000 over periods of one, five and ten years or over the
life of the Fund if less than any of the foregoing. Average annual total return
reflects all income earned by the Fund, any appreciation or depreciation of the
Fund's assets, all expenses incurred by the applicable Class and all sales
charges which will be incurred by shareholders, for the stated periods. It also
assumes reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. The Fund may also advertise
the growth of hypothetical investments of $10,000, $50,000 and $100,000 in each
Class of shares of the Fund. Such calculations may or may not reflect the
deduction of any sales charge which, if reflected, would reduce the performance
quoted. The Fund from time to time may also advertise its performance relative
to certain performance rankings and indexes compiled by independent
organizations, such as mutual fund performance rankings of Lipper Analytical
Services, Inc.
ADDITIONAL INFORMATION
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VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01 par
value and are equal as to earnings, assets and voting privileges except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.
CODE OF ETHICS. Directors, officers and employees of the Investment Manager,
Dean Witter Services Company Inc. and the Distributor are subject to a strict
Code of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead of
any personal interest, that no undue personal benefit is obtained from a
person's
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employment activities and that actual and potential conflicts of interest are
avoided. To achieve these goals and comply with regulatory requirements, the
Code of Ethics requires, among other things, that personal securities
transactions by employees of the companies be subject to an advance clearance
process to monitor that no Dean Witter Fund is engaged at the same time in a
purchase or sale of the same security. The Code of Ethics bans the purchase of
securities in an initial public offering, and also prohibits engaging in futures
and options transactions and profiting on short-term trading (that is, a
purchase within sixty days of a sale or a sale within sixty days of a purchase)
of a security. In addition, investment personnel may not purchase or sell a
security for their personal account within thirty days before or after any
transaction in any Dean Witter Fund managed by them. Any violations of the Code
of Ethics are subject to sanctions, including reprimand, demotion or suspension
or termination of employment. The Code of Ethics comports with regulatory
requirements and the recommendations in the 1994 report by the Investment
Company Institute Advisory Group on Personal Investing.
The Fund's Sub-Adviser also has a Code of Ethics which complies with
regulatory requirements and, insofar as it relates to persons associated with
the Fund, the 1994 report by the Investment Company Institute Advisory Group on
Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve its
investment objective by investing all of its investable assets in a
non-diversified, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed to
the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
26
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DEAN WITTER
JAPAN FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank
One Chase Plaza
New York, NY 10005
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
SUB-ADVISER
Morgan Grenfell Investment Services Limited
