<PAGE>
Filed Pursuant to Rule 497(e)
Registration File No.: 333-15813
DEAN WITTER
MARKET LEADER TRUST
PROSPECTUS -- OCTOBER 28, 1997
DEAN WITTER MARKET LEADER TRUST (THE "FUND") IS AN OPEN-END, DIVERSIFIED
MANAGEMENT INVESTMENT COMPANY WHOSE INVESTMENT OBJECTIVE IS LONG-TERM GROWTH
OF CAPITAL. THE FUND SEEKS TO MEET ITS INVESTMENT OBJECTIVE BY INVESTING
PRIMARILY IN EQUITY SECURITIES ISSUED BY COMPANIES THAT ARE ESTABLISHED
LEADERS IN THEIR RESPECTIVE FIELDS IN GROWING INDUSTRIES IN DOMESTIC AND
FOREIGN MARKETS. (SEE "RISK CONSIDERATIONS AND INVESTMENT PRACTICES.")
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. (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 October 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.
TABLE OF CONTENTS
Prospectus Summary .................................................... 2
Summary of Fund Expenses .............................................. 4
Financial Highlights .................................................. 5
The Fund and its Management ........................................... 8
Investment Objective and Policies ..................................... 8
Risk Considerations and Investment
Practices ........................................................... 10
Investment Restrictions ............................................... 15
Purchase of Fund Shares ............................................... 16
Shareholder Services .................................................. 24
Redemptions and Repurchases ........................................... 26
Dividends, Distributions and Taxes .................................... 27
Performance Information ............................................... 28
Additional Information ................................................ 28
Financial Statements--August 31, 1997 ................................. 30
Report of Independent Accountants ..................................... 38
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
MARKET LEADER TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR
(800) 869-NEWS (TOLL-FREE)
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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<TABLE>
<CAPTION>
<S> <C>
THE The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end,
FUND diversified management investment company. The Fund invests primarily in equity securities issued by
companies that are established leaders in their respective fields in growing industries in domestic and
foreign markets.
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SHARES Shares of beneficial interest with $0.01 par value (see page 28). The Fund offers four Classes of shares,
OFFERED each with a different combination of sales charges, ongoing fees and other features (see pages 16-24).
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MINIMUM The minimum initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest
PURCHASE (Service Mark) ). 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 16).
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INVESTMENT The investment objective of the Fund is long-term growth of capital.
OBJECTIVE
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INVESTMENT Dean Witter InterCapital Inc., the Investment Manager of the Fund, and its wholly-owned subsidiary, Dean
MANAGER Witter Services Company Inc., serve in various investment management, advisory, management and
administrative capacities to 102 investment companies and other portfolios with net assets under
management of approximately $102.4 billion at September 30, 1997 (see page 8).
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MANAGEMENT The Investment Manager receives a monthly fee at the annual rate of 0.75% of the Fund's average daily net
FEE assets (see page 8).
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DISTRIBUTOR AND Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution plan pursuant to
DISTRIBUTION FEE Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the distribution fees
paid by the Class A, Class B and Class C shares of the 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 16 and 22).
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ALTERNATIVE Four classes of shares are offered:
PURCHASE
o 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 16, 18 and 22).
o 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
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 16, 20 and 22).
2
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o 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 16 and 22).
o 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 16 and 22).
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DIVIDENDS AND Dividends from net investment income and distributions from net capital gains, if any, are paid at least
CAPITAL GAINS annually. The Fund may, however, determine to retain all or part of any net long-term capital gains in any
DISTRIBUTIONS year for reinvestment. Dividends and capital gains 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 24 and 27).
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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 (Service Mark), if after twelve months the
shareholder has invested less than $1,000 in the account (see page 26).
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RISK The net asset value of the Fund's shares will fluctuate with changes in market value of portfolio
CONSIDERATIONS securities. An investment in the Fund should be considered a long-term holding and subject to all the
risks associated with investing in equity securities of companies in growing industries in domestic and
foreign markets. The market value of the Fund's portfolio securities and, therefore, the Fund's net
asset value per share, will increase or decrease due to a variety of economic, market or political
factors which cannot be predicted. It should be recognized that foreign securities and markets in which
the Fund may invest pose different and greater risks than those customarily associated with domestic
securities and their markets. The Fund may invest in lower-rated convertible and non-convertible
fixed-income securities, may enter into repurchase agreements, may purchase securities on a when-issued,
delayed delivery or forward commitment basis, may purchase securities on a "when, as and if issued"
basis, may lend its portfolio securities and may utilize certain investment techniques including
transactions involving stock index futures 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. An investment in shares of the Fund should not be considered a complete investment program
and is not appropriate for all investors. Investors should carefully consider their ability to assume
these risks and the risks outlined under the heading "Risk Considerations and Investment Practices"
(pages 10-15) before making an investment in the Fund.
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SHAREHOLDER Automatic Investment of Dividends and Distributions; Investment of Distributions Received in Cash;
SERVICES Systematic Withdrawal Plan; Exchange Privilege; EasyInvest (Service Mark); Tax-Sheltered Retirement
Plans (see pages 24-26).
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</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
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 annualized fees and expenses set forth in
the table below are based on the expenses and fees estimated to be incurred
in the fiscal period ending August 31, 1998.
<TABLE>
<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+ ............................................... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (5)(6)............................................... 0.25% 1.00% 1.00% None
Other Expenses+ ................................................ 0.51% 0.51% 0.51% 0.51%
Total Fund Operating Expenses (7)+.............................. 1.51% 2.26% 2.26% 1.26%
</TABLE>
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+ The Investment Manager agreed to assume all operating expenses (except
for brokerage and 12b-1 fees) and to waive the compensation provided
for in its Management Agreement until such time as the Fund had $50
million in net assets or until October 28, 1997, whichever occurred
first. The Fund attained $50 million in net assets on May 13, 1997. The
fees and expenses disclosed above do not reflect the assumption of any
expenses or the waiver of any compensation by the Investment Manager.
(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 July 28, 1997. Accordingly, "Total Fund Operating Expenses," as
shown above with respect to those Classes, are estimates based upon the
sum of 12b-1 Fees, Management Fees and estimated "Other Expenses."
<PAGE>
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS
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<S> <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 ................................................................ $67 $ 98
Class B ................................................................ $73 $101
Class C................................................................. $33 $ 71
Class D ................................................................ $13 $ 40
You would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of the period:
Class A ................................................................ $67 $ 98
Class B ................................................................ $23 $ 71
Class C ................................................................ $23 $ 71
Class D ................................................................ $13 $ 40
</TABLE>
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 the 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 this
Prospectus commencing on page 30.
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 28, 1997*
THROUGH
AUGUST 31, 1997**
-----------------
<S> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 10.00
--------------
Net investment income ................. 0.04
Net realized and unrealized gain ...... 0.77
--------------
Total from investment operations ...... 0.81
--------------
Net asset value, end of period ........ $ 10.81
==============
TOTAL INVESTMENT RETURN+ ................ 8.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .............................. 2.34%(2)(3)
Net investment income ................. 1.21%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $107,298
Portfolio turnover rate ............... 22%(1)
Average commission rate paid .......... $0.0541
</TABLE>
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* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B
shares.
+ 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.
(3) If the Fund had borne all of its expenses that were reimbursed or
waived by the Investment Manager, the annualized expense and net
investment income ratios would have been 2.47% and 1.08%, respectively.
5
<PAGE>
FINANCIAL HIGHLIGHTS--Continued
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
AUGUST 31, 1997**
-----------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $10.90
-----------------
Net investment income ................. 0.01
Net realized and unrealized loss ...... (0.09)
-----------------
Total from investment operations ...... (0.08)
-----------------
Net asset value, end of period ........ $10.82
=================
TOTAL INVESTMENT RETURN+ ................ (0.73)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .............................. 1.89%(2)
Net investment income ................. 1.30%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $288
Portfolio turnover rate ............... 22%(1)
Average commission rate paid .......... $0.0541
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $10.90
-----------------
Net investment income ................. 0.01
Net realized and unrealized loss ...... (0.10)
-----------------
Total from investment operations ...... (0.09)
-----------------
Net asset value, end of period ........ $10.81
=================
TOTAL INVESTMENT RETURN+ ................ (0.83)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .............................. 2.54%(2)
Net investment income ................. 0.61%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $313
Portfolio turnover rate ............... 22%(1)
Average commission rate paid .......... $0.0541
</TABLE>
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* The date shares were first issued.
+ 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.
6
<PAGE>
FINANCIAL HIGHLIGHTS--Continued
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
AUGUST 31, 1997**
-----------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 10.90
-----------------
Net investment income ................. 0.02
Net realized and unrealized loss ...... (0.10 )
-----------------
Total from investment operations ...... (0.08 )
-----------------
Net asset value, end of period ........ $ 10.82
=================
TOTAL INVESTMENT RETURN+ ................ (0.73 )%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .............................. 1.43 %(2)
Net investment income ................. 1.81 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $ 10
Portfolio turnover rate ............... 22 %(1)
Average commission rate paid .......... $0.0541
</TABLE>
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* The date shares were first issued.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
7
<PAGE>
THE FUND AND ITS MANAGEMENT
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Dean Witter Market Leader Trust (the "Fund") is an open-end, diversified
management investment company. The Fund is a trust of the type commonly known
as a "Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on November 4, 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 102 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$98.6 billion at September 30, 1997. The Investment Manager also manages
portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.8 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. InterCapital has retained Dean Witter Services Company
Inc. to perform the aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by the Investment
Manager to ensure that the Fund's general investment policies and programs
are being properly carried out and that administrative services are being
provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund incurred by the Investment Manager, the Fund
pays the Investment Manager monthly compensation calculated daily by applying
the annual rate of 0.75% to the Fund's net assets.
The Fund's expenses include: the fee of the Investment Manager; the fee
pursuant to the Plan of Distribution (see "Purchase of Fund Shares"); taxes;
transfer agent, custodian and auditing fees; certain legal fees; and printing
and other expenses relating to the Fund's operations which are not expressly
assumed by the Investment Manager under its Investment Management Agreement
with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is long-term growth of capital. The
objective is a fundamental policy of the Fund and may not be changed without
a vote of a majority of the outstanding voting securities of the Fund. There
is no assurance that the objective will be achieved. The following policies
may be changed by the Board of Trustees without shareholder approval.
The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of
companies that, in the opinion of the Investment Manager, are established
leaders in their respective fields in growing industries in domestic and
foreign markets. The equity securities in which the Fund may invest in
include common stocks, preferred stocks and debt or preferred stocks
convertible into or exchangeable for common stocks. These companies generally
will possess well-recognized proprietary skills or products, will have equity
market capitalizations in excess of $1 billion and will be listed on a United
States stock exchange (including U.S. dollar-denominated securities such as
American Depository Receipts ("ADRs")). Generally these companies will be
considered "leaders," in the view of the Investment Manager, if they are
nationally-known and have established a strong reputation for quality
management, products and services in the United States and/or globally.
In addition to equity securities of market leader companies, up to 35% of
the Fund's total assets may be invested in equity securities or debt
securities convertible into or exchangeable for equity securities of other
companies, in non-convertible debt securities, including U.S. Government
securities and money market instruments, and in rights and warrants. (For a
discussion of the risks of investing in each of these securities, see "Risk
Considerations and Investment Practices" below.)
The Investment Manager intends to use both "top down" and "bottom-up"
approaches. The "top down" approach seeks to identify growing industries in
domestic and foreign markets. Within these industries, the
8
<PAGE>
Investment Manager will apply a "bottom-up" fundamental analysis to identify
the most attractive securities to purchase, giving particular attention to
companies with the following attributes: recognized product and service
leadership within its industry, strong financial position (strong financial
fundamentals) relative to its peers, strong history of earnings growth or
momentum often exceeding consensus analyst expectations, evidence of
corporate management's attention to equity structure (evidenced by, among
other things, stock buy-backs, the extent to which management exercises stock
options or otherwise acquires shares of the company and sound financing
decisions) as well as other attributes which the Investment Manager believes
are indicators of sustainable long-term growth.
Fixed-income securities in which the Fund may invest include corporate
notes and bonds and obligations issued or guaranteed by the United States
Government, its agencies and instrumentalities. The non-governmental debt
securities in which the Fund will invest will include: (a) corporate debt
securities, including bonds, notes and commercial paper, rated in the four
highest categories by a nationally recognized statistical rating organization
("NRSRO") including Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P"), Duff and Phelps, Inc. and Fitch Investors
Service, Inc., or, if unrated, of comparable quality as determined by the
Investment Manager; and (b) bank obligations, including CDs, banker's
acceptances and time deposits, issued by banks with a long-term CD rating in
one of the four highest categories by a NRSRO. Investments in securities
rated within the four highest rating categories by a NRSRO are considered
"investment grade." However, such securities rated within the fourth highest
rating category by a NRSRO have speculative characteristics and, therefore,
changes in economic conditions or other circumstances are more likely to
weaken the capacity of their issuers to make principal and interest payments
than would be the case with investments in securities with higher credit
ratings. Where a fixed-income security is not rated by a NRSRO, the
Investment Manager will make a determination of its creditworthiness and may
deem it to be investment grade. If a fixed-income non-convertible security
held by the Fund is subsequently downgraded by a rating agency below
investment grade, the Fund will sell such securities as soon as practicable
without undue market or tax consequences to the Fund. See the Appendix to the
Statement of Additional Information for a discussion of ratings of
fixed-income securities.
The U.S. Government securities in which the Fund may invest include
securities which are direct obligations of the United States Government, such
as United States treasury bills, notes and bonds (including zero coupon
bonds), and which are backed by the full faith and credit of the United
States; securities which are backed by the full faith and credit of the
United States but which are obligations of a United States agency or
instrumentality (e.g., obligations of the Government National Mortgage
Association); securities issued by a United States agency or instrumentality
which has the right to borrow, to meet its obligations, from an existing line
of credit with the United States Treasury (e.g., obligations of the Federal
National Mortgage Association); and securities issued by a United States
agency or instrumentality which is backed by the credit of the issuing agency
or instrumentality (e.g., obligations of the Federal Farm Credit System).
Money market instruments in which the Fund may invest include securities
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities (Treasury bills, notes and bonds, including zero coupon
securities); bank obligations; Eurodollar certificates of deposit;
obligations of savings institutions; fully insured certificates of deposit;
and commercial paper rated within the four 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. Such securities may be used to invest
uncommitted cash balances.
There may be periods during which, in the opinion of the Investment
Manager, market conditions warrant reduction of some or all of the Fund's
securities holdings. During such periods, the Fund may adopt a temporary
"defensive" posture in which up to 100% of its total assets is invested in
money market instruments or cash.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, entail
less risk than the corporation's common stock. The value of a convertible
security is a function of its "investment value" (its value as if it did not
have a conversion privilege), and its "conversion value" (the security's
worth if it were to be exchanged for the underlying security, at market
value, pursuant to its conversion privilege).
Up to 20% of the Fund's assets in convertible fixed-income securities can
be rated below investment grade or, if unrated, of comparable quality as
determined by the Investment Manager. Securities rated below investment grade
are the equivalent of high yield, high risk bonds (commonly known as "junk
bonds"). The Fund will not invest in convertible fixed-income securities that
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<PAGE>
are in default in payment of principal or interest. In the event that the
Fund's investments in convertible securities rated below investment grade,
including downgraded convertible securities, constitute more than 20% of the
Fund's total assets, the Fund will seek immediately to sell sufficient
securities to reduce the total to below the applicable percentage. See "Risk
Considerations and Investment Practices" below for a discussion of the risks
of investing in lower-rated and unrated fixed-income securities and the
Appendix to the Statement of Additional Information for a description of
fixed income security ratings.
The Fund may also purchase and sell futures contracts on stock indexes,
may invest in repurchase agreements, private placements, zero coupon
securities and real estate investment trusts, may purchase securities on a
when-issued, delayed delivery or forward commitment basis, may purchase
securities on a "when, as and if issued" basis, and may lend its portfolio
securities, as discussed under "Risk Considerations and Investment Practices"
below.
RISK CONSIDERATIONS AND INVESTMENT
PRACTICES
The net asset value of the Fund's shares will fluctuate with changes in the
market value of the Fund's portfolio securities. The market value of the
Fund's portfolio securities will increase or decrease due to a variety of
economic, market or political factors which cannot be predicted.
FOREIGN SECURITIES. The Fund may invest in foreign securities; provided,
however, that not more than 10% of the Fund's total assets may be invested in
foreign securities which are not listed on a United States stock exchange.
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.
LOWER RATED OR UNRATED CONVERTIBLE SECURITIES. To the extent that a
convertible security's investment value is greater than its conversion value,
its price will be primarily a reflection of such investment value and its
price will be likely to increase when interest rates fall and decrease when
interest rates rise, as with a fixed-income security (the credit standing of
the issuer and other factors may also have an effect on the convertible
security's value). If the conversion value exceeds the investment value, the
price of the convertible security will rise above its investment value and,
in addition, may sell at some premium over its conversion value. (This
premium represents the price investors are willing to pay for the privilege
of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion
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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 convertible securities in which the Fund may invest will
generally be rated 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"). Fixed-income securities rated
Baa by Moody's or BBB by Standard & Poor's have speculative characteristics
greater than those of more highly rated securities, while fixed-income
securities rated Ba or BB or lower by Moody's and Standard & Poor's,
respectively, are considered to be speculative investments. The Fund will not
invest in convertible securities that are rated lower than B by S&P or
Moody's or, if not rated, determined to be of comparable quality by the
Investment Manager. The Fund will not invest in debt securities that are in
default in payment of principal or interest. The ratings of fixed-income
securities by Moody's and Standard & Poor's are a generally accepted
barometer of credit risk. However, as the creditworthiness of issuers of
lower-rated fixed-income securities is more problematic than that of issuers
of higher-rated fixed-income securities, the achievement of the Fund's
investment objective will be more dependent upon the Investment Manager's own
credit analysis than would be the case with a mutual fund investing primarily
in higher quality bonds. The Investment Manager will utilize a security's
credit rating as simply one indication of an issuer's creditworthiness and
will principally rely upon its own analysis of any security currently held by
the Fund or potentially purchasable by the Fund for its portfolio. See the
Appendix to the Statement of Additional Information for a discussion of
ratings of fixed-income securities.
Because of the special nature of the Fund's permitted investments in lower
rated or unrated convertible securities, the Investment Manager must take
account of certain special considerations in assessing the risks associated
with such investments. The prices of lower rated or unrated securities have
been found to be less sensitive to changes in prevailing interest rates than
higher rated investments, but are likely to be more sensitive to adverse
economic changes or individual corporate developments. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would adversely affect their
ability to service their principal and interest payment obligations, to meet
their projected business goals or to obtain additional financing. If the
issuer of a fixed-income security owned by the Fund defaults, the Fund may
incur additional expenses to seek recovery. In addition, periods of economic
uncertainty and change can be expected to result in an increased volatility
of market prices of lower rated or unrated securities and a corresponding
volatility in the net asset value of a share of the Fund.
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 believes
that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar or some other foreign currency, the Fund may
enter into a forward contract to sell, for a fixed amount of dollars or other
currency, the amount of foreign currency approximating the value of some or
all of the Fund's securities holdings (or securities which the Fund has
purchased for its portfolio) denominated in such foreign currency. Under
identical circumstances, the Fund may enter into a forward contract to sell,
for a fixed amount of U.S. dollars or other currency, an amount of foreign
currency other than the currency in which the securities to be hedged are
denominated approximating the value of some or all of the portfolio
securities to be hedged. This method of hedging, called "cross-hedging," will
be selected by the Investment Manager when it is
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<PAGE>
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 anticipates purchasing
securities at some time in the future, and wishes to lock in the current
exchange rate of the currency in which those securities are denominated
against the U.S. dollar or some other foreign currency, the Fund may enter
into a forward contract to purchase an amount of currency equal to some or
all of the value of the anticipated purchase, for a fixed amount of U.S.
dollars or other currency. 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
securities holdings (or anticipated portfolio securities) are denominated
rises in value with respect to the currency which is being purchased (or
sold), then the Fund will have realized fewer gains than had the Fund not
entered into the forward contracts. Moreover, the precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible, since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and
the date it matures. The Fund is not required to enter into such transactions
with regard to its foreign currency-denominated securities and will not do so
unless deemed appropriate by the Investment Manager. 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 qualifications as a regulated investment company (see "Dividends,
Distributions and Taxes").
CORPORATE NOTES AND BONDS. Values and yield of corporate bonds will fluctuate
with changes in prevailing interest rates and other factors. Generally, as
prevailing interest rates rise, the value of corporate notes and bonds held
by the Fund will fall. Securities with longer maturities generally tend to
produce higher yields and are subject to greater market fluctuation as a
result of changes in interest rates than debt securities with shorter
maturities. The Fund is not limited as to the maturities of the debt
securities in which it may invest.
STOCK INDEX FUTURES TRANSACTIONS. The Fund may purchase and sell futures
contracts on stock indexes such as the Standard & Poor's 500 Composite Stock
Price Index, the New York Stock Exchange Composite Index and the Russell 2000
Index. An index futures contract sale creates an obligation by the Fund, as
seller, to deliver cash at a specified future time. An index futures contract
purchase would create an obligation by the Fund, as purchaser, to take
delivery of cash at a specified future time. Futures contracts on indexes do
not require the physical delivery of securities, but provide for a final cash
settlement on the expiration date which reflects accumulated profits and
losses credited or debited to each party's account.
The Fund may purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) securities
against changes in their prices. Purchase of a futures contract by the Fund
may serve as a temporary substitute for the purchase of individual stocks
which may then be purchased in an orderly fashion. The Fund will not enter
into futures contracts on stock indexes for speculative purposes. The Fund
may not enter into futures contracts if immediately thereafter the amount
committed to initial margin exceeds 5% of the value of the Fund's total
assets. However, there is no overall limitation on the percentage of the
Fund's assets which may be subject to a hedge position, and therefore as much
as 100% of the Fund's assets may be subject to such futures contracts. The
Fund may close out its position as a buyer or seller of a futures contract
only if a liquid secondary market exists for futures contracts of that
series. There is no assurance that such a market will exist. 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 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 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. Another risk which will arise in employing futures
contracts to protect against the price volatility of portfolio securities is
that the prices of indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the
cash prices of the Fund's portfolio securities. This risk may particularly
apply, given the nature of the Fund's investments in securities of smaller
companies rather than larger companies. See the Statement of Additional
Information for a further discussion of risks.
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<PAGE>
The extent to which the Fund may enter into transactions involving futures
contracts may be limited by the Internal Revenue Code's requirements for
qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Taxes."
INVESTMENT IN OTHER INVESTMENT VEHICLES. Under the Investment Company Act of
1940, as amended (the "Act"), the Fund generally may invest up to 10% of its
total assets in the aggregate in shares of other investment companies and up
to 5% of its total assets in any one investment company, as long as that
investment does not represent more than 3% of the voting stock of the
acquired investment company at the time such shares are purchased.
Notwithstanding the foregoing, the Fund may invest all or substantially all
of its assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as the Fund. (See "Additional Information--Master/Feeder
Conversion.") Investment in other investment companies or vehicles may be the
sole or most practical means by which the Fund can participate in certain
foreign markets. Such investment may involve the payment of substantial
premiums above the value of such issuers' portfolio securities, and is
subject to limitations under the Act and market availability. In addition,
special tax considerations may apply. The Fund does not intend to invest in
such vehicles or funds unless, in the judgment of the Investment Manager, the
potential benefits of such investment justify the payment of any applicable
premium or sales charge. As a shareholder in an investment company, the Fund
would bear its ratable share of that investment company's expenses, including
its advisory and administration fees. At the same time the Fund would
continue to pay its own management fees and other expenses, as a result of
which the Fund and its shareholders in effect will be absorbing duplicate
levels of advisory fees with respect to investments in such other investment
companies.
RIGHTS AND WARRANTS. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting
rights, pay no dividends and have no rights with respect to the corporation
issuing them.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the 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 designed to minimize such
risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions and
maintaining adequate collateralization.
DEPOSITORY RECEIPTS. The Fund may invest in securities of foreign issuers in
the form of ADRs, including ADRs sponsored by persons other than the
underlying issuers ("unsponsored ADRs"), European Depository Receipts
("EDRs"), Global Depository Receipts ("GDRs") 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.
Generally, issuers of the stock of unsponsored ADRs are not obligated to
distribute material information in the United States and, therefore, there
may not be a correlation between such information and the market value of
such ADRs. EDRs are issued by a European bank and GDRs are issued by a
foreign bank or trust company and both evidence ownership of the underlying
foreign security. Generally, ADRs, in registered form, are designated for use
in the United States securities markets, EDRs, in bearer form, are designated
for use in European securities markets and GDRs, in bearer form, are
designated for use in European and other foreign securities markets.
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.
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 its net asset value. See the Statement of
Additional Information for additional risk disclosure.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the
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occurrence of a subsequent event, such as approval of a merger, corporate
reorganization, leveraged buyout or debt restructuring. If the anticipated
event does not occur and the securities are not issued, the Fund will have
lost an investment opportunity. An increase in the percentage of the Fund's
assets committed to the purchase of securities on a "when, as and if issued"
basis may increase the volatility of its net asset value. See the Statement
of Additional Information for additional risk disclosure.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased by
the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payments in cash
on the security during the year.
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in a real estate investment trust,
the Fund would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time
the Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real
estate investment trusts. Real estate investment trusts are not diversified
and are subject to the risk of financing projects. They are also subject to
heavy cash flow dependency, defaults by borrowers or tenants,
self-liquidation, and the possibility of failing to qualify for tax-free
status under the Internal Revenue Code and failing to maintain exemption from
the Act.
PRIVATE PLACEMENTS AND RESTRICTED SECURITIES. The Fund may invest up to 5% of
its total assets in securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or which are otherwise restricted.
(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.
However, investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional
buyers interested in purchasing such securities.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at
any time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account
pursuant to applicable regulations and that are equal to at least the market
value, determined daily, of the loaned securities. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities will only be made to
firms deemed by the
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Investment Manager to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section of the Prospectus and to the "Investment Practices and
Policies" section of the Statement of Additional Information.
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Fund and, as such, may be
changed without shareholder approval.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean
Witter Reynolds Inc. ("DWR") and other broker-dealer affiliates of
InterCapital, and others regarding economic developments and interest rate
trends, and the Investment Manager's own analysis of factors it deems
relevant. The assets of the Fund are managed within InterCapital's Growth
Group, which manages thirty-one equity funds and fund portfolios with
approximately $14.9 billion in assets as of September 30, 1997. Guy G.
Rutherfurd, Jr., Senior Vice President of InterCapital and a member of
InterCapital's Growth Group since February, 1997, is the primary portfolio
manager of the Fund. Prior to joining InterCapital, Mr. Rutherfurd was
Executive Vice President and Chief Investment Officer of Nomura Asset
Management (U.S.A.) Inc., from May, 1992 to February, 1997.
Although the Fund does not intend to engage in short-term trading of
portfolio securities as a means of achieving its investment objective, it may
sell portfolio securities without regard to the length of time they have been
held whenever such sale will in the Investment Manager's opinion strengthen
the Fund's position and contribute to its investment objective. Orders for
transactions in portfolio securities and commodities are placed for the Fund
with a number of brokers and dealers, including DWR and other brokers and
dealers that are affiliates of the Investment Manager. The Fund may incur
brokerage commissions on transactions conducted through such affiliates.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR.
It is not anticipated that the portfolio trading will result in the Fund's
portfolio turnover rate exceeding 100% in any one year. The Fund will incur
brokerage costs commensurate with its portfolio turnover rate. See
"Dividends, Distributions and Taxes" for a discussion of the tax implications
of the Fund's trading policy.
INVESTMENT RESTRICTIONS
- -----------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For
purposes of the following limitations: (i) all percentage limitations apply
immediately after a purchase or initial investment; and (ii) any subsequent
change in any applicable percentage resulting from market fluctuations or
other changes in total or net assets does not require elimination of any
security from the portfolio.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations
issued, or guaranteed by, the United States Government, its agencies or
instrumentalities), except that the Fund may invest all or substantially all
of its assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as the Fund (a "Qualifying Portfolio").
2. As to 75% of its total assets, purchase more than 10% of all
outstanding voting securities or any class of securities of any one issuer,
except that the Fund may invest all or substantially all of its assets in a
Qualifying Portfolio.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
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PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
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 Market
Leader Trust, directly to Dean Witter Trust FSB (the "Transfer Agent" or
"DWT") 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
(Service Mark), an automatic purchase plan (see "Shareholder Services"), is
$100, provided that the schedule of automatic investments will result in
investments totalling at least $1,000 within the first twelve months. The
minimum initial purchase in the case of an "Education IRA" is $500, if the
Distributor has reason to believe that additional investments will increase
the investment account to $1,000 within three years. In the case of
investments pursuant to (i) Systematic Payroll Deduction Plans (including
Individual Retirement Plans), (ii) the InterCapital mutual fund asset
allocation program and (iii) fee-based programs approved by the Distributor,
pursuant to which participants pay an asset based fee for services in the
nature of investment advisory or administrative services, the Distributor, in
its discretion, may accept investments without regard to any minimum amounts
which would otherwise be required, provided, in the case of Systematic
Payroll Deduction Plans, that the Fund has reason to believe that additional
investments will increase the investment in all accounts under such Plans to
at least $1,000. 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. 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
16
<PAGE>
thereto. As noted above, orders placed directly with the Transfer Agent must
be accompanied by payment. Investors will be entitled to receive income
dividends and capital gains distributions if their order is received by the
close of business on the day prior to the record date for such dividends and
distributions. Sales personnel of a Selected Broker-Dealer are compensated
for selling shares of the Fund 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 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 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:
17
<PAGE>
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 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
- --------- ------------------------- ------------- --------------------
<S> <C> <C> <C>
A Maximum 5.25% 0.25% No
Initial 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% B shares convert
CDSC during the first to A shares
year decreasing automatically
to 0 after six years after
approximately
ten years
- --------- ------------------------- ------------- --------------------
C 1.0% CDSC during 1.0% No
first year
- --------- ------------------------- ------------- --------------------
D None None No
</TABLE>
<PAGE>
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.
18
<PAGE>
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 OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION 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 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:
19
<PAGE>
(1) trusts for which DWT (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, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, 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 DWT 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 DWT 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.
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 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 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
PURCHASE CDSC AS A PERCENTAGE
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 DWT 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
20
<PAGE>
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 DWT serves as Trustee or
the 401(k) Support Services Group of DWR serves as recordkeeper ("Eligible
Plan"), provided that 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 DWT 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
21
<PAGE>
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.
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 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 referred to in
(i) and (ii) above, which may include termination fees, mandatory redemption
upon termination and such other circumstances as specified in the programs'
agreements, 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. Reimburse-
22
<PAGE>
ments 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 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 period April 28, 1997 (commencement of operations) through
August 31, 1997, Class B shares of the Fund accrued payments under the Plan
amounting to $265,860, which amount is equal to 1.0% of the average daily net
assets of Class B for the fiscal period. All shares held prior to July 28,
1997 have been designated Class B shares. For the fiscal period July 28
through August 31, 1997, Class A and Class C shares to the Fund accrued
payments under the Plan amounting to $30 and $164, respectively, which
amounts on an annualized basis are equal to 0.25% and 1.00% of the average
daily net assets of Class A and Class C, respectively, for such period.
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 $5,173,626 at August 31, 1997, which was equal to 4.82% of the net
assets of Class B 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, 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. The
Distributor has advised the Fund that there were no such expenses which may
be reimbursed in the subsequent year in the case of Class A and Class C on
such date. 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 of the Fund is determined once daily at 4:00
p.m., New York time, on each day that the New York Stock Exchange is open
(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
23
<PAGE>
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
stock exchange is valued at its latest sale price on that exchange 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); (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price; (3) when market quotations are
not readily available, including circumstances under which it is determined
by the Investment Manager that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Fund's Trustees (valuation of debt securities for
which market quotations are not readily available may be based upon current
market prices of securities which are comparable in coupon, rating and
maturity or an appropriate matrix utilizing similar factors); (4) the value
of short-term debt securities which mature at a date less than sixty days
subsequent to valuation date will be determined on an amortized cost or
amortized value basis; and (5) the value of other assets will be determined
in good faith at fair value under procedures established by and under the
general supervision of the Fund's Trustees. Dividends receivable are accrued
as of the ex-dividend date. Interest income is accrued daily. Certain
securities in the Fund's portfolio may be valued by an outside pricing
service approved by the Fund's Trustees.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the 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 OR DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value next determined after receipt by the
Transfer Agent, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. Shares so acquired are 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(SERVICE MARK). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account or following
redemption of shares 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 value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any amount, not less than $25, or in any
whole percentage of the account balance, on an annualized basis. Any
applicable 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
24
<PAGE>
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
Broker-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 their 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. In the case of shares
exchanged into an Exchange Fund on or after April 23, 1990, 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 exchanges from the investor. Although the Fund does not have
any specific definition of what constitutes a pattern of frequent exchanges,
and will consider all relevant factors in determining whether a particular
situation is abusive and contrary to the best interests of the Fund and its
other shareholders, investors should be aware that the Fund and each of the
other Dean Witter Funds may in their discretion limit or otherwise restrict
the number of times this Exchange Privilege may be exercised by any investor.
Any such restriction will be made by the Fund on a prospective basis only,
upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange. 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
25
<PAGE>
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 read 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 has realized 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 above
Dean Witter Funds (for which the Exchange Privilege is available) pursuant to
this Exchange Privilege by contacting their DWR or other Selected Dealer
account executive (no Exchange Privilege Authorization Form is required).
Other shareholders (and those 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 of the other Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their account executive or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -----------------------------------------------------------------------------
REDEMPTION. Shares of 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 to the Fund's
Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along
with any additional documentation required by the Transfer Agent.
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 or telegraphic request of the shareholder. The repurchase
price is the net asset value per share next determined (see "Purchase of Fund
Shares") after such repurchase order is received by DWR or other Selected
Broker-Dealer, reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by the Fund
or, the Distributor. The offer by DWR and other Selected Broker-Dealers to
repurchase shares may be suspended without notice by them at any time. In
that event, shareholders may redeem their shares through the Fund's Transfer
Agent as set forth above under "Redemption."
26
<PAGE>
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented for
repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances, e.g., when normal trading is not
taking place on the New York Stock Exchange. If the shares to be redeemed
have recently been purchased by check, payment of the redemption proceeds may
be delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Dealer are referred to their account
executive regarding restrictions on redemption of shares of the Fund pledged
in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares redeemed
or repurchased and has not previously exercised this reinstatement privilege
may, within 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 the net asset value next determined after a reinstatement
request, together with the proceeds, is received by the Transfer Agent and
receive a pro rata credit for any CDSC paid in connection with such
redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, upon sixty
days' notice and at net asset value, the shares of any shareholder (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 Board of Trustees or, in the case of an account
opened through EasyInvest (Service Mark), if after twelve months the
shareholder has invested less than $1,000 in the account. However, before the
Fund redeems such shares and sends the proceeds to the shareholder, it will
notify the shareholder that the value of the shares is less than the
applicable amount and allow the shareholder to make an additional investment
in an amount which will increase the value of the account to at least the
applicable amount before the redemption is processed. No CDSC will be imposed
on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- -----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for
each Class of shares and intends to distribute substantially all of the
Fund's net investment income and net realized short-term and long-term
capital gains, if there are any, at least once each year. The Fund may,
however, determine either to distribute or to retain all or part of any net
long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional 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 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 remain
qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code, it is not expected that the Fund will be required to
pay any federal income tax. Shareholders who are required to pay taxes on
their income will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they receive from the Fund.
Such dividends and distributions, to the extent that they are derived from
net investment income or short-term capital gains, are taxable to the
shareholder as ordinary dividend income regardless of whether the shareholder
receives such distributions in additional shares or in cash. 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.
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.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from
27
<PAGE>
such sources will, in effect, represent a return of a portion of each
shareholder's investment. All, or a portion, of such payments will not be
taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income,
the portion taxable as long-term capital gains, and the amount of dividends
eligible for the Federal dividends received deduction available to
corporations. To avoid being subject to a 31% federal backup withholding tax
on taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers
must be furnished and certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. 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. Total return and average annual total return reflect all income
earned by the Fund, any appreciation or depreciation of the Fund's assets and
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,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc. and the S&P 500 Index).
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges 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 limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an
express disclaimer of shareholder liability for acts or obligations of the
Fund, requires that notice of such Fund obligations include such disclaimer,
and provides for indemnification out of the Fund's property for any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund itself would be
unable to meet its obligations. Given the above limitations on shareholder
personal liability, and the nature of the Fund's assets and operations, the
possibility of the Fund
28
<PAGE>
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
CODE OF ETHICS. Directors, officers and employees of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code
of Ethics adopted by those companies. The Code of Ethics is intended to
ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an
advance clearance process to monitor that no Dean Witter Fund is engaged at
the same time in a purchase or sale of the same security. The Code of Ethics
bans the purchase of securities in an initial public offering, and also
prohibits engaging in futures and options transactions and profiting on
short-term trading (that is, a purchase within sixty days of a sale or a sale
within sixty days of a purchase) of a security. In addition, investment
personnel may not purchase or sell a security for their personal account
within thirty days before or after any transaction in any Dean Witter Fund
managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute
Advisory Group on Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve its
investment objective by investing all of its investable assets in a
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.
29
<PAGE>
DEAN WITTER MARKET LEADER TRUST
PORTFOLIO OF INVESTMENTS August 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (66.2%)
Aircraft & Aerospace (1.5%)
30,000 Boeing Co. ...................................................... $1,633,125
--------------
Banks (3.8%)
15,000 Chase Manhattan Corp. .......................................... 1,667,812
9,000 Citicorp ........................................................ 1,148,625
5,000 Wells Fargo & Co. ............................................... 1,271,250
--------------
4,087,687
--------------
Computer Software & Services (8.8%)
40,000 Ascend Communications, Inc.* .................................... 1,695,000
65,000 Checkfree Corp.* ................................................ 1,235,000
28,000 Cisco Systems, Inc.* ............................................ 2,108,750
24,000 Computer Sciences Corp.* ........................................ 1,785,000
20,000 Electronics For Imaging, Inc.* .................................. 1,067,500
40,000 First Data Corp. ................................................ 1,642,500
--------------
9,533,750
--------------
Computers (7.5%)
51,000 COMPAQ Computer Corp.* .......................................... 3,340,500
17,000 Dell Computer Corp.* ............................................ 1,395,062
40,000 Gateway 2000, Inc.* ............................................ 1,565,000
30,000 Hewlett-Packard Co. ............................................ 1,839,375
--------------
8,139,937
--------------
Drugs & Healthcare (7.8%)
35,000 Amgen Inc. ..................................................... 1,732,500
20,000 Bristol-Myers Squibb Co. ....................................... 1,520,000
35,000 Johnson & Johnson .............................................. 1,984,062
19,000 Merck & Co., Inc. .............................................. 1,744,437
25,000 Pfizer Inc. .................................................... 1,384,375
--------------
8,365,374
--------------
Electronics -Semiconductors/
Components (4.4%)
25,000 DII Group, Inc.* ............................................... 1,368,750
30,000 Intel Corp. .................................................... 2,758,125
20,000 LSI Logic Corp.* ............................................... 643,750
--------------
4,770,625
--------------
Finance (1.0%)
25,000 Fannie Mae ..................................................... 1,100,000
--------------
Financial Services (3.4%)
27,000 Hambrecht & Quist Group* ....................................... 852,187
8,200 Legg Mason, Inc. ............................................... 506,350
20,000 Lehman Brothers Holdings, Inc. ................................. 877,500
9,000 Price (T. Rowe) Associates, Inc. ............................... 492,750
15,000 Salomon, Inc. .................................................. 898,125
--------------
3,626,912
--------------
Insurance (1.1%)
12,000 American International Group, Inc. ............................. $1,132,500
--------------
Machinery (1.8%)
95,000 JLG Industries, Inc. ........................................... 1,110,313
30,000 Roper Industries, Inc. ......................................... 847,500
--------------
1,957,813
--------------
Medical Products & Supplies (1.5%)
50,000 U.S. Surgical Corp. ............................................ 1,646,875
--------------
Metals & Mining (3.1%)
45,000 Newmont Mining Corp. ........................................... 1,904,063
25,000 Nucor Corp. .................................................... 1,417,188
--------------
3,321,251
--------------
Natural Gas (0.5%)
8,000 Anardarko Petroleum Corp. ...................................... 587,500
--------------
Oil Drilling & Services (6.1%)
34,000 Halliburton Co. ................................................ 1,623,500
55,000 Noble Drilling Corp. ........................................... 1,564,063
20,000 Schlumberger, Ltd. ............................................. 1,523,750
35,000 Tidewater, Inc. ................................................. 1,837,500
--------------
6,548,813
--------------
<PAGE>
Restaurants (1.8%)
40,000 McDonald's Corp. ............................................... 1,892,500
--------------
Retail (2.8%)
31,000 Proffitt's, Inc.* .............................................. 1,664,313
50,000 TJX Companies, Inc. ............................................ 1,375,000
--------------
3,039,313
--------------
Shoes (1.2%)
25,000 Nike, Inc. (Class B) ........................................... 1,334,375
--------------
Telecommunications (4.6%)
31,000 Motorola, Inc. ................................................. 2,274,625
30,000 Nextel Communications, Inc. (Class A) .......................... 750,000
25,000 Nokia Corp. (ADR)(Finland) ..................................... 1,937,500
--------------
4,962,125
--------------
Utilities -Gas (2.1%)
26,000 Sonat, Inc. .................................................... 1,295,125
20,000 Williams Companies, Inc. ....................................... 931,250
Utilities -Telephone (1.4%)
13,000 Telecomunicacoes Brasileiras S.A. (ADR)(Brazil) ................ 1,534,000
--------------
TOTAL COMMON STOCKS
(Identified Cost $67,228,974) .................................. 71,440,850
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
DEAN WITTER MARKET LEADER TRUST
PORTFOLIO OF INVESTMENTS August 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (42.5%)
U.S. GOVERNMENT AGENCIES (a) (42.3%)
$45,700 Federal Home Loan Mortgage Corp.
5.41-5.50% due 09/02/97-09/04/97
(Amortized Cost $45,685,567) ................................. $45,685,567
--------------
REPURCHASE AGREEMENT (0.2%)
The Bank of New York
5.25% due 09/02/97 (dated
8/29/97; proceeds $188,170)(b)
188 (Identified Cost $188,060) ................................... 188,060
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $45,873,627) .................................. 45,873,627
--------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $113,102,601)(c) . 108.7% 117,314,477
LIABILITIES IN EXCESS OF OTHER
ASSETS ............................. (8.7) (9,405,157)
-------- -------------
NET ASSETS.......................... 100.0% $107,909,320
======== =============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $185,135 U.S. Treasury Note 6.625% due 05/15/07
valued at $191,821.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$6,000,591 and the aggregate gross unrealized depreciation is
$1,788,715, resulting in net unrealized appreciation of $4,211,876.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT AUGUST 31, 1997:
<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
RECEIVE EXCHANGE FOR DATE DEPRECIATION
- -------------- -------------- ---------- --------------
<S> <C> <C> <C>
$462,459 DEM 834,507 09/01/97 $(895)
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
DEAN WITTER MARKET LEADER TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $113,102,601)................ $117,314,477
Receivable for:
Investments sold............................. 3,999,180
Shares of beneficial interest sold........... 816,163
Dividends.................................... 37,800
Prepaid expenses and other assets.............. 92,920
Deferred organizational expenses............... 76,443
Receivable from affiliate...................... 8,305
--------------
TOTAL ASSETS ................................ 122,345,288
--------------
LIABILITIES:
Payable for:
Investments purchased........................ 14,081,474
Plan of distribution fee..................... 86,825
Investment management fee.................... 65,191
Shares of beneficial interest repurchased ... 17,971
Accrued expenses and other payables............ 102,398
Organizational expenses........................ 82,109
--------------
TOTAL LIABILITIES............................ 14,435,968
--------------
NET ASSETS .................................. $107,909,320
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital................................ $102,884,416
Net unrealized appreciation ................... 4,211,876
Undistributed net investment income............ 378,348
Undistributed net realized gain................ 434,680
--------------
NET ASSETS................................... $107,909,320
==============
CLASS A SHARES:
Net Assets..................................... $ 288,395
Shares Outstanding (unlimited authorized, $.01
par value).................................... 26,664
NET ASSET VALUE PER SHARE.................... $ 10.82
==============
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 5.54% of net asset
value)...................................... $ 11.42
==============
CLASS B SHARES:
Net Assets..................................... $107,298,167
Shares Outstanding (unlimited authorized, $.01
par value).................................... 9,927,646
NET ASSET VALUE PER SHARE.................... $ 10.81
==============
CLASS C SHARES:
Net Assets..................................... $ 312,818
Shares Outstanding (unlimited authorized, $.01
par value).................................... 28,932
NET ASSET VALUE PER SHARE.................... $ 10.81
==============
CLASS D SHARES:
Net Assets..................................... $ 9,940
Shares Outstanding (unlimited authorized, $.01
par value).................................... 919
NET ASSET VALUE PER SHARE.................... $ 10.82
==============
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
For the period April 28, 1997* through August 31, 1997**
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.................................. $ 810,955
Dividends................................. 134,057
-----------
TOTAL INCOME ........................... 945,012
-----------
EXPENSES
Plan of distribution fee (Class B
shares).................................. 265,860
Investment management fee................. 199,615
Registration fees......................... 59,315
Professional fees......................... 43,130
Transfer agent fees and expenses.......... 38,524
Shareholder reports and notices........... 31,926
Trustees' fees and expenses............... 8,035
Organizational expenses................... 5,666
Other..................................... 4,464
-----------
TOTAL EXPENSES.......................... 656,535
Less: Amounts Waived/Reimbursed ........ (34,359)
-----------
NET EXPENSES............................ 622,176
-----------
NET INVESTMENT INCOME................... 322,836
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain......................... 434,680
Net unrealized appreciation .............. 4,211,876
-----------
NET GAIN................................ 4,646,556
-----------
NET INCREASE.............................. $4,969,392
===========
</TABLE>
* Commencement of operations.
** Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
DEAN WITTER MARKET LEADER TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 28, 1997*
THROUGH
AUGUST 31, 1997**
- --------------------------------------------------------------- -----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .......................................... $ 322,836
Net realized gain............................................... 434,680
Net unrealized appreciation..................................... 4,211,876
-----------------
NET INCREASE ................................................. 4,969,392
Net increase from transactions in shares of beneficial interest 102,839,928
-----------------
NET INCREASE.................................................. 107,809,320
NET ASSETS:
Beginning of period............................................. 100,000
-----------------
END OF PERIOD
(Including undistributed net investment income of $378,348) .. $107,909,320
=================
</TABLE>
* Commencement of operations.
** Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Market Leader Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is
long-term growth of capital. The Fund seeks to achieve its investment
objective by investing at least 65% of its assets in equity securities issued
by companies that are established leaders in their respective fields in
growing industries in domestic and foreign markets. The Fund was organized as
a Massachusetts business trust on November 4, 1996 and had no other
operations other than those relating to organizational matters and the
issuance of 10,000 shares of beneficial interest for $100,000 to Dean Witter
InterCapital Inc. (the "Investment Manager") to effect the Fund's initial
capitalization. The Fund commenced operations on April 28, 1997. On July 28,
1997, the Fund commenced offering three additional classes of shares, with
the then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the security is valued on the exchange designated as the primary market
pursuant to procedures adopted by the Trustees); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by the Investment Manager that sale or bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees (valuation
of debt securities for which market quotations are not readily available may
be based upon current market prices of securities which are comparable in
coupon, rating and maturity or an appropriate matrix utilizing similar
factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio
securities valued by such pricing service; and (5) short-term debt securities
having a maturity date of more than sixty days at time of purchase are valued
on a mark-to-market basis until sixty days prior to maturity and thereafter
at amortized cost based on their value on the 61st day. Short-term debt
securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
34
<PAGE>
DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1997, continued
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date. Discounts are accreted over the life of the respective
securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $82,100 which will be
reimbursed for the full amount thereof. Such expenses have been deferred and
are being amortized on the straight-line method over a period not to exceed
five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close
of each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
The Investment Manager agreed to assume all operating expenses (except Plan
of Distribution fees) and waive the compensation provided for in the
Agreement until such time as the Fund had $50 million of net assets or until
October 28, 1997, whichever occurred first. The Fund attained $50 million of
net assets on May 13, 1997. At August 31, 1997, included in the Statement of
Assets and Liabilities, is a receivable from an affiliate which represents
expense reimbursements due to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule
35
<PAGE>
DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1997, continued
12b-1 under the Act. The Plan provides that the Fund will pay the Distributor
a fee which is accrued daily and paid monthly at the following annual rates:
(i) Class A -0.25% of the average daily net assets of Class A; (ii) Class B
- -1.0% of the average daily net assets of Class B; and (iii) Class C -1.0% of
the average daily net assets of Class C. In the case of Class A shares,
amounts paid under the Plan are paid to the Distributor for services
provided. In the case of Class B and Class C shares, amounts paid under the
Plan are paid to the Distributor for services provided and the expenses borne
by it and others in the distribution of the shares of these Classes,
including the payment of commissions for sales of these Classes and incentive
compensation to, and expenses of, account executives of Dean Witter Reynolds
Inc. ("DWR"), an affiliate of the Investment Manager and Distributor, and
others who engage in or support distribution of the 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 these shares to other than current shareholders and the 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.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $5,173,626 at August 31,
1997.
In the case of Class A shares 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 credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended August 31, 1997, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the period ended August 31,
1997, it received contingent deferred sales charges from certain redemptions
of the Fund's Class B shares of $67,679, and received $7,325 in front-end
sales charges from sales of the Fund's Class A shares. The respective
shareholders pay such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the period ended August 31, 1997
aggregated $74,919,312 and $8,125,018, respectively.
For the period ended August 31, 1997, the Fund incurred $31,455 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the
Fund. At August 31, 1997, the Fund's receivable for investments sold and
payable for investments purchased included unsettled trades with DWR of
$143,263 and $6,045,013, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At August 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $1,700.
36
<PAGE>
DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1997, continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 28, 1997*
THROUGH
AUGUST 31, 1997
SHARES AMOUNT
--------------- -------------
<S> <C> <C>
CLASS A SHARES**
Sold 26,664 $ 291,830
--------------- -------------
CLASS B SHARES
Sold 10,228,061 105,571,003
Redeemed (310,415) (3,349,122)
--------------- -------------
Net increase -Class B 9,917,646 102,221,881
--------------- -------------
CLASS C SHARES**
Sold 30,204 330,257
Redeemed (1,272) (14,053)
--------------- -------------
Net increase -Class C 28,932 316,204
--------------- -------------
CLASS D SHARES**
Sold 919 10,013
--------------- -------------
Net increase in Fund 9,974,161 $102,839,928
=============== =============
</TABLE>
- ------------
* Commencement of operations.
** For the period July 28, 1997 (issue date) through August 31, 1997.
6. FEDERAL INCOME TAX STATUS
At August 31, 1997, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences attributable to nondeductible expenses. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and undistributed net investment income was credited $55,512.
7. FINANCIAL HIGHLIGHTS
See the "Financial Highlights" tables on pages 5, 6 and 7 of this Prospectus.
37
<PAGE>
DEAN WITTER MARKET LEADER TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER MARKET LEADER TRUST
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights
(appearing on pages 5-7 of this Prospectus) present fairly, in all material
respects, the financial position of Dean Witter Market Leader Trust (the
"Fund") at August 31, 1997, the results of its operations and the changes in
its net assets for the period April 28, 1997 (commencement of operations)
through August 31, 1997, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at August 31, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provides a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
October 9, 1997
38
<PAGE>
[THIS PAGE LEFT BLANK INTENTIONALLY.)
<PAGE>
DEAN WITTER
MARKET LEADER TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
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
Guy G. Rutherfurd, Jr.
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust FSB
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.
